American Shared Hospital Services (AMS) 2015 Q4 法說會逐字稿

Good afternoon, everyone, and welcome to the fourth-quarter 2015 financial results 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 Alexis Wallace, Controller of American Shared Hospital Services. Mr. Tagawa, you may begin.

Thank you, Sylvia, and thank you all for joining us for AMS' fourth-quarter and 2015 financial results conference call and webcast. 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, 2014, its quarterly reports on Form 10-Q for the three months ended March 31, 2015, June 30, 2015 and September 30, 2015 and the definitive proxy statement for the annual meeting of shareholders held on June 16, 2015. The Company assumes no obligation to update the information contained in this conference call.

Our Gamma Knife business performed well for the fourth quarter and 2015 overall, posting gains in treatments, revenue and operating income compared to 2014. We attribute this top- and bottom-line growth to our hard work this past year to refine our cost structure, to improve operating margins and increase utilization by our hospital partners. Our efforts in these areas have been successful and we hope to make additional progress in the new year.

Based on the hospital outpatient prospective payment rates for 2016 recently announced by the Centers for Medicare and Medicaid Services, we estimate that the average CMS reimbursement rate for delivery of Gamma Knife or LINAC, one session cranial radiosurgery and separately reimbursable ancillary codes, exclusive of coinsurance another adjustments, will decrease approximately by 10% compared to 2015.

To put this in perspective, we estimate that CMS' Gamma Knife rate reduction would have reduced AMS' annualized 2015 revenue by approximately 2%. So with our operations running increasingly efficiently and the impact of Medicare rate reductions on our revenue likely to be minimal, we expect our Gamma Knife business to deliver another solid performance in 2016.

We look forward with enthusiasm to the initiation of patient treatments next month at AMS' first proton therapy center now nearing completion at the Marjorie and Leonard Williams Center for Proton Therapy at UF Health Cancer Center-Orlando Health in Florida.

In a major milestone the MEVION S250 at this center has completed its rigorous acceptance testing and has entered the clinical commissioning phase. Clinical commissioning is the final step before the first treatment -- before the first patient is treated.

During the rigorous acceptance testing phase of the MEVION S250 in Orlando met or exceeded all specifications. Its operational control has been officially transitioned to the physics and radiation oncology proton teams at UF Health Cancer Center.

We recently announced that AMS has entered into a definitive agreement for the financing of our Orlando center. Our success in guiding this complex project from inception through delivery and installation of the MEVION S250 proton system and the placing of permanent financing has not gone unnoticed in our industry.

We expect the success of our Orlando project to facilitate our negotiations with other hospitals around the country that have expressed interest in partnering with AMS to develop proton centers of their own.

We believe that the clinical advantages of proton therapy in the treatment of a wide range of cancers will support rapid growth in the application of this advanced therapeutic technology and we are convinced that AMS will be a significant beneficiary.

Now I will turn the call over to Alexis Wallace to go over the financial results in detail. Alexis?

Thank you, Craig. For the three months ended December 31, 2015 medical services revenue increased 4.3% to $4.162 million compared to medical services revenue of $3.992 million for the fourth quarter of 2014.

Net income for the fourth quarter of 2015 more than quadrupled to $277,000 or $0.05 per share. This compares to net income of $58,000 or $0.01 per share for the fourth quarter of 2014.

Total number of procedures performed in AMS' Gamma Knife business decreased 1.7% for the fourth quarter of 2015 compared to the same period of 2014. This decrease was primarily due to the expiration of a site contract in March 2015.

The increase in revenue despite the decrease in procedure volume reflected a favorable mix of treatments at the Company's retail sites as well as an increase in Medicare reimbursement for Gamma Knife services that went into effect in January -- on January 1, 2015.

Medical services gross margin for the fourth quarter of 2015 increased to 44.7% compared to medical services gross margin of 38.6% for the fourth quarter of 2014. The improvement in gross margin was primarily the result of reduced maintenance costs.

Operating income increased 91.9% to $731,000 for the fourth quarter of 2015 compared to operating income of $381,000 for the same period a year earlier.

Pretax income net of income attributable to non-controlling interest increased to $383,000 for the fourth quarter of 2015 compared to pretax income net of income attributable to net controlling -- non-controlling interest of $154,000 for the fourth quarter of 2014.

Selling and administrative expenses for the fourth quarter of 2015 decreased 0.5% to $792,000 compared to SG&A expenses of $838,000 for the fourth quarter of 2014. This was primarily the result of lower consulting expenses.

For the 12 months ended December 31, 2015, medical services revenue increased 7.3% to $16.548 million compared to medical services revenue of $15.417 million for 2014. Revenue for 2014 includes the Company's operations in Turkey which were sold effective on May 31, 2014. Excluding prior years' revenue in Turkey, medical services revenue increased 11.2% for 2015 compared to 2014.

The net loss for 2015 was $1.522 million or $0.28 per share. The loss was primarily attributable to the write down of $2.14 million or $0.40 per share related to AMS' strategic equity investment in MEVION Medical Systems. Excluding this charge the Company would have reported net income of $618,000 or $0.12 per share for 2015.

This compares to a net loss for 2014 of $952,000 or $0.19 per share, which included a pretax loss from the sale of the Turkey subsidiary of $572,000 and a pretax gain on foreign currency transactions of $161,000 due to the strengthening of the Turkish lira against the US dollar.

The total number of procedures performed in AMS' Gamma Knife business increased 6.9% for 2015 compared to 2014 excluding procedures performed in Turkey. This increase reflected higher procedure volume at certain of AMS' existing sites as well as the opening of the Company's newest Gamma Knife site in Springfield, Oregon on December 2014 offset by the expiration of one Gamma Knife agreement in March 2015 which I mentioned earlier.

Operating income for 2015 increased to [$1.980] million compared to an operating loss of $50,000 for 2014. Interest expense decreased to $1.239 million in 2015 compared to $1.699 million for 2014.

Excluding interest expense in Turkey this decrease was due to the closure of the Company's line of credit on January 2, 2015, the pay down of the Company's existing debt obligation for its IGRT device at the end of 2014 and an existing lease obligation for a Gamma Knife site at the end of the first quarter 2014 and a one-time benefit for early quantification recorded in the third quarter of 2015.

Turning to the balance sheet at December 31, 2015, cash and cash equivalents were $2.209 million compared to $1.059 million at December 31, 2014.

As of December 31, 2014, AMS had a $9 million renewable line of credit with a bank secured by a certificate of deposit. This line was paid in full on January 2, 2015 using the proceeds from the certificate of deposit. As a result current liabilities decreased to $8.698 million as of December 31, 2015 compared to $16.251 million at December 31, 2014.

Shareholders' equity at December 31, 2015 was $25.180 million or $4.69 per outstanding share. This compares with shareholders equity at December 31, 2014 of $26.154 million or $4.88 per outstanding share. Craig?

Thank you, Alexis. Sylvia, we are ready for the first question.

(Operator Instructions). Tony Kamin, Eastwood Partners.

Hi, good afternoon. It was a very good quarter and I guess my first question is around your sense of being able to replicate quarters like this going forward. You certainly expressed some optimism about the Gamma Knife business. But is this something that we should look as a new norm or was this an unusual quarter?

Well, I think in terms of the cost controls I think, as you have seen, we've made significant progress during the here. The one thing we obviously can't control because of the way our contracts are structured is the revenue side. We feel good about it going forward into 2016.

As we mentioned earlier, the Medicare rates have pretty much stabilized, we don't think that will have a large impact on us. So, I think things look very bright as a whole for the Gamma Knife during 2016. But we can't -- as we have had in the past, there will be peaks and valleys, but overall we feel very good about what the revenue should look like in 2016.

I think that it is very likely that these kind of numbers are going to attract new people looking at the Company. And I think it might be, just as a suggestion, I think it would be very helpful going forward to put your EBITDA number into your press release, particularly as the proton beam I'm sure will generate depreciation as well.

And with your debt load it looks sort of funny if you don't look at the EBITDA and also the realization that a lot of your Gamma Knife's are under non-recourse debt, so --.

Good point. We will take that under advisement, Tony.

Okay, thank you. Next question, incredibly exciting that the proton beam is -- for those of us who have owned the stock for a long time -- is about to start its first treatment.

Can you talk about the University of Florida Health Center and maybe give me a better understanding of what they are doing to market? Are they yet really marketing or are they going to try to open quietly? I am really curious about their efforts to raise awareness that this treatment is now available at Orlando.

Oh, I think they have done several things, they have done a good job of marketing the services coming to Orlando Health and they did that when they first installed the synchrocyclotron in I think it was November 2014. They had a lot of press coverage there, they did -- and they did get a lot of play at that point to let people know it was going to be coming and expected treatments in 2016.

Actually next week they will be holding a press event announcing the opening of the center. So I think they will get widespread coverage both from newspapers and the TV media. So I think they have done quite a good job of getting this out there.

So I think it is not an unknown quality, they are getting people that are calling in to ask about the service and we are very excited. I think we have got an excellent group of -- both from an administrative and a clinical team that we are working with.

Tony, there is also a second open house in the latter part of April, which I will be attending -- this is Dr. Bates. And this is a luminary institution. We are quite certain that they will do well; they will make us all proud.

That is great. And I think along the same logic, I really do believe it is time that having a good quarter and having -- after 10 years of waiting, having this occur now, I think it would be a really perfect time for AMS throughout the year, not just on a one-shot, but throughout the year to really go out and start to retell or tell for the first time to people who have never heard the AMS story itself.

I think that -- I think the shares are very undervalued and I think that getting that story out there, I think now is the time it would really receive the right reception. And I think that as each -- as you have the first treatment and then you have revenue starting to roll in and hopefully then signing the next proton beam, I think this is a time you might really find market receptive to learning more about AMS.

We agree.

Great. So next question on -- you mentioned that the signing of the financing for Orlando was -- had attracted some interest from other hospitals. Sort of standard question every quarter, but do you think this year we might see another partnership on your second proton beam or --?

Well, we are in discussions with several institutions. I am reasonably certain that we will announce at least one more or two more in 2016.

That would be great. And final question, Dr. Bates, any further studies or things in the literature or even just feedback you are getting from being in the medical community of proton beams and their relative acceptance and the relative efficacy in all that?

Yes, Tony, in preparation for the earnings call today we looked at some of the recent literature. I actually looked at about 120 papers and they all are very promising in terms of tumor controlled and acceptable toxicity profiles using protons over conventional radiation therapy. It is getting out there now that there is clearly a clinical advantage to protons. So you will see more and more papers in the literature coming out showing that.

Great. Great quarter and congratulations.

Thank you, Tony.

[Robert Bochy].

You have done a great job turning the Company around, very proud of you. I have been a longtime shareholder; I remember when you paid dividends. But I am interested in, in reference to MEVION, since we are a shareholder, how are they helping us?

And they have a -- there is a Chinese company that has financed part of MEVION. I was wondering if they will also be helping with the financing for us on further projects?

The Chinese investment companies that you have mentioned, they did make a -- did one of the fundings with MEVION late -- the latter part of last year, which is very important. We all benefited from that, obviously. I don't anticipate them reaching out to individual companies to finance their projects, but I don't know for certain.

I think one of the things that MEVION did announce is that they will be forming a joint venture in China to really distribute and service and even probably make some of the parts in China for that market. And China is considered the second biggest market for protons behind the United States. So I think it is a very good partnership that they have struck with these investors.

Mr. Bochy, I don't think we are going to have any major difficulty getting financing for our needs in the next two years in this country. Financing will be available.

Very good. Keep up the good work. Thank you.

[Tony Polak].

Good afternoon. Could you give us an idea on when you will see some revenues from the Florida proton beam therapy?

Yes, we should see some in the second quarter, I think they will be -- you will see a ramp-up period, so you won't see probably a huge influx of revenues, but we'll start gradually seeing that in the second quarter. And I think they will keep ramping up during the rest of the year. So I think you will see more in the -- significant revenues probably in the third and fourth quarter.

Do you foresee some time in this year or next year or quarter where they will be operating close to capacity or what St. Louis is doing?

Yes, I think that is sort of the benchmark. St. Louis did I think a little over 100 patients their first year. And at that time that was the fastest single room ramp up. I think we anticipate that our Orlando facility will at least match that if not exceed that.

Great. Okay, thank you.

Lenny Dunn.

Good afternoon and good quarter. I am very pleased to see we are now operating the Gamma Knives in a profitable manner. And it sounds sustainable from the information you have given. Do you anticipate being able to place one or two more Gamma Knives this year?

We do. We have been working on that and we have got a couple that we are trying to place at this point. So, yes, I think we hope to place at least one and possibly two.

Craig, I think this is a good time for you to say a word about the new Gamma Knife, the improvement over previous Gamma Knives, the Icon.

Sure, the Icon was recently FDA approved and they are starting -- they have installed one in the United States so far in Sacramento. We are looking to install some of these in the -- over the course of the next year probably.

What the Icon does is it integrates an imaging device with the software so that you could do multiple fractions on a large tumor. So if a tumor is too large to do a single fraction due to the radiation dose you might do the -- this larger tumor over two to five fractions.

And there is a reimbursement mechanism for that from Medicare and this really rounds out what the Gamma Knife can do. It is a frame procedure, that is why it is very important to have the cone beam CT imaging attached and integrated to the perfection. And the perfections can all be upgraded to the Icon platform.

So, we are very excited about it. We are learning as we go along about the capabilities and the advantages of the Icon.

Okay, on the Icon, will you still only get the same reimbursement that you do on the regular Gamma Knife? Or is there a potential for a little more reimbursement per procedure?

How the Icon -- how the reimbursement works for what we call hypo fractionated radiosurgery, and that is where you are giving between two to five fractions. So you are giving the dose over two to five days as opposed into a single day. So the patient will come back and get retreated at the same tumor.

So there are separate codes for this type of procedure. And from a Medicare standpoint it is about the same rate if you are doing somewhere between probably three to five fractions or three to five sessions as you would get on a single treatment. So, it is just a different way of treating and it is expanding the types of indications that a Gamma Knife can treat.

Okay. And when is the first patient supposed to be treated in Orlando?

In April.

I understand that. But mid-April or --?

Probably the beginning part of April. Hopefully sometime in the next week.

Okay, that is great. And after the first patient, assuming everything goes smoothly, do you think you'd be able to treat half a dozen more during April or is it hard to say?

It is up to the clinicians as to the pace that they want to ramp up. But they have a very experienced team with proton therapy experience, so --.

Okay, and the final question I have is that it would assume -- I am assuming there was a big learning curve in getting this set up. So that if you sign a second hospital probably everything goes at a faster pace. Would that be an accurate expectation?

Yes, I think if you check with MEVION and the other manufacturers they are all installing these and getting these up and running faster now. Everybody is learning from the experience that they have gotten from installing the previous ones. I think we are seeing that the times are going to be quicker from the time you start constructing to the time you actually treat a first patient.

Okay, that sounds like all good news. And thank you again for the hard work and that you have got this thing turned around now. Thank you.

Anthony Marchese.

Good afternoon, guys. First, again, congratulations on what looks like a very good quarter and obviously getting the proton beam going. The stock trades at a third of book value. Clearly it is just people, maybe they will start to care but certainly it looks like people just don't care. I think part of it unfortunately has to be due to a -- not properly telling the story.

Could you be more specific in terms of what you intend to do to more effectively tell the story? Because by any measure -- any measure the stock is significantly undervalued yet it continues to stay undervalued.

So I think it is going to take a push on the Company's part to better tell the story outside of just doing conference calls and an occasional press release. Could you be a little more specific as to what you intend to do two more effectively tell the story?

Anthony, what we intend to do was go on the road now. I think we can do it now that we have an operating machine. But you can imagine how difficult it was when we were telling people: well, we are not sure when we will have our first proton revenue. Now we are there. So, yes, we intend to go out on the road and talk more about what is going on with the Company and with protons.

Okay, all right. Yes again, I think unfortunately, as they always say, stocks don't sell themselves. And so I think it is important that you guys take the initiative to tell the story because that is the only way we will see fair value.

Because I get the sense that there are people that have been in the stock a long time. And the minute that they see $2.00, $2.25 they are immediately looking to get out of their position because that has been the pattern. So, again, not to dwell on what may be a sore topic, but thank you very much for increasing your effort in the future.

You're welcome.

Thank you.

[Mason Matzke].

Nice quarter. I was interested if you could review for me how many more machines you have deposits down for with MEVION, the cost of those machines and then the current cost that customers of MEVION have to pay for a new machine, ballpark. Thank you.

Well, the cost of the machines we really can't disclose because we get them at a discount. So it is not fair to MEVION to disclose that. And we have two of those. Is that correct, Craig?

We have two more that we have made commitments to.

Okay --.

I might add though that the prices of these single treatment rooms are coming down.

You have said publicly what your discount was though I believe, haven't you, on your -- you have two machines left that you have deposits for?

Correct.

Okay. What is the cost of a new machine if somebody was -- ballpark, would go to MEVION right now?

Well, I think you need to call up MEVION and find that out for yourself.

Okay, thanks.

Mr. Tagawa, we have no further questions. Would you like to make your closing remarks?

Yes, I believe Dr. Bates would like to make some closing remarks.

I just want to say that things have really turned around. I think we now see the light at the end of the tunnel. When we first started out on this in 2006, signing our first agreement with MEVION, there were only three proton machines in the United States. Now there are 21. And by the end of 2017 there will probably be another 10. So there will be over 30.

I think it is clear to us that protons are now accepted. And everyone I think is beginning to see the advantage over conventional radiation therapy. So we are quite excited about going forward. We have a lot of interest in the single room machine.

I think MEVION has done a good job and now IBA has also got a one room solution, which is also very exciting, as does Varian. So I think people see what we saw 10 years ago. Right now [single] rooms make up about 25% of the market, Craig, is it?

Single rooms.

Single rooms.

Correct.

And I think that percentage is going to grow.

Okay. So thank you all for joining us this afternoon. We look forward to speaking with you in May on our first-quarter 2016 results conference call.

This call will be available digital replay immediately following today's conference. To access the system dial 888-843-7419 and enter the pass code 4219-8893 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.