American Shared Hospital Services (AMS) Q2 2023 Earnings Report, Transcript and Summary

Good day, and welcome to the American Shared Hospital Services Second Quarter 2023 Earnings Conference Call. [Operator Instructions] 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.

Thank you, Allison, and thank you to everyone joining us today. AMS' second quarter 2023 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 report on Form 10-Q for the 3-month period ended March 31, 2023, the annual report on Form 10-K 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. I would now like to turn the call over to Ray Stachowiak, Executive Chairman of AMS. Ray?

Thank you, Stephanie, and good afternoon, everyone. Thank you for joining us today for our second quarter 2023 earnings conference call. I'll begin with some opening remarks and then turn the call over to Peter Gaccione, AMS' Chief Executive Officer. Bob Hiatt, our CFO, will then give a financial review of the second quarter results. Following these prepared remarks, we'll open the call for your questions. AMS had a good second quarter with year-over-year revenue increasing by almost 11% to $5.6 million. Revenue also increased just over 13% compared to the $4.9 million in the first quarter of this year. Good cost controls drove an almost 21% increase in the gross margin to $2.5 million or 45.2% of revenue. It's the highest level we've reached since the fourth quarter of 2021. During the quarter, our expanded sales and marketing team continued to generate and work on many new business opportunities. We invested roughly $250,000 in activities required to pursue 3 unique business opportunities that would expand our domestic footprint. In addition, our team is working on several other opportunities with existing customers for ongoing agreement extensions and product upgrades to newer cancer treatment technologies. This morning, we made an announcement, our third order of the year for an extension of an upgrade to a new Esprit Gamma Knife with Methodist Hospital in San Antonio, Texas. However, as we reviewed our existing sites, we saw 2 that are not considering renewing their agreements. Therefore, we've added to our reserves for impaired assets and anticipated removal costs of $578,000 now in the event that this occurs. We are in discussions with both sites to seek other alternatives but felt it was prudent to increase these reserves now. Excluding these 2 items that together totaled $828,000, net income would have swung approximately $340,000 higher to roughly $232,000 or $0.04 per share compared to the $188,000 or $0.03 per share we reported in our first quarter. We're very excited about the installation of new equipment with expanded treatment offerings at our 3 international locations. At our newest cancer center joint venture in Puebla, Mexico, installation of a digital linear accelerator with VMAT, IGRT and radiosurgery capability, or LINAC, is in its final installation phase and will be the most advanced radiation therapy treatment system within our catchment area when completed. We expect patient treatments to begin in November. At our center in Ecuador, installation of the upgraded Gamma Knife ICON is expected to begin in September with patient treatments expected to restart in November 2023. In Peru, we expect to begin installation of the new Gamma Knife Esprit during quarter 1 2024. This will be the only Esprit Gamma Knife in the country for noninvasive radio surgery and one of the first Esprit systems in all of South America when installation is complete. Please note that the Puebla, Mexico joint venture will be a new revenue stream when treatments start up in November. Both Ecuador and Peru will be closed to patients during their respective installation periods. When the installations are complete, our 3 centers will have the most advanced radiotherapy cancer treatment systems in their respective markets. We look forward to offering expanded treatment capabilities to the many patients in those areas and we expect increases in our international revenue. During the second quarter, we continue to generate positive cash flow despite the higher levels of investment and again added to our cash balances, which now total $13.8 million or approximately $2.18 per share. Interest income on our growing cash balance is also helping to offset higher interest expense on our variable rate debt. Let me close my comments by saying it's an exciting time at AMS after all the repositioning that we've done over the last 3 years. Our activity levels have increased significantly, and we look forward to sharing our results with you in the months ahead. I'll now turn the call over to Peter.

Thank you, Ray, and good afternoon, everyone. We've been very active since our last call and as we continue to invest additional resources every quarter, our sales pipeline has continued to fill with multiple opportunities. There are a few reasons for this growth, including the very experienced sales and marketing team that we built over the past year. This group, that includes me, are very well known to many of the people that work on both sides of the customer equation in our industry, which is so very important in the cancer care space. Our larger experienced team and their growing presence at key industry trade shows and events has also heightened awareness of our company and its services to key opinion leaders in radiation oncology, in radiosurgery and also to other key decision makers in the cancer care arena. Our presence will be heightened even further when our team attends ASTRO or better known as the American Society for Radiation Oncology's annual meeting this October in San Diego, California. This is the first time that AMS will have a booth at the ASTRO trade show, the largest international trade show in radiation oncology. And we expect additional sales leads to result from our presence as well as fruitful face-to-face meetings with many of our key OEM strategic partners who also attend ASTRO. Further, we plan to attend other key applicable annual and regional meetings in radiation oncology and radiosurgery as well. We also recently launched a new website and social media presence for GK Financing, or GKF, a long-time subsidiary of AMS where Elekta is our strategic partner. GKF is a leading global provider of Gamma Knife radiosurgery products and services that provides creative financial and turnkey solutions. GKF is the only third-party finance company partnered with a major OEM in our industry niche. And this is the first time that we've heightened and highlighted GKF and its capabilities directly and specifically. We are happy to see that Gamma Knife procedures increased by over 5% from the first quarter of the year. We believe this is due in large part to our in-house customer advocate who joined the team just a few months ago. Ranjit has been focusing on improving Gamma Knife utilization at all of our Gamma Knife sites. Part of our customer advocate review is to always review the performance of all our Gamma Knife sites and to work with the lowest-volume sites by sharing best practices and discussing how we can jointly work together to improve patient volumes. As an example, out of the 3 lowest sites from the past quarter, these increased the volume at 2 of them so far and extended our relationship with 1 of them by securing a lease agreement extension to year 2037 and also our second order of this year. This order is for an upgrade to the Leksell Gamma Knife Esprit with a new source that is scheduled for installation in September 2023. Earlier today, we announced our third order of the year that is also with an existing customer for a new Esprit that is scheduled for installation later this year. The Esprit is Elekta's latest model with more functionality and these 2 will be among the first 10 Esprits in the U.S. when they're installed. The first order that we announced a few months ago already recently completed installation and has started treating patients earlier this month. We've built good momentum in a short time and it's still in the early days, but I'm extremely proud of what we've achieved so far and for what I believe we can accomplish going forward. I'll now turn the call over to Bob for his financial overview.

Thank you, Peter, and good afternoon, everyone. Second quarter revenue increased 10.6% to $5.6 million compared to $5 million in the year ago period. Domestic revenue increased 16.2% to $4.8 million, and international revenue was $756,000 compared to $894,000 a year ago or a decrease of 15.4%. Second quarter revenue for the proton therapy system in Florida increased 10.3% to $2.5 million compared to $2.3 million, primarily due to higher average reimbursement period-over-period for the current quarter. Total proton therapy fractions in the second quarter were 1,370, an increase of 3.5% or 46 fractions. Total Gamma Knife revenue increased 10.9% to $3 million. The increase in overall Gamma Knife revenue was due to an increase in average reimbursement, partially offset by a decrease in procedures. The increase in average reimbursement continues to be driven by a favorable shift in payer mix to more commercial payers. Total Gamma Knife procedures were 309 for the second quarter of 2023 compared to 335 in the second quarter a year ago, a decrease of 7.8% or 26 procedures, which is within the range of normal cyclical fluctuations. Gross margin for the second quarter of 2023 increased 20.6% to $2.5 million or 45.2% of revenue compared to gross margin of $2.1 million or 41.5% of revenue for the second quarter of 2022. Selling and administrative costs increased by 73.5% to $2 million for the second quarter compared to $1.1 million in the year ago quarter. This includes approximately $250,000 that we've invested in pursuing new business opportunities, as Ray talked about, as well as higher salaries that reflect the additions to the management and sales teams that we've made over the last year. Net interest expense was $167,000 in the 2023 period compared to $149,000 in the comparable period of last year. The increase is due to an increase in the interest rate on the company's variable debt, offset by an increase in interest income on the company's growing cash balance. Compared to the first quarter of the year, net interest expense improved due to higher interest income. Operating loss for the second quarter of 2023 was $325,000 compared to operating income of $793,000 in the second quarter of 2022. This is the result of higher selling and administrative expense as well as the loss on the write-down of impaired assets and removal costs of $578,000 in the current period compared to no write-downs in the prior year period. We recorded an income tax benefit of $35,000 for the second quarter compared to income tax expense of $248,000 for the same period in the prior year. The decrease in the current period was primarily due to lower earnings, return to provision adjustments arising from foreign tax returns and permanent domestic tax differences. Net loss attributable to American Shared Hospital Services in the second quarter of 2023 was $111,000 or $0.02 per diluted share compared to net income of $497,000 or $0.08 per diluted share for the second quarter of 2022. As Ray said, excluding the higher new business investment costs and the increase in reserves, which together totaled $828,000, net income would have swung approximately $343,000 higher to roughly $232,000 or $0.04 per diluted share in total compared to $497,000 or $0.08 per diluted share reported in the year ago quarter. Fully diluted weighted average common shares outstanding in both periods were roughly even at approximately 6.3 million shares. Adjusted EBITDA, a non-GAAP financial measure, was $1.9 million in the current period compared to $2.1 million for the second quarter of 2022. At June 30, 2023, cash, cash equivalents and restricted cash was $13.8 million compared to $12.5 million at December 31, 2022. Shareholders' equity, excluding noncontrolling interest in subsidiaries, was $21.9 million or $3.52 per outstanding share at quarter end compared to $21.6 million or $3.50 per outstanding share at June 30, 2022. This concludes the formal part of our presentation. Thank you for joining us today. We look forward to updating you on our progress in the quarters ahead. Operator, we'd now like to turn the call back to you and open it up for questions.

[Operator Instructions] Our first question today will come from Tony Kamin of Eastwood Partners.

First question is in terms of your pipeline, can you kind of give us the -- any color around the status for or the potential for new proton beam discussions?

Sure, Tony. This is Ray. Thanks for your question. It's a very good question. The best way I can answer and talk about our pipeline without being too specific, and I'm hesitant to be too specific, is that our pipeline includes a little bit of everything that we've been talking about over the last year or so. And what do I mean by that? We've been talking about expanding our product line away from just Gamma Knives and Mevion proton beam systems, although it still includes Mevion full-time beam systems, in fact, proton beam systems from any vendor. We're vendor-agnostic. Our pipeline includes other products like linear accelerators, and we've proven that in the case of Puebla, Mexico, that's exactly what we're providing there. And it also includes MR/LINACs, and our pipeline includes opportunities for MR/LINACs. The other thing we've been chatting about over the last year or so is the different business models that we can offer to the marketplace. As you know, we can do a lot of creative, flexible financing arrangements with our customers. We can do a joint venture. And in the case of our international operations, we can do our own centers that we operate the equipment with our own staff, and we bill the patient's direct, not through an intermediary or through a health care system. And we've also talked about why not be able to expand our business model that we use internationally to the domestic marketplace? And I can tell you that our pipeline includes even those opportunities.

Okay. In terms of the Esprit that you received a contract for or announced today, can you -- is there a significant price difference between the Esprit and Perfexions?

Well, the Perfexion is not a product that the OEM is currently offering to the marketplace. As you know, the OEMs try to lead with their latest and greatest technology, and the Esprit is their latest and greatest technology and product offering.

No. I'm just trying to understand that if this is your opportunity to put in machines that may be able to garner a higher reimbursement because they're more expensive or have more capabilities.

They have more capabilities. And for that question, to provide you a little bit more color on that, Peter, do you want to take that question and talk about how the Esprit is different than the Perfexion, some of those features?

Sure, sure. Happy to. It's not so much the reimbursement rates because the treatments are pretty similar, but it's the additional clinical features and benefits that the Esprit has over the Perfexion system. For example, treatment times on the Perfexion are longer for treating the patient and for planning of the patient. And the Perfexion does not offer something that's known as onboard imaging and same-day imaging or frameless treatments masks for the patient. So what this means is in the Esprit, the Esprit being the latest system does offer these clinical features of same-day onboard imaging, mask-free treatments, faster treatment times, much faster planning times. So the throughput for the patients, the patient volumes can significantly increase. So in the same 8-hour period, you can now treat a good number of patients more than you ever could with the Perfexion. It's also a lot easier and gentler on the patient. So a lot of times, elderly patients, they can't lie still too long. But with the Esprit, since the treatment time's much shorter, you're going to see more and more patients being put on to the Esprit.

Okay. Internationally, you've obviously done a fair bit moving southward into Latin America. Is the company looking internationally to other parts of the world? Are you looking at Europe, for example, or anywhere else in the world?

The answer is yes. We've looked at opportunities in Europe and we've looked at opportunities and are looking at opportunities in Asia as well.

Great. And 1 final sort of question, I guess, comment from me. And Ray, I know how long you've owned shares. Actually, I think I bought my first shares in AMS in 2002, but I -- to just check my own sense of it, I have in front of me a 20-year monthly chart of the stock. And literally since October of '07 so close to 16 years ago, the stock has just literally sat in a very small range. I think what I have -- I have a 20-year moving average that shows the average stock price over 20 years as $2.53. So we're sitting right at a 20-year plate. And I really do appreciate -- I really think you guys are on the right track with all the initiatives you're doing and the much more aggressive approach. But I think the shares have made it very clear and I think it should be clear for the Board that it's probably time to take a little bit more of a direct hands-on and sort of trying to control your own destiny with the shares trading at a discount of a $3.52 book and have just, again, have not moved for 17 years. So there's things you can do. You can do obviously a buyback, which I think would be really helpful at -- companies that buy back their shares just generally trade better when they're put in place when there's such an undervaluation this year. The other things, I think, obviously, you could look at the shares used to trade higher before 2007 when there was a dividend. So I think either a cash dividend or a share dividend -- stock dividend would be really -- as obviously an extremely long-time shareholder and supporter, patient as can be, I think it's time now that the company become a little bit more proactive and hands-on in trying to address the chronic undervaluation of the shares.

Tony, that's a very good observation. Thank you for sharing it. I can't speak too much about the 15-, 20-year history of our stock price. I tried to look at our stock price over the last few years, but it's remained relatively in that stable range as you mentioned. I do think that the executive management team, the Board of Directors, when I joined the company more extensively 3 years or so ago, we took a look. Based on my 22 years of experience as a CEO, a lot of different strategic options for the company and how we can best add value to our shareholders. And over the last 2 or 3 years, we've accumulated our cash balances after renegotiating our indebtedness. It is still currently our thinking, although I remain open to thoughts and ideas, that the best use of our capital, the best return, the best way of adding shareholder value is to invest in the projects that are in our pipeline. I can't share a lot of the details of that pipeline. I can't share the expected returns from those investments. But at this point in time, almost every quarter henceforth, we're going to be investing in radiation oncology. We're upgrading these sites. We're getting new business, installing new equipment. I've often talked about the cash balances and the $7 million line of credit that we have, could be further leveraged, invest in $100 million worth of capital equipment. And it only takes 1 or 2 proton beam deals to utilize a substantial portion of that capital. And the Board currently believes, the executive management team currently believes that the best use of that capital is in the expected returns from the opportunities we have in our pipeline.

Well, sure. I mean -- but maybe a stock dividend program would encourage kind of new people to look at stock and that other than some small admin cost, that wouldn't really take your cash. So you may want to look at that.

We'll take a look at it. We're open to those thoughts and ideas, okay? We always will be. And Tony, your first question, I want to turn back to that question. I want to be clear in my answer. You asked about, are there proton beam opportunities in our pipeline? And I'm hesitant to go into a lot of detail, and I mentioned about the other products that we offer, including MR/LINACs and those are in our pipeline. I do want to confirm that proton beams are also in our pipeline, without a doubt.

Yes, I think that would be transformational if you could get another contract like Orlando. It just would bring a whole new light on the undervaluation of the company. So best of luck with that, and I appreciate the questions.

Our next question will come from [Harry Long of FAMA].

So I had a few questions, but what I'll do is I'll try to only ask 1 or 2 so other people have an opportunity to get their questions and I'll jump back into the queue. So I'll try to be super quick. On Esprit, correct me if I'm wrong, it looks like from your filings that the proton beam therapy business is running at about -- is that about $10 million in annual revenue or am I off there?

No, that's about right.

Okay. And so I haven't seen it broken out in terms of cash flow from operations, but my estimate is of your $7 million or $8 million in cash flow, depending upon how we're annualizing, that, that might be accounting for $2.7 million to $4 million in cash flow. Am I completely off? Or can we get some more granularity on the actual cash flow from operations generated there?

Tony, I think that's a very detail-oriented question we're probably hesitant to be specific about.

But if I estimate it $2.7 million to $4 million am I crazy?

You're probably not crazy.

Okay, all right. And so then the other question was on future contracts and how you plan to organize it. And by the way, I mean this colloquially, I'm probably not saying the right accounting term, but would I be wrong to say that I'm feeling that the removal costs on some of the Gamma Knife devices, that, that creates a contingent liability for removal that could potentially be significant as you pointed to in your filings? I don't know if there were to be contingent liability.

Yes. It's a potential contingent liability, I guess. But we've, successfully in the past, navigated that potential to that contingency by doing a really good job of upgrading our clients' technology in exchange for an extension of the term of the agreement or performing reloads of the Cobalt-60 source at our Gamma Knife sites that extend the agreement. And case in point, the announcement we made this morning about our agreement with Methodist Hospital in San Antonio, that's a relationship that's existed over 25 years going back to 1998. So we've successfully navigated that potential risk.

So I guess my question is going forward, especially for the Gamma Knife units or linear accelerators, et cetera, do you all plan to incentivize the clients to potentially stay with you by having them bear the removal costs if they choose not to renew? Or in contracts that are currently being executed or contemplated at the moment going forward for any new units that are installed of any of the devices, will the removal costs if, let's say, it happens 10, 20 years in the future, be borne by the company or by the hospital system or the medical center?

The answer is yes. That is something that we're -- that is being considered and being taken under a lot of consideration.

By the way, I'm going to jump back into the queue so that other people have a turn, but I just wanted to amplify Tony's remarks. I think a cash dividend for the company would be spectacular. And I think if one looked as the Henry Singleton analysis of a Teledyne firm looking at dividend stock buybacks, et cetera, I think the company can see that if you're trying to compare 2 different returns on capital, clearly, the return on capital for the company repurposed in its own shares at 2x cash flow, approximates 45% to 50% depending upon one's estimates of maintenance CapEx. So if we look at that capital allocation versus the capital allocation behind, let's say, the new proton beam therapy device, which potentially the return on total capital, the current assets would be somewhere between 7% and 12.5% in a pessimist or an optimistic scenario. It seems that the company's own shares, when they're trading at a less than 2x cash flow on back out to net cash represent the very best -- the capital allocation decision that the company can make. And a dividend, I believe, if the company dividended out a substantial portion of its cash flow, I believe the stock could rise 400% to 700% as we have discussed. So -- and I apologize, you guys are white paper, but I'm going to jump back in the queue. The cash flow from operations continues to be spectacular for the company, and I wanted to give you all my compliments on some great work.

[Operator Instructions] Our next question today will come from Luis Dela of [Indiscernible].

I'm a party partially interested in investing in your great company. But I have a few questions for you and it's also revolving around the cash flow. When you're saying that there is a portion that's restricted cash, what portion would that be?

Craig, I'm going to call on you. I believe there is a small amount of our cash that is restricted.

It's restricted due to our agreement with -- as a part of GK Financing. I think that's about $50,000 and a little bit in term -- and then there's a little bit in terms of our Fifth Third finance agreement.

All right. And your variable rate of the interest that you're paying is on what amount?

I'd say it's about 90% of our interest-bearing debt is at a variable rate. It's 100% of our indebtedness with Fifth Third Bank and the remaining that's fixed is with DFC.

Right. And do you have any option to address this issue?

Yes. We've talked about hedging our indebtedness, our interest rate. We believe that the variable interest rate option was the best. I mean, in hindsight, maybe you could question that. We're also -- I guess our executive management team is a little bit more of a risk taker and entrepreneurial. We're willing to take that risk.

The next point is on the growth. Yes, I've heard the first person talking about the relatively flat performance of the stock. I looked at from 1987 to date, and it's true that you were not there in 1987. But what is the expectation? What are you doing differently in terms of growth or in terms of dividend? What's your general perspective? Are you expanding the expected profitability at a very fast pace? Or are you expecting to reward your shareholders with dividends? What -- can you tell me a little bit more about your strategy?

Our current strategy is to invest the capital that we have available to ourselves. Over the last few years, we've restructured our indebtedness. We have a true banking relationship with Fifth Third Bank that we feel very comfortable we'll be able to grow that banking relationship. We've diversified our product line, product offerings. We were a provider of Gamma Knives and we had 1 proton beam system. As I mentioned earlier, we've diversified into any and all radiation oncology equipment, linear accelerators, MR/LINACs and proton beam systems even stronger than before. We had a very small sales and marketing efforts. Our sales and marketing efforts was substantially by word of mouth, by the reputation of our founder, Dr. Ernest Bates, who continues to serve on our Board. And Peter and his team have greatly extended that effort. And we've invested in a lot of resources in our sales and marketing team over the last 12 months. The lead times for radiation oncology equipment, the sales cycle is quite long. And even once you get a signed agreement, the installation period can be substantial as well. So it's going to take some time for these revenue streams to get started and get going for our company. Our stock should be attractive to the patient long-term oriented investor, our stock. There's no doubt our stock is undervalued. I'm going to say I myself have been a successful investor. I can say that unequivocally. Our stock is undervalued. And our approach is to let show and demonstrate the returns we're capable of generating. We've not done so yet. It's a bit unfortunate that accounting and finance information that is filed with the SEC, that's disclosed to investors is, by its nature, historical. And it's too bad because we got a bright future. Every revenue stream we add is going to help and assist our growth and our profitability moving forward. And we also have diversified our business models to include our owned and operated centers. We've done so internationally. But as I mentioned previously in this conversation, we're expanding that business model domestically. And we're also looking at different geographical markets besides just the United States and somewhat in South America. We're expanded into Mexico. And as I mentioned earlier in today's call, we're looking at opportunities not only in Europe but also in Asia. There's a lot of opportunities in our pipeline. And I believe that with our third order of the year, I know that's not too many but the sales pipeline is very strong. And it does take some time for a sales process to take its course.

Well, thank you very much. So if I understand clearly, there is no consideration for the shareholder in the meantime, to invite the shareholders to participate in this growth of results by getting some dividends out of the stock, right?

I mean, I'd like to remain open and I'm always open to thoughts and ideas, folks.

It would be very encouraging to an investor.

Okay. Thank you for your question, Luis.

[Operator Instructions] Our next question today is a follow-up from [Harry Long of FAMA].

Right now are the current agreements and perhaps the per use, and I'm really talking about the per-use agreements with medical centers and hospitals [indiscernible] in South America where you might be operating it yourselves. So currently with a hospital or a medical center, if there is bad debt expense or a patient doesn't pay, who would bear that? Would it be you guys or the hospital?

Under a fee per use arrangement, the hospital would bear that cost.

So it sounds like there's some significant potential benefits with the current model even if it hurts you a little bit on the front end in margin? On the back end, it looks like you get that cash flow if the patient is in a machine, a procedure?

Yes. If the patient's insurance company has problems paying for the treatment or procedure, that's a harm that's taken on by the hospital system and not American Shared under those types of arrangements.

Got you. Very interesting. And then my other question was a question on process. And I appreciate that the management team is open to ideas that some of the other callers have expressed and have expressed about dividends. But in terms of process, would the management team be open to constituting a special committee of the Board of Directors to explore a potential dividend? And so in other words, in terms of concrete action, a special committee would in no way bind you to doing such a thing, but it would be a way for the Board to explore that capital allocation decision. Would the company's management support the creation of such a committee?

Harry, I think we're open to any and all thoughts and ideas, so I'd say very possible, open to that kind of --

So more specifically with the company's management request, would the Board of Directors form such a committee?

I think we'd have to study it ourselves a bit before we present it to the Board, and we would appreciate more information.

And so I want to link a couple of these discussions and also -- and you understand even -- I really am doing this for the benefit of the other listeners. One of the reasons I'd asked, and I think you see where I'm going with this, what the cash flow is from the proton beam therapy systems, I understand that you don't want to give a number on cash flow from operations. But it's almost impossible for a shareholder to understand what the real cash return on capital is from a new proton beam therapy device without understanding the cash generation of the current system. And if we agree that a new machine would cost approximately $20 million, give or take, understanding what that cash flow is, even if it was as high as $4 million, as you know, $4 million over 20%, a 20% return on total capital, if it was closer to $2 million on a 10% return to just for the listeners may all know, versus your own shares, which if we agree are trading at approximately 2x cash flow, depending on CapEx, represent a 40% to 50% return on capital. So I guess if we all agree that best practices are comparing potential uses of capital and the management's highest strategic job is to basically measure and then choose the highest return on capital for the capital that the company has on the balance sheet, I just think it offers a way for shareholders to evaluate how you're making capital allocation decisions. So I tell people that the devil is in the details but so is salvation. And if in future quarterly releases, we can get a bit more granular on that cash flow from operations from proton beam therapy, I think it then opens up the discussion to your wider shareholder base about the competitive return on capital, the competition between proton beam therapy versus share repurchases and dividends. So I just think it's incredibly important for the company to get more granular on that because without that, we really are not having a real discussion about competitive capital allocation decisions, if that makes any sense.

Well, I'm open to thoughts and ideas, Harry, and I just want to reconfirm to all of our listeners that if there's any 1 person whose interests are aligned with our shareholders, it would be I. I have a strong position ownership in the company myself. And I've structured my compensation, the best be in the form of ownership of the company. And I -- my intention is to increase the shareholder value of our company in the best manner possible. And I'd be remiss if I didn't say I was open to any thoughts and ideas to do so. I want to increase our shareholders' value and our stock is undervalued right now.

Okay. And to that point, gentlemen, I noticed that your shareholdings, later about 20% of the company and maybe a bit more now, it could be -- are you at about 20%?

That's about right.

So my follow-up is, are there any restrictions on shareholders who are not on the management team from going up to 20% the same way you are? And I could be wrong on this because maybe as many years ago, I might be right, noticed a [poison pill] provision from years ago. I don't know if that expired. What is the current situation in terms of what outside shareholders who are not the CEO or Chairman or CFO could hold in terms of share ownership of the company?

Harry, I do not know the answer to that question, nor do I believe that any of our current management team members would know the answer to that question off the top of our heads here today.

I would request that seeing that you're at 20%, and I think you all have a reputation, a sterling reputation for wonderful ethics of fair dealing, I do hope you all support the notion that if we all do agree that we believe in you and potentially would all like to increase our stake in the company, especially if the team would be open to things like dividends. I do hope that given that you're at 20%, that you would not place. And if there are any, that I hope that a special committee would be constituted. If any restrictions exist that would remove any other shareholders from enjoying the same privilege of going up to 20% that you currently have. So I can understand if there's some restriction on you and everyone else, but I would hope that there are -- there's a process in place for the company and a structure in place where any shareholder could enjoy your current level of share ownership without triggering of poison provision. I think that's just planned fairness that we could all agree to.

That would be a very interesting scenario to pursue, Harry.

Understood, understood. And then I had another question. Do we all -- I mean, we all agree, I think the company is trading before capital expenditures at approximately 2x cash flow. Do we all agree on that on the call?

Roughly, that's probably correct.

And so going back to compensation, when I'm looking in –

Harry, just before we move on to the next question, to clarify the numbers that go through the top of my head is a market valuation of $16 million a year or $16 million and EBITDA of roughly $8 million a year, so 2x.

We’re 100% in agreement. And I think actually, in terms of enterprise value, it would probably be a little bit less than $16 million because you have net excess cash on the balance sheet. So in other words, I 100% agree with you and I think probably the numbers are actually a little bit better than 2x cash flow. So my question would be, do you gentleman agree that when I’m looking at the – about 2.7 in terms of [indiscernible]. With some of the price is around 2.8, 2.7?

You’re breaking your connection here, Harry.

I apologize. I was saying, do we all agree that some of these – the shares for management compensation are exercisable around, I think, around 2.78? Am I remembering correctly?

Harry, that’s another question I don’t have the answer to on the top of my head.

Okay. So Bob, you’re the CFO. I think you have the numbers in front of you. Are we around 2.78 for the exercise of some of the shares issued under management compensation?

Yes, you’re certainly in a range. The – yes. So in our Q, we do reference – we do have a footnote to that effect.

Right. And so here’s where I’m going with this. And I think everyone would agree you’re all very reasonably compensated. I think anyone would agree that if you hit certain metrics and you’re doing amazing on the cash flow, I don’t think any of us would be opposed to you all receiving a higher cash compensation. I do think that for some shareholders looking at this, shareholders who have an incredible respect for what you’re all accomplishing, and if we all currently – we all agree that the company is trading at more or less 2x cash flow, I think we would all agree that the of the that it sets when management issues itself shares that could potentially be exercised at around 2x cash flow and what we all believe is beneath the tangible book value of the company. So if you have an exercise price beneath the tangible book value of the company and at around 2x cash flow, you guys are an incredible management team. And I think you know in your hearts that, that looks inappropriate to any intelligent investor who’s analyzing the company. And I think it sets the wrong tone when the management is issuing itself shares that could be exercisable at around 2x cash flow without any cash dividend to shareholders, who I think callers for decades, over a decade not receiving any return, which I recognize is from past management, nothing to do with current management. But I would encourage, you gentlemen, in the same way we’re talking about capital allocation decisions, of share buybacks and dividends versus buying new equipment, that you would similarly agree that if you could all be compensated more, no one would be opposed you are receiving a higher cash compensation. Or if you want to do shares, having the exercise price to be at 6 or 7x earnings that accompany a steady state of cash flow on average received in the stock market. But to have shares that are exercisable at 2x cash flow, I’m sure when you gentleman consider it, if you think about it a little bit more, I’m sure you’ll agree with me because you’re smart and I’m right.

Well, Harry, best I can say is we have not compensated our employees extensively with the use of stock options.

The tone is set at the top and you deserve – I want to be very clear, you deserve more cash compensation. I’m not opposed to paying more cash compensation. But you know and I know and I’m sure somebody created this plan long before you were CEO, and it’s a simple oversight, but you just can’t have an exercise price that’s below tangible book value. And you know it, I know it. It needs to stop. I support you guys having more cash compensation, yet you’re not compensated in a crazy way, but getting shares with an exercise price to 2x cash flow and below the tangible book while not paying shareholders to cash dividend, it’s just not acceptable. And I’m sure with something put in place without your knowledge by some compensation consultants and somehow just got through the woodwork. So not blaming you for this but it needs to stop. So that’s all I have for today. And I did want to compliment you on having amazing cash flow. And I think for some of these things, we can all debate like the shareholder dividend, but it’s really beyond the pale having an exercise price below tangible book, it’s just unheard of.

Well, I think our stock price being below or almost close to below tangible book value is below tangible book value.

Right. You’re very, very clever, but being clever doesn’t make you right. And this is an issue you shouldn’t find anyone – you should stop having an exercise price at 2x cash flow and below tangible book, yes. It’s just unheard of. And you should be getting more cash compensation. I want you to have it, guaranteed cash compensation. But getting shares that are exercisable below tangible book, it’s on – it’s not defensible. It’s just not, especially without shareholders getting a cash dividend. It’s not acceptable.

Duly noted, Harry.

Ladies and gentlemen, at this time, we will conclude our question-and-answer session. I would like to turn the conference back over to Ray Stachowiak for any closing remarks.

Thank you, Allison. Thanks, everyone, for joining us today. We're excited about the increased activity levels at AMS, and we look forward to announcing what we've been working on at the appropriate time. Please stay tuned. We'll speak with you next on our third quarter call in mid-November. Please feel free to contact us directly if you have any questions before then. Until then, be well and stay safe, and have a great evening. Goodbye.

The conference has now concluded. We thank you for attending today's presentation, and you may now disconnect.