American Shared Hospital Services (AMS) 2007 Q1 法說會逐字稿

Good afternoon, everyone, and welcome to the first-quarter 2007 conference call for American Shared Hospital Services.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (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, Rosa. Thank you all for joining us for AMS' first-quarter 2007 earnings conference call and webcast. We will be glad to answer your questions after our prepared remarks.

Let's begin by having Norm review the financial results. Then, I will have additional comments prior to the question-and-answer period. Norm?

Thanks, Craig.

Please note that various remarks that we may make on this (technical difficulty) 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, 2006 and the definitive proxy statement for the annual meeting of shareholders to be held on June 14, 2007. The Company assumes no obligation to update the information contained in this conference call.

Turning to the results, revenue for the three months ended March 31, 2007 was $4.749 million, about 6% below last year's first-quarter revenue of $5.045 million. The primary reason for the decrease was that patient volume for this year's first quarter was below the record patient volume we enjoyed in the first quarter of 2006.

There were 607 procedures performed in this year's first quarter, compared to 669 in the first quarter of 2006. This reflected down time required for cobalt reload at one of the Company's centers this year and personnel shortages at another center. The reload has been completed and the staffing issues have been resolved. We do not expect these issues to affect patient volume in the current quarter.

Gross margin was about unchanged at 47% for this year's first quarter versus 48% for the prior year.

Selling and administrative expenses increased 27% to $1.161 million for the first quarter of fiscal 2007, compared to $914,000 for the first quarter of 2006. As Craig will explain in more detail in a moment, we increased spending in these areas in support of the Company's long-term strategic direction.

Reflecting the decline in revenue and the increase in expenses, operating income for the first quarter of 2007 decreased to $602,000 compared to $946,000 for the first quarter of 2006. Pretax income decreased to $420,000 compared to $720,000.

Net income for the three months ended March 31, 2007 was $225,000 or $0.04 per diluted share, reflecting a 46% effective income tax rate. This compares to net income for the three months ended March 31, 2006 of $436,000 or $0.09 per diluted share, reflecting a 39% effective income tax rate. We continue to expect the effective income tax rate for 2007 as a whole to be higher than the 42% rate recorded for 2006.

Cash flow for the first quarter of 2007, as measured by earnings before interest, taxes, depreciation and amortization, was $2.253 million compared to $2.685 million for the first quarter of 2006.

At March 31, 2007, AMS reported cash, cash equivalents and short-term securities of $5.121 million and long-term securities of $3.795 million. At December 31, 2006, AMS reported cash, cash equivalents and short-term securities of $5.526 million and long-term securities of $3.380 million.

Shareholders equity at March 31, 2007 was $19.010 million compared to $19.009 million at December 31, 2006.

Craig?

Thank you, Norm.

We are devoting the management resources and marketing dollars required to build the foundation for AMS' sustained, long-term growth. We are committed to our strategy to leverage AMS' creative financing solution by offering our clinical partners the latest technology solutions for radiation oncology delivery. Using as a model our proven innovative agreements, we currently are developing additional agreements to provide clients with advanced radiation therapy devices as part of a Radiation Therapy department upgrade. These devices may include proton beam radiation therapy systems, the new Leksell Gamma Knife Perfexion system, and other advanced radiation therapy and radiosurgery devices. Our investment in Still River and the agreements we have announced with Tufts-NEMC and M.D. Anderson have positioned us as a key player in the emerging proton beam radiation therapy market.

As I reported to you in our last call, interest among potential clients in this exciting new therapy is exceptionally strong, and we continue to be contacted by and to contact potential partners who want to know how we can help them position themselves to implement proton beam services. We are actively evaluating these additional proton beam opportunities and hope to have additional information to announce to you later this year, both about additional proton beam radiation therapy projects and projects we are developing to provide other radiosurgical or radiation therapy devices.

As you know, the Clinatron 250, currently under development by Still River Systems, is a single treatment room proton beam system incorporating proprietary technology that still River believes may dramatically reduce the cost of implementing proton beam radiation therapy. In April 2006, AMS invested $2 million for an equity interest in Still River Systems and acquired an option to purchase two PBRT systems. AMS exercised this purchase option in February 2007.

We continue to expect our agreement with Tufts-NEMC to provide an image-guided radiation therapy system, a CT Simulator, and related service, support and maintenance services to continue to our operating results beginning in our fourth quarter and to begin upgrading clinical partner sites later this year with the four Leksell Gamma Knife Perfexion systems we ordered from Elekta in 2006. We also expect to commence our lease agreements with Tufts-NEMC and M.D. Anderson Cancer Center Orlando for the Clinatron 250 proton beam systems in 2009, subject to the receipt of FDA approval.

While we were disappointed by our financial performance in the first quarter, we are working hard to build the foundation for more rapid growth in the future. We look forward to reporting our progress to you.

Rosa, we are now ready for the first question.

Thank you. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS). Lenny Dunn. Please go ahead.

I can see clear growth next year, and I can see that this is going to be a year where we set things up for next year, at least from everything I'm reading and what you just stated.

Now, the cash flow was still very substantial in the quarter. It would be nice -- and I said this on the last call -- if you would make it a lot easier for your shareholders to be patient by raising the dividend. Even if you only went to the $0.05 quarterly, it would certainly make it easier for us to be patient and wait for next year, which we currently have to do for the growth. Now, I do clearly see that next year looks very good and the year after even better as this proton beam starts to come into play, but it doesn't hurt to pay us while we are waiting patiently.

Mr. Dunn, I'd like to answer that, if I may. I think, quarterly, management and the Board of Directors reviews our dividend policy. What we weigh are clearly what we should do for our shareholders but in addition what we should do for our shareholders long-term. What we have to weigh are the needs for the Company going forward in developing some of these new businesses that we are really most excited about. So, each quarter, we do review the dividend policy, but we review it in light of what the capital needs are going forward and what we think is in the overall best interest of the shareholders.

I fully understand what you are saying, but you would be sending a message that this is worth waiting for by raising the dividend a little, so people could see that the future does look fairly bright. And it would seem to me, with the type of cash flows you have, which are pretty compelling, that there's room for a balance of a slight raise in the dividend and having a good future. There always has to be balance.

Yes, we understand that, Lenny, but going forward we're looking at other things that might be a better use of that cash than dividends, such as taking a larger equity position in the proton beam business. There is that possibility that we might be able to do that. That, we believe, or at least I believe and the board at this point concurs with me, that's probably a better use of our cash. But it's something that we reconsider every Board meeting. I will certainly bring your concerns up to the Board when we meet in June.

I'm not looking for a large increase, just a small one. That does send a future looks bright message to everybody.

But Lenny, don't you think that the dividends right now are pretty generous, considering the size of the Company and the earnings?

Yes, they are fairly generous. This is, in many ways, a financial company because of what you do, and financial companies do pay generous dividends. Again, you know, if you are paying out $0.05 a quarter, it's $0.20 a year. With the cash flows you have, I think there's room for that. I wouldn't think that you would want to raise it too much. I agree with that, because the growth is more important than the dividend, but it makes it easier to hold and weigh.

Well, I will take your concerns to the Board and when we meet next, we will get back to and we will see what they decide.

Okay, Dr. Bates, thank you very much.

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

Thank you for joining us this afternoon. We look forward to speaking with you on our conference call for the second quarter of 2007, which will be in about three months. I'd like to see if Dr. Bates would like to make any closing statements.

Well, the only statements I want to make is that I'm very excited about the future, particularly with the IGRT, the recent contract at Tufts; I think that's going to be repeated elsewhere. I am also excited about the contract that Craig has developed at Tufts, and that certainly is going to be complete at other major medical centers. But I'm most excited about the proton beam preliminary results, showing that proton-beam treatments are far superior than what's existing now. We are, at this point, we are negotiating with probably over 10 to 15 hospitals. Everyone is quite excited about it, and I think, at this point, we are the leader in this area and the potential right now is just unlimited. My son, Ernest Bates, and Mr. Tagawa, just completed a white paper on the proton beam, which I believe is the finest thing that has been written on this subject. At some point, for any of you that would like to get a copy of that, we will certainly send it to you.

Anyway, thank you.

This call will be available on digital replay immediately following today's conference. To access the system, dial 888-843-8996. Enter the passcode of 17904583 to access the replay. The webcast of this call will be available at www.ASHS.com and www.earnings.com.

This concludes today's conference. Thank you for participating. You may now disconnect.