American Shared Hospital Services (AMS) Q3 2023 Earnings Report, Transcript and Summary

Good day, and welcome to the American Shared Hospital Services Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator instructions] 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 Stephanie Prince of PCG Advisory. Please go ahead.

Thank you, Jason, and thank you to everyone joining us today. AMS' third quarter 2023 earnings press release was issued this afternoon at 4:01 p.m. Eastern Time. 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 three month period ended March 31 and June 30, 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. Before I turn the call over to Ray, I'd like to announce that we're instituting a new Q&A policy with this quarter's call. We're going to ask everybody to limit their questions to 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 Stachowiak, Executive Chairman. Ray?

Thank you, Stephanie, and good afternoon, everyone. Thank you for joining us today for our third quarter 2023 earnings conference call. I'll begin with some opening remarks and then turn the call over to Peter Gaccione, American Shares Chief Executive Officer. Robert Hiatt, our CFO, will then give a financial review of the third quarter results. Following the prepared remarks, we'll open the call for your questions. American Shared had another solid quarter, with year-over-year revenue increasing by 6.3% to $5.1 million for the third quarter. We continue to maintain a tight rein on direct costs and the gross margin grew 7.4% to $2.1 million. During the third quarter, we continued to invest heavily in new business activities and reported net income of $118,000 or $0.02 per diluted share. This included a net interest expense of $128,000, down significantly from last year and increasingly offset by interest income on our growing cash balances. We've also engaged the services of a compensation consulting firm to review our compensation practices. At quarter end, our cash balances totaled $14.7 million or approximately $229 per share. AMS consistently generates positive cash flow even throughout the pandemic. During the quarter, our sales and marketing team continued to generate and work on many new business opportunities. We're especially excited by three unique opportunities, which we first mentioned on our last call. In the third quarter, we invested approximately $320,000, advancing these unique opportunities. Without these expenses, net income would have been approximately $240,000 higher. In addition, in the second quarter, we invested roughly $250,000 on these projects. Together, this totals $570,000 that we've invested so far this year. We look forward to announcing more details about these unique projects that will expand our domestic footprint at the appropriate time. Internationally, the installation of new equipment with expanded treatment offerings at two of our locations has progressed well. At our newest Cancer Center joint venture in Puebla, Mexico, installation of the digital linear accelerator with VMAT, IGRT and radiosurgerbility for Linac is well underway. This will be a new revenue stream for us when patient treatments start up in early 2024, and it will be the most advanced radiation therapy treatment system within our catchment area. At our center in Ecuador, installation of the upgraded Gamma Knife ICON is complete and patient treatments are expected to restart this month. This will be the only Gamma Knife in Ecuador for non-invasive radio surgery. I'm proud to say that AMS will have the most advanced radiation cancer treatment system in their region when the installations are complete. Cancer patients in those areas are in need of these advanced treatments, and we look forward to serving them. In closing, I hope I've conveyed some of the excitement that we all feel here at AMS. I wish I could share more details, so it will be clearer to you what we're working on. I can't tell you this, we expect a unique return from the $570,000 that we've invested. The management team and the Board all take our fiduciary responsibility to deliver the highest returns very seriously, and we're constantly weighing the expected returns of investment opportunities against other uses of our cash. That's our job. I'm very comfortable with the decisions we've made and the potential of the opportunities we're working on. With that, I'll turn the call over to Peter. Peter?

Thank you, Ray, and good afternoon, everyone. During the third quarter, the sales pipeline continued to grow. We attribute this growth to our sales team, which has hit its stride and our expanded financial solutions and closer integration with our strategic OEMs on targeted prospects. As Ray talked about, we have several key projects that are processing through the necessary sales cycle that we look forward to announcing at the appropriate time. In addition, in the third quarter, we signed two new lease extensions with existing customers, which are our third and fourth new orders this year. These both include equipment upgrades to the Leksell Gamma Knife Espirit, the latest model, and they will be among the first 10 in the U.S. when these installations are completed early in Q1. We're working on several other opportunities for new business, as well as with existing customers for ongoing agreement extensions and product upgrades to newer cancer treatment technology as well. Also during the third quarter, for the first time, AMS was an exhibitor at the annual ASTRO known as the American Society of Radiation Therapy and Oncology Conference, the largest radiation oncology society in the world. The booth was fully staffed with our team, and it was a great opportunity for us to meet with customers, partners and OEMs. At the conference, we advanced several new business opportunities and added to the breadth and depth of our relationships. We've also been in attendance at other trade shows this year, such as the American Association of Neurosurgical Society, known as the AA&S, the Congress of Neurological Surgeons known as the CNS, the Proton Therapy Cooperative Group, PTCOG and the Peru Radiotherapy Congress. We also attended three conferences in Ecuador this year, where we've developed great referral sources. These include the seventh Congress of International neurology, which we did in March, the Women in dentistry conference in May and the Expo Dental Conference in September. Recently, we launched a new dedicated website for GKF, AMS' financing subsidiary. This new site offers neuroscience and radiosurgery professionals access to creative financing alternatives to obtain a new Gamma Knife Espirit and other services. Our in-house customer advocate has been a great addition. Not only has he helped secure the three agreement extensions with existing customers that we've announced this year. He has also continued to help improve the activity levels on our Gamma Knife sites. In the third quarter, Gamma Knife procedures increased approximately 8% period-over-period after improving the utilization in the second quarter as well. In closing, we've built good momentum both internationally and in the U.S., and AMS has a full pipeline of opportunities and is supported by a strong financial position. I will now turn the call over to Bob for a financial overview.

Thank you, Peter, and good afternoon, everyone. Third quarter revenue increased 6.3% to $5.1 million compared to $4.8 million in the year ago period. Domestic revenue was $4.1 million, an increase of 1.1% and international revenue was $1 million compared to $727,000 a year ago, an increase of 35.9%. Third quarter revenue for the proton therapy system in Florida was $2.2 million, a decrease of 5.9% primarily due to a decrease in fractions, offset by continued increases in average reimbursement. Total proton therapy fractions in the third quarter were 1,188, a decrease of 12.8% or 175 fractions. This is within the typical quarterly fluctuation range. Total Gamma Knife revenue increased 9.9% to $2.7 million. The increase in overall Gamma Knife revenue was due to an increase in procedures combined with a modest increase in average reimbursement. Total Gamma Knife procedures were 316 for the third quarter, compared to 293 in the third quarter a year ago, an increase of 7.8% or 23 procedures, which is also within the range of typical quarterly fluctuations. Gross margin for the third quarter of 2023 increased 7.4% to $2.1 million or 40.9% of revenue compared to gross margin of $2 million or 40.5% of revenue for the third quarter last year. Selling and administrative costs increased 37.7% to $1.7 million for the third quarter of 2023 compared to $1.3 million in the year ago quarter. This includes approximately $320,000 that we've invested in pursuing new business opportunities, as Ray talked about, as well as higher sales and marketing expenses. Net interest expense was $128,000 in the 2023 period compared to $216,000 in the third quarter of last year. The decrease is due to an increase in the interest rate on the company's variable rate debt, offset by increases in interest income on the company's growing cash balance. Operating income for the third quarter of 2023 was $90,000 compared to operating income of $448,000 in the third quarter of 2022, which reflects the higher selling and administrative and interest expenses. We recorded an income tax expense of $60,000 for the third quarter compared to $176,000 for the same period last year. The decrease was primarily due to lower earnings, return to provision adjustments arising from foreign tax returns and permanent domestic tax differences. Net income attributable to American Shared Hospital Services in the third quarter of 2023 was $118,000 or $0.02 per diluted share compared to net income of $316,000 or $0.05 per diluted share for the third quarter of 2022. The decrease was primarily due to higher interest expense and higher selling and administrative expense in support of the company's new business opportunities. As Ray said, we invested approximately $320,000 in the third quarter, advancing new business opportunities. Without these expenses, net income would have been approximately $240,000 higher. Fully diluted weighted average common shares outstanding were $6.4 million and $6.3 million for the third quarter of 2023 and 2022, respectively. Adjusted EBITDA, a non-GAAP financial measure was $1.7 million in the current period compared to $2 million for the third quarter of 2022. At September 30, 2023, cash, cash equivalents and restricted cash was $14.7 million compared to $12.5 million at December 31, 2022. Shareholders' equity, excluding non-controlling interest in subsidiaries was $22.1 million or $3.33 per outstanding share at quarter end, compared to $21.6 million or $3.30 per outstanding share at December 31, 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 Jason, we'd now like to turn the call back to you and open it up for questions.

Thank you. We will now begin the question-and-answer session. [Operator instructions] At this time, we'll pause momentarily to simpler roster. Our first question comes from Tony Kamin from Eastwood Partners. Please go ahead.

Hi, good afternoon. Ray, as you know, I've always been an extremely supportive and appreciative of management shareholder for many, many, many years. But at this point, 5 points, I think, really strike me. The stock is now trading 40% under its book value. The shares are now trading per share below the cash per share. The stock is down 15% since just the last conference call. It's 35% off of its year high. And in 17-years, the stock has traded in a tight range. I noted you mentioned that you were hiring a compensation committee. I think it's really time for the Board to take much more seriously some consideration for the shareholders in a different way that has been done in the past. I would urge you guys to give that much more consideration, a much more responsibility. My suggestions are really two, one that the company do a $2 million share buyback. As you indicated, you're expecting big things from the investments that are made. Wouldn't this be the right time then to repurchase stock below cash value and so far below book value that it would be accretive. I know in the past, you've said you don't want to spend the cash. If that's the case, the second alternative, I would suggest is a 10% stock dividend that becomes kind of a regular stock dividend until you feel that you can either give a cash dividend or go towards or move towards share repurchases. Anyway, so my question is, again, if you're getting a compensation committee presumably to compensate management and the Board, I feel that with really decades of miserable stock performance, with the company doing quite well on a lot of metrics, it's really time for the Board, I think, to give consideration to the shareholders and what you can do to address kind of the chronic and difference to the value of the company, which I know you believe based on many statements is extremely undervalued?

Yes. Tony, thanks for joining us again here today. We take our responsibilities to our shareholders very seriously. And we're always looking at the capital we do have available, our cash balances and the lines of credit we have available and we're also comparing it to the steadily increasing pipeline of activities that we have. And our formula is, what's the greatest expected return to our shareholders. And we are in a very capital-intensive industry. And our business order intake, our pipeline has been growing and our order intake is slowly increasing our rate of orders that we're taking in is increasing. And we're constantly evaluating our capital position and the capital that would be required for these projects. As far as our stock price, I think as I've often mentioned, I really believe our stock is undervalued. It's very thinly traded. We're considering doing some activities to improve the activity levels. And I think our recent stock price decline, I think the market misunderstood some of our recent, in particular, second quarter, let's say, we reported a loss, and we had a couple of blips in our second quarter. We had what I would consider like an isolated type of exception, an expense of, I think, of $578,000 in the second quarter, kind of a onetime item. And we also had the extra $250,000 we invested. This quarter, we reported a profit. And if our profit would have been higher had we not invested the $320,000 into these unique business opportunities. I just wish, Tony, that I could disclose or share in more detail what I see coming down the pike. I wish I could do so. But being a public company does not allow me to do so. So all I can say is keep in touch, our stock is undervalued. I think our performance has been steady. We're a profitable company. We're growing, and we're going to grow more incrementally. In the future, with the pipeline that we've established and the expected order intake we expect to be receiving and the capital deployment we expect to occur.

Well, Ray, as I mentioned, I understand your rationale for wanting to keep cash. The other alternative, which will really cost you next to nothing other than some really minor administrative fees is regular stock dividends. I think that what that does, it rewards shareholders to be long term to hold on to their stock, so they can get the dividend every year. And it's not like this company has so many shares outstanding right now. So I really think your Board should consider that. If you were to put in sort of a 10% level regular stock dividend, I think it rewards your shareholders. And that, that I'd like you to address that as my follow-up, if you would.

Okay. Duly noted it, Tony. We appreciate your comments.

Sure. Thank you.

[Operator Instructions] There are no more questions in -- pardon me. We have a question from Michael Cooper, Private Investor. Please go ahead.

Hello. Good quarter, guys. Now with regard to the go forward, I would actually vote that you not be disbursing cash in the way of dividends or buybacks. To me, that would signal that your growth opportunities were not as robust as maybe. So that's just another opinion on the other side of the argument. My question is around the $550,000 that you have invested in the process. Where does that investment go? Is that salaries internally? Is that legal expenses, site visits, acquiring leases. Can you give any kind of flavor on what those expenses looked like for those investments?

Thank you, Michael, for your question. Thanks for participating today and for your time. The money we've invested, the 570,000 between the second and third quarter has gone to three unique business opportunities, and they evolved a lot of upfront costs necessary to go through the process of getting the deal, I'll say. There's been legal costs. There's been costs associated with just regulatory filings that are necessary to obtain the business and other consultants and advisers that we feel has been very beneficial to enhance our ability to close the opportunities. So that's probably about as far as I can take things, Michael, in answering your question, I can tell you, I've been an entrepreneur investor for a few decades now. And that money would not be expensed and that if the opportunities weren't worthwhile.

Great. Look forward to announcements.

Stay tuned.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Ray Stachowiak for any closing remarks.

Thank you, Jason. Thanks for everyone who joined us today. I really believe American shares never been in a stronger position with the pipeline opportunities we have, our financial position, capital we have ready to be deployed. We're excited about that future. So as I've mentioned already, please stay tuned. We'll speak with you next on our 2023 year-end call in March. But please don't hesitate, feel free to contact us directly if you have any questions before them. Be well, and have a great evening. Goodbye.

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