Q4 2020 American Shared Hospital Services Earnings Call
[music].
Good day and welcome to the American shared hospital services fourth quarter and year end 2020 conference call.
All participants will be in a listen only mode.
After todays presentation, there will be and opportunity to ask questions.
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Please note. This event is being recorded I would now like to turn the conference over to Stephanie Prince of P. C. D Advisory. Please go ahead.
Okay.
Thank you Melissa 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.
Institute forward looking statements for the purposes of Safe Harbor provisions under the private Securities Litigation Reform Act of 1995.
Results may vary materially from those indicated by these forward looking statements as a result for various important factors, including those discussed and the company's filings with the SEC.
This includes the company's annual report on form 10-K for the year ended December 31, 2020 form 10-Q for the periods ended March 31 June 30, and September 30th 'twenty, and 'twenty and the definitive proxy statement for the annual meeting of shareholders that was held on June 12.
Six 2020, the company assumes no obligation to update the information contained in this conference call.
I would now like to turn the call over to race Jacoby, a CEO of a M S right.
Thank you Stephanie good afternoon, everyone.
Thanks for joining us today for our fourth quarter and year end, 2020 earnings Conference call.
I'll begin with some opening remarks, and then Craig to go our President and C O O.
Oh and CFO.
We'll go through the business and operational results.
Alexis Wallace, our Chief Accounting Officer.
He will then provide a financial review.
Following that myself, Craig Alexis and early days, our senior VP sales and business development and international operations with.
And we'll open the call for your questions.
Today, we announced and important action.
That has resulted in a stronger company.
And as expected to enhance.
Long term shareholder value.
As we worked for form a more solid foundation.
To achieve our goal.
For the increased growth.
And sustained profitability.
This action is the write down of impaired assets on our balance sheet.
Of $8 3 million.
Which is substantially a noncash charge.
The asset write down will result, and a significantly stronger balance sheet.
Which Craig will discuss in more detail and.
And a few minutes.
This decisive action is part of our strategic plan.
And it also includes.
The diversification.
Of our product offerings.
Geographic expansion.
And offering additional types of financing solutions.
To increase the Companys revenue streams.
More specifically.
We've expanded our product offerings.
Beyond proton beams and gamma knives.
To also include MRI guided linac.
And more advanced linear accelerators.
We're also continuing to look for additional opportunities to expand geographically.
Like the acquisition of the only gamma knife center and the country of Ecuador.
That we completed this past June.
As we work to increase our revenue streams.
We're offering more flexibility.
And our wholesale and retail financing solutions.
In combination.
I believe that these actions will put us on the right path.
For reach our goal of.
Sustained profitability.
We have many opportunities for future growth.
And we can provide tremendous flexibility.
For the marketplace and our clients.
With the many different ways, we can meet their needs.
The team and I are excited to build on this strong base.
I'll now turn the call over to Craig.
For the fourth quarter operational review.
Greg.
Thank you Ray and good afternoon, everyone.
And the fourth quarter, our volumes were impacted by spikes and COVID-19.
Coupled with patient reluctance to come into a hospital for routine care.
This was compounded by the typical holiday period slowdown and.
And together led to a total revenue decrease of three 7% compared to the first quarter of 2019.
And increase in average reimbursement and our proton beam radiation therapy Center and.
And the contribution from our acquisition of Gamma knife Center in Ecuador.
Last June mass the period over period, Covid related volume declines and both P. B R T and gamma knife operations.
Gamma knife revenue was essentially even with the fourth quarter of 2019.
This was a result of lower volumes at the same centers offset by the contribution of GK C E.
Yeah.
Revenue for the company's proton therapy system decreased five 6%.
Paired with the fourth quarter of 2019 and.
And increase in average reimbursement during the quarter offset the decline and volume.
Gamma knife procedures increased by three 1% compared to the same period of last year.
Our results reflect the positive contribution from the acquisition of G. K C E as gamma knife volumes for centers and operation.
Kris seven 8% from volume from those same centers during the same period last year.
Total proton therapy fractions decreased 25 per cent compared to the fourth quarter of 2019.
The period over period decrease was partly due to the spike in COVID-19, and the fourth quarter compounded by maintenance related downtime.
For Q4 gross margin was 22, 3% of revenue compared to the gross margin of 31% for the fourth quarter of 2019.
This was due to lower revenue and a seven 1% period over period increase and cost of revenue a function of our high fixed cost basis, which does not decrease in step with lower volumes.
Net loss for the fourth quarter of 2020 was $6 million 231000, compared to net income for the fourth quarter of 2019 of 193000.
For Q4 loss includes a pretax write down of impaired assets totaling 8 million and 264000.
The empiric assets include six gamma knife units for which customer contracts will not be renewed and the related removal costs plus the two deposits for the purchase of proton beam systems related to capitalized interest and other charges.
We determined that the P. B R T deposits, where others and temporarily impaired due to the impact of the COVID-19 pandemic has had on medical centers and their capacity to undertake large capital expenditure projects for.
Excuse me for selective patient base at this time combined with the length of time realistically required to negotiate and implement a proton therapy project. We do not however continue to believe we do however continue to believe that proton therapy will be an important component.
Of a cancer centers radiation therapy services.
The six gamma knife units that were impaired consisted of two units that had been taken out of service and prior years.
One unit that was taken out of service and 2020 and three units that have already or will anticipate will be taken out of service in 2020 one.
Included in the impairment write off was estimated costs to be installed and removed for gamma knife units of 1 billion and 350000.
This is the portion of the write down debt as cash balance of 6.914 million is a noncash charge.
The number of agreements that are expiring within a short period of time and not renewing is an anomaly for us.
There were five agreements coming due within and approximately 18 months span of time.
Most of these were long term customers that had renewed their contracts at least once before.
But and considering this lease or buy decision Mindy had the cash on hand to bring the equipment and house.
Center's decision to go and house is in fact, a testament to our development of a successful gamma knife program.
Adding back the impairment charge resulted in adjusted EBITDA of 2.538 million and for the fourth quarter compared to 2.056 million and for the fourth quarter of 2019.
We ended the quarter with a strong cash position for $3 million.
During the first quarter of 2021 we completed two cobalt 60, reloads, we have another upgrade pending and our pipeline and Gamma knife Center, Ecuador, which is scheduled for installation and mid year, and which will be one of the few gamma knives and all of the South America.
Other discussions with potential clients for expanded product line as Ray spoke about.
Ongoing.
Looking ahead, we continue to closely monitor the COVID-19 infection rates for any further potential impact on our operations and.
And the current first quarter, we're experiencing.
The lingering impact of the pandemic and some of our locations, we do anticipate that the impact of COVID-19.
The decline at some point during the year.
Although it's hard to be precise about that timing.
Remember when it happens we believe that we'll begin to see a return to our historical volumes and recapture some of that pent up demand.
And as we've previously discussed we expect a lower fixed rate of selling and administrative costs and 2021.
With that I'll now turn the call over to Alexis for a detailed financial discussion Lexus.
Thank you Craig and good afternoon, everyone before I begin my companion remark and like to call your attention to our fourth quarter and year end earnings press release that was issued earlier this morning and he.
You need a copy it can be accessed on our website at ash and dotcom press release, and I'm going to the investors tab.
Now turning to our fourth quarter results for net.
And three months and at December 31st 2020, total revenue was 4.608 million and decreased eight 7%.
And with 4.786 million and funding for the fourth quarter of 2019.
And for quite around me and for the company's proton therapy system installed at Orlando Health, and Florida was 1.403 million and decrease of five point X per song when compared to the five quarter of 2019.
Total proton therapy for options and decreased 28 per cent compared to the fourth corner of 2019.
Revenue for the company's Gamma knife operations was 3.205 million and Gara and <unk> eight per cent decrease compared with the fourth quarter of 2019.
Gamma knife procedures increased by three 9% and 427 for the fourth quarter of 2021 for.
414, and the same periodic and current year.
Gross margin for the fourth quarter of 2020 decreased two decreased to one nine and 27 and our $22 three per cent of revenue compared to gross margin of one nine and 441000 or.
<unk> 31 per cent and revenue for the fourth quarter and 2019.
Selling and administrative costs increased by $22 five per cent for 1 million and Tetra Tech and for the fourth quarter.
The fourth quarter compared to 859000 for the fourth quarter of 2019.
And per unit overpaid increase is due to increases and tax them out and expand that.
And based compensation and related expenses.
Operating loss for the fourth quarter of 2021, 8 million and 543000 compared to operating income of $279 and the fourth quarter of 2019.
Excluding the pre tax write down of and parent assets and the corner that totaled 8 million and 264th album, the operating losses of 279000.
Net loss for the fourth quarter of 2021 6 million and $231000.
And one penny per share, which included a pretax write down and compare it assets and 8 million and 264000.
For comparison net income kind of fourth quarter of 2019 of 193000 or three cents per diluted share.
Adjusted EBITDA, and non-GAAP financial measure and Kenai.
And 538 out of that and kind of fourth quarter at 2020 compared to 2.056 million for the fourth quarter of 2019.
Now turning to the annual results.
For the full year, 2020 kind of funny and then December 31st revenue decreased $13 four per cent per <unk>.
17.837 million compared to revenue at 20.605 million and the 12 months for 2019 and.
Accompanying and recorded no revenue from AT&T and equipment and the 12 month 2000, and 'twenty period, compared to 840000, and a comparable period of 2019.
Following the expiration of the company's contract and the equipment and I fully appreciate it and so.
Proton therapy revenue decreased 8% and $6 million 167000, and they're talking and for 2020.
Hello, proton therapy revenue.
Proton therapy fractions for 2020 five.
9816 and decreased at 2.8 per cent.
And then I've gotten a decreased 13, 9% 11 land and 670000 and a tough month for 2020 and.
Number of gamma knife procedures, and the 12 month and 'twenty 'twenty 1530, and an increase of 2.1 per cent.
Operating loss for 2028, and 9 million and five 453000 compared to operating income and $1 million and 542000 and for 2019.
Excluding the pre tax write down of impaired assets and the fourth quarter at 2020 at total of 8 million team here and 64000 for.
For 2020 operating loss was 1.199 million.
Net loss for the 12 months and 2021 and 7.015 million.
And $1 14 per share, including the pre tax write down and impaired assets and 8 million came from China.
64000.
This compares to net income for the 12 months for 2019 at 659000 or 11 cents per diluted share.
Adjusted EBITDA was 7 million and 776000 for 2020 compared to 9.676 million and for 2019.
They're moving to equity at December 31st 2020, with 23.650 million.
$4 eight per outstanding share.
This compares and shareholders' equity at December 31st 2019, and 31, nine and 811000.
And $5.47 per outstanding share.
This concludes the formal part of our presentation and I'll, let that we'd like to turn the call back over to you for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
The first question is from Tony Kamin with wind partners. Please go ahead.
Hi, I guess my first question I guess either to rare Craig and in terms of the Marianne.
Right down at the deposits and is that day.
Is that a technical write down meaning if you eventually are able to find customers for a couple maybe on units is that discount and no longer available to you and I say that and the context total I noticed maybe and sold the system. It looks like just a couple of weeks ago to a place and North Carolina.
A little.
Just want some more detail and what this really means.
Yeah.
Tony that's a good question.
We wrote it off on our books.
Just on the information we have.
But we still consider that deposits to be on our account with Marianne.
We still are bullish.
Proton beam systems.
And in particular, Marianne and fulltime people and systems.
So it's only for them and their accounting standpoint, I'll say.
And our relationship with net.
Sure that's very helpful.
And then next question on the.
You mentioned, the EM or Linux, and new and new areas of equipment that you're going to move into.
And then can you talk a little bit more about that of.
You know what what other sorts of machines, if if you can disclose that yet and and.
And if you feel that this is something that can start to show any progress for this calendar year in terms of.
Obviously, no guarantees, but but is your is your belief that you know sales efforts are under are underway and we might start to see.
Some of these new products start to add into the portfolio.
Mhm.
I think that's a really good question I think there's a couple of different parts to it.
I'll, probably point to Craig to discuss the product offerings and the different types of products, but before we do so.
I'd like to just mention.
<unk>.
So that's up to have a stronger balance sheet debt we have.
And.
Our balance sheet is stronger because we are no longer.
Canonically committed.
Two.
Electric gamma knives.
And or maybe on protons and systems.
We love those products.
We love working with those vendors and will continue to work with those centers and those products.
And they've got great products, we support them and we continue to believe and those products and those centers.
But we're no longer economically committed to only those products.
So with that being said.
Oh boy.
Going over to Craig and Craig maybe you can expand on the different types of product offerings.
Yes, we're looking at really some advance linear accelerators and.
Accelerators that incorporate MRI technology seek and better see soft tissue.
And these are these products are more in the $6 million to $10 million range. So it's a good avenue for us to pursue and that many hospitals will be looking for a.
Partners to go in on this new technology with them, it's much like when the gamma knife was first introduced hospitals wanting to partner with people like American shared that.
That could share in the risk both in terms of the technology and the reimbursement.
And the volumes. So we look at this as a very promising.
Avenue for us to pursue.
And when do the things that you asked Tony will we be able to see revenues right away.
And the answer is you wouldn't see it in 2021 for the most part does these things do take a little while to install.
But we think it's a very promising technology. We're also looking at some of the other technologies that incorporate.
Pet C T. Although that's not FDA approved yet.
We're closely looking at that and <unk> been looking at it as extensively as to what the potential is for that Mark and again, that's a and advance linear accelerator.
And that we think because it's capital cost structure as a REIT for someone like American shared depart and with hospitals zone.
We are also looking at a more standard linear accelerators, where hospitals may want to.
Our partner with <unk> on a revenue sharing basis with us.
And some.
Some <unk> machines. So we're looking at all of those types of linear accelerators and in index.
In addition to our gamma Knifes and other stereotactic radiosurgery devices and proton therapy devices.
Okay. Thank you and and one one final question can you comment on the post hopefully very soon and post COVID-19 period for hospitals, and there and what you're hearing about there there are there.
Their thoughts on on on moving forward with new equipment and I ask that in the context for that I've talked for a couple of hospital people and it sounds like you know they've they've had a really tough years financially, but they want to also start to explore avenues for growth without having to do a lot of upfront capital spending so it sounds like kind of a per.
Time period.
And one of the best ones and a long while potentially for a company like J M. S book, but what are you hearing and what do you what do you think of the environment for hospital spending.
Okay.
I think there's a couple of comments trends, we're seeing and they're kind of they kind of offset each other and it's a way one day volumes are still.
Reflective of the pandemic or not at the pre pandemic levels, and that's giving and hospitals I'll say pause.
And until they get their financial condition, and all other and or.
Yeah things turn back to pre pandemic levels.
And the other hand, there are some hospitals that are weathering this pandemic well.
And in today's marketplace.
Funds are readily available too long.
And it's.
They are more inclined to work directly with vendors and some cases to expand their operations because of the easy access to capital that they may have so it does vary.
But those are two kind of offsetting trends we are observing.
And we just need to zero and and focus on those that are more favorable to us.
Got it well thank you very much.
As a reminder, if you have a question. Please press Star then one for.
Your next question comes from Ed Clark from <unk>.
Private Investor. Please go ahead.
Hey, good afternoon, and good morning.
Randy and Craig.
And and good morning wanted to.
And I guess good afternoon for some people to know.
Past day that noon time I had.
I'm very interested of course, and the and the write down and.
Because the return on capital was always and the book value is always looked at as a reason for underperformance of the shares but regarding the assets themselves are these the units debt that youre, writing down or are they being stored or are you trying to resell them and the aftermarket and.
And the and another question is have we had appraisals on these and this equipment. So there's it's it's zero or.
Or is that just a and accounting write down.
So those are two questions I have on those assets.
Mhm.
And thanks for joining us today.
I think we were in our environment.
And where we had an extraordinary number of contracts that are expiring within a short window of time.
About five contracts over about an 18 month period.
And that's a pretty abnormal if you know if we have 15 domestic gamma knives and a contract for 10 years and lane you'd only expect one or two day expire each year.
We had and and ordinance in Oregon and amount of contracts that did expire that they wanted to terminate their advantage too.
So I think we feel it's an anomaly those factors that all kind of came together pretty much all at once.
And.
Our ability to recover that value is dependent upon.
And that supply and demand.
There's not a readily available marketplace.
For electric Gamma knives, and it's very costly to the installer.
And reinstall them at a different location.
So we've been able to recover value by extending renewing our agreements upgrading the equipment and most of those upgrades are software type upgrades.
And been successful of doing that.
Yeah, I've got that you're you've explained that very clearly the question is are.
Are these things are there.
These units when.
And when they were taken out of service because you have a bunch of at the same time for the markets back and are likely to take them up or at least the U S market and these being sold to and equipment broker afterwards or are they going to be putting a warehouse and.
And I'm more interested and the physical part of it and the second part is did we have and appraisal on knees.
Uh huh.
Craig you want to comment on that.
Sure.
Two of the units two of the six units were very older where older models and the units it really had no.
We could not see that there were there was any value left and those Ed so.
So we took those as a write down.
There were another two debt when we did install them.
And.
And we essentially included those in the D install aspects of our agreement with Elekta. So those two are gone there are a couple more that are we have not worked out the arrangement exactly yet.
And so we're.
Those two were still.
Up for grabs I would say that from a financial standpoint.
So does that mean, they may ask Craig may I interrupt and ask does that mean, they're gonna be scrap for parts or are there, but what what does that mean and.
A lot of equipment and my days, and it's and I'm trying to nail down and what you know what happens to those assets afterwards and I do appreciate you being.
You guys have given a lot of information and in the past 10 years ago and the stack we've never gotten this information so I applaud you for having this conversation because and the passage.
And give it for supposedly competitive reasons and so this is.
And I appreciate it and I just wanted to think and want to understand my investment.
And you know what happened to that and that book value is it and and you're explaining it very and a very detailed matters and I just go into that last amount of detail, where where are these assets located or the scrap and what are you going to put and given to a broker to try to sell.
Tell them and are you now and Oh, a market that you know that.
We'll take those and you know them.
And our low cost basis, and try to try to use and with patients.
And as Ray mentioned these are very they're very expensive to relocate.
We haven't decided how we will dispose of these <unk>.
Last two and.
And so but those.
Those are still undecided and so that I can't give you any specificity as to how those will end up but from an accounting standpoint, we think they were impaired and we did take the write down on those and what I'll say.
So ed physically when okay.
A couple of these situations when the equipment is physically the installed.
It's giving back to the vendor.
And as a reduction we try to mitigate our cost to remove the equipment.
By that concept of providing the physical equipment back.
Okay that makes sense that makes sense because they are the best the best source of you know people might there might be some value and the spare parts and there might be some.
And so.
Something that something of value that us as an operator.
And there is never going to be able and take advantage of so that's and that's why I was asking and do they go to a broker and they go to the equipment, you know manufacturer or you know or someone who for released and so some of that so that's clear and night.
And if theres no market for it then there's no market and the expensive relocation. That's that's a big that's a big issue that really wasn't that clear is that that and relocation expenses and millions of dollars. It probably is and it's better to have.
Is it better than that and focused on that and focused on the new equipment.
Yes.
That was a good question Ed.
Thanks for asking.
So there's so there there's no need for an appraisal and since you believe the evaluation is there or just some some possible reduction and the <unk>.
And our future purchase of of of equipment or services from the vendor.
Or reduced cost of day install equivalents.
Okay. Okay.
Okay Fair enough yeah exactly okay. So you don't you don't put in we don't accrue a closure and post closure.
Amount over the life span of these this equipment.
That correct.
I don't think we anticipate.
And all.
Uh huh.
Having that equipment come out you know over and over the initial 10 year period.
One of the situations at.
Expired was a customer of ours since 1999.
So.
Typically we don't need to because of those long term relationships that we built.
Okay, and I'm, just suggesting that if youre doing it from there is a 10 year contract and there's a potential for half a million dollar you know scrapping a relocation that we might want to.
You know put small accruals and place.
Over time, because you do have this it's a real cost that can be accounted for India.
Industries that had been and we have and.
Closure and post closure costs that we accrued for.
Mhm and just for this but that's a different industry, but in general.
The equip there's equipment fixed plant and property, we could always do that and that's that's and installation for taxes, because it's a real cost that can be accounted for and then it will it will it will take out of earnings but it will.
It will result in EBITDA and that's of course was non taxable because you have a tax write offs on that and closure and post closure costs. So I could talk to you about that privately but just generally I don't have any other questions, but I do appreciate your time and and what you guys are trying to do as a team here in terms of controlling costs and.
And trying and get a new chapter and the company.
I appreciate it.
Mhm.
Thank you Ed.
Again and you do have a question. Please press Star then one.
And again that is star then one to ask a question.
Okay.
Yeah.
Having no further questions that concludes our question and answer session I would now like to turn the conference back over to race to current react for any closing remarks.
Thanks for joining us today.
We're very excited about the future for a M S.
Please contact us directly if you have any further questions before the first quarter conference call in mid May.
Stay safe and have a great day.
Stay tuned and.
And goodbye.
What kind of growth is now conclude and thank you for attending today's presentation. You may now disconnect.