American Shared Hospital Services — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing was signed April 3, 2020; the company said COVID-19-related office closures and remote-work setup delayed its filing. The company provides Gamma Knife radiosurgery and radiation-therapy equipment and services, primarily to hospitals. At year-end it had 16 Gamma Knife units in the U.S., a stand-alone Gamma Knife facility in Peru, one proton-beam system in Orlando, and one IGRT system.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $20.605 million | $19.714 million |
| Gross profit / gross margin | $6.920 million / 33.6% | $7.486 million / 38.0% |
| Income before income taxes | $1.558 million | $2.081 million |
| Net income, consolidated | $1.430 million | $1.630 million |
| Net income attributable to ASHS | $659,000; $0.11 diluted per share | $1.023 million; $0.17 diluted per share |
| Cash from operating activities | $8.047 million | $8.062 million |
| Cash and cash equivalents | $1.429 million | $1.442 million |
| Working capital | $2.528 million | $472,000 |
| Long-term debt and finance leases, including current portions | $15.366 million | $20.166 million |
Investing activities used $990,000, mainly for property and equipment; financing activities used $7.070 million, principally for debt and lease principal payments and distributions to non-controlling interests. Operating cash flow less property-and-equipment purchases was approximately $7.057 million. Restricted cash was $350,000 at year-end.
Changes versus the prior year
- Revenue increased 4.5%, principally as proton-therapy volume grew. Proton revenue rose 23.2% to $6.214 million; treatment fractions increased 17.1% to 6,018.
- Gamma Knife revenue was nearly flat at $13.551 million, while procedures rose 2.6% to 1,498. Lower average revenue per procedure offset volume growth.
- IGRT revenue declined 23.2% to $840,000. The company expected the month-to-month contract to end in the second quarter of 2020.
- Costs of revenue increased 11.9% to $13.685 million, reducing gross margin to 33.6% from 38.0%. Higher PBRT maintenance, depreciation, and operating costs were among the drivers.
- ASHS-attributable net income fell 35.6%. Management cited higher operating costs at the Peru facility and depreciation at Boston Gamma Knife and IGRT equipment. Interest expense decreased 19.2% to $1.318 million as average debt and lease principal declined.
- Receivables rose to $6.894 million from $5.502 million; days sales outstanding increased to 122 from 102. The company said an outstanding Medicare-related customer payment was collected in January 2020.
Outlook, risks, and unusual items
- COVID-19: Management warned that treatment delays, facility closures, patient deferrals, workforce disruption, and restrictions could materially affect operations, results, and liquidity. The duration and financial impact were uncertain; the filing gives no quantified forecast.
- Major purchase commitments: The company had $34 million of commitments, after deposits, for two additional MEVION proton systems and had paid $2.25 million in non-refundable deposits. It had no customer contracts or financing arrangements for those units and warned that deposits could be forfeited if placement deadlines were missed and no extension obtained.
- Other commitments: Gamma Knife reloads, Icon upgrades, and one LINAC purchase totaled $6.910 million; service-contract commitments were $10.096 million. Total contractual obligations reported were $69.688 million, including debt, finance leases, equipment purchases, service contracts, and operating leases.
- Customer and business concentration: One customer accounted for approximately 30% of 2019 revenue; three customers together represented approximately 50%. The company also disclosed two idle Gamma Knife units with a combined net book value of $943,000 and no planned placement or trade-in in 2020.
- Reimbursement and regulation: Revenue-sharing arrangements expose the company to changes in Medicare and other payer reimbursement. CMS had proposed a mandatory radiation-oncology payment model, but its final form and impact were uncertain. The filing noted expected 2020 Medicare reimbursement increases for certain proton-therapy and Gamma Knife services outside the proposed model.
- Other: No dividends were paid in 2019. The auditor issued an unmodified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting. The company adopted ASC 842 lease accounting in 2019, with no material initial effect on operations.
Important facts for investors to verify
- Progress securing customer placements and financing for the two committed proton systems, and the status of the $2.25 million deposits and delivery deadlines.
- COVID-19’s realized effects on procedure volumes, customer collections, cash flow, and the company’s ability to meet obligations.
- Whether the Boston IGRT and Gamma Knife contracts ended as expected in Q2 2020 and the resulting revenue and equipment plans.
- Customer concentration, receivables aging, and whether collection periods improve after the reported January 2020 payment.
- Funding availability and terms for the company’s significant debt, equipment, and service commitments; management said it expected resources to cover scheduled debt and lease obligations over the next 12 months.