American Shared Hospital Services (AMS) 2005 Q4 法說會逐字稿

Good afternoon everyone and welcome to the fourth quarter and year end 2005 conference call for American Shared Hospital Services. (OPERATOR INSTRUCTIONS). I would now like to turn the call over to Dr. Ernest Bates, Chairman and Chief Executive Officer; Craig Tagawa, Chief Operating and Financial Officer, and Norm Houck, Controller of American Shared Hospital Services. Mr. Tagawa, you may begin.

Thank you all for joining us for AMS's fourth quarter earnings conference call and webcast. We will open the call for questions after Norm Houck and I review the financial results we announced this morning.

First, the Safe Harbor statement. Various remarks that we may make 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 and 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 Securities and Exchange Commission, including the Company's annual report on Form 10-K for the year ended December 31, 2004; quarterly report on Form 10-Q for the period ended September 30, 2005 and the definitive proxy statement for the annual meeting of shareholders held on June 16, 2005. The Company assumes no obligation to update the information contained in this conference call. Norm, if you can begin your recap for us.

Revenue for the fourth quarter of 2005 increased 19% to 4,650,000 compared to $3,910,000 for the fourth quarter of 2004. This growth primarily reflected the contribution of the three new Gamma Knife units that became operational during the year, as well as an increase in same center treatment volume. The total number of procedures performed during the fourth quarter at the 21 centers now in operation increased to 602 compared to 512 procedures in the fourth quarter of 2004. Cost of revenue increased for this year's fourth quarter versus prior year due to the increase in the number of Gamma Knife units, and especially Gamma Knife units operated under turnkey revenue agreements where the Company is responsible for paying all of the direct operating costs. Selling and administrative costs were higher than last year primarily due to development and payroll-related costs. Interest expense continues to decrease as older loans approach maturity and we're able to take advantage of lower interest rates for new loans.

Operating income increased to $914,000 compared to $807,000 in the year-earlier period, marking the 20th consecutive quarter of year-over-year increases in operating income. Income before income taxes increased 9% to $685,000 from $626,000, and net income increased to $479,000 or $0.09 per diluted share from $386,000, or $0.08 per diluted share. Net income for fourth quarter 2005 reflects an income -- an effective income tax rate of 30% compared to 38% for the fourth quarter 2004.

On our last conference call, I stated that we expected a 40% tax rate beginning in the fourth quarter as the tax benefits associated with the option exercise programs of our chairman and chief financial officer were fully utilized at the end of the third quarter. However, due primarily to adjustments to the estimated state income tax effective rates, our fourth quarter income tax rate was less than we expected. We anticipate that our tax rate for 2006 will be between 37 and 40%.

For the year ended December 31, 2005, revenue increased 11% to $18,231,000 from $16,389,000 for the year ended December 31, 2004. Operating income increased 6% to $3,471,000 from $3,278,000 a year ago and income before income taxes increased 6% to $2,547,000 from $2,397,000 in 2004. Net income for 2005 is $1,767,000, or $0.35 per diluted share, reflecting an effective income tax rate of 31% compared to net income for 2004 of $1,985,000, or $0.39 per diluted share, reflecting an effective income tax rate of 17%.

Cash flow for 2005, as measured by earnings before interest, taxes, depreciation and amortization, increased to $9,923,000 compared to $9,441,000 in 2004. At December 31, 2005, AMS reported working capital of $2,423,000 including cash, cash equivalents and current securities of $4,537,000.

It is important to note it $2,797,000 of the Company's cash is invested in bonds with maturity dates in excess of one year, and is therefore not classified as current. During the latter part of 2005, the Company began investing some of its cash in longer-term bonds in order to take advantage of higher rates available on these securities. If this 2.8 million were added back, working capital at December 31, 2005 would exceed the prior year amount by approximately $500,000.

Shareholders equity was $18,320,000, up from $17,326,000 a year earlier. At year end, there were approximately 5 million basic shares and 5.2 million fully diluted shares outstanding. Craig?

Thank you, Norm. We are pleased by the Company's financial performance for 2005. As Norm mentioned, three new Gamma Knife units and higher same center volume drove revenue growth for the year. The probability benefited from the higher revenue, of course, and also from our focus on effective cost management at the corporate level and at the 21 Gamma Knife units we know have in operation. We were disappointed that we did not enter into any new contracts in 2005, but we remain bullish about our long-term growth opportunity.

Let me explain what lies behind our confidence in AMS's future growth. The equipment we provide our customers delivers therapeutic outcomes never before possible. This is the fundamental source of the demand for our products and this will only increase as newer, more advanced technologies become available. But the equipment also is technically sophisticated and expensive and it represents a major commitment on the part of the staff and the facility management.

So it's no surprise the sales cycle is long and complex. This has always been true for AMS, and we have prospered in this environment for years. What has changed and what has delayed our customers' decision-making process this past year is that the market is evolving rapidly. A host of new modalities, such as combined head and body units, and new types of radiation therapy are becoming commercially available. This has made our customers' decision-making process more difficult and time-consuming than ever, but at the same time, has created new opportunities for AMS. We've been preparing for this evolution of the market for a long time. Advances in technology had made this a particularly exciting time in our industry, and we're committing to maintaining AMS's leadership. This is why we're pursuing the latest Intensity Modulated Radiation Therapy and Image Guided Radiation Therapy equipment and developing our proprietary Operating Room for the 21st Century concept. We've been patiently and diligently working on opportunities to begin placing these new systems for quite some time.

You may remember that on our last conference call, I mentioned that we are in the late stages of negotiations from the development of several new projects. This is still true and we still expect contracts to be awarded to AMS. The only real surprise is that the closing of these deals has taken longer than we anticipated because it's taken longer for the customers to complete their evaluations of a wider range of devices and technological approaches than ever before.

But there are a number of signs that lead us to believe the log jam may begin breaking up this year. More and more potential customers are finishing up their evaluation processes, and the pressure to make a decision and begin offering the latest therapies continues to build. Patients want access to these systems. So we are increasingly confident that we are nearing an inflection point, and the new therapeutic systems we've talked about with you and some you haven't heard about just get will be contributing to our future growth. Christine, we are ready for the first question.

(OPERATOR INSTRUCTIONS). [Lenny Dunn], [Easystocks.com].

Good afternoon. We are encouraged by the earnings, by the cash flow, by the balance sheet. Clearly, we will continue to see some increase in earnings and cash flow as this year progresses with the new Medicare reimbursement. But we keep hearing that we're going to get some contracts, and I really believe we will. But is there a realistic expectation that we'll get something signed, at least during this quarter?

I believe that we're very close on several of these, and whether it be -- whether it falls in this quarter or sometime during next quarter, I feel comfortable that we will get some, Len.

It could be April or May by the time we get them, but we will get them?

We feel comfortable that based on what we know now, that we are in good position.

I mean obviously, we're going to get some growth from the Medicare reimbursement and increased payments and the fact that we will have a full year of all the current Gamma Knifes. But still. Okay.

(OPERATOR INSTRUCTIONS). [Thomas Nichols], [Investors Capital].

Just a quick question about the minority. Could you just sort of fill me in a bit on that please?

The minority interest represents the 19% ownership in G.K. financing that Elekta has in the operating entity of the Gamma Knife.

At this time, there are no additional questions.

We would like to thank everybody for participating on this call. This call will be available in digital replay immediately following today's conference. To access the system, dial 888-843-8996 and enter the passcode of 13832223 to access the replay. The webcast of this call will be available at www.ASHS.com, and www.companyboardroom.com. This concludes today's teleconference.

Thank you for participating.