Business Overview and History
Sensus Healthcare, Inc. (NASDAQ:SRTS) is a medical device company that has been making significant strides in the dermatology industry. With its focus on highly effective, non-invasive, and cost-effective treatments for both oncological and non-oncological skin conditions, Sensus has positioned itself as a leader in the field.
Sensus Healthcare was founded in 2010 in Boca Raton, Florida, with the goal of providing advanced solutions for the treatment of skin cancer and other skin conditions. In its early years, the company faced several challenges as it worked to establish its product offerings and distribution network. Sensus had to navigate the complex regulatory environment and gain approval from the U.S. Food and Drug Administration (FDA) for its devices. Additionally, the company had to educate healthcare providers on the benefits of its superficial radiation therapy (SRT) technology compared to traditional treatment options.
Despite these initial obstacles, Sensus achieved several milestones in its first few years of operation. In 2012, the company received 510(k) clearance from the FDA for its SRT-100 device, which was a significant step forward. Sensus then went public in 2016, raising capital to further invest in its product development and commercialization efforts.
Over the next several years, Sensus continued to expand its product portfolio and geographic footprint. In 2018, the company introduced its SRT-100 Vision system, which incorporated image-guided SRT capabilities. Sensus also began establishing international distribution partnerships, enabling it to sell its devices in markets outside the United States.
Today, Sensus serves a global customer base of healthcare providers, including dermatologists, radiation oncologists and veterinarians. The company's SRT devices are used to treat a variety of skin conditions, such as non-melanoma skin cancer and keloid scars. Sensus has remained focused on innovation, continuously enhancing its technology to provide better outcomes for patients.
Sensus operates in one reportable segment - the manufacturing and sale of radiation therapy devices sold to healthcare providers globally through its distribution and marketing network. The company's primary products are the SRT-100, SRT-100 Vision, and SRT-100+, which are superficial radiotherapy devices used for the treatment of non-melanoma skin cancers and other skin conditions.
Financials and Liquidity
Sensus' financial performance has been impressive, with the company reporting strong revenue growth and profitability in recent quarters. In the third quarter of 2024, Sensus reported revenues of $8.8 million, more than doubling the $3.9 million reported in the same period of 2023. This represents a year-over-year increase of 125.6%. Gross profit also saw a significant increase, rising from $2.0 million in Q3 2023 to $5.2 million in Q3 2024, with a gross margin improvement from 51% to 59.3%.
The company's net income for the third quarter of 2024 was $1.2 million, or $0.07 per diluted share, a marked improvement from the net loss of $1.5 million, or $0.09 per share, reported in the prior-year period. Adjusted EBITDA, a non-GAAP measure, also showed a substantial improvement, moving from negative $1.7 million in Q3 2023 to positive $1.6 million in Q3 2024, representing a year-over-year improvement of more than $3.3 million.
For the nine months ended September 30, 2024, revenues were $28.74 million, up 143.2% from $11.84 million in the prior year period. Gross profit for this period was $17.32 million, up 179% from $6.23 million in the prior year period.
Looking at the full year 2023, Sensus reported revenue of $24.41 million, net income of $485,000, operating cash flow of -$2.145 million, and free cash flow of -$2.374 million.
Sensus' balance sheet remains strong, with $22.6 million in cash and cash equivalents as of September 30, 2024, and no outstanding borrowings under its revolving credit facility. The company's accounts receivable stood at $17 million, with approximately $8 million collected as of the report date. Inventories were $12 million, which the company believes is a healthy level to meet the expected demand for its products.
The company's liquidity position is robust, with a debt-to-equity ratio of 0.012, a current ratio of 10.52, and a quick ratio of 8.22. Sensus has a $10 million revolving credit facility with Comerica Bank, which was undrawn as of September 30, 2024. In October 2024, the facility was amended to increase the maximum borrowings to $15 million and update certain covenants.
Operational Highlights and Strategic Initiatives
Sensus' success in the third quarter of 2024 was driven by several key factors, including a significant increase in the number of SRT systems shipped. The company reported shipping 27 SRT systems during the quarter, compared to 11 in the same period of 2023. This growth was largely attributed to increased demand from a large, longtime customer, who accounted for 50% of the company's placements during the quarter.
In addition to its strong performance in the U.S. market, Sensus has also been making strides in expanding its global presence. During the third quarter, the company shipped an SRT system to a hospital in Israel, further demonstrating the international appeal of its technology. However, the majority of Sensus' revenues still come from the United States, accounting for 98% of revenues in Q3 2024 and 97% for the first nine months of 2024. The company has also sold products in China and other international markets, but these represent a small portion of total revenues.
The company's Fair Deal Agreement (FDA) has also been a significant driver of growth, with Sensus signing seven new contracts during the quarter, bringing the total to 22 as of September 30, 2024. The highlight of this initiative was the exclusive agreement with Platinum Dermatology Partners, which covers all 130 of the group's clinical sites in the U.S. This represents the largest sale under the FDA program to date and is expected to be a meaningful contributor to Sensus' top line in the coming years.
Sensus has also made progress in expanding its technology to new markets, such as the radiation oncology department and the veterinary sector. The company shipped an SRT system to a large hospital in Seattle during the third quarter, showcasing the potential for its technology to be adopted in the hospital setting. Additionally, Sensus continues to work with veterinary partners, such as Colorado State University's College of Veterinary Medicine, to explore the use of SRT for treating tumors in household pets and horses.
In February 2024, Sensus formed a new wholly-owned subsidiary, Sensus Healthcare Services, LLC, which provides operational healthcare services in the form of leased equipment, radiation oncology and physics oversight, including radiotherapy technologists for dermatology clinics. While this new service offering is still in the early stages and did not have a material financial impact on the company's results in the reported periods, it represents a potential avenue for future growth.
Risks and Challenges
While Sensus has enjoyed a period of strong growth and success, the company does face a few key risks and challenges that investors should be aware of. One such risk is the company's reliance on a limited number of large customers, with the largest customer accounting for 50% of placements in the third quarter of 2024. This concentration of revenue could expose Sensus to potential volatility if these large customers were to reduce their orders or switch to competing products.
Another risk factor is the highly regulated nature of the medical device industry, particularly in the dermatology market. Sensus' products are subject to various regulatory approvals, and any delays or setbacks in the approval process could impact the company's ability to bring new products to market or expand into new geographic regions.
Additionally, Sensus faces competition from larger, well-established medical device companies that may have greater resources and a more extensive distribution network. The company's ability to maintain its competitive edge and continue to innovate its product offerings will be crucial to its long-term success.
Outlook and Conclusion
Despite the challenges, Sensus remains well-positioned for continued growth and success. The company's innovative solutions, such as the SRT-100 and the Fair Deal Agreement, have resonated strongly with the market, and the company's robust financial performance and healthy balance sheet provide a solid foundation for future expansion.
Looking ahead, Sensus expects to see significant revenue contributions from its Fair Deal Agreement in the second half of 2025, as the company continues to install systems and build recurring revenue streams. The company also remains focused on expanding its global footprint, exploring new market opportunities, and further enhancing its product portfolio to meet the evolving needs of its customers.
While Sensus did not provide specific numerical guidance for the upcoming quarter or full year 2025, they expressed confidence in their ability to handle increased demand, stating that they have the manufacturing capacity and inventory to cover all of 2025. The company is also in discussions with several other large dermatology groups similar to the Platinum Dermatology Partners agreement, which could lead to additional significant contracts in the future.
The non-melanoma skin cancer and keloid scar markets represent a large opportunity for Sensus, with an estimated 1 in 5 Americans developing skin cancer during their lifetime. Sensus is in the early stages of penetrating these markets, which are expected to drive continued growth.
The company's Sentinel IT software, which provides clinical billing and asset management capabilities, is a key proprietary technology that supports its Fair Deal Agreement placement model. Sensus believes this software is a valuable asset protected by patents, further strengthening its competitive position.
Overall, Sensus Healthcare's transformation of the dermatology landscape with its innovative solutions, strong financial performance, and strategic initiatives make it a company to watch in the medical device industry. As the company continues to execute on its growth plans, investors may find Sensus to be an attractive long-term investment opportunity.