American Shared Hospital Services (AMS) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the first-quarter 2006 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 and thank you all for joining us for AMS' first-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 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, 2005 and the tentative proxy statement for the annual meeting of shareholders to be held on June 28, 2006. The Company assumes no obligation to update the information contained in this conference call.

Before I turn the call over to Norm to review the results in detail, let me say that we are very pleased with our first-quarter performance. The three new Gamma Knife units we placed during 2005 and the strong volume at several of our other centers drove a 13% increase in revenue to a new first-quarter record for services. I'm proud to note that our revenue from radiosurgery services exceeded the 5 million benchmark for the first time in our history. Combined with our continued effective management of cost, this topline growth contributed to the 21st consecutive quarterly increase in operating income, which as you know is one of the key metrics that we use internally to monitor our performance. Of course, we're also glad to report that net income increased despite a higher effective income tax rate in 2006.

Now I would like to turn it over to Norm.

Thanks, Craig. Revenue for the first quarter of 2006 increased 13% to $5,045,000 compared to revenue of $4,449,000 for last year's first quarter. As Craig mentioned, this growth primarily reflected the contribution of the three new Gamma Knife units that became operational during 2005, as well as an increase in same center treatment volume. The total number of procedures performed during the first quarter at the 21 centers now in operation increased to 669 compared to 575 procedures in the first quarter of 2005.

Cost of revenue increased 22% for this year's first quarter versus the first quarter of 2005. This reflected the increase in the number of Gamma Knife units we have in service and especially Gamma Knife units operated under turnkey revenue agreements where the Company is responsible for paying all direct operating costs. We call these retail sites.

One of the two retail sites we added during 2005 did a high volume of procedures in this year's first quarter but was not open a year ago, which affected the quarter-over-quarter operating cost comparison. I should also note that non-cash compensation expense related to stock options was $8000 in this year's first quarter. We do not anticipate significant stock option expense this year.

Selling and administrative costs remained flat compared to prior year, which shows the operating leverage we had built into the Company as we grow. Interest expense also was about flat compared to last year. Operating income increased 13% to $946,000 from $836,000 a year earlier, and pretax income increased to a very healthy 19% compared to the first quarter of 2005.

Net income for the first quarter of 2006 increased 10% to $436,000 or $0.09 per diluted share, and this compares to net income for first quarter 2005 of $395,000 or $0.08 per diluted share.

The effective income tax rate for this year's first quarter increased to 39% from 35% for the first quarter of 2005. Cash flow for our first quarter 2006 as measured by earnings before interest, taxes, depreciation and amortization increased to $2,685,000 compared to $2,406,000 for the first quarter of 2005.

At March 31, 2006, AMS reporting working capital of $4,778,000; cash, cash equivalents and short-term securities of $7,829,000, and long-term securities of $601,000. At December 31, 2005, working capital was $2,423,000; cash, cash equivalents and short-term securities were $5,835,000, and long-term securities were $2,797,000. Shareholders equity increased to $18,526,000 compared to $18,320,000 at December 31, 2005. For the quarter, there were approximately 5 million basic shares and 5.2 million fully diluted shares outstanding.

Craig?

Thank you, Norm. One of the questions we have been asked repeatedly is, what are we going to do with our cash? The answer has always been that we would bide our time until we came across an investment opportunity that we believe makes strategic sense for the Company and that has the potential to provide a solid return for our shareholders. As we announced on April 11, we believe that we have finally found what we have been looking for.

As background, our target market is radiation oncology -- the therapeutic of radiation to treat cancer. We see tremendous growth potential in this market. More than half of all new cancer patients now receive radiation therapy during the course of their treatment, and more than 1.35 million new cancer patients are diagnosed annually in the United States. In 2004 this translated to approximately 820,000 individuals treated with a linear accelerator. We estimate that there are over 1400 hospital-based cancer centers throughout the country with an estimated 60% having IMRT capability. These centers are candidates for the most advanced therapeutic equipment. We want as many of them as possible to obtain their equipment through AMS.

This is why we invested 2 million for an equity interest in Still River Systems Inc., a development stage company based in Littleton, Massachusetts. In collaboration with scientists from MIT's Plasma Science Infusion Center, Still River is developing a medical device for the treatment of cancer patients using Proton Beam Radiation Therapy or PBRT.

AMS also purchased for 1 million an option to acquire two Clinitron-250 PBRT systems from Still River Systems for anticipated delivery in 2008. Even though the Clinitron-250 is not FDA approved nor can there be an assurance that this system will obtain FDA approval, we are anonymously excited about this development. Proton Beam Radiation Therapy is widely regarded as the optimal radiation treatment for a wide variety of cancers because of its significant clinical advantages compared to conventional high energy X-rays. X-rays deposit dose all along their path and continue to deposit dose beyond the depth of the tumor.

In contrast, PBRT deposits most of its dose at a specific depth determined by the initial energy that is beamed and then stops entirely. This allows the physician to deposit far more radiation dose in a tumor and far less radiation dose in the surrounding normal tissue, limiting collateral damage and increasing tumor control rates. PBRT has the potential to treat head and neck cancers, prostate cancers brain and spinal tumors, thoracic cancer, pelvic tumors, and gastrointestinal cancers. Also, PBRT can treat pediatric and eye tumors.

But there is a catch. PBRT systems available today cost at least 100 million and consist of three or more dedicated treatment rooms. As a result, deployment of this Medicare approved treatment modality has so far been limited to only a handful of large institutions. Still River Systems believes that the device it is developing will be a single treatment PBRT system using proprietary technology that it believes will dramatically reduce the cost of implementing this exciting therapy. Still River's unique design is intended to reduce the size and weight of the cyclotron without compromising the energy generated by their new design.

Proton Beam Radiation Therapy is reimbursed by the Centers for Medicare and Medicaid Services. CMS reimburses hospital-based facilities approximately $950 for a single simple treatment session and $1134 for an intermediate or complex treatment session. Patients typically require an average of approximately 30 treatment sessions. We believe that Still River Systems' cost-effective PBRT device is a perfect fit for AMS' innovative financing programs.

This device is right up our alley. We are pleased to support development of this next major advance in radiation oncology, which we see as a natural complement to our current Radiation Therapy equipment offerings. It has taken longer than we would have liked in recent months to complete new transactions for current generation equipment. Nevertheless, as I have repeated for the past several quarters, we expect to win new contracts for our current generation offerings, as well as our proprietary operating the operating room for the 21st century concept. We expect these transactions to support further revenue and earnings gains over the next several years and provide a bridge into next generation technology where AMS has established a strong position through our equity investment in Still River Systems. We are confident that this is the right strategy for sustained success.

We are now ready for the first question.

(OPERATOR INSTRUCTIONS). [Lenny Dunn], EasyStocks Inc.

Good morning and congratulations on a good quarter. One little housekeeping item. The 800 number that you put in the release that you put out today has got some digits reversed. You have 2653, and it is actually 2563 for the last four digits. So when I could not get it, I looked at the earlier release and was able to get the right number. But I would wager that some people just gave up.

Well, we certainly apologize for that.

It is obviously not intentional. It is one of those things that happens.

On the Still River's investment, just to have some clarity, what percentage of ownership do we currently have then?

I think we have approximately 8%

Okay. And with these startups (inaudible) it really does sound like an exciting company to be invested in, and clearly you're getting into the venture capital level, which is usually very attractive when things work.

And also I like the idea that we will get the first two or will it be the first two I guess that is one of my questions, since we have options on two? Do you think that they may need some more financing so it will be a little bit diluted, or do you think that they probably have enough cash now to get to the next level without more equity financing? Anyhow if you could shed a little light on that.

We believe based on what we have been told and what we have seen that they probably will have enough financing to make it through and won't need another equity offering. That is the plan as it has been presented from Still River.

We get the first two, or do we just have options on it?

We have the options and we probably -- we have elected not to take the first couple. We want to probably take the next two after that, mainly because we want to make sure all -- if there are any bugs, that those have all been worked out.

I appreciate the fact that you still have regular things in the pipeline here, and that it probably is slightly embarrassing that occasionally you have to get them soon, and if soon turns out to take a little longer, I'm confident that you'll get them. But would you project that we may get something this quarter then?

Yes, I think if all goes well, I think we will.

Okay. Well, those are my only questions. Again, congratulations on a good quarter, and obviously the business will continue to improve just based on what you have in place and the fact that you're paying down these machines and we are also getting more cash to work with. So, thank you.

Thank you.

(OPERATOR INSTRUCTIONS). There are no further questions.

Okay. Dr. Bates, would you like to make any closing remarks?

I just want to say how excited I am about this new Proton Beam therapy machine that we are now involved in. I really personally believe that this at some point will probably replace many of the linear accelerators that we have seen around the world. If you will talk with experts, they are pretty much in agreement.

The problem in the past with the Proton Beam, which has been around for a long time, it was the cost, and the cost was roughly $100 million a machine. Through the clever work that is being done at MIT and being done by Still River, we're going to come up with a machine that is going to cost a lot less. Clearly you get a better deposition of energy in ionizing radiation with the Proton Beam, so we are very excited.

We have just done some preliminary numbers on these machines, and they will do quite well. We are just projecting that if we just do 30 patients a day, we could have a pretax profit of close to 1.7 at 40 patients a day to 3.3. These are just, of course, early projections and these projections that we are talking about for 2008, but things are looking very good.

Clearly the kinds of institutions that we are talking to right now are places that will have no trouble doing 30 or 40 patients a day. We are talking now with probably 10 major institutions, and I do mean major institutions across the country and some even outside the country. We are restricted by the FDA rules and regulations about whether or not we can take orders and how we take orders, and we are operating by those guidelines. But I'm very excited about this, and we are so fortunate to be the pioneers in this new exciting business. So, thank you.

We would like to thank everyone for participating on this conference call. I will turn it back over to Tatyana.

Thank you. This call will be available on digital replay immediately following today's conference. To access the system, dial 888-843-8996 and enter the passcode of 14572676 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. You may all disconnect.