American Shared Hospital Services (AMS) 2009 Q3 法說會逐字稿

Good day everyone, and welcome to the 2009 Third 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 Norm Houck, Controller of American Shared Hospital Services.

Mr. Tagawa, you may begin.

Thank you, Christine and thank you all for joining us for AMS's 2009 third quarter earnings conference call and webcast.

AMS reported a profitable third quarter even and after the last of the transaction costs and our portfolio radiosurgical and radiation therapy assets continue to generate positive cash flow despite lower revenue levels.

AMS's creative financing solutions have helped make advanced radiation oncology solutions available and affordable to hospitals and their patients since 1991.

Over the years, we have built the industry's largest portfolio of radiosurgical and radiation therapy assets including five Leksell Gamma Knife perfection systems, 14 Gamma Knife systems, and an IMRT system and related equipment now treating patients at hospitals throughout the United States.

As we reported last quarter, our sixth Perfexion system at Smillow Cancer Hospital at Yale New Haven in New Haven, Connecticut, is expected to being treating patients in early 2010, pending regulatory approval. This new Perfexion system will replace an existing Gamma Knife supplied by AMS.

While we are working to place additional Perfexion and related systems, those of you who have been following our company for a while know that our primary focus is on proton beam radiation therapy, the next great growth opportunity in radiation oncology.

Today I'm pleased to report that we recently entered into discussions with a leading cancer center regarding the development of a multi-treatment room PBRT facility in New York City. That's all I can say at this time, but we hope to have additional detail on this exciting project in the weeks and months ahead.

This center in New York City would be in addition to the three treatment room PBRT facility we are developing in the San Francisco Bay area with proton therapy equipment to be provided by Varian Medical Systems. We continue to negotiate with the hospitals who are likely to participate with us on this project.

These are complex negotiations involving financing and other sensitive issues that take time to work through. Varian has already received CE mark approval in Europe for it's multi-treatment room PBRT system. The first installation of Varian's system is now treating patients at a PBRT center in Germany.

AMS has also entered into contracts to place three Monarch 250 single treatment room PBRT devices and we continue to negotiate to place more. The Monarch 250 is an affordable, precise and compact proton therapy system for cancer treatment under development by Still River Systems in which AMS owns an equity interest.

Construction of the facility that will house the first Still River proton beam device is underway at Barnes Jewish Hospital in St. Louis. The latest information we have is that the actual Monarch 250 compact high energy cyclotron will be installed onsite this coming spring, two or three months later than we reported on our last conference call.

This is not one of our three contracted sites, but it's important for us because it will serve as a site for FDA clearance. As we have said repeatedly on prior calls, based on what we were told by many groups with which we are negotiating contracts to supply a Monarch 250, we are confident that the pace of activity in our PBRT business will pick up substantially once FDA clearance has been received.

We have many additional PBRT projects in various stages of development and are confident that this technology will drive AMS's growth in the years ahead.

Our goal is for AMS to be the one-stop shop that hospitals and radiation oncology groups turn to first to meet their PBRT requirements, whether for single-treatment rooms or multi-treatment room facilities, depending on their patient volume.

Now I'm going to turn the call over to Norm to review our financial results. 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 report on form 10-K for the year ended December 31st, 2008, the quarterly report on form 10-Q for the quarter ended March 31st, 2009 and June 30th, 2009, and the definitive proxy statement for the annual meeting of shareholders held on May 28th, 2009.

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

Before I get started, first I wanted to point out under nine month results on the earnings release, the last sentence of the first paragraph, there's a minor typo in there. It should say, this compared to net income for the first nine months of 2008, not the first half of 2008.

Continuing on where the three months ended September 30th, 2009, revenue decreased to $3,926,000 compared to $4,532,000 for the third quarter of 2008.

The total number of Gamma Knife procedures performed during this year's third quarter was 432, unchanged versus prior year.

Revenue decreased due to a shift in volume toward centers with relatively lower payment rates per procedure compared to the third quarter of 2008.

As we've reported in the past couple of conference calls, volume has been especially low at one center that, in the first quarter, added the total body radiosurgery device, in addition to the Gamma Knife that had been operating there for a number of years.

Also due to physician turnover, there were no procedures performed during the quarter at one of our retail sites.

Net income for the third quarter of 2009 was $17,000 or $0.00 per diluted share, which included transaction costs of $22,000 incurred during the quarter. This compared to net income of $25,000, also $0.00 per share for the third quarter of 2008.

As previously disclosed, earlier this year the company engaged in discussions concerning the possible sale of it's 81% interest in GKF, the operating subsidiary for company's Gamma Knife business. These discussions were terminated on May 28th, 2009. Under applicable accounting rules, the company is required to expense the legal accounting, investment banking and other costs incurred for these activities, which are classified separately as transaction costs.

Selling and administrative expenses decreased more than 21% to $875,000 for this year's third quarter compared to the third quarter of 2008. And these expenses also were down compared to this year's second quarter.

Other income and expense decreased primarily due to the dramatic decrease in interest rates this past year.

For the nine months ended September 30th, 2009, revenue decreased to $12,676,000 compared to $14,359,000 for the first nine months of 2008.

The net loss for this year's first nine months was $51,000 or $0.01 per share, which included transaction costs of $342,000. That equates to $174,000 on an after-tax basis, or $0.04 per share.

This compares to net income for the first half of 2008 of $394,000, again first half, that's first nine months of 2008, of $394,000 or $0.08 per diluted share.

Last year's income for the first nine months also included a gain on the sale of equipment of about $56,000. There were no such gains for this year's first nine months.

Taken together, the transaction costs and decrease in other income accounted for about $0.07 over the reduction in earnings per share for this year's first nine months versus prior year.

Cash flow is measured by earnings before interest taxes, depreciation and amortization, EBITDA, was $2,220,000 for the third quarter and $6,360,000 for the first nine months of 2009, compared to EBITDA of $2,273,000 for the third quarter and $7,298,000 for the first nine months of 2008.

At September 30th, 2009, AMS reported cash and cash equivalents of $9,469,000. This compares to cash and cash equivalents of $10,286,000 at December 31st, 2008.

Shareholders equity at September 30th, 2009, was $22,776,000 or $4.96 per outstanding share. This compares to shareholders equity at December 31st, 2008, of $22,938,000 or $4.87 per outstanding share.

We amended our bank line of credit during the quarter increasing availability to $9 million from $8 million and extending this term to two years instead of one year. So borrowings against the line are now reported as long-term liabilities instead of short-term. This is the primary reason that current liabilities are down so sharply compared to last December.

The company re-purchased 75,000 of it's common shares during the third quarter of 2009 for an average purchase price of about $2.37 per share. The number of common shares outstanding at September 30th, 2009, was 4,595,070, compared to 4,712,183 at December 31st, 2008.

The company still has about 81,000 shares left on the stock re-purchase authorization originally approved by our board of directors in 2001 and reaffirmed in 2008.

Craig?

Thank you, Norm.

Now we'd like to open the call to questions. Christine, we are ready for the first question.

Thank you. We will now begin the question and answer session. (Operator Instructions).

The first question comes from Tony Cammann from Eastwood Partners. Please go ahead.

Alright, gentlemen. Recognizing the early stage of planning you're going through in New York as you announced today and in California on your multi-treatment centers, can you talk roughly, if you feel these are going to be comparable in terms of potential patient volume and then obviously revenue to Loma Linda?

You know, they clearly should be, if not higher than the volumes to Loma Linda. And Loma Linda does, from what we understand, anywhere between 125 and 150 patients a day. And we clearly think they will at least be that. There are very large catchment areas, the two centers that we're working on, the number of actual treatment rooms that will be available will also be very similar. It would be either three to four rooms are what we're looking at.

Yes, we believe the revenue figures will be very close and if you look at what the proposed Medicare rate is for 2010, it's roughly a little over $1,200 a patient.

Craig, you might point out that that's an increase.

And that's a significant increase over what was allocated for 2009. So, we're very pleased with the direction that the reimbursement rate is taking as far as Medicare is concerned.

Okay. Second question, I noticed that Acu-Ray the other day mentioned that they're seeing particular growth in Europe with their Cyber Knife. So on your Gamma Knife, are you seeing a similar opportunity potentially in Europe?

Yes, we are. We are looking at entering negotiations for a couple of units in the UK. We're also looking at South America where we're looking to put several Gamma Knives and potentially a linear accelerator in a hospital.

So, we see outside the United States there is a big demand for the type of financing that we do, which is not your conventional fixed monthly rate financing. So, some of these centers in the UK and South America are looking for, really, partners to help them develop the market and to work with the insurance companies to develop equitable reimbursement rates.

I might add to that, to the existing Gamma Knives in the United Kingdom are seeing numbers in excess of 300, and 400, and in one case 700 patients a year. So they're very large numbers and we're very excited about it. And one of the hospitals that we are talking to is a major, major teaching hospital in London.

Great. Final question, you brought a new director on board recently who seemed to have a very impressive and applicable experience and qualifications. Can you talk a little bit about how that director happened to come aboard and how you see him potentially contributing to the company?

Ray Stachowiak known for many years-- this is Dr. Bates speaking-- probably for about 10 years or longer, and I've always considered him one of the brightest and one of the best operators of mobile medicine in America. And I do serve on his board at Shared Imaging which is another impressive, impressive organization.

And Ray really knows the mid-west market. I'm sure he's going to be very helpful to us when we start expanding in the mid-west with protons and with linear accelerators.

I'm very excited about him being on our board as are the other board members and he does bring something that we've not had on the board recently, and that's youth. He's a lot younger than our average board member.

So that's the direction we're going with our board, getting younger people. And also people that we really think can make a strong contribution to the company.

Terrific, thanks very much.

The next question comes from Lenny Dunn from Freedom Investors. Please go ahead.

Hi, good afternoon. Just, actually a couple questions, one is on the Gamma Knife that, there was no doctor to operate it, is that up and operational again, where they have somebody to use it now, finally?

No, they're still looking for a qualified individual to do that. So they are not currently operating.

I might add to that. Those two Gamma Knives that have not been in operation the whole quarter, and Norm, correct me if I'm wrong, but neither one of those machines were really in operation except for the one in Jacksonville that only did it at about two patients.

But if you compared them with the quarter of 2008, those two machines together had about revenue of $750,000. Is that correct, Norm?

Yes, that's correct.

Those problems, I'm feeling reasonably confident, are going to be resolved. The one in Arkansas is going to be resolved. It's just an unusual situation where we we're getting what amounts to some sort of political turmoil, but I think it's going to be resolved. The dean is really on top of that situation and we hope to have that situation resolved by the end of the year.

The other situation is getting a little bit better. It may require, it's been handed off now to the lawyers. And we feel, as do our lawyers, that we have a very strong position there. We're hoping it will not end up in litigation, but it's possible.

I wanted to know because obviously we can get ourselves some earnings once you can start getting some revenue from those two.

The other question, the Still River, these things seem to always take longer, not only just with you but with, when you're building out a new system that's never been operational before. But are you fairly confident now that it'll be up and running by spring of next year?

Yes. Still River is giving us every indication that they're making continued progress. They anticipate that the cyclotron, which is the most important component, will be shipped this spring and they hope to complete the installation by the middle of next year.

So, I think we're all very optimistic. It is the first machine to go into operation, but all things remain very positive at this point.

Craig, you might say a word about the new CEO that's going to be running Still River going forward. A little bit about his resume and how excited I am about having him on board and we had a very fruitful conversation with him two weeks ago.

For those of you who have not followed Still River as closely, Still River recently hired a new CEO, Joe Jachinowski. Joe's background is, his last, he was at Elekta, head of North America for Elekta, prior to that he was one of the founders and CEO and IMPAC. And he sold that business to Elekta prior to joining Elekta.

So he's got quite the varied background and an entrepreneurial background, so he's perfect for Still River we feel. And he has a vast software engineering background as well, which is going to be very critical in the final stages of Still River's development of the first unit.

The situation with Still River is going to have a very positive two-fold effect when we get this thing up and running. First, the FDA approval allows you to proceed with the three deals you have sold, which is obviously a huge effect on AMS and the other is you own shares and I would project that in the latter part of 2010, Still River would then have the ability to go public, which would certainly enhance the value of your shares.

So, I'm looking forward to that, but these things sometimes take longer than we initially expect.

Yes, that's true, Lenny, but I might add that they've got some very strong people involved with this company. They've got Paul Volcker, is on the board of that company, of Venrock, which we all know is a very successful venture firm, has just recently put some money in. We've got CHL, another strong venture firm that's put money in.

These are people who don't put money into losing operations.

I'm certain it's going to work.

There's no question it's going to work.

But the sooner the better.

Oh, I agree. I agree.

I'll let somebody else ask questions.

The next question comes from Tony Polak from Maxim Group. Please go ahead.

I'm just a little confused on the approval process of the Still River machine. Are they going for approval shortly? Is it already in for approval?

It's not in for approval yet. What they've done is they have to go and obtain a 5-10-K approval from the FDA. And what they've done is, so far, as we understand it, is they've made progress reports and submissions to the FDA to alert them as to the progress they've made on developing the first system.

The final submission to the FDA will when the first system is put together at Barnes Jewish Hospital. So I think that's why it's so critical that that first unit be assembled and up and running so that everybody can see that it meets the specifications that are indicated in their guides.

So do I assume that at Barnes that's not a machine that will go in before approval or it will go in before approval?

It will go in before approval.

Okay, and when is that expected?

That is expected, that they will start shipping, probably some of the parts, the beginning of next year and the cyclotron, which is the main component, is scheduled for the spring of next year.

Do you know whether they've actually taken any images on a (inaudible) type machine at their place.

No. I think the next step that is going to happen, and they hope that will occur the latter part of this year, is the, what is called the beam extraction. That is to make sure that 250 MEVs can be generated from the machine on a consistent basis.

Listen, we all should be encouraged by the fact that the FDA, as we know, and I think it is a fact, has not approved any radiation therapy machine application that was submitted.

It's very unlikely that that would happen with this machine.

Okay, thank you.

At this time, there are no further questions. Mr. Tagawa, would you like to make closing remarks?

Thank you for joining us everybody. And we look forward to speaking with you on our fiscal 2009 year-end conference call in about four months.

This call will be available on digital replay immediately following today's conference. To access the system please dial 888-843-8996 and enter the pass code of 2575474 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.