American Shared Hospital Services (NYSE:AMS) Q1 2023 Results Conference Call May 12, 2023 12:00 PM ET

Company Participants

Stephanie Prince - PCG Advisory

Ray Stachowiak - Executive Chairman

Peter Gaccione - Chief Executive Officer

Bob Hiatt - Chief Financial Officer

Operator

Good morning. And welcome to the American Shared Hospital Services First Quarter 2023 Earnings Conference Call. All participants will be in listen only mode [Operator Instructions]. Please note that this event is being recorded.

I would now like to turn the conference over to Stephanie Prince from PCG Advisory. Please go ahead.

Stephanie Prince

Thank you, Anthony. And thank you to everyone joining us today. AMS' first 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 Web site at ashs.com at Press Releases under the Investors tab.

Before turning the call over to management, I would like 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 of the company constitute forward-looking statements for the purposes of safe harbor provisions under the Private Securities Litigation Reform 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 annual report on Form 10-K for the year ended December 31, 2022 and the definitive proxy statement for the Annual Meeting of Shareholders to be 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?

Ray Stachowiak

Thank you, Stephanie, and good morning, everyone. Thanks for joining us today for our first quarter 2023 earnings conference call. I will begin with some opening remarks and then turn the call over to Peter Gaccione American Shared's recently appointed Chief Executive Officer. Bob Hiatt, our new Chief Financial Officer, will then give a financial review of our first quarter results. Following the prepared remarks, we'll open the call for your questions. Today, I'd like to start off by focusing on the expansion of our team over the last 12 months. In my mind, these are some of the final steps to be put in place in the turnaround that we've undertaken at AMS during the past couple of years. Most recently, Bob Hiatt joined our team as our Chief Financial Officer in April. Bob is a seasoned financial executive who has served as CFO at both public and private companies. I believe he will make significant contributions to our growth. In the past 12 months, we've also added our new CEO, Peter Gaccione, a very well-respected executive in our industry. We also added Tim Keel as our Vice President of Domestic Sales and Business Development and Ranjit Pradham as our new in-house Customer Advocate. He's in charge of growing our current client relationships. Ernie Bates continues to flourish in developing our international opportunities in his continuing role as Vice President of International Sales and Business Development. Craig Tagawa, our President, continues to provide very valuable contributions in the structuring and negotiation of our future orders.

While these investments have currently added to our expenses, we believe that all had been necessary for future revenue growth. These investments have begun to pay off with our sales pipeline now full with numerous possibilities that are working their way through the complex sales cycle required for our product offerings. During the first quarter, we received the approvals we were waiting for to place the upgraded Gamma Knife ICON in Ecuador as well as the approval for the new linear accelerator, or LINAC, for our new cancer center joint venture in Puebla, Mexico. The installation of this new LINAC has already begun and we're excited at the expected start-up of both systems during the third quarter of this year. We continue to generate strong positive cash flow during the first quarter despite its challenges. We ended the quarter with $13.2 million in cash, roughly equivalent to $2.03 per share. If we subtract that $2.03 from our recent stock price of $2.80 a share, it sure seems to me that it greatly undervalues all of our other tangible assets. Looking ahead, with stronger international growth on horizon, the numerous new contract possibilities domestically and a strong financial position, we're confident that AMS is poised for new growth. I'll now turn the call over to Peter.

Peter Gaccione

Thank you, Ray, and good morning, everyone. Since our last conference call, our sales and customer support teams have been very active. Internationally, we've been working hard in both Peru and Ecuador to increase education and marketing to our referring physicians. We have a large network and as we've expanded our customer support teams, we've improved communications with them all. This includes informing all of our referring physicians that we're installing new Gamma Knife systems at our facilities very soon. These new systems will provide several additional treatment capabilities for patients, including faster treatment times, frameless treatments, advanced onboard CT imaging with same day imaging and treatment and allow for remote treatment planning and approval. All of these changes will improve the patient's treatment experience, increase departmental workflow and also the important relationship that we have with our physician referral network. In Ecuador, as Ray said, we now have received the required permits to upgrade the current Gamma Knife 4C to the Gamma Knife ICON, and we're scheduled for delivery and installation in July, August 2023. We are also on track at Puebla, Mexico. The new LINAC with VMAT image-guided radiation and radiosurgery was delivered to the site last week and the mechanical equipment installation has already begun as planned. We're excited about the third quarter start-up of both advanced systems. In the US, our recently appointed Customer Advocate has been working diligently with many of our sites to see how to increase patient volumes. We believe that the solution is a combination of increased marketing as well as possible equipment upgrades to bring in new treatment capabilities at some sites, which also means that our agreements will be extended.

This is what our second order of the year is, as Ray mentioned, a five year agreement extension with an equipment upgrade to the newest Gamma Knife [Esprit]. The Esprit will provide additional treatment capabilities for patients to improve the patient treatment experience, including faster treatment times, and we expect that patient volume will increase as a result. It will be the first Esprits in the US when it is installed in the fourth quarter. In addition, our first order of the year is scheduled to begin installation in September 2023 as planned. Broadly, sales activity is very strong with a number of projects moving through our sales pipeline. This includes the two orders that we've already announced this year. This activity includes Gamma Knife projects worldwide, including the US with MR/LINACs and proton beam radiation therapy centers as well. In addition, given US market trends that point to more consolidation of cancer centers, American Shared is becoming more involved in discussions for US cancer center acquisitions, joint ventures and other creative turnkey financial models, similar to some of our past successes. Although we cannot disclose any further information due to confidentiality agreements, but the point is that these are new and additional projects that have been recently added to our already increasing sales funnel. We've also greatly increased our social media presence on our four major platforms, and I believe that this increased marketing and the expanded visibility of American Shared's unique value proposition is driving a large part of this interest. As a reminder, American Shared's unique position provides clinical cancer treatment centers the opportunity to partner with all the major original equipment manufacturers through one turnkey vendor in one creative relationship. American Shared now has multiple opportunities for growth. And with our newly expanded team and deep financial resources, we intend to become actively involved in many of them.

I'll now turn the call over to Bob for a financial overview.

Bob Hiatt

Thank you, Peter, and good morning, everyone. First quarter revenue increased 1.6% to $4.9 million compared to $4.8 million in the year ago period. First quarter revenue for the proton therapy system in Florida increased 13.5% to $2.3 million compared to $2.0 million, primarily due to higher average reimbursement period-over-period for the current quarter. Total proton therapy fractions in the first quarter were 1,536, a decline of 5.7% or 92 fractions compared to 1,628 in the first quarter last year. Total Gamma Knife revenue decreased 7% to $2.6 million compared to $2.8 million in last year's first quarter. Domestic Gamma Knife revenue declined 8.9% to $1.9 million and international revenue decreased 1.4% to $0.7 million period-over-period. The decline in overall Gamma Knife revenue was due to a decrease in procedures, partially offset by an increase in average reimbursement. The increase in average reimbursement continues to be driven by a favorable shift in payer mix to more commercial payers. Total Gamma Knife procedures decreased by 10.9% to 293 for the first quarter of 2023 from 329 in the first quarter of 2022, also within the range of normal cyclical fluctuations. Gamma Knife domestic procedures declined 15% to 216 and international procedures increased 2.7% to 77 for the first quarter of 2023 compared to 2022. As Peter mentioned, our new Customer Advocate has been working to increase customer utilization. And we expect additional international growth with the approvals now in place for the ICON upgrade with advanced treatment capabilities at our Gamma Knife Cancer Center in Ecuador and for the new linear accelerator, or LINAC, for our new cancer center joint venture in Puebla, Mexico. Both are expected to be in place and treating patients in the third quarter of this year.

Gross margin for the first quarter decreased 7.7% to $1.9 million or 38.7% of revenue compared to gross margin of $2.1 million or 42.6% of revenue for the first quarter of 2022. Selling and administrative costs increased by 16.7% to $1.5 million for the first quarter compared to $1.3 million as we continue to invest in sales and marketing initiatives associated with new business opportunities. Net interest expense increased $184,000 in the 2023 period compared to $148,000 last year, an increase of 24.3% as a result of increases in the interest rates on the company's variable rate debt. Operating income was $98,000 compared to operating income of $600,000 in the first quarter of 2022, a decrease of 83.7%, which reflects higher operating costs and selling and administrative expenses. Income tax expense decreased 67% to $68,000 for the first quarter of 2023 compared to $206,000 for the first quarter last year. The period-over-period decrease was primarily due to lower earnings in the current period and return-to-provision adjustments arising from foreign tax returns as well as permanent domestic tax differences in the prior year. Net income attributable to American Shared Hospital Services in the first quarter of 2023 was $188,000 or $0.03 per diluted share compared to net income of $269,000 or $0.04 per diluted share for the first quarter of 2022. The decrease was primarily due to higher interest expense and higher selling and administrative expenses I discussed. Fully diluted weighted average common shares outstanding were 6,472,000 and 6,299,000 for the first quarter of 2023 and 2022, respectively. Adjusted EBITDA, a non-GAAP financial measure, was approximately $1.9 million in both periods. At March 31, 2023, cash, cash equivalents and restricted cash was $13.2 million, an increase of $748,000 since December 31, 2022. Shareholders' equity, excluding noncontrolling interest in subsidiaries, was $21.9 million or $3.54 per outstanding share at quarter end compared to $21.6 million or $3.50 per outstanding share at March 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.

Question-and-Answer Session

[Operator Instructions] It appears there are no questions. This concludes our question-and-answer session. I would like to turn the conference back over to Ray Stachowiak for any closing remarks.

Ray Stachowiak

Thank you, Anthony, and thank you to everyone who joined us today. I'd like to just make a couple of observations. One, if you analyzed our balance sheet, we got more cash on our balance sheet today than we do interest-bearing debt, a bit of a milestone. And most of all, we've assembled a great team. Our management team is well-poised, is very experienced, to grow our company and reach our goals of sustained growth and profitability. AMS is in the best position it has been for several years. All the pieces, it seems like, are now in place and we're very excited about our future. We look forward to speaking with you again on our second quarter call in mid-August. Please contact us directly if you have any questions before then. Be well, and stay safe. Goodbye.

Operator

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