American Shared Hospital Services Q4 2023 Earnings Call Transcript

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March 28, 2024

There are 6 speakers on the call.

Operator

Good day and welcome to the American Shared Hospital Services 4th Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Stephanie Prince of PCG Advisory. Please go ahead.

Speaker 1

Thank you, Betsy, and thank you to everyone joining us today. AMS' Q4 2023 earnings press release was issued yesterday after the market closed. If you need a copy, it can be accessed on the company's website at ashs.com at press releases under the Investors tab. 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 may be 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.

Speaker 1

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 company's filings with the SEC. This includes the company's quarterly report on Form 10 Q for the 3 month periods ended March 31, June 30 September 30, 2023, the annual report on Form 10 ks for the year ended December 31, 2022 and the definitive proxy statement for the annual meeting of shareholders that was held on June 20, 2023. The company assumes no obligation to update the information contained in this conference call. Before I turn the call over to Ray, I'd like to remind participants that we're going to limit all questioners to one question and one follow-up. As always, we'll be happy to take additional questions offline at any time.

Speaker 1

With that, I'd now like to turn the call over to Ray Stecoriat, Executive Chairman. Ray?

Speaker 2

Thank you, Stephanie, and good day to everyone. Thanks for joining us today for our Q4 2023 earnings conference call. I'll begin with some opening remarks and then turn the call over to Bob Hyatt, our Chief Financial Officer, for a financial review of the Q4. Following the prepared remarks, we'll open the call for your questions. Before I turn to our results, I'd like to acknowledge the passing of our Founder and Long Time Chairman, CEO and friend, Doctor.

Speaker 2

Ernest Bates. Doctor. Bates was 87 when he died last week. He was a highly respected board certified neurosurgeon, entrepreneur and philanthropist and was known as a trailblazer and champion for equitable medical care for those in underserved communities. Personally, I've known Doctor.

Speaker 2

Bates for many years. He invited me to join our Board of American Shared in 2,009, and he was a good friend. I know that we're all going to miss him, his wise counsel and his incredible sense of humor. Now I'd like to transition to our results. By almost every measure, AMS had a good year in 2023.

Speaker 2

We made continual improvement as the year progressed and advanced in several important ways. Notably, the sales team we put together last year has gelled and we ended the year with the strongest sales pipeline in many years. This is due not only to the team who are well known in our industry, but also to our expanded financial solutions and closer integration with our strategic OEMs. Together, these factors have resulted in significantly increasing the breadth of opportunities for our consideration. These include a range of advanced radiation equipment in various settings as well as the expansion of our business model to also consider the development of our own majority owned proton beam and radiation oncology centers in the United States.

Speaker 2

We would own and operate these centers with this expansion of our business model. The team was also responsible for strengthening our core business by working with customers to increase utilization of their equipment and assist in the signing of 4 lease extensions. That is 4 of our 10 domestic ammonite customers signed extensions over the last 15 months and there are others in the pipeline. We believe these extended agreements are a testament to our partnership business model and financial flexibility. International results are also heating up.

Speaker 2

In the Q4, we completed the equipment upgrade in Ecuador to a new state of the art Gamma Knife icon. This is the only Gamma Knife in Ecuador for non invasive radiosurgery. Already, our volumes are up for the quarter despite the downtime we had for the installation. Our 3rd international center in Puebla, Mexico is going to begin treating patients in the 2nd quarter. When it opens in a few weeks, the linear accelerator or LINAC that we installed with VMAT, IGRT and radiosurgery capabilities will offer the most advanced radiation therapy available in our catchment area.

Speaker 2

We've also continued to invest in 3 unique business opportunities that I've mentioned before. We announced the first of these deals during the Q4. It is an acquisition of a 60% majority interest in 3 radiation therapy cancer centers in Rhode Island. Importantly, these will be our first direct patient services or retail centers in the United States when the acquisition is completed. We look forward to closing this deal soon and disclosing more details, but until then, suffice to say that we believe in this new business, the first from our expanded team and our new pipeline as an indicator of our ambitions for our company.

Speaker 2

I'd like to repeat, we will own and operate 60% ownership, our own radiation therapy centers in the United States when we close on this acquisition. This is a very natural progression of our business model. We ended the year with the strongest quarter, reporting total revenue in the 4th quarter of $5,700,000 a year over year increase of 13%. Gross margin was $2,800,000 a 24% increase, reflecting continued tight control over direct costs and positive operating leverage. The gross margin percentage was at 49% of revenue, a level that hasn't been reached since 2019.

Speaker 2

We earned $0.06 per share in the 4th quarter despite the headwinds of $350,000 in Rhode Island costs and $362,000 of additional reserves dollars Gross to $21,300,000 Gross margin was $9,300,000 an 11.5% increase. The gross margin percentage was 44%. We earned $0.10 per share despite Rhode Island expenses of $919,000 for the whole year and additional reserves for impaired assets and removal costs of $940,000 for the year. We expect these headwinds to significantly $13,800,000 in cash and equivalents, roughly equal to $2.19 per share. At year end, we also had $4,500,000 available on our $7,000,000 line of credit, all of which was repaid in the Q1.

Speaker 2

We're working hard to leverage these resources into additional long term revenue streams for our company. Looking ahead, we expect stronger international growth from additional treatment capabilities in Ecuador and the opening of our new center in Puebla. The projected closing of the Rhode Island acquisition will add 3 additional new revenue streams to our business. We have additional opportunities advancing through our complex and long sales cycle as well. We look forward to announcing more details at the appropriate time.

Speaker 2

With that, I'll turn the call over to Bob for a financial overview.

Speaker 3

Thank you, Ray, and hello, everyone. 4th quarter revenue increased 13.1% to $5,700,000 compared to $5,000,000 in the year ago quarter. We redefined our business segments to better reflect our revenue sources. Rental revenue from the company's medical equipment leasing segment, which we'll refer to as leasing going forward, was $4,800,000 for the Q4 of 2023 compared to $4,300,000 in the year ago Q4, an increase of 12%. Revenue from the company's direct patient services or retail segment was $913,000 for the 4th quarter ended December 31, 2023, compared to $764,000 for the same period in the year ago quarter, an increase of 19.5%.

Speaker 3

4th quarter revenue for the company's proton therapy system in Florida was $3,100,000 an increase of 39.9 percent, primarily due to continued increases in average reimbursement as well as an increase in fractions. Total proton therapy fractions in the Q4 were 12.75 compared to 9.81 proton therapy fractions in the Q4 of 2022, an increase of 30% or 294 fractions, which is within the typical quarterly fluctuation range. Total Gamma Knife revenue decreased 8.4 percent to 2,600,000 dollars The decrease in overall Gamma Knife revenue is primarily due to a decrease in procedures from 2 expired contracts as well as downtime at 2 sites for installation of upgraded equipment. Total Gamma Knife procedures were 277 for the 4th quarter compared to 3 29 in the Q4 a year ago, a decrease of 15.8% or 52 procedures, reflecting the 2 expired contracts and downtime for upgrades that were mentioned earlier. Gross margin for the Q4 of 2023 increased 24.1 percent to 2.8 $1,000,000 compared to gross margin of $2,300,000 for the Q4 of 2022.

Speaker 3

The gross margin percentage reached a record high of 49.4% compared to 45.1% in the comparable quarter, the highest expense since 2019. Selling and administrative costs increased by 23.9 percent to $1,800,000 in the Q4 of 2023 compared to $1,400,000 in the year ago quarter. This includes approximately $350,000 that we've invested in pursuing new business opportunities as Ray talked about, as well as higher sales and marketing expenses. Net interest expense was $175,000 in the 2023 period compared to $192,000 in the comparable period of last year. The decrease is due to an increase in the interest rate on the company's variable rate debt, offset by increases in interest income on the company's growing cash balance.

Speaker 3

Operating income for the Q4 of 2023 was $407,000 compared to operating income of $590,000 in the Q4 of 2022, which reflects the higher selling and administrative expenses, plus an increase in reserves for impaired assets and removal costs of $362,000 in the current period. Income tax expense was $338,000 for the Q4 of 2023, modestly higher compared to income tax expense of $333,000 for the same period last year. This was primarily due to the higher taxable income offset by permanent tax differences recorded last year. Net income attributable to American Shared Hospital Services in the Q4 of 2023 was $415,000 or $6 per diluted share compared to net income of $246,000 or $0.04 per diluted share for the Q4 of 2022. Fully diluted weighted average common shares outstanding were $6,552,000 $6,284,000 for the Q4 of 2023 and 2022, respectively.

Speaker 3

Adjusted EBITDA, a non GAAP financial measure, was $2,700,000 for the Q4 of 2023, compared to $2,200,000 for the Q4 of 2022. At December 31, 2023, cash equivalents and restricted cash was $13,800,000 compared to $12,500,000 at December 31, 2022. Shareholders' equity, excluding non controlling interest to subsidiaries, was $22,600,000 dollars or $3.59 per outstanding share at year end compared to $21,600,000 or $3.50 per outstanding share at December 31, 2022. This concludes the formal part of our presentation. Thank you for joining us today, and we look forward to updating you on our progress in the quarters ahead.

Speaker 3

Betsy, we'd like to turn the call back to you and open it up for questions.

Operator

The first question today comes from Tony Khan with Eastwood Partners. Please go ahead.

Speaker 4

Sure. Hello. I guess first just like to echo the statements you made on Doctor. Bates. He was really an exceptional person and a great boss.

Speaker 4

My first question is, Ray, on I noticed last year on the full year results, both the proton beam business was, I think, $10,100,000 in revenue, the Gamma Knife just a little bit higher. So on 1 proton beam, you're basically showing pretty equivalent revenues to the whole Gamma Knife operation. So I was glad to hear in your intro that the company considering doing looking for potentially wholly owned proton beams to kind of get that side of the business going. Can you talk a little more about that and what you see as the potential opportunity and anything any more color on the proton beam side would be great. Sure.

Speaker 2

That's a very good observation, Tony, and thanks for joining us again today. Appreciate it. But yes, we are very consciously pursuing proton beam opportunities, not necessarily on a leasing the local healthcare systems, so that we have a good partnership with all parties in that region wherever we decide to go. But we would like to have majority ownership of that owned and operated business model. We've diversified in a lot of ways this past year or 2, and this is another way of diversification.

Speaker 2

And in the case of the acquisition of Rhode Island, we're owning and operating our own radiation therapy centers. And we have been doing that at our international locations, but not domestically. And it's just a lot of different opportunities by how we've pivoted our business model, just opens up a whole greater universe of opportunities for us to pursue. And owning operating and having majority control ownership of a proton beam radiation therapy center is in our business model. We're pursuing those opportunities, Tommy.

Speaker 4

Yes, I think that would be great. And as a follow-up, just on Rhode Island with Genesis Care, is there I know their portfolio is pretty large and expansive. Are there more opportunities like the one you're pursuing in Rhode Island potentially arising out of that situation with GenesisCare?

Speaker 2

We have not developed a very good local management and knowledge of capabilities in Rhode Island. And we're kind of, I'll say, taking one step at a time for the moment.

Speaker 4

Fair enough. Thanks very much.

Operator

The next question comes from Michael Cooper, a Private Investor. Please go ahead.

Speaker 5

Good afternoon. And I echo the sentiments around Doctor. Bates. It's unfortunate to see his passing. My question is with regard to Rhode Island.

Speaker 2

Could you

Speaker 5

clarify what I see as the business model there from what I picked up from your news release and reading some other items. So I see that you've got 3 existing clinics with state of the art equipment, which I'm assuming is 5 $1,000,000 per location in and around that type of quantum. And they've got 70 customers a day coming in for procedures, I believe. And if I read it correctly, a procedure is worth about $6,000 I could be off there. But I think that's the average procedure fee that you're getting right now.

Speaker 5

So am I working with the right type of numbers on the kind of daily revenue, maybe $400,000 daily revenue on these three operations? And did you pick up something to the order of $15,000,000 worth of equipment for $2,800,000

Speaker 2

Tony or Michael rather, I'm not really ready to share too much information about this opportunity. We're still in this process of closing the transaction, which we do expect to occur, I'll say, in the next 30 days. I can, I'll say, correct some of your assumptions. We expect the $6,000 per procedure might be an appropriate amount per patient. And keep in mind, those patients might get anywhere from 10 to 30 treatments for their radiation treatment of cancer.

Speaker 2

So the 70 patients, 70 a day is more of a treatment number. Do you follow my train of thought?

Speaker 5

Yes. Yes.

Speaker 2

Okay. So I can comment. I mean, I'm sure our investors, their appetite is wetted a bit. I can make some general comments that we do expect revenue from these three centers to be in the $9,000,000 or $10,000,000 annual range. That is a significant increase from the $21,000,000 a year we have currently.

Speaker 2

And keep in mind that we won't see the full effect of it for the 2024 because we're only going to have 8.5 months maybe of revenue in 2024 of that $9,000,000 to 10,000,000 dollars I can also add that we expect our net income to be positive. I can expect a contribution to EBITDA from this acquisition, but I can't go much further than that. I can say that 2 of the 3 centers have really good equipment, a 3rd less desirable. So the $5,000,000 might not be a correct assumption on your part either, Michael. Okay?

Speaker 2

And that's probably as far as I can go without crossing. Great.

Speaker 5

Very helpful.

Speaker 3

Okay.

Speaker 5

And as a follow-up, could we get a little bit of color on the revenue potential of Pueblo Mexico as well as the increase in Ecuador from the equipment upgrade?

Speaker 2

I can't talk too much about individual situations. I can tell you that in the case of Puebla, I would expect at least $1,000,000 of incremental revenue from this new revenue stream in the 1st 12 month period. And once again, we will not have that full year effect in 2024. It will come on in 2025 for a full year. We're expected treat our first patient in May of 2024.

Speaker 2

In Ecuador, I think we'll see some increases from that account, but I can't comment too much individually. Is that helpful?

Speaker 5

That's very helpful. Thank you very much and look forward to the next year.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Ray Stokowiak for any closing remarks.

Speaker 2

Yes. I think one point I'd like to make is the Rhode Island acquisition is an increase in our future revenue almost immediately. When we close on that transaction, we'll start recognizing revenue on the 1st day thereafter to close. And this is an important distinction. If you look at our situation in Puebla, we own we're owning and operating 85 percent ownership, and we agreed to this arrangement in late 2022 and our revenue stream from that situation is not coming on until the Q2 of 2024.

Speaker 2

So there is that's a really good example of how long of a sales cycle and implementation cycle we sometimes have. And by growing by acquisition, it gives us immediate jump in our revenue and profitability from day 1. So that's one of the reasons I'm very, very bullish on this opportunity and anxious to proceed along those lines. With that, I'd like to thank everyone who joined us today. I really believe AMS is at an inflection point.

Speaker 2

We're excited about the future and I hope you all stay tuned. We'll speak with you next on our Q1 call in mid May, and please contact us directly if you have any questions before then. Be well and stay safe. Thanks for your time today. Goodbye.

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Earnings Conference Call
American Shared Hospital Services Q4 2023
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