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 on an ambitious growth trajectory, leveraging strategic acquisitions and geographic expansion to drive revenue diversification and enhance its market position.
American Shared Hospital Services was founded in California and has been publicly traded on the NYSE American exchange since the early 1990s. The company operates through two main business segments: the leasing segment, which provides equipment to customers on a fee-per-use or revenue sharing basis, and the retail segment, where AMS owns and operates its own Gamma Knife and radiation therapy facilities.
In 2020, AMS expanded its international presence by acquiring Gamma Knife facilities in Peru and Ecuador through its GKF subsidiary. This marked an important milestone as the company sought to diversify its revenue streams beyond the U.S. market. A key challenge the company faced in recent years was the impact of the COVID-19 pandemic, which led to lower procedure volumes at some of its leasing sites as healthcare systems faced disruptions. However, AMS was able to navigate this period by working closely with its clients and maintaining its strong balance sheet.
In 2023, AMS made a strategic move to acquire a 60% stake in three radiation therapy cancer centers in Rhode Island, marking the company's first foray into directly owning and operating (O&O) such facilities in the U.S. This acquisition, along with the opening of a new radiation therapy center in Puebla, Mexico, represented an important diversification of AMS's business model beyond just equipment leasing.
In May 2024, AMS made a transformative move by acquiring a 60% interest in three radiation therapy cancer centers in Rhode Island. This acquisition significantly expanded the company's retail segment, which now accounts for a substantial portion of its revenue. Furthermore, in July 2024, AMS announced the signing of a joint venture agreement to establish a Gamma Knife facility in Guadalajara, Mexico, its fourth international center.
Financials
AMS's financial performance has been impressive, with consistent revenue growth and improving profitability. For the nine months ended September 30, 2024, the company reported revenue of $19.27 million, a 23.3% increase from the same period in the prior year. This growth was driven by the consolidation of the Rhode Island facilities and the contribution from the new Puebla, Mexico center.
The company's retail segment, which includes the Rhode Island centers and its international Gamma Knife facilities, saw revenue surge 220% to $7.81 million for the first nine months of 2024, compared to $2.44 million in the same period of 2023. This segment's strong performance offset a 14.6% decline in Gamma Knife revenue from the leasing segment, which was impacted by the expiration of a customer contract and equipment downtime.
AMS's net income for the first nine months of 2024 was $3.51 million, or $0.54 per diluted share, compared to $195,000, or $0.03 per diluted share, in the same period of the prior year. This significant improvement was primarily due to a $3.94 million bargain purchase gain recognized in the second quarter related to the Rhode Island acquisition.
For the third quarter of 2024, AMS reported revenue of $6,999,000, a 36.3% increase year-over-year. This growth was primarily driven by the completion of the Rhode Island acquisition in May 2024 and the start of operations at the new facility in Puebla, Mexico. The retail segment's revenue increased nearly four-fold to $3,690,000, while the leasing segment's revenue decreased 16.1% to $3,310,000 due to lower Gamma Knife procedure volumes.
However, the company reported a net loss of $207,000 or $0.03 per diluted share in Q3 2024, compared to net income of $118,000 or $0.02 per diluted share in the prior year quarter. The decrease was primarily due to losses in the leasing segment from lower Gamma Knife volumes, as well as increased depreciation from equipment upgrades.
In the leasing segment, for the three and nine-month periods ended September 30, 2024, revenue was $3.31 million and $11.46 million, respectively, compared to $3.95 million and $12.99 million in the same periods of the prior year. Of this, approximately $2.32 million and $7.39 million for the three and nine-month periods were attributable to the PBRT services, compared to $2.22 million and $7.08 million in the prior year periods.
The retail segment saw significant growth, with revenue increasing to $3.69 million and $7.81 million for the three and nine-month periods ended September 30, 2024, compared to $988,000 and $2.44 million in the same periods of the prior year. The three Rhode Island facilities contributed $2.86 million and $4.75 million in revenue for the respective periods.
Liquidity
AMS maintains a strong balance sheet, with $13.83 million in cash and cash equivalents as of September 30, 2024. This robust liquidity provides the company with the financial flexibility to pursue strategic growth initiatives, such as the Rhode Island acquisition and the planned PBRT center in Rhode Island.
The company's debt profile is manageable, with a debt-to-equity ratio of 0.91. AMS has a $7,000,000 revolving line of credit, of which $4,500,000 was outstanding as of September 30, 2024. The company's current ratio and quick ratio both stand at 1.46, indicating a healthy short-term liquidity position.
For the most recent quarter, AMS reported operating cash flow of $472,000 and free cash flow of -$407,000. The company remains in compliance with the financial covenants of its Credit Agreement, which includes a minimum fixed charge coverage ratio and a maximum funded debt to EBITDA ratio.
Geographic and Product Diversification
AMS has been actively diversifying its geographic footprint and product offerings to reduce concentration risks and capitalize on emerging opportunities. In addition to its domestic Gamma Knife and PBRT operations, the company now has a growing international presence, with Gamma Knife facilities in Peru, Ecuador, and Mexico, as well as the recently announced joint venture in Guadalajara.
Furthermore, the acquisition of the Rhode Island radiation therapy centers has expanded AMS's service offerings beyond Gamma Knife and PBRT, adding linear accelerator-based radiation therapy to its portfolio. The company's planned PBRT center in Rhode Island will further diversify its technology capabilities and patient base.
Challenges and Risks
While AMS has demonstrated strong growth and financial performance, the company is not without its challenges. The integration of the Rhode Island facilities has resulted in non-recurring costs, as the company has had to upgrade equipment and transition to a more efficient operating model. Additionally, the company has faced some headwinds in its Gamma Knife leasing segment, with lower procedure volumes due to equipment downtime and staffing shortages at certain customer sites.
The company's ambitious growth strategy also carries inherent risks, as it navigates new geographic markets and expands its service offerings. Successful integration of acquisitions, effective execution of international joint ventures, and maintaining high utilization rates at its facilities will be critical to AMS's continued success.
Outlook and Conclusion
American Shared Hospital Services has positioned itself as a dynamic and innovative provider of advanced radiation therapy solutions. The company's strategic acquisitions, geographic expansion, and product diversification have positioned it for sustained growth in the years ahead.
Looking forward, AMS expects stronger international growth from additional treatment capabilities in Ecuador, strong volumes from their center in Peru, and the new centers in Guadalajara and Puebla, Mexico. The recent closing of the Rhode Island acquisition adds three new revenue streams to AMS's business, in addition to other exciting new business opportunities.
While the company did not provide specific financial guidance for the upcoming quarter or full year, management expressed confidence in the overall business for their long-term future, citing a strong backlog of projected revenue. The company's focus on geographic expansion and diversification of services is expected to drive future growth, despite the challenges faced in the Gamma Knife leasing segment.
With a strong balance sheet, a diversified revenue stream, and a robust backlog of projected revenue, AMS is well-equipped to capitalize on the growing demand for comprehensive cancer treatment solutions. As the company continues to execute on its strategic initiatives, investors will eagerly await the next chapter in AMS's transformation and growth story.