American Shared Hospital Services — Q3 2020 Form 10-Q
Business and period. The company provides Gamma Knife radiosurgery and proton beam radiation therapy (PBRT) equipment and services, plus Gamma Knife treatments at facilities in Peru and Ecuador. This filing covers the quarter and nine months ended September 30, 2020, compared with the same 2019 periods. COVID-19 disrupted treatment volumes and customer activity.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $4.670m | $5.301m | $13.229m | $15.819m |
| Gross margin | $1.138m (24.4%) | $1.813m (34.2%) | $3.439m (26.0%) | $5.479m (34.6%) |
| Operating income (loss), as reported | ($0.251m) | $0.446m | ($0.920m) | $1.263m |
| Net income (loss) attributable to AMS | ($0.209m) | $0.165m | ($0.827m) | $0.466m |
| Basic and diluted EPS | ($0.03) | $0.03 | ($0.14) | $0.08 |
| Net cash from operating activities | — | $8.057m | $6.287m |
Revenue declined 11.9% in Q3 and 16.4% for the nine months. Gamma Knife revenue fell $0.327m and $1.855m, respectively; PBRT revenue increased modestly to $1.687m and $4.764m. IGRT revenue ceased after the contract expired in April 2020; the equipment was sold for $150,000 in July. Selling and administrative expense rose to $1.135m in Q3 and $3.556m year to date, including acquisition-related and other professional fees. Interest expense declined year over year.
Financial position and liquidity
At September 30, 2020, cash and cash equivalents were $3.619m, restricted cash $0.364m, working capital $2.933m, and total assets $52.340m. Cash, cash equivalents and restricted cash totaled $3.983m, up $2.204m from year-end 2019. Long-term debt was $4.937m and finance lease obligations were $9.432m; total shareholders’ equity was $30.714m. Management said cash on hand, operating cash flow and other resources were adequate for scheduled debt and finance lease obligations over the next 12 months, estimated at approximately $1.418m and $3.224m, respectively.
Year-to-date investing cash use was $2.262m, including $2.084m for the Ecuador acquisition. Financing cash use was $3.591m, including debt and finance lease principal payments and distributions to non-controlling interests. Operating cash flow benefited from lower receivables and other working-capital movements.
Material developments, outlook and risks
- COVID-19: Management attributed lower treatment activity and revenue to delays, reduced patient volumes and healthcare resource prioritization. Effects varied by location and remain uncertain; the company warned that ongoing disruption could materially affect operations, liquidity and results.
- Ecuador acquisition: GKF acquired approximately 98% of GKCE in June and held approximately 99.3% at quarter-end. The base purchase price was $2.0m, funded with $0.575m cash and a $1.425m DFC loan. Purchase-price allocation remains preliminary; estimated additional working-capital consideration was $0.354m.
- Customer contracts: One Gamma Knife contract that expired in April operated month-to-month through October, when the customer notified the company of termination. Another customer gave notice of non-renewal, with its contract expected to expire in February 2021.
- Commitments: The company had $34.0m of remaining commitments for two PBRT systems, with delivery projected no later than 2023 and no placement or financing agreements yet in place. It also reported $12.210m of Gamma Knife and LINAC commitments and $10.619m of equipment service commitments. Management intends to finance equipment commitments; availability and terms are not assured. Failure to place the PBRT units or obtain extensions could result in forfeiture of $2.250m in deposits.
- Reimbursement and regulatory outlook: Four Gamma Knife centers were scheduled for the CMS Radiation Oncology Alternative Payment Model beginning July 2021; the company did not expect a significant Gamma Knife revenue impact. Its PBRT center was not selected. For non-model centers, proposed 2021 Medicare rates indicated a 4.9% increase for commonly used PBRT codes and a 0.1% decrease for Gamma Knife, pending final determination.
- Management and controls: Raymond C. Stachowiak was appointed CEO on October 1, 2020, after serving as interim CEO. Management reported disclosure controls were effective and no material change in internal control over financial reporting. No legal proceedings were reported.
Investor verification priorities
- Track treatment volumes, reimbursement rates and the pace of recovery from COVID-19 disruptions, particularly at the Latin American operations.
- Confirm the status and financial impact of the two Gamma Knife customer contract exits and any replacement business.
- Review the final GKCE purchase-price allocation, working-capital adjustments, collections-related contingent consideration and acquisition financing.
- Assess funding, customer placements and delivery timing for the PBRT systems and other equipment commitments, including possible deposit forfeiture exposure.
- Monitor liquidity against scheduled debt and lease payments and the company’s stated financing assumptions for its major commitments.