American Shared Hospital Services — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. ASHS provides radiosurgery and radiation therapy equipment and services, reporting domestic and international segments. Results are not necessarily indicative of full-year performance.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $5.134 million | $4.828 million | $15.627 million | $14.709 million |
| Gross margin | $2.102 million; 40.9% | $1.957 million; 40.5% | $6.528 million; 41.8% | $6.112 million; 41.6% |
| Operating income (loss) | $90,000 | $448,000 | $(137,000) | $1.841 million |
| Net income attributable to ASHS | $118,000; $0.02 diluted EPS | $316,000; $0.05 diluted EPS | $195,000; $0.03 diluted EPS | $1.082 million; $0.17 diluted EPS |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $8.778 million | $5.633 million |
- Nine-month capital spending was $6.176 million, and cash, cash equivalents and restricted cash increased $2.202 million to $14.655 million. Cash from operations was partly offset by equipment purchases and debt repayments.
- At September 30, cash and restricted cash totaled $14.655 million; working capital was $10.322 million, down from $13.548 million at December 31, 2022. Current liabilities rose to $10.049 million, including a $1.4 million line-of-credit balance.
- Long-term debt carrying value was $11.913 million, comprising $1.459 million current and $10.454 million long-term; the $1.4 million revolving-line borrowing is additional. The company said the line borrowing was repaid in October 2023. Approximately $2.488 million of scheduled principal and interest payments were due over the next 12 months.
Material changes versus the prior comparable period
- Q3 revenue grew 6%; nine-month revenue grew 6%. International revenue growth and higher nine-month PBRT revenue contributed. Q3 PBRT revenue declined 6% to $2.219 million as treatment volume fell; nine-month PBRT revenue increased 6% to $7.078 million, reflecting higher average reimbursement.
- Gamma Knife revenue rose 10% in Q3 and 4% for the nine months. Q3 procedures increased to 316 from 293; nine-month procedures fell to 918 from 957, partly because one customer contract expired. Higher average reimbursement reflected a shift toward commercial payors.
- Despite higher revenue, attributable net income fell to $118,000 in Q3 and $195,000 year to date. Selling and administrative expense rose $475,000 in Q3 and $1.537 million year to date, reflecting added staffing and costs pursuing new business. Nine-month results also included a $578,000 impairment and asset-removal charge related to two Gamma Knife contract non-renewals.
- Nine-month interest expense increased $279,000 to $825,000, primarily due to higher rates on floating-rate debt. Interest and other income increased to $318,000 from $31,000, consistent with higher cash balances and rates.
Outlook, risks and unusual items
- Management said cash on hand, operating cash flow and other resources should meet scheduled debt obligations and working-capital needs for the next 12 months. It intends to finance substantially all current equipment commitments but cautioned that financing may not be available, or may not be available on acceptable terms.
- Commitments included $34 million for two additional PBRT systems, $15.921 million for Gamma Knife and LINAC equipment, and $12.645 million for equipment service. These are significant alongside existing debt and planned expansion. The filing also cites possible forfeiture of previously impaired deposits if arrangements for the PBRT systems are not reached or extended.
- Puebla, Mexico was expected to begin treating patients in January 2024. The Ecuador Gamma Knife upgrade was expected to begin treating patients in November 2023; its $1.75 million DFC financing was completed October 23, 2023, at a fixed 7.49% rate.
- After quarter-end, on November 10, ASHS agreed to buy 60% of two Rhode Island radiation-therapy businesses for $2.85 million, subject to bankruptcy court, state health department and other closing conditions. The company anticipated satisfying conditions within 60 days; completion was not assured.
- The Fifth Third credit facilities carry floating-rate debt, and ASHS was working to transition pricing from LIBOR to SOFR. Credit-agreement covenants were reported in compliance at September 30. Management identified reimbursement changes, procedure volumes, financing, expansion and acquisition integration as risks. CMS’s Radiation Oncology Alternative Payment Model remained delayed indefinitely.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the Rhode Island acquisition closed and the final purchase price, financing, and acquired-company financial impact.
- Progress, placement and financing for the $34 million PBRT commitments and other equipment purchases, including any delivery extensions or deposit exposure.
- Whether the expected Puebla and Ecuador treatment start dates were achieved and how the new systems affect utilization and cash needs.
- Subsequent debt balances, SOFR transition terms, covenant headroom and the effect of interest rates on debt service.
- Whether procedure volumes, reimbursement mix and contract renewals improve, particularly after the disclosed Gamma Knife customer contract expirations and Q3 PBRT volume decline.