American Shared Hospital Services — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. The company leases and operates Gamma Knife radiosurgery and proton beam radiation therapy (PBRT) equipment, with U.S. operations and facilities in Peru and Ecuador.
Financial performance and condition
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $4.364 million | $4.568 million; down 4.5% |
| Gross margin | $1.434 million; 32.9% of revenue | $1.394 million; 30.5% |
| Operating income (loss), as reported | $90,000 | $(99,000) |
| Net income (loss) | $87,000 consolidated; $29,000 attributable to the company | $(68,000) consolidated; $(135,000) attributable |
| Diluted earnings (loss) per share | $0.00 | $(0.02) |
| Cash from operating activities | $2.783 million | $3.389 million |
| Cash, cash equivalents and restricted cash | $5.013 million at quarter-end | $4.325 million at December 31, 2020 |
| Working capital | $4.163 million | At March 31, 2021 |
Gross margin improved despite lower revenue, while operating cash flow declined. Capital spending was $1.065 million, versus $195,000 in Q1 2020. The company reported total assets of $44.047 million and shareholders’ equity of $23.844 million at March 31, 2021. Management said cash on hand, operating cash flow and other resources should cover scheduled debt payments and working capital needs for the next 12 months.
At March 31, the balance sheet reported $12.602 million of long-term debt, including current maturities, and no finance lease liabilities. The filing explains that the balance-sheet classification reflects the terms of a refinancing completed after quarter-end; before refinancing, debt was $4.321 million and finance lease obligations were $8.281 million.
Material changes and operating drivers
- PBRT revenue fell $145,000 to $1.531 million. Treatment fractions declined to 1,231 from 1,676, primarily due to COVID-19 effects, with some maintenance downtime; higher average reimbursement partly offset the volume decline.
- Gamma Knife revenue was unchanged at $2.892 million. Procedures fell to 355 from 376, offset by higher average reimbursement, including the effect of contract expiration and increased rates at retail sites.
- Depreciation and amortization declined $449,000, primarily reflecting expired contracts and equipment written off as impaired in 2020. Selling and administrative expense declined $127,000, mainly due to lower legal and other fees.
- Other direct operating costs rose $166,000, primarily from the Ecuador operation acquired in June 2020. Q1 results include $665,000 of foreign-segment revenue and a $44,000 foreign-segment loss; domestic revenue was $3.699 million and domestic profit was $73,000.
Financing, outlook and risks
On April 9, 2021, the company entered into a five-year credit agreement with Fifth Third Bank for up to $22.0 million: a $9.5 million term loan, a $5.5 million facility used to refinance PBRT leases and provide working capital, and a $7.0 million revolving line. The facilities bear floating interest at LIBOR plus 3.0%, are secured by substantially all company assets, and include financial covenants, including a minimum fixed-charge coverage ratio of 1.25 and maximum funded debt to EBITDA of 3.0x. The filing states that $6.669 million of short-term debt and finance lease obligations at quarter-end were refinanced, leaving $782,000 classified as short-term obligations after the transaction.
COVID-19 continued to affect treatment volumes and customer activity, with a greater apparent impact on PBRT fractions in Q1 2021. The company cautioned that effects could continue and vary by location. It provided no quantified revenue or earnings guidance. The company also disclosed purchase commitments, after deposits, of $34.0 million for two PBRT systems and $10.860 million for Gamma Knife and LINAC equipment. It expects to finance these commitments and reported no significant cash requirement for them in the next 12 months, pending financing. The PBRT units lack placement agreements; failure to secure customers or an extension could result in forfeited deposits. Service commitments totaled $10.272 million. Management noted financing availability and acceptable terms are not assured.
Four Gamma Knife centers are scheduled to participate in the CMS Radiation Oncology Alternative Payment Model beginning in 2022; the company did not anticipate a significant revenue impact. Its PBRT center was not selected. The company reported no material changes to previously disclosed risk factors, no legal proceedings, and effective disclosure controls as of March 31, 2021.
Most important facts for investors to verify
- Whether PBRT treatment volumes recover from pandemic-related declines and maintenance downtime.
- Execution and covenant compliance under the Fifth Third credit agreement, including floating-rate exposure and the effect of the blanket lien.
- Financing, site placement and timing for the $34.0 million PBRT commitments and other equipment purchases; potential deposit forfeiture if placements are not secured.
- Cash-flow capacity to fund operations, debt service and the $10.272 million of service commitments.
- Final purchase accounting for the GKCE acquisition and any continuing effects of COVID-19 or CMS reimbursement changes.