American Shared Hospital Services — Q1 2014 Form 10-Q
Business context and period: The company provides Gamma Knife and other radiation therapy equipment and services to medical centers. This unaudited report covers the three months ended March 31, 2014, compared with Q1 2013; balance-sheet changes are compared with December 31, 2013. It operated 19 Gamma Knife units at quarter-end, versus 20 a year earlier.
Key financial results
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Medical services revenue | $4.064 million | $4.668 million; down $604,000 (about 13%) |
| Gross margin | $1.289 million; 31.7% of revenue | $2.118 million; 45.4% |
| Operating (loss) income, as presented | $(103,000) | $412,000 |
| Net (loss) income, consolidated | $(49,000) | $233,000 |
| Net (loss) income attributable to the company | $(96,000); $(0.02) per share | $25,000; $0.01 per share |
| Net cash from operating activities | $1.404 million | $1.880 million |
| Cash and cash equivalents at quarter-end | $957,000 | $1.909 million at Dec. 31, 2013 |
| Current assets / current liabilities | $7.255 million / $11.830 million | Negative working capital of $4.575 million |
Costs and margins: Costs of revenue rose $225,000 to $2.775 million, including higher maintenance and supplies (+$106,000) and depreciation and amortization (+$137,000). Selling and administrative expense fell $313,000 to $922,000, primarily on lower payroll-related costs, consulting fees and rent expense. Interest expense was $470,000, essentially unchanged. The company recorded a $15,000 foreign-currency gain versus a $141,000 loss a year earlier, and a $30,000 income-tax benefit versus $52,000 expense.
Debt and liquidity: At March 31, current long-term debt was $4.581 million and current capital-lease obligations were $3.980 million; long-term debt was $10.007 million and long-term capital leases were $11.858 million. The company also had $8.900 million drawn on its $9.000 million line of credit, leaving $100,000 of stated capacity. A $9.000 million certificate of deposit matures in August 2014 and earns 0.10%; the line is secured by cash invested with the bank. Management said cash flow and resources should cover scheduled obligations over the next 12 months. Cash declined $952,000 during the quarter, chiefly reflecting debt and lease principal payments.
Material changes and management commentary
- Gamma Knife procedures fell to 593 from 621. Revenue also reflected lower procedure volume at existing sites and a shift toward sites with lower revenue per procedure. One site was offline for five weeks for an upgrade; two others had roughly month-long equipment or staffing disruptions, and severe Midwest and East Coast weather affected some locations. Perfexion sites collectively had 3% higher volume.
- Management cited the reduction in Gamma Knife delivery-code reimbursement from $7,910 to $3,300 effective April 1, 2013; that rate increased approximately 9% effective January 1, 2014. Other reimbursement codes were unchanged.
- Foreign-currency transaction results improved year over year because of exchange-rate movements between the U.S. dollar and Turkish lira. The company reported a $15,000 gain in Q1 2014 versus a $141,000 loss in Q1 2013.
- The company had $50.309 million of remaining equipment-purchase commitments, including three MEVION S250 proton-therapy systems and Gamma Knife equipment. It intends to arrange financing as needed; financing commitments had been obtained for the Oregon and Peru Gamma Knife units, but financing for other projects was not assured and might not be available on acceptable terms.
Outlook, risks and unusual items
- No numerical earnings or revenue guidance is provided. GKPeru was expected to begin operations in the latter part of 2014; the first PBRT system was anticipated for delivery in the second half of 2014. The filing says the company’s Long Beach proton-beam subsidiary was not expected to generate revenue in the next two years.
- The company held a $2.701 million cost-basis investment in Mevion, approximately 0.77% of the company. Management estimated an unrealized loss of about $2.4 million, but considered it temporary and did not report an impairment. The first Mevion system had begun treatment at Barnes-Jewish Hospital in December 2013; the company’s own first site was expected to receive its accelerator in fall 2014.
- Management reported compliance with line-of-credit covenants. The line matures August 1, 2015. Risks include operating performance and reimbursement, project execution, substantial equipment commitments, access to financing, and Mevion’s development and funding needs. The filing states there were no changes to previously disclosed risk factors and no legal proceedings.
- The company reported effective disclosure controls as of March 31, 2014, with no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether procedure volumes and site disruptions recover, and how reimbursement levels affect revenue per procedure.
- Availability and terms of financing for the $50.309 million equipment commitments, alongside the nearly fully drawn credit line and negative working capital.
- Timing, cost and expected economics of the Peru, Oregon and PBRT installations, including the company’s expected 2014 deliveries.
- Mevion’s financial condition and project progress, and the basis for carrying the investment at cost despite management’s estimated $2.4 million unrealized loss.
- Cash generation and the ability to meet scheduled debt and lease payments as cash balances and operating results evolve.