American Shared Hospital Services — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; balance-sheet comparisons are against December 31, 2020. The company leases radiosurgery and radiation-therapy equipment to healthcare providers and operates Gamma Knife facilities in Peru and Ecuador.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $4.099 million | $4.670 million | $12.939 million | $13.229 million |
| Gross margin | $1.467 million (35.8%) | $1.138 million (24.4%) | $4.508 million (34.8%) | $3.439 million (26.0%) |
| Operating income (loss) | $186,000 | $(251,000) | $628,000 | $(920,000) |
| Net income (loss) attributable to company | $33,000 | $(209,000) | $(25,000) | $(827,000) |
| Basic and diluted earnings (loss) per share | $0.01 | $(0.03) | $(0.00) | $(0.14) |
Consolidated net income was $168,000 in Q3 and $228,000 for the nine-month period; a portion was attributable to non-controlling interests. Nine-month results included a $401,000 loss on debt extinguishment. Excluding that charge, management reported nine-month net income of $219,000, or $0.04 per diluted share, after minority-interest and tax effects.
Cash flow and liquidity: Nine-month operating cash flow was $3.143 million, compared with $8.057 million in 2020. Investing cash outflow was $347,000; financing cash flow was $47,000. Cash, cash equivalents and restricted cash were $7.168 million at September 30, up $2.843 million from year-end. Working capital was $9.209 million.
Debt: Long-term debt, net, was $15.814 million, including $1.081 million current and $14.733 million long-term. The company refinanced most existing debt and finance leases in April under a five-year, $22 million credit agreement; it includes a $7 million revolving line. Interest is floating at LIBOR plus 3.0%, and the agreement has financial covenants, including a minimum fixed-charge coverage ratio of 1.25 and maximum funded debt-to-EBITDA ratio of 3.0 to 1.0.
Changes versus the prior comparable period
- Revenue fell 12.2% in Q3 and 2.2% year to date. PBRT revenue declined 23.4% in Q3 and 8.2% year to date, reflecting lower treatment volumes. PBRT fractions fell to 973 in Q3 from 1,632 and to 3,313 year to date from 4,659; the company cited COVID-related impacts and system repair downtime.
- Gamma Knife revenue was down 5.9% in Q3 but up 1.9% year to date. Procedures declined in both periods, partly due to two expired customer contracts; higher average reimbursement and GKCE acquisition contributions helped offset the decline. Excluding expired contracts and, for year-to-date comparisons, GKCE, procedures at existing sites increased.
- Gross margin and operating results improved despite lower revenue, principally because of lower depreciation and amortization, direct operating costs, selling and administrative expense, and interest expense. Refinancing reduced interest expense.
- Operating cash flow was lower than in 2020, while cash increased, aided by new debt proceeds. Finance lease obligations were refinanced into long-term debt; the balance sheet showed no finance-lease debt at September 30.
Outlook, risks and unusual items
- Management said domestic Gamma Knife procedure volumes were rebounding toward pre-pandemic levels, while PBRT volumes remained below pre-pandemic levels. It cautioned that COVID-19 developments and new variants could materially affect operations. No quantified company-wide revenue or earnings guidance is provided.
- The company expects cash on hand, operating cash flow and other resources to cover scheduled debt payments and working-capital needs for the next 12 months. It reported approximately $1.657 million of scheduled interest and principal payments during that period.
- Significant purchase commitments include $34 million, after deposits, for two additional MEVION PBRT systems, with delivery expected to begin no later than 2023, and $10.860 million for Gamma Knife and LINAC equipment commitments. Management intends to finance these projects; it cautioned that financing may not be available on acceptable terms. It reported no significant cash requirements for the latter commitments in the next 12 months, pending financing. Service commitments totaled $8.535 million.
- Effective April 1, 2021, the company reduced estimated salvage values for nine Gamma Knife units. The estimate change reduced net income by approximately $114,000 in Q3 and $228,000 year to date, and will affect future periods.
- Four Gamma Knife centers were scheduled for CMS’s mandatory Radiation Oncology Alternative Payment Model beginning in 2022; management did not anticipate a significant Gamma Knife revenue impact. The company’s PBRT center was not selected. The new model and changes in reimbursement remain relevant risks.
- The new credit agreement uses LIBOR plus 3.0%; the filing notes LIBOR was scheduled to be phased out at the end of 2021 and that the company would work with the lender to determine an alternative base rate.
Key facts for investors to verify
- Whether Gamma Knife volume recovery continues and PBRT volumes recover from COVID-related disruption and equipment downtime.
- Availability and terms of financing for the $34 million PBRT-system commitments and $10.860 million Gamma Knife/LINAC commitments, as well as compliance with credit-agreement covenants.
- The continuing earnings and depreciation effects of the revised Gamma Knife salvage-value estimates.
- Actual reimbursement and revenue effects from CMS payment changes and the 2022 radiation-oncology payment model.
- Progress on debt repayment, operating cash flow, and the company’s ability to maintain liquidity while funding equipment and service commitments.