American Shared Hospital Services (AMEX:AMS) Q4 2022 Earnings Call Transcript

American Shared Hospital Services (AMEX:AMS) Q4 2022 Earnings Call Transcript March 24, 2023

Operator: Hello, and welcome to the American Shared Hospital Services Fourth Quarter 2022 Earnings Conference Call. Please note, today’s event is being recorded. I would now like to turn the conference over to Stephanie Prince of PCG Advisory. Ms. Prince, please go ahead.

Stephanie Prince: Thank you, Keith, and thank you to everyone joining us today. AMS’ fourth quarter 2022 earnings press release was issued this morning before the market opened. 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. 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 reports on Form 10-Q for the 3-month periods ended March 31, 2022, June 30, 2022, and September 30, 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, Executive Chairman of AMS. Ray?

Raymond Stachowiak: Thank you, Stephanie, and good day, everyone. Thank you for joining us today for our fourth quarter 2022 earnings conference call. I’ll begin with some opening remarks. And then turn the call over to Craig Tagawa, our President and CFO, for a financial review of our fourth quarter. Peter Gaccione, American Shared’s newly appointed Chief Executive Officer will then spend a few minutes talking about his priorities and his plans for American Shared. Following the prepared remarks, we’ll open the call up for your questions. Our most exciting news recently is that on March 10, the Board of Directors appointed Peter Gaccione as our Chief Executive Officer. As you may remember, Peter joined American Shared 6 months ago as our COO after 40 years in the medical oncology business.

He’s very well known and respected. Many of us here at American Shared have known him for many years. He comes to us with strong market knowledge and professional contacts from across the entire radiation oncology spectrum. I am now Executive Chairman of the Board, and I remain the largest shareholder of the company, approximately 20% of the outstanding stock. I plan to continue to be actively involved in the operations of the company as we work together to solidify the growth and profitability trends that we have firmly established in the year just ended. As we also announced, we’ve begun a search for a new public company CFO to succeed Craig Tagawa, who has held the position for many years and will remain our CFO until a successor is in place.

Craig will continue to serve as President of our company and also as Chief Executive Officer of GK Financing, our subsidiary, 81% owned by the parent company. American Shared ended a strong year with another solid fourth quarter. Fourth quarter revenue increased approximately 7% period-over-period and reached over $5 million in quarterly revenue for the second time in 2022. Our net income increased 12% to $246,000 or $0.04 per share and capped a year of sustainable quarterly profit trend. In fact, this is now the eighth consecutive quarter where earnings per share have been higher than the comparable quarter in the prior year. I expect our profitability to continue. For the full year, the revenue increased 12% to nearly $20 million, and our net income increased 6x to $1.3 million or $0.21 per share.

Craig will go through the details in a few minutes. Our cash balances grew 51% from last year to end at $12.5 million on December 31, and our $7 million line of credit remains unused as well. We believe these funds can be leveraged to invest in over $100 million of advanced radiation equipment. Just recently, we announced our first new order of the year, a $1.3 million agreement with a new customer. Our increased investment in sales and marketing is beginning to pay off, and our pipeline is filled with solid opportunities. We believe that American shared is poised for growth. I will now turn the call over to Craig for a financial overview. Craig?

Craig Tagawa: Thank you, Ray, and good morning, everyone. Fourth quarter revenue increased 7.4% to just over $5 million compared to $4.7 million in the fourth quarter last year. As Ray mentioned, this is the second time this year that we reported over $5 million in quarterly revenue. For the 12 months of the year, revenue increased 12% to $19.7 million. Fourth quarter revenue for the proton therapy system in Florida increased 33.4% to $2.2 million, primarily due to higher average reimbursement period-over-period for the current quarter. Total proton therapy fractions in the fourth quarter were 981, a decline of 11.9% compared to 1,113 in the fourth quarter last year, which we consider within a typical quarterly fluctuation range.

Photo by martha-dominguez-de-gouveia on Unsplash

Total Gamma Knife revenue decreased 7.1% to $2.8 million compared to the fourth quarter last year. Domestic Gamma Knife revenue declined 5.4% to $2 million, and international revenue decreased 11.5% to $0.8 million period-over-period. The decline in overall Gamma Knife revenue was a decrease in procedures, offset by an increase in average reimbursement, which, in turn, was driven by an increase in the average rate of the company’s retail sites caused by a favorable shift in payer mix to more commercial payers. Revenue for same centers in operation, which excludes two Gamma Knife contracts that expired, one each in the first and fourth quarters of 2021, decreased 6.7% when compared to those same centers during the same period of the prior year.

Total Gamma Knife procedures decreased by 10.8% to 329 for the fourth quarter of 2022 from 369 in the fourth quarter of 2021, primarily due to normal cyclical fluctuations and the expiration of one contract in the fourth quarter of 2021. Gamma Knife domestic procedures declined 10% to 243 and international procedures decreased 13.1% to 86 for the fourth quarter of 2022 compared to 2021. Gamma Knife volumes for same centers in operation decreased 8.4% when compared to Gamma Knife volumes for those same centers during the same period of the prior year. We are looking forward to receiving the permits for the perfection to Icon upgrade for our Gamma Knife Center in Ecuador. We are expecting this soon so we can begin treating patients in the third quarter.

Remember that this will be one of the few Gamma Knife Icon units in all of South America. The permit for the new linear accelerator, or LINAC, for our new cancer center joint venture in Puebla, Mexico, is expected soon as well. Gross margin for the fourth quarter decreased 2.3% to $2.3 million or 45.1% of revenue compared to gross margin of $2.2 million or 47.3% of revenue for the fourth quarter of 2021. Selling and administrative costs increased by 14.7% to $1.4 million compared to $1.2 million last year, primarily due to higher sales and related fees associated with new business opportunities. Operating income was $0.6 million compared to $0.7 million in the fourth quarter of 2021, a decrease of 18.4%, reflecting higher operating costs and selling and administrative expenses.

Income tax expense increased 23.3% to $333,000 for the fourth quarter of 2022 compared to $270,000 for the fourth quarter last year. The increase in income tax expense for the current period was primarily due to higher earnings during the current period, return to provision adjustments arising from foreign income taxes filed during the current period, as well as permanent domestic tax differences that continued through the end of this year. Net income attributable to American Shared Hospital Services in the fourth quarter 2022 was $246,000 or $0.04 per diluted share, an increase of 12.3% compared to net income of $219,000 or $0.04 per diluted share for the fourth quarter of 2021. The increase in net income dollars was due to increased revenues and higher average reimbursement rates on both Gamma Knife and PBRT procedures.

Fully diluted weighted average common shares outstanding were 6.3 million and 6.1 million for the fourth quarter of 2022 and 2021, respectively. Adjusted EBITDA, a non-GAAP financial measure, was $2,161,000 for the fourth quarter of 2022, essentially even with the EBITDA in the fourth quarter of 2021. For the 12 months of 2022, net income attributable to American Shared Hospital Services was $1.3 million or $0.21 per diluted share compared to non-GAAP net income after net effect of the extinguishment of the debt, non-controlling interest and income taxes was $0.4 million or $0.07 per diluted share. Adjusted EBITDA, a non-GAAP financial measure, was $8.2 million for the year compared to $7.2 million for all of 2021. At December 31, 2022, cash, cash equivalents and restricted cash was $12.5 million, an increase of $4.2 million or 5.7% since year-end 2021.

Shareholders’ equity, excluding non-controlling interest in subsidiaries, was $21.6 million or $3.50 per outstanding share at December 31, 2022 compared to $19.9 million or $3.28 per outstanding share at December 31, 2021. To close my remarks, AMS had a good year in 2022, and supported by our deep resources and solid foundation, we believe that we are positioned for future growth. I will now turn the call over to Peter to discuss his priorities and plans as CEO.

Peter Gaccione: Thank you, Craig, and good morning, everyone. I want to first thank Ray and the Board for their confidence in me. As CEO, Ray did a fantastic job in streamlining the company and positioning it for growth. and I now look forward to leading American Shared into its next stages. As I said on the last quarterly call, when I was first introduced to you, American Shared uniquely provides clinical cancer treatment centers the opportunity to partner with all the major original equipment manufacturers through one turnkey vendor in one creative relationship. This is uncommon in our industry and was one of the major factors in my decision to join the management team here at American Shared. Since I was appointed COO in September, I’ve been focusing on three key target areas.

These include: aggressively working with major OEMs to strengthen our business relationships and develop sales and marketing strategies. Also working with our current installed base of Lexel Gamma Knife sites and treatment centers to strengthen and enhance these relationships. And I’ve been developing and implementing new sales and marketing strategies and programs to assist our sales teams in lead generation, prospecting, and managing the sales funnel and pipeline. In this regard, we’ve seen a significant increase in our lead generation and opportunities within our sales funnel over the past few months. I believe that we’ve made great progress in all three of these areas. And now as CEO, I plan to also focus on increasing the global branding and awareness of American Shared with cancer treatment C level officers and purchasing committees.

We need to make them more aware of what we’ve to offer and how we and how we must at American Shared differ from traditional financing options by showing them how easy it is to obtain the latest treatment systems in their department, fast without heavy financial burden, and allowing them to allocate their financial resources elsewhere within their facility. Further, we will soon start to prospect and address new opportunities directly with larger national and strategic networks, in addition to continuing to work closely with our strategic OEM partners. We have recently hired a customer advocate to help us better manage our installed base as well as support our company’s marketing and branding initiatives, not only for American Shared, but for GK Financing as well.

Going forward, you will see American Shared much more visible on major social media platforms, broadening the messaging and information on our websites, and increasing our visibility at major radiation oncology and radiosurgery trade shows, both domestically and internationally. In addition, we also recently added services of another financial sales professional to pursue additional new business opportunities. We are in the process of developing and executing growth strategies to make advanced treatment technology more easily accessible to end users in areas where patients and communities are underserved, not only within the U.S., but in targeted international locations where patient treatment wait times are way too long. Part of this strategy will include additional joint ventures such as in Puebla, Mexico, targeted acquisitions of well-established cancer centers and by expanding our creative financial and turnkey solutions to offer greater customer flexibility.

We all believe that AMS has multiple opportunities for growth, and with our newly expanded team structure and deep financial resources, we look forward to updating you on our progress in the quarters ahead. Thank you for joining us today. This concludes the formal part of our presentation.

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Q&A Session

Operator: And the first question comes from Harry with Ford Ashford .

Unidentified Analyst: How are you? Hi, Ray, Peter and Craig. This is hope you’re having a great day.

Peter Gaccione: Thank you, Harry.

Raymond Stachowiak: Thank you.

Unidentified Analyst: So we are great admirers of what you’re doing, and I might take a little bit longer with this because, at Ford Ashford, we believe that people are more familiar with your business that this will bring about a lot more acceptance of your company. So just to go through some numbers here. I don’t want you to be polite. I want to be really rude. If I say something wrong, I want you to stop me and correct me immediately. But the joke, which is not really a joke is that the market doesn’t seem to understand about your company that depreciation is a noncash expense. So when I’m just looking at the numbers, it looks like, annually, you’re doing approximately $7 million in cash flow from operations and $8.2 million in EBITDA yearly, so approximately a little over $2 million per quarter in EBITDA.

So $17 million market cap, $7 million in cash flow from operations. You’re 2.42x cash earnings, which, I believe, makes you the cheapest public company in the United States on an enterprise value to cash flow basis, which is kind of fascinating given how stable your business is when you combine proton beam therapy with Gamma Knife procedures, it’s fascinating.

Raymond Stachowiak: Well, Harry

Craig Tagawa: If I’ve said anything in the numbers so far that’s wrong?

Raymond Stachowiak: No, you have not. with your observations. I mentioned during our last quarterly conference call that I firmly believe that we’re undervalued. If you look at any of those metrics, and compare it to the market as a whole, or with a company that may not have grown too much in the past, but you can outline the future of our company. So positively, we are really undervalued.

Unidentified Analyst: Yes. I mean certainly at 2.4x cash flow, I mean, I don’t mean this in a facetious way, but even the local Laundromat doesn’t sell at 2.4x cash flow from operations and certainly not a well-respected medical business. And so it’s just fascinating that even in a steady state, where the market might value, let’s say, an 8x multiple. If you net out the cash you have, which I understand your filings, my estimate at this moment, it’s just an estimate or guesstimate is that you probably have $14 million to $15 million in unrestricted cash today. And looking at your balance sheet, it looks like you have $14 million in total debt, if you add long-term debt plus the current portion of long-term debt. So essentially, with just cash you have on the balance sheet, if you so chose, you could be almost completely debt free, I believe. Is that correct?

Raymond Stachowiak: I think you’re fairly correct in those numbers. Yes.

Unidentified Analyst: Right. And so then just adding back in just to the conclusion of those numbers is that actually the true cash flow generation of the business, since you’re doing approximately $1 million in interest expense each year, so the true cash flow generation of the business is actually almost exactly your EBITDA or about $8 million in cash flow from operations. And I say that your true cash flow from operations, if you add back an interest expense, which could immediately be netted out with cash on hand is because since depreciation is such a huge component of the cash earnings, that’s why it seems like the actual cash flow from operations, if you net out interest expense, which you easily could do, you could pay down your debt right now is really $8 million.