Zacks Small Cap Research – AMS: Benefits of Rhode Island, New International JV, Expected ‘Asset-Light’ Model – Technologist

By M. Marin

NYSE:AMS

READ THE FULL AMS RESEARCH REPORT

Rhode Island cancer centers open; contributing to 2Q24 27% y/y revenue advance

American Shared Hospital Services’ (NYSE:AMS) retail business model is driving revenue growth, with sites internationally and domestically, now that the acquisition of controlling interest in three Rhode Island centers has closed. Rhode Island expanded AMS’s retail / direct segment footprint substantially and contributed to a 27% y/y revenue increase in 2Q24.

Retail segment revenue increased more than four-fold; expect O&O footprint to expand…

AMS recently launched the business model to own and operate (O&O) equipment itself at select locations, an initiative that is expected to boost revenue growth and give AMS greater control over its business and expected revenue streams. The company acquired a controlling 60% interest in three radiation therapy cancer centers in Rhode Island, which expand its direct footprint. Rhode Island represents AMS’ first domestic retail locations. AMS also currently owns cancer care treatment centers in Peru, Ecuador and Mexico.

Revenue from the Rhode Island operations were only included in consolidated results in mid-2Q24 and so did not include a full quarter. On an annual basis, Rhode Island is expected to contribute roughly $9 million to $10 million. With Rhode Island up and running, revenue from AMS’s retail or direct patient services segment increased more than four-fold to $3.2 million, compared to $756,000 in 2Q23. As the company continues to expand the direct retail footprint, we expect strong segment growth to continue.

Newest O&O location signed in 3Q24, while Versa HD Linac revenue contribution set to begin in 2H24

In fact, a JV AMS signed in 3Q24 for a Gamma Knife facility in Guadalajara, Mexico marks the company’s 4th international location and newest O&O venue. AMS will hold a 70% interest and its partner, HSJ (Hospital San Javier, Mexico’s first medical center to offer Gamma Knife treatments beginning in 1994) will own 30% interest. The JV plans to upgrade HSJ’s existing Gamma Knife^® Perfexion™ system to an Esprit.

Moreover, AMS’s Versa HD Linear Accelerator at its 85%-owned Radiation Therapy Facility in Puebla, Mexico began patient treatments earlier this month, with contribution to consolidated revenue set to begin in 2H24. This represents a new revenue stream for AMS set to begin in 2H24.

AMS Leasing signed 5 extensions in last 15 months, with other discussions ongoing…

In the Leasing segment, the company has another Esprit upgrade planned. Importantly, in 2Q24 the company extended its existing 10-year agreement with PeaceHealth Sacred Heart Medical Center to upgrade an existing Gamma Knife^® Perfexion™ system there with an Esprit. Esprit is partner Elekta’s newest Gamma Knife^® radiosurgery system, introduced in 2022. With the Esprit Gamma Knife treatment, patients can return home the same day as treatment. AMS is installing several of the first Esprits in the U.S. Over the last 15 months, the AMS Leasing segment has signed five lease extensions from its base of ten domestic Gamma Knife sites.

Conservative fiscal approach to expansion initiatives; ‘asset-light’ model anticipated

The company has indicated that it has a range of growth opportunities under consideration. With cash and equivalents of $14.5 million at the end of 2Q24, strong annual cash flow and a revolving credit facility, we believe AMS has the financial flexibility to continue its growth measures. Moreover, AMS maintains a conservative fiscal approach and we would expect management to leverage a relatively asset-light model, including JV partner financial contributions.

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