American Shared Hospital Services (NYSE:AMS) Q1 2021 Earnings Conference Call May 13, 2021 1:00 PM ET
Stephanie Prince – Investor Relations-PCG Advisory
Ray Stachowiak – Chief Executive Officer
Craig Tagawa – President, Chief Operating Officer and Chief Financial Officer
Alexis Wallace – Chief Accounting Officer
Conference Call Participants
Lenny Dunn – Mutual Trust Company
Good day, and welcome to the American Shared Hospital Services First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to Stephanie Prince of PCG Advisory. Please go ahead.
Thank you, Andrew 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. This includes the company's annual report on Form 10-K for the year ended December 31, 2020 and the definitive proxy statement for the annual meeting of shareholders to be held on June 25, 2021. The company assumes no obligation to update the information contained in this conference call.
I would now like to turn the call over to Ray Stachowiak, CEO of AMS. Ray?
Thank you, Stephanie, and good afternoon, everyone. Thanks for joining us today for our first quarter 2021 earnings conference call. I'll begin with some opening remarks, and then Craig Tagawa, our President, COO and CFO will go through the business and operational results. Alexis Wallace, our Chief Accounting Officer, will then provide a financial review. Following that, myself, Craig, Alexis and Ernie Bates, our Senior VP, Sales and Business Development and International Operations, we'll open the call for your questions.
Since our year-end conference call just five weeks ago, we announced an important action that's resulted in a stronger balance sheet and is expected to enhance long-term shareholder value. That action that we announced on April 13 was this establishment of a banking relationship with Fifth Third Bank, N.A., the principal subsidiary of Fifth Third Bancorp, a diversified bank holding company headquartered in Cincinnati, Ohio, with over $200 billion in assets.
The $22 million credit agreement that we signed with Fifth Third is a milestone in our company's history. It consists of three facilities. A term loan of $9.5 million that refinanced $6.8 million of domestic Gamma Knife debt and additional $1.6 million was used for two Gamma Knife reloads with two customers that had recently extended their agreements. The remaining $1.1 million is available for future projects.
The second facility is a $5.5 million term loan that refinance the company’s PBRT equipment debt and also provide additional working capital. This debt was due to mature in the fourth quarter of 2021. The third facility in the credit agreement is a $7 million revolving line of credit, which will be used to increase our flexibility in negotiating future projects and for general corporate purposes. The term loans will deliver significant principal payment reductions, which we estimate at $5.9 million over the next 12 months.
Savings on our interest expense will be over $350,000 over the same period and will also free up $300,000 in cash that had been previously restricted. Overall, the transaction immediately lowers our cost of capital and resulted in a swing to a positive working capital position of $4.2 million at the end of the first quarter, compared to a negative $1.5 million at December 31, 2020.
Our new relationship with Fifth Third is a key part of our strategy to increase growth, perhaps most importantly, with the $5 million in cash in our balance sheet at March 31, 2021, the positive cash flow that we expect for the balance of the year and now supplemented by the $7 million line of credit. We have greater resources and are in a much firmer position to negotiate with potential customers on new projects. Combined with our expanded product and financial offerings and the recent asset write-downs, I believe that these decisive actions put us on the right path to reach our goal of increased growth and sustained profitability.
Already in the first quarter, without the benefit of the full impact of these actions, we reported breakeven results on muted volumes. Assuming that the pandemic continues to recede, we expect patient volumes to normalize.
I'll now turn the call over to Craig for the first quarter operational review. Craig?
Thank you, Ray, and good afternoon, everyone. In the first quarter, we reported breakeven results on total revenue of approximately $4.4 million, a 4.5% decline compared to first quarter revenue last year, which was the only mostly non-pandemic impacted quarter of the 2020 year. First quarter Gamma Knife revenue rebounded from the pandemic lows and was even with a strong quarter last year.
Our Gamma Knife Centers in Peru and Ecuador both contributed a strong first quarter. However, COVID-19 is having a lingering impact on PBRT volumes, and combined with planned maintenance, fractions were down again in the first quarter. First quarter revenue for the company's proton therapy system installed at Orlando Health decreased 8.7%, when compared with the first quarter of 2020, period-over-period higher average reimbursement per fraction helped to partially offset the lower number of fractions. Gamma Knife revenue of $2.9 million was even with the first quarter of 2020, as a decrease in volume was offset by an increase in the average reimbursement rate.
Total proton therapy fractions decreased 26.6%, primarily due to the continued impact from COVID-19, compounded by maintenance related downtime. Gamma Knife procedures decreased by 5.6% to 355 for the first quarter from 376 in the same period of last year, the decrease was primarily due to the expiration of a contract in the fourth quarter of 2020 and an additional contract in the first quarter of 2021, offset by the acquisition of GKCE in the second quarter of 2020. Gamma Knife volumes for centers in operation were even with Gamma Knife volumes for those same centers during the same period of the prior year. Gross margin for the current first quarter increased by – increased to 32.9% of revenue compared to gross margin of 30.5% of revenue for the first quarter last year.
Depreciation and amortization decreased by $449,000 or 27.3% in the current quarter. This was primarily due to the expiration of a contract in the fourth quarter of 2020, and an additional contract in the first quarter of 2021, plus the write-off of some impaired Gamma Knife equipment at year end, eliminated depreciation expense for this equipment in the current period versus last year.
Selling and administrative costs decreased 10.5% period-over-period, primarily due to lower legal and other fees. We expect additional declines in administrative expenses this year as we focus on optimizing our cost structure. Net income was $29,000 compared to a net loss for the first quarter of last year of $135,000. $164,000 positive swing was due to the decrease in depreciation expense, as well as selling and administrative costs. We continued adding to our cash balances during the first quarter and had just over $5 million at March 31.
During the first quarter of 2021, we completed two Cobalt-60 reloads. We have several other upgrades pending in our pipeline, including a Gamma Knife, Ecuador, which is scheduled for installation this fall, and which will be one of the few Gamma Knife in all of South America. We are also planning a Cobalt-60 reload in the fourth quarter based on a recently executed contract extension. Other discussions with potential clients for expanded product line, as Ray spoke about are ongoing.
With that, I'll now turn the call over to Alexis for a detailed financial discussion. Alexis?
Thank you, Craig; 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 early this morning. If you need a copy, it can be accessed on our website at ashs.com at press releases under the investors tab.
Now turning to our first quarter results. For the three months ended March 31, 2021, total revenue was $4,364,000 a decrease of 4.5% when compared with $4,568,000 reported for the first quarter of 2020. First quarter revenue for the company's proton therapy system installed at Orlando Health in Florida was $1,531,000, a decrease of 8.7% when compared with the first quarter of 2020. Total proton therapy fractions decreased 26.6% to 1,231 for the three month period ended March 31, 2021 compared to 1,676 for the same period in the prior year.
Revenue for the company's Gamma Knife operations was $2,892,000, even when compared with the first quarter of 2020. Gamma Knife procedures decreased by 5.6% to 355 for the first quarter of 2021 from 376 in the same period of the prior year. Gamma Knife volumes for centers in operation were even with Gamma Knife volumes for those same centers during the same period of the prior year. Gross margin for the first quarter of 2021 increased to $1,434,000, or 32.9% of revenue, compared to gross margin of $1,394,000, or 30.5% of revenue, for the first quarter of 2020.
Selling and administrative costs decreased to $1,084,000 for the first quarter, a 10.5% decrease compared to $1,211,000 for the first quarter of 2020. Operating income for the first quarter of 2021 was $90,000 compared to an operating loss of $99,000 in the first quarter of 2020. Net income for the first quarter of 2021 was $29,000, or $0.00 per diluted share. This compares to a net loss for the first quarter of 2020 of $135,000, or $0.02 per diluted share. Weighted average diluted common shares were $6,322,000 and $6,153,000 for the first quarter of 2021 and 2020, respectively. Adjusted EBITDA, a non-GAAP financial measure, was $1,600,000 for the first quarter of 2021, compared to $1,822,000 for the first quarter of 2020.
At March 31, 2021, cash, cash equivalents, and restricted cash were $5,013,000 compared to $4,325,000 at December 31, 2020. Shareholders' equity at March 31, 2021 was $23,844,000, or $4.11 per outstanding share. This compares to shareholders' equity at December 31, 2020 of $23,650,000, or $4.08 per outstanding share.
This concludes the formal part of our presentation. Andrew, we'd now like to turn the call back over to you for questions.
At this time, we will begin the question-and-answer session. [Operator Instructions] The first question comes from Jeffrey Cohen, a private investor. Please go ahead.
Hi, this is Jeffrey Cohen. Good morning. I was curious about your revolver and whether you've drawn down at all on it.
Jeff, thanks for your question. This is Ray Stachowiak. The answer is no, we've not drawn down on our revolver.
There is been no need too.
[Operator Instructions] The next question comes from Lenny Dunn with Mutual Trust Company. Please go ahead.
Good morning. Actually, I have two questions, because obviously growing the top line is preeminent. Other than the one Gamma Knife you discussed, are there others in the pipeline? And part of that question is, I know you wrote-off some, is there possible ability to play some of them, even though they're written-off, if the customer can arrange the right contract with you?
Lenny, hi, this is Ray. Thanks for your call and welcome back to our quarterly call. We continue to search for locations to place our Gamma Knife, whether there are used systems coming out of old accounts or new situations, new Gamma Knife. I don't have anything to announce today, and – but we continue to prospect and try to move situations along. As we've mentioned in the past, it's a very long sales cycle and these things do take time. But I probably can say that we've got more discussions going on than we have in the recent past.
I would think so with the COVID thing. And also with the proton beam, Mevion has placed some and hospitals are buying outright. But I would think that, there is still a pay for use market out there, and that it's possible to get another one or two of these done. Do you have anything in the pipeline, I'm not asking for specifics?
We continue our search to find some nice homes for proton beam therapy, primarily in the U.S.
Yes. And then the other question is on the other side of the balance sheet, you still have that expensive office rent, have you made an effort to maybe re-lease that and move to space that makes more sense?
I can assure you that, yes. We've taken a look at it and are making our best efforts to look at that opportunity. As you know, the office space market is pretty down as you know, under the present set of circumstances.
And when does your lease run to?
I can't recall. Craig, do you have thoughts on that?
I think there's another three years to go approximately.
Hopefully one of these startups wants expensive space and you can re-lease. Okay, well, that's really – my questions have been answered and I'm hoping that our next conference call we have some results, but patient guy.
[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Ray Stachowiak for any closing remarks.
Thanks for joining us today. We're very excited about the future for American Shared. Please feel free to contact us directly if you have any questions, before our next second quarter conference call in mid-August. We all hope that you stay safe and have a great day. Goodbye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.