American Shared Hospital Services - Q2 2023

Transcript

Operator (participant)

Good day. Welcome to the American Shared Hospital Services second quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. 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.

Stephanie Prince (Senior Managing Director of Investor Relations & Communications)

Thank you, Allison, and thank you to everyone joining us today. AMS's second quarter 2023 earnings press release was issued this morning before the market opened. If you need a copy, it can be accessed on the company's website at ashs.com at Press Releases under the Investors tab. 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 quarterly report on Form 10-Q for the three-month period ending March 31st, 2023, the annual report on Form 10-K for the year ended December 31st, 2022, and the definitive proxy statement for the annual meeting of shareholders that was held on June 20th, 2023. 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, Executive Chairman of AMS. Ray?

Ray C. Stachowiak (Executive Chairman)

Thank you, Stephanie. Good afternoon, everyone. Thank you for joining us today for our second quarter 2023 earnings conference call. I'll begin with some opening remarks and then turn the call over to Peter Gaccione, AMS's Chief Executive Officer. Bob Hiatt, our CFO, will give a financial review of the second quarter results. Following these prepared remarks, we'll open the call for your questions. AMS had a good second quarter, with year-over-year revenue increasing by almost 11% to $5.6 million. Revenue also increased just over 13% compared to the $4.9 million in the first quarter of this year. Good cost controls drove an almost 21% increase in the gross margin to $2.5 million or 45.2% of revenue. It's the highest level we've reached since the fourth quarter of 2021.

During the quarter, our expanded sales and marketing team continued to generate and work on many new business opportunities. We invested roughly $250,000 in activities required to pursue three unique business opportunities that would expand our domestic footprint. In addition, our team is working on several other opportunities with existing customers for ongoing agreement extensions and product upgrades to newer cancer treatment technologies. This morning, we made an announcement, our third order of the year, for an extension of an upgrade to a newest free Gamma Knife with Methodist Hospital in San Antonio, Texas. As we reviewed our existing sites, we saw two that are not considering renewing their agreements. We've added to our reserves for impaired assets and anticipated removal costs of $578,000 now in the event that this occurs.

We are in discussions with both sites to seek other alternatives, but felt it was prudent to increase these reserves now. Excluding these 2 items that together totaled $828,000, net income would have swung approximately $340,000 higher to roughly $232,000 or $0.04 per share, compared to the $188,000 or $0.03 per share we reported in our first quarter. We're very excited about the installation of new equipment with expanded treatment offerings at our three international locations. At our newest cancer center joint venture in Puebla, Mexico, installation of the Digital linear accelerator with VMAT, IGRT, and radiosurgery capability, or LINAC, is in its final installation phase and will be the most advanced radiation therapy treatment system within our catchment area when completed.

We expect patient treatments to begin in November. At our center in Ecuador, installation of the upgraded Gamma Knife Icon is expected to begin in September, with patient treatments expected to restart in November 2023. In Peru, we expect to begin installation of the new Gamma Knife Esprit during Q1 2024. This will be the only Esprit Gamma Knife in the country for non-invasive radiosurgery and one of the first Esprit systems in all of South America when installation is complete. Please note that the Puebla, Mexico joint venture will be a new revenue stream when treatments start up in November. Both Ecuador and Peru will be closed to patients during their respective installation periods. When the installations are complete, our three centers will have the most advanced radiotherapy cancer treatment systems in their respective markets.

We look forward to offering expanded treatment capabilities to the many patients in those areas, and we expect increases in our international revenue. During the second quarter, we continued to generate positive cash flow despite the higher levels of investment, and again added to our cash balances, which now total $13.8 million or approximately $2.18 per share. Interest income on our growing cash balance is also helping to offset higher interest expense on our variable rate debt. Let me close my comments by saying it's an exciting time at AMS after all the repositioning that we've done over the last three years. Our activity levels have increased significantly, and we look forward to sharing our results with you in the months ahead. I'll now turn the call over to Peter.

Peter Gaccione (CEO)

Thank you, Ray, and good afternoon, everyone. We've been very active since our last call, and as we continue to invest additional resources every quarter, our sales pipeline has continued to fill with multiple opportunities. There are a few reasons for this growth, including the very experienced sales and marketing team that we've built over the past year. This group, that includes me, are very well known to many of the people that work on both sides of the customer equation in our industry, which is so very important in the cancer care space. Our larger, experienced team and their growing presence at key industry trade shows and events has also heightened awareness of our company and its services to key opinion leaders in radiation oncology and radiosurgery, and also to other key decision-makers in the cancer care arena.

Our presence will be heightened even further when our team attends ASTRO, or better known as the American Society for Radiation Oncology's annual meeting this October in San Diego, California. This is the first time that AMS will have a booth at the ASTRO Annual Meeting, the largest international trade show in radiation oncology, and we expect additional sales leads to result from our presence, as well as fruitful face-to-face meetings with many of our key OEM strategic partners who also attend ASTRO. Further, we plan to attend other key applicable annual and regional meetings in radiation oncology and radiosurgery as well. We also recently launched a new website and social media presence for GK Financing or GKF, a longtime subsidiary of AMS, where Elekta is our strategic partner. GKF is a leading global provider of Gamma Knife Radiosurgery products and services that provides creative, financial, and turnkey solutions.

GKF is the only third-party finance company partnered with a major OEM in our industry niche. This is the first time that we've heightened and highlighted GKF and its capabilities directly and specifically. We are happy to see that Gamma Knife procedures increased by over 5% from the first quarter of the year. We believe this is due in large part to our in-house customer advocate, who joined the team just a few months ago. Ranjeet has been focusing on improving Gamma Knife utilization at all of our Gamma Knife sites. Part of our customer advocate review is to always review the performance of all our Gamma Knife sites and to work with the lowest volume sites by sharing best practices and discussing how we can jointly work together to improve patient volumes.

As an example, out of the three lowest sites from the past quarter, he's increased the volume at two of them so far and extended our relationship with one of them by securing a lease agreement extension to year 2037. Also our second order of this year. This order is for an upgrade to the Elekta Gamma Knife Esprit, with a new source that is scheduled for installation in September 2023. Earlier today, we announced our third order of the year that is also with an existing customer for a new Esprit that is scheduled for installation later this year. The Esprit is Elekta's latest model with more functionality. These two will be among the first 10 Esprits in the U.S. when they're installed.

The first order that we announced a few months ago already recently completed installation and has started treating patients earlier this month. We've built good momentum in a short time, and it's still in the early days, but I'm extremely proud of what we've achieved so far and for what I believe we can accomplish going forward. I'll now turn the call over to Bob for his financial overview.

Bob Hiatt (CFO)

Thank you, Peter, good afternoon, everyone. Second quarter revenue increased 10.6% to $5.6 million, compared to $5 million in the year-ago period. Domestic revenue increased 16.2% to $4.8 million, and international revenue was $756,000, compared to $894,000 a year ago, for a decrease of 15.4%. Second quarter revenue for the proton therapy system in Florida increased 10.3% to $2.5 million, compared to $2.3 million, primarily due to higher average reimbursement period-over-period for the current quarter. Total proton therapy fractions in the second quarter were 1,370, an increase of 3.5% or 46 fractions. Total Gamma Knife revenue increased 10.9% to $3 million.

The increase in overall Gamma Knife revenue was due to an increase in average reimbursement, partially offset by a decrease in procedures. The increase in average reimbursement continues to be driven by a favorable shift in payer mix to more commercial payers. Total Gamma Knife procedures were 309 for the second quarter of 2023, compared to 335 in the second quarter a year ago, a decrease of 7.8% or 26 procedures, which is within the range of normal cyclical fluctuations. Gross margin for the second quarter of 2023 increased 20.6% to $2.5 million, or 45.2% of revenue, compared to gross margin of $2.1 million or 41.5% of revenue for the second quarter of 2022.

Selling and administrative costs increased by 73.5% to $2 million for the second quarter, compared to $1.1 million in the year ago quarter. This includes approximately $250,000 that we've invested in pursuing new business opportunities, as Ray talked about, as well as higher salaries that reflect the additions to the management and sales teams that we've made over the last year. Net interest expense was $167,000 in the 2023 period, compared to $149,000 in the comparable period of last year. The increase is due to an increase in the interest rate on the company's variable debt, offset by an increase in interest income on the company's growing cash balance. Compared to the first quarter of the year, net interest expense improved due to higher interest income.

Operating loss for the second quarter of 2023 was $325,000, compared to operating income of $793,000 in the second quarter of 2022. This is a result of higher selling and administrative expense, as well as the loss on the write down of impaired assets and removal costs of $578,000 in the current period, compared to no write downs in the prior year period. We recorded an income tax benefit of $35,000 for the second quarter, compared to income tax expense of $248,000 for the same period in the prior year. The decrease in the current period was primarily due to lower earnings, return to provision adjustments arising from foreign tax returns and permanent domestic tax differences.

Net loss attributable to American Shared Hospital Services in the second quarter of 2023 was $111,000, or $0.02 per diluted share, compared to net income of $497,000 or $0.08 per diluted share for the second quarter of 2022. As Ray said, excluding the higher new business investment costs and the increase in reserves, which together totaled $828,000, net income would have swung approximately $343,000 higher to roughly $232,000, or $0.04 per diluted share in total, compared to $497,000 or $0.08 per diluted share reported in the year ago quarter. Fully diluted weighted average common shares outstanding in both periods were roughly even at approximately 6.3 million shares.

Adjusted EBITDA, non-GAAP financial measure, was $1.9 million in the current period, compared to $2.1 million for the second quarter of 2022. At June 30th, 2023, cash, cash equivalents and restricted cash was $13.8 million, compared to $12.5 million at December 31st, 2022. Shareholders' equity, excluding non-controlling interest in subsidiaries, was $21.9 million or $3.52 per outstanding share at quarter end, compared to $21.6 million or $3.50 per outstanding share at June 30th, 2022.This concludes the formal part of our presentation. Thank you for joining us today. We look forward to updating you on our progress in the quarters ahead. Operator, we'd now like to turn the call back to you and open it up for questions.

Operator (participant)

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause for a moment to assemble our roster. Our first question today will come from Tony Kamin of Eastwood Partners. Please go ahead.

Tony Kamin (Managing Partner)

Hello. First question is, in terms of your pipeline, can you kind of give us the any color around the status for or the potential for new proton beam discussions?

Ray C. Stachowiak (Executive Chairman)

Sure, Tony. This is Ray. Thanks for your question. It's a very good question. The best way I can answer and talk about our pipeline without being too specific, and I'm hesitant to be too specific, is that our pipeline includes a little bit of everything that we've been talking about over the last year or so. What do I mean by that? We've been talking about expanding our product line away from just Gamma Knife and Mevion proton beam systems, although it still includes Mevion proton beam systems. In fact, proton beam systems from any vendor. We're vendor-agnostic. Our pipeline includes other products like linear accelerators, and we've proven that, you know, in the case of Puebla, Mexico, that's exactly what we're providing there. It also includes MR Linacs, and our pipeline includes opportunities for MR Linacs.

The other thing we've been chatting about over the last year or so is the different business models that we can offer to the marketplace. As you know, we can do a lot of creative, flexible financing arrangements with our customers. We can do a joint venture. In the case of our international operations, we can do our own centers, that we operate the equipment with our own staff, and we bill the patients direct, not through an intermediary or through a healthcare system. We've also talked about why not be able to expand our business model that we use internationally to the domestic marketplace. I can tell you that our pipeline includes even those opportunities.

Tony Kamin (Managing Partner)

Okay. In, in terms of the Esprit that you received a contract for or announced today, is there a significant price difference between the Esprit and the Perfexion?

Ray C. Stachowiak (Executive Chairman)

Well, the Perfexion is not a product that the OEM is currently offering to the marketplace. As you know, the OEMs try to lead with their latest and greatest technology, and the Esprit is their latest and greatest technology and product offering.

Tony Kamin (Managing Partner)

No, I'm just trying to understand that if this is your opportunity to put in, put in machines that, that may be able to garner a higher reimbursement because they're more expensive, or have more capabilities.

Ray C. Stachowiak (Executive Chairman)

They have more capabilities. For that question, to provide you a little bit more, color on that, Peter, you want to take that question and talk about, how the Esprit is different than the Perfexion, some of the features?

Peter Gaccione (CEO)

Sure. Sure, sure. Happy to. You know, it, it's not so much the reimbursement rates because the, the treatments are, are pretty similar, but it's the additional clinical features and benefits that the Gamma Knife Esprit has over the Gamma Knife Perfexion system. For example, the treatment times on the Gamma Knife Perfexion are, are longer for treating the patient and for planning of the patient, and the Gamma Knife Perfexion does not offer something that's known as onboard imaging and same-day imaging or frameless treatments, masks for the patient.

So what this means is in the Gamma Knife Esprit, the Gamma Knife Esprit, being the latest system, does offer these clinical features of same-day onboard imaging, mask-free treatments, faster treatment times, much faster planning times, so the throughput for the patients, the patient volumes can significantly increase. In the same 8-hour period, you can now treat a good number of patients more than you ever could with the Perfexion.

Tony Kamin (Managing Partner)

Great.

Peter Gaccione (CEO)

It's also a lot easier and gentler on the patient. You know, a lot of times, elderly patients, they can't lie still too long. With the Esprit, since the treatment time is much shorter, you're going to see more and more patients being put onto the Esprit.

Tony Kamin (Managing Partner)

Okay. internationally, you've obviously done a fair bit, moving southward into Latin America. Is the company looking internationally, other parts of the world? Are you looking at Europe, for example, or, or anywhere else in the world?

Ray C. Stachowiak (Executive Chairman)

The answer is yes. We've looked at opportunities in Europe, and we've looked at opportunities, and are looking at opportunities in Asia as well.

Tony Kamin (Managing Partner)

Great. One final sort of question, I guess, comment from me. Ray, I know, I know how long you've, you've owned shares. I actually, I think I bought my first shares in AMS in 2002, but to just check my own sense of it, I have in front of me a 20-year monthly chart of the stock. Literally since October of 2007, so close to 16 years ago, the stock has just literally sat in a very small range. I think what I have, I have a 20-year moving average that shows the average stock price over 20 years is at $2.53. We're sitting right at a 20-year place. I really do appreciate.

I really think you guys are on the right track with all the initiatives you're doing and, you know, the much more aggressive approach. I think I think the shares have made it very clear, and, and I think it should be clear for the, the board, that it, it's probably time to take a little bit more of a direct hands-on and sort of trying to control your own destiny with these shares trading at, at a discount of a 3.52 book, and have just, again, have not moved for 17 years. There's things you can do. You can do obviously, a buyback, which I think would be, you know, really helpful at companies that do buybacks.

Their shares just, just generally trade better when they're put in place, when there's such an undervaluation as here. The other things, I think, obviously, you could look at, the, the shares used to trade higher before 2007 when there was a dividend. I think either a cash dividend or a share dividend, stock dividend would be really, you know, as, as obviously, a extremely long-time shareholder and supporter, patient as can be, I think it's time now that the company become a little bit more proactive and hands-on in trying to address the chronic undervaluation of the shares.

Ray C. Stachowiak (Executive Chairman)

Yeah, Tony, that's a very good observation. Thank you for sharing it. You know, I can't speak too much about the 15, 20-year history of our stock price. I try to look at our stock price over the last few years, and. It's remained relatively in that stable range, as you mentioned. You know, I do think that the executive management team, the board of directors, you know, when I joined the company more extensively 3 years or so ago, we took a look, you know, based on my 22 years of experience as a CEO, a lot of different strategic options for the company and how we can best add value to our shareholders. Over the last 2 or 3 years, we've accumulated our cash balances after renegotiating our indebtedness.

It is still currently our thinking, although I, I remain open to thoughts and ideas, that the best use of our capital, the best return, the best way of adding shareholder value, is to invest it in the projects that are in our pipeline. I can't share a lot of the details of that pipeline. I can't share the expected returns from those investments, but at this point in time, you know, almost every quarter henceforth, we're going to be investing in radiation oncology. We're upgrading the sites. We're getting new business, installing new equipment.

I've often talked about the cash balances and the $7 million line of credit that we have, could be further leveraged to invest in $100 million worth of capital equipment. It only takes one or two proton beam deals to utilize a substantial portion of that capital. The board currently believes, the executive management team currently believes, that the best use of that capital is in the expected returns from the opportunities we have in our pipeline.

Tony Kamin (Managing Partner)

Well-

Ray C. Stachowiak (Executive Chairman)

We believe.

Tony Kamin (Managing Partner)

Sure. I mean, maybe a stock dividend program would encourage kind of new people to look at the stock and that other than some small admin cost on it, that wouldn't really take your cash.

Ray C. Stachowiak (Executive Chairman)

Mm-hmm.

Tony Kamin (Managing Partner)

You may want to look at that.

Ray C. Stachowiak (Executive Chairman)

Well, we'll, we'll take a look at it. We're open to those thoughts and ideas, okay? We always will be. Tony, your first question, I want to turn back to that question. I want to be clear in my answer. You asked about, are there proton beam opportunities in our pipeline? You know, I'm hesitant to go into a lot of detail, and I mentioned about the other products that we offer, including MR Linacs, and those are in our pipeline. I do want to confirm that proton beams are also in our pipeline, without a doubt.

Tony Kamin (Managing Partner)

Yeah, I think that would be transformational if you could get another, contract like Orlando. It just would, bring a whole new light on the undervaluation of the company. Best of luck with that, and I appreciate the questions.

Ray C. Stachowiak (Executive Chairman)

Thank you, Tony.

Operator (participant)

Our next question will come from Harry Long of Zelm Ventures. Please go ahead.

Harry Long (Managing Partner)

Hi, Ray. Hi, Peter. Hi, Bob. How are you today?

Ray C. Stachowiak (Executive Chairman)

I'm doing good, Harry. How are you doing?

Harry Long (Managing Partner)

Doing very well, thank you. I had a few questions, but what I'll do is I'll try to only ask one or two, so other people have an opportunity to get their questions in, and I'll jump back into the queue. I'll try to be super quick. I want you to yell and scream at me if I'm wrong. It looks like from your filings, that the proton beam therapy business is running at about, is that about $10 million in annual revenue, or am I off here?

Ray C. Stachowiak (Executive Chairman)

No, that's about right.

Harry Long (Managing Partner)

Okay. I haven't seen it broken out, in terms of cash flow from operations, but my estimate is that of your $7 million or $8 million in cash flow, depending upon how we're annualizing, that that might be accounting for $2.7 million- $4 million in cash flow. Am I completely off, or can we get some more granularity on the actual cash flow from operations generated there?

Ray C. Stachowiak (Executive Chairman)

Tony, I think that's a very detail-oriented question we're probably hesitant to be specific about.

Harry Long (Managing Partner)

If I estimated $2.7- $4, am I crazy?

Ray C. Stachowiak (Executive Chairman)

You're probably not crazy.

Harry Long (Managing Partner)

Okay. All right. My other question was on future contracts and how you plan to organize it. By the way, I mean this colloquially, I'm probably not saying the right accounting term, but would I be wrong to say that I'm looking at the removal costs on some of the Gamma Knife devices that creates a contingent liability for removal that could potentially be significant, as you pointed to in your filings? I don't know if it were to be contingent liability.

Ray C. Stachowiak (Executive Chairman)

Yeah, it's a, it's a potential contingent liability, I guess, but we've successfully, in the past, navigated that potential, that contingency, by doing a really good job of upgrading our client's technology in exchange for an extension of the term of the agreement or performing reloads of the Cobalt-60 source at our Gamma Knife sites that extend the agreement. You know, case in point, the announcement we made this morning about our agreement with Methodist Hospital in San Antonio, that's a relationship that's existed over 25 years, going back to 1998. We've successfully navigated that potential risk.

Harry Long (Managing Partner)

I guess my question is going forward, especially for the Gamma Knife units, or, linear accelerators, et cetera, do you all plan to incentivize the clients to potentially stay with you by having them bear the removal costs if they choose not to renew? Or in contracts, that are currently being executed or contemplated at the moment, going forward for any new units that are installed, of any of the devices, will the removal costs, if, let's say, it happens 10, 20 years in the future, be borne by the company or by the hospital system or the medical center?

Ray C. Stachowiak (Executive Chairman)

The answer is yes. That is something that we're. That is being considered and being taken under a lot of consideration.

Harry Long (Managing Partner)

By the way, I'm going to jump back into the queue so other people have a turn, but I just wanted to amplify, Tony's remarks. I think a cash dividend for the company would be spectacular. I think, if one, you know, looks at the Henry Singleton analysis of Teledyne same, looking at dividend stock buybacks, et cetera, I think the company can see that, if you're trying to compare two different returns on capital, you know, clearly the return on capital for the company repurchasing its own shares at two times cash flow approximates, 45-50%, depending upon one's estimates of maintenance CapEx.

If we look at that capital allocation versus the capital allocation of buying, let's say, a new proton beam therapy device, which potentially the return on total capital, return on assets, would be somewhere between 7% and 12.5% in a pessimistic or an optimistic scenario. It seems that the company's own shares, when they're trading at less than 2x cash flow from back out to that cash, might represent the very best capital allocation decision that the company can make. A dividend, I believe, if the company divvied out a substantial portion of its cash flow, I believe the stock could rise 400%-700%, you know, as we've discussed. I apologize, I owe you guys a white paper.

I haven't yet assessed it, but I'm going to jump back in the queue. The cash flow from operations continues to be spectacular for the company, and wanted to give you all my compliments on some great work.

Ray C. Stachowiak (Executive Chairman)

Thank you, Harry.

Operator (participant)

Again, it is star and then one to ask a question. Our next question today will come from Luis de la Rota of [Cwen]. Please go ahead.

Speaker 7

Good afternoon. I'm a party, possibly, interested in investing in your great company. I have a few questions for you. It's also revolving around the cash flow. When you're saying that there is a portion that's restricted, the cash, what portion would that be?

Ray C. Stachowiak (Executive Chairman)

Craig, I'm gonna call on you. I believe there's a small amount of our cash that is restricted.

Speaker 7

Okay.

Speaker 8

Yeah, it's, it's restricted due to our agreement with, as a part of GK Financing, I think that's about $50,000.

Ray C. Stachowiak (Executive Chairman)

Oh, yeah.

Speaker 8

Then there's a little bit in terms of our Fifth Third finance agreement.

Speaker 7

All right. Your, your variable rate of interest that you're paying is on what amount of debt?

Ray C. Stachowiak (Executive Chairman)

I'd, I'd say it's about 90% of our interest-bearing debt is at a variable rate. It's 100% of our indebtedness with Fifth Third Bank, and the remaining, that's $6, is with DFC.

Speaker 7

Right. Do you, do you have any option to, to address this, this, issue at all?

Ray C. Stachowiak (Executive Chairman)

Yeah.

Speaker 7

So-

Ray C. Stachowiak (Executive Chairman)

We've, we've talked about hedging our indebtedness, our interest rate. You know, we, we believe that the variable interest rate option was the best. I mean, in the hindsight, maybe you could question that, or, or also, I guess our executive management team is a little bit more of a risk-taker and entrepreneurial, we're willing to take that risk.

Speaker 7

The next, the next point is on the growth. Yes, I've heard the first person talking about the relatively flat performance of the stock. I, I look at from 1987 to date, and it's true that you were not there in 1987. What, what, what is the expectation of. What are you doing differently in terms of growth, or in terms of dividend? What's your general perspective? Are you expanding the expected profitability at a very fast, very fast pace, or are you expecting to reward our shareholder with dividends? Can you tell me a little bit more about your strategy?

Ray C. Stachowiak (Executive Chairman)

Our current strategy is to invest the capital that we have available to ourselves. Over the last few years, we've restructured our indebtedness. We have a true banking relationship with Fifth Third Bank that we feel very comfortable. We'll be able to grow that banking relationship. We've diversified our product line, product offerings. We were a provider of Gamma Knives, and we had one proton beam system. As I mentioned earlier, we've diversified into any and all radiation oncology equipment, linear accelerators, MR Linacs, and proton beam systems, even stronger than before. We had a very small sales and marketing effort. Our sales and marketing efforts was substantially by word of mouth, by the reputation of our founder, Ernest A. Bates, who continues to serve on our board.

You know, Peter and his team have greatly expanded that effort, and we've just, we've invested in a lot of resources in our sales and marketing team over the last 12 months. The lead time for radiation oncology equipment, the sales cycle is quite long, and even once you get a signed agreement, the installation period can be, you know, substantial as well. It's gonna take some time for these revenue streams to get started and get going for our company. Our stock should be attractive to the patient, long-term-oriented investor. Our stock, there's no doubt, our stock is undervalued. I'm gonna say I'm, I myself have been a successful investor. I can say that unequivocally, our stock is undervalued. Our approach is to let's go and demonstrate the returns we're capable of, of generating. We've not done so yet.

It's a bit unfortunate that accounting and finance information that is filed with the SEC, that's disclosed to investors, is by its nature, historical. It's too bad because we got a bright future. Every revenue stream we add is gonna help and assist our growth and our profitability moving forward. We also have diversified our business models to include our own owned and operated centers. We've done so internationally, but as I mentioned previous in this conversation, we're expanding that business model domestically. We're also looking at different geographical markets besides just the United States and somewhat in South America.

We're expanded into Mexico, and as I mentioned earlier in today's call, we're looking at opportunities not only in Europe but also in Asia. There's a lot of opportunities in our pipeline. I believe that with our third order of the year, I know that's not too many. The sales pipeline is very strong. It does take some time for a sales process to take its course.

Speaker 7

Well, thank you very much. If I, if I understand clearly, there is no, consideration for the shareholder in the meantime to invite the shareholder to participate in this growth of results by by by getting some dividends out of the stock, right? That's what you.

Ray C. Stachowiak (Executive Chairman)

I mean, as I'd like to remain open and, you know, I'm always open to ideas, thoughts, and ideas, folks.

Speaker 7

It would be very encouraging for an investor. Thank you very much.

Ray C. Stachowiak (Executive Chairman)

Okay. Thank you for your question, Louis.

Speaker 7

Thank you. Bye-bye.

Operator (participant)

Again, it is star and then one to ask a question. Our next question today is a follow-up from Harry Long of Zelma. Please go ahead.

Harry Long (Managing Partner)

Follow-ups, gentlemen. Right now, under your current agreements and perhaps, the per use, and I'm really talking about the per use agreements with medical centers and hospitals, on not, anything in South America where you might be operating it yourselves. Currently, with a hospital or a medical center, if there is, bad debt expense or a patient doesn't pay, who would bear that? Would it be you guys or the hospital?

Ray C. Stachowiak (Executive Chairman)

Under a fee, per use arrangement, the hospital would bear that cost.

Harry Long (Managing Partner)

It sounds like there's some significant potential benefits with the, with the current model, even if it hurts you a little bit on the front end in margin. On the back end, it looks like you get that cash flow if the patient is in the machine, the procedure.

Ray C. Stachowiak (Executive Chairman)

Yeah. If the patient's insurance company has problems paying for the treatment or procedure, that's a harm that's, taken on by the hospital system and not American Shared under those types of arrangements.

Harry Long (Managing Partner)

Got you. Very interesting. Then my other question was a question on process. I appreciate that the management team is open to ideas that some of the other, you know, callers have expressed and have expressed about dividends. In terms of process, would the management team be open to constituting a special committee of the board of directors to explore a potential dividend? So, in other words, in terms of concrete action, a special committee would in no way bind you to doing such a thing, but it would be a way for the board to explore that capital allocation decision. Would the company's management support the creation of such a committee?

Ray C. Stachowiak (Executive Chairman)

Harry, I think we're open to any and all thoughts and ideas, so I'd say very possible. Open to that concept.

Harry Long (Managing Partner)

More specifically, would the company's management request that the board of directors form such a committee?

Ray C. Stachowiak (Executive Chairman)

I think we'd have to study it ourselves a bit before we present it to the board. We would appreciate more information.

Harry Long (Managing Partner)

I want to link a couple of these discussions. I also, you understand, even though, you know, you and I are talking, I really am doing this for the benefit of the other listeners. One of the reasons I'd asked, and I think you see where I'm going with this, what the cash flow is from the proton beam therapy systems. I understand, you know, that you don't want to give a number on cash flow from operation, but it's almost impossible for a shareholder to understand what the real cash return on capital is from a new proton beam therapy device, without understanding the cash generation of the current system.

You know, if we agree that a new machine would cost approximately $20 million, you know, give or take, understanding what that cash flow is, even if it was as high as $4 million, as you know, you know, 4 over 20, a 20% return on total capital, if it was closer to $2 million, a 10% return on total capital, just for the listeners, as they all know, versus your own shares, which, if we agree, are trading at approximately 2 times cash flow, depending on CapEx, you know, represent a 40%-50% return on capital.

I guess if we all agree that best practices are comparing potential uses of capital and that, you know, management's highest strategic job is to basically measure and then choose the highest return on capital for the capital that the company has on the balance sheet, I just think it offers a way for shareholders to evaluate how you're making capital allocation decisions. I tell people that, you know, the devil is in the details, but so is salvation. If in future quarterly releases, we can get a bit more granular on that cash flow from operations from proton beam therapy, I think it then opens up the discussion to your wider shareholder base about the competitive return on capital, the competition between Proton Beam Therapy versus share repurchases and dividends.

I just think it's incredibly important for the company to get more granular on that, because without that, we really are not having a real discussion about competitive capital allocation decisions, if that makes any sense.

Ray C. Stachowiak (Executive Chairman)

Mm-hmm. Well, I'm open to thoughts and ideas, Harry, and I just want to reconfirm to all of our listeners that if there's any one person whose interests are aligned with our shareholders, it would be I. You know, I have a strong position ownership in the company myself, and I've structured my compensation to best be in the form of ownership of the company. My intention is to increase the shareholder value of our company in the best manner possible. I'd be remiss if I didn't say I was open to any thoughts and ideas to do so. I want to increase our shareholders value, and our stock is undervalued right now.

Harry Long (Managing Partner)

Okay. To that point, gentlemen, I, I noticed that your, you know, shareholdings were about 20% of the company and maybe a bit more now. I could be wrong. Are, are you at about 20%?

Ray C. Stachowiak (Executive Chairman)

That's about right.

Harry Long (Managing Partner)

My, my follow-up is, are there any restrictions on shareholders who are not on the management team from going up to 20, the same way you are? I could be wrong on this because it was many years ago. I might be wrong. I noticed a poison pill provision from years ago. I don't know if that had expired. What is the current situation in terms of what outside shareholders who are not the CEO or chairman or CFO could hold in terms of share ownership in the company?

Ray C. Stachowiak (Executive Chairman)

Harry, I do not know the answer to that question, nor do I believe that any of our current management team members would know the answer to that question off the top of our heads here today.

Harry Long (Managing Partner)

Well, I would request that, you know, seeing that you're at 20%, and I think, you know, you all have a reputation, a sterling reputation for wonderful ethics and fair dealing. I do hope you all support the notion that if we all do agree that we, we believe in you and potentially would all like to increase our stake in the company, especially if the team would be open to things like dividends. I do hope that given that you're at 20%, that you would not place and if there are any, that I hope that a special committee would be constituted, if any restrictions exist, that would remove any other shareholders from enjoying the same privilege of going up to 20% that you currently have.

I can understand if there's some restriction on you and everyone else, but I would hope that there's a process in place for the company and a structure in place where any shareholder could enjoy your current level of share ownership without without you triggering off a poison pill provision. I think that's just plain fairness that we could all agree to.

Ray C. Stachowiak (Executive Chairman)

Mm-hmm. That'd be a very interesting scenario to pursue, Harry.

Harry Long (Managing Partner)

Understood. Understood. Then I had another question. I mean, we all agree, I think the company's trading before capital expenditures at approximately 2 times cash flow. Do we all agree on that on the call?

Ray C. Stachowiak (Executive Chairman)

Roughly. That's probably correct.

Harry Long (Managing Partner)

Okay. so, you know, going back to compensation, when I'm looking at your filings-

Ray C. Stachowiak (Executive Chairman)

Harry, just before we move on to the next question, to clarify, the numbers that go through the top of my head is a market valuation of $16 million a year or $16 million, and EBIT of roughly $8 million a year. Two times.

Harry Long (Managing Partner)

We're 100% in agreement. I think actually, in terms of enterprise value, it would probably be a little bit less than $16 because you have net excess cash on the balance sheet. In other words, I, I 100% agree with you, and I think probably the numbers are actually a little bit better than 2 times cash flow. My question would be, do you gentlemen agree that when I'm looking at the $2.7, in terms of Some of the exercise prices are around $2.8, $2.7?

Ray C. Stachowiak (Executive Chairman)

You're breaking your connection here, Harry.

Harry Long (Managing Partner)

Oh, I apologize. I was saying, do we all agree that some of these, the shares, for management compensation are exercisable around, I think, around $2.78? Am I remembering correctly?

Ray C. Stachowiak (Executive Chairman)

Harry, that's another question I don't have the answer to on the top of my head.

Harry Long (Managing Partner)

Okay, Bob, you're the CFO. I think you have the numbers in front of you. Are we around $2.78 for the exercise of some of the shares issued under management compensation?

Bob Hiatt (CFO)

Yeah, you're certainly in a range.

Harry Long (Managing Partner)

Okay.

Bob Hiatt (CFO)

Yeah. In our two, we do reference, we do have a, a footnote to that effect.

Harry Long (Managing Partner)

Right. Right. Here, here's where I'm going with this. You know, I, I think everyone agrees you're all very reasonably compensated. I think anyone would agree that if you hit, you know, certain, you know, metrics and you're doing amazing on the cash flow, I don't think any of us would be opposed to you all receiving a higher cash compensation.

I do think that for some shareholders looking at this, shareholders who have, you know, incredible respect for what you're all accomplishing, that if we all agree that the company is trading at more or less 2 times cash flow, I think we would all agree that the tenor of the tone that it sets when management issues itself shares that could potentially be exercised at around 2 times cash flow, and what we all believe is beneath the tangible book value of the company. If you have an exercise price beneath the tangible book value of the company and at around 2 times cash flow, you guys are an incredible management team, and I think you know in your hearts that looks inappropriate to any intelligent investor who's analyzing this company.

I think it sets the wrong tone when the management is issuing itself shares that can be exercisable at around 2 times cash flow without any cash dividend to shareholders who, I think, Tony, our caller, has been there for decades, over a decade, not receiving any return, which I recognize is from past management. Nothing to do with current management. I would encourage you, gentlemen, in the same way we're talking about capital allocation decisions of share buybacks and dividends versus buying new equipment, that you would similarly agree that if you should all be compensated more, no one would be opposed to you all receiving a higher cash compensation. If you want to do shares, having the exercise price be at 6 or 7 times earnings that a company in a steady state of cash flow on average receives in the stock market.

To have shares that are exercisable at 2 times cash flow, I'm sure when you gentlemen consider it, if you think about it a little bit more, I'm sure you'll agree with me, because you're smart, and I'm right.

Ray C. Stachowiak (Executive Chairman)

Well, Harry, the best I can say is, you know, we have not compensated our employees extensively with the use of stock options.

Harry Long (Managing Partner)

The tone is set at the top, and you deserve I want to be very clear. You deserve more cash compensation. I'm not opposed to paying more cash compensation, but you know, and I know, and I'm sure somebody created this plan long before you were CEO, and it's a simple oversight, but you just can't have an exercise price that's below tangible book value. You know it. I know it. It needs to stop. I support you guys having more cash compensation. You know, you're not compensated in a crazy way, but getting shares with an exercise price to 2 times cash flow and below tangible book, while not paying shareholders a cash dividend, it's just not acceptable. I'm sure it was something put in place without your knowledge by some compensation consultant and somehow just got through the woodwork.

I'm not blaming you for this, but it needs to stop.

Ray C. Stachowiak (Executive Chairman)

Mm-hmm.

Harry Long (Managing Partner)

That's all I have for today, and I again want to compliment you on having amazing cash flow. I think for some of these things, we can all debate, like the shareholder dividend, but it's really beyond the pale, having an exercise price below tangible book. It's just unheard of.

Ray C. Stachowiak (Executive Chairman)

Well, I think our stock price being below or almost close to below tangible book value is, is below tangible book value.

Harry Long (Managing Partner)

Ray, you're very, very clever, but being clever doesn't make you right, and this is an issue you shouldn't fight anyone on. You should stop having an exercise price that's at 2 times cash flow and below tangible book. It's just unheard of, and you should be getting more cash compensation. I want you to have it. Guaranteed cash compensation. Getting shares that are exercisable below tangible book, it's not defensible. It's just not. Especially without shareholders getting a cash dividend. It's not acceptable.

Ray C. Stachowiak (Executive Chairman)

Duly noted, Harry.

Harry Long (Managing Partner)

Thank you, sir.

Ray C. Stachowiak (Executive Chairman)

Appreciate today.

Operator (participant)

Ladies and gentlemen, at this time, we will conclude our question and answer session. I would like to turn the conference back over to Ray Stachowiak for any closing remarks.

Ray C. Stachowiak (Executive Chairman)

Thank you, Allison. Thanks, everyone, for joining us today. We're excited about the increased activity levels at AMS, and we look forward to announcing what we've been working on at the appropriate time. Please stay tuned. We'll speak with you next on our third quarter call in mid-November. Please feel free to contact us directly if you have any questions before then. Until then, be well and stay safe, and have a great evening. Goodbye.

Operator (participant)

The conference has now concluded. We thank you for attending today's presentation. You may now disconnect.