American Shared Hospital Services

Good day and welcome to the American Shared Hospital Services first quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. 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 of PCG Advisory. Please go ahead.

Thank you, Matt, 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 for the year ended December 31, 2021, and the definitive proxy statement for the annual meeting of shareholders that will be held on June 21, 2022. 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 first quarter 2022 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, COO, and CFO, will then provide an operational review of the results. Following the prepared remarks, we'll open the call for your questions. AMF started the new year on a strong note. Total revenue increased 11% period over period to $4.8 million. This is approximately 3% higher than the $4.7 million we reported in the fourth quarter just passed, which was the highest revenue quarter of 2021. In this first quarter, volumes bounced back for both proton beam therapy and gamma knife procedures. Margins benefited from decreased operating costs offset by an increase in selling and administrative costs from the pursuit of new business opportunities. Net income in the first quarter of 2022 was $269,000, or $0.04 per diluted share, which builds on the net income we reported in the fourth quarter of 2021 of $219,000, or also $0.04 per diluted share. We believe that this is a great base for future growth and sustained profitability. Subsequent to quarter end, we announced our third international location that will be based in Puebla, Mexico. This is a region of 6 million people located 80 miles from Mexico City. We're excited to begin work on this radiation therapy center joint venture that will house a state-of-the-art linear accelerator with multiple treatment techniques, including IMRT, VMAT, SBRT, and radiosurgery. Operations are expected to start up in early 2023 pending licensing and regulatory approvals. Most recently, we announced that we had expanded the company's sales team by hiring Tim Keel as our Vice President of Sales and Marketing. Tim will be responsible for sales and marketing company-wide. Ernie Bates will be our Vice President of International Sales and Marketing. Tim has over 30 years of experience in the healthcare finance sector, and Craig and I have known him for at least 25 years. Over the years, Tim has held several senior sales roles at leading financial firms like Bank of America, Citibank, and KeyBank with a focus in project finance in oncology, outpatient surgery, and diagnostic imaging. With the pandemic waning, now is a great time to leverage Tim's relationships with hospitals, medical development entrepreneurs, and medical equipment vendors, and bring attention to AMS's expanded resources and our capabilities. We're excited that Tim has joined us, and we look forward to his contributions. I'll now turn the call over to Alexis for the first quarter 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 first quarter 2022 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 the first quarter results. For the three months ended March 31st, 2022, revenue increased 11.1%, to 4,847,000 compared to revenue of 4,364,000 for the first quarter of 2021. First quarter revenue for the company's proton therapy system installed at Orlando Health in Florida increased 33.2% to 2,039,000 compared to revenue for the first quarter of 2021 of 1,531,000. Total proton therapy fractions in the first quarter were 1,628, an increase of 32.3% compared to 1,231 proton therapy fractions in the first quarter of 2021. Revenue for the company's Gamma Knife operations decreased 2.9% to $2,808,000 for the first quarter of 2022, compared to 2,892,000 for the first quarter of 2021. Gamma Knife procedures decreased by 7.3% to 329 for the first quarter of 2022, from 355 in the same period of the prior year. Gross margin for the first quarter of 2021 increased 44.1% to 2,067,000 or 42.6% of revenue compared to gross margin of $1,434,000, or 32.9% of revenue for the first quarter of 2021. Selling and administrative costs increased by 21.7% to $1,319,000 for the three-month period compared to $1,084,000 for the same period in the prior year. Interest expense decreased 43.1% to $148,000 compared to $260,000 for the same period in the prior year. Operating income for the first quarter was $600,000 compared to operating income of $90,000 in the first quarter of 2021, an increase of 566.7%. The increase reflects higher revenue and lower total direct operating costs and depreciation expense. Income tax expense increased to $206,000 for the first quarter compared to $6,000 for the first quarter last year. This increase was due to increased earnings during the current period, return to provision adjustments arising from foreign income tax returns filed during the current period, and permanent domestic tax differences. The tax rate is expected to remain in the elevated level through the end of this year. Net income in the first quarter of 2022 was $269,000, or $0.04 per diluted share, compared to net income of $29,000, or $0.00 per diluted share, for the first quarter of 2021. Fully diluted weighted average common shares outstanding were $6,299,000, and $6,322,000 for the first quarter of 2022 and 2021, respectively. Adjusted EBITDA, a non-GAAP financial measure, was $1,922,000 for the first quarter of 2022 compared to $1,600,000 for the first quarter of 2021, an increase of 20.1%. At March 31, 2022, cash, cash equivalents, and restricted cash was $8,401,000 compared to $8,263,000 at December 31, 2021. Shareholders' equity at March 31, 2022 was $24,720,000, or $4.07 for outstanding share. This compares to shareholders' equity at December 31, 2021, of $24,239,000, or $4.01 per outstanding share. I'll now turn the call over to Craig for the first quarter operational review. Craig?

Thank you, Alexis, and good afternoon, everyone. As Alexis mentioned, total revenue in the first quarter was $4.8 million, an 11.1% increase over the first quarter of last year. It was a strong start to the year and continues the emerging trend that began in the fourth quarter when we reported $4.7 million in revenue, which was the highest revenue quarter of 2021. First quarter 2022 revenue for the proton therapy system in Florida increased 33.2% to $2 million due to increased volumes. Total proton therapy fractions increased 32.3% to 1,628. This snapback was primarily due to weak results in last year's first quarter from the impact of the pandemic, as well as a full quarter with no significant maintenance downtime after two consecutive quarters of sporadic downtime. Gamma Knife revenue decreased 2.9% to 2.8 million. The decrease was due to a decrease in procedures offset by an increase in average reimbursement. The increase in average reimbursement was driven by an increase in the average rate at the company's retail sites caused by a favorable shift in payer mix to more commercial payers. However, using a new metric, revenue for same centers in operation increased 7.2% when compared to those same centers during the same period of the prior year. Gamma Knife procedures decreased by 7.3% to 329 for the first quarter. This was primarily due to the expiration of two contracts, one each in the first and fourth quarters of 2021. Excluding the two expired contracts, Gamma Knife volumes for same centers in operation increased 1.9% when compared to Gamma Knife volumes for those same centers during the same period of the prior year. Gross margin increased 44.1% in dollars to $2.1 million. The gross margin percentage expanded 970 basis points to 42.6% of revenue compared to 32.9% for the first quarter of 2021. The increase was primarily due to a 16.6% decrease in other direct operating costs resulting from the expiration of the two contracts that I mentioned a moment ago. Selling and administrative costs increased by 21.7% to $1.3 million compared to last year's first quarter. due to higher legal and related fees associated with new business opportunities, like the Puebla, Mexico project that we recently announced. Interest expense decreased 43.1% to $148,000 compared to $260,000 for the same period last year, a result of the debt refinancing that we completed in April 2021, which significantly lowered the interest rate on the portfolio. Just as importantly, the refinancing increased our liquidity by reducing our debt service payments and making available a $7 million line of credit. In addition, our current ratio, which is defined as current assets over current liabilities, has increased 3.2 times compared to 1.6 times at March 31, 2021. At our international locations, the ICON upgrade at Gamma Knife Center Ecuador is now scheduled to be installed late this year as we continue to wait for the necessary regulatory approvals. It will be one of the few Gamma Knife ICON units in all of South America. We will also be placing a new linear accelerator at the joint venture in Puebla, Mexico that we recently announced when it opens in early 2023. pending licensing and regulatory approvals. We're excited about the expansion of our sales team, which, when combined with our expanded radiation therapy product offerings, is expected to increase our new business pipeline and the discussions we have with both existing and potential clients for advanced product placements. This concludes the formal parts of our presentation. Matt, we'd now like to turn the call back to you and open to questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question will come from Tony Kamen with Eastwood Partners. Please go ahead.

Hi. I actually missed the first few minutes of the call, so if I ask anything here, you've already answered. I apologize. It was a good quarter, and my question is really, I think, an obvious one. The proton beam had great results. It's now, in that quarter, it was over 40% of your revenue with one machine versus I'm not sure how many total products. Total Gamma Knives. So my question is, you've added a new salesman. You've got presumably a very happy and referenceable client and years of experience here. For the last few years, it seemed like the notion was, well, these things are too expensive. The interest rates are so low, they'll finance them themselves. Then it was COVID. My question really, I guess, is do you think you're going to be able at some point here to place more proton beams? And in answering that question, I'm also curious, is there anything that's changed from the clinical study perspective that is just making these things just not interesting anymore to hospitals?

Tony, thank you for your questions. As far as the technology goes, the technology is still very relevant and desirous of healthcare systems that want to be a leader in cancer treatment utilizing radiation. We are very active and continue to be active. We've ramped up our activity, I'll say, in the pursuit of more proton beam business. There's nothing more than we would like is to be able to announce something along those lines, you know, sometime in the future. I think with our expanded sales team, we got the capabilities of going after that business. And we certainly have the financial and economic resources to pursue it. That's not stopping us as it may have in the past. And our offering is still compelling to healthcare systems. Our argument is along the lines, as an example, many healthcare systems may have $100 million of capital expenditure requests or capital wants or needs or desires, but only $25 million in their capital budget. And we can help stretch that capital budget and get that technology that the clinicians and the strategic thinkers of that healthcare system desire if they want to be a leading healthcare provider treating cancer with radiation. I think we still got a very compelling argument. We've got the economic and financial resources, and we're adding to our human resource capabilities to pursue that business.

And was I correct in that you believe that your current client is happy with how things are going with the current ProtonBeam?

Yeah, I think they're very happy. We would love to use them as a reference in the pursuit of a new ProtonBeam business. I think they'll be very happy and provide a very good reference for us.

Okay. And I guess sort of last question on this topic, from the manufacturer standpoint, they must understand how kind of slowly these have been moving. Are you getting any sense that manufacturers are more open to working with you to create a package that kind of works for everyone to move more machines?

Absolutely. And, you know, I'd just like to point out we're a little bit more open to any manufacturer of proton beam systems. We've had a strong historical relationship with Mevion, and we still got a good relationship with Mevion, in my opinion. But if we come across a customer that desires to have a proton beam system from another manufacturer, our hands are not tied to only one manufacturer of proton beam systems. So we're pursuing that market with kind of, you know, an open ears, open eye type of concept, you know, listening to what the market, the client, desires. But yet we will network with the OEMs as well.

That's good to hear. And obviously just the leverage of a couple more proton beams on the value of American Shared would be so outsized that it – I wish you luck in that. Again, I might have missed this in the opening, but can you talk a little bit about the expanded offerings of product line that Craig mentioned, and particularly with some notion as to where you see or what you see in that expanded line that could be potentially most impactful?

Sure. Thanks, Tony, again for your question. If you look at our portfolio of equipment holdings, we have 14 gamma knives manufactured by Lecta, and we have one proton beam system manufactured by Mebion. There's lots of makes and models of what I'm going to call radiation therapy equipment that treats cancer with radiation in the marketplace. A linear accelerator does it. And those linear accelerators, those LINACs, come in many makes and models ranging from, I'm going to say, $3 million to maybe $7 million. And we've expanded our product offerings to include linear accelerators. We've expanded our offerings to include MR LINACs. Another piece of equipment that treats treats cancer with radiation that utilizes an MR system for treatment planning purposes. So any kind of equipment that treats cancer with radiation therapy equipment, with radiation therapy, is in our product bag. And our recent joint venture that we announced in Pueblo, Mexico, is probably a best example of how our expanded product offering created that opportunity. We're not putting in an Electa gamma knife or a proton beam system in Pueblo. We're putting in a linear accelerator manufactured by Electa, but it's a very high-end linear accelerator that will have a wide variety of treatment options available for that population of six million.

I'm sorry.

Is that helpful, Tony?

Yeah, that's extremely helpful. I am very excited about all that and your hiring of a new salesman to expand that, and I wish you all the luck with it. Thank you.

Thank you, Tony.

Again, if you have a question, please press star then 1. Again, it is star then one if you would like to join the question 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, Matt, and thank you, everyone, for joining us today. In summary, I'd like to mention that We reported earnings per share of 4 cents in the first quarter of 2022. We also reported earnings of 4 cents a share in the fourth quarter of 2021. With this base of business, we believe that AMS is on a path to sustained profitability. 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.

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