American Shared Hospital Services

Welcome to the American Shared Hospital Services second quarter 2022 earnings call. All participants will be in 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 touch-tone phone. To withdraw from the question queue, 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, Sarah, 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 are 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, 2022. The 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 was 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, and good morning, everyone, and to our friends on the East Coast, good afternoon. Thanks for joining us today for our second 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 of will then provide an operational review of the results. Following the prepared remarks, we'll open the call for your questions. AMF had a very good second quarter. We reported $5 million in revenue, 12.5% higher than last year, and the highest revenue since the third quarter 2019, three years ago. Net income, reached half a million dollars, the highest it's been since the fourth quarter of 2017, over four years ago. Craig and Alexis will go into more detail in a few minutes. We've been making great sequential progress too, building on the previous quarter's results for four consecutive quarters now. In the third quarter of 2021, we had net income of 33,000 or one cent per share. In the fourth quarter of 2021, we had net income of 219,000 or four cents per share. In the first quarter 2022, we had 269,000 net income or four cents per share. And now in the second quarter, we've almost doubled that to 497,008 cents per diluted share. These results were driven by the post-COVID rebound in volumes, higher average reimbursement for both proton beam radiation therapy and gamma knife, and almost as important, improvements in our operating structure. These have included the strengthening of our balance sheet, the refinancing of our debt at lower interest rates, and reducing our costs at all levels where possible, including the downsizing of our corporate office. Our team has worked hard to accomplish these goals, which largely took place during the pandemic when volumes for our cancer treatments were low. which magnified our high fixed cost structure. We've been expanding our radiation therapy product offerings, and we're now poised to increase our investment in sales and marketing initiatives to drive future growth. Our commitment is highlighted by the recent hiring of AMS's new head of sales, Tim Keel, a seasoned executive in our industry that both Craig and I have known for many years. Tim has deep experience and strong industry relationships, and we have confidence in his ability to increase AMS's sales momentum. Our improved results have added to our cash balances, and we ended the second quarter with $12 million in cash. or approximately $1.91 per share, based on 6.3 million fully diluted shares at June 30, 2022. This compares to our shareholders' equity, excluding the non-controlling interest in subsidiaries, which was $20.8 million, or $3.32 per diluted share. also at June 30th, 2022. With the strong foundation we've built, the increasing investment in sales and marketing, and our significant resources to partner on deals, like the joint venture we're working to open in Pueblo, Mexico in early 2023, we believe that AMS is well positioned for sustained growth, and profitability. I'll now turn the call over to Alexis for the second 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 second quarter 2022 earnings press release that was issued after the market closed yesterday. If you need a copy, it can be accessed on our website at ashs.com at press releases under the investor tab. Now turning to our second quarter results. For the three months ended June 30th, 2022, revenue increased 12.5% to $5,034,000 compared to revenue of $4,476,000 for the second quarter of 2021. Second quarter revenue for the company's proton therapy system installed at Orlando Health in Florida increased 49% to $2,308,000 compared to revenue for the second quarter of 2021 of $1,549,000. Total proton therapy fractions in the second quarter were 1,324, an increase of 19.4% compared to 1,109 proton therapy fractions in the second quarter of 2021. Revenue for the company's Gamma Knife operations decreased 6.9% to 2,726,000 for the second quarter of 2022, compared to 2,927,000 for the second quarter of 2021. Gamma Knife procedures decreased 10.9% to 335 for the second quarter of 2022, than 376 in the same period of the prior year. Gross margin for the second quarter of 2022 increased 29.9% to $2,088,000 or 41.5% of revenue compared to gross margin of $1,607,000 or 35.9% of revenue for the second quarter of 2021. Selling and administrative costs increased by 5.1% to $1,146,000 for the three-month period compared to $1,090,000 for the same period in the prior year. Interest expense decreased 9.7% to $149,000 compared to $165,000 for the same period in the prior year. Operating income for the second quarter was $793,000 compared to operating income at $352,000 in the second quarter of 2021, an increase of 125%. Income tax expense increased to $248,000 for the second quarter compared to a tax benefit of $24,000 for the second quarter last year. The 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 at an elevated level through the end of this year. Net income attributable to American Shared Hospital Services in the second quarter 2022 was 497,000 or 8 cents per diluted share compared to a net loss of 87,000 or 1 cent per diluted share for the second quarter of 2021. The 2021 second quarter includes a pretax loss on extinguishment of debt of 401,000. Net income attributable to American share hospital services in the second quarter of 2021, excluding the net effect of this extinguishment of debt after non-controlling interest and income taxes of 244,000 with 157,000 or 3 cents per diluted share. Fully diluted weighted average common share is outstanding. were $6,281,000 or $5,802,000 and $5,802,000 for the second quarter of 2022 and 2021, respectively. Adjusted EBITDA, a non-GAAP financial measure, was $2,129,000 for the second quarter of 2022, compared to $1,829,000 for the second quarter of 2021, an increase of 16.4%. At June 30th, 2022, cash, cash equivalents and restricted cash was 11,967,000 compared to 8,263,000 at December 31st, 2021. Shareholder's equity at June 30th, 2022 was 25,337,000 compared to 24,239,000 at December 31st, 2021. I'll now turn the call over to Craig for the second quarter operational overview. Craig?

Thank you, Alexis, and good afternoon, everyone. As Alexis mentioned, total revenue in the second quarter was $5 million. a 12.5% increase over the second quarter of last year. It was a continuation of the revenue growth trend that started in the fourth quarter of 2021 when we reported 4.7 million in revenue, the highest revenue of the year and continued into the first quarter when we reported 4.8 million. Second quarter 2022 revenue for the proton therapy system in Florida increased to 49.0% to 2.3 million due to increased volumes and higher average reimbursement due to the higher mix of commercial payers. Total proton therapy fractions increased 19.4% to 1,324. This growth was primarily due to weaker results in last year's second quarter from the impact of the pandemic. Gamma Knife revenue decreased 6.9% to 2.7 million. The decline was due to a decrease in procedures offset by an increase in average reimbursement. This was driven by an increase in the average rate at the company's retail sites due to a favorable mix shift in payer mix to more commercial payers. Revenue for same centers in operation, excluding the two Gamma Knife contracts that expired, one each in the first and fourth quarters of 2021, decreased 7% when compared to those same centers during the same period of the prior year. Gamma Knife procedures decreased by 10.9% to 335 for the second quarter. This was primarily due to the expiration of the two contracts I just mentioned. Excluding the two expired contracts, gammonite volumes per same centers in operation decreased 6% when compared to gammonite volumes for those same centers during the same period of the prior year, which we view as a normal cyclical fluctuation. Gross margin increased 29.9% in dollars to $2.1 million. The gross margin percentage expanded 560 basis points to 41.5% of revenue compared to 35.9% for the second quarter of 2021. The increase was achieved despite higher international operating costs driven by increased volumes at those locations and is among the highest levels we've ever recorded. Selling and administrative costs increased by 5.1% to $1.1 million compared to last year's second quarter due to higher sales, legal, and related fees associated with new business opportunities like the Puebla, Mexico project that we announced in April. At our international locations, the ICON upgrade at Gamma Knife Center Ecuador remains scheduled for installation 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 LINAC accelerator at our joint venture in Puebla, Mexico, which is anticipated to open in early 2023 pending licensing and regulatory approvals. In closing, with our strengthened balance sheet, improved results and resources, and a renewed focus on sales and marketing, we're excited about the future for AMS. This concludes the formal part of our presentation. Sarah, 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 touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Tony Cannon with Eastwood Partners. Please go ahead.

Hello. Congratulations on a nice quarter. Ray, I missed the beginning of the call, so if you covered this, sorry to re-ask it, but can you talk a little more about the sort of, as you just said, the renewed focus on sales and marketing and I sort of asked this question, I think, on your last quarterly call, but can you talk about maybe the arc of your pipeline? Is it filling up? Are you getting further along in any potential negotiations? I mean, how should we look at kind of expectations that we can get, you know, other products out there? Okay. Mm-hmm.

Thank you, Tony. Appreciate your question and good speaking to you again. Very good question. We've done a great job of creating a foundation. We strengthened our balance sheet. We got more than enough resources and we hope to put our resources to good use. The $12 million in cash we have, we still have a $7 million unused line of credit. And besides that, we can further leverage those resources. So we're doing a significant amount of investment in our sales and marketing efforts, not just the time that individuals are spending, but we're looking also to add additional resources in the near future. As far as prospects go, I can comment that we've got very good prospects. As you know, however, there's long lead cycles in this business. And, you know, we got various prospects at various stages in that sales cycle. And we really are fairly reluctant to comment on future expectations, let's say, or future arrangements. I am pleased that, you know, earlier this year we announced our joint venture in Pueblo, Mexico. And that's just a further testament of our expanded product offerings. We're providing a linear accelerator made by Electa. But, you know, it's not a gamma knife. It's a linear accelerator. So with the expanded product offerings, we're finding that we're gaining some traction. Geographically, we're looking at opportunities both in the United States and international. So we're pursuing opportunities wherever we can see potential here and what we're finding out is I think we do need to add additional resources to our sales and marketing efforts so hope Tony I hope that answers your questions with some degree of confidence well definitely let me ask two other sort of follow-ups and they're kind of related one is there any

given the proton beams are getting to be more of a mature industry than it was, has there been continuing research that you're aware of in terms of its efficacy versus other products? And secondly, as you look at sort of the whole industry of, you know, proton beams and LIN-X and everything else, do you see any trends towards more favor towards one or the other or any other kind of technology shifts that you're paying attention to and saying this is important?

I'd like to have Craig comment on that, but before we turn it over to Craig, I'd like to comment in general. We do see continued positive developments on technology. proton therapy treatments and the clinical aspects of those treatments are very positive. The other thing I'd like to make just a general comment on is there continues to be a lot of innovation in this space, not just on protons, but also on photon technology. And we are probably better than ever, keeping abreast of those developing technologies so that we can evaluate those opportunities. Craig, would you like to comment?

Yes. Thank you, Ray. I would say if you look at the major cancer centers in the United States, more and more of them are all embracing proton therapy and incorporating that into their practice. And I think that would tell you from the standpoint of is it a vital piece of technology for major cancer centers? I think you would see that that would verify that. I think we're also starting to see some major non-academic cancer centers now embracing proton therapy, and I think we'll continue to see that trend. The other trend that we've noticed is that the MR Linux that Ray has talked about in the past, more and more centers that have a a fair amount of patients that they're treating are now looking at this technology and wanting it. And I think if you look at both these types of technologies, they're high in capital costs. So I think it's these two technologies are ones that we look that American Shared can partner with hospitals and sharing some of the risks with them in terms of both the capital allocation risk, any reimbursement risks that they might think they have, and any volume risks. We do extensive due diligence with the hospital before we would enter into contracts on these two technologies. But I think both these technologies have a lot of promise, both in terms of adoption by major cancer centers, but also in the space that American Shared can participate in.

Well, that's very helpful. So one final question. I just don't remember the answer. I know that you are pretty agnostic in terms of proton beam manufacturers at this point, but do you still have deposits down that you can use on the Mevion machines that I know you put deposits on quite a while ago?

Yeah, Tony, we wrote those deposits off our balance sheet in the fourth quarter of 2020. However, if we proceeded with a purchase from Mevion, they are on our account with Mevion. So, we wrote those assets off in the fourth quarter of 2020 because we didn't have good outlook or prospects for realizing the benefit of that deposit back then. So, it's a positive situation to be in. We are OEM agnostic in terms of our proton beam investments, but if we proceeded with Mevion, we could take advantage of those deposits.

Great. Well, thanks very much for all the questions. Okay.

Again, if you'd like to ask a question, please press star, then 1 at this time. Showing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Ray Stokowiak for any closing remarks.

All right. Thank you, Sarah. And thank you, everyone, for joining us today. We've gotten four consecutive quarters of improved results. We have a strong foundation and significant resources. And we believe that AMS is on a path that I've mentioned several times during these conference calls of sustained growth and profitability. We look forward to speaking with you again on our third quarter call in mid-November. Please feel free to 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.