American Shared Hospital Services (AMS) 2007 Q2 法說會逐字稿

Good afternoon and welcome to the second quarter 2007 conference call for American Shared Hospital Services. (OPERATOR INSTRUCTIONS)

Now, I'd 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 for American Shared Hospital Services. Mr. Tagawa, you may begin.

Thank you, Rosa and thank you all for joining us for AMS' second quarter 2007 earnings conference call and web cast. We'll be glad to answer your questions after our prepared remarks.

I'm going to ask Norm to begin with a review of the financial results. Then, I will have additional comments prior to the Q&A. Norm?

Thanks, Craig. Please note that various remarks that we may make on this conference call 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 reports on Form 10K and 10K-A for the year ended December 31st, 2006 and Form 10Q for the quarter ended March 31st, 2007 and a definitive proxy statement for the annual meeting of shareholders held on June 14, 2007.

The Company assumes no obligation to update the information contained in this conference call.

For the three months ended June 30, 2007, revenue decreased 7.5% to $4,910,000, compared to $5,309,000 for the second quarter of 2006. This decrease primarily reflected a shift in the mix of procedures to lower revenue per procedure sites, which is a normal variation in the geographic distribution of procedures that we often see from quarter to quarter.

Despite downtime required [cobalt] reload at a second center during this year's second quarter, the total number of procedures decreased just 2%, to 621 from 634 for the same period last year. Gross margin was unchanged at approximately 50% for both periods.

Selling and administrative expense increased to $1,209,000 for the second quarter of 2007, compared to $1,078,000 a year earlier, reflecting higher business development costs in support of the Company's strategic growth plan as well as the expenses associated with the implementation of required new accounting standards.

Reflecting the decline in revenue in the increase in expenses, operating income for this year's second quarter decreased to $767,000 compared to $996,000 for the same period of 2006. Net income for the second quarter of 2007 was $280,000, or $0.06 per diluted share, reflecting a 47% effective income tax rate. This compares to net income for the second quarter of 2006 of $448,000, or $0.09 per diluted share, reflecting a 39% effective income tax rate.

For the six months ended June 30, 2007, revenue decreased to $9,659,000, compared to $10,354,000 for the first half of 2006. Gross margin was approximately 48% for both periods.

Operating income for this year's first half was $1,369,000, compared to $1,942,000 a year ago. Net income for the first six months of 2007 was $505,000, or $0.10 per diluted share, reflecting a 47% effective income tax rate. For the first six months of 2006, net income was $884,000, or $0.18 per diluted share, reflecting a 39% effective income tax rate.

As we've reported to you on previous calls, we continue to expect the effective tax rate for 2007 as a whole to be higher than the 42% rate recorded for 2006.

Cash flow for the first six months of 2007, as measured by earnings before interest, taxes, depreciation and amortization, was $4,634,000, compared to $5,359,000 for the first six moths of 2006.

At June 30, 2007, AMS reported cash, cash equivalents and short and long-term securities of $10,497.000. This compares to reported cash, cash equivalents and short and long-term securities as $8,906,000 at December 31st, 2006.

Shareholders' equity at March 31st, 2007, was $19,071,000 compared to $19,009,000 at December 31st, 2006.

One final note; the decrease in working capital on our June 30, 2007 balance sheet is primarily related to the new Leksell Gamma Knife Perfexion systems we ordered from Elekta AB last October.

During this year's second quarter, we received a deposit and advanced payment of approximately $3 million from a customer toward the purchase of one of these Perfexion systems. This amount is reflected on our balance sheet as a current liability. However, the corresponding asset for the Progress payments we have made is not reflected in current assets, hence, the change in working capital.

Craig?

Thank you, Norm. This is a year of transition for AMS as we develop our operating platform to properly support the Company's long-term growth plan. We are building the market for our creative financing solutions by offering our clinical partners the latest tools for radiation oncology delivery, a field where new technology is steadily expanding the range of treatment options available. We stand ready to provide our clinical partners with a complete radiation therapy department upgrade with equipment from various manufacturers that goes well beyond our traditional focus on the Gamma Knife.

The lease agreements we already have announced with two leading medical centers for advanced ration therapy devices, including Proton Beam Radiation Therapy Systems, Leksell Gamma Knife Perfexion systems, IRGRT Systems and other radio surgery devices show how the successful implementation of our strategy has enhanced our growth opportunity.

Following up on Norm's comments, regarding the Leksell Gamma Knife Perfexion systems we ordered last year from Elekta, I am pleased to report that three of the four systems have now been scheduled for delivery. We plan to begin upgrading clinical partner sites with these advanced systems in the second half of this year and expect the first of these upgraded sites to begin treating patients in the fourth quarter of 2007.

We also expect the IRGRT and related equipment services AMS has contracted to supply Tufts-New England Medical Center to begin clinical operation late in the third quarter or early in the fourth quarter of this year.

Keep in mind that in those cases where we are replacing existing equipment with new equipment, the transition at our clinical partners' sites requires that we take the existing equipment offline for about a month, due to the installation of the new systems. This can be expected to impact volume at those centers just as the Cobalt Reloads we have announced in the first half of this year.

Also, as we have reported in our 10K and first quarter 10Q, one of the Company's 21 existing Gamma Knife contracts is scheduled to terminate in the fall of 2007 at the end of its term and another contract is scheduled to terminate in early 2008 at the end of its term.

Interest continues to run very high on the PBRT front. As you know, we already placed both of the Clinitron-250 Proton Beam Systems we have an option to purchase from Still River Systems. And we still expect to commence our lease agreements with Tufts-New England Medical Center and M.D. Anderson Cancer Center Orlando for the Still River Clinitron-250 PBRT Systems in 2009, subject to the receipt of FDA approval.

PBRT represents a significant, long-term growth opportunity for AMS and we are positioning the Company to take full advantage of this opportunity, using technologies manufactured by various vendors over the next couple of years. While we have no new contracts to report this quarter, we are very excited about the enthusiastic response we consistently received from current and potential new clinical partners to our expanded service capabilities.

As a range of treatment options and the cost of the equipment continues to increase, our demonstrated ability to make today's most advanced radio therapy devices from a variety of vendors available to the patients who need them is more valuable than ever before.

We are confident that AMS is on the right track for the future. Rosa, we are now ready for the first question.

Thank you. We will now begin the question and answer session. (OPERATOR INSTRUCTIONS)

Mr. Tagawa, there are no questions at this time. Would you like to make your closing remarks?

I will ask Dr. Bates if he would like to make a statement.

Yes, I would. I'd like to say that, at this point, the Company is in a stage of transition, and that I think its future, going forward, is very bright. If you look at the two areas where we see, what I believe is significant growth, the first being the Proton Beam Division and the second being the Gamma Knife Division. And the Gamma Knife Division had been static for the last two years or three years, while we, as well as our customers and other hospitals, were awaiting the new Perfexion machine; that's the new Gamma Knife machine.

This really is a remarkable piece of equipment. It is expected to have an increased volume over the present machines of at least 30%. And the reason for that is that this machine can do things that the other machine couldn't do.

For instance, it can do 30 metastases for brain tumor [metastagnacies], where, in the past, it was not possible to go through that technology to do really more than 10. This means that the whole area of brain metastases, which in itself is probably about 200,000 cases or more, a year, in the United States. This (inaudible) business is going to go to the present term, Perfexion's. So, that's quite exciting.

So, I think if you just look at the numbers, if you look at the four that we ordered and hope to have in operation by the middle of next year, we should expect, on those four machines, a minimum of an increase in volume of about 20%.

And then going forward, Craig and I are pretty consistent in our thinking that at least 10 of these machines are going to be ready for upgrades to the Perfexions. It's going to take some time to finalize those negotiations, but I think in each of those machines we should be seeing an increase of revenue at least to about 20%. So, I'm very excited about that.

And that leaves us probably with four machines that we will probably look at upgrading later on, probably in the next two years. Those contracts need to be worked on but I think there's a very good possibility that those will be upgraded.

So, all of our fleet, and that's probably at the present time roughly about 20 machines, all of those machines are going to be upgraded with this new Perfexion.

I do suggest that you might get hold of whatever information Elekta, the manufacturer, has on this machine and look at it because it's very exciting. I think it's probably one of the most exciting things that's happened to the whole field of radio surgery. I'm quite excited about it. I mean, it's just given a whole new spirit and lift to our business; very exciting.

And then the Proton Beam business, Craig has said a little bit about it, but that is just taking off. Our investment in the Still River machine has done quite well. That, now, has expanded to orders placed by that company to approximately nine new machines. Is that correct, Craig, nine?

Yes, I believe so.

I think they reported nine and remember, we have two of those nine. But the more exciting thing is that Craig and his staff are now, and I'm just counting those hospitals that I personally was involved in, there are 12 sites that we're actively in negotiations with to place Proton Beams. I'll just give you some sites for a few of them.

Obviously, one in San Francisco that we're very excited about. If those negotiations are finalized, this will probably be, in my mind, one of the busiest machines in the western United States. And that will not be a one-room but a two-room system.

We are in negotiations with hospitals in Hawaii; one in the Lehigh Valley area, two in the Greater New York area; one in Baltimore, one in Washington D.C., one in Arizona; machines in -- and one in Chicago and one in Detroit and one in the New Haven area. Have I missed anything, Craig?

No. I think that's a pretty complete list.

That's 12 machines and Craig can certainly go over the revenue for you with these machines but that's quite exciting.

Just a word about what I think the revenue should do on these new Perfexions. If we're averaging $1 million a year, and we go up to 20%, we're looking at going up to about $1.2 million for each of those machines, once they're up and running and fully maintained and hitting the numbers that we expect for mature machines. Is that correct, Norm, those numbers that I've just mentioned?

Yes, that's correct, Dr. Bates.

So, in conclusion, I'm very excited about the prospects for the Company, going forward. We're obviously going to have to increase our sales staff, and that's the next step, hiring more sales reps because we just, Craig and I and the other Ernie Bates who has joined us, we just can't handle all the business. But we're going to need somebody that's going to be spending a lot of time on an airplane.

Again I think we're in a good position, and I think you're going to see some significant changes in the next year and a half, or two. I believe if one is patient this stock is going to appreciate once it's reflective of what our increased volume is going to be. So anyway, thank you.

Thank you. 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 18727059 followed by the pound sign to access the replay. The web cast of this call will be available at www.ashs.com and www.earnings.com. This concludes today's teleconference. Thank you for participating, you may now disconnect.