American Shared Hospital Services — Q2 2022 Form 10-Q
Business and period: The company provides Gamma Knife radiosurgery and proton beam radiation therapy (PBRT) equipment and services. This unaudited report covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Its reportable segments are domestic and foreign.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $5.034 million | $4.476 million | $9.881 million | $8.840 million |
| Gross margin | $2.088 million (41.5%) | $1.607 million (35.9%) | $4.155 million (42.1%) | $3.041 million (34.4%) |
| Net income attributable to ASHS | $497,000 | $(87,000) | $766,000 | $(58,000) |
| EPS, diluted | $0.08 | $(0.01) | $0.12 | $(0.01) |
For the six months, operating cash flow was $4.092 million, capital expenditures were $96,000, and cash, cash equivalents and restricted cash increased $3.704 million to $11.967 million. At June 30, cash and cash equivalents were $11.849 million and restricted cash was $118,000.
Working capital was $12.210 million, up from $9.196 million at year-end 2021. Current assets were $16.840 million and current liabilities $4.630 million. Long-term debt, net, totaled $15.144 million, including current maturities; lease liabilities totaled $544,000. The $7 million revolving credit line was undrawn. Total liabilities were $19.188 million and shareholders’ equity was $25.337 million.
Changes and drivers
- Q2 revenue grew 12.5%; six-month revenue grew 11.8%. PBRT revenue rose to $2.308 million in Q2 and $4.347 million for six months, reflecting higher treatment volume and average reimbursement. PBRT fractions increased to 1,324 in Q2 and 2,952 for six months.
- Gamma Knife revenue declined to $2.726 million in Q2 and $5.534 million for six months. Procedure counts fell, partly because two customer contracts expired in 2021; higher average reimbursement, including a more favorable commercial-payor mix at retail sites, partly offset the decline.
- Profitability improved, with higher revenue and the absence of the prior-year $401,000 debt-extinguishment loss contributing to the comparison. Interest expense also declined following the 2021 refinancing. Six-month selling and administrative expense rose $291,000, partly from sales, legal and other costs tied to new business opportunities.
- Domestic revenue was $8.281 million for six months and foreign revenue was $1.600 million. Domestic segment income attributable to ASHS was $809,000; the foreign segment recorded a $43,000 loss.
Outlook, risks and notable items
- Management said domestic Gamma Knife, the Orlando PBRT site, and the Peru and Ecuador facilities had returned to or were approaching pre-pandemic levels. Excluding the two expired contracts, Gamma Knife procedures declined 6% in Q2 and 2% for six months year over year; management attributed this to normal cyclical fluctuations and did not anticipate a significant ongoing COVID-19 impact on domestic volumes. It expected the Peru and Ecuador recovery trend to continue through 2022.
- No formal earnings or revenue guidance was provided. Management said cash on hand, operating cash flow and other resources should cover scheduled debt obligations and working capital needs for the next 12 months; scheduled debt principal and interest for that period were approximately $2.235 million.
- Commitments are substantial: $34 million, after deposits, for two PBRT systems, with delivery expected to commence no later than 2023; $14.288 million for Gamma Knife and LINAC equipment; and $9.138 million in service commitments. Management intends to finance equipment commitments and said no significant cash requirements were expected for them in the next 12 months, but financing availability and terms are not assured.
- The company signed an April 2022 joint-venture agreement to establish a Mexico business, with ASHS to own 85% and provide a linear-accelerator upgrade; the site in Puebla was expected to begin operations in late 2022 or early 2023. Site and financing execution remain relevant uncertainties.
- A 2021 reduction in estimated salvage values for nine Gamma Knife units reduced 2022 net income by approximately $114,000 in Q2 and $228,000 for six months ($0.02 and $0.04 per diluted share, respectively); management noted the estimate will also affect future periods.
- The Fifth Third credit agreement carries a floating rate of LIBOR plus 3.0%, has a 2026 maturity and a remaining-balance payment at term end. The company was in covenant compliance at June 30, 2022; it expected to work with the lender on an alternative benchmark as LIBOR is phased out.
- The filing reported no material changes to previously disclosed risk factors and no legal proceedings. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification points
- Track PBRT treatment volumes and reimbursement, and Gamma Knife procedure trends after the two contract expirations.
- Confirm financing, delivery timing, deposits and potential cash exposure for the PBRT, Gamma Knife and LINAC commitments.
- Review debt amortization and the 2026 balloon payment, covenant compliance, floating-rate exposure and LIBOR replacement terms.
- Assess collection of the $881,000 GK Ecuador receivable, which the filing identifies separately from consolidated accounts receivable.
- Monitor the effect of salvage-value estimates, the Mexico venture launch and any renewed pandemic or reimbursement pressures.