Executive Summary / Key Takeaways

• American Shared Hospital Services (AMS) is undergoing a significant strategic transition, shifting its focus from primarily leasing medical equipment for cancer treatment to owning and operating direct patient service centers.
• This pivot is driving substantial revenue growth in the Direct Patient Services segment, evidenced by a 224% year-over-year increase in Q1 2025 revenue for this segment, largely due to the Rhode Island acquisition and the new Puebla, Mexico facility.
• While the transition and integration efforts have impacted short-term profitability and gross margins, management anticipates volume recovery and operational efficiencies to contribute to a stronger performance in the latter half of 2025.
• Key growth catalysts include the full integration and ramp-up of the three Rhode Island centers, the new facilities in Puebla and Guadalajara, Mexico, and significant future opportunities presented by Certificate of Need (CON) approvals for a fourth radiation therapy center and the first proton beam therapy center in Rhode Island.
• Investors should monitor the successful execution of integration plans, the ramp-up of new centers, and the company's ability to secure financing for future capital commitments, while acknowledging the inherent volatility of a growth-stage company in transition.

A Legacy Evolves: AMS's Strategic Shift in Cancer Care

Founded in 1980, American Shared Hospital Services has a long history rooted in providing access to advanced radiation therapy technologies through a leasing model. For decades, AMS primarily partnered with hospitals and healthcare systems, offering Gamma Knife and, more recently, Proton Beam Radiation Therapy (PBRT) systems under fee-per-use or revenue-sharing contracts. This model allowed healthcare providers to offer cutting-edge treatments without the significant upfront capital investment.

However, the landscape of cancer care is evolving, and AMS is strategically pivoting to meet these changes. The company is actively transitioning towards a more "patient-centric service model," emphasizing the ownership and operation of direct patient service centers. This shift aims to provide AMS with greater control over operations, patient flow, and revenue capture, moving beyond the constraints and volume fluctuations inherent in third-party leasing arrangements.

This strategic evolution is the central narrative for AMS today. It's a story of leveraging established expertise in radiation therapy to build a new, more integrated business model, expanding both geographically and operationally.

Technology and Competitive Positioning: A Niche Approach

AMS operates in a specialized segment of the medical device and healthcare services industry, focusing on advanced radiation therapy and radiosurgery. Its core technologies include the Leksell Gamma Knife (for stereotactic radiosurgery), Linear Accelerators (LINACs) for conventional and advanced radiation therapy techniques (like VMAT, IGRT, IMRT), and Proton Beam Radiation Therapy (PBRT).

The Gamma Knife, manufactured by Elekta AB (EKTAY), is considered a gold standard for non-invasive brain radiosurgery. AMS's historical model involved leasing these systems, often including support services. While specific quantifiable performance metrics comparing AMS's leased systems directly to competitors' systems are not detailed, AMS's differentiation in the leasing segment historically came from its financing model and turn-key support, potentially offering a lower operational cost barrier for hospitals compared to outright purchase or traditional financing from manufacturers like Elekta or Accuray (ARAY) (CyberKnife). However, larger competitors like Elekta and Accuray possess significantly greater scale, R&D budgets, and broader product portfolios, potentially offering systems with faster treatment times or more integrated software solutions.

In the newer Direct Patient Services segment, AMS directly utilizes these technologies in its own facilities. The acquisition of the Rhode Island centers brought LINAC technology into AMS's direct operational control in the US. The new Puebla, Mexico facility features an Elekta Versa HD LINAC, described as offering "the most advanced radiation therapy treatment capabilities available in our catchment area." The planned Rhode Island PBRT center is a significant technological leap, aiming to be the "first" in the state and the "only system New York City and Boston," representing a substantial competitive moat due to the high cost, complexity, and regulatory hurdles associated with PBRT centers.

Competitively, AMS occupies a niche. In the leasing market, it competes with manufacturers like Elekta and Accuray, differentiating through its service and financing model. In the direct patient services market, it competes with other cancer treatment centers, including those operated by large hospital systems and national chains. AMS's competitive advantages in this segment stem from strategic partnerships (like the equity ownership by Care New England and Prospect CharterCARE in the RI centers, and the staffing agreement with Brown University Health System in RI) and securing CONs for strategically located and technologically advanced facilities (like the RI PBRT center). While larger players like Siemens Healthineers (SMMNY) (Varian) and IBA (IBAB.BR) have broader market reach and deeper pockets, AMS is carving out a position through targeted acquisitions, international expansion in underserved markets (Peru, Ecuador, Mexico), and securing unique opportunities like the RI PBRT project.

Financial Performance Reflecting Transition and Growth

The strategic pivot is clearly visible in AMS's recent financial results. For the three months ended March 31, 2025, total revenue increased 17% year-over-year to $6.11 million, up from $5.22 million in Q1 2024. This growth was entirely driven by the Direct Patient Services segment, which saw revenue surge 224% to $3.12 million (from $963,000 in Q1 2024). This dramatic increase is primarily attributable to the inclusion of results from the Rhode Island centers, acquired in May 2024, and the new Puebla, Mexico facility, which began treating patients in July 2024. Radiation therapy revenues from these combined new facilities totaled $2.37 million in Q1 2025.

Conversely, the traditional Leasing segment experienced a revenue decrease of 29.6%, falling to $2.99 million in Q1 2025 from $4.25 million in the prior-year period. This decline was attributed to lower Gamma Knife volumes (down 24% to 208 procedures) due to the expiration of two customer contracts in late 2024/early 2025 and downtime for an equipment upgrade, as well as lower PBRT volumes (fractions down 35% to 831) due to normal cyclical fluctuations.

The shift in revenue mix towards the Direct Patient Services segment, which typically carries a lower gross margin percentage than the leasing business, impacted overall profitability metrics. Gross margin decreased to $942,000 in Q1 2025 from $2.14 million in Q1 2024. Total costs of revenue increased significantly by $2.10 million to $5.17 million, driven by operating costs at the newly acquired and opened facilities. Depreciation and amortization also rose to $1.45 million from $1.30 million, reflecting investments in upgraded equipment and the acquired assets. Selling and administrative expenses saw a slight decrease to $1.81 million, benefiting from lower legal costs related to prior-year business development activities, partially offset by increased staffing. Interest expense increased to $433,000 due to higher borrowings.

These factors resulted in an operating loss of $1.30 million in Q1 2025, compared to an operating loss of $85,000 in Q1 2024. The net loss attributable to AMS was $625,000, or $0.10 per diluted share, a significant decrease from net income of $119,000, or $0.02 per diluted share, in the prior-year quarter. Adjusted EBITDA also declined to $949,000 from $1.75 million.

Looking at the full year 2024, total revenue increased 32.9% to $28.34 million, primarily driven by the 253% growth in the Direct Patient Services segment ($12.6 million vs. $3.4 million in 2023). The company reported net income attributable to AMS of $2.2 million, or $0.33 per diluted share, in FY 2024, a substantial increase from $610,000, or $0.10 per diluted share, in FY 2023. This increase was significantly boosted by a bargain purchase gain of $3.79 million (net of deferred taxes) recognized from the Rhode Island acquisition, which was acquired from a company in bankruptcy proceedings. Adjusted EBITDA for FY 2024 increased 8.5% to $8.9 million.

Liquidity and Capital Allocation for Growth

AMS maintains a solid balance sheet to support its strategic expansion. As of March 31, 2025, the company had cash, cash equivalents, and restricted cash totaling $11.49 million, up slightly from $11.28 million at December 31, 2024. This increase was supported by $2.50 million in net cash provided by operating activities and $2.00 million in net advances on its $7.0 million revolving line of credit, partially offset by $4.01 million in payments for property and equipment purchases.

The company's primary liquidity needs are centered around funding capital expenditures for new projects and supporting working capital requirements, particularly in the higher-cost Direct Patient Services segment. Scheduled debt obligations amount to approximately $4.49 million over the next 12 months. As of March 31, 2025, long-term debt stood at $19.93 million. AMS was in compliance with its debt covenants, having secured waivers for certain DFC loan covenants through December 31, 2025.

AMS has significant commitments for future capital expenditures, totaling $9.62 million as of March 31, 2025, for the purchase and installation of three Gamma Knife Esprit systems and two LINAC systems. The company intends to finance substantially all of these commitments and is actively seeking financing resources, although the availability of financing on acceptable terms is not guaranteed. Management believes its current cash position, expected cash flow from operations, and available credit are sufficient to meet scheduled debt obligations and working capital needs over the next 12 months.

The Rhode Island acquisition serves as a notable example of capital allocation, where AMS deployed approximately $2.85 million to acquire assets with a fair market value significantly in excess of the purchase price, resulting in a substantial bargain purchase gain. This highlights the company's ability to identify and execute potentially value-accretive transactions, particularly in opportunistic situations.

Outlook and Growth Catalysts

Management expresses confidence in the company's long-term trajectory, driven by the strategic shift and ongoing growth initiatives. While Q1 2025 saw a dip in treatment volumes, management noted a pickup in April 2025 and anticipates a "stronger back half of 2025" as volumes recover and new operations ramp up.

Key growth catalysts include:

• Rhode Island Integration and Ramp-up: Optimizing operations at the three acquired centers, including fully staffing positions and increasing physician engagement, is expected to drive "steady growth in treatment volumes." Investments in equipment upgrades (CT simulators) and software are aimed at improving efficiency and patient care, supporting this growth.
• International Expansion: Continued momentum is expected from the upgraded Gamma Knife center in Peru (following a new social security contract), the center in Ecuador, and the new facilities in Mexico. The Puebla facility, which began treating patients in July 2024, is expected to see increasing revenue. The Guadalajara Gamma Knife center joint venture is anticipated to begin treating patients and generating revenue towards the end of 2025, leveraging its position as a unique Esprit system in Mexico.
• Rhode Island CON Projects: The granted CON for a fourth radiation therapy center in Bristol, RI, and the obtained CON for the state's first PBRT center represent significant long-term growth opportunities. The PBRT project, in particular, is viewed as a major undertaking where AMS expects to be the 100% owner/operator, potentially establishing a unique regional asset.
• Tuck-in Acquisitions: Management is actively working on additional "tuck-in acquisitions" and anticipates closing one by the end of 2025, further bolstering the direct patient services footprint.

The company's "backlog" of opportunities, including potential new projects and lease extensions in the leasing segment, provides management with "strong confidence in the overall business for our long-term future."

Risks and Challenges

Despite the optimistic outlook, AMS faces several risks and challenges inherent in its business and strategic transition:

• Volume Fluctuations: As demonstrated in Q1 2025, treatment volumes can be subject to cyclical changes, diagnosis mix, patient staging, referring physician consults, staffing availability, and equipment downtime for maintenance or upgrades. Contract expirations in the leasing segment can also lead to volume loss.
• Integration Risk: Successfully integrating acquired operations, particularly those from distressed sellers like GenesisCare, involves challenges such as optimizing staffing, upgrading outdated equipment, and streamlining processes (like billing). Failure to execute integration effectively could hinder expected volume growth and profitability improvements.
• Material Weakness in Internal Controls: The identified material weakness related to insufficient personnel and resources in accounting and financial reporting poses a risk to the timeliness and effectiveness of financial reporting. While remediation efforts are underway, including hiring staff and improving processes, this is a multi-year process that could impact financial reporting reliability in the short term.
• Financing Risk: The company has significant capital commitments for future equipment purchases and relies on external financing. There is no absolute assurance that financing will be available on acceptable terms, which could constrain future growth initiatives.
• Reimbursement Risk: Changes in government or private payor reimbursement rates, particularly for advanced therapies, could negatively impact revenue and profitability. While management believes its exposure to Medicaid risk is limited, changes in Medicare or private insurance rates remain a potential headwind.
• Competition: AMS operates in a competitive market against larger, well-funded players. Its ability to secure new contracts and maintain volumes depends on its competitive positioning, technological offerings, and service quality.

Conclusion

American Shared Hospital Services is at a pivotal juncture, actively executing a strategic pivot that promises to reshape its business model and growth trajectory. The transition towards a direct patient services model, spearheaded by the Rhode Island acquisition and international expansion, is already driving significant top-line growth, albeit with short-term impacts on profitability and margins as integration costs are absorbed and new centers ramp up.

The investment thesis hinges on AMS's ability to successfully integrate its new assets, optimize operations for improved efficiency, and capitalize on unique growth opportunities like the planned Rhode Island PBRT center. While challenges such as volume volatility, integration complexities, and financing risks persist, management's focus on expanding the direct patient footprint, leveraging strategic partnerships, and securing key regulatory approvals provides a clear path for potential long-term value creation. Investors should look beyond quarterly fluctuations and focus on the company's progress in executing its strategic plan and realizing the full potential of its expanded operational base and technological capabilities in the evolving cancer care market.