MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following management's discussion and analysis ("MD&A") in conjunction with the information set forth within the financial statements and related notes included in this Annual Report on Form 10-K.

Overview

As discussed elsewhere in this Report, Sensus achieved profitability for the first time in 2021, and maintained profitability through 2024. The Company incurred a net loss in 2025, mostly related to lobbying costs to secure reimbursement codes and lower demand particularly from our historically largest customer. Sensus continues to seek to return to profitability in 2026 by, among other things, increasing sales and managing operational expenses where necessary in order to continue to invest in marketing initiatives to promote the Company's products. SRT reimbursement was just revalued and increased by CMS, effective as of January 1, 2026. Management expects that the new reimbursement codes will increase the demand for the SRT product. However, Sensus faces a number of uncertainties in 2026 that could impact our ability to achieve this goal. These include further decreased demand from its historically largest customer, increased cost due to hiring more sales representatives, continued inflation, and decreased demand for its higher priced SRT device.

Components of our results of operations

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

Results of Operation

		For the Years Ended
		December 31,
(in thousands, except shares and per share data)		2025				2024
Revenues		$	27,482			$	41,807
Cost of sales			15,615				17,376
Gross profit			11,867				24,431
Operating expenses
General and administrative			7,873				7,147
Selling and marketing			6,523				4,978
Research and development			7,778				4,216
Total operating expenses			22,174				16,341
(Loss) income from operations			(10,307	)			8,090
Other income:
Interest income, net			683				932
Other income, net			683				932
(Loss) income before income tax			(9,624	)			9,022
(Benefit from) provision for income taxes			(1,905	)			2,375
Net (loss) income		$	(7,719	)		$	6,647
Net income per share - basic		$	(0.47	)		$	0.41
diluted		$	(0.47	)		$	0.41
Weighted average number of shares used in
computing net income per share - basic			16,326,937				16,312,351
diluted			16,326,937				16,359,616

2025 Compared with 2024

Revenues of $27.5 million in 2025 decreased by $14.3 million, or 34%, from $41.8 million in 2024. The decrease in revenue was primarily driven by a lower number of units sold (70 in the year ended December 31, 2025, compared to 115 in the year ended December 31, 2024), reflecting reduced sales to our largest customer, slightly offset by revenue recognized from new placements under the Fair Deal Agreement (the "Program").

Cost of sales of $15.6 million in 2025 decreased by $1.8 million, or 10%, from $17.4 million in 2024. The decrease in cost of sales was primarily related to a lower number of units sold offset by significantly higher costs of servicing systems and the cost associated with new placements under the Program, which generates costs related to installation and training in advance of related revenues.

Gross profit of $11.9 million, or 43.3% of revenue, in 2025 decreased by $12.5 million, or 51%, from $24.4 million, or 58.4% of revenue, in 2024. The decrease in gross profit was primarily driven by lower sales, higher cost of servicing systems and the costs associated with new placements under the Program.

General and administrative expenses of $7.9 million in 2025 increased by $0.8 million, or 11%, from $7.1 million in 2024. The net increase in general and administrative expense was primarily due to higher professional fees and insurance costs and compensation costs.

Selling and marketing expenses of $6.5 million in 2025 increased by $1.5 million, or 30%, from $5.0 million in 2024. The increase was primarily driven by increases in tradeshow costs and payroll cost due to increase in headcount.

Research and development expenses of $7.8 million in 2025 increased by $3.6 million, or 86%, from $4.2 million in 2024. The increase was primarily due to significant lobbying costs related to billing code reimbursement, increased headcount, and an increase in product development costs related to next generation systems. The Company expects research and development expenses incurred in 2026 to be substantially lower than those incurred in 2025.

Other income, net of $0.7 million and $0.9 million in the years ended December 31, 2025 and 2024, respectively, relates primarily to interest income.

Cash and cash equivalents of $22.1 million at December 31, 2025 was unchanged as compared to December 31, 2024. See Cash flows for details on the change in cash and cash equivalents during the year ended December 31, 2025.

Accounts receivable, net of $6.0 million at December 31, 2025 decreased by $13.7 million, or 70%, from $19.7 million at December 31, 2024. The decrease was primarily due to the decrease in sales and concentration of sales to the Company's largest customer that are subject to extended payment terms.

Inventories of $14.6 million at December 31, 2025 increased by $4.5 million, or 44%, from $10.1 million at December 31, 2024. The increase was primarily due to the anticipation of increasing future sales.

Liabilities

There were no borrowings under our revolving lines of credit at December 31, 2025 or December 31, 2024. See Note 3, Debt, to the consolidated financial statements for further discussion.

Liquidity and Capital Resources

In general terms, liquidity is a measurement of the Company's ability to meet its cash needs. For the year ended December 31, 2025, funding was derived primarily from cash generated by the sale of equipment to our customers in the ordinary course of business. The Company believes that proceeds from maturing cash equivalents, as well as the Company's borrowing capacity under its existing line of credit provide the Company with access to capital resources sufficient to meet operating capital and funding requirements for the next 12 months from the date of this annual report. Please see Note 3, Debt , to the consolidated financial statements for a discussion regarding the Company's revolving credit facility with Comerica Bank. 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
	●	continued research and development activities.

The Company claimed Employee Retention Credits ("ERC") as provided in the Coronavirus Aid, Relief, and Economic Security Act of 2020 and subsequent amendments. The ERC is a fully refundable payroll tax credit to provide financial incentives to eligible businesses to retain their workforce through the period of financial hardship resulting from the COVID-19 pandemic. The Company received $0.3 million in the second quarter of 2025 and $0.2 million in the fourth quarter of 2024. These amounts were recorded against the payroll expenses in the consolidated statements of (loss) income. Further claims outstanding will be recorded in the period in which payment is received.

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 the Company's cash flows for the periods indicated:

		For the Years Ended
		December 31,
(in thousands)		2025				2024
Net cash provided by (used in):
Operating activities		$	528			$	(831	)
Investing activities			(196	)			(276	)
Financing activities			(305	)			15
Total		$	27			$	(1,092	)

Cash flows from operating activities

Net cash provided by operating activities was $0.5 million for the year ended December 31, 2025, consisting of net loss of $7.7 million and non-cash activities of $0.4 million, offset by an increase in net operating assets of $8.6 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 credit loss expense, deferred income taxes, stock-based compensation expense, provision for product warranties, amortization of right-of-use asset and depreciation of property and equipment. Net cash used in operating activities was $0.8 million for the year ended December 31, 2024, consisting of net income of $6.6 million and non-cash charges of $1.1 million, offset by an increase in net operating assets of $8.5 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 credit loss expense, 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.

Cash flows from investing activities

Net cash used in investing activities during the year ended December 31, 2025 reflected $0.2 million of purchases of property and equipment. Net cash used in investing activities during the year ended December 31, 2024 mainly reflected $0.3 million of purchases of property and equipment.

Cash flows from financing activities

Net cash used in financing activities during the year ended December 31, 2025 reflected $0.3 million of stock repurchase and $5 thousand of withholding taxes on stock-based compensation. Net cash provided by financing activities during the year ended December 31, 2024 reflected $67 thousand of exercised stock options, offset by $52 thousand of withholding taxes on stock-based compensation.

Inflation

During 2025, increased commodity and shipping prices and energy and labor costs resulted in minor 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

Please see Note 3, Debt, to the consolidated financial statements.

Contractual Obligations and Commitments

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

Critical Accounting Policies and Estimates

The preparation of the 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 consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. Management has not applied any critical accounting estimates but 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 notes to the consolidated financial statements included in this Annual Report on Form 10-K.