American Shared Hospital Services (AMS) 2006 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Third Quarter 2006 Conference Call. Later, we will conduct a question-and-answer session. At this time, all participants are in a listen-only mode. [OPERATOR INSTRUCTIONS]

With no further delay, I'd like to turn the call over to Mr. -- I'm sorry, Dr. Bates, Chairman and Chief Executive Officer, Craig Tagawa, Chief Operating and Financial Officer, and [Norm Hawk], Controller, of American Shared Hospital Services.

Mr. Tagawa, you may begin.

Thank you, Rosa, and thank you all for joining us for AMS's Third Quarter Earnings Conference Call and Webcast. We'll open the call for questions after Norm Hawk and I review the financial results we announced this morning.

I begin with a 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, the Form 10-Q for the Second Quarter ended June 30, 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.

Now, let's turn to the results.

Revenues for this year's third quarter increased 19% compared to the third quarter of 2005. The growth was due primarily to the ramp-up toward normal volumes at the two Gamma Knife centers that began treating patients in mid-2005, as well as higher patient volumes at several of the Company's older centers.

Reflecting the increase in revenue, as well as our attention to keeping costs under control, operating income increased 15% for the third quarter of 2006 compared to the third quarter of 2005. Operating income growth is one of the primary measures we use internally to judge our progress, so we are proud that this quarter marks the 23rd consecutive quarter of year-over-year gains in operating income for AMS.

We are pleased that AMS has been able to continue delivering solid growth in revenue and operating earnings from our current portfolio of radiosurgical assets even as we transition to a new, more ambitious operating model that we believe will significantly enhance our long-term opportunities.

As we reported to you on the last couple of conference calls, our plans -- is to use AMS's creative financing solutions to expand our growth potential by offering our clinical partners a full range of advanced treatment simulation and planning equipment and software, as well as the latest technology solutions for radiation oncology delivery. In other words, we are looking well beyond our traditional dependence on the Gamma Knife.

Our target market is radiation oncology, more generally. This is a large 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.

Another way to look at it is that there are over 1,400 hospital-based cancer centers throughout the country, with the majority offering some type of radiation therapy capability. These centers are natural candidates for the most advanced therapeutic equipment, and we want as many of them as possible to obtain their equipment through AMS.

We have already taken steps to implement this model, first, with the equity investment we made earlier this year in Still River Systems. This investment gives us a toehold in proton beam radiation therapy, a treatment which we believe will be the next major advance in radiation therapy.

We also have an option to purchase two Clinatron-250 PBRT machines from Still River for anticipated delivery in 2009. As always, I caution that the Clinatron-250 has not yet been approved by the FDA.

The second step was the closing in September of our innovative agreement with Tufts-New England Medical Center to provide state-of-the-art equipment as part of a complete radiation therapy department upgrade. We expect our new initiative with Tufts-New England Medical Center to favorably impact our operating results beginning in mid-2007. Our deal with Tufts-New England Medical Center is important in its own right, of course, but it also serves as a model of the type of transaction we hope to do more of in the future, and we are confident that we will do more.

We also are continuing to pursue opportunities for current-generation radiation therapy devices in our proprietary Operating Room for the 21st Century concept.

Now, I'm going to turn the call over to Norm Hawk to review the numbers. Norm?

Thanks, Craig.

For the three months ended September 30, 2006, revenue increased to $5,238,000 from $4,402,000 for the third quarter of 2005. The number of procedures performed during the third quarter increased to 664 from 597 last year. As Craig mentioned, we experienced especially strong improvement at our newest centers, and several of our older centers had good growth, as well.

Gross margin remained consistent quarter to quarter at about 50%.

Selling and administrative expense increased from an unusually low $800,000 last year to about 1.1 million for this year's third quarter, which included legal fees and other costs associated with the development of our proton beam business and other new opportunities.

Operating income increased 15% to $1 million from $867,000 a year earlier, and pretax income increased 12% compared to the third quarter of 2005.

Net income decreased solely due to a higher tax rate. For third quarter of 2006, net income was $425,000, or $0.08 per diluted share, reflecting a 40% effective income tax rate. This compares to net income of $502,000, or $0.10 per diluted share, for the third quarter of 2005, which reflected a 21% effective income tax rate.

For the nine months ended September 30, 2006, revenue advanced 15% to $15,592,000 from $13,581,000 for the same period of 2005.

Operating income rose 15% to $2,942,000 from $2,557,000, and pretax income increased 16% to $2,162,000 from $1,862,000 a year earlier.

Net income for the first nine months of 2006 increased to $1,309,000, or $0.26 per diluted share, reflecting a 39% effective income tax rate. This compares to net income for the first nine months of 2005 of $1,288,000, or $0.26 per diluted share, reflecting a 31% effective income tax rate.

For the quarter, there were approximately 5 million basic shares and 5.2 million fully diluted shares outstanding.

Cash flow for the first nine months of 2006, as measured by earnings before interest, taxes, depreciation, and amortization, increased to $8,034,000, compared to $7,341,000 for the first nine months of 2005.

At September 30, 2006, AMS reported working capital of $2,414,000; cash, cash equivalents, and short-term securities of $8,106,000; and long-term securities of $925,000.

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 at September 30, 2006 increased to $18,943,000, compared to $18,320,000 at December 31, 2005.

Craig?

Thanks, Norm.

Rosa, we are now ready for the first question.

Thank you. We'll now begin the question-and-answer session. [OPERATOR INSTRUCTIONS]

Our first question -- at the moment, there are no questions. [OPERATOR INSTRUCTIONS]

Now, I'll turn the call over -- back to Mr. Craig Tagawa. Mr. Tagawa?

Now, I would just like to thank everybody for joining us this morning, and we look forward to speaking you -- with you on our fourth quarter and 2006 results conference call in a few months. Thank you, everybody.

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 16161294 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 disconnect.