American Shared Hospital Services — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; the filing is an annual report and does not provide a clear standalone fourth-quarter income statement. Figures below are compared with FY2021.
Business context
ASHS provides financing and turnkey equipment and services for Gamma Knife radiosurgery and advanced radiation therapy, including proton beam radiation therapy (PBRT). At year-end, it operated 12 domestic and two international Gamma Knife sites and one PBRT site. Gamma Knife activity is conducted through GKF, in which ASHS has an 81% indirect interest. PBRT was a larger share of revenue in 2022 than in 2021.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $19.746 million | $17.628 million |
| Gross margin | $8.382 million; 42.4% of revenue | $6.726 million; 38.2% |
| Operating income | $2.431 million; 12.3% of revenue | $1.351 million; 7.7% |
| Net income | $1.555 million | $0.678 million |
| Net income attributable to ASHS | $1.328 million; diluted EPS $0.21 | $0.194 million; diluted EPS $0.03 |
| Cash provided by operating activities | $7.235 million | $6.267 million |
- Revenue rose 12.0%. Gamma Knife revenue fell 7.2% to $10.794 million as procedures declined 10.4% to 1,286; higher average revenue per procedure partly offset the decline.
- PBRT revenue increased 47.8% to $8.952 million. Procedures rose 19.7% to 5,296, and average revenue per fraction increased 23.5%, partly reflecting a more favorable payor mix.
- Costs of revenue were $11.364 million, or 57.6% of revenue, versus $10.902 million, or 61.8%, in 2021. Selling and administrative expense rose 13.6% to $5.145 million; interest expense rose to $0.806 million.
- Cash and restricted cash totaled $12.453 million ($12.335 million unrestricted), up $4.190 million. Investing activities used $0.388 million and financing activities used $2.657 million.
- Working capital was $13.548 million, compared with $9.196 million. Trade receivables were $3.801 million; days sales outstanding improved to 70 from 87.
- Long-term debt, net of issuance costs, was $13.467 million at year-end. The $7 million revolving line was undrawn. Debt is secured; the principal credit facilities have floating-rate terms and a balloon payment at maturity. The company reported compliance with debt covenants.
Material changes, outlook, and risks
- ASHS removed one Gamma Knife unit in January 2022 after a contract expiration. Another site was on a month-to-month lease, and two contracts were due to expire in 2023; the company reported renewal discussions. Total Gamma Knife sites declined from 15 at year-end 2021 to 14 at year-end 2022.
- Management said domestic Gamma Knife volumes at continuing sites and PBRT volumes returned to pre-pandemic levels during 2022. It expected international volumes to continue recovering in 2023, while noting that future pandemic effects and supply-chain disruption remain uncertain. No formal earnings or revenue guidance is provided.
- CMS reimbursement for 2023 increased for the cited PBRT delivery codes and decreased approximately 3.2% for Gamma Knife. The proposed Radiation Oncology Alternative Payment Model remained delayed indefinitely; implementation, timing, and final form were uncertain.
- Planned growth includes a Puebla, Mexico joint venture, expected to begin operating in the second half of 2023 subject to regulatory approval, and an Ecuador Gamma Knife upgrade expected around mid-2023, also subject to approval. The company also signed a February 2023 agreement to sell a Gamma Knife upgrade and cobalt-60 reload to a new customer.
- At year-end, commitments included $34 million for two additional PBRT systems, $13.243 million for Gamma Knife and LINAC equipment, and $15.374 million for equipment service. The two PBRT systems did not have customer placement or financing agreements; the company had previously impaired related deposits. Management said there were no significant cash requirements for these commitments in the next 12 months pending financing, but financing availability and terms are not assured.
- Customer concentration is substantial: one customer generated approximately 45% of 2022 revenue, versus 34% in 2021. A shift toward government payors can reduce reimbursement, and revenue-sharing contracts expose ASHS to changes in third-party reimbursement.
- Other principal risks include high debt and floating interest rates, a limited and competitive Gamma Knife market, equipment obsolescence, dependence on successful product diversification, large capital requirements, and international operating and collection risks. One customer’s receivable represented 22% of total accounts receivable at year-end.
- Salvage-value estimates for equipment require judgment because there is no active resale market. A 2022 estimate change reduced net income by approximately $17,000; management estimated that eliminating salvage values on seven domestic units could increase annual depreciation expense by about $514,000.
- The board appointed Raymond Stachowiak Executive Chairman and Peter Gaccione CEO on March 7, 2023, after the fiscal year-end. The auditor issued an unqualified opinion on the financial statements and identified retail revenue estimates and equipment salvage values as critical audit matters. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not express an opinion on internal control.
Important facts for investors to verify
- Progress on the 2023 Gamma Knife contract renewals and the financial impact of any contract losses or month-to-month arrangements.
- Whether the planned PBRT systems obtain customer placements and financing before contractual delivery deadlines, and the resulting deposit or commitment exposure.
- Cash generation, debt amortization and balloon-payment planning, floating-rate exposure, and continued compliance with credit covenants.
- Changes in the largest customer’s activity and in customer/payor concentration, including collection of the Ecuador facility’s government-payor receivables.
- Actual reimbursement, utilization, costs, and operating results at the PBRT site and proposed Puebla and Ecuador projects.
- Assumptions underlying retail revenue estimates and equipment salvage values, including any later revisions or impairments.