Business Overview and History

American Shared Hospital Services (AMS) is a leading provider of turnkey technology solutions for stereotactic radiosurgery and advanced radiation therapy equipment and services. The company has been executing an ambitious growth strategy to expand its geographic reach and diversify its product offerings, positioning it for long-term success in the dynamic cancer treatment industry.

Founded in the late 1970s, AMS initially focused on leasing Gamma Knife units to hospitals in the United States. The company’s early success in this niche market laid the foundation for its future growth and diversification. As the healthcare industry evolved, AMS adapted its business model to meet changing market demands and capitalize on emerging opportunities.

In the early 2000s, AMS made a strategic decision to enter the proton beam radiation therapy (PBRT) market, becoming one of the first companies to provide this advanced cancer treatment technology. This move marked a significant milestone in the company’s history, as it leased its first PBRT system to a hospital in Florida, expanding beyond its core Gamma Knife business.

The late 2000s and early 2010s presented challenges for AMS as reimbursement rates for Gamma Knife procedures declined. In response, the company focused on renewing and extending lease agreements with its Gamma Knife customers to maintain a stable revenue stream. Simultaneously, AMS continued to invest in its PBRT business, installing additional systems at hospitals across the country to diversify its revenue sources.

The 2010s saw AMS embark on an international expansion, establishing Gamma Knife operations in Peru and Ecuador. This global growth strategy helped offset some of the domestic headwinds the company was experiencing. However, AMS faced challenges in integrating and operating these international facilities, as well as managing equipment upgrades and maintenance costs associated with its aging Gamma Knife fleet.

Throughout its history, AMS has demonstrated resilience and adaptability in the face of industry changes and market challenges. The company’s ability to diversify its product and service offerings while maintaining its core focus on providing advanced cancer treatment technologies has been instrumental in its longevity and success over the past few decades.

Financial Metrics and Ratios

AMS’s financial performance has been marked by steady growth and improving profitability. As of the most recent fiscal year (2023), the company reported annual revenue of $21.32 million and net income of $610,000, translating to a net profit margin of 2.9%. The company’s balance sheet remains healthy, with a current ratio of 1.46 and a debt-to-equity ratio of 0.47, indicating a sound financial position and ample flexibility for future investments.

For the most recent quarter (Q3 2024), AMS reported revenue of $6.99 million, representing a significant year-over-year growth of 36.3% compared to Q3 2023. However, the company recorded a net loss of $207,000 for the quarter, compared to a small gain of $118,000 in the same period last year. This decline in profitability was primarily due to lower Gamma Knife treatment volumes and a change in revenue mix with stronger growth in the Retail segment, which has lower gross margins.

For the first nine months of 2024, revenue increased by 23.3% to $19.27 million, while net income rose significantly to $3.51 million or $0.54 per diluted share, up from $195,000 or $0.03 per diluted share in the prior year period. This substantial increase in net income was largely attributable to a $3.94 million net bargain purchase gain related to the Rhode Island acquisition completed in May 2024.

Liquidity

Over the past three fiscal years, AMS has maintained a strong liquidity profile, with cash and cash equivalents averaging $11.53 million. As of September 30, 2024, the company reported cash and cash equivalents of $13.83 million. The company’s operating cash flow has been consistently positive, averaging $7.14 million per year, while free cash flow has averaged $3.91 million, providing the necessary resources to fund capital expenditures and strategic initiatives.

For the most recent quarter (Q3 2024), AMS reported operating cash flow of $472,000 and negative free cash flow of $407,000. The company has a $7 million revolving line of credit, with $4.5 million outstanding as of September 30, 2024, providing additional financial flexibility.

Diversification and Geographic Expansion

AMS’s growth strategy has centered around diversifying its product portfolio and expanding its geographic reach. The company operates in two main reportable business segments: Leasing and Retail.

The Leasing segment involves leasing medical equipment, primarily Gamma Knife and Proton Beam Radiation Therapy (PBRT) systems, to healthcare providers. As of September 30, 2024, AMS had ten domestic Gamma Knife units, two international Gamma Knife units, three domestic LINAC (linear accelerator) units, and one PBRT system in operation in the United States. Five of the ten domestic Gamma Knife customers are under fee-per-use contracts, while the other five are under revenue sharing arrangements. The PBRT system at Orlando Health is also considered a revenue share contract.

For the three and nine-month periods ended September 30, 2024, the Leasing segment generated revenue of $3.31 million and $11.46 million, respectively, compared to $3.95 million and $12.99 million for the same periods in the prior year. The decrease in Leasing revenue was driven by lower Gamma Knife procedure volumes. Of the total Leasing revenue, approximately $2.32 million and $7.39 million for the three and nine-month periods, respectively, were from the PBRT services.

The Retail segment includes the company’s stand-alone facilities that provide direct patient services. This segment has seen significant growth, particularly with the acquisition of three single-unit radiation therapy facilities in Rhode Island in May 2024. The Retail segment also includes two single-unit Gamma Knife facilities in Lima, Peru and Guayaquil, Ecuador, and one single-unit radiation therapy facility in Puebla, Mexico.

Retail segment revenue increased substantially to $3.69 million and $7.81 million for the three and nine-month periods ended September 30, 2024, respectively, compared to $988,000 and $2.44 million for the same periods in the prior year. This increase was primarily due to the addition of the Rhode Island facilities.

Geographically, AMS has established a significant international presence, with operations in Peru, Ecuador, and Mexico. The company’s recent joint venture agreement to build a Gamma Knife facility in Guadalajara, Mexico further strengthens its foothold in the Latin American market, where access to advanced cancer treatment technologies remains limited.

The acquisition of the Rhode Island radiation therapy centers has also bolstered AMS’s domestic footprint, providing the company with a direct-to-patient service model and allowing it to capture a larger share of the value chain. This strategic move is expected to drive continued revenue growth and enhance the company’s overall profitability.

Challenges and Risks

While AMS has demonstrated impressive growth and diversification, the company is not without its challenges and risks. The highly competitive nature of the radiation oncology market, with well-established players and rapidly evolving technologies, poses ongoing challenges for AMS. The company must maintain its technological edge and continue investing in R&D to stay ahead of the curve.

Additionally, the integration and optimization of the newly acquired Rhode Island centers present both opportunities and risks. The company must effectively manage the transition, streamline operations, and realize anticipated synergies to fully capitalize on this strategic acquisition. In Q3 2024, AMS incurred excess costs related to the Rhode Island acquisition, but management expects these costs to decrease by over $300,000 in Q4 2024.

Regulatory changes, reimbursement policies, and industry consolidation also represent potential headwinds that AMS must navigate. The company’s ability to anticipate and adapt to these market shifts will be crucial to its long-term success.

Outlook and Conclusion

AMS’s ambitious growth strategy, underpinned by strategic acquisitions, geographic expansion, and product diversification, positions the company for continued success in the rapidly evolving radiation oncology market. The company’s focus on technological innovation, operational efficiency, and financial discipline has laid a strong foundation for future growth.

While AMS did not provide specific forward guidance for the upcoming quarter or full year 2024, management expressed optimism about future prospects. They cited strong expected growth in their international business, continued momentum from the Rhode Island acquisition, and other new business opportunities in the pipeline, such as a potential proton beam radiation therapy center in Rhode Island.

As AMS continues to execute on its strategic initiatives, investors will closely monitor the company’s ability to integrate and optimize its recent acquisitions, expand its international footprint, and capitalize on the growing demand for advanced cancer treatment solutions. The company’s strong revenue growth in recent quarters, coupled with its diversified business model and expanding geographic presence, suggests that AMS is well-positioned to navigate the challenges and seize the opportunities in the dynamic cancer care industry.

With a strong balance sheet, a diversified revenue mix, and a proven track record of innovation, AMS appears well-equipped to build on its recent successes and drive long-term value creation for its shareholders. However, the company will need to address the recent challenges in profitability, particularly in its Gamma Knife business, and successfully integrate its new acquisitions to fully realize its growth potential in the coming years.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.