American Shared Hospital Services (AMS) Earnings Call Transcript

Good afternoon and welcome to the American Shared Hospital Services Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kirin Smith, Investor Relations. Please go ahead.

Thank you, Gary, and thank you everyone for joining us today. AMS's third quarter of 2026 earnings press release was issued earlier today. If you need a copy, it can be accessed on the company's website at www.ashs.com under the Investors section. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. I would like to 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, including the company's annual report on Form 10-K for the year ended December 31, 2025, and Form 10-Qs for the quarters ended June 30, 2026, and March 31, 2026. The company assumes no obligation to update the information contained in this conference call. Before I turn the call over to management, I'd like to remind everyone about our Q&A policy where we provide each participant the time to ask one question and one follow-up. As always, we'll be happy to take additional questions offline. With that, I'd now like to turn the call over to Raymond Stachowiak, Executive Chairman. Ray, please go ahead.

Thank you, Kirin, and thank you all for joining us today. I'll begin with an update on our strategic priorities and then provide some perspective on the company's operating performance, growth opportunities, and financial position. During the first nine months of fiscal 2026, we continued to make progress in expanding our direct patient services business while maintaining our established medical equipment leasing operations. Total revenue increased approximately 14% year-over-year, with direct patient services revenue increasing approximately 27%. This growth reflects the continued contribution of our Rhode Island operations and our international facilities. Our strategy remains focused on building a stronger, more diversified business with a greater emphasis on direct patient services. We believe this approach provides opportunities to participate more directly in the delivery of specialized radiation therapy services while leveraging our experience and long-standing relationships in the medical technology industry. We continue to see opportunities across our existing operations. Our gamma knife facilities in Peru and Ecuador have contributed to growth in patient procedures while our Rhode Island operations remain an important part of our direct patient services platform. We are also continuing to advance our international development initiatives. One important opportunity is our joint venture with Hospital San Javier in Guadalajara, Mexico. We currently expect the facility to begin treating patients in mid-2027. We believe this project represents an opportunity to expand our presence in an important market and build on our experience operating specialized radiation therapy facilities. At the same time, we continue to focus on our capital structure and evaluate alternatives. We've been working with our lenders and other stakeholders to address these matters. Our current financing arrangements require continued attention and execution against specified milestones, and we are focused on navigating through these while enhancing the value of our operating businesses and pursuing opportunities for long-term growth. As discussed on our last call, I formed a new company several months ago that purchased additional shares from a private investor. In addition, this new company also invested $2 million of subordinated financing this past quarter, which reflects my continued confidence in the overall company and provides additional financial flexibility as we move forward. Clearly, we have valuable assets, experienced personnel, and meaningful opportunities to expand our direct patient services platform. Our priority is to translate those strengths into sustainable operating performance and improved financial results. I remain excited about our future prospects and the growth opportunities, and my commitment to enhancing shareholder value remains as strong as ever. With that, I'll turn the call over to Craig Tagawa, our interim CEO, to discuss the company's operating performance and business developments in greater detail. Craig?

Thank you, Ray, and thank you, everyone, for joining us today. As Ray mentioned, we made continued progress in growing our direct patient services business during the first nine months of fiscal 2026. For the third quarter, total revenue increased 6.3% to approximately $7.6 million, compared with approximately $7.2 million in the prior year period. For the first nine months, revenue increased 13.7% to approximately $23.1 million, compared with approximately $20.4 million last year. The primary driver of this growth was our direct patient services segment. Third quarter revenue from this segment increased approximately 14% to $4.6 million, while nine-month revenue increased 27% to $13.5 million. Our direct patient services operations include our radiation therapy facilities in Rhode Island and Puebla, Mexico, as well as our gamma knife facilities in Peru and Ecuador. Our international gamma knife operations continue to perform well. Total gamma knife procedures increased approximately 11% in both the third quarter and first nine months compared with the prior year periods. In Peru, the upgrade to the Gamma Knife Esprit system has supported improved treatment efficiency, resulting in shorter treatment times. We believe this investment has strengthened the facility's ability to serve patients and support future growth. In Rhode Island, our radiation therapy operations remain an important component of the direct patient services business. Revenue from the Rhode Island and Puebla radiation therapy facilities increased in both the third quarter and nine-month periods. While procedure volumes at these facilities were somewhat lower compared with the prior year periods, revenue increased, reflecting the overall contribution of these operations to the segment. Our proton beam radiation therapy system also continues to be an important part of our business. Revenue from the PBRT system was lower in the third quarter compared with the prior year period, although revenue for the first nine months increased. Procedure volumes can fluctuate from quarter to quarter based on treatment scheduling and other factors, and we continue to focus on supporting utilization of this specialized asset. Our medical equipment leasing segment generated approximately $3 million in third quarter revenue and $9.6 million for the first nine months. While revenue was modestly lower compared with the prior year periods, the segment continues to provide an established base of recurring revenue from our equipment leasing relationships. Operationally, our priorities remain focused on improving utilization at our facilities, supporting clinical and administrative teams, strengthening referral relationships, and improving revenue cycle execution. We are also continuing to evaluate opportunities to improve operating efficiency and manage costs across the organization. We recognize that the financial performance of our direct patient services facilities can be affected by reimbursement levels, procedure volumes, staffing, maintenance costs, and local market conditions. We remain focused on managing these factors while continuing to build the platform for future growth. Looking ahead, we believe our direct patient services operations provide an important opportunity to expand our participation in specialized radiation therapy markets. We will continue to focus on operational execution, prudent investment, and improving the financial performance of our existing facilities. I'll now turn the call over to Alexis Tirrito, our Interim Chief Financial Officer and Chief Accounting Officer, to review the financial results in more detail.

Thank you, Craig, and good day, everyone. I'll start with a review of our financial results for the third quarter and first nine months of fiscal 2026, and then turn to our balance sheet and liquidity position. Total revenue for the third quarter ended September 30, 2026, was approximately $7.6 million, compared with approximately $7.2 million in the third quarter of the prior year, an increase of approximately $453,000, or 6.3%. Revenue from our direct patient services segment increased approximately $549,000, or 13.6%, to $4.6 million. This increase was primarily attributable to higher revenue from our Rhode Island radiation therapy facilities and our international gamma knife operations. Revenue from our medical equipment leasing segment was approximately $3 million compared with approximately $3.1 million in the prior year quarter. Gross profit for the quarter was approximately $1.5 million compared with approximately $1.6 million in the prior year period. Gross margin was 19.9% compared with 22.1%. Selling and administrative expenses increased to approximately $1.8 million compared with approximately $1.5 million in the prior year quarter. The increase was primarily attributable to legal, banking, and consulting expenses associated with activities related to our credit agreement and capital structure strategies. Other direct operating costs also increased, primarily reflecting the cost structure of our direct patient services operations and an increased allowance for credit losses associated with the Rhode Island facilities. Depreciation and amortization expense declined compared with the prior year period, primarily reflecting the expiration of a customer lease and the full depreciation of certain Rhode Island assets. Net loss attributable to American Shared Hospital Services for the third quarter was approximately $620,000, or $0.09 per diluted share, compared with a net loss of approximately $17,000 in the prior year quarter. EBITDA for the third quarter of 2026 was approximately $1.4 million compared with approximately $1.9 million in the prior year quarter. Now I will review the nine-month results. For the first nine months of 2026, total revenue increased approximately $2.8 million, or 13.7%, to $23.1 million, compared with $20.3 million in the prior year period. Direct patient services revenue increased approximately $2.9 million, or 27%, to $13.5 million. Medical equipment leasing revenue was approximately $9.6 million compared with $9.7 million in the prior year period. Gross profit for the first nine months was approximately $4.2 million compared with approximately $4.1 million in the prior year period. Gross margin was 18.3% compared with 20.4%. Selling and administrative expenses increased to approximately $5.8 million compared with approximately $5.1 million in the prior year period. As in the third quarter, this increase primarily reflected higher legal, banking, and consulting expenses associated with our credit agreement and related matters. Other direct operating costs increased compared with the prior year period, reflecting the operating cost structure of the direct patient services segment and the increased allowance for credit losses associated with the Rhode Island facilities. Interest expense declined to approximately $1.1 million compared with approximately $1.3 million in the prior year period, primarily reflecting a lower average outstanding principal balance. For the first nine months, the company reported a net loss attributable to American Shared Hospital Services of approximately $1.7 million, or $0.26 per diluted share, compared with a net loss of approximately $922,000, or $0.14 per diluted share, in the prior year period. EBITDA for the first nine months of fiscal 2026 was approximately $3.8 million compared with approximately $4.6 million in the prior year period. Turning to the balance sheet, cash, cash equivalents, and restricted cash increased to approximately $9.5 million as of September 30, 2026, compared with approximately $3.7 million at December 31, 2025. During the first nine months of fiscal 2026, the company generated approximately $5.8 million in cash from operating activities. We had a working capital deficit of approximately $4.6 million at September 30, 2026, compared with a deficit of approximately $5.7 million at December 31, 2025. The current portion of long-term debt net decreased to approximately $15.6 million at September 30, 2026, compared with approximately $17.3 million at December 31, 2025. As previously disclosed, this past July, the company entered into an amendment and forbearance agreement with Fifth Third Bank, under which the lender agreed to forbear from exercising certain rights and remedies through June 30, 2027. We continue to evaluate our alternatives and engage with our lenders and other stakeholders to address these matters and evaluate potential alternatives. We'll continue to provide updates as appropriate. Looking ahead, our priorities remain clear. We remain focused on driving continued revenue growth and increasing utilization across our existing network while expanding our installed base of advanced radiation therapy technologies. Importantly, we are laser-focused on converting that revenue growth into improved profitability and operating cash flow. And equally as critical, we have strategies in place to further enhance our balance sheet and capital structure while maintaining the flexibility necessary to support future growth opportunities and create long-term shareholder value. Overall, we are pleased with our continued progress this year. The fundamentals of our business continue to improve, our operating cash flow remains strong, and activity across our treatment platform is healthy, and we believe the company is well-positioned to build on this momentum during the remainder of the year. That concludes my review of the financial results. I'll now turn the call back to Craig to begin the question... Excuse me. I'll turn the call back to Gary, the operator, to begin the question and answer session.

[Operator Instructions] Our first question today is from Marla Marin with Zacks. Please go ahead.

So, as you work to optimize the capital structure and maintain your growth initiatives, I think in the past you've talked about taking the approach of an asset-light model to some of your growth projects, and I think you have two projects in development in Rhode Island. Is it too early to expect that you haven't entered into any kind of discussions with prospective investment partners for either of those or in fact for any of the other projects that are in your pipeline?

Thank you, Marla. This is Ray Stachowiak, Executive Chairman. Thanks for your question, Marla. We continue to make progress in our Rhode Island opportunities. We have a CON for both a linear accelerator in Bristol, Rhode Island, and for the provision of a proton beam system in Johnston, Rhode Island. Those projects are making progress. We're involved in the design phase of those projects. There's not much, I'll say, CapEx that's been incurred quite yet, but a lot of work is being done. We actually have a project in our backlog, not our pipeline, with Hospital San Javier in Guadalajara, Mexico, to provide a gamma knife, an upgraded gamma knife at their facility, and it'll be one of only three gamma knives in the country of Mexico. So that project is proceeding, and we expect to be operational in mid-2027. On our proton beam system project, that's where the asset-light philosophy is being pursued.

Got it. Thank you. Okay. And my follow-up: I mean, I think you had telegraphed that it was to be expected that as the product mix shifts more and more to the direct patient revenue line, there would be some erosion of gross margins, which makes sense, I think. So as you talk about looking to boost operating profitability and optimize your operations, to what extent do you think it is in the company's control to try to expand margins at the gross margin level? And then obviously, certainly more control, I would think, at the operating margin level. Thank you.

We continue to pursue operating efficiencies at the gross margin level, and we feel there's still opportunity to improve those margins. On the operating level, we are incurring an inordinate amount of costs, particularly in our banking relationship, legal fees associated with that, consulting fees, and so forth. It's bearing down our profitability at this point in time in our evolution. So when those costs go away and we resolve our relationship with Fifth Third, we should improve our operating margin levels. Thank you.