American Shared Hospital Services

Good day and welcome to the American Shared Hospital Services Third 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. AMS's third quarter 2022 earnings press release was issued this morning before the market opened. If you need a copy, it can be accessed on the company's website at 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 reports on Form 10-Q for the three-month periods ended March 31 and June 30, 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 21st, 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 afternoon, everyone. Thank you for joining us today for our third quarter 2022 earnings conference call. I'll begin with some opening remarks, and then I'll turn the call over to Craig Tagawa, our President and CFO, for a financial review of the third quarter. Craig will then turn the call over to Peter Gaccione, AMS's newly appointed Chief Operating Officer. Peter is going to spend a few minutes talking about his first priorities and plans for operations and sales. Following the prepared remarks, we'll open the call for your questions. The third quarter was another good quarter for AMS. Revenue increased 18%, driven by higher PBRT volume and higher average reimbursement for both proton beams and gamma-nized procedures. For the first nine months of the year, revenue increased 14%, Net income for a third quarter was $316,000, or 5 cents per diluted share, the fifth consecutive quarter that we've reported positive earnings. On a trailing 12-month basis, our earnings per share now total 21 cents. Our cash has grown over that time as well and now totals 11.7 million, which equates to $1.90 per outstanding share at quarter end. Greg will go into more detail in a few minutes. But I'm proud of our accomplishments and all that our team has achieved over the past couple years. As we've talked about, this has included strengthening the balance sheet to take on new projects, expanding our product and service offerings, and most recently bringing in experienced sales and operations management to generate new business. We were excited to appoint Peter Gaccione as Chief Operating Officer in September. Peter is well-known and respected in the healthcare industry and brings strong market knowledge across the entire radiation oncology spectrum. The company has known him for many years. Peter has the right experience and professional contacts, and we believe he's the right person to lead the operating efforts of the company. Peter will be working with Tim Keel, a senior healthcare finance professional who joined us last May as our vice president of sales and marketing, and Ernie Bates, vice president of international sales and marketing, who's been with the company for many years. With this team in place, we look forward to leveraging our very strong financial resources, the $11 million in cash, and the unused line of credit we have of $7 million, as we aggressively pursue new business opportunities for our company. I'll now turn the call over to Craig for his financial review of the third quarter.

Thank you, Ray, and good afternoon, everyone. Third quarter revenue increased 17.6% to $4.8 million, compared to $4.1 million in the third quarter last year. We've been reporting stronger revenue from the pandemic lows for several quarters now. For the first nine months of the year, revenue increased 14%. Third quarter revenue for the proton therapy system in Florida increased 82.4% to 2.4 million due to continuing growth in volumes and higher average reimbursement for the current quarter. Total proton therapy fractions in the third quarter increased 40.1% to 1,363 compared to 973 in the third quarter last year. Last year's quarter was impacted by the COVID-19 pandemic as well as downtime for some system repairs. Gamma Knife revenue decreased 12% to 2.5 million compared to Q3 last year. The decrease was due to a decrease in procedures offset by an increase in average reimbursement, which in turn 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. Revenue for same centers in operation, which excludes the two Gamma Knife contracts that expired, one each in the first and fourth quarters of 2021, decreased 12.5% when compared to those same centers during the same period of the prior year. Gamma Knife procedures decreased by 12.8% to 293 for the third quarter, primarily due to the expiration of the two contracts I just mentioned. Gemini volumes for same centers in operation for the three- and nine-month periods decreased 9.3% and 4.4%, respectively, when compared to Gemini volumes for those same centers during the same period of the prior year. In the current period, there were temporary staffing shortages at several of our domestic customers in addition to normal cyclical fluctuations. We went back and compared our current Gamma Knife volumes to 2019, the year before the pandemic, and same store volumes are up for both the third quarter and nine-month periods from that time. At our international locations, volumes at our center in Ecuador have picked up. The ICON upgrade at the center is now scheduled for spring 2023, with the delay being related to obtaining the necessary regulatory approvals. It will be one of the few Gamma Knife ICON units in all of South America. The new linear accelerator for our joint venture in Puebla, Mexico, is now scheduled for spring 2023 as well, again pending the necessary licensing and regulatory approvals. Gross margin dollars increased 33.4% to $2 million for the third quarter. The gross margin percentage expanded 470 basis points to 40.5% of revenue. The increase was achieved despite higher operating costs at the company's international sites driven by increased volumes. Selling and administrative costs increased by 12.6% to $1.3 million for the third quarter due to higher sales and related fees associated with new business opportunities. Operating income increased 141% to approximately $0.5 million, reflecting higher revenue and good cost containment. Income tax expense increased to $176,000 for the three-month period compared to $17,000 for the same period in the prior year. The increase in income tax expense for the current period was due to higher earnings during the current period, return to provision adjustments arising from foreign income tax returns filed during the current period, as well as permanent domestic tax differences that are expected to continue through the end of this year. Net income attributable to American Shared Hospital Services in the third quarter 2022 was $316,000 or $0.05 per diluted share compared to net income of $33,000 or $0.01 per diluted share for the third quarter of 2021. Fully diluted weighted average common shares outstanding increased modestly from last year to $6,273,000. Adjusted EBITDA, a non-GAAP financial measure, increased 28% year-over-year to $1,999,000 for the third quarter of 2022. At September 30, 2022, cash, cash equivalents, and restricted cash was $11,664,000 compared to $8,263,000 at December 31, Shareholders' equity, excluding non-controlling interest in subsidiaries, was $21,215,000, or $3.45 per outstanding share at September 30, 2022, compared to $19,893,000, or $3.28 per outstanding share at December 31, 2021. In closing, we believe that AMS has strengthened on every level and is poised for renewed growth in the years ahead. I'll now turn the call over to Peter for some comments about his mandate and initial focus. Peter?

Thank you, Craig, and good afternoon, everyone. I'm happy to be here, and I'm excited about the prospects and opportunities here at AMS. At AMS and uniquely in the radiation oncology business, clinical cancer treatment centers have the opportunity to partner with all the major original equipment manufacturers through one turnkey vendor in one creative relationship. This is uncommon in our industry and was one of the major factors in my decision to join the management team here at AMS. Since I joined the company a few weeks ago, I've focused on three key targeted areas. Firstly, I've been aggressively working with major OEMs to strengthen our business relations and on developing joint sales and marketing strategies. These strategies are focused on obtaining new sockets with advanced treatment systems and solutions using linear accelerators, MR Linux, proton beam therapy, as well as total turnkey services such as new vaults, room renovations, and even modular buildings. Next, I've been working with our clients and our current installed base on Lexel Gamma Knife sites and treatment centers to strengthen and enhance these business relationships. Our installed base sites are at a stage where many need to start planning for either upgrades new systems to replace current systems, or even exploring the expansion of their current center's treatment capabilities by adding new products to help treat cancer patients. These relationships are extremely important, and ensuring they're strong is part of managing and expanding the lifecycle of our installed base. Another area I have been focusing on is developing and implementing new sales and marketing strategies and programs to assist our sales teams in lead generation, prospecting, managing the funnel, the sales funnel, and the pipeline. Some of these strategies include working more in concert with major OEM sales and marketing teams as well as on their senior leadership level, bringing together senior management with the OEMs. In addition, we plan to use more targeted sales and marketing-based data that show where the highest cancer treatment incidences are seen, and then discussing this aspect with prospects in more of a consultative sales approach. Further, and as part of this, we will be working closer with an expert marketing firm to help customers market their treatment abilities to cancer patients within their own community to local physicians and hospitals, and to cancer survivors as well. So when they need to recommend a treatment facility to a family member or friend, they will know who has the latest treatments available. These are just a few of the key areas that I've been addressing since coming aboard in September. And of course, there are many other areas that will be addressed over time. I very much look forward to updating you on our progress in the quarters ahead. Thank you for listening today. This concludes the formal part of our presentation.

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 two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Tony Common with Eastwood Partners. Please go ahead.

Hi, everyone. On the surface, I've been a shareholder on and off with AMS for for, I think, about 20 years. I think that was one of the best quarters, if not the best quarter I've ever seen, so congratulations on that. I'm curious, though, with Gamma Knife volumes, as you indicated, being down due to things like temporary staffing issues, have so far in this quarter, have you started to see any normalization of that kind of activity?

Tony, how are you? Good to hear from you.

likewise.

Thank you for your question. As you know, we can't really comment on fourth quarter activity in this call, but we are very closely monitoring the causes of the decreases in our gamma-nege volumes. We have had some staffing shortages, and we'd be happy to share maybe a couple examples with you. that Craig can get into and assure you that we're well aware of it and that corrective action by management is being taken. Craig, would you like to give Tony a couple examples and the rest of our investors on this call?

Sure. I think, Tony, as you know, one of the key aspects of our contracts is that we don't have any minimum contracts. volume guarantees. So as there are fluctuations within some of the centers regarding staffing, which we did have in the third quarter, as we mentioned in our press release, we could have temporary downturns. In one case, a physician had left one of the sites, one of the treating physicians, but he has since come back. So that led to one of the decreases, a significant decrease at one of the centers that we have. And there was another one where there was a staffing shortage. As you know, there are many staffing shortages throughout the healthcare industry currently. And we did experience that, and it's since been corrected. But those are two of the instances where we were hurt during the nine-month period, and more particularly in the third quarter this year.

Okay. In sort of the description of all the new or further efforts that you're making in terms of things like getting closer relationships with your manufacturers and the sales teams of the manufacturers, that all sounds really promising. When you look at just the knockout performance of your current proton beam, I know I've asked this in the past, but it would seem like that would be an incredible reference client to hospitals to really demonstrate the reality of the positive economics they could achieve. I know that's balanced against the economy lately with much higher interest rates, which isn't a positive. Can you talk about ProtonBeam in particular and you know, what it might take to see, you know, to see sort of a breakthrough there where you could start to actually place some of these.

Yeah, Tony, that's a great question. You know, we have one proton beam center in Orlando, as you're well aware of. It's performing well. We've been trying to pursue, you know, for years now additional proton beam centers. And we continue to do so, and our efforts to do so are probably stronger today than they ever have been, primarily because we've got more human resources to go after that business. You know, we've got Peter, we've got Tim Keel, we've added myself a couple years ago, in addition to Craig and Ernie Bates, Jr. So we've got more resources at that. But we're not going to wait around to get our second, third proton beam deal. We think that will eventually come. But in the meantime, let's expand our product offerings. There's a huge demand and need for radiation oncology equipment. And it doesn't necessarily have to be just protons. It doesn't necessarily have to be gamma knives. So we've kind of expanded our product offerings. so that we can grow our business and not be dependent upon any one product or manufacturer. Those opportunities for proton beams, I feel confident that they'll come along in due time, and we're not going to be reluctant to pursue that whatsoever. We're going to pursue it aggressively, and I think our day will come when that second and third systems will be placed.

Okay. And, you know, and I certainly appreciate and am extremely supportive of you going and, you know, placing other new equipment and kind of broadening AMS's line and maybe getting some things in there a little less expensive and easier to get approval to put into hospitals. I guess as a final comment, you know, Ray in particular, Even though the declines in the markets have brought a lot of stocks to being really cheap, when I look at AMS on any sort of quantitative basis, it just seems like the company's valuation remains just remarkably cheap. I just wonder if you have any thoughts on what might be done to address that.

Tony, I couldn't agree with you more. I totally agree and will make these comments to our investors on this call that we believe our stock is undervalued. I made that comment. I spoke at the LG Micro Conference a couple weeks ago out in LA and made that same comment. I'm proud to say that if you take our last 12 months of earnings, our EPS over those last 12 months is 21 cents a share. Our price at closing yesterday was $2.73. That's a PE ratio of 13. That's a pretty low PE ratio in my opinion. And as almost every quarter goes by, that PE ratio starts getting lower and lower. I think We're undervalued. You know, it is part of my job to be bullish on our company and on our stock. One of the reasons that I have become our largest shareholder, close to 18, 19, 20% ownership now. I remain very bullish. You know, we're not widely followed. I was reluctant. I'll say a year or two ago to go on the road and promote our stock. I think we needed to take care of some of the internal issues that we had and solidify the foundation of our company. And I think that's been done. So now let's expand our sales and management, marketing efforts, operations management, and let's see how we can grow our company. I'd like to point out, in addition, that if you annualize our first nine months of this year um we're close to about you know 19 and a half 20 million dollars on an annualized rate for 2022. you know we closed last year at about 17.6 million of revenue so even without expanding incremental new revenue streams we've grown our business double digits that's not a bad accomplishment and it's a reflection of trying to increase their volumes from our own existing sites, which, um, you know, because of our high fixed cost structure really adds to the bottom line when we increase their treatment volumes.

Well, and I think if you look at the company on an EBITDA basis, as I do, it's, it's the, um, evaluation, um, is even more stark. Um, but, uh, Anyway, thank you very much for all the questions, and good luck going forward. Really appreciate it. Thank you.

Thank you, Tony.

Again, if you have a question, please press star then 1. Again, that's star then 1 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 Dukowiak for any closing remarks.

Okay. Well, thank you, Matt, and thank you for everyone who's joined us today. You know, I just, in my closing comments, I wanted to make the point I just made about our earnings per share, 21 cents, our closing price at yesterday's close at 273, a PE ratio of 13. You know, it seems like a low valuation. We've got a strong foundation. We've got significant resources available to invest, readily available to invest. We've expanded our sales and management and marketing team. And I really believe we're positioned well for what I have always said our goal is, sustained growth and profitability. So with that being said, thank you again. We look forward to speaking with you again in our fourth quarter and year-end call in early March. If you have any questions, feel free to contact us directly. And we appreciate your time. Be well, stay safe, and goodbye.

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