American Shared Hospital Services

Good day and welcome to the American Shared Hospital Services fourth quarter and year end 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Stephanie Prince with PCG Advisory. Please go ahead.

Thank you, Chad, and thank you to everyone joining us today. 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 annual report on Form 10-K, The year ended December 31, 2020. The quarterly reports on Form 10Q for the quarters ended March 31, June 30, and September 30, fall of 2021, and a definitive proxy statement for the annual meeting of shareholders that was held on June 25, 2021. 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, CEO of AMS. Ray?

Thank you, Stephanie. Good afternoon, everyone. Thank you for joining us today for our fourth quarter and year-end 2021 earnings conference call. I'll begin with some opening remarks and then turn the call over to Alexis Wallace, our Chief Accounting Officer, for a financial review. Craig Tagawa, our President, CEO of and CFO will then provide an operational review of the results. Following the prepared remarks, myself, Craig Alexis, and Ernie Bates, our Senior Vice President, Sales and Business Development and International Operations, will open the call for your questions. AMS finished 2021 on a strong note, reporting the highest revenue of the year in the fourth quarter. Revenue was $4.7 million for the quarter and $17.6 million for the year. Operating income was $723,000, the fourth consecutive positive quarter compared to losses last year, and $1.4 million for the full year. Craig and Alexis will go into the details in a few moments. We accomplished a great deal in 2021. Actions we've taken include strengthening the balance sheet through the impaired asset write-down in December 2020 and refinancing our debt. Our refinancing with Fifth Third Bank last April significantly reduced our principal payments and interest expense. In addition, we established a $7 million line of credit to increase our resources for new business opportunities. We broadened our product lines so we can offer all radiation therapy equipment from all manufacturers. We also expanded our addressable market by signing a business development agreement that provides support in our pursuit of new advanced radiation therapy opportunities in the federal facilities market, such as VA and Department of Defense hospitals. This is in addition to our other marketing initiatives in the United States and international healthcare markets. Late last year, we also lowered our expenses further by subleasing our downtown San Francisco office in addition to our other cost control efforts. Together, these actions resulted in increased profitability and a return to positive net income for both the quarter and the year. We have substantial resources for future opportunities. We have $8.3 million in cash and the new $7 million line of credit. These assets can be even further leveraged to accelerate the growth of our business. I'll now turn the call over to Alexis for the fourth quarter and full year financial review. Alexis?

Thank you, Ray, and good afternoon, everyone. Before I begin my prepared remarks, I'd like to call your attention to our fourth quarter and year-end 2021 earnings press release that was issued early this morning. If you need a copy, it can be accessed on our website at ashs.com at press releases under the investors tab. Now turning to our fourth quarter results. For the three months ended December 31st, 2021, revenue increased 1.8% to $4,689,000, compared to revenue of $4,608,000 for the fourth quarter of 2020. Fourth quarter revenue for the company's proton therapy system installed at Orlando Health in Florida increased 20.1% to $1,685,000 compared to revenue for the fourth quarter of 2020 of $1,403,000. Total proton therapy fractions in the fourth quarter were 1,113, a decrease of 7.9% compared to 1,209 proton therapy fractions in the fourth quarter of 2020. Revenue for the company's gamma knife operations decreased 6.3% to 3,004,000 for the fourth quarter of 2021, compared to 3,205,000 for the fourth quarter of 2020. Gamma knife procedures decreased by 13.6% to 369 for the fourth quarter of 2021, from 427 in the same period of the prior year. Gross margin for the fourth quarter of 2021 increased 116 percent to 2,218,000 or 47.3 percent of revenue compared to gross margin of 1,027,000 or 22.3 percent of revenue for the fourth quarter of 2020. Selling and administrative costs increased by 17.7 percent to $1,238,000 for the three-month period compared to $1,052,000 for the same period in the prior year. Interest expense decreased 40.2% to $152,000 compared to $254,000 for the same period in the prior year. Operating income for the fourth quarter of 2021 was $723,000 compared to an operating loss of $8,543,000 in the fourth quarter of 2020. This includes the write-down of impaired assets of $105,000 and $8,264,000 in the fourth quarter of 2021 and 2020, respectively. Excluding the write-downs, non-GAAP operating income was $828,000 compared to a loss of $279,000, a positive swing of $1,107,000. Net income in the fourth quarter of 2021 was $219, or 4 cents per diluted share, compared to a net loss of $6,231,000, or $1.01 per diluted share, for the fourth quarter of 2020. Fully diluted weighted average common shares outstanding were $6,117,000, and $6,154,000 for the fourth quarter of 2021 and 2020, respectively. Adjusted EBITDA was $2,150,000 for the fourth quarter of 2021, compared to $2,538,000 for the fourth quarter of 2020. At December 31, 2021, cash, cash equivalents, and restricted cash were $8,263,000, compared to $4,325,000 at December 31, 2020. Shareholders' equity at December 31, 2021 was $24,239,000, or $4.01 per outstanding share. This compares to shareholders' equity at December 31, 2020 of $23,650,000, or $4.08 per outstanding share. Briefly, for the 12 months, revenue decreased 1.2 percent to 17,628,000. Proton therapy revenue decreased by 1.8% to 6,058,000. Total proton therapy fractions were 4,426, a decrease of 24.6% for the year, primarily due to the continued impact from the COVID-19 pandemic, as well as downtime we experienced for the repair of equipment components during the second half of the year. Gamma Knife revenue decreased 0.4% to $11,629,000. The number of Gamma Knife procedures were 1,436, a decrease of 6.1%. On the same center's basis, Gamma Knife volumes increased 6.9% from the prior year. Operating income for 2021 was $1,351,000 compared to an operating loss of $9,463,000 for 2020. which includes the write-down of impaired assets that I mentioned earlier. Non-GAAP operating income excluding the write-down was $1,456,000, compared to a loss of $1,199,000, a positive swing of $2,655,000. I'll now turn the call over to Craig for the fourth quarter operational overview. Craig? Thank you, Alexis, and good afternoon, everyone.

As Alexis mentioned, total revenue in the fourth quarter was $4.7 million, a 1.8% increase over last year. It was the highest revenue quarter of the year and broadly reflects moderately lower volumes offset by higher reimbursements. Fourth quarter revenue from our proton therapy system in Florida increased 20.1% to $1.7 million, higher average reimbursement per fraction was offset by moderately lower fractions, which decreased 7.9% year-over-year to 1,113 for the quarter. Volume continued to be impacted by ongoing downtime for the repair of proton system components, which was completed in October 2021. Gamma Knife revenue decreased 6.3% to $3 million. The decrease was due to a decline in procedures offset by an increase in average reimbursement. The increase in average reimbursement was due to the expiration of an agreement in the fourth quarter of 2020, which was reimbursed at a lower rate and an increase in the average rate at the company's retail sites. Gamma Knife procedures decreased by 13.6% to 369 for the fourth quarter, primarily due to the expiration of two agreements, one in the fourth quarter of 2020 and the other in the first quarter of 2021, both high-volume customers. On a same-center basis, Gamma Knife volumes for same centers in Operation were even from Gamma Knife volumes for those same centers during the same period of the prior year, which excludes the two agreements that expired. Gross margin increased 116% in dollars to $2,218,000. The gross margin percentage also more than doubled to 47.3% of revenue compared to 22.3% for the fourth quarter of 2020. The increase was primarily due to a 29.4% decrease in depreciation and amortization and a 46.3% decrease in other direct operating costs, reflecting the continuing benefits of the 2020 year-end balance sheet restructuring. The two agreement expirations and a decrease in operating costs for the company's existing retail sites. Selling and administrative costs increased by 17.7% to $1.2 million for the quarter. This was due to higher legal and related fees associated with the pursuit of new business opportunities. Interest expense was down 40.2% year over year to $152,000, reflecting the debt refinancing that we completed last April, which significantly lowered the interest rate on the portfolio. Non-GAAP operating income for the fourth quarter was $828,000 compared to a loss of $279,000 last year. This was a positive swing of $1.1 million that reflects lower total direct operating costs and interest expense. These numbers exclude the impaired asset write-downs we've been mentioning of 105,000 and 8,264,000 in the fourth quarter of 2021 and 2020, respectively. In the first and fourth quarter of 2021, we completed COBALT 60 reloads for two existing customers that extended their agreements for five years. The icon upgrade at Gamma Knife Center Ecuador is scheduled to be installed later this year, pending regulatory approvals. It will be one of the few Gamma Knife icon units in all of South America. The expansion of our radiation therapy product offerings and target markets has helped to increase our new business pipeline, and we continue to have discussions with existing and potential clients for these advanced products. As Ray mentioned, operating income was now positive for the fourth consecutive quarter. The financial actions we took this year have put us on firm footing and well positioned to sustain the important trend. This concludes the formal part of our presentation. Chad, we'd now like to turn the call back to you and open for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And once again, if you would like to ask a question, please press star then 1. At this time, I'm showing no questions, so I would like to turn the conference back over to Ray Stachowiak for any concluding remarks.

Thank you, Chad. And thanks, everyone, for joining us today. AMS end of the year with good momentum. We believe we're very well positioned for future growth. We look forward to speaking with you again on our first quarter conference call in mid-May. Please contact us directly if you have any questions before then. Be well. Stay safe. Goodbye.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now