American Shared Hospital Services — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; balance-sheet comparisons are with December 31, 2014. The company provides Gamma Knife and other radiation-therapy equipment and services. It reported 18 Gamma Knife units in operation, versus 19 a year earlier.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Medical services revenue | $4.117 million | $4.064 million |
| Gross margin | $1.597 million (38.8%) | $1.289 million (31.7%) |
| Income (loss) before taxes | $462,000 | ($79,000) |
| Net income (loss) attributable to company | $128,000 | ($96,000) |
| Basic and diluted EPS | $0.02 | ($0.02) basic |
| Net cash from operating activities | $1.329 million | $1.404 million |
Costs of revenue declined 9% to $2.520 million; selling and administrative expense fell to $821,000 from $922,000. Interest expense declined to $320,000 from $470,000. The filing labels $456,000 in 2015 and ($103,000) in 2014 as “operating income (loss),” although these amounts follow the interest-expense line in its statement.
Cash and cash equivalents were $927,000 at quarter-end, down from $1.059 million at year-end. Working capital was negative $1.730 million. Current assets were $5.853 million and current liabilities $7.583 million. At March 31, debt was $10.202 million, and capital-lease obligations were $16.449 million, including current portions. Shareholders’ equity was $26.434 million.
Investing activities used $188,000; financing activities used $1.273 million. Cash flow included $9.0 million of proceeds from the certificate of deposit and an $8.780 million line-of-credit repayment. The line of credit was paid off in January 2015 using the certificate-of-deposit proceeds.
Material changes and operating trends
- Revenue increased $53,000. Gamma Knife revenue, excluding the former Turkey operation, rose $490,000, helped by a new site and higher volume at existing sites. Radiation-therapy revenue fell to $119,000 from $348,000, primarily due to lower volume.
- Gamma Knife procedures totaled 479 versus 593. Excluding Turkey procedures included in the prior-year comparison, procedures increased by 36. One customer contract expired at the end of Q1 2015.
- Lower maintenance and supplies expense reflected the Turkey sale and expired maintenance contracts; lower depreciation reflected the sale, partly offset by a new site and an equipment upgrade. The Turkey sale and payoff of loans and the credit line also contributed to lower interest expense.
Outlook, commitments, and risks
- Management said cash on hand, operating cash flow, and other cash resources should cover scheduled payments over the next 12 months. The company reported approximately $2.745 million of scheduled debt interest and principal payments and $5.111 million of scheduled capital-lease payments in that period.
- Commitments to purchase three proton-beam systems, two Gamma Knife systems, and a cobalt-60 reload totaled approximately $44.534 million; deposits were approximately $7.784 million. About $27 million of commitments were not expected to begin coming due until 2016. Financing was committed for the Model 4C Gamma Knife and cobalt-60 reload; a further $9 million lease-financing commitment for the first proton project was subject to definitive documents.
- The company had paid $5 million in non-refundable deposits toward three MEVION S250 systems. Its first system was delivered in November 2014; patient treatment was anticipated in Q1 2016. A second system began treating patients in April 2015, after quarter-end.
- The company carried its 0.77% Mevion equity investment at $2.709 million and estimated an unrealized impairment of approximately $2.4 million. Management considered the decline temporary; no impairment charge is identified in the reported Q1 results. The investment and Mevion’s financing and development needs remain risks.
- Effective January 1, 2015, CMS established a comprehensive Gamma Knife and LINAC one-session cranial radiosurgery payment rate of approximately $9,768, versus an average prior delivery-and-ancillary-code rate of approximately $5,600. The filing notes reimbursement and treatment volume as business factors. No specific earnings or revenue guidance is provided.
- Management cited risks involving Gamma Knife and radiation-therapy businesses, the Operating Room for the 21st Century program, and investment in Mevion. The filing reported no changes to the risk factors in the 2014 Form 10-K, no legal proceedings, and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether operating cash flow and available financing can support scheduled debt and lease payments alongside substantial equipment commitments.
- Progress, delivery timing, financing, and expected utilization of the three proton-beam systems and planned Gamma Knife installations.
- Mevion’s financial condition and prospects, the recoverability of the company’s investment, and any potential 2015 earn-out related to the Turkey sale; the filing says the earn-out could not yet be estimated.
- Whether Gamma Knife volumes, customer retention, and reimbursement changes offset declines at the radiation-therapy site.