American Shared Hospital Services Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 14, 2024

There are 6 speakers on the call.

Operator

Good afternoon, everyone, and welcome to the American Shared Hospital Services First Quarter 2024 Earnings Conference Call. All participants will be in a listen only mode. Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Kieran Smith with PCG Advisory. Please go ahead.

Speaker 1

Thank you, operator, and thank you, everyone, for joining us today. AMS' Q1 2024 earnings press release was issued this afternoon after the market closed. If you need a copy, it can be accessed on the company's website at www.ashs

Operator

dotcom@pressreleasesundertheinvestorstab.

Speaker 1

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. 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 ks for the year ended December 31, 2023, 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.

Speaker 1

Before I turn the call over to Ray, I'd like to remind everyone about our Q and A policy, where we provide each participant the time to ask one question and one follow-up. As always, we'll be happy to take additional questions offline at any time. With that, I'd now like to turn the call over to Ray Stokowiak, Executive Chairman and CEO. Ray, please go ahead.

Speaker 2

Thank you, Karen. Good afternoon, everyone. Thank you for joining us today for our Q1 2024 earnings conference call. I'll begin with some opening remarks and then turn the call over to Bob Hyatt, our CFO, for a financial review of the Q1 results. Following the prepared remarks, we'll open the call for your questions.

Speaker 2

Before I turn to our results, I'd like to acknowledge the unexpected passing of our Chief Executive passing of our Chief Executive Officer, Peter Gascioni. We are deeply saddened by Peter's passing. He will be dearly missed. Peter's enthusiasm, integrity and empowering leadership style shaped the organization over the last 18 months and its tremendous contribution to AMS will not be forgotten. Peter's legacy lives on and we wish his family, friends and colleagues very happy memories.

Speaker 2

With Peter's passing, we announced several management changes to ensure seamless operations as we capitalize on our growth trajectory. I've taken on the CEO position in addition to my Executive Chairman role and the company's President, Craig Tagawa has become President and Chief Operating Officer. Bob Hyatt continues to serve as our company's Chief Financial Officer. Ernie Bates will continue in the role of Vice President of International Sales and Marketing, and Curtis Ellis will continue to serve as Director of Sales, Western Region, USA. We are also very pleased to announce that Ranjeet Pratham was promoted from Head of Marketing and Customer Advocacy to Vice President of Customer Advocacy and Global Marketing.

Speaker 2

Mr. Pradham brings 30 years of experience in healthcare to the role, having served in product management, marketing, technology and general management positions at Fortune 100 Companies and global leaders like GE, Abbott, Elekta, Sysmex and Philips. With our acquisition of a 60% interest in 3 radiation therapy centers in Rhode Island, we announced the appointment of Greg Mercurial as our Senior Vice President of Radiation Oncology. Mr. Mercurial brings deep experience in the radiation oncology field to this role, including 20 years in certificate of need attainment for the development and operation of radiation therapy facilities.

Speaker 2

He's built a strong network of relationships with physicians, hospitals and OEMs for making the use of high technology medical equipment more accessible. Mr. Mercurio served a nationally renowned provider of radiation therapy for 15 years, strategizing the attainment of certificates of need to establish 5 radiation therapy centers in Rhode Island and joint venture partnership with 5 community hospitals, feeding over 1,000 patients a year and generating $9,000,000 to $10,000,000 a year in revenue. He has served as a radiation business consultant to major healthcare systems across the country, freestanding radiation oncology providers and manufacturers of radiation therapy products. So as you can see, we have a robust senior management team to drive additional momentum as we continue to execute on our growth strategy.

Speaker 2

Now let's go on to the quarterly results. We're pleased to report that AMS had a good first quarter and we're extremely excited about the coming year. We have continued to show market improvement in advancement in several important ways. Notably, the sales team has been showing nice momentum and our sales pipeline is extremely strong. In fact, with the Rhode Island acquisition that we just closed, our projected revenue backlog has more than doubled to over $210,000,000 This is due not only to the team Together, these

Operator

factors

Speaker 2

have resulted in Together, these factors have resulted in significantly increasing the breadth of opportunities for our consideration. These include a range of advanced radiation therapy equipment in various settings, as well as the expansion of our business model also develop our own operated majority owned proton beam and radiation oncology centers in the United States. The team continues to focus on strengthening our core business by working with customers to increase utilization of their equipment. This focused strategy led to the signing of 4 lease extensions from our 10 domestic ammonite customers over the last 12 months. We have others in the pipeline.

Speaker 2

We believe these extended agreements are a testament to our partnership business model and financial flexibility. What's really impressive is that this is up significantly from prior years, which is a testament to our focus, determination and execution. International results have also continued to heaten up. In the Q1, we saw volumes increasing following the completed equipment upgrade in Ecuador to a new state of the art Gamma Knife Icon, the only Gamma Knife in Ecuador for non invasive radiosurgery. Our Gama Knife in Peru, the only Gama Knife in that country, also showed excellent results in the Q1.

Speaker 2

Our 3rd international center in Puebla, Mexico remains on track to begin treating patients in the next 60 days. This newly opened linear accelerator in Puebla, Mexico that we're installing will have VMAT, IGRT and radiosurgery capabilities, offering the most advanced radiation therapy available in that catchment area of Puebla, Mexico. We also continue to invest in the 3 unique business opportunities in Rhode Island previously discussed. The first of these deals was announced in the Q4 for the acquisition of a 60% majority interest in 3 radiation therapy centers in Rhode Island. This acquisition closed last week.

Speaker 2

These are our 1st direct patient services or retail centers in the United States. This new business, which is the first for our expanded team and new pipeline, clearly reflects our strong ambitions for the company. We started the year with a solid quarter, reporting total revenue in the Q1 of $5,200,000 a year over year increase of 5.9%. Gross margin was $2,100,000 a 12.3% increase reflecting tight control over direct costs and positive operating leverage. The gross margin percentage came in at 41%.

Speaker 2

We earned $0.02 per share for the quarter, a slight decrease from $0.03 per share in the prior year's Q1. Our balance sheet remains strong. We ended the Q1 with over $13,000,000 in cash and equivalents, roughly equal to $2 per share. We also had $2,400,000 outstanding on our $7,000,000 line of credit as of March 31, 2024, which has been paid off early in the Q2 2024. We continue to leverage these resources carefully for additional long term revenue streams.

Speaker 2

As we look into the coming months, we expect stronger international growth from additional treatment capabilities in Ecuador, continued strong volume from our center in Peru, and the opening of the new center in Fuego. The recent closing of the Rhode Island acquisition adds 3 new revenue streams to our business. In addition to the new business opportunities that are moving through our pipeline through that intricate and long sales cycle. We are excited to share more details at the appropriate time. With that, I'll turn the call over to Bob for a financial overview.

Speaker 3

Thank you, Ray, and good afternoon, everyone. First quarter revenue increased 5.9 percent to $5,200,000 compared to $4,900,000 in the year ago quarter. As previously discussed, we redefined our business segments to better reflect our revenue sources. Central revenue from the company's Medical Equipment Leasing segment, which we now refer to as leasing, was $4,300,000 for the Q1 2024 compared to $4,200,000 in the year ago Q1, an increase of 0.6 percent. Revenue from the company's direct patient services or retail segment was 900 and $63,000 for the Q1 ended March 31, 2024 compared to $696,000 for the year ago quarter, marking an increase of 38.4 percent.

Speaker 3

The upgrade of the equipment in Ecuador added capacity and improved patient experience and volume, and the Peru revenues increased due to the promotion of the center throughout the country, which accounted for the increase. 1st quarter revenue for the company's proton therapy system in Florida was $2,600,000 an increase of 14.5%, primarily due to continued increases in average reimbursement despite a decrease in fraction. Total proton therapy fractions in the Q1 were 1276 compared to 1536 proton therapy fractions in the Q1 of 2023, a 16.9% decrease due to normal cyclical fluctuation. Total Gamma Knife revenue decreased slightly by 1.7 percent to $2,600,000 due to a decrease in procedures from 2 expired contracts as well as downtime at 2 sites for the installation of upgraded equipment, but it was nearly offset by high volume in our other locations, particularly Peru and Ecuador. To put this in perspective, total Gamma Knife procedures were 273 for the Q1 compared to 293 in the Q1 a year ago.

Speaker 3

However, excluding the 2 customer contracts that expired, Gamma Knife Gross margin for the Q1 of 2023 increased 12 point I'm sorry, for the Q1 of 2024, it increased 12.3% to $2,100,000 compared to gross margin of $1,900,000 for the Q1 of 2023. Selling and administrative costs increased 22.1 percent to $1,900,000 for the Q1 of 2024 compared to $1,500,000 in the year ago quarter. This includes approximately $377,000 that we've invested in pursuing new business opportunities as Ray has talked about. Net interest expense was $237,000 in the 2024 period compared to $184,000 in the comparable period of last year. The increase is due to an increase in the interest rate and borrowings on the company's variable rate debt, offset by increases in interest income on the company's strong cash balance.

Speaker 3

The operating loss for the Q1 of 2024 was $85,000 compared to operating income of $98,000 in the Q1 of 2023, which reflects higher selling and administrative expense associated with our recent Rhode Island activity. The income tax benefit of $44,000 for the Q1 of 2024 compared to income tax expense of $68,000 for the same period last year was primarily due to a change in a deferred tax valuation allowance. Net income attributable to American Shared Hospital Services in the Q1 of 2024 was $119,000 or $0.02 per diluted share compared to net income of $188,000 or $0.03 per diluted share for the Q1 of 2023. Fully diluted weighted average common shares outstanding were 6,576,000 dollars 6,472,000 for the Q1 of 2024 and 2023, respectively. Adjusted EBITDA, a non GAAP financial measure, was $1,700,000 for the Q1 of 2024 compared to $1,900,000 for the Q1 of 2023.

Speaker 3

At March 31, 2024, cash, cash equivalents and restricted cash was $13,040,000 compared to $13,810,000 at December 31, 2023. Shareholders' equity, excluding non controlling interest in subsidiaries, was $22,840,000 or $3.61 per outstanding share at March 31, 2024 compared to $22,620,000 or $3.59 per outstanding share We look forward to updating you on our progress in the quarters ahead. Operator, we now like to turn the call back to you and open for questions.

Operator

Our first question today comes from Amarin from Zacks. Please go ahead with your question.

Speaker 4

Thank you. So obviously very strong results. I'm wondering about when you upgrade a device, and obviously that's something that you're talking to customers about. When you upgrade, is there a little bit of downtime associated with the upgrade even after the machinery is installed on-site because of the need to train the medical staff that will be using the device?

Speaker 2

Yes, there is downtime. When Gamma Knife is upgraded and we've done a number of them recently, it typically is about 50 days of downtime to de install the old Gamma Knife, install the new one and go through the credentialing process, commissioning of the new Gamma Knife. So there is about 60 days plus or minus, I'll say 15 to 30 days on that 60 day timeline downtime.

Speaker 4

Okay, got it. And here's my follow-up. So, would it be fair to say though that with the Rhode Island facilities coming on board, the equipment is already in place and the staff has already been working with the equipment and so you're not anticipating any kind of downtime or is that not the right way to think about

Speaker 2

it? No, the correct way of thinking about it is there is no downtime. They were treating patients on Tuesday, May 7, the last day of ownership of the seller, and they are treating patients on Wednesday, May 8, the first day of our ownership. And that revenue will hit our books in the Q2 beginning with the patients that were treated last week Wednesday, May 8 and they're on. That's one of the benefits of doing an acquisition like this.

Speaker 2

You get an immediate bump in your revenue and profitability from an acquisition. And I contrast that with the agreement we signed in Puebla, Mexico, we're installing the equipment and we expect to be treating our first patient in the next 60 days, but we signed that agreement almost 2 years ago. So signing of the agreement in a joint venture like this in Pueblo, Mexico and and commissioning and the training involved and the preparation of the facility itself.

Speaker 4

Okay. Thank you very much.

Operator

And our next question comes from Aaron Granowitz from who is a private investor. Please go ahead with your question.

Speaker 5

Hi, Raine, team, solid quarter guys. I have a question regarding the 2 new growth opportunities in Rhode Island. Can you speak to the length of time it takes to get the certificate of need? And in the meantime, are you able to work on-site acquisition for the new proton beam center and also the new radiation center? And so if you can kind of walk us through what is the time from now and construction time and how that kind of looks?

Speaker 2

That's a very good question. Thank you for asking it. I'd like to clarify, sometimes I want to make sure everyone understands, we've been pursuing 3 opportunities in Rhode Island. And the first one is the acquisition of these 3 radiation therapy centers. I don't want to get confused that the 3 opportunities are the 3 radiation therapy centers we just acquired.

Speaker 2

That's the first opportunity in Rhode Island, 3 radiation therapy centers. The second opportunity is to open a 4th radiation therapy center, which we would build from the ground up basically. And we're not really interested in owning the facility, we'd probably lease the facility from a REIT, but we'd own and operate the radiation therapy center in that facility. That facility is targeted to go into Bristol, Rhode Island, which is on the east side of Rhode Island and I'll say in an underserved community. We expect to have a hearing on the CON that's required sometime in the very near future and will I'm sure that will be well received, I'll just say.

Speaker 2

The third opportunity and to comment on the Bristol facility, it will take some time to build that facility, install the equipment. I'm going to say that the revenue on that and the first patient being treated at that opportunity. The 3rd and final opportunity has even a longer timeline associated with it. We have applied for CON to operate a proton beam radiation therapy center that we would own and operate in Rhode Island. We have a targeted site for that center that we're not yet ready to disclose.

Speaker 2

There is a CON that hearing has not yet been scheduled. So we're awaiting the scheduling of that hearing by the Rhode Island Department of Health for that CON, for the proton beam. The timeline for the proton beam is even longer. I would estimate that once we have a CON in place, it could take 2, sometimes up to 3 years before the first patient is treated, even if we're fairly aggressive in the site acquisition, construction design. The vault is a very complex construction project.

Speaker 2

So that timeline is even further out. But it's well worth being patient. We've had an excellent experience in our proton beam relationship that we currently have in Orlando, Florida. And all good things take time.

Speaker 5

Okay. That's some helpful color. As a follow-up regarding the new Puebla, Mexico location, I believe in the press release, you guys guided the first patient will be treated in the next 60 days. You help understand, is that longer than previously expected in terms of the start up? And also in terms of a ramp up of such a facility, if you can give an idea of how long does it take to get into more or less full capacity as time goes on?

Speaker 5

Thank you.

Speaker 2

We are disappointed about the timeline for the start up at Pueblo. And I got to say that for the most part, it was for things that we do not control, the regulatory environment, the licensing, the credentialing, the construction, as much as our team has tried to expedite the initiation of services at that center, it just hasn't gotten done. And for that, I'm a bit disappointed, quite frankly. I have a I want to understand when you talked about full capacity, what you're meaning by that full capacity concept, Aaron?

Speaker 5

Well, I mean, if we use 100% of the machine running non stop full capacity, there's the 1st patient treated. So what's kind of the arc and timeline of 1st patient treated and maybe it's only at 10% of the capacity of the machine versus as time goes along, how can we kind of view the arc of that?

Speaker 2

I would expect the ramp up to be gradual, but we have continuous ramping up. Most of the time, the equipment never reaches full capacity and you don't need full capacity to be profitable. And we want it to operate at full capacity, obviously, because our cost structure in that situation is very fixed. And the more utilization, the better the bottom line. Almost everything falls down to the bottom.

Speaker 2

So we strive to increase that capacity all the time.

Operator

Ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the floor back over to Ray Stecowiak for closing comments.

Speaker 2

Thank you, Jamie, and thank you everyone who joined us today. We're clearly excited about our future and believe that AMS at a critical inflection point, especially as we nearly doubled our projected revenue backlog year over year. We look forward to updating you on our continued progress. And if you have any questions in the meantime, please do not hesitate to contact us directly. Thank you for your continued interest in American Shared Hospital Services.

Speaker 2

Have a great day.

Operator

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect

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Key Takeaways

  • Acquisition boosts backlog: Acquired a 60% interest in three Rhode Island radiation therapy centers, doubling projected revenue backlog to over $210 million and adding immediate patient service revenue streams.
  • Q1 revenue and margins climb: Q1 2024 revenue rose 5.9% year-over-year to $5.2 million with gross margin up 12.3% to $2.1 million, yielding GAAP EPS of $0.02 per share.
  • Executive leadership transition: After the unexpected passing of CEO Peter Gascioni, Ray Stokowiak now serves as CEO and Executive Chairman, supported by several key promotions to maintain seamless operations.
  • International expansion gains momentum: Completed Gamma Knife upgrades in Ecuador and Peru and will begin treating patients within 60 days at a new Puebla, Mexico center featuring advanced VMAT, IGRT and radiosurgery capabilities.
  • Operating loss widens: Reported an $85,000 operating loss in Q1 2024 versus $98,000 income last year, reflecting $377,000 of increased SG&A investment in new business opportunities.
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Earnings Conference Call
American Shared Hospital Services Q1 2024
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