Sensus Healthcare, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This filing reports full-year results, not standalone fourth-quarter results.
Business context
Sensus is a medical-device company whose core business is superficial radiation therapy (SRT) systems, primarily for non-melanoma skin cancer and other skin conditions. Revenue is principally generated by its SRT-100 product line and related services. At year-end, the company reported 686 installed systems in 18 countries. It also began distributing transdermal infusion systems in 2022. On February 25, 2022, Sensus sold its Sculptura assets for $15 million in cash.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $44.5 million | $27.0 million |
| Gross profit / margin | $29.6 million / 66.5% | $17.0 million / 62.8% |
| Operating income | $14.8 million | $4.1 million |
| Net income | $24.2 million | $4.1 million |
| Diluted earnings per share | $1.46 | $0.25 |
| Net cash from operating activities | $(1.4) million | $(0.3) million |
| Net cash from investing activities | $14.8 million | $0.1 million |
| Net cash from financing activities | $(2.4) million | $(0.2) million |
- Revenue increased 65%, principally due to more units sold. Gross margin rose to 66.5%, reflecting higher unit sales and service revenue on installed systems.
- FY2022 net income included a $12.8 million gain on the Sculptura asset sale. The gain was a major contributor to reported earnings; operating income was $14.8 million.
- Cash and cash equivalents were $25.5 million at December 31, 2022, versus $14.5 million a year earlier. Current assets were $53.2 million and current liabilities $7.7 million.
- Operating cash use reflected, among other items, growth in receivables, inventory and prepaid assets, as well as the noncash sale gain. Investing cash inflow was mainly the $15 million Sculptura proceeds.
- No revolving-credit borrowings were outstanding at year-end. The facility had up to $15 million of stated availability, subject to its borrowing-base terms, and was scheduled to mature April 1, 2024. The $51,000 PPP loan balance was repaid in 2022. Year-end liabilities included $1.0 million of operating lease obligations.
- The company repurchased 425,209 shares during 2022 for approximately $3.0 million. No cash dividends have been paid, and the company does not anticipate paying them in the foreseeable future.
Material changes and management outlook
- Selling and marketing expense increased 31% to $6.3 million, mainly due to marketing spending and headcount. General and administrative expense rose 9% to $5.0 million; research and development was broadly unchanged at $3.5 million.
- Management expects 2023 research and development expense to be generally consistent with 2022. The filing provides no specific revenue or earnings guidance.
- Management said it aims to maintain and increase profitability while investing in product development and marketing, but cited inflation and international trade issues as uncertainties, including potential effects on business in China. Inflationary pressures included commodity, shipping, energy and labor costs.
- Most revenue came from the United States (94%); China contributed 6%. One U.S. customer accounted for approximately 73% of revenue and 91% of year-end accounts receivable, creating significant customer and collection concentration.
- After Silicon Valley Bank was closed on March 10, 2023, the company stated that it believed the successor Silicon Valley Bridge Bank had assumed the existing contracts, including its credit facility. Sensus had not decided whether to replace the facility. A substantial portion of cash was deposited with or invested through SVB/Bridge Bank.
Risks, contingencies and other notable matters
- Key business risks include dependence on SRT-100 products, reimbursement and coverage decisions, competition and technological change, supplier concentration for major components, customer concentration, regulatory compliance, and cybersecurity incidents.
- The company disclosed a Department of Justice investigation begun in 2015 concerning Medicare billing by a physician who treated patients with SRT-100. Sensus said it had cooperated, disputed wrongdoing, and had not been told of a determination or legal action. It could not estimate the cost; management reported no liability was recorded for this matter.
- Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2022. The auditor gave an unqualified opinion on the financial statements and reported no critical audit matters; it did not attest to internal-control effectiveness.
Important facts for investors to verify
- Whether the customer responsible for 73% of FY2022 revenue continues purchasing at similar levels, and whether concentrated receivables are collected.
- How much of FY2022 profitability and cash generation is repeatable without the $12.8 million Sculptura sale gain; operating cash flow was negative.
- The status and practical availability of the credit facility after SVB’s closure, and the concentration and accessibility of company cash held through SVB/Bridge Bank.
- Any developments in the DOJ investigation, reimbursement coverage, regulatory requirements, and the company’s ability to sustain gross margins amid inflation and supply-chain costs.