American Shared Hospital Services Q2 2024 Earnings Call Transcript

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August 14, 2024

There are 6 speakers on the call.

Operator

day, and welcome to the American Shared Hospital Services Second Quarter 20 24 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kieran Smith, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Dave, and thank you, everyone, for joining us today. AMS' Q2 2024 Earnings Press Release was issued today after the market closed. If you need a copy, it can be accessed on the company's website at www.ashs.com@pressreleasesundertheinvestors 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 period ended March 31, 2024, the annual 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 25, 2024. 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 everyone about our Q and A policy that 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.

Speaker 1

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 Q2 2024 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 Q2 results. Following the prepared remarks, we'll open the call for your questions.

Speaker 2

Now, on to the quarterly results. We're very pleased to report that AMS had a strong second quarter and we're extremely excited about the upcoming year. We continue to show market improvement and advancement in several important ways. The quarter showcased an extremely nice early benefit from the Rhode Island acquisition that we closed just this past May with an immediate gain of $4,900,000 pretax. This gain reflects the value of the net assets we acquired in excess of the purchase price we paid.

Speaker 2

I've often discussed that we are fortunate to have a robust balance sheet with significant capital to deploy for strategic initiatives and business opportunities that we come across. The Rhode Island acquisition is a great example of how we deployed approximately $3,000,000 and we're able to strategically acquire fair market value assets worth approximately $8,000,000 This was clearly an excellent allocation of our capital. The team continues to focus on strengthening our core business by working with customers to increase utilization of the equipment. This focused strategy led to the signing of 5 lease extensions in the last 15 months from our 10 domestic Gamma Knife customers with others still in the pipeline. We believe these extended agreements are a testament to our partnership business model and financial flexibility.

Speaker 2

Our international retail results are also showing continued momentum. In the 2nd quarter, we saw volumes increase following our 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 Gamma Knife in Peru, the only Gamma Knife in that country, also showed excellent results in the Q2. Just last week, we announced that our center in Puebla, Mexico has begun treating patients. This newly opened linear accelerator or LINAC that we installed has VMAT, IGRT, IMRT and radiosurgery capabilities, offering the most advanced radiation therapy available in our catchment area.

Speaker 2

And in early July, we established our 4th international center with the signing of a joint venture agreement for a Gamma Knife facility in Guadalajara, Mexico. We also continue to invest in 3 unique business opportunities previously discussed. The first of these opportunities was announced late last year for the acquisition of a 60% majority interest in 3 radiation therapy centers in Rhode Island, which closed this past May. These are our first direct patient services or retail centers in the United States. This new business, which is the first from our expanded team and new pipeline, clearly reflects our strong ambitions for the company.

Speaker 2

The second opportunity is the Certificate of Need or CON that we have been granted to build a radiation therapy center in Bristol, Rhode Island. And the 3rd opportunity is the CON that we have applied for, for a proton beam radiation therapy center in the state of Rhode Island. This proton beam radiation therapy center would be the only system between New York City and Boston. We followed quarter 1 with another solid quarter, reporting total revenue in the 2nd quarter of $7,100,000 a year over year increase of 27%. The gross margin percentage came in at 35%, which reflects the change in mix and strong growth in our retail segment.

Speaker 2

And we earned over $3,600,000 or $0.55 per share for the quarter, which is a major increase compared with the prior year's 2nd quarter. This includes an after tax gain of approximately $3,700,000 from our Rhode Island acquisition. Our operating income for the Q2 2024 was breakeven due to the additional costs related to the closing of the Rhode Island acquisition of $361,000 but compared to an operating loss of $325,000 in the Q2 of 2023, primarily due to the reduced impaired assets and removal costs. Our balance sheet remains strong. We ended the 2nd quarter with over $14,500,000 in cash, roughly equal to $2.24 per share.

Speaker 2

We also had $3,950,000 outstanding on our $7,000,000 line of credit as of June 30, 2024, which we paid off early in the Q3 of 2024. We continue to leverage these resources carefully for additional long term revenue streams. 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 centers in Guadalajara and Puebla, Mexico, The recent closing of the Rhode Island acquisition adds 3 new revenue streams to our business in addition to new business opportunities that are moving through the long and intricate sales cycle. With that, I'll turn the call over to Bob for a financial review. Bob?

Speaker 3

Thank you, Ray, and good afternoon, everyone. 2nd quarter revenue increased 27% to $7,100,000 compared to $5,700,000 in the year ago quarter. As previously discussed, we redefined our business segments to better reflect our revenue sources. Rental revenue from the company's medical equipment leasing segment, which we now refer to as leasing, was $3,900,000 for the Q2 of 2024 compared to $4,810,000 in the year ago quarter, a decrease of 19%. Revenue from the company's direct patient services or retail segment was $3,160,000 for the Q2 ended June 30, 2024 compared to $756,000 for the year ago quarter, marking an increase of 3 18%.

Speaker 3

This increase was due to the acquisition in Rhode Island and increased volumes at our existing retail locations. Additionally, the upgrade of the equipment in Ecuador added capacity, improved patient experience and volume and the Peru revenues increased due to promotion of the center throughout the country. 2nd quarter revenue for the company's proton therapy system in Florida was $2,420,000 a decrease of 5%, primarily due to continued cyclical volume changes. Total proton therapy fractions in the Q2 were 1236 compared to 13 70 proton therapy fractions in the Q2 of 2023, a 10% decrease due to normal cyclical fluctuations. Total Gamma Knife revenue decreased 9% to $2,740,000 due to a decrease in revenues from 2 expired contracts, but was nearly offset by high volume in our international location.

Speaker 3

To put this in perspective, total Gamma Knife procedures were 340 for the Q2 compared to 309 in the Q2 a year ago. However, excluding the 2 customer contracts that expired, Gamma Knife procedures increased by 65% or 24% for the Q2 of 2024. Gross margin for the Q2 of 2024 decreased 2% to $2,470,000 compared to gross margin of $2,520,000 for the Q2 of 2023. The expansion of our retail segment with its lower gross margin percentages will reduce margin percentages going forward. Selling and administrative costs decreased by 5% to $1,900,000 for the Q2 of 2024 compared to $2,000,000 in the year ago quarter.

Speaker 3

This was due to the expiration of the company's corporate office lease space, offset by related sublease income. Interest expense was $385,000 in the 2024 period compared to $277,000 in the comparable period of last year. The increase is due to an increase in the interest rate and borrowings in the company's variable rate debt. The operating income for the Q2 of 2024 was breakeven due to the additional costs related to the closing of the Rhode Island acquisition and other new business opportunities of $361,000 In the prior year quarter, the amount of costs incurred pursuing this deal were 250,000 coupled with higher selling expenses led to a 2nd quarter loss of $325,000 The income tax benefit was $31,000 for the Q2 of 2024 compared to income tax benefit of $35,000 for the same period last year. The taxes related to the bargain purchase gain reduced the gain from $4,900,000 to 3,700,000 dollars and do not impact income tax expense.

Speaker 3

Net income attributable to American Shared Hospital Services in the Q2 of 2024 was $3,600,000 or $0.55 per diluted share compared to a net loss of $111,000 or $0.02 per diluted share for the Q2 of 2023. The period over period increase was primarily due to the bargain purchase gain. Fully diluted weighted average common shares outstanding were $6,583,000 $6,336,000 for the Q2 of 2024 and 2023 respectively. Adjusted EBITDA, a non GAAP financial measure was $2,000,000 for the Q2 of 2024 compared to $1,900,000 for the Q2 of 2023. For the 6 months ended June 30, 2024, revenue increased 17% to $12,272,000 compared to revenue of $10,493,000 for the 1st 6 months of 2023.

Speaker 3

Gamma Knife revenue decreased 6% to $5,311,000 for the first half of twenty twenty four compared to $5,634,000 for the first half of twenty twenty three. The number of Gamma Knife procedures in the 1st 6 months of 2024 was 613, an increase of 2% compared to 602 Gamma Knife procedures in the comparable period of 2023 due to the steady increase of international procedures. Proton therapy revenue increased 4% to $5,069,000 for the first half of twenty twenty four compared to $4,859,000 for the first half of twenty twenty three. Total proton therapy fractions in the 1st 6 months of 2024 were 2,512, a decrease of 14% compared to 2,906 proton therapy fractions in the comparable period of 2023. Net income attributable to American Shared Hospital Services for the 1st 6 months of 2024 was $3,700,000 or $0.57 per diluted share compared to net income of 77,000 or $0.01 per diluted share for the 1st 6 months of 2023.

Speaker 3

Adjusted EBITDA, a non GAAP financial measure, was $3,800,000 for the 1st 6 months of 2024 compared to $3,800,000 for the 1st 6 months of 2023. This slight decrease was primarily due to higher fees associated with new business opportunities, including the company's acquisition in Rhode Island. At June 30, 2024, cash, cash equivalents and restricted cash was $14,500,000 compared to $13,800,000 at December 31, 2023. Shareholders' equity, excluding non controlling interest and subsidiaries, was $26,500,000 or $4.17 per outstanding share at June 30, 2024, compared to $22,600,000 or $3.59 per outstanding share at December 31, 2023. This concludes the formal part of our presentation.

Speaker 3

Thank you for joining us today. We look forward to updating you on our progress in the quarters ahead. Dave, we'd now like to turn the call back to you and open it up for questions.

Operator

We will now begin the question and answer session. You. Our first question comes from Marla Naren with Zacks. Please go ahead.

Speaker 4

Thank you. So I one question. So I just wanted to confirm a couple of things. As you continue to explore opportunities to grow the direct business, you're also continuing to pursue additional opportunities on the leasing side of the business? And along with that, once or once you begin to upgrade the equipment at Sacred Heart, should we anticipate that there will be service interruptions there that will fall into 3Q and potentially 4Q as well?

Speaker 4

Thank you.

Speaker 2

Thank you, Marla, for your question. Appreciate it. We have been focusing on both of our segments, the leasing segment where we lease our equipment and the retail segment where we own and operate substantially majority control of our own centers that provide the services to the patients directly and our centers that bill the patients or the patients' insurance company. We're pursuing both segments, but I think you can tell from the Rhode Island acquisition and the opening of our operation in Puebla, Mexico and the signing of a new center in Guadalajara, Mexico that our focus and the business opportunities we're signing up are more in the retail segment. So we're looking very favorably towards that retail segment in our business model.

Speaker 4

Thank you. And in terms of any downtime at the Sacred Heart venue?

Speaker 2

I'm not at liberty to discuss any individual site.

Operator

Okay.

Speaker 4

Thank you.

Operator

Our next question comes from Toni Camin with Eastwood Partners. Please go ahead.

Speaker 5

Hi, Ray. Question just for clarification, the acquisition of Rhode Island, I think concluded in the 1st or 2nd week of May. So this quarter that you just reported didn't include a full 3 months. Is that correct?

Speaker 2

That is correct.

Speaker 5

Okay. So that's great. And then in terms of maybe your early learning, if any yet, I know it's very early, but having this direct relationship, are you guys learning something from it? And I'm asking that also specifically in relation to the projected proton beam in Rhode Island. You said you got or you applied for the certificate.

Speaker 5

Has the timeline of that changed any from the last call?

Speaker 2

The timeline for the CON application, we continue to have delays in scheduling the hearing for the CON, but it is looking like it's getting closer to have a hearing on the CON. And we really don't expect any negative feedback from that process. What we've been learning, we have been learning, we're always learning, but we do have a very experienced team, myself and Craig and Greg Mercurio is our Senior Vice President of Radiation Oncology. He's not on the call here today. But we probably each have 3 decades or more of experience owning and operating such centers in one such form or another.

Speaker 2

Each situation is unique and you're going to learn from it. So we are experiencing a learning curve, but we've got great team of individuals that I'd say are very confident in owning and operating these centers and making them successful. And here we are, we made this acquisition and it was from a bankruptcy process and we benefited from that process. And when you make acquisitions, a lot of times you value the assets and the value of the assets is less than your purchase price and you wind up recording some goodwill on your books. Here it's just the opposite.

Speaker 2

We paid about $3,000,000 approximately and we acquired assets with a fair market value of about $8,000,000 a $5,000,000 or $4,900,000 whatever the number is here approximately gain on that acquisition. And it's just remarkable. And not only have we been able to process that gain $3,700,000 after tax, but now we have 3 really good radiation therapy cancer centers in the State of Rhode Island that I think you'll see the benefits of owning and operating those in the coming quarters.

Speaker 5

It's really exciting as a long time shareholder to see so much sort of momentum and different projects going on. I can't quite recall a time when that was the case. So in that light, sort of my final question in, although I want to slip one comment in there. Are you doing more marketing for the or changing the marketing for the Rhode Island centers? And then my last question is, there's a quote from Craig in the news release saying, we have continued to see a significant increase in the breadth of opportunities for consideration.

Speaker 5

Our sales pipeline remains extremely strong with additional projects. Is there any sort of further color you can give on that? Thank you.

Speaker 2

Well, we're keeping our eyes and ears, I'll say, close to the marketplace. And the result of it was Rhode Island. I mean, we came across this opportunity by keeping our eyes and ears close to the market on the ground, what's going on and what opportunities exist out there. And we took a little bit of a step back when Peter Gascioni, our CEO passed away earlier this year. But we've regained, we've kind of strengthened our management team and some of the duties and responsibilities.

Speaker 2

And we've got a good team of people pursuing these opportunities. And it's probably a bigger, better pipeline than we've ever had.

Speaker 5

That's great. Congratulations.

Operator

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

Speaker 2

Okay. Thank you, Dave, and thank you for everyone who joined us today. We're really excited about our future. We believe that AMS is at a critical inflection point, especially following the recent Rhode Island acquisition. We look forward to updating you on our continued progress.

Speaker 2

And as always, 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.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
American Shared Hospital Services Q2 2024
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