American Shared Hospital Services (AMS) 2006 Q2 法說會逐字稿

Good afternoon everyone and welcome to the second quarter 2006 conference call for American Shared Hospital Services.

[OPERATOR INSTRUCTIONS]. I will now 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, operator and thank you all for joining us for AMS’ second quarter earnings conference call and web cast. We’ll open the call for questions after Norm Houck and I review the financial results we announced this morning.

First I must give 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 and to the Privacy Securities Litigation Reform Act of 1995.

Actual results may vary materially from those indicated by those forward-looking statements as a result of various important factors including those discussed in the company’s filings with the Securities Exchange Commission including the company’s annual report on form 10-K for the year ended December 31, 2005, form 10-Q for the first quarter ended March 31, 2006 and the definitive proxy statement for the annual meeting of shareholders held on June 28, 2006.

The company assumes no obligation to update the information contained in this conference call. We enjoyed a strong second quarter as our portfolio of [sprado-surgical] assets continued to perform well for the company. As Norm will detail shortly, revenue increased 12%, operating income increased 17% for the 22nd consecutive quarter of year over year increases in this key measure of performance and net income increased 15%.

We believe that this stellar operating performance validates our strategy to deliver sustained growth and build value for our shareholders. During the quarter, we announced an exciting agreement with Tufts-New England Medical Center for a complete radiation therapy department upgrade that brings our strategy into sharper focus and marks a major expansion of our growth opportunities for the future. More to say about this after Norm reviews the numbers, Norm.

Yes, thanks Craig. For the second quarter end of June 30th this 2006, revenue increased 12% to $5,309,000 from $4,703,000 for the same period a year earlier. While the overall number of procedures during the quarter was relatively flat at 634 versus 636 for last year’s second quarter, we benefited from the strong performance of several of our retail sites during the period, in particular, our newest retail site at Mercy Hospital in Oklahoma.

Gross margin increased 15% for this year’s second quarter compared to the second quarter of 2005. This too primarily reflected the favorable shift in our mix of business toward retail sites. As you know, these sites are operated under turnkey revenue agreements where the company is responsible for paying all direct operating costs and in return receives payment from the hospital in the full amount of its reimbursement from third party payers.

This is contract to our fee per use sites where AMS receives a fixed amount per procedure. So the mix of business can and historically does have an impact and revenue gross margin comparison. Operating income increased 17% to $996,000 from $854,000 a year earlier.

And pretax income increased 18% compared to the second quarter of 2005. Net income for second quarter of 2006 increased 15% to 448,000 or $0.09 per diluted share. This compares the net income for second quarter of 2005 of $391,000 or $0.08 per diluted share.

As anticipated, the affective income tax rate for this year’s second quarter increased to 39% from 37% for the second quarter of 2005. For the six months end of June 30th of 2006, revenue increase 13% to $10, 354,000 from $9,179,000 for last year’s first half. Operating income rose 15% to $1,942,000 compared to $1,690,000.

And net income advanced 12% to $884,000 or $0.18 per diluted share from $786,000 or $0.15 per diluted share for the six, for the first six months of 2005. Cash flow for the first six months of 2006, as measured by earnings before interest taxes depreciation and amortization increased to $5,359,000 compared to $4,855,000 for the first six months of 2005.

At June 30, 2006 American Share reported working capital of $1,984,000 cash, cash equivalents, and short-term securities of $7,318,000. And long term securities of $2,962,000, which includes our investment in Still River Systems. In comparison at December 31st, 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 equities increased to $18,747,000 at June 30th, 2006 compared to $18,320,000 at December 31st, 2005. For the quarter, there were approximately 5 million basic shares and 5.2 fully diluted shares outstanding, Craig.

Thank you, Norm. In our first quarter conference call, we reported on our $2 million equity investment in Still River Systems, which in collaboration with scientists from MIT 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 auction to acquire two Clinitron 250 PBRT systems from Still River Systems for an anticipated delivery in late 2008. I note that this device is not yet approved by the FDA.

This investment gives us a solid toe hold in what we believe will be the next major advance in radiation oncology and is a natural compliment to our current radiation therapy equipment offerings and our innovative financing capabilities.

We continue to work hard to develop additional contracts for our current generation, radiation therapy equipment offerings, as well as our proprietary operating room for the 21st century concept. During the second quarter, we raised our sights even further with our breakthrough agreement with Tufts-New England Medical Center.

Under this agreement, AMS will provide an image guided radiation therapy system, a CT simulator, and related services as part of a complete radiation therapy department upgrade. Subject to the execution of the definitive agreements, we anticipate commencing this lease agreement with Tufts NEMC in the first quarter of 2007.

AMS has provided gamma radiosurgery services with our clinical partners at Tufts NEMC since 1999. We are excited to expand our relationship with this renowned medical institution by adding the latest IGRT technology to Tufts NEMC’s capabilities now and committing to provide new technologies on the horizon for the future including potentially proton beam radiation therapy, subject to state regulatory approvals.

Our agreement also envisions the joint development of additional radiation therapy centers in the Boston area. What this means is that by taking advantage of AMS’ creative financing solutions, we have dramatically expanded our growth opportunity. AMS now stands ready to provide treatment simulation and planning equipment and software as well as the latest technology solutions for radiation oncology delivery.

In other words, rather than providing a single gamma knife or other device, AMS is now offering a complete state of the art radiation therapy department package. And we have proven the concept with our new agreement with Tufts-New England Medical Center. Our target market is radiation oncology, the therapeutic use of radiation to treat cancer. This is a large market opportunity for AMS.

Let me repeat what I reported on our last call. More than half of all new cancer patients now receive radiation therapy during the course of their treatment and more than 1.3 million new cancer patients are diagnosed annually in the United States. In 2004, this translated to approximately 800,000 individuals treated with linear accelerator.

We estimate that there are over 1,400 hospital based cancer centers throughout the United States with an estimated 60% of these institutions having IMRT capabilities. These centers are candidates for the most advanced therapeutic equipment.

We want as many of them as possible to obtain their equipment through AMS. Our innovative transactions with Still River Systems and Tufts-New England Medical Center have opened a promising path to the future. We are excited by our many new growth opportunities that we have created for AMS, for our commitment to leadership in our industry. Operator, we’re now ready for the first question.

Thank you, we will now begin the question and answer session. [OPERATOR INSTRUCTIONS]. Our first question comes from Lenny Dunn from EZ Stocks Incorporated. Please go ahead.

Hi, a good quarter. It certainly looks like things look fairly bring going forward, you know, this Tufts agreement and things like that will certainly make for a good 2007. But the second half of ’06, still hoping that we can get it, you know, some deals signed fairly soon so we can see something, you know, still this year.

That’s the first part of the question. The second part is just a response, there’s some guy on the Yahoo message board and the Yahoo says, the Yahoo, that’s what I’m calling him, what stage of research development is still revering their proton beam radiation therapy and do they have a working prototype and when is it likely that they’ll apply for FDA approvals? And actually it’s an interesting question, so I thought I’d ask it for him.

Sure, the, regarding this Still River where they’re at currently, they’ve completed the design review stage and they’re now in the process of just the manufacturing the first prototype.

And they expect to file for FDA approval, go through that, starting that process in about a year from now. Regarding contracts for second half of this year, we’re actually in negotiations with people but it’s unlikely due to the lead-time of equipment and construction that even if we did, those would not impact ’06. They would be impacting ’07 just like the Tufts agreement, although we have signed it recently, it will impact ’07.

That’s for the more sophisticated equipment. Will the gamma knife probably will be up and running a little sooner or…?

No. It’s unlikely mainly because you still have some regulatory issues that you have to go through. You have to do some sight improvements, which can be extensive at times. And there’s a lead-time that you also need for the equipment.

Okay. And on the long term securities, I assume that it’s not just the Still River initial investment but there’s something else involved there would that be the $962,000 is for the options or is that a….?

No that’s a, we have some securities that we have gone longer than we have decided to hold longer than one year. And that’s what’s in that number.

Okay, that’s what I thought so I just wanted to clarify that too. Obviously you have been doing a good job of executing, I think the future does look very bright but some of this stretched longer than [inaudible] all respect.

Yes, let me just start debates. I think we got a good explanation why this is taking a little bit longer with the gamma knives. You’re probably not aware, but about two weeks ago Elekta announced as a new advanced gamma knife.

It’s called Perflection. That machine is quite remarkable. It does more things than the present day gamma knife and I think people who had some awareness of this, it explains why there was probably a delay in accepting what most people would consider, be considered down out motive gamma knife. I’m very excited right now.

I have two other plans to take back to major universities to Sweden the end of August to look at this new gamma knife. It’s very encouraging. And I suspect that we’ve got four or five of our accounts that will want this advanced model.

Which of the advanced model then we get a little better pay per procedure going forward, that’s really two part question I guess.

Well I think what this machine will do, first of all, we’ll be able to treat part of the spine, which is something that we’ve not been able to treat before. So I think you’ll see a volume increase there. And it can do other things and I think will probably result in more procedures. Whether or not we can charge more for each procedure, probably not.

Then what were to happen with an existing gamma knife if you replaced it with a more sophisticated one?

It will be part of an upgrade program.

So you can take an existing one and upgrade it?

Yes we’re hoping that all older gamma knives will be upgraded and I’m quite excited about it.

Okay, good.

You know it also opens up a whole new market for us because I think this gamma knife also does set up a modified IMRT and just gives it wider, wider, much wider uses in what the old gamma knife had. I think it’s going to be a very effective competitor for the other [stellar statuatal] surgery head units.

Okay and just also, this is more directed to Norm I guess but since we had that tax loss carry forward in your crewing for all, you know, it was if you were paying taxes in full. You might, for investors’ sake, rake it out both ways so people can see clearly what is actually being paid in taxes as opposed to what, I mean, you’re being ultraconservative from what I can see.

Yes, well thanks Lenny. Yes we do, we are starting to pay some income taxes, but that’s reported in our 10-K every year, you know, what we pay and because we are now, have used up a lot of our tax loss carried forward so we will be starting to pay some taxes going forward. Not at that full rate, but we are still required to accrue with that rate.

No I understand and I understand what accounting rules are and I appreciate the fact that you’re very conservative rather than aggressively. So I’m not criticizing that at all, but you know, you could throw in some performance number on a quarterly basis so people could understand the cash flow that you’re really generating.

Well I think, you know, we’re required and the FCC guidelines report in a certain format. That’s what we do and I think for those that are interested like for stuff as to what the cash component of that number is, we do put that in there as well.

Oh no, we eventually are able to figure it out, but on a lagging basis. I just meant when you report but, again, I certainly commend you for being very conservative and reporting out like you’d rather see that done than somebody be very aggressive. Okay, well that’s all.

Thank you Lenny.

Thanks buddy.

[OPERATOR INSTRUCTIONS]. Mr. Tagawa, there are no further questions. Would you like to make your closing remarks?

Sure, thank you operator. I appreciate it and Dr. Bates, would you like to make any?

I just wanted to say that I’m very excited about what we did last quarter and I think going forward we’re going to see similar numbers. I am particularly excited about the new gamma knife and I’m also very excited about the prototype being in just the way it’s going.

The interest has been lost with my 30 odd years in this business. I’ve never seen so much interest in the new technology. And I’m quite excited that we’re going to be the first people to really put those out and what might be mass distribution. So I’m very excited and I don’t expect that we’re going to have any major difficulties with FDA approval.

I think it will come in the appropriate time. And it’s just going to be good business. I’m very excited about it and I think in my own mind that proton beams are going to probably replace most of the proton machines that we have in this country. So I’m very excited about it.

Operator, I think there are no other comments that we have. So we’d just like to thank everyone for participating on this conference 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 pass code of 15269770 to access the replay.

The web cast of this call will be available at www.ashes.com and www.companyboardroom.com. This concludes today’s teleconference. Thank you for participating. You may all disconnect.