American Shared Hospital Services (AMS) Q1 2024 Earnings Report, Transcript and Summary

Good afternoon, everyone and welcome to the American Shared Hospital Services First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. At this time, I would like to turn the floor over to Kirin Smith of PCG Advisory. Please go ahead.

Thank you, operator and thank you to everyone joining us today. AMS' first quarter 2024 earnings press release was issued this afternoon after the market closed. If you need a copy, it can be accessed on the company's website at www.ashs.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-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 remind everyone about our Q&A policy, where we provide each participant the time to ask one question and one follow-up. As always, we'll be happy to take additional questions offline at any time With that, I'd now like to turn the call over to Ray Stachowiak, Executive Chairman and CEO. Ray, please go ahead.

Thank you, Kirin. Good afternoon, everyone. Thanks for joining us today for our first quarter 2024 earnings conference call. I'll begin with some opening remarks and then turn the call over to Robert Hiatt, our Chief Financial Officer for a financial review of the first quarter results. Following the prepared remarks, we'll open the call for your questions. Before I turn to our results, I'd like to acknowledge the unexpected passing of our Chief Executive Officer, Peter Gaccione. We are deeply saddened by Peter's passing. He will be dearly missed. Peter's enthusiasm, integrity and empowering leadership style shaped the organization over the last 18 months, and his tremendous contribution to AMS will not be forgotten. Peter's legacy lives on, and we wish his family, friends and colleagues very happy memories. With Peter's passing, we announced several management changes to ensure seamless operations as we capitalize on our growth trajectory. I've taken on the CEO position, in addition to my Executive Chairman role, and the company's President, Craig Tagawa has become President and Chief Operating Officer. Robert Hiatt continues to serve as our company's Chief Financial Officer. Ernest R. Bates will continue in the role of Vice President of International Sales and Marketing and Curtis Ellis will continue to serve as Director of Sales, Western Region, USA. We are also very pleased to announce that Ranjit Pradhan was promoted from Head of Marketing and Customer Advocacy to Vice President of Customer Advocacy and Global Marketing. Mr. Pradhan brings 30 years of experience in healthcare to the role, having served in product management, marketing, technology and general management positions at Fortune 100 Companies and global leaders like GE, Abbott, Elekta, Sysmex and Philips. With our acquisition of a 60% interest in three radiation therapy centers in Rhode Island, we announced the appointment of Greg Mercurio as our Senior Vice President of Radiation Oncology. Mr. Mercurio brings deep experience in the Radiation Oncology field to this role, including 20 years in Certificate of Need Attainment for the development and operation of radiation therapy facilities. He has built a strong network of relationships with physicians, hospitals and OEMs for making the use of high-technology medical equipment more accessible. Mr. Mercurio served a nationally renowned provider of radiation therapy for 15 years, strategizing the attainment of Certificates of Need to establish five radiation therapy centers in Rhode Island and joint venture partnership with five community hospitals, treating over 1,000 patients a year and generating $9 million to $10 million a year in revenue. He has served as a radiation business consultant to major healthcare systems across the country, freestanding radiation oncology providers, and manufacturers of radiation therapy products. So as you can see, we have a robust senior management team to drive additional momentum, as we continue to execute on our growth strategy. Now let's go on to the quarterly results. We're pleased to report that AMS had a good first quarter, and we're extremely excited about the coming year. We have continued to show market improvement in advancement in several important ways. Notably, the sales team has been showing nice momentum and our sales pipeline is extremely strong. In fact, with the Rhode Island acquisition that we just closed, our projected revenue backlog has more than doubled to over $210 million. This is due not only to the team where we are well-known in our industry but also due to our expanded financial solutions and closer integration with our strategic OEMs. Together, these factors have resulted significantly increasing the breadth of opportunities for our consideration. These include a range of advanced radiation therapy equipment in various settings, as well as the expansion of our business model to also develop our own operated majority owned proton beam and radiation oncology centers in the United States. The team continues to focus on strengthening our core business by working with customers to increase utilization of their equipment. This focused strategy led to the signing of four lease extensions from our 10 domestic ammonite customers over the last 12 months. We have others in the pipeline. We believe these extended agreements are a testament to our partnership business model and financial flexibility. What's really impressive is that this is up significantly from prior years, which is a testament to our focus, determination and execution. International results have also continued heating up. In the first quarter, we saw volumes increasing following the completed equipment upgrade in Ecuador to a new state-of-the-art Gamma Knife Icon, the only Gamma Knife in Ecuador for noninvasive radiosurgery. Our Gamma Knife in Peru, the only Gamma Knife in that country, also showed excellent results in the first quarter. Our third international center in Puebla, Mexico remains on track to begin treating patients in the next 60 days. This newly opened linear accelerator in Puebla, Mexico that we are installing will have VMAT, IGRT and radiosurgery capabilities, offering the most advanced radiation therapy available in that catchment area of Puebla, Mexico. We also continue to invest in the three unique business opportunities in Rhode Island previously discussed. The first of these deals was announced in the fourth quarter for the acquisition of a 60% majority interest in three radiation therapy centers in Rhode Island. This acquisition closed last week. These are our first direct patient services or retail centers in the United States. This new business, which is the first for our expanded team and new pipeline, clearly reflects our strong ambitions for the company. We started the year with a solid quarter, reporting total revenue in the first quarter of $5.2 million a year-over-year increase of 5.9%. Gross margin was $2.1 million a 12.3% increase, reflecting tight control over direct costs and positive operating leverage. The gross margin percentage came in at 41%. We earned $0.02 per share for the quarter, a slight decrease from $0.03 per share in the prior year's first quarter. Our balance sheet remains strong. We ended the first quarter with over $13 million in cash and equivalents, roughly equal to $2 per share. We also had $2.4 million outstanding on our $7 million line of credit as of March 31, 2024, which has been paid off early in the second quarter 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 center in Puebla. The recent closing of the Rhode Island acquisition adds three new revenue streams to our business. In addition to the new business opportunities that are moving through our pipeline through that intricate and long sales cycle. We are excited to share more details at the appropriate time. With that, I'll turn the call over to Bob for a financial overview.

Thank you, Ray, and good afternoon, everyone. First quarter revenue increased 5.9% to $5.2 million compared to $4.9 million in the year ago quarter. As previously discussed, we redefined our business segments to better reflect our revenue sources. Central revenue from the company's Medical Equipment Leasing segment, which we now refer to as Leasing, was $4.3 million for the first quarter 2024, compared to $4.2 million in the year ago first quarter, an increase of 0.6%. Revenue from the company's Direct Patient Services or Retail segment was $963,000 for the first quarter ended March 31, 2024 compared to $696,000 for the year ago quarter, marking an increase of 38.4%. The upgrade of the equipment in Ecuador added capacity and improved patient experience and volume and the Peru revenues increased due to promotion of the center throughout country, which accounted for the increase. First quarter revenue for the company's Proton Therapy System in Florida was $2.6 million an increase of 14.5%, primarily due to continued increases in average reimbursement despite a decrease in fraction. Total proton therapy fractions in the first quarter were 1276 compared to 1536 proton therapy in the first quarter of 2023, a 16.9% decrease due to normal cyclical fluctuation. Total Gamma Knife revenue decreased slightly by 1.7% to $2.6 million due to a decrease in procedures from two expired contracts as well as downtime at two sites for the installation of upgraded equipment, but it was nearly offset by high volume in our other locations, particularly Peru and Ecuador. To put this in perspective, total Gamma Knife procedures were 273 for the first quarter compared to 293 in the first quarter a year ago. However, excluding the two customer contracts that expired, Gamma Knife procedures increased by 10 or 4% for the first quarter of 2024. Gross margin for the first quarter of 2024 increased 12.3% to $2.1 million compared to gross margin of $1.9 million for the first quarter of 2023. Selling and administrative costs increased 22.1% to $1.9 million for the first quarter of 2024, compared to $1.5 million in the year ago quarter. This includes approximately $377,000 that we've invested in pursuing new business opportunities as Ray has talked about. Net interest expense was $237,000 in the 2024 period compared to $184,000 in the comparable period of last year. The increase is due to an increase in the interest rate and borrowings on the company's variable rate debt, offset by increases in interest income on the company's strong cash balance. The operating loss for the first quarter of 2024 was $85,000 compared to operating income of $98,000 in the first quarter of 2023, which reflects higher selling and administrative expense associated with our recent Rhode Island activity. The income tax benefit of $44,000 for the first quarter of 2024 compared to income tax expense of $68,000 for the same period last year was primarily due to a change in a deferred tax valuation allowance. Net income attributable to American Shared Hospital Services in the first quarter of 2024 was $119,000 or $0.02 per diluted share, compared to net income of $188,000 or $0.03 per diluted share for the first quarter of 2023. Fully diluted weighted average common shares outstanding were $6,576 million and $6,472 million for the first quarter of 2024 and 2023 respectively. Adjusted EBITDA, a non-GAAP financial measure, was $1.7 million for the first quarter of 2024 compared to $1.9 million for the first quarter of 2023. At March 31, 2024, cash, cash equivalents and restricted cash was $13.04 million compared to $13.81 million at December 31, 2023. Shareholders' equity excluding noncontrolling interest and subsidiaries was $22.84 million or $3.61 per outstanding share at March 31, 2024 compared to $22.62 million dollars or $3.59 per outstanding share at December 31, 2023. 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 like to turn the call back to you and open for questions.

Thank you. [Operator Instructions] Our first question today comes from Ameren from Zacks. Please go ahead with your question.

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

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

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

No, the correct way of thinking about it is there is no downtime. They were treating patients on Tuesday, May 7, the last day of ownership of the seller and they are treating patients on Wednesday, May 8, the first day of our ownership and that revenue will hit our books in the second quarter beginning with the patients that were treated last week Wednesday, May 8, and thereon. That's one of the benefits of doing an acquisition like this. You get an immediate bump in your revenue and profitability from an acquisition, and I contrast that with the agreement we signed in Puebla, Mexico. We're installing the equipment and we expect to be treating our first patient in the next 60 days, but we signed that agreement almost two years ago. So signing of the agreement in a joint venture like this in Puebla, Mexico does take some time and the revenue does not start for longer period of time depending upon licensing and commissioning and the training involved and the preparation of the and commissioning and the training involved and the preparation of the facility itself.

Okay. Thank you very much.

[Operator Instructions] Our next question comes from Aaron Granowitz who is a private investor. Please go ahead with your question.

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

That's a very good question. Thank you for asking it. I'd like to clarify sometimes I want to make sure everyone understands. We've been pursuing three opportunities in Rhode Island and the first one is the acquisition of these three radiation therapy centers. I don't want to get confused that the three opportunities are the three-radiation therapy centers we just acquired. That's the first opportunity in Rhode Island, three radiation therapy centers. The second opportunity is to open a fourth radiation therapy center, which we would build from the ground up basically and we're not really interested in owning the facility, we'd probably lease the facility from a REIT, but we'd own and operate the radiation therapy center in that facility. That facility is targeted to go into Bristol, Rhode Island, which is on the east side of Rhode Island, and I'll say in an underserved community. We expect to have a hearing on the CON that's required sometime in the very near future, and will, I'm sure that will be well received, I'll just say. The third opportunity, and to comment on the Bristol facility, it will take some time to build that facility, install the equipment. I'm going to say that the revenue on that and the first patient being treated at that facility could be about 12 plus months out. So let me just set expectations along the line on that opportunity. The third and final opportunity has even a longer timeline associated with it. We have applied for CON to operate a proton beam radiation therapy center that we would own and operate in Rhode Island. We have a targeted site for that center that we're not yet ready to disclose. There is a CON that hearing has not yet been scheduled. So we're awaiting the scheduling of that hearing by the Rhode Island Department of Health for that CON, for the proton beam. The timeline for the proton beam is even longer. I would estimate that once we have a CON in place, it could take two, sometimes up to three years before the first patient is treated, even if we're fairly aggressive in the site acquisition, construction design, the Vault is a very complex construction project. So that timeline is even further out. But it's well worth being patient. We've had an excellent experience in our proton beam relationship that we currently have in Orlando, Florida, and all good things take time.

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

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

Well, I mean, if we use 100% of, you know, the machine running nonstop full capacity, there's the first patient treated. So what's kind of the arc and timeline of first patient treated, and maybe it's only at 10% of the capacity of the machine birth as time goes along? How can we kind of view the arc of that?

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

Okay that’s helpful. Thank you, guys.

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

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

[Operator Closing Remarks]