American Shared Hospital Services — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; comparison is with the corresponding 2021 periods. The company provides Gamma Knife radiosurgery and proton beam radiation therapy (PBRT) equipment and services to hospitals, and operates Gamma Knife treatment facilities in Peru and Ecuador.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $4.828 million | $4.099 million | $14.709 million | $12.939 million |
| Gross margin | $1.957 million (40.5%) | $1.467 million (35.8%) | $6.112 million (41.6%) | $4.508 million (34.8%) |
| Operating income | $448,000 | $186,000 | $1.841 million | $628,000 |
| Net income attributable to ASHS | $316,000 | $33,000 | $1.082 million | $(25,000) |
| Diluted earnings per share | $0.05 | $0.01 | $0.17 | $(0.00) |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $5.633 million | $3.143 million |
- Q3 revenue rose 17.8%; nine-month revenue rose 13.7%. PBRT revenue increased to $2.358 million for Q3 and $6.705 million year to date, primarily on higher treatment volumes and average reimbursement. Gamma Knife revenue declined to $2.470 million and $8.004 million, respectively, as fewer procedures more than offset improved average reimbursement.
- For the nine months, net income improved from a loss to $1.082 million attributable to ASHS. The comparison also reflects the $401,000 debt-extinguishment loss recorded in 2021.
- At September 30, cash, cash equivalents and restricted cash totaled $11.664 million, versus $8.263 million at December 31, 2021. Working capital was $12.564 million, up from $9.196 million.
- Long-term debt carrying value was $13.878 million, compared with $15.404 million at year-end 2021; the $7 million revolving credit line was undrawn. Term and delayed-draw loans have floating interest at LIBOR plus 3.0%; the company reported covenant compliance. Scheduled debt principal and interest payments for the next 12 months were approximately $2.067 million.
- Cash from operations of $5.633 million was partly offset by $332,000 of equipment purchases, $1.602 million of long-term debt principal payments and $294,000 of distributions to non-controlling interests.
Material changes and management commentary
- PBRT fractions increased to 1,363 in Q3 and 4,315 for the nine months, compared with 973 and 3,313 in 2021. Management attributed the increase mainly to prior-year COVID-related effects and system repair downtime; the PBRT site had returned to pre-pandemic levels.
- Gamma Knife procedures fell to 293 in Q3 and 957 year to date. Management cited two customer contract expirations in 2021, temporary staffing shortages at several existing domestic customers and normal cyclical fluctuations. Higher commercial-payor mix at retail sites supported average reimbursement.
- Management said existing domestic Gamma Knife volumes and the Peru and Ecuador facilities had rebounded toward pre-pandemic levels, and expected the international trend to continue through 2022. It cautioned that future COVID-19 developments could affect operations.
- There is no formal earnings or revenue guidance in the filing. The company expects to pursue business expansion and equipment projects, subject to customer agreements, regulatory approvals and financing availability.
Commitments, risks and unusual items
- Purchase commitments after deposits for two additional Mevion PBRT systems totaled $34 million. The company was seeking sites and financing; it could forfeit deposits if it cannot arrange customer agreements or obtain an extension within the required timeframe.
- Gamma Knife and LINAC commitments totaled $13.243 million, including planned equipment for a new Puebla, Mexico site, expected to begin operations in the first half of 2023 pending regulatory approval. Management said no significant cash requirements for these commitments were expected in the next 12 months pending financing, but financing is not assured.
- Service commitments totaled $17.166 million. A new Mevion maintenance agreement for the Orlando PBRT unit requires annual prepayment of $1.8 million for the current one-year service period.
- The company signed an April 2022 joint venture agreement for a Mexican company in which ASHS would own 85% and Guadalupe 15%, with plans to treat public- and private-paying cancer patients. The company is to provide a linear accelerator upgrade; the partner is responsible for site modifications.
- CMS reimbursement rates increased in 2022 for commonly used Gamma Knife and PBRT services. The Radiation Oncology Alternative Payment Model remains delayed indefinitely; whether, when or in what form it will be implemented is uncertain.
- Interest expense rose in Q3 as LIBOR increased. The company noted that LIBOR transition would require agreement with its lender on an alternative base rate. A 2021 change to estimated salvage values for nine Gamma Knife units reduced 2022 net income by approximately $114,000 in Q3 and $342,000 year to date, with effects expected in future periods.
- The company reported no legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether PBRT treatment volumes and revenue gains are sustainable, and whether Gamma Knife procedure volumes recover despite staffing issues and contract expirations.
- Timing, placement, regulatory approval and financing for the $34 million PBRT purchases and $13.243 million Gamma Knife/LINAC commitments, including the Puebla project.
- Cash-flow capacity for debt service and the substantial equipment and service commitments, as well as continued compliance with credit covenants and the impact of floating rates and LIBOR transition.
- Collection and timing of the $1.046 million GKCE receivable, primarily from a government payor, and the effect of international operations and foreign tax adjustments.
- Future CMS reimbursement policy, including any eventual Radiation Oncology Alternative Payment Model, and possible renewed COVID-19 effects.