American Shared Hospital Services — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual filing; the supplied text does not provide standalone fourth-quarter financial results.
Business context
ASHS provides Gamma Knife radiosurgery equipment and related services, principally through its 81% interest in GK Financing, LLC. It also provides image-guided radiation therapy (IGRT). Gamma Knife accounted for approximately 95% of 2011 revenue and IGRT approximately 5%. The company reported 19 Gamma Knife units at 18 U.S. sites and one site in Turkey as of March 1, 2012.
Financial performance and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $22.221 million | $16.675 million |
| Gross margin | $7.997 million (36.0%) | $7.209 million (43.2%) |
| Income before taxes | $1.697 million | $0.972 million |
| Net income | $1.489 million | $0.806 million |
| Net income attributable to ASHS | $0.506 million; $0.11 diluted EPS | $0.057 million; $0.01 diluted EPS |
| Cash from operating activities | $6.823 million | $7.184 million |
| Cash and cash equivalents | $2.580 million | $1.438 million |
| Working capital | $7.671 million | $7.631 million |
Gamma Knife medical-services revenue rose 3.2% to $16.093 million; procedures increased 4.8% to 1,954, while average revenue per procedure declined 1.6% to $8,236. IGRT services revenue increased 6.4% to $1.144 million. Accounts receivable reached $4.604 million, and days sales outstanding rose to 86 from 76.
Reported debt and capital lease obligations totaled $35.751 million, excluding the $7.850 million drawn on the $9 million line of credit. The line is secured by a $9 million certificate of deposit. Combined debt and lease obligations increased from $29.243 million in 2010; the company reported compliance with its debt covenants. Current maturities of long-term debt and capital leases totaled $7.616 million.
Material changes versus 2010
- Revenue increased 33.3%, principally due to $4.984 million of equipment-sale revenue from a Perfexion unit sold to a customer when its lease ended. Excluding that sale, medical-services revenue increased by $0.562 million.
- Costs of revenue rose 50.3% to $14.224 million, including $4.146 million in equipment-sale costs. Gross margin percentage fell to 36.0% from 43.2%.
- ASHS-attributable net income increased to $0.506 million from $0.057 million. Interest expense increased 12.5% to $2.367 million.
- Capital expenditures and equipment purchases drove $5.613 million of property and equipment payments. Operating cash flow was lower year over year despite higher net income.
Outlook, risks and unusual items
- Management said available cash was adequate for 2012 and expected to renew the line of credit at maturity; financing availability and acceptable terms are not assured. The line’s stated maturity is August 1, 2013.
- ASHS had approximately $58.367 million of future equipment purchase commitments, with $6.149 million in deposits and progress payments made. Commitments include three Mevion proton-beam systems, four Gamma Knife Perfexion units, one Model 4C unit and one radiation-therapy system; financing was not yet obtained for most of the equipment.
- Mevion’s proton-beam system remained in development and required FDA clearance. ASHS had invested $2.656 million in Mevion and made $2.5 million in deposits toward three systems. Management estimated a roughly $1.3 million unrealized investment impairment but concluded it was temporary and did not record a write-down. Management’s anticipated first revenues from placed and financed proton systems were in 2014, conditional on FDA approval.
- Principal risks include substantial capital requirements and leverage, customer and procedure-volume concentration, potential reimbursement cuts, competition and technology obsolescence, international operating risks, and uncertainty around Mevion’s regulatory approval and commercial progress. One customer represented approximately 25% of 2011 revenue, including the equipment sale.
- Medicare Gamma Knife reimbursement was expected to decrease approximately 2% in 2012 to about $9,308. Revenue-sharing contracts are directly exposed to reimbursement changes. The company declared no dividends in 2011 or 2010.
- The filing reported no material pending legal proceedings and no significant off-balance-sheet arrangements. Auditors issued an unqualified opinion on the consolidated financial statements; management stated disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- How much of 2011’s revenue and earnings growth is repeatable after excluding the $4.984 million equipment sale and its associated costs.
- Debt and lease repayment requirements, collateral terms, and renewal or refinancing prospects for the credit line.
- Funding, installation schedules, and customer commitments for the $58.367 million of equipment purchases, especially the Mevion systems.
- Mevion’s FDA clearance, commissioning progress, financing needs, and any subsequent impairment assessment of ASHS’s investment and deposits.
- Customer concentration, receivable collections, procedure volumes, and the effect of reimbursement changes on revenue-sharing contracts.