American Shared Hospital Services — Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. The company provides Gamma Knife radiosurgery and radiation-therapy equipment and services; it reported one operating segment and 18 Gamma Knife units in operation.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total revenue | $4.236m | $9.148m | $12.923m | $17.721m |
| Medical-services revenue | $4.236m | $4.164m | $12.923m | $12.737m |
| Gross margin | $1.695m | $2.459m | $5.405m | $6.219m |
| Operating income | $0.210m | $0.813m | $0.674m | $1.264m |
| Net income attributable to company | $0.009m | $0.220m | $0.033m | $0.262m |
| Diluted earnings per share | $0.00 | $0.05 | $0.01 | $0.06 |
Margins: Gross margin was about 40.0% of revenue in Q3 2012 and 41.8% for the first nine months. Comparisons with 2011 are affected by that year's equipment sale; reported gross margin was about 26.9% for Q3 and 35.1% for nine months. Operating margin was about 5.0% in Q3 2012 and 5.2% for nine months.
Cash flow and liquidity: Nine-month operating cash flow was $4.276m, versus $5.556m a year earlier. Capital expenditures were $4.103m; cash and cash equivalents declined by $1.864m to $0.716m. At September 30, working capital was $5.873m, including a $9.0m certificate of deposit maturing in August 2013. Current liabilities were $10.697m.
Debt and leases: At September 30, long-term debt was $16.347m, capital-lease obligations were $17.851m, and $8.2m was drawn on the $9.0m bank line of credit. The line matures August 1, 2014 and is secured by cash invested with the bank. Management said the company was covenant-compliant and expected operating cash flow and cash resources to cover scheduled debt and lease obligations over the next 12 months. Scheduled debt interest and principal payments were approximately $5.011m and capital-lease payments approximately $5.270m.
Material changes and operating drivers
- Total revenue fell $4.912m in Q3 and $4.798m for the nine-month period, principally because 2011 included $4.984m of equipment-sale revenue from a Perfexion unit. There was no equipment-sale revenue in 2012.
- Medical-services revenue increased 1.7% in Q3 and 1.5% year to date. Growth from radiation-therapy contracts and volume partly offset lower Gamma Knife revenue after a unit sale and a customer contract expiration; a site was also offline for one month for a cobalt reload in Q1.
- Gamma Knife procedures rose to 523 in Q3 from 497 and to 1,564 for nine months from 1,436. Management attributed the increase mainly to a new Turkey unit; volumes at sites with Perfexion units rose 16% in Q3 and 8% year to date.
- Q3 operating income declined $0.603m and company-attributable net income declined $0.211m versus 2011. Lower selling and administrative expense and interest expense were not enough to offset the prior-year equipment-sale contribution and related effects.
Outlook, risks and unusual items
- No quantified earnings or revenue guidance is provided. Management expected the first MEVION S250 proton-therapy system to be delivered in the second half of 2013.
- Remaining equipment-purchase commitments were approximately $45m, covering three MEVION systems, Gamma Knife units and a radiation-therapy unit. Financing had been obtained for the first MEVION system and Gamma Knife units in Florida and Peru; the company noted financing could be difficult to secure for other projects and might not be available on acceptable terms.
- The company held $2.687m of Mevion preferred stock, carried at cost. It estimated fair value at $1.383m and an unrealized loss of approximately $1.3m, but judged the impairment not other than temporary, citing Mevion’s FDA clearance and progress toward manufacturing. The investment remains exposed to Mevion’s financing needs, development and execution risks.
- Foreign-currency translation reduced comprehensive income attributable to the company by $0.120m for the nine months. Management cited risks in the Gamma Knife and radiation-therapy businesses, the Operating Room for the 21st Century program, and investment in a development-stage company. No change to previously disclosed risk factors was reported; no legal proceedings were reported.
Important facts for investors to verify
- Whether the company can finance its approximately $45m equipment commitments while meeting scheduled debt and lease payments.
- How the loss of Gamma Knife revenue from the sold unit and expired contract affects future utilization and medical-services revenue.
- Whether Mevion’s product rollout and financing progress support recovery of the company’s investment and deposits.
- The availability of the $9m certificate of deposit for liquidity, given the line of credit’s cash-security arrangement.
- The filing’s reported $0.00 Q3 EPS despite $0.009m of attributable net income, and the very small attributable earnings base relative to non-controlling interests.