American Shared Hospital Services — Q1 2013 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2013; comparative results are for the three months ended March 31, 2012. The company provides Gamma Knife and radiation-therapy equipment and services to medical centers. It reported 20 Gamma Knife units in operation at quarter-end, versus 19 a year earlier.
Financial performance and liquidity
- Medical-services revenue rose 6.0% to $4.668 million. Gamma Knife revenue increased $393,000 to $4.301 million; radiation-therapy revenue fell $128,000 to $367,000.
- Gross margin increased to $2.118 million, or 45.4% of revenue, from $1.837 million, or 41.7%. The filing’s “operating income” was $412,000, versus $239,000; this figure follows selling and administrative expense and interest expense in the statement.
- Net income was $233,000, including $208,000 attributable to non-controlling interests. Net income attributable to the company was $25,000, or $0.01 per diluted share, compared with $9,000, or $0.00 per diluted share.
- Operating cash flow was $1.879 million, compared with $1.393 million. Cash and cash equivalents declined $262,000 to $1.302 million. Capital expenditures were $119,000; principal payments on debt and capital leases totaled $1.746 million.
- At March 31, current assets were $16.272 million and current liabilities $10.427 million, for working capital of $5.845 million and a current ratio of about 1.56. Cash, restricted cash and the $9.0 million certificate of deposit totaled $10.352 million.
- Balance-sheet debt, capital leases and line-of-credit borrowings totaled approximately $41.5 million: debt of $16.979 million, capital leases of $15.959 million and line-of-credit borrowings of $8.550 million. The $9.0 million credit line matures August 1, 2013; the company reported covenant compliance. It also disclosed approximately $4.633 million of scheduled debt principal and interest and $4.822 million of lease payments over the next 12 months.
Changes, outlook and risks
- Gamma Knife procedures increased to 621 from 514, principally reflecting two newer sites and higher volume at existing centers. Operating costs of revenue were nearly flat, while selling and administrative expense rose $211,000 to $1.235 million, including approximately $115,000 of accrued loss on a below-market office sublease.
- Interest expense fell $103,000 to $471,000. Interest and other income was a $127,000 loss, mainly due to a $140,000 foreign-currency loss. Income-tax expense increased to $52,000; the company said it could not reliably estimate its annual effective tax rate.
- Medicare reimbursement for Gamma Knife treatments fell from $7,910 to $3,300 effective April 1, 2013. Assuming the 2012 business mix continued, management estimated this could reduce revenue by $600,000–$700,000 and pretax income by $350,000–$450,000 in the remaining nine months of 2013; actual effects could vary with payer mix, volume and mitigation efforts. No broader earnings guidance is provided.
- The company had approximately $40 million of remaining equipment-purchase commitments, including three Mevion proton-therapy systems and Gamma Knife units. Management intended to finance these commitments, but cautioned that financing might not be available on acceptable terms. The first Mevion system was expected to be delivered in the second half of 2014; GKPeru was expected to begin operations later in 2013.
- The $2.687 million Mevion preferred-stock investment was carried at cost. Management estimated an unrealized loss of about $1.3 million but judged it not other-than-temporary, citing Mevion’s progress and regulatory clearances; the investment remains subject to development, funding and recovery risks.
- Management said operating cash and available resources were adequate for scheduled obligations over the next 12 months. Key risks include the approaching credit-line and certificate-of-deposit maturities, financing large purchase commitments, reimbursement cuts, foreign-exchange movements, and the performance of new sites and Mevion. The filing reported no legal proceedings, no material change in internal control, and no changes to the risk factors in the 2012 Form 10-K.
Important facts for investors to verify
- Renewal or repayment plans for the $9.0 million credit line and certificate of deposit maturing in August 2013.
- Actual effects of Medicare reimbursement reductions on treatment volume, revenue and contract economics.
- Financing availability and terms for the approximately $40 million of remaining equipment commitments.
- Mevion’s funding, manufacturing and delivery progress, and the recoverability of the preferred-stock investment and deposits.
- Whether reported cash generation and working capital can support scheduled debt, lease and non-controlling-interest distributions.