American Shared Hospital Services — Q1 2012 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2012; comparisons are with Q1 2011 unless otherwise noted. The company provides Gamma Knife and radiation therapy equipment and related services. It reported 19 Gamma Knife units in operation and two radiation therapy service contracts.
Financial performance and position
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Medical services revenue | $4.403 million | $4.367 million; up 0.8% |
| Gross margin | $1.837 million; 41.7% of revenue | $1.924 million; 44.1% |
| Reported operating income | $239,000 | $226,000 |
| Net income | $229,000 consolidated; $9,000 attributable to ASHS | $219,000 consolidated; $21,000 attributable to ASHS |
| EPS | $0.00 basic and diluted as reported | $0.00 basic and diluted |
| Cash from operations | $1.393 million | $3.397 million |
| Capital expenditures | $3.143 million | $1.335 million |
| Cash and cash equivalents | $1.788 million | $2.580 million at Dec. 31, 2011 |
| Working capital | $7.523 million | — |
At March 31, 2012, total assets were $76.069 million and shareholders’ equity was $25.115 million. Long-term debt, current debt, capital leases and the line of credit totaled approximately $45.1 million. The company also held a $9.0 million certificate of deposit, pledged as security for its bank line; $7.5 million of the $9.0 million line was drawn. Cash and cash equivalents fell by $792,000 during the quarter.
Material changes and management commentary
- Radiation therapy revenue rose $245,000 to $495,000, reflecting a new site and increased volume at an existing site. Gamma Knife revenue fell $209,000 to $3.908 million, partly because a unit was offline for a cobalt reload and another unit had been sold.
- Gamma Knife procedures increased to 514 from 489, but management noted revenue varies with the mix of procedures and customer contracts.
- Costs of revenue rose $123,000 to $2.566 million, including higher depreciation from newer sites and maintenance costs after warranties expired. Selling and administrative expense declined $98,000 to $1.024 million.
- Operating cash flow decreased year over year, while equipment purchases increased. The company attributed the cash decline to capital spending, debt and lease repayments, line-of-credit paydown and distributions to non-controlling interests.
- Management said available cash resources and operating cash flow were adequate for scheduled debt and lease obligations over the next 12 months. Scheduled payments over that period were approximately $4.896 million for interest and principal and $5.253 million for capital leases.
Outlook, risks, contingencies and unusual items
- Equipment purchase commitments totaled approximately $46 million, including three Mevion proton beam therapy systems and Gamma Knife units. Management intends to finance the purchases, but warned that financing may not be available or may not be available on acceptable terms.
- The Mevion systems are not commercially proven and require FDA approval before the company expects to obtain financing for them. Delivery was anticipated to begin in mid-2013. The company had paid $2.5 million in non-refundable deposits toward these systems.
- The company carried its Mevion preferred-stock investment at $2.656 million, while estimating fair value at $1.383 million and an unrealized loss of approximately $1.3 million. Management considered the impairment temporary and recorded no write-down; Mevion had submitted its final FDA 510(k) application and received CE Mark certification.
- The $9 million certificate of deposit matured in August 2012 and earned 0.45%. The bank line matured August 1, 2013; the company reported compliance with its debt covenants.
- The filing identifies risks in Gamma Knife and radiation therapy operations, the development of the Operating Room for the 21st Century program, and investment in Mevion. No changes to previously disclosed risk factors were reported. No legal proceedings were reported.
Important facts for investors to verify
- Whether the company can secure financing for its approximately $46 million equipment commitments, especially the Mevion systems.
- Whether Mevion obtains FDA approval and whether its product development and commercialization support recovery of the investment’s carrying value.
- Whether operating cash flow can support scheduled debt, lease and capital spending needs as cash balances decline.
- How unit utilization, procedure mix, site start-ups and contract losses affect Gamma Knife revenue and margins.
- The terms and availability of the bank line and the timing and use of the certificate of deposit upon maturity.