American Shared Hospital Services — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. The company provides Gamma Knife radiosurgery and proton beam radiation therapy (PBRT) equipment and services through domestic and international operations.
Financial performance
- Revenue: $4.847 million, up 11.1% from $4.364 million. PBRT revenue rose $508,000 to $2.039 million as treatment volume recovered; Gamma Knife revenue declined $84,000 to $2.808 million.
- Profitability: Gross margin was $2.067 million (42.6% of revenue), versus $1.434 million (32.9%) a year earlier. Net income was $394,000 versus $87,000; net income attributable to American Shared Hospital Services was $269,000, or $0.04 per diluted share, versus $29,000, or $0.00 per share.
- Costs and taxes: Costs of revenue fell $150,000 to $2.780 million, while selling and administrative expense rose $235,000 to $1.319 million, primarily due to legal and related costs for new business opportunities. Interest expense declined $112,000 to $148,000 following the 2021 refinancing. Income tax expense increased to $206,000 from $6,000, reflecting higher earnings, foreign-return adjustments, and expected permanent domestic tax differences.
- Cash flow: Operating cash flow was $259,000, down from $2.783 million, including unfavorable changes in accrued liabilities and deferred revenue. Capital spending was $66,000 versus $1.065 million. Cash, cash equivalents and restricted cash increased $138,000 to $8.401 million.
- Liquidity and debt: Working capital was $10.421 million, up from $9.196 million at year-end 2021. Long-term debt, net, was $15.367 million; the $7 million revolving credit line was undrawn. The company reported covenant compliance and estimated $2.010 million of scheduled principal and interest payments over the next 12 months.
Changes, outlook and risks
- Gamma Knife volumes continued to recover: excluding two contracts that expired in 2021, procedures at existing customer sites increased 2% year over year. Total procedures fell to 329 from 355, primarily due to those contract expirations. PBRT fractions increased to 1,628 from 1,231, and management said the PBRT site returned to pre-pandemic treatment levels.
- A lower salvage-value estimate for nine Gamma Knife units reduced Q1 net income by approximately $114,000, or $0.02 per diluted share, and will affect future periods.
- Management believes cash on hand, operating cash flow and other resources are adequate for working capital and scheduled obligations for the next 12 months. No formal revenue or earnings guidance is provided. Management identifies capital spending, expansion and working capital as expected cash needs; future project financing is not assured.
- Significant commitments include $34.0 million, after deposits, for two PBRT systems; $10.760 million for Gamma Knife upgrades and LINAC systems; and $9.356 million of service commitments. The company intends to finance the equipment commitments and warns financing may not be available on acceptable terms. It also faces risk from COVID-19 and future variants, reimbursement changes, procedure volumes, contract expirations, and expansion or acquisition execution.
- Subsequent events: On April 27, 2022, the company agreed to form a Mexican joint venture in which it will own 85% and provide a linear accelerator upgrade; the partner is responsible for site modifications. On April 28, it agreed to $3.528 million of additional equipment and service commitments for a planned Puebla site.
- The company reported no material changes to previously disclosed risk factors, no legal proceedings, and effective disclosure controls as of March 31, 2022.
Important facts for investors to verify
- Whether PBRT and Gamma Knife procedure-volume recovery continues, particularly after the two Gamma Knife contract expirations.
- Whether operating cash flow improves and the company meets debt payments and credit-agreement covenants.
- How the company will finance its substantial equipment and service commitments, including the two PBRT systems, and whether planned installations proceed on schedule.
- The ongoing earnings effect of the revised Gamma Knife salvage-value estimate, higher taxes, and legal costs tied to new opportunities.
- Progress, funding requirements and launch timing for the Puebla project and Mexican joint venture, and any continuing effects of COVID-19 or reimbursement changes.