American Shared Hospital Services Q4 FY2022 Earnings Call

Hello, and welcome to the American Shared Hospital Services Fourth Quarter 2022 Earnings Conference Call. Please note, today’s event is being recorded. I would now like to turn the conference over to Stephanie Prince of PCG Advisory. Ms. Prince, please go ahead.

Thank you, Keith, and thank you to everyone joining us today. AMS' fourth quarter 2022 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 under the Press Releases section in 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 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 due to various important factors, including those discussed in the company’s filings with the SEC. This includes the company’s quarterly reports on Form 10-Q for the 3-month periods ended March 31, 2022, June 30, 2022, and September 30, 2022, the annual report on Form 10-K for the year ended December 31, 2021, and the definitive proxy statement for the Annual Meeting of Shareholders that was held on June 21, 2022. 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?

Thank you, Stephanie, and good day, everyone. Thank you for joining us today for our fourth quarter 2022 earnings conference call. I'll begin with some opening remarks and then turn the call over to Craig Tagawa, our President and CFO, for a financial review of our fourth quarter. Peter Gaccione, American Shared's newly appointed Chief Executive Officer, will then spend a few minutes talking about his priorities and his plans for American Shared. Following the prepared remarks, we'll open the call up for your questions. Our most exciting news recently is that on March 10, the Board of Directors appointed Peter Gaccione as our Chief Executive Officer. As you may remember, Peter joined American Shared six months ago as our COO after 40 years in the medical oncology business. He is very well-known and respected. Many of us here at American Shared have known him for many years. He comes to us with strong market knowledge and professional contacts across the entire radiation oncology spectrum. I am now Executive Chairman of the Board, and I remain the largest shareholder of the company, approximately 20% of the outstanding stock. I plan to continue to be actively involved in the operations of the company as we work together to solidify the growth and profitability trends that we have firmly established in the year just ended. As we also announced, we've begun a search for a new public company CFO to succeed Craig Tagawa, who has held the position for many years and will remain our CFO until a successor is in place. Craig will continue to serve as President of our company and as Chief Executive Officer of GK Financing, our subsidiary, 81% owned by the parent company. American Shared ended a strong year with another solid fourth quarter. Fourth quarter revenue increased approximately 7% period-over-period and reached over $5 million in quarterly revenue for the second time in 2022. Our net income increased 12% to $246,000 or $0.04 per share, capping a year of sustainable quarterly profit trend. In fact, this is now the eighth consecutive quarter where earnings per share have been higher than the comparable quarter in the prior year. I expect our profitability to continue. For the full year, revenues increased 12% to nearly $20 million, and our net income increased six times to $1.3 million or $0.21 per share. Craig will go through the details in a few minutes. Our cash balances grew 51% from last year to end at $12.5 million on December 31, and our $7 million line of credit remains unused as well. We believe these funds can be leveraged to invest in over $100 million of advanced radiation equipment. Recently, we announced our first new order of the year, a $1.3 million agreement with a new customer. Our increased investment in sales and marketing is beginning to pay off, and our pipeline is filled with solid opportunities. We believe that American Shared is poised for growth. I will now turn the call over to Craig for a financial overview. Craig?

Thank you, Ray, and good morning, everyone. Fourth quarter revenue increased 7.4% to just over $5 million compared to $4.7 million in the fourth quarter last year. As Ray mentioned, this is the second time this year that we reported over $5 million in quarterly revenue. For the 12 months of the year, revenue increased 12% to $19.7 million. Fourth quarter revenue for the proton therapy system in Florida increased 33.4% to $2.2 million, primarily due to higher average reimbursement period-over-period. Total proton therapy fractions in the fourth quarter were 981, a decline of 11.9% compared to 1,113 in the fourth quarter last year, which we consider within a typical quarterly fluctuation range. Total Gamma Knife revenue decreased 7.1% to $2.8 million compared to the fourth quarter last year. Domestic Gamma Knife revenue declined 5.4% to $2 million, and international revenue decreased 11.5% to $0.8 million period-over-period. The decline in overall Gamma Knife revenue was caused by a decrease in procedures, offset by an increase in average reimbursement, which was driven by a favorable shift in payer mix to more commercial payers. Revenue for same centers in operation, which excludes two Gamma Knife contracts that expired, one each in the first and fourth quarters of 2021, decreased 6.7% when compared to those same centers during the same period of the prior year. Total Gamma Knife procedures decreased by 10.8% to 329 for the fourth quarter of 2022 from 369 in the fourth quarter of 2021, primarily due to normal cyclical fluctuations and the expiration of one contract in the fourth quarter of 2021. Gamma Knife domestic procedures declined 10% to 243, and international procedures decreased 13.1% to 86 for the fourth quarter of 2022 compared to 2021. We are looking forward to receiving the permits for the perfection upgrade for our Gamma Knife Center in Ecuador. We are expecting this soon so we can begin treating patients in the third quarter. Remember that this will be one of the few Gamma Knife Icon units in all of South America. The permit for the new linear accelerator, or LINAC, for our new cancer center joint venture in Puebla, Mexico, is expected soon as well. Gross margin for the fourth quarter decreased 2.3% to $2.3 million or 45.1% of revenue compared to gross margin of $2.2 million or 47.3% of revenue for the fourth quarter of 2021. Selling and administrative costs increased by 14.7% to $1.4 million compared to $1.2 million last year, primarily due to higher sales and related fees associated with new business opportunities. Operating income was $0.6 million compared to $0.7 million in the fourth quarter of 2021, a decrease of 18.4%, reflecting higher operating costs and selling and administrative expenses. Income tax expense increased 23.3% to $333,000 for the fourth quarter of 2022 compared to $270,000 for the fourth quarter last year. The increase in income tax expense for the current period was primarily due to higher earnings during the current period, return to provision adjustments arising from foreign income taxes filed during the current period, as well as permanent domestic tax differences that continued through the end of this year. Net income attributable to American Shared Hospital Services in the fourth quarter 2022 was $246,000 or $0.04 per diluted share, an increase of 12.3% compared to net income of $219,000 or $0.04 per diluted share for the fourth quarter of 2021. The increase in net income dollars was due to increased revenues and higher average reimbursement rates on both Gamma Knife and PBRT procedures. Fully diluted weighted average common shares outstanding were 6.3 million and 6.1 million for the fourth quarter of 2022 and 2021, respectively. Adjusted EBITDA, a non-GAAP financial measure, was $2,161,000 for the fourth quarter of 2022, essentially even with the EBITDA in the fourth quarter of 2021. For the 12 months of 2022, net income attributable to American Shared Hospital Services was $1.3 million or $0.21 per diluted share compared to non-GAAP net income after the net effect of the extinguishment of the debt, non-controlling interest, and income taxes, which was $0.4 million or $0.07 per diluted share. Adjusted EBITDA, a non-GAAP financial measure, was $8.2 million for the year compared to $7.2 million for all of 2021. As of December 31, 2022, cash, cash equivalents, and restricted cash was $12.5 million, an increase of $4.2 million or 5.7% since year-end 2021. Shareholders' equity, excluding non-controlling interest in subsidiaries, was $21.6 million or $3.50 per outstanding share at December 31, 2022, compared to $19.9 million or $3.28 per outstanding share at December 31, 2021. To close my remarks, AMS had a good year in 2022, and we believe that we are positioned for future growth. I will now turn the call over to Peter to discuss his priorities and plans as CEO.

Thank you, Craig, and good morning, everyone. I want to first thank Ray and the Board for their confidence in me. As CEO, Ray did a fantastic job in streamlining the company and positioning it for growth, and I now look forward to leading American Shared into its next stages. As I said on the last quarterly call, when I was first introduced to you, American Shared uniquely provides clinical cancer treatment centers the opportunity to partner with all the major original equipment manufacturers through one turnkey vendor in one creative relationship. This is uncommon in our industry and was one of the major factors in my decision to join the management team here at American Shared. Since I was appointed COO in September, I've been focusing on three key target areas. These include aggressively working with major OEMs to strengthen our business relationships and develop sales and marketing strategies, working with our current installed base of Lexel Gamma Knife sites and treatment centers to strengthen and enhance these relationships, and developing and implementing new sales and marketing strategies and programs to assist our sales teams in lead generation, prospecting, and managing the sales funnel and pipeline. In this regard, we’ve seen a significant increase in our lead generation and opportunities within our sales funnel over the past few months. I believe that we've made great progress in all three of these areas. Now as CEO, I plan to focus on increasing the global branding and awareness of American Shared with cancer treatment C-level officers and purchasing committees. We need to make them more aware of what we have to offer and how we differ from traditional financing options by showing them how easy it is to obtain the latest treatment systems in their department, quickly and without heavy financial burden, allowing them to allocate their financial resources elsewhere within their facility. Further, we will soon start to prospect and address new opportunities directly with larger national and strategic networks, in addition to continuing to work closely with our strategic OEM partners. We have recently hired a customer advocate to help us better manage our installed base as well as support our company's marketing and branding initiatives, not only for American Shared, but for GK Financing as well. Going forward, you will see American Shared much more visible on major social media platforms, broadening the messaging and information on our websites, and increasing our visibility at major radiation oncology and radiosurgery trade shows, both domestically and internationally. Additionally, we recently added another financial sales professional to pursue additional new business opportunities. We are in the process of developing and executing growth strategies to make advanced treatment technology more easily accessible to end users in areas where patients and communities are underserved, not only within the U.S., but in targeted international locations where patient treatment wait times are too long. Part of this strategy will include additional joint ventures such as in Puebla, Mexico, targeted acquisitions of well-established cancer centers, and expanding our creative financial and turnkey solutions to offer greater customer flexibility. We all believe that AMS has multiple opportunities for growth, and with our newly expanded team structure and deep financial resources, we look forward to updating you on our progress in the quarters ahead. Thank you for joining us today. This concludes the formal part of our presentation.

And the first question comes from Harry.

How are you? Hi, Ray, Peter, and Craig. This is indiscernible, hope you’re having a great day.

Thank you, Harry.

Thank you.

So we are great admirers of what you're doing, and I might take a little bit longer with this because, at Ford Ashford, we believe that if people are more familiar with your business, this will bring about a lot more acceptance of your company. So just to go through some numbers here. I don't want you to be polite. I want to be really rude. If I say something wrong, I want you to stop me and correct me immediately. But the joke, which is not really a joke, is that the market doesn't seem to understand about your company that depreciation is a non-cash expense. So when I'm just looking at the numbers, it looks like annually you're doing approximately $7 million in cash flow from operations and $8.2 million in EBITDA yearly, so approximately a little over $2 million per quarter in EBITDA. So at a $17 million market cap, with $7 million in cash flow from operations, you're at a 2.42x cash earnings valuation, which I believe makes you the cheapest public company in the United States on an enterprise value to cash flow basis, which is fascinating given how stable your business is when you combine proton beam therapy with Gamma Knife procedures.

Well, Harry …

If I’ve said anything in the numbers so far that's wrong?

No, you have not. Your observations are correct. I mentioned during our last quarterly conference call that I firmly believe that we're undervalued. If you look at any of those metrics and compare them to the market as a whole or with companies that may not have grown much in the past, you can outline the future of our company. So positively, we are really undervalued.

Yes. I mean certainly at 2.4x cash flow, I don't mean this in a facetious way, but even the local Laundromat doesn’t sell at 2.4x cash flow from operations and certainly not a well-respected medical business. It's just fascinating that even in a steady state, where the market might value let’s say an 8x multiple. If you net out the cash you have, which I understand from your filings, my estimate at this moment, it’s just an estimate, is that you probably have $14 million to $15 million in unrestricted cash today. And looking at your balance sheet, you have $14 million in total debt, if you add long-term debt plus the current portion of long-term debt. So essentially, with just cash on the balance sheet, if you so chose, you could be almost completely debt-free, I believe. Is that correct?

I think you're fairly correct in those numbers. Yes.

Right. And adding back just to the conclusion of those numbers, if you're doing approximately $1 million in interest expense each year, the true cash flow generation of the business is actually almost exactly your EBITDA or about $8 million in cash flow from operations. And I say that your true cash flow from operations, if you add back an interest expense, which you could easily net out with cash on hand, is really $8 million. So at $8 million a year, you’re basically at 2x cash flow from operations, 2x $8 million is $16 million versus $17 million in market cap. I mean this is fascinating. It’s better than 2.4x cash flow from operations. And if you even had an 8x multiple on that $8 million for a steady state company, the company should be at a $64 million market cap, and according to your vision, if you grow, and the market loves medical companies at a 15x multiple, your market cap would be at $120 million if you were growing at double digits. So I just wanted to get conceptual agreement on what the stakes are here. It seems ripe for M&A. You correctly mentioned that the cash on the balance sheet gives you a lot of optionality, ideally giving you about $100 million in buying power for more advanced radiological equipment. So here's my 1 question. How do you view strategically as a company the psychology of making a sale, let’s say, the Long Beach situation to a group of doctors in private practice, the associated risks with building out a proton therapy room versus, let’s say, some hospitals needing to get cash and doing a sale and leaseback agreement where an existing hospital with existing cash flow from operations that could be easily quantified could essentially buy a controlling or minority stake in a sale and leaseback sort of situation or just take a minority stake for the hospital to free up cash? How do you view those two different sales cycles strategically?

We are not likely to pursue sale-leaseback arrangements with healthcare systems. Such transactions primarily revolve around financial arrangements, and we believe our company provides significantly more value than that type of financing. We aim to supply radiation oncology equipment, which requires substantial capital investment from healthcare systems. For example, a major healthcare system might request $100 million in capital expenditures annually, but only have $25 million available to allocate. This raises the question of where to invest. Through our partnership with American Shared, we can help expand that capital budget, enabling them to adopt this advanced technology more quickly than their competitors and maintain their leadership in cancer treatment.

It makes total sense. I apologize for asking a similar question in a slightly different way, but have you ever considered, rather than controlling the proton beam therapy center, taking minority stakes, 20% to 40%? It might be more geographically diversified and diversified in terms of centers without having to have that huge outlay of, let’s say, $100 million or $150 million, et cetera?

If the situation calls for that, and that's what meets the customer's needs, I'd say, yes, we would be very open to those types of situations.

Because what's fascinating here mathematically is, let's say you're growing at 30% to 50%, either 47 point something depending on further data or closer to 30 something in proton beam therapy. Just mathematically, there's a point where the growth of the proton beam therapy is so great that it overtakes the decrease in Gamma Knife business domestically. Of course, you are limited to the center in Orlando, but it just seems like the optionality on your balance sheet, estimating $14 million or $15 million in unrestricted cash on the balance sheet, is just amazing and that optionality. So I'm going to let someone else ask a question. But before I go, could you give us a little bit of color on the mix of payers, or commercial payers has really improved the cash flow from proton beam therapy? Could you talk to us, give us an intuition about where that comes from or what drives the increase in commercial payers versus Medicare?

That's a very good question, Harry. I will defer that question to our relevant expert, Craig Tagawa, who monitors that very closely. Craig, could you comment on that?

Sure, Ray. There are a couple of factors in that. One, it's related to the types of patients that are coming in and the indications that they have. If there are more indications that are in an older population, where Medicare is the primary insurer, you're going to generally have a lower average reimbursement rate. Medicare pays primarily lower than our HMOs and PPOs. So it's partly the indication and partly just the type of patient that comes through. And it goes in cycles; it's not predictable.

Understood. My guess is that as they find more and more uses for proton beam therapy outside of oncology, that demographically, that’s drawing in a younger patient?

Thank you. I’m going to get back.

Thank you. The next question comes from Anthony Marquez, a Private Investor.

Hey, first of all, those were excellent questions. I have to tell you, those were excellent questions by the prior caller. A lot of my questions were answered by the previous individual and they were outstanding questions. Have you guys ever considered buying the stock back at these levels? It just seems to me to be very cheap. And if you're taking stock out of the flow, why not accrue that benefit to current shareholders?

Well, Tony, that's a very good question. I have to dodge it a bit in the forward-looking criteria, but I can assure our shareholders and investors here on this call that over the last three years, and my duration as CEO with American Shared, I brought that level of experience as a CEO to the company. I had 19 years of prior experience as a CEO in the company I founded, and I can assure our shareholders and investors that many different strategic options for the future of our company have been debated and pursued. We are where we are today, and we think we're best positioned truly to benefit our shareholders. If they stick with us, I think they'll have a nice return on their investment. I've mentioned in prior calls and in Harry's questions, I think we are an undervalued stock from any metric. Look at our P/E ratio, and it seems like every quarter that goes by, our P/E ratio gets smaller. If you look at the EBITDA numbers, the growth in EBITDA from $7.2 million in 2021 to $8.2 million in 2022, without any really new revenue streams coming on board, and then you look at the resources we are pouring into our sales and marketing efforts, those resources are going to pay off in obtaining new agreements and new revenue streams. As everyone knows if they’re familiar with our company, we have long sales cycles in our company. It's a complex sale, but we have really good resources to tackle that challenge.

I believe one reason for the current stock price is the lack of analyst coverage. It's known that in the micro-cap sector, research coverage usually comes at a cost. Has there been any progress in obtaining research coverage, even if it involves paid services, which would be an improvement since it would raise our visibility? I'm interested to know if there have been any efforts to secure analyst coverage.

I think those efforts are starting to be made. I will just comment that I'm kind of an old school investor in the sense that before I start promoting an investment, let's demonstrate a good solid foundation, sustained growth, and profitability. Something to lean on, something to sell, something to take to the financial analyst community.

I'm going to differ a little bit with you in that respect, and that is that you've just laid out a good reason for buying the stock, and people buy stocks for different reasons. Some stocks are growth stocks; some stocks are asset plays. And I think in this situation, you have an asset play right now, coupled with a potential growth play. So I'm going to disagree a little bit by saying why not try to get analyst research now for mere valuation metrics and positive cash flow — at least outside of research coverage?

Tony, let me digest that and reflect on it. That’s really great feedback, and I like to think of myself as someone who listens well, and I'm always open to input. So let me take that under advice.

Thank you. The next question comes from Tony Kamin with Eastwood Partners.

Hi, everyone. It was really nice to hear the comprehensive plan you have now in terms of both working more closely with manufacturers and also the new efforts to reach out to end customers. So great to hear that. My first question is around the new customer that you announced with the $1.3 million sale. Can you kind of characterize that customer? Is it a hospital? Or is it some other kind of entity? Or — and is it Gamma Knife equipment, or is it something other than that?

Yes, I think I will divert that question to Peter. However, we probably cannot identify that customer by name because of our nondisclosure agreements with our clients. But …

That's why I characterize rather than name.

Yes, Peter, could you characterize that client?

Sure, sure. Yes, thank you for the question. Yes, I would characterize it as twofold. It is a joint venture cancer treatment center that does have a Gamma Knife, and it’s a joint venture with a large neighboring hospital affiliate. This was a situation where they needed to upgrade an older model system into a newer model system. We were able to consult with them and creatively come up with a way to make it happen because they only had two alternatives: make it happen to grow their patients and continue a fantastic radiosurgery program, or look to close it down, which no one wanted to do. With our support and creativity, it happened, and things worked out extremely well.

Before you go to your next question, let me just add a little color to that. That local hospital as a member of that joint venture is part of a larger healthcare system. The folks in the C suite of that healthcare system have seen what American Shared is capable of doing to this local hospital they own. Thus, it's opened the doors to the C-suite within that healthcare system. That's one of the intangible benefits. It's a small order, but it’s some of the intangible benefits we're accruing.

Well, I would think in this very difficult credit and interest rate environment, I’m sure it's got a lot of your ultimate end user prospective customers thinking about how they can access finance in a pretty effective and rational way. So I guess, I’m curious in terms of your experience there. And on the other side, I would think it also holds true for Elekta and your other potential manufacturer partners that they realize they've got to help, that end user customer be more creative in ways to access technology in a rational economic sense. Have you seen changes because of what’s been going on in the economy and interest rates that have been helpful that way? And is that awareness there on both the manufacturer and end user side?

Yes. I will let Peter answer that. In general, I'll just say, yes, I think we have started seeing that. But Peter, do you want to take that question on a bit?

Sure, sure. That's a very good question, and there's a lot in that question. I can tell you I've been in this business for over 40 years. I have good credibility and know many of the key decision makers and opinion leaders, not only on the practice level of the doctors and the cancer institutes, but also in the senior management and sales levels of the many OEMs we deal with. What I can say is that we are getting a lot of interest and a lot of calls from many people in the industry that are reaching out, knowing that I'm now here at American Shared. They want to know more about what we offer and how we differ from traditional options for funding. So just in the case of this situation where we received our first order, they contacted us because of that. We’re getting a lot of calls because of that. It's a small community; everyone knows everyone in this business, and past reputations matter a lot. We're working on getting that awareness out to everyone.

Ray, I kind of wrote this down, hopefully, I copied what you said correctly, but I think you said that the pipeline is filled with solid opportunities. Can either of you comment a little bit or give a little more color on the pipeline? Is it across a range of products?

Yes, I can outline that very easily for you. We have been talking about the expansion of our product offerings and our strategy for a little more diversification than just the provision of Gamma Knife and proton beam. Let me comment on several ways about what is in our pipeline. It contains many different product offerings, including Gamma Knifes, linear accelerators, MR LINACs, and even the provision of proton beam systems. That’s consistent with the expansion we've been discussing. We have opportunities domestically and internationally, with new business clients we've not had and with existing clients, expanding those relationships. We have business model structures that could vary—traditional agreements that we've had in the past, where we provide Gamma Knife for x dollars for every treatment. Or maybe we provide that Gamma Knife for some percentage of the revenue that the health care system collects off that Gamma Knife. We are also pursuing joint ventures where we have ownership, sometimes majority, sometimes minority in a joint venture relationship, and those relationships do not have contracts or agreements that expire. They are very long-term oriented. All those types of opportunities exist within our pipeline.

No, that sounds great. Two more quick questions. One, recently in the press, I've been reading an increasing number of articles talking about Gamma Knife. Gamma Knife is, in general, growing. And if I'm not sure quite what they're saying, whether it's procedures or capabilities or something growing in '23. It feels like for a few years, I didn't really see much about that. But again, there have been some press about growth. Is that something you're seeing? Or is that just — is that correct?

I’m going to direct that question to Peter. He's our resident expert on the Gamma Knife market.

Yes, you're absolutely correct in what you’ve been seeing. For a while, in the early days for radiosurgery, the Gamma Knife was doing extremely well. Then, as everyone knows, linear accelerators started to catch up a little bit. Not only do we, but also other vendors see an uptick in the Gamma Knife modality and treatments. A lot of it has to do with advantages offered in software, treatment planning, and same-day imaging and treatment. So there have been many improvements done to the system, and it has really taken an upturn. You're correct in what you're hearing about an increase in the Gamma Knife type treatments, not only in the U.S. but worldwide. This, of course, extends to the installed base as well when it comes time for upgrades.

That's exciting. And then last question, which I feel I have asked for many years, but it's so important in terms of size. Can you characterize the appetite now for new proton systems? It's been several years since you installed in Orlando, and I know shareholders are really hoping for an encore somewhere else. Can you kind of talk about proton in general?

I can tell you that we are still very much pursuing proton beam opportunities. Without commenting too much in terms of forward-looking, I can assure you that we have looked at more proton beam opportunities in the last nine months than I recall as a shareholder going back to 2009. Quite frankly, some of those are not worthy of our investment because the partnership we are asking to establish involves too much CapEx to support the revenue streams coming in. We are very intelligently analyzing these opportunities. There are a few out there that meet our criteria.

Great. Well, thank you guys very much for all these questions. I appreciate it.

Thank you. The next question is a follow-up from Harry with Ford Ashford.

Hi, gentlemen. I thought I would take more time, but if no one else is in the queue, I like to estimate really general and then get super specific. I think the elephant in the room is that not only is Ray an amazing investor, but coming back to cash on the balance sheet and that optionality. 12 to 15 months from now, our estimate is it's going to be at least $20 million to $23 million in cash, which would be greater than the current market cap of your company. Our question is using Ray's expertise and Peter and Craig’s expertise, do you buy other cash flow businesses and become a conglomerate like a mini Berkshire Hathaway and use those cash flows you have to diversify and that cash on the balance sheet opportunistically? Or do you stick with your knitting in proton beam therapy? That’s really our big question: which of those two paths would you like to take?

Yes. We’re probably not going to become the Berkshire Hathaway of radiation oncology equipment.

But have a lot of other interests. I followed your career; you do many more things than that.

I'd like to semi-correct you on your cash projections. Yes, we may have free cash flow at $7 million or $8 million a year, as measured by EBITDA. However, it wouldn't be prudent to use the cash we have since we will have some CapEx spend in 2023 due to upgrades occurring in Ecuador, and we may not finance 100% of those purchases; we’ll probably put in some equity level. Thus, there will be some CapEx spend equity-wise in those investment opportunities. Let's be prudent about how we use our resources. One of my greatest accomplishments at Shared Imaging was buying $20 million, $25 million, or $30 million worth of equipment every year, and I was 100% owner at the time I bought the company, and I never needed to dilute my equity while financing that CapEx spend. I had developed banking relationships, and we feel confident in our relationship with Fifth Third Bank, and we believe we will be prudent in financially engineering our growth.

This leads into my next question. I looked at your debt covenants disclosed in your last annual report, and it looks like I could see a total debt to EBITDA covenant at 3x. Are there any current debt covenants preventing the company now or in the future from paying a dividend to common shareholders?

There is a restriction in our banking relationship regarding dividends to our shareholders; there is a provision to do so, but it's limited.

I wonder if it would be reasonable, if you have unrestricted cash on the balance sheet, which could pay your entire debt, is there an opportunity to negotiate an amendment to such covenants that state that if you do have that cash, which could literally pay all of the debt, not that you would want to, but if you chose to, if they would be amenable to loosening some of those restrictions on dividends? Moving on to a very specific question: I only ask this because it sounds like full speed ahead on proton beam therapy, if possible. I noticed a note in your annual report about a $2.25 million in deposits for two Mevion S250 proton beam therapy systems, which were written down to zero. My question is, even though these deposits were written down for accounting purposes, if you chose to purchase one, would Mevion still honor those deposits towards the purchase price?

The answer to that question is yes. Mevion still has those deposits on our account. If we purchase a proton beam system from Mevion, we are credited for that deposit. I would like to point out that the amounts we wrote off included some capitalized interest on those deposits. That capitalized interest component would not be on our account with Mevion. Does that make sense?

Total sense. And of those $2.25 million in deposits, does Mevion force you to apply half and half to two different systems? Or could you combine those two deposits into one deposit on a Mevion 250i system?

I think it would be reasonable for Mevion to assume each deposit is for each respective order.

I also noticed that Mevion has been talking about a 250 fit proton system and some other things. Is the S250i still state of the art, or could this deposit be applied until they improve the S250? I only ask this because we are full speed ahead on proton beam therapy.

Yes, I think it's a fair assumption that if we acquire a proton system from Mevion, we’ve got good relationships with Mevion. Each party would be flexible regarding how those deposits would be applied and how the exact configuration of purchase of the proton beam system would be. These systems have many different bells and whistles, and if and when we take delivery of such a system, we are committed to modifying the equipment we currently have on order with them to get the latest technology. Mevion would support that flexibility; we’ve built a good relationship with them.

That's wonderful to hear. Is there any update, if any, on the Long Beach Equipment LLC, which I understand is not expected to do anything? But I was just curious if there was any further movement in that area.

Yes, I will just comment. It’s been a very challenging marketplace in that region, one that's challenged by the different healthcare systems in the area. Quite frankly, it's been a search for an appropriate facility to locate the operation in the center.

That's very interesting. The only other thing I was going to mention is just a request. Many people don't live in the proton beam therapy area the way that you do, and I think it's an amazing discussion of the different manufacturers you have like Mevion, IBA, Hitachi, Pronova, Sumimoto Proton, Mitsubishi, etc. I was hoping that there could be some discussion in the annual report of the different non-hospital players. Just now that I was doing some research, it's interesting to see what happened with Concord Medical, for instance, taking a 20% stake in the MD Anderson proton beam therapy center and then divesting that stake later and things like U.S. Oncology, which, as you know, is a McKesson subsidiary. I was just hoping for some discussion of what's happening now with the industry either on this call or in an annual report of these key players. We're just huge fans of you guys, greatly admire the cash flow generation, and we look forward to seeing your progress.

Thank you, Harry. We appreciate your comments, questions, and feedback.

Thank you. And this concludes our question-and-answer session. I would like to return the call to Ray Stachowiak for any closing comments.

Thank you, operator, and thank you to everyone who joined us here today. We had a good question-and-answer session. We appreciate your feedback and your questions, and hopefully, we've been helpful. We are very proud of the sustainable growth we've experienced and the profitability trends we've established, and as mentioned, we are very excited about the future of American Shared. We believe our newly aligned management team, the deep financial resources we have, and our investment in sales and marketing positions us very well for sustained growth and profitability. We look forward to speaking with you again when our first-quarter results are announced in mid-May. Please contact us directly if you have any questions before then. Be well and stay safe. Goodbye.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.