American Shared Hospital Services

Good day and welcome to the American Shared Hospital Services fourth quarter 2023 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 the touchtone 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, Betsy, and thank you to everyone joining us today. AMS's fourth quarter 2023 earnings press release was issued yesterday after the market closed. 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'd 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 at the SEC. This includes the company's quarterly report on Form 10-Q for the three-month period ended March 31, June 30, and September 30, 2023, the annual report on Form 10-K for the year ended December 31, 2022, and the definitive proxy statement for the annual meeting of shareholders that was held on June 20, 2023. The company assumes no obligation to update the information contained in this conference call. Before I turn the call over to Ray, I'd like to remind participants that we're going to limit all questioners to one question and one follow-up. As always, we'll be happy to take additional questions offline at any time. With that, I'd now like to turn the call over to Ray Stachowiak, Executive Chairman. Ray?

Thank you, Stephanie, and good day to everyone. Thanks for joining us today for our fourth quarter 2023 earnings conference call. I'll begin with some opening remarks and then turn the call over to Bob Hyatt, our Chief Financial Officer, for a financial review of the fourth quarter. Following the prepared remarks, we'll open the call for your questions. Before I turn to our results, I'd like to acknowledge the passing of our founder and longtime chairman, CEO, and friend, Dr. Ernest Bates. Dr. Bates was 87 when he died last week. He was a highly respected board-certified neurosurgeon, entrepreneur, and philanthropist, and was known as a trailblazer and champion for equitable medical care for those in underserved communities. Personally, I've known Dr. Bates for many years. He invited me to join our board of American Shared in 2009, and he was a good friend. I know that we're all going to miss him, his wise counsel, and his incredible sense of humor. Now I'd like to transition to our results. By almost every measure, AMS had a good year in 2023. We made continual improvement as the year progressed and advanced in several important ways. Notably, the sales team we put together last year has gelled and we ended the year with the strongest sales pipeline in many years. This is due not only to the team, who are well-known in our industry, but also to our expanded financial solutions and closer integration with our strategic OEMs. Together, these factors have resulted in significantly increasing the breadth of opportunities for our considerations. These include a range of advanced radiation equipment in various settings, as well as the expansion of our business model to also consider the development of our own majority-owned proton beam and radiation oncology centers in the United States. We would own and operate these centers with this expansion of our business model. The team was also responsible for strengthening our core business by working with customers to increase utilization of their equipment and assist in the signing of four lease extensions. That is, four of our 10 domestic Ammonite customers signed extensions over the last 15 months, and there are others in the pipeline. We believe these extended agreements are a testament to our partnership business model and financial flexibility. International results are also heating up. In the fourth quarter, we completed the equipment upgrade in Ecuador to a new, state-of-the-art gamma knife icon. This is the only gamma knife in Ecuador for non-invasive radial surgery. Already, our volumes are up for the quarter, despite the downtime we had for the installation. Our third international center in Puebla, Mexico, is going to begin treating patients in the second quarter. When it opens in a few weeks, the linear accelerator, or LINAC, that we installed with VMAT, IGRT, and radiosurgery capabilities, will offer the most advanced radiation therapy available in our catchment area. We've also continued to invest in three unique business opportunities that I've mentioned before. We announced the first of these deals during the fourth quarter. It is an acquisition of a 60% majority interest in three radiation therapy cancer centers in Rhode Island. Importantly, these will be our first direct patient services or retail centers in the United States when the acquisition is completed. We look forward to closing this deal soon and disclosing more details, but until then, suffice to say that we believe in this new business, the first from our expanded team and our new pipeline, as an indicator of our ambitions for our company. I'd like to repeat, we will own and operate 60% ownership, our own radiation therapy centers in the United States when we close on this acquisition. This is a very natural progression of our business model. We ended the year with the strongest quarter, reporting total revenue in the fourth quarter of $5.7 million, a year-over-year increase of 13 percent. Gross margin was $2.8 million, a 24 percent increase, reflecting continued tight control over direct costs and positive operating leverage. The gross margin percentage was at 49 percent of revenue, a level that hasn't been reached since 2019. We earned six cents per share in the fourth quarter, despite the headwinds of $350,000 in Rhode Island costs and $362,000 of additional reserves on impaired assets. For the full 12 months of 2023, revenue grew 8% to $21.3 million. Gross margin was $9.3 million. an 11.5 percent increase. The gross margin percentage was 44 percent. We earned 10 cents per share despite Rhode Island expenses of $919,000 for the whole year and additional reserves for impaired assets and removal costs of $940,000 for the year. We expect these headwinds to significantly decrease in 2024. Our balance sheet remains strong. We ended the year with $13.8 million in cash and equivalents, roughly equal to $2.19 per share. At year end, we also had $4.5 million available on our $7 million line of credit, all of which was repaid in the first quarter. We're working hard to leverage these resources into additional long-term revenue streams for our company. Looking ahead, we expect stronger international growth from additional treatment capabilities in Ecuador and the opening of our new center in Puebla. The projected closing of the Rhode Island acquisition will add three additional new revenue streams to our business. We have additional new business opportunities advancing through our complex and long sales cycle as well. We look forward to announcing more details at the appropriate time. With that, I'll turn the call over to Bob for a financial overview.

Thank you, Ray, and hello, everyone. Fourth quarter revenue increased 13.1% to $5.7 million compared to $5 million in the year-ago quarter. We've redefined our business segments to better reflect our revenue sources. Rental revenue from the company's medical equipment leasing segment, which we'll refer to as leasing going forward, was $4.8 million for the fourth quarter of 2023, compared to $4.3 million in the year-ago fourth quarter, an increase of 12%. Revenue from the company's direct patient services or retail segment was $913,000 for the fourth quarter ended December 31, 2023, compared to $764,000 for the same period in the year-ago quarter, an increase of 19.5%. Fourth quarter revenue for the company's proton therapy system in Florida was $3.1 million, an increase of 39.9%, primarily due to continued increases in average reimbursement as well as an increase in fractions. Total proton therapy fractions in the fourth quarter were 1,275 compared to 981 proton therapy fractions in the fourth quarter of 2022, an increase of 30% or 294 fractions, which is within the typical quarterly fluctuation range. Total gamma knife revenue increased 8.4% to 2.6 million. The decrease in overall Gamma Knight revenue is primarily due to a decrease in procedures from two expired contracts as well as downtime at two sites for the installation of upgraded equipment. Total Gamma Knight procedures were $277 for the fourth quarter compared to $329 in the fourth quarter a year ago, a decrease of 15.8% or 52 procedures, reflecting the two expired contracts and downtime for upgrades that were mentioned earlier. Gross margin for the fourth quarter of 2023 increased 24.1% to $2.8 million compared to gross margin of $2.3 million for the fourth quarter of 2022. The gross margin percentage reached a record high of 49.4% compared to 45.1% in the comparable quarter, the highest since 2019. Selling and administrative costs increased by 23.9% to $1.8 million in the fourth quarter of 2023, compared to $1.4 million in the year-ago quarter. This includes approximately $350,000 that we've invested in pursuing new business opportunities, as Ray talked about, as well as higher sales and marketing expenses. Net interest expense was $175,000 in the 2023 period compared to $192,000 in the comparable period of last year. The decrease is due to an increase in the interest rate on the company's variable rate debt, offset by increases in interest income on the company's growing cash balance. Operating income for the fourth quarter of 2023 was $407,000 compared to operating income of $590,000 in the fourth quarter of 2022, which reflects the higher selling and administrative expenses plus an increase in reserves for impaired assets and removal costs of $362,000 in the current period. Income tax expense was $338,000 for the fourth quarter of 2023, modestly higher compared to income tax expense of $333,000 for the same period last year. This was primarily due to the higher taxable income offset by permanent tax differences recorded last year. Net income attributable to American Shared Hospital Services in the fourth quarter of 2023 was $415,000 or six cents per diluted share, compared to net income of $246,000 or four cents per diluted share for the fourth quarter of 2022. Fully diluted weighted average common share outstanding was $6,552,000 and $6,284,000 for the fourth quarter of 2023 and 2022, respectively. Adjusted EBITDA, a non-GAAP financial measure, was $2.7 million for the fourth quarter of 2023, compared to $2.2 million for the fourth quarter of 2022. At December 31, 2023, cash equivalents and restricted cash was $13.5 million. compared to $12.5 million at December 31, 2022. Careholders' equity, excluding non-controlling interest to subsidiaries, was $22.6 million, or $3.59 per outstanding share, year-end, compared to $21.6 million, or $3.50 per outstanding share, at December 31, 2022. This concludes the formal part of our presentation. Thank you for joining us today, and we look forward to updating you on our progress in the quarters ahead. Betsy, we'd like to turn the call back to you and open it up for questions.

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. In the interest of time, please limit yourself to one question and one follow-up. 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. The first question today comes from Tony Cannon with Eastwood Partners. Please go ahead.

Sure. Hello. I'd just, I guess first, just like to echo the statements you made on Dr. Bates. He was really an exceptional person and a great loss. My first question is, Ray, I noticed last year on the full year results, both the proton beam business was, I think, $10.1 million in revenue, the gamma knife just a little bit higher. So on one proton beam, you're basically showing pretty equivalent revenues to the whole Gamma Knife operation. So I was glad to hear in your intro that the company is considering doing, you know, looking for potentially wholly owned proton beams to kind of get that side of the business going. Can you talk a little more about that and what you see as the potential opportunity and, you know, any more color on the proton beam side would be great.

Sure. That's a very good observation, Tony, and thanks for joining us again today. Appreciate it. But, yes, we are very consciously pursuing proton beam opportunities, not necessarily on a leasing arrangement like the revenue sharing model we have currently with Orlando Health. but instead where we would own and operate our own proton beam centers. We would invite participation under that business model, but local healthcare systems, so that we have a good partnership with all parties in that region, wherever we decide to go. But we would like to have majority ownership of that owned and operated business model. You know, we've diversified in a lot of ways this past year or two. And this is another way of diversification. And in the case of the acquisition of Rhode Island, we're owning and operating our own radiation therapy centers. And we have been doing that at our international locations, but not domestically. And it's just a lot of different opportunities by different how we've pivoted our business model just opens up a whole greater universe of opportunities for us to pursue. And owning and operating and having majority control ownership of a proton beam radiation therapy center is in our business model. We're pursuing those opportunities, Tony. Thank you.

Yeah, I think that would be great. And as a follow-up, just on Rhode Island with Genesis Care, I know their portfolio is pretty large and expansive. Are there more opportunities like the one you're pursuing in Rhode Island potentially arising out of that situation with Genesis Care?

We have not pursued anything other than these opportunities in Rhode Island with Genesis Care. We've developed a very good local management and knowledge of capabilities in Rhode Island. And we're kinda, I'll say, taking one step at a time for the moment.

Fair enough, thanks very much.

As a reminder, If you would like to ask a question, please press star and one to be joined into the question queue. The next question comes from Michael Cooper, a private investor. Please go ahead.

Good afternoon, and I echo the sentiments around Dr. Bates. It's unfortunate to see his passing. My question is with regard to Rhode Island. Could you clarify what I see as the business model there from what I picked up from your news release and reading some other items? So I see that you've got three existing clinics with state-of-the-art equipment, which I'm assuming is $5 million per patient. location in and around that type of quantum. And they've got 70 customers a day coming in for procedures, I believe. And if I read it correctly, a procedure is worth about $6,000. I could be off there. But I think that's the average procedure fee that you're getting right now. So am I working with the right type of numbers on the kind of daily revenue, maybe $400,000 daily revenue on these three operations? And did you pick up something to the order of $15 million worth of equipment for $2.8 million?

Tony, or Michael, rather, thanks for your question. I'm not really ready to share too much information about this opportunity. We're still in this process of closing the transaction, which we do expect to occur, I'll say, in the next 30 days. I can, I'll say, correct some of your assumptions. We expect the $6,000 per procedure might be an appropriate amount amount per patient. And keep in mind, those patients might get anywhere from 10 to 30 treatments for their radiation treatment of cancer. So the 70 patients, 70 a day is more of a treatment number. Do you follow my train of thought? Yes. Yes. Okay. Okay. So I can comment. I mean, I'm sure our investors, their appetite is wedded a bit. I can make some general comments that, you know, we do expect revenue from these three centers to be in the $9 or $10 million annual range. That is a significant increase from the $21 million a year we have currently. And keep in mind that we won't see the full effect of it for the 2024 because, you know, we're only going to have eight and a half months maybe of revenue in 2024 of that $9 million to $10 million. I can also add that we expect our net income to be positive. I can expect a contribution to EBITDA from this acquisition. But I can't go much further than that. I can say that... Two of the three centers have really good equipment. A third, less desirable. So the $5 million might not be a correct assumption on your part either, Michael. Okay. And that's probably as far as I can go without crossing two questions. That's very helpful. Okay.

And as a follow-up, could we get a little bit of color on... the revenue potential of Pueblo, Mexico, as well as the increase in Ecuador from the equipment upgrade?

I can't talk too much about individual situations. I can tell you that in the case of Pueblo, I would expect at least a million dollars of incremental revenue from this new revenue stream in the first 12-month period. And once again, we will not have that full-year effect in 2024. It'll come on in 2025 for a full year. We're expected to treat our first patient in May of 2024. In Ecuador, I think we'll see some increases from that account, but I can't comment too much individually. Is that helpful?

That's very helpful. Thank you very much, and I look forward to the next year.

This concludes our question and answer session. I would like to turn the conference back over to Ray Dukowiak for any closing remarks.

Yeah, I think one point I'd like to make is the Rhode Island acquisition is – an increase in our future revenue almost immediately. You know, when we close on that transaction, we'll start recognizing revenue on the first day thereafter to close. And this is an important distinction. If you look at our situation in Puebla, we're owning and operating 85% ownership. And we agreed to this arrangement in late 2022. And our revenue stream from that situation is not coming on until the second quarter, 2024. So that's a really good example of how long of a sales cycle and implementation cycle we sometimes have. And by growing by acquisition, it gives us immediate jump in our revenue and profitability from day one. So that's one of the reasons I'm very, very bullish on this opportunity and anxious to proceed along those lines. So with that, I'd like to thank everyone who joined us today. I really believe AMS is at an inflection point. We're excited about the future, and I hope you all stay tuned. We'll speak with you next on our first quarter call in mid-May. And please contact us directly if you have any questions before then. Be well and stay safe. Thanks for your time today. Goodbye.

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