Sensus Healthcare, Inc.: Form 10-Q for the period ended Mar 31, 2024

You should read the following discussion and analysis in conjunction with the information set forth within the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2023 Annual Report.

Overview

Sensus is a medical device company committed to providing highly effective, non-invasive and cost-effective treatments for both oncological and non- oncological skin conditions.

Segment Information

The Company manages its business globally within one reportable segment, which is consistent with how our management reviews the business, prioritizes investment and resource allocation decisions and assesses operating performance.

Results of Operations

(in thousands, except shares and per share data)

Three months ended March 31, 2024 compared to the three months ended March 31, 2023

Revenues. Revenues were $10.7 million for the three months ended March 31, 2024 compared to $3.4 million for the three months ended March 31, 2023, an increase of $7.3 million, or 214.7%. The increase was primarily driven by a higher number of units sold to a large customer in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Cost of sales. Cost of sales was $4.0 million for the three months ended March 31, 2024 compared to $1.8 million for the three months ended March 31, 2023, an increase of $2.2 million, or 122.2%. The increase in cost of sales was primarily related to a higher number of units sold in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Gross profit. Gross profit was $6.7 million for the three months ended March 31, 2024 compared to $1.6 million for the three months ended March 31, 2023, an increase of $5.1 million, or 318.8%. Our overall gross profit percentage was 62.5% in the three months ended March 31, 2024 compared to 47.5% in the corresponding period in 2023. The increase in gross profit was primarily driven by a higher number of units sold in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Selling and marketing. Selling and marketing expense was $1.3 million for the three months ended March 31, 2024 compared to $2.1 million for the three months ended March 31, 2023, a decrease of $0.8 million, or 38.1%. The decrease was primarily attributable to the decrease in marketing agency expense, lower headcount and decrease in tradeshow costs.

General and administrative. General and administrative expense was $1.6 million for the three months ended March 31, 2024 compared to $1.4 million for the three months ended March 31, 2023, an increase of $0.2 million, or 14.3%. The net increase in general and administrative expense was primarily due to higher professional fees and compensation.

Research and development. Research and development expense was $0.9 million for the three months ended March 31, 2024 compared to $1.1 million for the three months ended March 31, 2023, a decrease of $0.2 million, or 18.2%. The decrease was primarily due to a decrease in expenses related to a project to develop a drug delivery system for aesthetic use as most of the development phase was completed in 2023.

Other income. Other income of $0.2 million for the three months ended March 31, 2024 and 2023 relate primarily to interest income.

Financial Condition

The following discussion summarizes significant changes in assets and liabilities. Please see the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023 contained in Part I, Item 1 of this filing.

Assets

Cash and cash equivalents at March 31, 2024 decreased $8.4 million from December 31, 2023. See Cash Flows for details on the change in cash and cash equivalents during the three months ended March 31, 2024.

Accounts receivable at March 31, 2024 increased $9.0 million from December 31, 2023, primarily due to the increase in sales and extension of payment terms.

Inventories at March 31, 2024 increased $2.9 million from December 31, 2023, primarily due to an increase in completion of finished goods, partially offset by shipments of units sold.

Prepaid inventory at March 31, 2024 increased $0.7 million from December 31, 2023, primarily due to increase in amount of inventory deposits paid to a manufacturer.

Liabilities

There were no borrowings under our revolving lines of credit at March 31, 2024 or December 31, 2023.

Liquidity and Capital Resources

The Company’s liquidity position and capital requirements may be impacted by a number of factors, including the following:

• ability to generate and increase revenue;
• fluctuations in gross margins, operating expenses and net results; and
• financial market instability or disruptions to the banking system due to bank failures

The Company’s primary short-term capital needs, which are subject to change, include expenditures related to:

• expansion of sales and marketing activities; and
• expansion of research and development activities.

Sensus’s management regularly evaluates cash requirements for current operations, commitments, capital requirements and business development transactions, and may seek to raise additional funds for these purposes in the future. However, there can be no assurance that it will be able to raise such funds or the terms on which such funds may be raised, if at all.

Cash flows

The following table provides a summary of cash flows for the periods indicated:

(in thousands)

Net cash used in operating activities was approximately $8.2 million for the three months ended March 31, 2024, consisting of net income of approximately $2.3 million and non-cash charges of approximately $1.1 million, offset by an increase in net operating assets of $11.6 million. Cash flows provided by operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred in the normal course of business. Non-cash items consisted of deferred income taxes, stock-based compensation expense, provision for product warranties, amortization of right-of-use asset and depreciation and amortization of property and equipment. Net cash used in operating activities was approximately $6.0 million for the three months ended March 31, 2023, consisting of net loss of approximately $1.9 million, an increase in net operating liabilities of $3.7 million and non-cash charges of approximately $0.4 million. Cash flows provided by operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred in the normal course of business. Non-cash items consisted of deferred income taxes, stock-based compensation expense, provision for product warranties and depreciation and amortization.

Net cash used in investing activities for the three months ended March 31, 2024 reflected $0.2 million of purchases of property and equipment. Net cash used in investing activities for the three months ended March 31, 2023 reflected $0.2 million of purchases of property and equipment.

No cash was provided by or used in financing activities for the three months ended March 31, 2024. Net cash used in financing activities for the three months ended March 31, 2023 primarily reflected $46 thousand of exercised stock options, offset by $40 thousand of withholding taxes on stock-based compensation.

Inflation

During the first quarter of 2024, we continued to experience some increase in commodity and shipping prices and energy and labor costs which resulted in inflationary pressures across various parts of our business and operations, including on our customers, partners, and suppliers. We continue to monitor the impact of inflation and we are taking actions, such as ordering inventory in advance, to minimize its effects on our product cost and sales.

Indebtedness

As discussed in Note 3, Debt, to the financial statements, in September 2023, the Company entered into the new Credit Facility with Comerica, replacing the Company’s prior facility with SVB. Additional information regarding the Credit Facility, including the amounts that may be borrowed under the Credit Facility and the covenants and other terms included in the Credit Facility, is included in the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 14, 2023.

Contractual Obligations and Commitments

Please see Note 6, Commitments and Contingencies, to the condensed consolidated financial statements.

Critical Accounting Policies and Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. Management has identified certain accounting policies as critical to understanding the financial condition and results of operations. For a detailed discussion on the application of these and other accounting policies, see the Note 1*, Organization and Summary of Significant Accounting Policies* to the consolidated financial statements included in the 2023 Annual Report for further information.

Evaluation of Disclosure Control and Procedures

As of March 31, 2024, the end of the period covered by this Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of March 31, 2024, the end of the period covered by this Form 10-Q, we maintained effective disclosure controls and procedures.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2023 Annual Report, as updated in our subsequent quarterly reports. The risks described in our 2023 Annual Report and our subsequent quarterly reports are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.