American Shared Hospital Services

Good day and welcome to the American Shared Hospital Services Third Quarter 2024 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 a touch-tone phone. To withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Kieran Smith, Investor Relations. Please go ahead.

Thank you, Nick, and thank you, everyone, for joining us today. AMS's third quarter 2024 earnings press release was issued today before the market opened. If you need a copy, it can be accessed on the company's website at www.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 report on Form 10-Q for the three-month period ended June 30, 2024, the annual report on Form 10-K for the year ended December 31, 2023, and the definitive proxy statement for the annual meeting of shareholders that was held on June 25, 2024. 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 everyone about our Q&A policy, where we provide each participant the time to ask 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 Skoliak, Executive Chairman and CEO. Ray, please go ahead.

Thank you, Karen. Good afternoon, everyone. Thanks for joining us today for our third quarter 2024 earnings conference call. I'll begin with some opening remarks, then turn the call over to Bob Hyatt, our Chief Financial Officer, for a financial review of our third quarter results. Following the prepared remarks, we'll open the call for your questions. Before we review the quarter, I'd like to highlight a key addition to our Executive Management Team that we previously announced in mid-October. Gary Delanus has joined our team as our Executive Vice President and Chief Operating Officer. Gary's deep experience with physician and TAOR relationships, billing and collections, policies and procedures lends itself directly, perfectly to our overall growth strategy as we further expand and optimize our overall business. Gary is a seasoned executive with a wealth of progressive healthcare management experience, providing innovative and proven solutions to physician groups, health systems, ACOs, and health plans. He has significant board of director experience with various healthcare systems based in California, West Virginia, Rhode Island, and Michigan. Prior to this role, Mr. Delanus served as Senior Vice President, US Operations at 21st Century Oncology, responsible for daily operations at over 140 radiation therapy centers, working with over 160 radiation oncologists, treating thousands of patients daily. Clearly, he is more than qualified and is a welcome addition to our team. We also announced the promotion of Ranjit Pradham, the Senior Vice President, Sales and Marketing. Ranjit played a critical role in the company's success, recently renewing and expanding five of American Shared's 10 domestic Gamma Knife agreements over the last 18 months. In his new role, he will spearhead the company's strategic business development and marketing initiatives and drive growth in new business, further strengthening the company's impact and outreach in oncology services. Now, let's review our quarterly results. We reported another quarter of strong revenue growth and our enthusiasm for our overall prospects continues to grow. We've continued to show solid improvement and advancement in several important ways, and we're extremely excited about the upcoming year. This is, of course, not without our fair share of challenges. As we navigate through seasonality and procedure volume fluctuations, integrate the Rhode Island acquisition, invest in much-needed upgraded equipment, and implement additional operating efficiencies that in the short run impacted our margins and profitability but positions us for success over the longer term. We followed our quarter one and quarter two with another solid quarter revenue growth, which totaled 6.99 million, up nicely from the comparable quarter in 2023 of 5.1 million. The 36% year-over-year revenue growth for this past quarter was showcased by continued early benefit from the Rhode Island acquisition that we closed this past May as well as from our new facility in Puebla, Mexico. The gross margin declined by $732,000, which was affected by lower gamma and ice treatment volumes and also is reflective of the change in mix from the strong growth of our retail segment. Additionally, we reported a small net loss of $207,000 or $0.03 per share for the quarter, compared to a small gain of $118,000, or $0.02 per share, in the third quarter of 23. Our balance sheet remains strong. We ended the third quarter with over $14.1 million in cash and equivalents, which is roughly equal to $2.17 a share. We also had $4.5 million outstanding on our $7 million line of credit as of September 30, 2024. We continue to leverage these resources carefully for additional long-term revenue streams. We're fortunate to have this strong balance sheet with significant capital to deploy in strategic initiatives such as the Rhode Island Acquisition. as well as other business opportunities that we come across. As a reminder, the Rhode Island acquisition is a great example of how we deployed $3 million and were able to strategically acquire fair market value and net assets worth $8 million. This was clearly an excellent allocation of capital. Furthermore, of the assets acquired, 3.4 million alone was cash. Cash. We've been implementing operating efficiencies to better optimize this business. Specifically, we have invested $1.1 million in CapEx in our Rhode Island centers. We've replaced two very old CT simulators which are needed for treatment planning, and purchased the third CT-STEM, which was being leased. We've also added software packages for improved efficiency and patient care. We've also begun converting from higher cost temporary staffing that the previous Rhode Island facilities owner, Genesis Care, was utilizing as it was struggling. struggling to bring on permanent employees, which are more cost effective and provide longer term stability overall. We've also recently put our linear accelerators on service and maintenance agreements, which adds to our dependability and high uptime for better quality service. It should be noted that we acquired three radiation therapy centers which were generating positive income. They were generating positive income, positive EBITDA. But they were being managed by a company that was going through the bankruptcy process. Let's keep that in perspective. The team also continues to focus on strengthening our core business by working with clients to increase utilization of our equipment. This focused strategy has led to the signing of five lease extensions in the last 18 months from our 10 domestic Gamma Knife clients, and we have others in the pipeline. Again, this is not without heartache. In this quarter, we navigated through the loss of a site that we had in third quarter 23, We had scheduled downtime for an equipment upgrade. In addition, there are lower treatment volumes, partially due to physician shortages and seasonal staffing factors at some of our sites. Despite the challenges our team faces, we believe these extended agreements are a testament to our partnership business model, our financial flexibility, and a very important growth drive. We have already noticed an uptick in our Gamma Knife treatment volumes in the month of October. Our international business represents a large growth opportunity. We're also expecting continued momentum. As many of you know, we have the only Gamma Knife systems in the countries of Peru and Ecuador. Just a few months ago, we announced that our third international center in Puebla, Mexico had begun treating patients. The newly opened linear accelerator, or LINAC, that we installed has VMAT, IGRT, and radiosurgery capabilities that offer the most advanced radiation therapy available in our catchment area. In early July, we announced our fourth international center with the signing of a joint venture agreement for gamma knife facility in Guadalajara, Mexico. This facility will have one of only three gamma knife systems in a country of 130 million. I'd like to also comment that we've been incurring incremental costs related to our Rhode Island acquisition in excess of three or $400,000 a quarter. We expect to see a decrease in excess of $300,000 in our fourth quarter. I'd also like to remind our investors that we announced early this year we had three unique business opportunities. The first of these was the closing of our 60% majority interest in the three radiation therapy cancer centers in Rhode Island. We closed that in early May. These are our first direct patient services or retail centers in the United States. This new business, which is the first from our expanded team and new pipeline, clearly reflects the power of our growth strategy. I'd like to talk about the second, The second is the CON certificate of need that we have been granted to build a fourth radiation therapy center in Bristol, Rhode Island. And the third business opportunity is a very powerful one. We have applied for a certificate of need to provide a radiation therapy center with proton beams. a proton beam radiation therapy center in the state of Rhode Island. This proton beam radiation therapy center will be the only system in New York City and Boston and represents a significant growth opportunity. As of now, think about this, we would be the 100% owner-operator of this proton beam radiation therapy center. We look forward to announcing additional progress on this matter as appropriate. As we look into the coming months and the year ahead, we expect stronger international growth from additional treatment capabilities in Ecuador, strong volume from our center in Peru, and the new centers in Guadalajara and Puebla. The recent closing of the Rhode Island acquisition adds three new revenue streams to our business, in addition to the other exciting new business opportunities moving through the long sales cycle. Our backlog continues to give us strong confidence in the overall business for our long-term future. With that, I'll turn the call over to Bob for a financial overview.

Thank you, Ray, and good afternoon, everyone. Third quarter revenue increased 36.3% to $6.99 million compared to $5.13 million in the year-ago quarter. Revenue benefited by the Rhode Island acquisition that closes past May, as well as from a new facility in Pueblo, Mexico. Revenue from the company's direct patient services or retail segment was $3.7 million for the third quarter ended September 30, 2024, compared to $988,000 for the year-over-quarter, marking an increase of 273%. The increase in retail revenue was primarily due to revenue generated by the Rhode Island companies we acquired on May 7, 2024, and the start-up of the Pueblo operations in the third quarter. Rental revenue from the company's medical equipment leasing segment, which we now refer to as leasing, was $3.31 million for the third quarter of 2024, compared to $3.95 million in the year-ago quarter, a decrease of 16.1%. The decrease in leasing revenue was driven by lower gamma night volume. The prior year comparison does exclude the $200,000 equipment sale recorded in the third quarter of 2023. Third quarter revenue for the company's proton therapy system in Florida was $2.3 million, an increase of 4.4%, primarily due to continued cyclical volume changes. Total proton therapy fractions in the third quarter were 1,252 compared to 1,188 proton therapy fractions in the third quarter of 2023, a 5.4% increase, again, due to normal cyclical fluctuations. Total Gamma Knife revenue decreased by 32.9% to $1.82 million due to the expiration of one contract in the third quarter of 2023, as well as two months of downtime at one of our sites due to a scheduled equipment upgrade and staffing shortages at two of our other sites. Gross margin for the third quarter of 2024 decreased to $1.37 million compared to gross margin of $2.10 million for the third quarter of 2023. which was affected by lower gammonite treatment volumes and the strong growth from our patient services retail segment, which has a lower gross margin. Selling and administrative costs increased to $1.19 million for the third quarter of 2024, compared to $1.74 million in the year-ago quarter. This was due to acquisition and development costs for Rhode Island, as well as legal fees. Interest expense was $336,000 in the 2024 period compared to $277,000 in the comparable period of last year. The increase is due to an increase in interest rate and borrowings on the company's variable rate debt. The operating loss for the third quarter of 2024 was $889,000 compared to a slight operating income of $90,000. The year-over-year decline was due to increased operating costs from the company's recently acquired facilities in Rhode Island and the company's new facility in Pueblo, Mexico, combined with lower gamma-9 treatment volumes. The bargain purchase gain recognized on the Rhode Island transaction in the second quarter was increased by $263,000 net of income taxes in the third quarter, primarily due to changes in the valuation report on certain real estate holdings and non-controlling interest as well as expectations related to recoverability of acquired receivables. The income tax benefit of $169,000 for the third quarter of 2024 compares to income tax expense of $60,000 for the same period last year. Net loss attributable to American Shared Hospital Services in the third quarter of 2024 was $207,000, or $0.03 per diluted share. compared to net income of $118,000, or 2 cents per diluted share, for the third quarter of 2023. The period-over-period decrease was primarily due to losses incurred by the leasing segment, driven by lower GAM&I volume, as well as increased depreciation for planned equipment upgrades. Fully diluted weighted average common shares outstanding were relatively unchanged at $6,482,000 for the third quarter of 2024, and $6,432,000 for the third quarter of 2023. Adjusted EBITDA, a non-GAAP financial measure, was $1.37 million for the third quarter of 2024, compared to $1.67 million for the third quarter of 2023. Moving on to the nine-month financial statements. For the nine months ended September 30, 2024, Revenue increased 23.3% to $19.27 million compared to revenue of $15.63 million for the first nine months of 2023. Revenue from the company direct patient services or retail segment was $7.81 million for the nine months ended September 30th, 2024, compared to $2.44 million for the year-ago period, marking an increase of 220%. The increase in retail revenue was primarily due to revenue generated by the Rhode Island companies we acquired on May 7, 2024, 25.1% revenue growth in Peru and Ecuador, and the startup of the Pueblo operations in the third quarter. Gamma Knife revenue decreased 14.6% to $7.13 million for the first nine months of 2024, compared to $8.35 million for the first nine months of 2023. The number of gamma-9 procedures in the first nine months of 2024 was 831, a decrease of 9.5%, compared to 918 gamma-9 procedures in the comparable period of 2023. This was due to the gamma-9 procedure declines in the third quarter, as discussed earlier. Proton therapy revenue increased 4.4% to $7.39 million for the first nine months of 2024, compared to $7.08 million for the first nine months of 2023. Total proton therapy fractions in the first nine months of 2024 were 3,764, a decrease of 8.1% compared to 4,094 proton therapy fractions in the comparable period of 2023. Net income attributable to American Shared Hospital Services for the first nine months of 2024 was $3.51 million, 54 cents per diluted share, compared to net income of 195,000, or 3 cents per diluted share. for the first nine months of 2023. The large increase was due to the bargain purchase gain generated from the Rhode Island acquisition and the net income earned from the Rhode Island facilities acquired. Adjusted EBITDA non-GAAP financial measure was $5.12 million for the first nine months of 2024 compared to $5.51 million for the first nine months of 2023. September 30, 2024 cash and cash equivalents and restricting cash was $14.1 million compared to $13.8 million at December 31st, 2023. Shareholders' equity, excluding non-controlling interest and subsidiary, was $26.42 million, or $4.14 per outstanding share, at September 30th, 2024, compared to $22.62 million, or $3.59 per outstanding share, at December 31st, 2023. This concludes the formal part of our presentation. Thank you again for joining us today. We look forward to updating you on our progress in the quarters ahead. Nick, we'd now like to turn the call back to you and open it up 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 touch-tone 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. Again, we ask that you please limit yourself to one question and one follow-up. At this time, we will pause for just a moment to assemble our roster. And our first question today will come from Ma'am Marin with ZACS. Please go ahead.

Thank you. So I want to follow up on something you said in the prepared remarks, Ray, about, you know, startup costs, I guess, you know, I guess they would be as you bring on new business lines in Rhode Island and Puebla. But I'm also wondering if when you, you know, bring on a new business, if there's a bit of a ramp up period during which that new center or new centers sort of are ramping up to reach their peak operating efficiency. And Puebla, I think, came online during the quarter. So would you say that that is something that we're seeing right now in the third quarter?

I think you bring up two, I'll say, categories of costs that impacted our third quarter results. One is the Rhode Island acquisition costs, as we refer to them in our company. We've been incurring $300,000 or $400,000 a quarter, it seems like. A lot of it is legal fees. A lot of it is accounting fees. We've had to have valuations done because we are a public company. Let's value the assets and using outside consultants to do that to help us not just value the assets but establish our opening balance sheet. so that it can pass muster with the audit requirements, the review requirements necessary as a public company. The other second kind of category of costs is the costs that integrating our Rhode Island radiation therapy centers. We've been incurring costs that are a result of the fact that These three centers were being managed by a company going through the bankruptcy process. So its equipment was outdated, as I've talked to, explained in the CT simulators. We had to replace two of them. We put our equipment on service and maintenance agreements. The employees that we hired, we hired almost without exception all the employees that had been employed by Genesis Care, but there were a lot of personnel that were not employees. These centers were contracting with outside third-party staffing firms and locum tenums at exorbitant costs to the center because they were losing radiation therapists, they were losing physicists, And we employed the existing radiation therapists and existing physicists, but we had to transition from these third-party staffing costs to employees. As an additional example of that, we acquired, I think there are four temporary, or, you know, outside third parties, four radiation therapists being supplied by outside third parties. We've hired two of those four, I'll say headcount, as employees now, and we're close to employing a third. But that additional cost is the cost that we inherited. We know how to fix it, but it's going to take some time to get it under proper management. Does that help answer your question?

Yes, thank you. That's helpful. Thank you. And then just one follow-on in terms of the Puebla facility. So now you've been operating that facility, I think, since August. Is there any kind of, you know, color that you have there on that facility in terms of, you know, what you had expected to see that you're satisfied with?

I'd say that the startup was delayed. We did not start generating revenue until early July, but I'll tell you, we are very pleased with the results. The revenue that's being generated at that site keeps increasing every month since we've opened. We're very pleased with its performance.

Again, if you have a question, please press star and then 1. Our next question today will come from Tony Kamen with Eastwood Partners. Please go ahead.

Hi, Ray. Question from a slightly different angle on Rhode Island. You mentioned, I think in your prepared remarks a couple times, you said, you know, remember this was being operated out of bankruptcy or whatever. So my question is, And you mentioned just now the equipment that was kind of older or whatever. What kind of impact was that having on the other side of the business, not the cost side, but the utilization side from patients and doctors recommending patients, you know, and the uncertainty of the bankruptcy? Did that – do you feel that you can, you know – gain new business in terms of more referrals and all that stuff on the customer and the doctor's referring side?

Thank you, Tony. I think we definitely can increase our volumes. Let me give one example. One of the CT simulators that we replaced was in a non-operating condition for several months. it was in effect down. You know, it couldn't be used prior to our acquisition. So that was the first one we replaced. And there was a referring physician that would not refer to that site because the CT simulator was down. Since we've replaced that CT simulator, that referring physician has started referring his patients back to our centers. So, I mean, that's just like an ideal case situation of the efforts that we're deploying to increase our volumes.

And is there other sort of marketing going on? I mean, are you kind of getting the word out to doctors now that, hey, you know, the center's been upgraded and all that, and then just the second part, which isn't really related, but can you comment a little also on the GammaNet side and whether it was a tough quarter for some reasons there. Do you guys have sort of a plan on the Gamma Knife side that you think might help turn things around there a little bit?

Sure. So two questions on bringing more awareness to our radiation therapy centers in Rhode Island. We are absolutely doing that. Keep in mind, our joint venture partners, the other 20% owners, is the second largest healthcare system in the state. They're well aware of this acquisition and continue to refer patients to our centers. Our other 20% partner is the third largest healthcare system in the state, and the same scenario there. And I am, you know, the largest healthcare system is well aware of our activities, and they're very amenable, as we are, to talking about our relationship and how we can grow it. So there's a lot of awareness going on in the state of Rhode Island about our presence, especially the Health Service Council that hears our CON applications. They're very cognizant. And the leaders in the entire state are cognizant of our efforts in Rhode Island. Going to the Gamma Knife question that you had, Tony, we had almost what I'd characterize as an anomaly third quarter with our treatment volumes from physicians, radiation oncologists, neurosurgeons that went on vacation in the months of July and August to one physician that was on maternity leave. And, you know, we had downtime at one of our sites that we were upgrading their system. So it was kind of a variety of factors, and all of them very, I'll say, overcomable. I don't know if that's a word, but I guess we can overcome those situations and You know, I'm not happy about the results there. But, you know, we dug into it. We understand it very clearly. And I think we've got a plan in place. We are more engaged than ever in making awareness of our gamma knife in these communities.

And your next question today will come from Anthony Marchese, private investor. Please go ahead.

Hi, good afternoon, guys. When you look at the stock, the stock was at $3 in March, $3 today. As you obviously know, the small cap market has been on fire. So I guess as a shareholder, I'm kind of frustrated in that every quarter there seems to be some issue that causes results to either be really good or really bad. And I guess one of the hopes I have is that you could be more transparent about the issues that are affecting the common quarters. As an example, and maybe you didn't, but it would seem to me that if you had a center which is closing or rather which has not been renewed or downtime, that it would be helpful on these calls to make that known to people. It just seems as though every quarter we're surprised with, oh, gee, there was downtime because people are on vacation. There was downtime because we didn't get a renewal. There was downtime. There always seems to be something. And so when you look at the stock, you're trading at cash, no growth in stock price since March. Why not buy the stock back? And I realize you're going to say, well, we need the money for expansion, but certainly a small buyback program would go a long way to reassuring people that management believes in the future of the company. And I realize that I know you have Zacks, which is an independent research service, but you haven't been able to get any type of sell-side coverage. So I guess I'm frustrated in that you know, I just think that, I just think that without any forward guidance, without any kind of warnings about, you know, what's coming up that people just move on, they, they lose confidence. And, you know, there are a lot of other investments, especially with, you know, the, the, uh, action in the, uh, small cap market. So anyway, those are my thoughts. Uh, Anthony, uh, Thanks for your question and observation. Our business model calls for our investors to be patient and very long-term oriented. I hear in your voice the frustration. Stick with us long-term. I know many of you already have, but look at the transition we're making in our business model. If you look at our transition, we're expanding geographically. We're expanding our product diversification. Four years ago, we had gamma knives and a proton beam. Today, we have added four linear accelerators. One in Rhode Island, another one in Pueblo, Mexico. In fact, we're going to add a fifth linear accelerator at our fourth radiation therapy center in Bristol, Rhode Island. We also are expanding into our second proton beam system. And the other diversification play that we're making is in the changing from the leasing segment company being dominated by a leasing segment and being more dominant and prevalent in the retail segment. And our proton beam center in Rhode Island, subject to the CON, is exactly another proton. Our investors have been asking, when are you going to get your second proton beam? We're getting one here in Rhode Island. And, oh, by the way, it's not going to be leased, where we get a percentage of the revenue that the hospital care system collects. No, we're going to be 100% owner and operator if and when we get that CON approved. And just stay tuned on that matter. Well, what about small buyback? I mean, I'm sorry, I didn't mean to cut you off. What about some small buyback, which, you know, again, given your cash resources and your borrowing capacity, it just seems to me as an investor, and for you guys, if you're buying the stock at cash, You know, assuming the business, you know, has a future, to me it would be an incredible use of your – and you're buying it way below tangible books. It would seem to me to be a very good use of your funds. I'm not saying, you know, bet the whole ranch. I'm simply saying a small buyback. Yeah. Anthony, duly noted. Okay. Thank you. Wow.

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

Ray Sekowiak Thank you, Nick. Thanks, everyone, for joining us today. We are very clearly excited by our future. American Shared is at a critical inflection point, especially following the Rhode Island acquisitions and the other growth opportunities we're currently pursuing. We fully appreciate it will not be a straight line up. There will be challenges along the way. We're very confident. We got the right strategy in place. We got a strong team now to execute on our growth initiatives. We look forward to updating you on our continued progress. If you have any questions, don't hesitate to contact. We'll accommodate further conversation. Thanks for your continued interest in American Shared Hospital Services. Have a great remainder of the day and the week.

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