Q1 2020 Earnings Call
Good afternoon, and welcome to the first quarter 2020 conference. My name is branded they'll be your operator for today at this time all participants are in listen only mode. Later, we will conduct a question and answer session during which you could delstar wanted maybe other question.
Please note. This conference is being recorded and I will now turn it over to Stephanie Prince Stephanie you may begin.
Thank you operator, and thank you 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 they may be made on this conference call about future expectations plans and prospects for the company comps.
The two forward looking statements for the purposes, a 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 to various important factors, including those discussed in the company's filings with the FCC. This includes the company's annual report on form 10-K for the year ended December 31, 29 team and the definitive.
Proxy statement at the annual meeting of shareholders to be held on June 26, 2020, the company's assumes no obligation to update the information contained in this conference call I would now like turn the call over the Ray.
[noise] stack I apologize stack away.
Interim president and CEO Ray.
Thank you Stephanie.
Good afternoon, everyone joining us today for our first quarter 2020, <unk> earnings Conference call.
I'll begin with some opening remarks, then ask Craig to Gallagher, our COO and CFO to go through the business and operational results.
Alexis Wallace our controller will then provide financial review.
Following that Craig Alexis rebates, and I will open the call for your questions.
I'd like to begin by reminding everyone that last month Dr. Bates retired.
I was appointed by the board as interim President and Chief Executive Officer.
I've had a long personal and professional relationship with Dr. Bates and have great respect and admiration for what is built here at American shared hospital services for over 40 years.
Dr. Bates is remaining as executive chairman of the board through the end of this year.
I'm glad that he'll continue to be involved as we all work together to advance the company.
Dr. Bates and I have a shared interest in capital intensive advanced medical technology for hospitals, which are in great need of creative and flexible financing solutions.
I founded shared imaging and 1994.
She shared imaging as a preferred independent provider.
Siti, MRI and pet Siti equipment and services.
Hi grew shared imaging from 3 million to over 60 million a year in sales.
We are profitable.
I met Dr. Bates many years ago, when he was interested in selling.
Masses CTG in IRI business.
In 2008, I sold 50% of share imaging.
At that time, I ask Dr. Bates to join the shared imaging board.
Which he continues to serve.
In 2013, I decided to retire as president of Shes shared imaging.
While serving in that role for over 19 years.
As of today I continue to own 50% of shared energy.
And continue to serve as its founder owner.
In 2009, Dr. Bates asked me to join the HMS for.
Since that time Ive steadily increase my ownership of HMS stock.
I am now the company's largest shareholder holding about 16% of the outstanding shares.
I'm pleased to take on this management role because I think I can help fms improve and get the credit and recognition that it deserves in the markets.
The market value of the company has been hit hard in all the uncertainty from Coven 19.
Despite the company, having over $13 million 30, I'm, sorry, $30 million of tangible equity.
The equipment and services that we provide treat cancer patients.
In cancer will not wait.
I'm pleased to take on this.
[music].
As a result, I believed that the healthcare industry.
And in particular cancer treatment.
I will not be has negatively impacted as some other industries during this panda.
Any softness in demand or delay of procedures should be made up fairly quickly.
I have great I have great belief on American shared and its opportunities for growth.
I'm here as interim President and CEO.
To ensure that the company has the best leadership to realize those opportunities.
Thank you for your continued support of our company.
I'll now turn the call over to Craig for the first quarter operational review.
Craig.
Thank you Ray and good afternoon, everyone.
Since our year end conference call at the beginning of April we've been closely monitoring the impact of the Cobot 19 pandemic honor business.
As expected in the first quarter, there was no material impact on or PBR T volumes due to the therapy is focused on cancer patients, whose procedures should not be postponed indefinitely.
Most gamma knife procedures are also for cancer patients, although as we said on the last quarter call approximately 40% of the procedures may be considered non urgent and possibly subject to delayed treatment.
In the second half of March we did experience some softening of volumes of gamma knife, although the impact appeared more modest than we had their initially anticipated.
M&A revenue decreased 15.2% for the first quarter compared to the first quarter of 2019 to decline was related to two factors first we believe that the number procedures, which were consistent with the same period last year.
Actually impacted by Cobot Nite TV.
Procedures increased to 376 compared to 375 procedures in the first quarter of 2018.
Procedures in the fourth quarter of 2019 totaled 414.
Secondly, we also registered a decline in average reimbursement rates similar to last year's fourth quarter.
Lower growth in procedures was magnified by lower overall reimbursement rate.
This years first quarter as compare to the rate we received in the same period last year.
First quarter revenue for the proton therapy business increased 2.1% quarter over quarter, and 12.8% sequentially from the fourth quarter of 2019.
Total proton therapy for actions in the quarter increased by 130 or 8.4% quarter over quarter Q1 thousand 676 compared to 1546 in the first quarter last year.
Sequentially fractions increased by 65 or 4% compared to 1600 11 in the fourth quarter of 20 light team.
Steady increases in awareness in across indications of benefits of proton therapy treatment or continue to drive growth.
Operating income was also impacted in the first quarter of 2020 by higher SGN, they cost related to legal and other fees related to but not limited to the cobot 19 pandemic and that transition in senior management.
We completed two Copel 60, reloads during the first quarter and contracted to install one icon upgrade with an existing customer.
There are also additional upgrades be discussed that may be completed during the balance of the year, although it's especially hard to pinpoint the timing of these installations at this time.
And while the pace has slowed a bit in the current environment. We've also continued to hold discussions with several interested parties for additional PRT and MRI Lynette placements.
Looking ahead in regard to covert 19 in the second quarter to date or volumes appeared to be impacted but still remained fairly consistent with the prior year.
Also cobot ninetys impact will be greater over the full three months of the second quarter versus only the second half of the last month of the first quarter.
As noted in our press release, this morning, and as discussed in or pass to quarterly conference calls.
In July 2019, the centers for Medicare and Medicaid services, where CMS announced the proposed mandatory payment model for radiation oncology services that is intended to test and the episodic payment structure or bundled payment across certain radiation therapy for riders as suppliers.
CMS print jets that approximately 40% 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 would significantly alter CMS is 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 use proton therapy delivery codes is proposed to increased to approximately 15.5% and 3.6% for the gamma knife.
However, as to be expected in the current environment, we have not yet received any additional information from CMS on the timing as selection details of the proposed payment models.
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 administration for radio surgery radiation therapy could adversely affect our revenues and financial results. We'll keep you informed of any additional new information that we received.
With that I'll turn the call overdue, Elecsys, where detailed financial discussion Alexis.
Thank you thanks, and good afternoon, everyone.
Before I begin my prepared remarks, I'd like to call your attention to our first quarter earnings press release that was issued this morning. If you need to copy you can access that on our website at ash and dotcom at press releases under the investors tab.
And the three months ended March 31st 2020, total revenue decreased 14.2% to 4 million 506, 8000 compared to revenue Fivenine 321000, and the first quarter 2018.
First quarter revenue for the company's proton therapy system installed at Orlando House in Florida increased 2.9% to 1.676 million compared to revenue for the first quarter 2018, one ninesix hundred 22000.
First quarter proton therapy revenue increased 12.8% sequentially from the 1.486 million in part in the fourth quarter of 2019.
Revenue for the company's gamma knife operations decreased 15.2% to 919000 for the first quarter of 2020 compared to 3.411 million for the first quarter of 2018.
As Craig spoke about the decline was due to lower average reimbursement I think companies during a tough sites as compared to the first quarter last year.
Gross margin for the first quarter at 2020 decreased 1 million 394030, 30.5% of revenue competitor gross margin at 1.937 million, our 36.4% of revenue for the first quarter of 2019.
Net loss for the first quarter 2020 was 135002 cents per share.
Compared to net income for the first quarter at 2019 of 270000 or five cents per share.
Fully diluted weighted average common shares outstanding or 691 hundred 53000 for the first quarter of 2020 compared to 5.886 million pennant first quarter of 2019.
Adjusted EBITDA, a non-GAAP financial measure was 1.822 million for the first quarter 2020, compared to 2.710 million for the first quarter at 2019.
Decline was primarily due to lower net income as well as lower depreciation and amortization due to that companies I GRT equipment, which became fully depreciated in the fourth quarter of 2019.
At March 31st 2020, cash cash equivalents and restricted cash as 39 23000 compared to 1.779 million at December 31st when the 19.
Shareholders' equity at March 31st 2020 31.473 million.
$5 injecting theres three cents per outstanding share.
This compares to shareholders' equity at December 30, Onest 2019 of 31 nine 811000.
Our $5.47 per outstanding share.
This concludes the final part of our presentation brand and we'd like to now turn the call back over to you for questions.
Thank you and will now be get the question and answer session. If you have a question. Please press star one and your telephone keypad, if you'd like to be removed from the Q. Please first the pellet side or the hash key there will be a delay before each question does announced.
Speakerphone, please pick up your headset first before you dialing once again if the other question. Please press star one on your telephone keypad.
We do have a question please standby.
And we have Anthony Marchese online. Please go ahead.
Hi, Good afternoon, Ryan congratulations on the new role.
The.
Stock currently trades at a third of tangible book, So I'm curious.
From your perspective, you've been on the Board you had an association with the company.
What is it that.
And your standpoint, you believe.
The reason the discount exist and more importantly, what are your plans to close the gap that seems to me that accompany this type should not be trading below tangible book.
Thank you for your question.
I think thats excellent question.
Im not sure myself, how the marketplaces.
Determine this valuation of like you said about a third of our book value.
One of the reasons for my investment has quite frankly been.
The fact that Theres tangible equity in the company, that's got substantial book value per share.
So I'll, let the marketplace make that determination.
But.
I think if we can.
We had a good leadership team in place with the retirement of Dr. Bates I think weekend.
Yes, see what added value, we might be able to take the company from where it's at today.
Okay. Thank you.
We have already done online. Please go ahead.
Yes, it's running number that's okay.
Hi is actually a few questions.
The book value actually went up a little even though we reported a war.
And.
Maybe.
No Craig it's the right person to explain that but it's clear to me that.
We're profitable company and I'm not quite sure what the.
Differences. So if you could explain them and I appreciate the question.
I'll, let elecsys addressed.
Your question Lenny.
Yes, Hi, Lenny and so the reason that book value went up is because we had some performance awards that were considered legally issued shares for management.
Were issued back in 2017 and they expired on March 31st said they might back into the plan sales see that are outstanding shares actually went down for the period.
If you.
Take a look at our filing what should go up later today, there's some detailed discussion and how that's accounted for.
Okay, well that explains that come in.
Yes.
Good.
The other thing is you have some extraordinary legal and other costs.
You know brought down our reported earnings.
And I want to understand that those are nonrecurring so when I model in what I think the company should be worth.
Yeah.
And do that are the nonrecurring and can you break it down just a little bit.
Well, what I would say is what we said is that these fees and.
Legal fees and other fees were.
Related in part to the co bid 19, and Mickey and the transition senior management.
We also expect that a lot of these.
Hopefully, we'll be nonrecurring, but we're going to continue to have though.
Sees whether they be legal or consulting as we try and.
New services to the company and do some transactions that may be a little more difficult.
So, although we don't expect to these things too.
Just perpetuate overtime, we expect that there may be a new set of fees related to.
Our ability to grow the company further.
Okay I guess.
Sort of an answer.
End of the.
[music].
I guess the.
Covert 19 situation at least in my opinion.
Barring some.
Disastrous.
Reversal.
Seems to be getting a little bit under control.
At least the hospitals.
Our Aereo, Wisconsin.
And so on.
Our now doing elective procedures.
I think that.
There are likely to is likely to be a backlog of people that.
The are you receive quote elective procedures that I would like to necessarily look too. So just I guess.
The in their wisdom, the government Coca were both group, but.
The hospitals don't appear to be overwhelmed anymore.
With lesion beds for.
Over 90 people so they're moving forward with that and I think there's probably going to be the case nationally so.
We should be able to resume too.
More normal level procedures for the gamma knife.
The proton beam business, obviously is.
Going full blast good.
The gamma knife business was restricted.
Could you either criticized my opinion or comment on it.
Well I'll comment on I think you're correct.
Many of the hospitals are now.
Starting to treat elective procedures.
I think.
Due to the cobot 19 pandemic, we saw that patients even though they were already diagnosed and schedule.
Can receive treatment they elected to delay their treatment and that that was a factor until people feel comfortable coming in they may delay their treatment a little longer that's one of the unknowns.
And the other impact of the Tobin 19 was the fact that.
Patients were being diagnosed as timely manner, because people do not want to go into the hospital to get diagnosis.
So that will take a little time to unwind itself as well but.
As long as we continue to make progress on the Tobin 19 pandemic.
People feel comfortable coming into the hospital I think yes.
Hopefully we will see.
Return to the more normalcy in terms of our patient treatments both for the.
Gamma knife and PRT.
Okay.
We certainly could use normal for you.
Around to receive.
Okay and.
Three.
No I could see why you would have all your.
Potential PRT contracts on hold those hospitals movies will be unlikely to want to make a major commitment because they can clearly see.
Future.
Is that accurate statement.
Yes, as we've mentioned before.
And as I mentioned on this call in my prepared remarks, the ATM model.
Has brought in some uncertainty.
The DRG, so I think.
We're waiting for that to clear up as well.
Okay and Uh huh.
And.
I'd like also commented.
I appreciated Dr. Bates leadership.
So we only been involved in company maybe.
Well over 20 years, but.
40 of the views around.
So I just wanted to comment on that too.
Thank you Lenny.
And we have told you came in on line. Please go ahead.
Sure Hi, everyone.
Question following a little bit on the proton beam I think what strikes me is that the Orlando Center has a really.
Really great results consistently.
Since since.
Since it was installed and I know that subsumed a little bit by bit fill larger gamma knife business and you know also sort of a factor I think people forget is that you do have deposits down I believe and anymore.
So I guess my curiosity is having really good results on the PBT understanding that in this environment hospitals may be more cautious at the same time I'm wondering does this.
Just sort of a cobot thing with with.
Pushing interest rates down as a side effect.
What do you what do you look at the financing environment now does it.
Is there some ability perhaps too to access finance in better more creative more inexpensive ways from us.
Or is the fear factor of people just.
Not wanting to do anything in this environment.
Overweight.
Okay.
I'll, let ernie answer that from a.
Business development sales cycle standpoint.
Yes, Hi, Tony This is there any bates are you.
Yeah Thats an excellent question is anything what we're finding given the uncertainty from Margaret pandemic.
We're finding that hospitals and other clinical partners are actually looking for.
Creative financing solutions that they can take an acquired this capital intensive equipment.
So as Craig pointed out yes, a lot of.
Decisions are being placed on holder and suspension given the uncertainty, but there are still discussions that are taking place.
With these centers that are interested in deploying this this capital intensive technology and we're having those discussions.
So.
In answer to your question I would say that we are that alternative financing solution for for many many centers.
Yeah, that's great and then I think even though as mentioned on prior conference call. I think this was the first time in the press release that Amar Linak was mentioned and I do it does seem like at a pretty exciting.
Extension of sort of the product line that Tom that HMS can offer but but I'm. Just curious it was in the press release today. So I assume the company feels that this is an area that could be potentially good one for growth. So maybe if you could comment on that.
Ernie you want.
Sure.
Yes, yes, we do Tony I think I may have mentioned on previous calls that there are approximately 4000 linear accelerators here in United States.
And roughly a thousand of those units.
I need to be replaced every every one to two years.
There's a fairly high turnover rate and.
Given what we're seeing as Craig mentioned with the radiation oncology ATM and episodic care, we're finding that.
Clinical providers are finding are trying to find ways.
Got to best capitalize on these opportunities to provide care in a bundled environment.
And what's unique about the Marlin ACA is that it provides the ability to reshape the radiation treatment dose based on daily changes in shape.
Size and position of the tumor and surrounding healthy anatomy.
And the importance of that is that enables an accurate dose delivering real time visualization of the tumor and that's something you can't just do with Atlantic alone.
The EMR linak enables that that capability to basically see what you're treating.
And with that that enables clinicians to potentially provide higher and effective radiation doses with fewer factions.
And so as I mentioned earlier with with bundled payments, if you're able to provide fewer fractions.
And received reimbursement at it at a case rate. If you will it's a big advantage to the clinical lot provider to be able to do that so we're very excited about the opportunities with them on that.
Great. Thank you that's really helpful explanation, Hey, Tony Tony This is Ray Hey, Brad just like to reinforce that a bit too because Ah Dr. Bates really.
Started the companies.
Entry into looking at this technology and the Marlin App.
And I, just like that make sure that our investors understand that it steps in this product fits into our long term strategic vision.
You know, it's very capital intensive product hospitals out there are searching for creative and flexible financing solutions and I do think American share.
Can be in that marketplace.
Great and I understand your your long term partner elect to actually have.
As a manufacturer of those machines correct.
That's correct.
Great. Thanks, Thanks very much.
Okay.
We have victory go online. Please go ahead.
Yes. Good afternoon, everyone. Thank you for taking my questions.
No I still.
We continue our Tony.
First few questions about the proton.
I feel that.
That will be a big driver Ovaone us so what I'd like to find out is what's your opinion about.
The industry trends on proton regarding.
Insurance companies.
More.
Welcome to pay for claims.
Grow and interaction, but we've seen in Orlando health, but what about across the country, how many units out there.
I'll pause on occupancy first two questions. Thank you.
I'll answer the question in terms of the indications I think we're seeing that Orlando, they're treating a fair number a pediatric patients and some of the more difficult.
Cases.
As well as they do treat.
Prostate cases, as well, but they have a very.
Complex mix of patients at their treaty.
And I think.
For Medicare purposes.
There have been really no issues in terms of getting reimbursed.
And on a.
Commercial insurance basis.
There are certain companies that they know will reimburse for certain types of indication that they work with.
The buildup or poor over time with the various insurance companies as to really how their patients can benefit from protons as opposed to have a conventional radiation therapy, so I see that.
It's an educational process with insurance companies I think thats happening.
Over time and I.
I think it's getting better and better.
Yes.
Okay. Thank you and.
As for both the margins versus protons versus Photogs, what is little bit margins, though.
No we havent disclosed that.
Individually so.
We don't we don't break it out at this point.
Lastly, I believe there was a couple of units a couple places both in California that.
The company was aggressively looking at last year is there an update to that I know, it's on hold them what mall, but.
You know what type of discussions where we are we.
50% through 60%, Mike can you give a little bit more color on that.
I'll, let ernie.
Ernie.
Answer that question as to where we're at in Southern California.
Hi, Nick we are continuing to have discussions with a group in southern California.
One thing that perhaps we understood about protons is that it is a very long and complex sales cycle.
Oftentimes. These these sales cycles take more than two to three years.
We have been we have been engaged.
For some time in southern California.
But there is still very strong interest in the clinical community.
For development of a single room Center.
So we will continue to keep you apprised as we as we work on on these opportunities there.
Nick one one thing that I also will mention just with respect to.
Centers in the United States there are over 30 35.
Proton centers in us.
And over the past couple I would say two years.
The vast majority of those new sites.
Have been single room or other compact solutions meeting.
No more than two rooms.
Yeah, when Dr. Bates.
I believe many years ago that.
The teacher of proton for the future of the of the adoption of proton beam radiation therapy.
I would not be based on continued development of their extensive four or five them centers that were built at the cost of over $250 million many cases.
That we would see.
More widespread adoption of single room solutions, which.
As far less capital intensive with much lower ROI.
Requirements.
And that's exactly what we've been saying and.
Mevion maker of this single room compact solution. They just made to recent announcements.
Letters of intent.
In potential new populations, and Danbury, Connecticut and also in Texas.
So we're continuing to see.
Moving in that direction.
Yes.
Okay. Thank you very much.
And once again, if you do have a question for you still star one any telephone keypad and we're standing by for any further questions.
Okay. So no further questions at the moment, we'll now turn it back to re for closing remarks.
Thank you everyone for joining us today.
I'm really excited to be here in my new role and look forward to adding value to amortize.
Please contact us if you have any questions before sect work conference call in mid August Steri safe stay well.
And have a great week.
Goodbye.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.