American Shared Hospital Services (AMS) 2008 Q1 法說會逐字稿

Good morning, everyone, and welcome to the 2008 first-quarter 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; Norman Houck, Controller of American Shared Hospital Services.

Mr. Tagawa, you may begin.

Thank you, Rosa, and thank you all for joining us for AMS's 2008 first-quarter earnings conference call and webcast.

I think the main point to make about our first-quarter results is that we sustained our revenue and profitability versus the prior year even as we moved forward with the significant transition in our portfolio of radiosurgical and radiation therapy assets that is the planned consequence of our long-term growth strategy.

We are taking advantage of what we believe will be a steady long-term trend by our clinical partners toward Next Generation devices for radiation oncology delivery, including proton beam radiation therapy systems in advanced radiosurgery and radiation therapy devices. Driving this migration is the potential of these new devices to dramatically improve patient outcomes in the treatment of many formerly intractable cancers and other life-threatening conditions. By making these new systems available and affordable to clinical partners who might otherwise be unable to offer these advanced treatment of modalities to their patients, our creative financing solutions position AMS to be a major participant in this long-term growth opportunity.

I will have additional comments after Norman Houck reviews the first-quarter financial results. Then we will be glad to answer your questions. Norm?

Yes, thanks. 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 report on Form 10-K for the year ended December 31, 2007 and the definitive proxy statement for the annual meeting of shareholders to be held on June 20, 2008. The Company assumes no obligation to update the information contained in this conference call.

For the three months ended March 31, 2008, revenue was $4,725,000, essentially unchanged when compared to revenue of $4,749,000 for the first quarter of 2007. As anticipated, we had 19 Gamma Knife systems in operation during the first quarter, two fewer than a year earlier.

However, the impact on revenue was offset by the contribution of the IGRT and related equipment and services AMS began supplying a customer in 2007. Recent upgrades to several existing Gamma Knife units and the installation of two advanced Leksell Gamma Knife Perfexion systems that began treating patients in last year's fourth quarter and this year's first quarter respectively.

Also noteworthy is that we've sustained our revenue despite significant downtime associated with the Gamma Knife upgrades and installation of the Perfexion systems. Driven by these system upgrades and the new Perfexion systems, interest expense increased to $568,000 for this year's first quarter compared to $467,000 for the same period a year ago. These investments also resulted in an increase in depreciation expense included in cost of revenue for this year's first quarter versus prior year. We held the line on selling, general and administrative expenses during the quarter at $1,107,000 compared to $1,161,000 for the first quarter of 2007.

Net income for the first quarter of 2008 was $156,000 or $0.03 per diluted share, reflecting a 49% effective income tax rate. This compares to net income for the first quarter of 2007 of $225,000 or $0.04 per diluted share, reflecting a 46% effective income tax rate.

Cash flow in this year's first quarter as measured by earnings before interest, taxes, depreciation and amortization increased 5% to $2,368,000 compared to $2,253,000 for the first quarter of 2007.

On the balance sheet at March 31, 2008, AMS reported cash, cash equivalents and short and long-term securities of $9,462,000 compared to $8,916,000 at March 31, 2007. Shareholders equity at March 31, 2008 was $19,730,000 or $3.93 per outstanding share. This compares to shareholders equity at March 31, 2007 of $19,010,000 or $3.78 per outstanding share.

Craig?

Thank you, Norm. On March 31, 2008, AMS entered into a 10-year agreement to supply a Leksell Gamma Knife Perfexion system to USC University Hospital in Los Angeles. This is the fifth Perfexion system we have placed. You may recall that we sold one outright several months ago to (inaudible) operation under long-term contracts with AMS and contributed to our first-quarter results. We have begun providing services with the fourth system in the second quarter, and the fifth at USC is expected to begin treating patients in the second half of 2008.

USC University Hospital was among our earliest Gamma Knife customers and ultimately bought back the device from us outright at the end of the leased term in 1999. We welcome them back as a customer for the Perfexion system. Our new agreement with one of the country's leading cancer centers clearly demonstrates the value of AMS's creative financing solutions in making Next Generation radiosurgery devices available and affordable to our clinical partners across the country.

On the Gamma Knife front, we sold the unit to an existing clinical partner effective March 31 under the terms of the original lease. So with one additional Leksell Gamma Knife Perfexion system upgrade coming online in the second quarter, one new customer scheduled to come online in the second half of 2008, and the progress we are making in the development of additional contracts for radiosurgery, radiation therapy and PBRT systems, we are optimistic about our performance in the months ahead.

A final note regarding PBRT. As I reported to you on our last conference call, construction of the first Monarch 250 single treatment room proton beam radiation therapy system is under development by Still River Systems at a site other than one of our two sites and is scheduled for delivery by the end of this year. This unit will serve as the valuation unit for the purposes of obtaining FDA clearance. AMS owns approximately 6% of the equity of Still River, and we already have contracted to lease Monarch 250 systems to two clinical sites, Tufts Medical Center and at M.D. Anderson Cancer Center Orlando once FDA clearance is in hand.

Rosa, we are now ready for the first question.

(OPERATOR INSTRUCTIONS). [Tony Kamin], [Eastwood].

I came in late to the call, so you might have mentioned this already. But in terms of Still River, can you talk about how you see the FDA pass for the Company and what your confidence level is in terms of their ability to get an approval?

Well, the path is, as I just mentioned, the first unit is scheduled for delivery at the end of this year. And at that point, the FDA will review the final project and then render a decision. We are optimistic that they will receive it, but of course, with any process, there is no guarantee as to whether or when they will receive it. But we are very optimistic that it will happen.

Okay. Does Still River have plans to do further financing in which you might participate, or are they fully funded up to the point where they can deliver the first few systems?

You know, they may do further financings, and I think at that point we will look to whether we want to participate or not.

For us the decision is, how do we allocate our capital? And we have to look at it whether we want to increase our equity position in Still River, or do we want to make additional deposits on future systems whether they be for proton beams, IGRT or other radiosurgery devices?

I just want to make the point -- this is Dr. Bates -- that we are now negotiating with probably about 15 to 20 hospitals for proton beams. And once these are signed up, they will require deposits, and right now we're thinking that is probably the best use for our capital.

And is there anything, any relationship with Still River which prohibits you from relationships with other potential protein beam suppliers down the road?

Absolutely not. In fact, we are negotiating with two accounts that are looking at the IBA system, and there is a good chance that we will probably sign a contract with one of those accounts before the end of the year to put in an IBA system.

Terrific. Great job, guys. Thank you.

(OPERATOR INSTRUCTIONS). Mr. Tagawa, we have no further questions at this time. Would you like to make any closing remarks?

Well, I would just like to thank everybody for joining us this morning, and we look forward to speaking with you in about three months on our conference call to discuss the second quarter of 2008.

Thank you. This will be available in digital replay immediately following today's conference. To access the system, dial 888-843-8996 and enter the passcode of 21546804 followed by the # to access the replay.

The webcast 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.