American Shared Hospital Services (AMS) on Q2 2022 Results - Earnings Call Transcript
Operator: Good day and welcome to the American Shared Hospital Services Second Quarter 2022 Earnings Call. This event is being recorded. I would now like to turn the conference over to Stephanie Prince of PCG Advisory. Please go ahead.
Stephanie Prince: Thank you, Sarah and thank you to everyone joining us today. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. Please note that various remarks that maybe made on this conference call about future expectations, plans and prospects for the company constitute forward-looking statements for the purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may vary materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the companyâs filings with the SEC. This includes the companyâs quarterly report on Form 10-Q for the 3-month period ended March 31, 2022, the annual report on Form 10-K for the year ended December 31, 2021 and the definitive proxy statement for the Annual Meeting of Shareholders that was held on June 21, 2022. The company assumes no obligation to update the information contained in this conference call. I would now like to turn the call over to Ray Stachowiak, CEO of AMS. Ray?
Ray Stachowiak: Thank you, Stephanie and good morning everyone and to our friends on the East Coast, good afternoon. Thanks for joining us today for our second quarter 2022 earnings conference call. I will begin with some opening remarks and then turn the call over to Alexis Wallace, our Chief Accounting Officer, for a financial review. Craig Tagawa, our President, COO and CFO and will then provide an operational review of the results. Following their prepared remarks, we will open the call for your questions. AMS had a very good second quarter. We reported $5 million in revenue, 12.5% higher than last year and the highest revenue since the third quarter 2019, 3 years ago. Net income reached $0.5 million, the highest itâs been since the fourth quarter of 2017 over 4 years ago. Craig and Alexis will go into more detail in a few minutes. We have been making great sequential progress too building on the previous quarterâs results for four consecutive quarters now. In the third quarter of 2021, we had net income of $33,000 or $0.01 per share. In the fourth quarter of 2021, we had net income of $219,000 or $0.04 per share. In the first quarter 2022, we had $269,000 in net income or $0.04 per share. And now in the second quarter, we have almost doubled that to $497,000 or $0.08 per diluted share. These results were driven by the post-COVID rebound in volumes, higher average reimbursement for both proton beam radiation therapy and Gamma Knife and almost as important improvements in our operating structure. These have included the strengthening of our balance sheet, the refinancing of our debt at lower interest rates and reducing our costs at all levels where possible, including the downsizing of our corporate office. Our team has worked hard to accomplish these goals, which largely took place during the pandemic when volumes for our cancer treatments were low, which magnified our high fixed cost structure. We have been expanding our radiation therapy product offerings and we are now poised to increase our investment in sales and marketing initiatives to drive future growth. Our commitment is highlighted by the recent hiring of AMSâ new Head of Sales, Tim Keel, a seasoned executive in our industry that both Craig and I have known for many years. Tim has deep experience and strong industry relationships and we have confidence in his ability to increase AMSâ sales momentum. Our improved results have added to our cash balances and we ended the second quarter with $12 million in cash or approximately $1.91 per share based on 6.3 million fully diluted shares at June 30, 2022. This compares to our shareholdersâ equity, excluding the non-controlling interest in subsidiaries, which was $20.8 million or $3.32 per diluted share also at June 30, 2022. With the strong foundation we have built, the increasing investment in sales and marketing and our significant resources to partner on deals, like the joint venture, we are working to open in Puebla, Mexico in early 2023. We believe that AMS is well positioned for sustained growth and profitability. I will now turn the call over to Alexis for the second quarter financial review. Alexis?
Alexis Wallace: Thank you, Ray and good afternoon everyone. Before I begin my prepared remarks, Iâd like to call your attention to our second quarter 2022 earnings press release that was issued after the market closed yesterday. If you need a copy it can be accessed on our website at ashs.com at Press Releases under the Investor tab. Now, turning to our second quarter results. For the 3 months ended June 30, 2022, revenue increased 12.5% to $5.34 million compared to revenue of $4.476 million for the second quarter of 2021. Second quarter revenue for the companyâs proton therapy system installed at Orlando Health in Florida increased 49% to $2.308 million compared to revenue for the second quarter of 2021 of $1.549 million. Total proton therapy fractions in the second quarter were 1,324, an increase of 19.4% compared to 1,109 proton therapy fractions in the second quarter of 2021. Revenue for the companyâs Gamma Knife operations decreased 6.9% to $2.726 million for the second quarter of 2022 compared to $2.927 million for the second quarter of 2021. Gamma Knife procedures decreased 10.9% to 335 for the second quarter of 2022 from 376 in the same period of the prior year. Gross margin for the second quarter of 2022 increased 29.9% to $2.88 million or 41.5% of revenue compared to gross margin of $1.607 million or 35.9% of revenue for the second quarter of 2021. Selling and administrative costs increased by 5.1% to $1.146 million for the 3-month period compared to $1.9 million for the same period in the prior year. Interest expense decreased 9.7% to $149,000 compared to $165,000 for the same period in the prior year. Operating income for the second quarter was $793,000 compared to operating income of $352,000 in the second quarter of 2021, an increase of 125%. Income tax expense increased $248,000 for the second quarter compared to a tax benefit of $24,000 for the second quarter last year. The increase was due to increased earnings during the current period return to provision adjustments arising from foreign income tax returns filed during the current period and permanent domestic tax differences. The tax rate is expected to remain at an elevated level through the end of this year. Net income attributable to American Shared Hospital Services in the second quarter of 2022 of $497,000 or $0.08 per diluted share, compared to a net loss of $87,000 or $0.01 per diluted share for the second quarter of 2021. The 2021 second quarter includes a pretax loss on extinguishment of debt of $401,000. Net income attributable to American Shared Hospital Services in the second quarter of 2021, excluding the net effect of the extinguishment of debt, after non-controlling interest and income taxes of $244,000 was $157,000 or $0.03 per diluted share. Fully diluted weighted average common shares outstanding were $6.281 million or $5.802 million and $5.802 million for the second quarter of 2022 and 2021 respectively. Adjusted EBITDA, a non-GAAP financial measure was $2.129 million for the second quarter of 2022 compared to $1.829 million from the second quarter of 2021, an increase of 16.4%. At June 30, 2022, cash, cash equivalents and restricted cash was $11.967 million compared to $8.263 million at December 31, 2021. Shareholdersâ equity at June 30, 2022, was $25.337 million compared to $24.239 million at December 31, 2021. I will now turn the call over to Craig for the second quarter operational overview. Craig?
Craig Tagawa: Thank you, Alexis and good afternoon everyone. As Alexis mentioned, total revenue in the second quarter was $5 million, a 12.5% increase over the second quarter of last year. It was a continuation of the revenue growth trend that started in the fourth quarter of 2021 when we reported $4.7 million in revenue. The highest revenue of the year and continued into the first quarter when we reported $4.8 million. Second quarter 2022 revenue for the proton therapy system in Florida increased to 49.0% to $2.3 million due to increased volumes and higher average reimbursement due to the higher mix of commercial payers. Total proton therapy fractions increased 19.4% to 1,324. This growth was primarily due to weaker results in last yearâs second quarter from the impact of the pandemic. Gamma Knife revenue decreased 6.9% to $2.7 million. The decline was due to a decrease in procedures, offset by an increase in average reimbursement. This was driven by an increase in the average rate at the companyâs retail sites due to a favorable mix shift in payer mix to more commercial payers. Revenue for same centers in operation, excluding the two Gamma Knife contracts that expired one each in the first and fourth quarters of 2021, decreased 7% when compared to those same centers during the same period of the prior year. Gamma Knife figures decreased by 10.9% to 335 for the second quarter. This was primarily due to the expiration of the two contracts I just mentioned. Excluding the two expired contracts, Gamma Knife volumes for same centers in operation decreased 6% when compared to Gamma Knife volumes for those same centers during the same period of the prior year, which we view as a normal cyclical fluctuation. Gross margin increased 29.9% in dollars to $2.1 million. The gross margin percentage expanded 560 basis points to 41.5% of revenue compared to 35.9% for the second quarter of 2021. The increase was achieved despite higher international operating costs driven by increased volumes at those locations and is among the highest levels weâve ever recorded. Selling and administrative costs increased by 5.1% to $1.1 million compared to last yearâs second quarter due to higher sales, legal and related fees associated with new business opportunities like the Puebla, Mexico project that we announced in April. At our international locations, the Icon upgrade at Gamma Knife Center Ecuador remains scheduled for installation late this year as we continue to wait for the necessary regulatory approvals. It will be one of the few Gamma Knife Icon units in all of South America. We will also be placing a new LINAC accelerator at our joint venture in Puebla, Mexico which is anticipated to open in early 2023, pending licensing and regulatory approvals. In closing, with our strengthened balance sheet, improved results and resources and a renewed focus on sales and marketing, weâre excited about the future for AMS. This concludes the formal part of our presentation. Sarah, we would now like to turn the call back to you and open to questions.
Operator: Our first question comes from Tony Kamin with Eastwood Partners. Please go ahead.
Tony Kamin: Hello. Congratulations on a nice quarter. Ram, I missed the beginning of the call, so if you covered this, sorry to reask it. But can you talk a little more about the sort of, as you just said, the renewed focus on sales and marketing. And I sort of asked this question, I think, on your last quarterly call, but can you talk about maybe the arc of your pipeline, is it filling up? Are you getting further along in any potential negotiations? I mean, how should we look at kind of expectations that we can get other products out there? Thank you.
Ray Stachowiak: Thank you, Tony. I appreciate your question, and good speaking to you again. Very good question. Weâve done a great job of creating a foundation. We strengthened our balance sheet. We got more than enough resources, and we hope to put our resources to good use. The $12 million of cash we have, we still have a $7 million unused line of credit. And besides that, we can further leverage those resources. So, we are doing a significant amount of investment in our sales and marketing efforts, not just the time that individuals are spending, but we are looking also to add additional resources in the near future. As far as prospects go, I can comment that we have got very good prospects. As you know, however, there is long lead cycles in this business, and we got various prospects at various stages in that sales cycle. And we really are fairly reluctant to comment on future expectations, letâs say a year, future arrangements. I am pleased that earlier this year, we announced our joint venture in Puebla, Mexico. And thatâs just a further testament of our expanded product offerings. We are providing a linear accelerator made by Elekta, but itâs not a Gamma Knife, itâs a linear accelerator. So, with the expanded product offerings, we are finding that we are gaining some traction. Geographically, we are looking at opportunities, both in the United States and international. So, we are pursuing opportunities wherever we can see potential here. And what we are finding out is, I think we do need to add additional resources to our sales and marketing efforts. So, Tony, I hope that answers your questions with some degree of confidence.
Tony Kamin: Well, definitely. Let me ask two other sort of follow-ups on the kind of related. One, is there any given the proton beams or itâs getting to be more of a mature industry than it was, has there been continuing research that you are aware of in terms of its efficacy versus other products? And secondly, as you look at sort of the whole industry of proton beams and LINACs and everything else, do you see any trends towards more favored towards one or the other or any other kind of technology shifts that you are paying attention to and saying this is important?
Ray Stachowiak: I would like to have Craig comment on that. But before we return it over to Craig, I would like to comment in general. We do see continued positive developments on proton therapy treatments and the clinical aspects of those treatments are very positive. The other thing I would like to make just a general comment on is there continues to be a lot of innovation in this space, not just on protons, but also on photon technology. And we are probably better than ever in keeping abreast of those developing technologies so that we can evaluate those opportunities. Craig, would you like to comment?
Craig Tagawa: Yes. Thank you, Ray. I would say if you look at the major cancer centers in the United States, more and more of them are all embracing proton therapy and incorporating that into their practice. And I think that would tell you from the standpoint of â is it a vital piece of technology for major cancer centers. I think you would see that, that would verify that. I think we are also starting to see some major non-academic cancer centers now embracing proton therapy. And I think we will continue to see that trend. The other trend that we have noticed is that the MR/LINACs that Ray has talked about in the past, more and more centers that have a fair amount of patients that they are treating are now looking at this technology and wanting it. And I think if you look at both these types of technologies, they are high in capital costs. So, I think itâs these two technologies are ones that we looked at American Shared can partner with hospitals and sharing some of the risk with them in terms of both the capital allocation risk, any reimbursement risk that they might think they have and any volume risk. We do extensive due diligence with the hospital before we would enter into contracts on these two technologies. But I think both these technologies have a lot of promise, both in terms of adoption by major cancer centers, but also in the space that American Shared can participate in.
Tony Kamin: Well, thatâs very helpful. So, one final question, I just donât remember the answer. I know that you are pretty agnostic in terms of proton beam manufacturers at this point. But do you still have deposits down that you can use on the MEVION machines that I know you put deposits on quite a while ago.
Ray Stachowiak: Yes. Tony, we wrote those deposits off our balance sheet in the fourth quarter of 2020. However, if we proceeded with a purchase from MEVION, they are on our account with MEVION. So, we rolled those assets off in the fourth quarter of 2020 because we didnât have good outlook or prospects for realizing the benefit of that deposit back down. So, itâs a positive situation to be in. We are OEM agnostic in terms of our proton being investments. But if we proceeded with MEVION, we could take advantage of those deposits.
Tony Kamin: Great. Well, thanks very much for all the questions.
Ray Stachowiak: Okay.
Operator: Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Ray Stachowiak for any closing remarks.
Ray Stachowiak: Alright. Thank you, Sarah. And thank you everyone for joining us today. We have gotten four consecutive quarters of improved results. We have a strong foundation and significant resources, and we believe that AMS is on a path that I have mentioned several times during these calls of sustained growth and profitability. We look forward to speaking with you again on our third quarter call in mid-November. Please feel free to contact us directly if you have any questions before that. Be well and stay safe. Goodbye.
Operator: The conference has now concluded. Thank you for attending todayâs presentation. You may now disconnect.
