Sensus Healthcare, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Sensus manufactures radiation therapy devices and sells equipment and related services to healthcare providers and distributors. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $9.01 | $5.53 | $31.43 | $14.02 |
| Gross profit | $5.87 | $3.20 | $21.28 | $8.13 |
| Gross margin | 65.6% | 57.9% | 67.8% | 58.0% |
| Operating expenses | $3.71 | $3.01 | $10.62 | $9.33 |
| Operating income (loss) | $2.16 | $0.20 | $10.66 | $(1.20) |
| Net income (loss) | $1.83 | $0.20 | $21.42 | $(1.20) |
| Diluted EPS | $0.11 | $0.01 | $1.28 | $(0.07) |
- Q3 revenue increased 63.6% year over year; nine-month revenue increased 124.3%. Management attributed growth primarily to more units sold, service revenue on installed devices, and COVID-related comparisons with 2021.
- Q3 gross margin expanded to 65.6% from 57.9%; nine-month margin increased to 67.8% from 58.0%. Management cited sales volume, customer mix, service revenue, and prior-period COVID effects.
- Q3 selling and marketing expense rose 50% to $1.81 million, primarily on tradeshow, advertising, and commission costs. General and administrative expense increased modestly; research and development expense was essentially unchanged.
- Nine-month net income included a $12.779 million gain from the February 2022 sale of Sculptura assets. The company also released a $3.7 million deferred-tax valuation allowance in Q1; nine-month income tax expense was $2.168 million. These items materially affect the reported year-to-date result.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $8.70 million, compared with $1.49 million in 2021. Investing cash flow was $14.85 million, including $15 million in proceeds from the Sculptura asset sale. Financing cash flow was a $0.49 million use, including share repurchases and loan repayment.
- Cash and cash equivalents were $37.58 million at September 30, 2022, up from $14.52 million at year-end 2021. Current assets were $51.53 million and current liabilities were $6.58 million.
- No borrowings were outstanding under the revolving credit facility. In April, the facility was extended to April 1, 2024, with a stated commitment of up to $15 million, subject to borrowing-base terms and a $7.5 million non-formula sublimit. The company reported compliance with financial covenants.
- Total liabilities were $7.64 million, including $1.07 million in operating lease liabilities. The company renewed its headquarters lease through September 2027.
Material changes, outlook, and risks
- Sculptura disposition: The company sold the assets for $15 million cash on February 25, 2022, recognizing a $12.779 million gain.
- Customer concentration: One U.S. customer represented 63% of Q3 revenue and 73% of nine-month revenue, versus 43% and 35%, respectively, in the comparable 2021 periods. That customer accounted for 80% of accounts receivable at September 30, 2022.
- Contingency: The company described a Department of Justice investigation relating to Medicare billing by a physician who treated patients with its SRT-100. Sensus says it has cooperated, disputes wrongdoing, and cannot estimate the cost of the matter.
- Other risks: Management cited potential COVID-19 impacts, reimbursement levels, regulatory requirements, manufacturing and cost management, international business exposure, intellectual property, information security, and customer concentration. Purchases from the contract manufacturer were $14.6 million for the first nine months of 2022.
- Outlook: No specific revenue or earnings guidance was provided. Management said it expects available cash and borrowing capacity to meet anticipated requirements, while noting that it may seek additional funds. It identified sales and marketing and research and development expansion as capital needs.
- Management stated that it did not expect a significant impact from Russia’s invasion of Ukraine at the time of filing, while continuing to monitor developments. Disclosure controls were assessed as effective; no significant change in internal control was reported for the quarter.
Key facts for investors to verify
- How sustainable are the strong unit sales and expanded gross margins, particularly as 2021 comparisons normalize?
- How much do the Sculptura gain and deferred-tax valuation allowance release contribute to nine-month reported earnings versus ongoing operating performance?
- What are the implications of the concentrated U.S. customer relationship for future sales, collections, and cash flow?
- Do COVID-related disruption, reimbursement changes, or the DOJ investigation create material costs or demand risks?
- Confirm the revolving facility’s borrowing-base availability and monitor working-capital needs, including inventory and manufacturer commitments.