American Shared Hospital Services (AMS) 2019 Q4 法說會逐字稿

Welcome to the Fourth Quarter and Year-end 2019 Financial Results Conference Call. My name is Daryl, and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded. I will now turn the call over to Stephanie Prince. Stephanie, you may begin.

Thank you, Daryl, 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. These include the company's annual report on Form 10-K and the quarterly reports on Form 10-Q for each of the 3 quarters of 2019 ended March, June and September as well as the definitive proxy statement for the Annual Meeting of Shareholders held on June 21, 2019. The company assumes no obligation to update the information contained in this conference call. I would now like to turn the call over to Craig Tagawa, Chief Operating and Financial Officer. Craig?

Thank you, Stephanie, and good afternoon to everyone joining us today for our Fourth Quarter and Year-end 2019 Earnings Conference Call. I will begin by walking through our business and operational results. Alexis Wallace, our controller, will then provide a financial review. Following that, Dr. Bates, Alexis Wallace, Ernie Bates and myself will open the call for your questions.

In the fourth quarter, our proton therapy business continued to post good growth, with revenue for the Orlando Health proton therapy system increasing 4.7% to $1.486 million driven by higher volumes. Total proton therapy fractions in the quarter increased by 67 or 4.3% quarter-over-quarter to 1,611 compared to 1,544 in the 2018 fourth quarter. For the full year, proton therapy revenue increased 23% and fractions were up 17%. Growing awareness of the clinical benefits and expanding uses of proton therapy treatment continues to increase, which will support the continued growth of this important cancer therapy.

Gamma Knife revenue in the fourth quarter increased by 4.1% to $3.230 million. The number of Gamma Knife procedures increased by 60 in the fourth quarter to 414 compared to 354 in last year's fourth quarter. The increase in procedures was driven by the continued ramping up of our stand-alone facility in Lima, Peru as well as the addition of our new site in Merrillville, Indiana, which began treating patients in January 2019. Overall, the Gamma Knife business posted an increase in volume but a decline in average reimbursement in the fourth quarter.

We completed 2 Cobalt-60 reloads during the first quarter of 2020 and contracted for an Icon upgrade with existing customers. We have also continued to hold discussions with interested parties for additional PBRT and MR-Linac placements, as we previously disclosed. However, realistically, we expect a slowdown in these conversations as the country and health care system continues to deal with the COVID-19 pandemic.

We do expect an impact on our business from the COVID-19 virus. We don't expect a significant impact on the proton therapy business, which is predominantly performed on patients with cancerous tumors. Assuming patients continue to be diagnosed on a timely basis, we expect near-term volumes to remain steady. However, approximately 40% of Gamma Knife procedures are considered nonurgent and may be subject to delayed treatment due to COVID-19. We do see some softening in volumes at site in March. We expect more of an impact during the second quarter, although it's hard to be more specific at this time.

As noted in our press release this morning and as discussed on our third quarter conference call in July 2019, the Centers for Medicare and Medicaid Services announced a proposed new mandatory payment model for radiation oncology services that is intended to test an episodic payment structure or bundled payment across certain radiation therapy providers and suppliers. CMS projects that approximately 40% of radiation oncology providers will be randomly selected and included in this model, and approximately 60% will continue to receive reimbursement based on the current fee-for-service methodology. The proposed payment model was significantly altered CMS' payment methodology for radiation oncology services. For the 60% of the centers not included in the proposed model, Medicare reimbursement in 2020 for the most commonly used proton therapy delivery codes is proposed to increase to approximately 15.5% and 3.6% for the Gamma Knife.

The timing and details of the proposed payment model continues to remain uncertain. As a result, we cannot estimate the potential impact of adoption of the proposed rule. However, reductions in the reimbursement rates or changes in reimbursement methodology or administration for radiosurgery and radiation therapy could adversely affect our revenues and financial results. We'll keep you informed of any new information that we receive, although it's probably prudent to expect a delay in the current environment.

With that, I will now turn the call over to Alexis for a detailed financial discussion. Alexis?

Thank you, Craig. Good afternoon, everyone. Before I begin my prepared remarks, I'd like to call your attention to our fourth quarter and year-end 2019 earnings results issued this morning. You can access a copy of the earnings release on our website, ashs.com, at press releases under the Investors tab.

For the 3 months ended December 31, 2019, revenue of $4.786 million was consistent with revenue in the fourth quarter of 2018 of $4.770 million. Fourth quarter revenue for our proton therapy system installed at Orlando Health in Florida increased 4.7% to $1.486 million compared to revenue for the fourth quarter of 2018 of $1.419 million. Revenue for the company's Gamma Knife operations increased 4.1% to $3.230 million for the fourth quarter of 2019 compared to $3.102 million for the fourth quarter of 2018. The increase was due to increased volumes at existing sites offset by a decline in average reimbursement at the company's retail sites.

Gross margin for the fourth quarter of 2019 decreased to $1.441 million or 30.1% of revenue compared to gross margin of $1.565 million or 32.8% of revenue for the fourth quarter of 2018. The decrease was due to higher depreciation on the Gamma Knife's IGRT equipment at a customer location whose contracts are set to expire in the second quarter of 2020.

Net income for the fourth quarter of 2019 was $193,000 or $0.03 per share. This compares to net income for the fourth quarter of 2018 of $178,000 or $0.03 per share and $165,000 or $0.03 per share in the third quarter of 2019.

Adjusted EBITDA, a non-GAAP financial measure, was $2.056 million for the fourth quarter of 2019 compared to $2.346 million for the fourth quarter of 2018. On the balance sheet at December 31, 2019, cash, cash equivalents and restricted cash was $1.779 million compared to $1.792 million at December 31, 2018.

Shareholders' equity at December 31, 2019, was $31.811 million or $5.47 per outstanding share. This compares to shareholders' equity at December 31, 2018, of $31.048 million or $5.43 per outstanding share. Issued outstanding shares totaled 5.817 million at December 31, 2019, compared to 5.714 million at December 31, 2018.

This concludes the formal part of our presentation. Daryl, we'd like to now turn the call back over to you for questions.

(Operator Instructions) It looks like Lenny Dunn.

Yes. Certainly, understand that there's very little guidance you can give in the current environment, and obviously, everyone's found hope that the country starts to open up some in mid-May or early June, but there's no guarantees for that, and hospitals aren't going to do elective work until this is better controlled. So I don't have my normal questions because I understand that everything is on hold, but actually would be interested in your medical opinions as to what your thoughts are on getting this opened up and get ready for the second wave maybe in the fall. But anyhow, that's about the only question I would have.

I think at this point, obviously, it's unknown and people are working very diligently to come up with some cures or vaccines to combat this, but I think it's too early to tell at this point. And we're all hoping it is over within a fairly short period of time, but there's obviously no guarantees as to the length that this will last.

All right. I understand it. So personal viewpoint. I'm in the category where I have to live like a hermit and not even see my grandkids until this gets under better control. So I mean I'm looking forward to an end, as everybody in the country probably is but don't have anything to add.

(Operator Instructions) You have a question from, it sounds like [Tim Grisbarn].

I've noticed your accounts receivable balance is increasing. It's up by 170%. But -- over the past 4 years, but your allowance for doubtful accounts has remained steady at $100,000. Could you speak to that, please?

Alexis, I'll let you respond to that question.

Yes. The bulk of why it's increasing is related to our proton therapy because the accounts receivable on a month-to-month basis are much larger for that site, and then it can be impacted so at year-end -- based on how many months of that we had collected. So we collected quite a bit in January related to that unit and couple over other sites that had some large outstanding balances. So you'll see -- should see a drop in that in the first quarter. But generally, it's higher because of the volumes that are coming out of our proton therapy site.

And we have another question. It's from Anthony Marchese.

I have a couple of questions. First of all, I wasn't very clear when you're -- I guess, I'm confused when you started talking about CMS changes. On balance, assuming nothing changes, are the CMS changes beneficial to AMS?

If you look at it from a standpoint of the Gamma Knife, we believe it's neutral. In relation to the proton system, under the new guidelines, which we don't know that these are final, it could decrease the reimbursement for protons in that -- currently, protons, as you know, are reimbursed on a per-fraction basis, and this will be based on indications treated cancer -- cancerous indications treated. So this could result from a Medicare standpoint, a lowering of the treatment -- a reimbursement for a course of treatment.

Okay. With respect to proton beam, I know you guys have been talking about potentially adding to the -- adding new proton beam therapy. Is that -- I assume that's on hold, but has that opportunity gone away? Or is it on hold? How would you characterize the conversations at this point?

I'll let Ernie Bates answer that question for you, Anthony.

Tony, this is Ernie Bates. How are you? Can you please repeat the question again? I'm sorry, waited out there.

In other words, you guys -- that's okay, that's all right. You guys were talking in the last conference call about the fact that you had the potential to add several proton beam sites. Given what's happened with COVID, are those conversations on hold at this point? Or are they going away? Are they continuing? I'm just curious as to where you guys are, at least in your opinion, at this point?

Sure, Tony. Yes, I would say that for the most part, the discussion surrounding protons or the development of new proton centers are currently suspended but there continues to be interest among our potential clinical partners to adopt proton therapy to their centers. There is one site that we can continue to have ongoing discussions with, and there's interest there to develop a radiation therapy center, which would ultimately include a single-room proton therapy system and facility. So we are continuing to have ongoing discussions with the potential hospital and clinical partner on that.

Right. And you also, at one point, had discussed the potential for your Florida facility actually to have a second machine. Has that gone anywhere? Or is that still a potential?

It's still a potential, and it's been analyzed at this point. But like everything else, it slowed down with what's happening within the health care environment.

Right. Okay. Yes. I mean my concern is just from a stock standpoint. You've had a book value of -- tangible book value, if I'm not mistaken, close to $5 a share and your stock's at $1.45. So I'm scratching my head trying to understand why the disconnect? So I don't expect you to answer that, but it's just an anomaly perhaps. But I had another final question relating to the Care Act and a number of the other initiatives that the federal government is now offering businesses. Do you guys plan to -- do you qualify? Or do you plan to take advantage of that?

We'll have to look into that and see if we would qualify or not, to be honest with you, Anthony.

Okay. I mean, obviously, I don't sit in your shoes, but unless -- it seems to me that you would qualify, and some of the things being offered, I would think it'd be extremely beneficial for your guys. So obviously, I don't need to tell you, but I think you do qualify. And obviously, as a shareholder, we'd be interested in -- if you guys do qualify perhaps making some kind of public statement about it because, as I said, the advantages are many.

Yes. We would do that.

(Operator Instructions) We got another from Lenny Dunn.

Yes. This is not so much of a question, but it's my understanding that the SBA, if you go to your bank, will lend you interest-free 6 months' worth of payroll as long as you agree to keep all your employees for 6 months. And at the end of the 6 months, they forgive the loan. So I can't imagine why you wouldn't want to take advantage of that.

We'll certainly look into that, Lenny. Thank you.

And we have another question from [Robert Bachi].

Yes. I'm a long, long member of your group, shareholder for years, and I'll be celebrating my 90th birthday. What I'm hoping for, do you have any new product that you're working on that you haven't mentioned that would sort of catapult the price of the shares? Any new products that you're working on to increase your volume for anyone in the series of [instruments] you have now?

I think if you look at it, what we've announced is we're looking to upgrade some of our Gamma Knife sites with the Icon upgrade, which will allow us to do some larger tumors.

Yes. I know that. I've seen that. And how is that going?

Well, we just -- we completed one in September at Kettering Medical Center. And I think we also announced that we will be putting one in -- at our Albuquerque site at Lovelace Medical Center. So those are the first 2 that we will have done. And I think we're looking to partner with some of the hospitals to do the MRI-LINAC unit. So I think those are 2 of the things that we're looking at. And I'll let Ernie Bates comment if there's anything else that he sees.

Yes, Bob, I would also mention that we are looking at relatively new modalities that have received FDA approval and are in the marketplace. There -- I think we've talked about this modality in the past on previous calls, but both Elekta and a company called ViewRay have FDA-approved linear accelerators that have an integrated MRI imaging device. And so they're referred to as MRLs or MR-Linacs. And prior to this pandemic hitting, we were starting to see quite a bit of interest from a number of different potential clinical partners, both domestically and internationally, to adopt this modality. So we are definitely continuing to watch that space very closely. We're in close discussions with both vendors about potential revenue sharing opportunities with clinical partners.

And you feel that there's a need for those items that will come into effect to be wanted by these companies? So you've done a great job trying to upgrade things, I just hope you keep it up.

Yes, Bob. In fact, in the United States, there are approximately 4,000 linear accelerators, various institutions across the U.S. And of those 4,000, roughly 1,000 or so of those units are replaced every year. And so we've seen hospitals that are looking to replace older linear accelerators with this new modality. The issue that they have is that the cost of that equipment is significantly higher than just swapping out to a new LINAC. And that's one of the reasons why we're seeing quite a bit of interest from hospital partners to mitigate that capital risk by partnering with American Shared. So we see tremendous opportunity in that space, just as we did with the Gamma Knife 30-odd years ago when...

Yes. The Gamma Knife is a great thing for you guys. And well, I think my years are limited, so I'd like to see some real -- I own about 35,000 shares, and I'd like to see it go up before I croak. So keep growing and doing a good job. You're honest people and you're good people. And I know you've got rough competition from all over the world, including over here in this country, and just keep going, and I still have faith in you. So thank you very kindly for answering my question.

Thank you, and continued best health to you.

Thank you for your support, Bob.

(Operator Instructions) And we have a question from [Tim Grisbarn].

I noticed the interest expense has gone down significantly. Can you reflect on if that is a reduction in the interest rates as you are trying to refinance long-term debt? Or is it a reduction in the overall balance or a combination of both? And anything that you can provide.

I'll let Alexis answer that question for you.

Yes, it's -- primarily, it has to do with us paying down our balances. So as we pay down those balances, the interest expense is going down and the principal portion of the payment is going up. We have done some refinancings in the last couple of years. So a lot of times when we do a reload and there's an existing balance on the debt or lease and we'll refinance that amount at a little bit lower rate, so it's a combination.

(Operator Instructions) And we have no more questions at this time.

Okay. Daryl, thank you, and I'll let Dr. Bates make his closing comments, if he'd like.

I'd just like to say I want to thank you all for joining us this afternoon. As the fight to overcome the COVID-19 pandemic continues, American Shared Hospital Services' locations currently remains open to continue to meet the needs of cancer patients, which represent the greater part of our business. Looking beyond the pandemic, we believe that we remain well positioned for growth. We look forward to speaking with you, again, on the first quarter of 2020 conference call in early May. Until then, stay strong and healthy, everyone. Goodbye.

And thank you, again. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.