American Shared Hospital Services (AMS) 2008 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to the 2008 second 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; and Norman Houck, Controller, of American Shared Hospital Services.

Mr. Tagawa, you may begin.

Thank you, Jamie, and thank you all for joining us for AMS' 2008 second quarter earnings conference call and webcast.

On our first quarter conference call I made the point that we sustained our revenue and profitability versus the first quarter of 2007 even as we made progress in transitioning our portfolio of radiosurgical and radiation therapy to next generation devices, which is the core of our long-term growth strategy. This fundamental observation applies even more strongly to our results for the second quarter.

Revenue was up versus the second quarter of 2007 and versus the first quarter of 2008. And while net income was down slightly versus last year's second quarter, primarily because of higher depreciation and interest cost associated with our investments in new equipment, net income increased compared to the first quarter.

We believe that the sequential improvement in our operating performance speaks to the quality of our current portfolio of radiosurgical and radiation therapy assets. It also shows how our strategy to use AMS' creative financing solutions to make proton beam radiation therapy systems, Leksell Gamma Knife Perfexion systems, IGRT systems and other next-generation devices for radiation oncology delivery available and affordable to our clinical partners and their patients has put us on the path for long-term growth.

I will have additional comments after Norm reviews the second quarter financial results. Then we will be glad to answer your questions.

Norm?

Yes, 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 Report on Form 10-K for the year ended December 31, 2007, the quarterly report on Form 10-Q for the three months ended March 31, 2008 and the definitive Proxy Statement for the Annual Meeting of Shareholders held on June 20, 2008. The Company assumes no obligation to update the information contained in this conference call.

For the three months ended June 30, 2008, revenue increased 4%, to $5,102,000, when compared to revenue of $4,910,000 for the second quarter of 2007, and increased 8% when compared to revenue of $4,725,000 for the first quarter of 2008. Net income for the second quarter of 2008 was $213,000, or $0.04 per diluted share. This compares to net income for the second quarter of 2007 of $280,000, or $0.06 per diluted share, and to net income for the first quarter of 2008 of $156,000, or $0.03 per diluted share.

The increase in second quarter revenue reflected a 12% increase in same-unit volume versus prior year at the Company's 18 Gamma Knife Centers, as well as the contribution of the IGRT and related equipment and services AMS began supplying a customer in September 2007, the recent upgrades to several existing Gamma Knife units, and the impact of the installation of three Leksell Gamma Knife Perfexion systems that began treating patients in last year's fourth quarter, this year's first quarter and this year's second quarter, respectively. Our newest customer, USC University Hospital in Los Angeles, began treating patients on its Perfexion system in July. This site should begin to contribute to our results in the third quarter.

As anticipated, these investments in next-generation equipment were responsible for an increasing depreciation and interest expense for this year's second quarter versus prior year.

For the six months ended June 30, 2008, revenue increased to $9,827,000, compared to $9,659,000 for the first six months of 2007.

Net income for the first six months of 2008 was $369,000, or $0.07 per diluted share. This compares to net income for the first six months of 2007 of $505,000, or $0.10 per diluted share.

Cash flow, as measured by earnings before interest, taxes, depreciation and amortization, increased to $2,657,000 for this year's second quarter and $5,025,000 for this year's first half, compared to EBITDA of $2,381,000 and $4,634,000 for the second quarter and first six months of 2007, respectively.

On the balance sheet at June 30, 2008, AMS reported cash, cash equivalents and short and long-term securities of $10,352,000. At June 30, 2007, AMS reported cash, cash equivalents and short and long-term securities of $10,497,000. Shareholders' equity at June 30, 2008 was $19,980,000, or $3.97 per outstanding share. This compares to shareholders' equity at June 30, 2007 of $19,071,000, or $3.80 per outstanding share.

Craig?

Thank you, Norm.

I have a couple of concluding notes that I would like to make. First, as Norm mentioned, our latest Gamma Knife Perfexion began treating patients in July at USC University Hospital in Los Angeles. This unit will contribute to our results beginning in the current quarter. Also, we are in various stages of negotiations for additional contracts for the full range of new radiosurgery, radiation therapy and PBRT systems, and we hope to announce new contracts in the months ahead.

Second, all signs point to PBRT as a major growth opportunity for AMS. As we have reported to you on prior conference calls, we are speaking with quite a few hospitals that have a real interest in acquiring the new one-treatment-room PBRT systems. We expect to see this market really blossom for us once FDA approval is received, which will make potential customers feel more comfortable about committing to these devices. We are also pursuing several projects that contemplate using FDA-approved multi-treatment-room systems.

Construction of the first Monarch 250 single-treatment-room proton beam radiation therapy system, under development by Still River Systems at a site other than our two sites, is still scheduled for delivery by the end of this year. This unit will serve as the evaluation unit for the purposes of obtaining FDA clearance, which we expect sometime in 2009.

We look forward to a profitable second half.

Jamie, we are ready for the first question.

Thank you.

(OPERATOR INSTRUCTIONS)

Our first question comes from Tony [Cammon], from Eastwood. Please go ahead.

Hi, guys. Nice job on the quarter. Craig, you anticipated my -- a couple of my two questions on your last comments, but I'm hoping you can maybe color or amplify a bit more in terms of the pipeline discussion. And I was really thinking before you made those remarks in terms of IMRT/IGRT, the Perfexion, is there anything the Company can do to further accelerate what sounds like maybe a pretty robust pipeline anyway? So the first question is in terms of acceleration, and the second is in terms of the current financing environment with all the chaos that's going on, how has the Company been affected or responded to that?

Regarding the first question, how can we accelerate some of these projects, I think we're doing everything we can to accelerate the projects. They have their -- hospitals have a tendency to go slower than we would like. They obviously they have to go through their approval processes. But we have several projects that are advancing very nicely that we hope to bring to fruition very shortly.

Regarding the credit environment, I think the credit environment is very tough right now, just as it is for everybody. There has been consolidation within the healthcare financing space. We're looking at our -- the company that we have been using, but we're also looking to diversify to other companies that provide credit to companies much like us. And we have used other finance companies in the past, and we're continuing to look at all opportunities to finance going forward.

Is it possible that there's a -- that it's helpful to you in some ways in that the hospitals themselves or doctors' groups or whoever might be more in need of the kind of financing solutions that you can offer?

Yes, I think what we're seeing are companies that are -- that have a solid balance sheet, like ourselves, can continue to get financing. Those with weaker balance sheets -- some of our competitors -- are having -- will have a more difficult time going forward. So I think there is some competitive advantage to us. I think hospitals are looking with those patients that are unfortunately uninsured. They impact their profit margins and ability to fund projects going forward. So we're seeing a lot more activity because of hospitals wanting to continue to provide technology but having to spread out the available capital resources over a greater number of projects. So our type of financing works well in that environment.

Yes, this is Dr. Bates. I just want to add to that. We're really not expecting any major difficulties financing our proton beam systems as we go forward once there is FDA approval. And already, in those situations where we're dealing with vendors whose equipment is already FDA approved, it's quite clear to us that we'll have no major difficulties getting funding.

I appreciate that. Following on that with, can you guys comment in terms of maybe updating us a little bit specifically on Still River? And Tomo had made some announcements that they're doing a spinoff, and that even though their machine might not be ready until 2012 or beyond, that there might be some technological advantages to it. Could you sort of discuss the relative positioning of the two companies' technologies?

Yes, I think if you look at Still River, as we mentioned in the call earlier, that they're still looking to get FDA approval sometime in 2009, I think what you'll see is a system that is going to be a very good system technically. It will be probably improved as time goes on. The system that was announced by TomoTherapy is a single-room system much like Still River. And I think one of the things that they have mentioned in their press release is they're going to have intensity-modulated proton therapy. And I think if you ask Still River, I think they will be looking at doing some sort of intensity modulation down the line, as well.

I just want to add to that. It's our expectation that the market for these compact, smaller proton beam systems is going to grow over the next several years, and particularly I think you'll see a big opportunity for the Still River machine once it's FDA approved. And I believe, and I haven't talked with them very recently, they're on track to get their FDA approval, as Craig had pointed out, sometime in 2009. And we think once you see that happen there'll be a lot of hospitals that right now certainly are not capable of supporting a four-room or a three-room system, but there'll be quite a few that can do very well with a one -- with a single-room or a double-room. And we're thinking that's going to be a huge market, and that's the market that we are looking at. And we're very encouraged by what we are seeing in the marketplace as we go out and talk to hospitals in this area and throughout the United States.

Great. Well, thank you very much, guys.

(OPERATOR INSTRUCTIONS)

Our next question comes from Anthony Marchese, from Monarch. Please go ahead.

Hi. Good afternoon. Very nice results. You know, what's perplexing to me is the current stock price. I'm sure it is to you guys, as well. And I have a feeling, and perhaps there's something you guys can do in future calls or perhaps in some type of release incorporated, I think a lot of people are scared away by what looks like a tremendous amount of debt on the balance sheet. And I just, from talking to people, get the sense that they look at this as true debt to the Company, whereas, correct me if I'm wrong, this is non-recourse debt. Do you guys get the same sense when you go out and talk to people?

I believe it's in the 10-K, the documents, but you're absolutely right. It's non-recourse -- the debt that's -- the Gamma Knife debt, the GK financing, is non-recourse for the parent. But unless someone really reviews the financial statements, they might not gather that, and you're absolutely correct, and maybe we should do a better job of clarifying that in the future.

Yes, I mean, because I'm looking at the stock, and, again, I'm not trying to play stock analyst on this call, but I'm looking at -- the way I see this, I'm looking at a stock that just earned $0.04, and I'm sure you can't necessarily annualize that, but even if you were to take a midpoint and say $0.15 for the year, you're looking at a stock that has $2.00 a share in cash, and so net-net you've got $0.15 a share on $0.40 of, if you will, difference. Am I looking at this wrong?

No, we believe the stock is undervalued. But I think we're doing everything we can to make sure our metrics stay in line, and then we're trying to grow the business while we're diversifying away from just the Gamma Knife business.

No, we don't have any good explanation for why the stock is not doing better than what it is. I think a lot of it reflects what's generally going on in the market. But I think healthcare in general is right now a healthy industry, and particularly radiosurgery. We just recently attended some meetings, and radiosurgery is sort of the hot industry right now in healthcare. And we are still what we think are the leading financing company for financing radiosurgery. And I think the role of radiosurgery in cancer care is going to grow each year, and I think eventually the market will understand that.

I see. All right. Thank you very much.

(OPERATOR INSTRUCTIONS)

And, Mr. Tagawa, there are no further questions. Would you like to make your closing remarks?

We'd just like to thank everybody for joining us this afternoon, and we look forward to speaking with you in about three months on our conference call for the third quarter of 2008.

Thank you.

This call will be available in digital replay and will be available one hour after the conference. To access the system, you can dial 888-843-8996 and enter the passcode of 22335173 followed by the pound sign 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.