American Shared Hospital Services — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the same 2020 periods unless noted. The company provides Gamma Knife radiosurgery and proton beam radiation therapy (PBRT) equipment and services. At quarter-end it had 13 U.S. Gamma Knife units, one U.S. PBRT system, and two company-operated Gamma Knife facilities in Latin America.
Financial performance
| Metric | Q2 2021 | Six months 2021 | Comparable 2020 |
|---|---|---|---|
| Revenue | $4.476 million | $8.840 million | Q2: $3.991 million; six months: $8.559 million |
| Gross margin | $1.607 million; 35.9% of revenue | $3.041 million; 34.4% | Q2: $0.907 million; 22.7%. Six months: $2.301 million; 26.9% |
| Operating income (loss) | $352,000 | $442,000 | Q2: $(570,000); six months: $(669,000) |
| Net income (loss) attributable to ASHS | $(87,000), or $(0.01) per share | $(58,000), or $(0.01) per share | Q2: $(483,000), or $(0.08) per share; six months: $(618,000), or $(0.10) per share |
| Operating cash flow | $3.827 million for six months | $6.841 million for six months |
Quarterly revenue rose 12.2%; six-month revenue rose 3.3%. For the six months, domestic revenue was $7.415 million and foreign revenue was $1.425 million. Cash and restricted cash totaled $8.437 million at June 30, versus $4.325 million at year-end. Working capital was $8.283 million.
Total debt on the balance sheet was $16.041 million, net of debt issuance costs; total shareholders’ equity was $23.714 million. On April 9, the company entered a five-year, $22 million credit agreement: a $9.5 million term loan, a $5.5 million facility, and a $7 million revolving line. The loans carry floating interest at LIBOR plus 3.0%, are secured by substantially all company assets, and include financial covenants. Management said cash, operating cash flow, and other resources should cover scheduled debt obligations and working-capital needs for the next 12 months; approximately $1.479 million in principal and interest payments were scheduled for that period.
Changes and notable items
- Gamma Knife revenue increased $337,000 in both the quarter and six-month period, reflecting higher procedures and average reimbursement. PBRT revenue rose $148,000 in Q2 but was nearly flat for the six months; average reimbursement increased while treatment fractions declined.
- Domestic Gamma Knife procedure volume returned to pre-pandemic levels in Q2. Latin American procedures were strong but remained below pre-pandemic levels; PBRT volumes continued below prior levels, with maintenance downtime also affecting the six-month period.
- Lower depreciation and amortization, selling and administrative costs, and interest expense contributed to improved results. Interest expense declined following the April refinancing.
- The company recorded a $401,000 loss on debt extinguishment, primarily for prepayment penalties. Excluding this item and its effects from minority interest and taxes, management reported net income of $157,000 for Q2 and $186,000 for the six months, each $0.03 per diluted share.
- Effective April 1, the company reduced estimated salvage values for nine Gamma Knife units. The change reduced Q2 net income by approximately $114,000, or $0.02 per diluted share, and will affect future periods.
- The company wrote off $59,000 of estimated revenue and receivables associated with an expired IGRT equipment contract. The GKCE acquisition measurement period ended in June 2021; the company held approximately 99.3% of GKCE at quarter-end.
Outlook, risks, and commitments
The filing provides no formal financial guidance. Management identified COVID-19, treatment volumes, customer decisions, reimbursement changes, business expansion, and acquisition integration as risks. The company noted that additional pandemic impacts, including those from new virus strains, could arise. Four Gamma Knife centers were scheduled for the CMS Radiation Oncology Alternative Payment Model beginning in 2022; management did not anticipate a significant Gamma Knife revenue effect. The company’s PBRT center was not selected.
Major commitments include $34 million, after deposits, for two PBRT systems, with delivery expected to begin no later than 2023, and $10.860 million for Gamma Knife reloads and upgrades and two LINAC systems. The company also reported $10.195 million in service commitments. It intends to finance equipment commitments and said they do not require significant cash in the next 12 months, but cautioned that financing may not be available on acceptable terms. A $1.649 million PBRT service payment was due in September 2021. The $7 million revolving credit line was available for projects and general corporate purposes.
The new credit agreement’s covenants include a minimum fixed-charge coverage ratio of 1.25 and a maximum funded-debt-to-EBITDA ratio of 3.0 to 1.0. LIBOR was scheduled to be phased out at year-end 2021, and the company said it would work with the lender to select an alternative base rate. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether treatment volumes, particularly PBRT and Latin American Gamma Knife procedures, continued recovering after June 2021.
- Compliance with the new debt covenants, the eventual replacement rate for LIBOR, and refinancing costs or terms.
- Funding, placement, delivery timing, and potential deposit exposure for the two PBRT systems and other equipment commitments.
- The effect of revised Gamma Knife salvage-value estimates on depreciation, earnings, and asset values in later periods.
- Actual reimbursement and revenue effects from the CMS radiation oncology payment model and other reimbursement changes.