American Shared Hospital Services (AMS) 2017 Q4 法說會逐字稿

Welcome to the fourth quarter and year-end 2017 earnings conference call. My name is Silvia, and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Dr. Ernest Bates. Dr. Bates, you may begin.

Well, this is Craig Tagawa. Thank you, Silvia, and thank you all for joining us for AMS' fourth quarter and 2017 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 of 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, 2016; its quarterly reports on Form 10-Q for the 3 months ended March 31, June 30, and September 30, 2017; and the definitive proxy statement for the Annual Meeting of Shareholders held on June 27, 2017.

The company assumes no obligation to update the information contained in this conference call. Alexis Wallace will review our financial results in detail in a moment. But first, I want to highlight the significant improvement in our operating performance for the fourth quarter of 2017 compared to the fourth quarter of 2016 and compared to the third quarter of 2017, which was affected by unexpected slowdown in proton therapy treatment volume.

We said on our last conference call that we expect the treatment volume at our Proton Therapy Center at Orlando Health, UF Health Cancer Center, to rebound in the fourth quarter, and rebound it did.

Treatment volume increased 18.3% to 1,205 fractions for the fourth quarter of 2017 compared to 1,019 fractions for the fourth quarter of 2016. And fourth quarter volume was up 28.2% compared to the 940 fractions performed in the third quarter of 2017. This was a solid quarter-over-quarter improvement that gets us back on growth path in Orlando. We are optimistic that the pace of proton treatment volume will increase in 2018.

The proton therapy adoption rate among the leading U.S. cancer centers continues to increase. But more importantly, clinical indications that can benefit from proton therapy are on the rise. With only 26 operating proton centers in the United States, proton therapy development is still in its early stages. But we believe the clinical benefits of proton therapy will make this a large marketplace for years to come.

Our Gamma Knife business remains a successful consistent business. Volumes are ramping up at our new sites in Lima, Peru, and Lincoln, Nebraska and these new centers are expected to be accretive in 2018. AMS' risk sharing arrangements are generating increased interest in today's healthcare environment, and we anticipate that this will help us add additional Gamma Knife sites in the future.

Looking into 2018, AMS will benefit from the lower federal tax rates that take effect this year. It's also important to keep in mind that the Centers for Medicare and Medicaid Services implemented a 6% increase in the Medicare reimbursement rate for simple, intermediate or complex proton treatments, and a 1.5% increase for Gamma Knife treatments for 2018. These rate increases should make a positive contribution to our financial performance in the new year as well.

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

Thank you, Craig. For the 3 months ended December 31, 2017, rental income from medical services increased 0.5% to $5,084,000 compared to rental income from medical services of $5,060,000 for the fourth quarter of 2016.

Net income attributable to the company for the fourth quarter of 2017 was $1,418,000 or $0.24 per basic and diluted share. This includes an income tax benefit of $1,546,000 attributable to the revaluation of the company's federal and state deferred tax liabilities, following recently enacted federal state -- federal tax legislation and the full write-down of the company's investment in equity securities of $579,000. In comparison with the fourth quarter of 2016, net income attributable to the company was $452,000 or $0.08 per diluted share.

Fourth quarter revenue for the company's Proton Therapy System installed in Orlando increased 29.3% to $1,168,000 compared to revenue of $903,000 for the fourth quarter of 2016 and increased 24.8% compared to the third quarter of 2017. Revenue for the company's Gamma Knife operations decreased 8.9% to $3,697,000 for the fourth quarter of 2017 compared to $4,057,000 for the fourth quarter of 2016.

As previously announced, AMS lost one of its Gamma Knife units due to the expiration of its contract term at the end of April 2017 and a second unit in August 2017. As Craig mentioned, the decrease in revenue from these 2 sites was partially offset by revenues from 2 new sites in Peru and Nebraska that began operations in the third quarter of 2017. Excluding the 2 sites whose contracts expired in 2017 and the company's 2 new sites, Gamma Knife revenue for the fourth quarter of 2017 was consistent with the fourth quarter of 2016.

Rental income from medical services' gross margin for the fourth quarter of 2017 decreased to $2,184,000 or 43% of revenue compared to rental income from medical services' gross margin of $2,827,000 or 55.9% of revenue for the fourth quarter of 2016. This reflected an increase in cost of revenue primarily attributable to the initiation of maintenance and service costs for the company's proton system in Orlando, and one -- and certain onetime expenses associated with the launch of the company's Gamma Knife service in Peru.

Non-GAAP adjusted net income, net of the tax benefit from tax reform and the long-term write-down of the company's investment in equity securities, was $451,000. This compares to non-GAAP adjusted net income of $452,000 for the fourth quarter of 2016. Please refer to the financial statements included with this press release for a reconciliation of GAAP to non-GAAP financial measures.

Adjusted EBITDA, a non-GAAP financial measure, was $2,673,000 for the fourth quarter of 2017 compared to $2,877,000 for the fourth quarter of 2016. For the 12 months ended December 31, 2017, rental income from medical services increased 4.6% to $19,556,000 compared to rental income from medical services of $18,700,000 for 2016. Proton therapy revenue increased 91.7% to $4,120,000 for 2017 compared to $2,149,000 for 2016.

Excluding treatments at a customer site lost due to the expiration of their contract terms in April 2017 and August 2017 and the company's 2 new sites, Gamma Knife revenue for 2017 was consistent with 2016.

Net income attributable to the company for 2017 was $1,923,000 or $0.33 per basic and diluted share. This compares to net income attributable to the company for 2016 of $9.30 (sic - see press release, "$930,000") or $0.17 per basic and diluted share. Adjusted EBITDA, a non-GAAP financial measure, was $10,250,000 for 2017 compared to $10,165,000 for 2016.

Finally, on the balance sheet. At December 31, 2017, cash and cash equivalents was $2,152,000 compared to $2,871,000 at December 31, 2016. Shareholders' equity at December 31, 2017, was $29,885,000 or $5.23 per outstanding share. This compares to shareholders' equity at December 31, 2016, of $27,173,000 or $4.97 per outstanding share.

Craig?

Well, thank you, Alexis. Silvia, we are ready for the first question.

(Operator Instructions) And the first question comes from Lenny Dunn from Mutual Trust Company.

Book value is very nice right now, $5.23. And we're selling for a little over 50% of it in the open market. I kind of attribute that to a lack of earnings growth. And I would hope that we're going to finally start seeing some proton being contract signed because that's going to really make the earnings growth go. So are we any closer than we were at the last conference call to getting something signed?

Well, Lenny, as you know, we have been negotiating with several hospitals across the country, and things are looking more promising, particularly for 3 hospitals that hopefully we'll get signed up within the year.

Do you think maybe by the next conference call, we'd have one of them signed? Or you think it's going to take longer than that?

I think a little bit longer than that. As you recall, part of the problem under our model is that the hospitals need to provide the land and the construction. And they've had trouble coming up and getting financing. But I think we have now found a funding service that will fund that for the hospitals, so this is very promising. And this has happened in the last month.

Okay. We don't need to sign up 10 of them, we just sign at least one very soon and maybe a couple more by the end of the year, but there's only so many that you could handle at one time anyhow. And it looks like the Gamma Knife revenue is fairly steady, and the Peru operation looks like that's going to continue to produce real revenue. So we shouldn't have any problems with that, but the growth is going to come from proton, as you well know. The only other question I have, and it's a little bit of a disappointment, it seems like the SG&A is higher than it ought to be still, will that be under better control now?

Yes, we've -- I think it's sort of settling down now. We've had -- at the beginning of the year, we had some significant costs of some organizational things that we had to take care of. We had some significant legal expenses. And those are behind us, and we look it to be on a more consistent basis going forward, and we are very cost-conscious. And we understand what you're saying, Lenny.

Okay. Well, that's all for me, but certainly looking forward to, as I have for a while, at least seeing another proton beam contract signed because, obviously, that's where the growth will come from. And I'm encouraged by your statement that you expect it done relatively soon, though not necessarily by the next conference call.

We have no further questions at this time.

Okay. Well, I'd just like to thank everyone for joining us this afternoon, and we look forward to speaking with you on our first quarter conference call in May. Well, I have nothing else to add to that other than we're already encouraged about the future. Things do look good going forward.

Thank you, ladies and gentleman. This concludes today's conference. Thank you for participating. You may now disconnect.