American Shared Hospital Services (NYSE American: AMS) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; it does not provide standalone fourth-quarter results. The company supplies Gamma Knife radiosurgery equipment and proton beam radiation therapy (PBRT) services, primarily through equipment placements and revenue-sharing arrangements, and operates facilities in Peru and Ecuador.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $17.628 million | $17.837 million |
| Gross profit / margin | $6.726 million / 38.2% | $4.466 million / 25.0% |
| Operating income (loss) | $1.351 million | ($9.463 million) |
| Net income (loss) | $678,000 | ($7.716 million) |
| Net income (loss) attributable to ASHS | $194,000; $0.03 diluted EPS | ($7.058 million); ($1.14) diluted EPS |
| Cash from operating activities | $6.267 million | $9.745 million |
- Revenue declined 1.2%. Gamma Knife revenue was $11.629 million, down 0.4%; PBRT revenue was $6.058 million, down 1.8%.
- Gamma Knife procedures fell 6.1% to 1,436, while same-center procedures increased 6.9%. PBRT treatment fractions declined 24.6% to 4,426.
- Gross margin improved as costs of revenue fell 18.5% to $10.902 million, primarily reflecting lower depreciation and operating costs. Interest expense declined 30.1% to $739,000 following refinancing.
- Cash and cash equivalents were $8.145 million, plus $118,000 restricted cash, at year-end. Working capital was $9.196 million, versus a $1.530 million deficit in 2020.
- Net long-term debt was $15.404 million. The company had an undrawn $7 million revolving credit line. Investing activities used $1.674 million of cash.
Material changes and unusual items
- The company refinanced domestic Gamma Knife and PBRT financing in April 2021 with a five-year, $22 million credit agreement, including term-loan facilities and a $7 million revolver. The debt is secured by substantially all assets of the company and certain domestic subsidiaries; the company reported covenant compliance at year-end.
- 2020 included an $8.264 million impairment charge for Gamma Knife assets and removal costs and PBRT purchase deposits. The 2021 impairment charge was $105,000, related to removal costs. The company reported no additional impairment of operating Gamma Knife or PBRT equipment at year-end.
- A revised salvage-value estimate for nine domestic Gamma Knife units reduced 2021 net income by approximately $342,000, or $0.06 per diluted share, and will affect future periods.
- Revenue mix shifted: Gamma Knife represented 66% of 2021 revenue and PBRT 34%. One customer accounted for approximately 34% of revenue; three customers together represented about 50%.
Outlook, risks and commitments
- Management said domestic Gamma Knife volumes were rebounding toward pre-pandemic levels. PBRT volumes remained below pre-pandemic levels, affected by COVID-19 and equipment repair downtime. The filing gives no specific earnings or revenue guidance.
- The mandatory Radiation Oncology Alternative Payment Model is scheduled to begin in 2023. Three Gamma Knife centers are included; management did not expect a significant effect on Gamma Knife revenue. The Orlando PBRT center was not initially selected, but could be included later.
- Key risks include continued pandemic effects, reimbursement and payor-mix changes, competition and limited Gamma Knife market growth, reliance on major customers, equipment obsolescence, international operating risks, and substantial debt and capital needs.
- At December 31, 2021, commitments included $34 million for two additional MEVION PBRT systems, $10.760 million for Gamma Knife and LINAC equipment, and $8.408 million for equipment service. The company had not secured customer placements for the two additional PBRT systems and warned that financing may not be available on acceptable terms. Total disclosed contractual obligations were $71.584 million, including debt, purchases, service contracts and operating leases.
- Management stated that cash on hand, operating cash flow and available resources should cover scheduled debt and lease obligations over the next 12 months. There are no material pending legal proceedings reported. The independent auditor issued an unqualified opinion; management assessed internal controls as effective, though the auditor did not audit internal-control effectiveness.
Important facts for investors to verify
- Progress toward finding customers and financing for the two committed PBRT systems, and any risk of forfeiting deposits.
- Actual utilization, reimbursement and cash collections at the PBRT site, given the substantial decline in treatment fractions.
- Customer contract renewals and concentration exposure, including the customer representing about one-third of revenue.
- Debt covenant headroom, floating-rate exposure, refinancing terms and the large scheduled 2026 principal maturity.
- Whether salvage-value assumptions, asset-removal obligations and equipment commitments lead to further charges or cash needs.