American Shared Hospital Services (AMS) Q4 2016 Earnings Report, Transcript and Summary

Good morning, everyone and welcome to the Fourth Quarter and 2016 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, Christine and thank you all for joining us for AMS’ fourth quarter and 2016 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 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, 2015; its Form 10-Q for the quarters ended March 31, 2016, June 30, 2016, and September 30, 2016, and the definitive proxy statement for the Annual Meeting of Shareholders held on June 21, 2016. The company assumes no obligation to update the information contained in this conference call. The benefits or investments in proton therapy are becoming increasingly apparent in our financial results. Fourth quarter revenue was up 21.6% versus the fourth quarter of 2015 despite essentially flat revenue from our Gamma Knife operations. Fourth quarter operating income nearly doubled and net income increased 63.2%. Net income for the year as a whole was the highest in a decade. AMS is on the right track. The MEVION S250 proton system we supplied U.S. Health Cancer Center-Orlando Health continues to deliver outstanding performance. Fourth quarter treatment volume increased to 1,019 fractions, up from 869 fractions performed in the third quarter and 442 fractions performed in the second quarter. We believe there is room for additional growth in treatment volume in 2017. Proton therapy – proton treatment accuracy and patient positioning took a significant step forward in January. That’s when Orlando Health treated the first patient on its MEVION S250 in conjunction with a mobile diagnostic commuted tomography scanner. This advanced 3D CT-based technology integrated with the MEVION S250’s proprietary patient positioning system provides superior high resolution images that can be used for both positioning and adaptive treatment. We are proud that this device AMS supply to Orlando Health is the first MEVION system to integrate this functionality. Even as we negotiate with several hospitals to develop additional proton centers, we continue to build our Gamma Knife business. In March 2017, we entered into a contract to supply Gamma Knife Perfexion system to Bryan Medical Center in Lincoln, Nebraska. We expect this new Perfexion system to begin treating patients in the second half of 2017. Later this year, we also expect patient treatments to begin on a Gamma Knife located at the Air Force Hospital in Lima, Peru. And while we will be losing one of our sites due to the expiration of its contract term in this year’s second quarter, AMS continues to lead the way in making the Gamma Knife available to hospitals and their brain tumor, trigeminal neuralgia and vascular malformation patients. 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, 2016, medical services revenue increased 21.6% to $5,060,000 compared to medical services revenue of $4,162,000 for the fourth quarter 2015. Revenue for the company’s initial Proton Therapy System installed at the Marjorie and Leonard Williams Center for proton therapy at UF Health Cancer Center-Orlando Health in Florida was $903,000. This compares to revenue of $800,000 in the third quarter of 2016 and $446,000 in the second quarter. Revenue for the company’s Gamma Knife operations was $4,056,000 for the fourth quarter of 2016 compared to $4,028,000 for the fourth quarter of 2015. Our treatment volume was essentially unchanged versus prior year. Net income attributable to the company for the fourth quarter of 2016 increased 63.2% to $452,000, or $0.08 per share. This compares to net income attributable to the company for the fourth quarter of 2015 of $277,000 or $0.05 per share. Medical services gross margin for the fourth quarter of 2016 increased to 55.9% of revenue compared to medical services gross margin of 44.7% of revenue for the fourth quarter of 2015, reflecting the increase in revenue from proton therapy as well as a favorable mix of Gamma Knife procedures. Operating income increased 98.1% to $1,448,000 for the fourth quarter of 2016 compared to operating income of $731,000 for the same period a year earlier. Income before income taxes was $1,452,000 for the fourth quarter of 2016 compared to $709,000 for the fourth quarter of 2015. Non-GAAP pre-tax income, net of income attributable to non-controlling interest, was $971,000 for the fourth quarter of 2016. This compares to non-GAAP pre-tax income, net of income attributable to non-controlling interest of $383,000 for the fourth quarter of 2015. Selling and administrative expenses for the fourth quarter of 2016 increased to $891,000 compared to selling and administrative expenses of $792,000 for the fourth quarter of 2015. With the addition of the proton center in Orlando, interest expense increased to $488,000 for the fourth quarter of 2016 compared to interest expense of $339,000 for the fourth quarter of 2015. Adjusted EBITDA, a non-GAAP financial measure, was $2,877,000 for the fourth quarter of 2016 compared to $2,340,000 for the fourth quarter of 2015. Please refer to the financial statements included with this press release for a reconciliation of GAAP to this non-GAAP financial measure. For the 12 months ended December 31, 2016, medical services revenue increased 13% to $18,700,000 compared to medical services revenue of $16,548,000 for 2015. Excluding treatments at a customer site whose contract expired at the end of the first quarter of 2015, Gamma Knife volume was essentially unchanged for 2016 compared to 2015. Revenues for the company’s Proton Therapy System for the April through December 2016 period was $2,149,000. Net income attributable to the company for 2016 was $930,000 or $0.17 per share. This compares to a net loss attributable to the company for 2015 of $1,522,000 or $0.28 per share. Excluding the loss on early extinguishment of debt of $108,000, net of estimated taxes, non-GAAP net income attributable to the company for 2016 was $994,000 or $0.18 per share. This compares to non-GAAP net income attributable to the company for 2015, excluding the loss due to an impairment charge of $618,000 or $0.11 per share. Adjusted EBITDA, a non-GAAP financial measure, was $10,165,000 for 2016 compared to $8,654,000 for 2015. On December 31, 2016, cash and cash equivalents was $2,871,000 compared to $2,209,000 at December 31, 2015. Shareholder’s equity at December 31, 2016 was $27,173,000 or $4.97 per outstanding share. This compares to shareholders equity at December 31, 2015 of $25,180,000 or $4.69 per outstanding share. Craig?

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

Thank you. [Operator Instructions] And our first question is from Tony Kamin of Eastwood Partners. Please go ahead.

Hi, great quarter. My first question is there was an article that came out just today headlined proton therapy may improve outcomes in patient’s recurrent lung cancer research suggests, Dr. Bates, can you – have you seen that research and/or…?

No, I haven’t seen it, but what did you say?

Proton therapy may improve outcomes in patients with recurrent lung cancer research suggests, it was in Medscape today?

No, I have not seen it. And my management team, no one have seen it.

Okay. Well, it’s just – obviously, on a surface level, it’s very encouraging. Switching gears, you mentioned in the press release that you are negotiating with several hospitals, what are your expectations in terms of finalizing new relationships for the two proton beams that you already have under contract from MEVION?

Well, we are in negotiations still with several hospitals. We probably put our first machine with our current Orlando group. They have expressed an interest in expanding to its second room. They don’t have a timetable yet, but we think that one should be signed up in a reasonable amount of time. We are pretty far along in negotiations with the group down in Southern California. We have no fund commitment from them, but we feel very confident that they are going to go with us. Actually, there are two groups in Southern California that we are talking to. We are also talking to one hospital in the Midwest, very encouraging, but there is no commitment at this point. Also one in the Northeast that – that’s where our Gamma Knife contracts. And we are confident that they will – ww will probably get two or three of these in the foreseeable future. In view of what’s going on in Washington and the affordable – or the American Healthcare Act, hospitals are delaying their decision making to receive a final healthcare were going to be. So there is concern – some concern. There are some hospitals that are put on hold on capital expenditures until there is clarity on what’s going to happen in Washington.

Well, I think it’s encouraging, you are engaged with as many people as you are, is the Bay Area still open, has any – have any competitors announced beams in the Bay Area?

No, they haven’t. But we do have – we have a proposal into a hospital in the Bay Area. It’s our understanding an RFIP is out there and that they will be considered, but they have not made a decision.

Okay. Given – and you partially answered this, but I want it to come out it from a slightly different angle, given that and I realize you haven’t seen it yet but the – it certainly sounds like you are starting to get some clinical and research results that are even more supportive of proton beams, given your financial results thus far, with your beam, which you have been very successful and the fact that the machine is working well, I guess my question is and this is beyond the two protons you already have, I think shareholders would be really interested in your thoughts on – with your current Gamma Knife plans and others, are you – for example, taking some of them down to Orlando to see that machine, what can you do to kind of spur actual movement in clients beyond the next two machines to really propel the American Shared to having many machines out there?

Well, there was recently a meeting in Orlando where our unit was looked at by several potential customers and I will let Ernie or Craig respond to – what happened at that meeting?

I think – this is Craig. Meeting was very well-attended. There was a lot of information being disseminated both in terms of reimbursement and some clinical applications. There was an open house of our Orlando unit at this meeting that was attended very well by most of the participants. And I think we are going to see more clinical papers come out in the near future regarding protons, much like what you have indicated today. I will let Ernie give some comments.

Hey Tony, this is Ernie. So I will also add that at the conference, there were over 300 attendees and I was told it was the largest number of attendants ever at this conference, which is held annually by this organization. And we were actually asked to participate on a panel, which was specifically about funding and developing proton therapy centers. And we had some excellent questions from the audience. American Shared was represented along with two other groups. And I got some very positive feedback from a number of different people that are interested in developing proton facilities afterwards. So we intend to participate more in these types of events.

And just it’s very encouraging to hear all that activity and just in terms of following-up and making sure you are able to capture every opportunity, I know I have asked in years past whether you felt you needed to add any more staff, but what’s your current feeling on that?

Well, I think we don’t need to add any sales staff at this point.

Okay. And then, final question on...

Once if that you go to the MEVION website when you have time and look – and see what is happening with one of their first units in Jacksonville with Dr. Ackerman. He is doing roughly 40 patients a day now. That’s very exciting. It’s one of the fastest starters of any single room machine in the country. And that’s on track to build 420 patients a year. That would be remarkable for a single room.

It is. And I mean with American Shared being really the only real way to sort of play that proton beam theme in the public markets, it’s encouraging, I think that the words starting to get out a little and for the final question, just in terms of – Craig, maybe if you could comment on the finance environment, with the recent up-tick in interest rates, but also with your – having more history, do you find potential lenders more receptive to working with you and how would you characterize the finance environment?

I think we proved out the model at the work site. I know current lenders are very interested in doing more with us based on the – that we presented to them and the fact that there are expectations that we provided them with and we have met those. So I think our model has been well received for the Gamma Knife. I think now that we have proved it out at the first site, at the protons, I expect it will be much like what we did with the Gamma Knife business where we got more and more lenders interested. These are much bigger projects than the Gamma Knife. So we run into different approval processes at some of these finance companies, because over $10 million, that’s a little more rigorous process. So I am very encouraged that the first one warmed as we expected and then some. And I think it’s just going to be a matter of time and it’s more and more of these single rooms proved to be the right concept going forward both from a clinical standpoint and a financing standpoint.

Great. Thank you guys very much, for taking the questions and congratulations on all the progress. I look forward to seeing more in the quarters to come.

Thank you, Tony.

Thank you. Our next question is from Richard Grelich of REG Capital Advisors. Please go ahead.

Thank you. Just a couple of questions, would you consider there to have been seasonality – negative seasonality in the fourth quarter in the proton business?

The seasonality in that, you have more holidays in the fourth quarter. You have Thanksgiving and then you have the Christmas. And some people tend not to want to get started during those holiday periods, so you do get some seasonality. We did notice that more so in December than we did in November.

Okay. Now, a little bit although we are going to the different profitabilities and – let me backup, so if I look at the rough pretax number from the medical business and then take out the non-controlling interests, the tax rate came went up significantly from about 27% to over 50% in the quarter, why was that?

There was – I think there was a true-up from the prior period and that’s why it was higher. It really was probably about $50,000 to $100,000 higher than it should have been. And so you are correct. That’s not going to be the rate going forward. I think the previous rate that you saw will be the rate going forward.

That still is a relatively higher rate, it seems like because that would mean that taxes would have been about $400,000 on about – well, it’s about $970,000 pretax, its close, okay. On a more steady state basis, once you would look at that business as being maybe another $100,000 more profitable then?

Yes. In terms of the tax rate, I think one of the things is that we have more state income taxes than you would think because there are tax that – at the operating unit level and some of the expense is out. Things are different. So you will see some differences in rates because of that.

On a pretax income basis, would you say that the proton business reached profitability in the quarter or at least on the run rate by the end of the quarter?

Yes.

Okay. Was it doing – will that reach profitability for the full quarter on a pretax basis?

Yes.

That’s exciting, because obviously, you don’t have to share that with anyone, it’s 100% to AMS shareholders, which is really good.

Correct, you are absolutely correct.

Okay. Thank you very much. Let’s see, I can’t recall, I think was it the last call or the last call before, you talked about perhaps doing some kind of investor shows this year, calendar year, are you still been thinking about that?

Yes. We haven’t decided which ones to do yet, but we will do some more road shows this year.

We will probably do one down in Southern California.

You don’t like the cold weather up in New England, but where I live then, I guess?

And by this up and have some people coming. We will be there.

Thank you much. Good luck.

Thank you. Our next question is from Robert Buckley [ph] of – he is a Private Investor. Please go ahead.

Yes, keep up the good work, all of you. You are doing a great job and I know you guys are working hard. And my question is about MEVION and on MEVION, you did mention a little bit, I would like to know first of all, is your business growing at a good pace, a fast pace, slow pace, number one. And of course, the other question, I know it’s a private company – I guess we are still private and therefore, is there any type of way of evaluating their net worth so we could figure out how much our shares will be worth in for that company, do you have any idea of the net worth of it or how profitable it is or would it be a great summer, something to give us some idea of how important it is for our future? Thank you…

I can answer the latter part. I can’t answer the first part. You may recall that in the second quarter and then in the fourth quarter, we valued our shares in MEVION and we did write our shares down. So that’s an indication of – on the financings that they did at that time. That’s what the value of our shares would be. We had a outside party analysis based on a waterfall option analysis. So other than that, they are a privately held company, so.

Well, has their business improved since that time that you did have some interest in knowing the value of the company, are they doing great or good or you can try about comment on that, right?

I think they are doing good. We know that they are talking to hospitals in China. I think they are probably going to be announcing some deals there. They have done some – announced some deals in New York that have been concluded. I think they are doing well. But what’s exciting is that they are going to introduce an upgrade to their present unit called Hyperscan, which does pencil beam treatments. And that’s exciting. I don’t know when that’s going to be FDA approved, but they think it’s going to be FDA approved in a reasonable amount of time. So I think they are doing well. And we have to remember it was MEVION, really some of the strategic vision of the one room machine and with ourselves. That really is where the industry is going now. There are very few multiple room deals being announced right now in the United States. Those that are being done are single room machines. So one that’s most economically feasible.

And I will just add to that, that IBA, who currently is the largest manufacturer of proton systems have units that are deployed just announced in their press release that five of their new orders are protease 1s which are single room systems.

Single room, yes. Well, you expect things from that as that should expand the business greatly, because it is more economical to get them going and running, I guess you are going to run – so you are running 24 hours a day?

Generally not, as you need time for the maintenance of the cyclotron.

It’s only running about right now 12 hours a day and he is doing 40 treatments. That’s really exciting.

That’s good. Well, I don’t know if you have shifts that you can do and keep them going, but that sounds great, everything sounds good for the future and just keep up the good work. I am glad I got the investment with you. Thank you.

Thank you.

Thank you. Our next question is from Brad Meyers [ph], Private Investor. Please go ahead.

Thank you. On the income statement, the non-controlling interest line of negative $481,000, is that a non-cash paper equity decline in the third-party entities, sort of like taking a loss on a stock or it is a – or is that cash the company had to send to the third-party entity?

This is Alexis. It’s a paper transaction. We are recording the income that is for our non-controlling interest essentially. We do cash distributions, but that’s not what’s represented in that number.

The cash – the balance sheet.

Yes. They rounded the balance sheet only.

Okay. There was no cash outlay for that amount then?

No.

But there is a cash – on the P&L, the question you are asking is that’s a P&L allocation, not just – that’s not the cash allocation. The cash allocation is in a different section of the financials.

Okay. On the subject of CapEx, what was the approximate maintenance CapEx on the portfolio of 18 machines in the last 12 months?

It’s what you are seeing in that maintenance and supplies line item. We haven’t had any maintenance starting on the proton beam yet, so it’s roughly about the number you see there. I’m sorry, you can’t see that breakdown and…

For the nine months, on the cash flow statement, it showed $1 million for the nine months in September, is that the line you are talking about?

Yes.

Yes.

Okay. So that’s approximately the maintenance CapEx, okay. If depreciation and amortization is now running about $5.5 million per year and the maintenance CapEx is about $1.5 million per year, then that means there is approximately $4 million of extra free cash flow over and above the current run rate of cash net income, so when I take $5.5 million of depreciation and amortization, I subtract the $1.5 million of maintenance CapEx and then I add the cash net income, I am using the $933,000 in the quarter, which is cash after tax net income because the non-controlling interest is a noncash paper equity loss. So I am using $3.6 million tax cash net income per year. And so the $5.5 million minus the $1.5 million plus the $3.6 million, I get about over $7 million of free cash flow per year run-rate currently or about a total of $1.20 free cash flow per share run rate. Comments on that. Is that is in the ballpark?

I guess, this is Craig, I am a little confused by the – what you are trying to end up with. So...

What I’m trying to end up with. Okay…

I wasn’t sure if you are trying to look at the actual free cash flow that the company would generate that will essentially go and increase the cash balance or coming up with a different metric?

Well, I would like to look at taking out of working – do not include working capital adjustments, but basically for my free cash flow on a company, I usually take their after-tax net income, I add the depreciation and amortization and I subtract the maintenance CapEx and that gives me the amount of money available for what the company wants to do, interest expense, debt repayment and so forth. And so, for example, on the 10-K of last year, there was a debt repayment schedule and it showed that 2017, the schedule is to repay about $7 million in 2017 and then about $5 million in 2018. And so I am assuming that that $7 million debt repayment through this calendar year is going to come from the $7 million of free cash flow run-rate that you are currently on using the December quarter run-rate.

I think we misunderstood you so I apologize on – when you said maintenance CapEx. The maintenance that we were referring to is actual maintenance expense to service and to upkeep the equipment, not true CapEx. The CapEx runs through, we would capitalize that and depreciate it over time. So that wasn’t the true CapEx number that we were talking about. So in terms of what you are doing, I think the easier way is looking at the EBITDA number that we provided and then essentially taking out the debt service and the capital lease payments. And I think you will see if you go to the source and uses, you can tell which amounts of the CapEx weren’t funded in that year and you can get to the same number, I think that you are trying to get to.

Right, okay. And in my situation, because the non-controlling interest is a paper equity decline and not a cash outlay, I am actually adding that back also. So instead of $3 million adjusted EBITDA for the quarter, I am using $3.5 million adjusted cash EBITDA. Is that...

Well, some of that would actually be payments out. So I don’t think you can add it all back and say there were no cash distributions at all.

Okay. On the balance sheet, at the end of September, in the 10-Q, I saw $2 million of cash and $27 million of debt – $27 million debt. So the net debt of $25 million excluding the cash deposits on the balance sheet of $7 million, what was the net debt at the end of the December quarter?

I think it was still roughly around $27 million, yes, still between around $25 million, $26 million. Yes.

Okay. Is that after deducting the cash?

No, that was just our total of what’s on the balance sheet at year end.

Okay. So there is $26 million of debt and then there is $3 million of cash, so about $23 million of net debt now?

Correct.

Yes.

Okay. So if the current portfolio of 18 machines keeps generating the adjusted EBITDA that it’s doing, excluding the non-controlling interest paper losses, but the debt repayment schedule is going to bring the net debt of the company down this year to about $17 million or $18 million by the end of 2017, which would be down from the $23 million to $25 million net debt at the end of 2016. Assuming that the current portfolio of 18 machines keeps generating their current run-rate, is that correct, the debt will come down at about $7 million?

The debt will come down, but remember, we are adding another unit on and we generally have – we have done some reloads in the past so that will add to it. So, I don’t see – think you will see a net decrease of $6 million. You will see a decrease of $6 million. Yes.

Okay. But that would mean that EBITDA would go up more than likely if you add a machine, obviously, right?

Yes. And we mentioned, we will also be losing one so – and we are going to add two and there just might not be an exactly lockstep as to when one goes off and the others go on. So there maybe that gap but we are continuing to look for additional Gamma Knife customers. And as radiosurgery becomes more and more important in terms of how metastatic brain tumors are treated, we think there is still a very good market for the Gamma Knife business and other radiosurgery pieces of equipment.

Okay. And one of last year’s conference calls for the Orlando PBRT machine, 6,000 fractions per year seemed to be a target. Is that still the target?

You know, we have not given projections so we are not prepared.

Okay. The new 3D equipment in Orlando on the PBRT, that’s going to help lose the patients per day, right?

It doesn’t necessarily boost the patients per day. What it does is it provides another source of providing a better treatment for those that weren’t really important to get extremely precise positioning of the patient. So I think it’s just in principal that improve upon the patient process.

Okay. The Jacksonville Ackerman site does over 40 a day without the 3D attachment. So that’s interesting also. My last question is, for comparable valuation, RadNet, a public comparable of high CapEx machines for hospitals, MRIs and so forth is valued at over 6x enterprise value to adjusted EBITDA and they have a much worse balance sheet and they are growing their top line only 3% or so a year. If the same 6x enterprise value to adjusted EBITDA value were applied to AMS, then AMS’ stock would be $8, $9 a share or even higher if we don’t include the pay-per-equity decline of the minority interest and only include the cash EBITDA. What does management see as – I mean, either RadNet is overvalued or AMS is undervalued and I seem to think the latter. But for management’s take on that, is it mainly that the Street is unaware of the story and of the strong cash flow, obviously EBITDA is rising and debt is declining? And other comparables out there are trading at much higher valuations with much worse balance sheets. What does management believe is the reason for this – that the big gap in valuation versus other public comparables?

All we can say is, we do know RadNet well. The CEO of RadNet once was partners with us, many years ago in our mobile business. It’s a well-run company. I can’t answer your other question, maybe Craig or Ernie can.

We can’t – we don’t obviously have any influence on what the stock price is. I think we will continue to go out and do road shows, but I think as a management team, we are committed to providing the best results possible for shareholders. And if we do that, hopefully, the stock price will reflect that.

Okay. It’s really doing well. It’s getting really very close in its numbers. So it’s doing well.

Yes. Was the Jacksonville, did I hear that correctly, doing over 40 patients per day on a 12-hour – how many hours in the day was it?

12 hours. You might want to go to the MEVION website, on the Jacksonville unit. It’s doing well.

So there is nothing really that would stop the Orlando unit from doing the same amount of patients per day as the Jacksonville unit?

What I will tell you in terms of the capacity of what individual units do it’s going to depend on their patient mix. And so there are some cases that take 15, 20 minutes. There are some that take 45 minutes that pediatrics patients take a lot longer. So, it really will vary on the mix of patients that are being treated by each individual facility.

Yes, I think Dr. Ackerman’s unit is doing about 46% of the prostates now. And I don’t think it’s that high.

In terms of the maximum hours per day at a site, what would that be or – you know it can’t be 24 hours a day to run, but is 12 hours a day about the max or more like 16 hours or is it maybe like 12?

I think the facilities are running 16 that I know of and – but it’s really not 16 clinical for the most part, because you have QA before and after. The clinical operations are about an hour each way. So I think most of them are working at the max 14, some maybe working more than that.

Okay. I appreciate taking your time for my questions. Thank you.

Thank you.

Thank you.

Thank you. Our next question is from Lenny Dunn of Freedom Investors. Please go ahead.

Yes, good afternoon and congratulations. We are finally hitting on each cylinders. But I just had a couple of questions. One is you alluded to all these different possibilities for the MEVION machines. Do you think you can get as many as a couple of them signed during the calendar year 2017?

Craig?

I believe that’s the goal. As we said before, we are not pegged to a number. I think we are pegged to getting as many as we can. And I think we are trying to engage as many as possible partners as possible. There are some facilities that their timeframe won’t necessarily be immediate, but it will be in the future. So whether it’s one, two or three, we don’t know, but our goal is to sign up as many people as possible and get on operating as quickly as possible.

I think, Lenny, once hospitals get a better feel of what’s coming out of Washington, they will start signing up. But I think there is going to be some delay until there is some clarity on what’s going to happen.

Yes. They are saying now that the Republicans are postponing the vote so that would indicate it might be a few days before they figure out what to do here, but not a few ways, because I don’t think it will take longer than the few days, but that’s the separate matter. And then on the Gamma Knife’s, when you – you have one contract expiring, do they plan to buy the Gamma Knife or do they plan to just turn it back to you and then you try to replace it somewhere else or what’s the plan there?

In this case, there was a buyout option and they are going to – they have exercised it.

Okay. And will there be a gain on that then or...

No. There will not be a gain on the – we knew that as a possibility so we have accounted for the appropriate one.

Okay, okay, so just asking.

Yes, no problem.

Okay. But anyhow congratulations and it’s a pleasure to see you starting to generate some real earnings and particularly as the previous gentleman mentioned, the cash flows are exciting. So thank you.

Thank you. Our next question is from Anthony Marchese, Private Investor. Please go ahead.

Hey, good afternoon guys. Thanks for the effort and continue the great work. I think part of the reason, I think that the first caller had a very good point about RadNet, obviously as shareholders, we are looking for comps and we would hope that it should even achieve a push in – of the valuation, but I think the real problem is, you have got a $23 million – right now, a $23 million or $24 million market cap stock that has excellent results, but no real research sponsorship from any – from any cell site firm and with the $25 million market cap, frankly it’s unlikely to occur just because people aren’t interested in $25 million market cap stock, so I guess my question is, in terms of ways to grow the company inorganically, are there opportunities, as an example, to buy existing Gamma Knife portfolios or I am saying, something which would give the company some scale?

Well, there is a proton beam machine that’s probably for sale down in San Diego. When it has so much debt attached to it, I don’t think it’s something that we would be interested in. I mean that’s the only opportunity that I am aware of in terms of purchasing an existing proton system, right. Ernie?

I don’t think if we bought one or two of Gamma Knives that would give us scale. We are going to have to…

Well, I am not suggesting one or two, again, I am speaking as an ignorant individual here and simply saying are there – in other words, are there companies, perhaps larger than you, that would be interested in selling or I have to believe that there are other people who do the same thing as American Shared or maybe they don’t, but I guess my question is, are there ways – have you guys thought about ways to scale the business in a way that is at a – I don’t want to say the faster rate, but to get you to a market cap where people really care?

Yes. I think unfortunately, there are no – there is no large provider or holder of Gamma Knife. There are some that have some Cyber Knives and obviously there are some large companies of rays and therapy businesses. But I think we will look at some of those in terms of opportunities. But like Dr. Bates said there is no real opportunity out there right now that’s definitely for sale that I know of.

Yes. This is Ernie, can I just echo that from time to time, there are one-off opportunities that we come across. Craig mentioned Cyber Knives. There was an opportunity several years ago as a portfolio of 10 Cyber Knives, but we didn’t think that the valuations were there to make that – that to make sense. But we are in the look out for those types of opportunities to scale.

Okay. And look, as a shareholder, listen, the stock has done well. I think Dr. Bates, I the stock has done well, but again, I think to the other point made by one of the listeners, I think that there is a long way to go, so frankly while I think the stock has done well, I am happy with the valuations simply because I know that it’s worth, just on a comparison basis, significantly more than what’s out there. And perhaps, the ultimate answer is that the company that is AMS should be part of a larger company, if somebody is going to value RadNet at this amount, perhaps somebody would be willing to value AMS at a similar amount – at a similar valuation as a part of a larger entity, so maybe that’s what it’s telling you, I am not really sure. But any way in any case, I appreciate the work that you guys are putting in.

But we are considering to getting a sponsored research report done. We think that might be helpful.

Okay. Thank you.

Thank you. And we do have a follow-up question from Brad Meyers. Please go ahead.

Thank you. On the December quarter, how much cash did the company generate over and above the net income in the quarter?

I don’t have that number with me, so I can’t answer that right now. But I can get back to you on that. We generated $3 million – we ended up with about $3 million in cash and I can’t – I don’t have the third quarter number with me as to what we generated in the – what we had on the balance sheet for the third quarter.

Okay. Because I was coming up with about $800,000 more than what was showing, may takeout the…?

If you take out – if you just look at the third quarter, which I don’t have at my fingertips right now, that would be the cash difference.

Yes. I usually take the difference between the depreciation and amortization and the CapEx, I know it seems there is weakness, there is another line besides CapEx, but there hasn’t been any since the PBRT machine any – maybe I will get back on that. There is one last thought I had regarding the other caller wanting to add machines, I was looking at a storyline when I was looking at the company, since the PBRT industry is in high growth mode to actually have the Gamma Knife be divested since it’s doing probably $10 million of EBITDA or so a year and that could probably get about $50 million for that division and then all the debt could be paid off and there would be roughly $25 million cash and no debt on the balance sheet to grow the PBRT business and since the Orlando site is already profitable, EBITDA would be $25 million cash on the balance sheet, no debt and a profitable income statement and so I think the Gamma Knife is a great business and its mature and the PBRT is high growth vertical and so there would be funds available in that type of storyline, so I am thinking in that regard, how does management feel about that?

Well years ago, we did look at that possibility about selling the Gamma Knife division and we are dealing with a company on the East Coast. And eventually, negotiations were not fruitful. Do you want to say a word about that?

Yes. I think we are not – we wouldn’t, as a publicly traded company, we wouldn’t dissuade people from doing that. But we would want to get a fair value. We think the Gamma Knife business is a good cash flow business. It’s a very stable business for us and I think, in a lot of cases, it’s a plus when lenders look at us and that we have a base of cash flow coming into the company and they are not just relying on one project, which we would be if we divested right now the Gamma Knife business. I think it does give us some diversity of a revenue stream, which until we really bulk up the proton business, I think is not necessarily a bad thing, but we would look at – we would obviously entertain offers if they came, yes.

I want – thank you for taking my follow-up calls. Thank you.

I want to add, we are looking at new businesses. And Ernie do you want to say a word about skin cancer, we are looking at that?

Yes. We are looking at a new – a potential market in which to treat patients that have non-melanoma skin cancers, which consist of basal cell carcinomas and squamous cell carcinomas. Every year, there are over 5 million of these lesions that are diagnosed and they easily exceed the number of prostate, colon, lung and breast cancer cases a year. So it’s a huge market and we think that that market can be addressed as far as treating patients using radiation therapy to treat them. So it is near [indiscernible] so please stay tuned.

Okay. So the installed base could be used to – for those indications?

Correct.

Okay, great. Thank you.

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

Well, this is Dr. Bates. I am very excited on what’s happening in Orlando and I know that can be repeated at other places. I think we made the right decision even though it’s taken a long time to get these one room compact units off the ground. But I am excited and I think we have a good future. I think we are a growth company again.

I would just like to thank everyone for joining us this afternoon. And we will be speaking with you shortly on our first quarter 2017 results conference call.

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