American Shared Hospital Services (NYSE American: AMS) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; compared with the corresponding 2022 periods. The company provides Gamma Knife and proton beam radiation therapy equipment and services in the U.S. and operates Gamma Knife facilities in Peru and Ecuador.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $5.568 million | $5.034 million | $10.493 million | $9.881 million |
| Gross margin | $2.518 million (45.2%) | $2.088 million (41.5%) | $4.426 million (42.2%) | $4.155 million (42.1%) |
| Operating income (loss) | ($325,000) | $793,000 | ($227,000) | $1.393 million |
| Net income (loss) attributable to AMS | ($111,000) | $497,000 | $77,000 | $766,000 |
| Diluted earnings (loss) per share | ($0.02) | $0.08 | $0.01 | $0.12 |
| Cash from operations | Not separately reported for the quarter | $5.214 million | $4.092 million |
Q2 revenue rose 10.6%, led by domestic operations, while six-month revenue rose 6.2%. PBRT revenue increased to $2.545 million for Q2 and $4.859 million for the half year; management cited higher average reimbursement. Gamma Knife revenue increased in Q2 and for the half year, attributed to a more commercially insured payer mix, despite lower procedure counts. International revenue declined in both periods.
Reported profit weakened materially. Q2 included a $578,000 impairment and associated removal-cost charge; higher selling and administrative costs and interest expense also weighed on results. Six-month SG&A increased $1.062 million, which management attributed to added sales, finance and customer-retention staffing and approximately $250,000 of fees related to new business opportunities. Interest expense rose to $548,000 for the half year from $297,000.
Cash, liquidity and debt
- At June 30, 2023, cash and cash equivalents were $13.676 million, restricted cash was $118,000, and working capital was $13.327 million.
- Six-month operating cash flow was $5.214 million; investing cash outflow was $2.561 million, principally property and equipment purchases. Debt and short-term financing principal payments totaled $1.312 million.
- Long-term debt on the balance sheet was $12.344 million, net of deferred issuance costs. The company also had an undrawn $7 million revolving credit line; it reported compliance with its credit covenants.
- Management estimated approximately $2.324 million of scheduled debt interest and principal payments over the next 12 months and said cash, operating cash flow and other resources should meet near-term debt and working-capital needs.
Outlook, commitments and risks
- No specific numerical revenue or earnings guidance is provided. Management cited growth opportunities in PBRT, Gamma Knife, new markets and acquisitions, while noting that results depend on site count, procedure volumes and reimbursement.
- Management expected the new Puebla, Mexico site to begin operating in the second half of 2023 following regulatory approval, and expected the Ecuador Gamma Knife upgrade late in Q3 2023. A contracted Gamma Knife upgrade and cobalt-60 reload sale was expected to close in Q3 2023.
- Major equipment commitments include $34 million, after deposits, for two PBRT systems and $21.722 million for Gamma Knife and LINAC commitments. The company intends to finance substantially all of these commitments, but says financing may not be available on acceptable terms. Placement and financing for the two PBRT systems had not been secured; delivery was expected to commence by December 2023, and failure to reach customer agreements or obtain an extension could put deposits at risk.
- Service commitments totaled $14.962 million. Related-party commitments to purchase or upgrade Gamma Knife units, purchase a LINAC and service equipment were reported at $25.511 million; the company’s Gamma Knife business is partly owned by Elekta, which also manufactures its equipment.
- The main loan facilities carry floating interest rates, and the company was working with its lender to transition pricing from LIBOR to SOFR. Management also identifies reimbursement changes, financing availability, market expansion and operating variability as risks. A new risk factor discusses potential disruption or loss of uninsured bank deposits and reduced access to credit if financial institutions face distress.
- An estimate change for the useful life and salvage value of one international Gamma Knife unit reduced net income by approximately $50,000 in Q2 and $101,000 for the half year; management said it will affect future periods. Disclosure controls were judged effective, and the filing reports no material change in internal control over financial reporting or legal proceedings.
Important facts for investors to verify
- Whether the Q2 impairment and higher SG&A and borrowing costs are isolated or signal persistent pressure on profitability.
- Progress, financing and delivery timing for the two unplaced PBRT systems and the substantial equipment and service commitments.
- Whether Puebla and planned equipment upgrades begin on schedule and generate the expected activity.
- Whether procedure volumes, reimbursement rates and payer mix sustain the reported revenue growth, particularly as international revenue and Gamma Knife procedure counts declined.
- The final terms and financial effects of the LIBOR-to-SOFR transition and the company’s ability to maintain covenant compliance while funding its projects.