Sensus Healthcare, Inc. — Q2 2019 Form 10-Q
Business and period: Sensus manufactures radiation therapy devices, including its SRT-100 family, and related services. The filing covers the quarter and six months ended June 30, 2019; financial statements are unaudited. In February 2019, the company received FDA clearance for Sculptura, a robotic radiation oncology system.
Financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $7.48 million | $6.06 million | $12.91 million | $12.01 million |
| Gross profit / margin | $4.94 million / 66.1% | $3.94 million / 65.1% | $8.26 million / 63.9% | $7.88 million / 65.6% |
| Operating income (loss) | $45,483 | ($498,730) | ($2.15 million) | ($1.61 million) |
| Net income (loss) | $112,308 | ($540,651) | ($2.01 million) | ($1.67 million) |
| Basic and diluted EPS | $0.01 | ($0.04) | ($0.12) | ($0.12) |
- Q2 revenue rose 23.4%, primarily due to increased sales of the higher-priced SRT-100 Vision. Gross margin improved by 1.0 percentage point, attributed to product mix, and the company recorded a small quarterly profit.
- Six-month revenue increased 7.5%, but gross margin fell 1.7 percentage points because of product mix. Higher selling and marketing and R&D spending contributed to a larger operating loss; R&D spending rose 27.3%, primarily reflecting Sculptura clearance and production ramp-up.
- Product revenue was $6.97 million in Q2 and $11.90 million for the six months; service revenue was $507,000 and $1.01 million, respectively.
Cash, liquidity, and financing
- At June 30, cash and equivalents were $11.43 million, short-term debt securities were $5.39 million, and current assets totaled $32.86 million versus current liabilities of $6.03 million. Total liabilities were $8.46 million; stockholders’ equity was $27.38 million.
- Cash and equivalents declined $1.05 million during the first half. Operating activities used $941,596; investing activities used $2.73 million, primarily net investment in held-to-maturity securities; financing activities provided $2.62 million, mainly from warrant exercises.
- The company had no borrowings under its $5 million revolving credit facility and reported compliance with its financial covenants. The facility was scheduled to mature October 31, 2019, with rates of 6.25% on formula borrowings and 7.00% on non-formula borrowings as of June 30.
- Warrant exercises raised approximately $2.74 million in cash. The company extended the investor warrants’ expiration from June 8, 2019 to June 8, 2020; 2.03 million warrants remained outstanding at June 30.
Changes, outlook, and risks
- The company adopted lease accounting in Q1, recognizing operating lease assets and liabilities. At June 30, operating lease liabilities totaled $1.58 million. Its Israeli subsidiary signed a 10-year manufacturing-facility lease, with specified termination options.
- Management identified sales, marketing, distribution, and R&D expansion as near-term capital needs and said it may raise additional funds. The filing provides no numerical revenue or earnings guidance; management cautions that interim results are not necessarily indicative of full-year results.
- A single U.S. customer represented approximately 70% of Q2 revenue and 74% of accounts receivable at June 30. This concentration creates material customer and collection exposure.
- The Department of Justice investigation concerning a physician’s Medicare billing remains unresolved. The company disputes wrongdoing, has cooperated, and says it cannot estimate associated costs.
- Other disclosed risks include market acceptance and commercialization of products, reimbursement and regulatory requirements, competition, manufacturing and supplier dependence, and the need to sustain profitability. Management reported no material changes to previously disclosed risk factors and no significant internal-control changes; disclosure controls were deemed effective.
Investor verification priorities
- Confirm whether the Q2 revenue growth and improved margin from SRT-100 Vision sales are sustainable, and track Sculptura commercialization and related R&D costs.
- Monitor operating cash use, working-capital changes, and liquidity after the revolving facility’s October 2019 maturity date.
- Assess customer concentration, particularly the major customer’s share of revenue and receivables, and the status and collectability of those receivables.
- Track the DOJ investigation and any resulting legal exposure, and review the warrant extension and potential dilution from outstanding warrants.