Dr. Ernest Bates - Chairman and CEO Craig Tagawa - COO and CFO Alexis Wallace - Controller

Anthony Marchese - TriPoint Global Equities Lenny Dunn - Mutual Trust

Good morning, everyone, and welcome to the 2017 Third Quarter Financial Results Conference Call for American Shared Hospital Services. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session. [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’ 2017 third quarter 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 report on Form 10-Q for the three months ended March 31, 2017, and June 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. Treatment volume at our proton therapy center at Orlando Health - UF Health Cancer Center amounted 940 fractions for this year’s third quarter, this was up 8.2% from the 869 fractions for last year’s third quarter but down compared to the 1,189 fractions reported for this year’s second quarter. I’m glad to report that this slowdown in proton treatment volume appears to have its run course as volume rebounded sharply in October. Accordingly, we are optimistic that proton treatment volume for this year’s fourth quarter resumes its upward trend. We believe that pace of treatment volume has room to increase even further in 2018. We also are pleased to report that the MEVION S250 proton system we supplied Orlando Health continues to perform flawlessly, with no unanticipated operating issues. Volume in our Gamma Knife business was down in the third quarter. As we previously, mentioned we lost one for our Gamma Knife units due to the expiration of its contract term at the end of April 2017, and the second unit in August 2017. The decrease in revenue from these two sites were only partially offset by revenue from our two new sites in Lima Peru and Lincoln, Nebraska that began operations in the third quarter and are still early in the ramp-up phase. We are optimistic about a rebound in our Gamma Knife business beginning in the fourth quarter as the ramp-up and patient volume at our new site in Lima, Peru and Lincoln, Nebraska gathers momentum. Another piece of good news is that the Centers for Medicare & Medicaid Services recently announced a 6% increase in the Medicare reimbursement rate for simple, intermediate or complex proton treatments and 1.5% increase for Gamma Knife treatments for 2018. These rate increases are a welcome development and should make a positive contribution to our financial performance in the New Year. We believe that the softness we have encountered in our businesses in the second and third quarters is now behind us. We expect to report better results beginning in the current quarter. Now, I’ll turn the call over to Alexis Wallace, to go over the financial results in detail. Alexis?

Thank you, Craig. For the three months ended September 30, 2017, rental income from medical services decreased 5.5% to $4,613,000 compared to rental income medical services of 4,884,000 for the third quarter of 2016. Net income attributable to the Company for the third quarter of 2017 was $99,000 or $0.02 per share. This compares to the net income attributable to the Company for the third quarter of 2016 of $334,000 or $0.06 per share. Third quarter revenue for the Company’s initial proton therapy system installed at The Marjorie and Leonard Williams Center for Proton Therapy at Orlando Health - UF Health Cancer Center in Florida increased 17% to $935,000 compared to revenue of $799,000 for the third quarter of 2016. Revenue for the Company’s Gamma Knife operations decreased 9.4% to 3,564,000 for the third quarter of 2017 compared to 3,933,000 for the third quarter of 2016. As Craig mentioned, the decrease in revenue due to the loss of two Gamma Knife sites this year was only partially offset by revenue from our two new sites, in Lima, Peru and Lincoln, Nebraska, that began operations in the third quarter. Excluding these two sites whose contracts expired this year, Gamma Knife revenue increased 4.1% for this year’s third quarter compared to the third quarter of 2016. Rental income from medical services gross margin for the third quarter of 2017 decreased to 40.8% of revenue, compared to rental income from medical services gross margin of 49.1% of revenue for the third quarter of 2016, primarily reflecting the decrease in Gamma Knife revenue. Operating income decreased to $439,000 for the third quarter of 2017 compared to operating income of $896,000 for the same period a year earlier. Income before income taxes was $439,000 for the third quarter of 2017 compared to $899,000 for the third quarter of 2016. Non-GAAP pre-tax income, net of income attributable to non-controlling interest, was $263,000 for the third quarter of 2017. This compares to non-GAAP pre-tax income, net of income attributable to non-controlling interest of $601,000 for the third 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 $2,412,000 for the third quarter of 2017, compared to $2,831,000 for the third quarter of 2016. For the nine months ended September 30, 2017, rental income from medical services increased 6.1% to $14,472,000 compared to rental income from medical services of $13,640,000 for the first nine months of 2016. Proton therapy revenue increased 137% to $2,953,000 for the first nine months of 2017 compared to $1,246,000 for the first nine months of 2016. Excluding treatments at customer sites lost due to the expiration of their contract terms in April 2017 and August 2017, Gamma Knife revenue decreased 0.5% for the first nine months of 2017 compared to the first nine months of 2016. Net income attributable to the Company for the first nine months of 2017 was $505,000, or $0.09 per share. This compares to net income attributable to the Company for the first nine months of 2016 of $478,000, or $0.09 per share. Adjusted EBITDA, a non-GAAP financial measure, was $7,577,000 for the first nine months of 2017, compared to $7,288,000 for the first nine months of 2016. On the balance sheet, at September 30, 2017, cash and cash equivalents was $1,665,000, compared to $3,121,000 at December 31, 2016. Shareholders’ equity at September 30, 2017 was $28,188,000, or $4.94 per outstanding share. This compares to shareholders’ equity at December 31, 2016 of $27,173,000 or $4.97 per outstanding share. Craig?

Thank you, Alexis. And Sylvia, we’re ready for the first question.

Thank you. [Operator Instructions] And our first question comes from Anthony Marchese from TriPoint [ph].

Question for you, Gamma Knife, do we anticipate any more losses during the current quarter or the quarter following, let’s say for the next six months, as far as you can tell?

I think the Gamma Knife is still a profitable business. I’m not quite sure what the question is…

In other words, you said you had a -- you said you lost a Gamma Knife unit due to the expiration in April and in August. Do you have any other -- that’s what I mean. Do you have any other Gamma Knives that are going to be expiring over the next three to six months that you know off?

No, we do not know of any Gamma Knife contracts that are expiring within the next three to six months.

Okay, thanks. Second question is, it sounds like you should have had, I would think, and again I joined the call late as I had a problem logging on, but did you have any cancellations or deferments due to -- in either your Gamma Knife or proton being due to the hurricanes in Florida?

Yes. We were impacted somewhat, luckily most of ours were not but we were impacted probably in our proton system about 1.5 to 2 days worth of business was interrupted due to the hurricane.

But you don’t think the Gamma Knife was affected there?

It might be, but the Gamma Knife’s not a daily basis, it’s more of a single shot. So, it’s not impacted quite as much as protons was.

I see, okay. And finally, are you -- I guess this is the question that we keep asking on every call, but could you give us your outlook for potentially -- you guys have an initiative to help finance more proton beam machines, could you give us any update, if you can share that with us? Dr. Ernest Bates: Tony, yes, we are looking at three possible offers to finance our units going forward. One is a medical equipment trust. That looks promising. The other is a corporate bond; and the other is a debt proposal. These all look promising.

Is that the impediments in your mind to -- is it purely a question of financing and not need? So, in other words, if for argument’s sake, you had -- whatever millions of dollars of capacity to finance these? Sounds like what you’re saying is that demand is there but for whatever reason, the financing isn’t quite there yet. Dr. Ernest Bates: That’s correct. As I’ve mentioned to you in the past, we’re negotiating out with 13 hospitals that clearly would like to have proton services. But, they have a problem, recall, our model requires them to play -- to pay for installation cost, construction cost, land acquisition, and that’s a pretty big bite for a lot of these hospitals. And we provide the equipment. And in view of what is going on in Washington D.C. with the uncertainty as where healthcare is going to end up next year, they are little hesitant. But, we believe that’s going to get better.

Our following question comes from Robert Bocce, shareholder.

Yes, long time shareholder. And most of the questions that I was thinking have been answered. I’d like to know [technical difficulty] I remember one time, you mentioned that in China there were 15,000 hospitals and maybe you would be going to expand there or maybe other foreign countries but [technical difficulty]?

Yes. We do have an opportunity, not in China. As you’ll recall now, MEVION, it’s primary ownership is now owned by a Chinese company, and they expect at some time to be able to sell these machines in China. We’ve had discussions with hospitals in Europe and most recently with a group in United States that want to put a proton machine in Vietnam. So, there is an opportunity going forward.

I want to know like if it’s a great opportunity, great demand for the proton beam into any of Chinese or Eastern area there?

There is a demand. I don’t if it’s a great demand but there is a demand. Again, the issue is cost. But I might add that the price of machines are coming down, as you’ll recall. The multi-room machines two or three rooms were not doing well, but one room facilities including ours in Orlando are doing well.

Yes, that was a point, you are going to unit, yes, and you are doing it well. Anyway, there is lot of competition also. So, I was just wondering if there is any market that was working up or becoming a market, you mentioned South America. Now that looks right over there, you’ve had a couple of units of work there. Is that expanding all in South America?

We have an opportunity in South America for the Gamma Knife. We’ve been looking at possibly three units that Elekta owns and now is putting up for sale and we’re looking at them. At least two of them would be accretive. And I think it’s a good chance that we may acquire this. Ernie, do you want to say a word about that? Dr. Ernest Bates: Well, these are existing facilities that have been in operation for over five years and two of them have demonstrated success in terms of consistently showing net income. So, we are looking at these projects.

I would say that the market in U.S. for protons is still in the simplicity. If you look at where we think the number of rooms should be we think going forward, it should be about 600 rooms or more that could benefit from proton therapy and there are about 80 rooms currently in the United States in operations. I think within the United States, there is a tremendous opportunity of growing the Gamma Knife -- the proton business.

One room?

That is our concept. Yes, we believe in the one room. And the numbers I was quoting you’ve heard, the number of rooms that are -- that we believe there is capacity for at least as well as how rooms they are currently operating in the United States.

Our following question comes from Lenny Dunn from Mutual Trust.

Clearly, as it must be to you, this was a disappointing quarter. And hearing that we are going to have a better quarter next quarter is always nice but we have to actually have one. And you said October started off well, which should is encouraging and of course next year, you are going to get a better reimbursement. But, the SG&A is still running fairly high, and I understand some of that was with the start-up in Peru. But, is there anything we can do to keep that under a little better control so that we see move it to the bottom-line?

I think, we believe we have it under control. I think there are a number of things that we had to do corporately in the beginning part of the year where we did have more legal fees that we had to accrue. But I think those are passed us. There were some things from an accounting standpoint that we had to research as the new -- some of the new pronouncements came into effect, which I think are pretty much behind us now as well, our analysis of all that. So, there are going to be costs associated with really starting up the proton business and continuing to grow that business. So, there probably will be some lumpiness in terms of the SG&A costs, but we’re cognizant of it, Lenny, and we are trying to keep it down as low as possible.

If we saw another proton contract and that was the reason for it, that’s fully understandable. But, we have yet to see one, and I thought by now, we’d at least see one, and financing, I understand hospitals may have a little reluctance to proceed forward. But there’s got to be one or two out there that want to move on it. And certainly the one in Orlando is a good demonstration that these can work, and they were done at current costs. So, I don’t know what needs to be done but something needs to be done. None of us are getting younger, waiting, so. Dr. Ernest Bates: That’s true, Lenny. I think we have opportunities here in San Francisco to put in a unit; this is our home town, and that’s working very promising. We have two opportunities in New England that look very promising, and two down in Southern California that look very promising.

Well, let’s get one of them signed up… Dr. Ernest Bates: That takes time for the hospitals to make this decision.

Yes. But, we have to get somebody off the starting gate. So, it just seems like by now we should have been able to get someone to move. But, this has been a long time and early in the year. I thought by now, we would have somebody else signed up, as I’m sure you did too, but I don’t know what can be done. Dr. Ernest Bates: We have done, Lenny, we did. We really thought we’d have one unit in New England signed up, but it did happen. The hospital is just not ready to make a decision. I think the interesting thing is that we do not have any competitors at this point competing this. We think we are the first choices for all these 13 hospitals in probably the County and regional hospitals that we are talking to. Once they decide that they have the money to come up with their cost for the building and the land acquisition, it’s going to happen. It’s clear that the clinical results coming out now, particularly for esophageal cancer, for breast cancer and for prostate, looks very good compared to proton treatments. We are seeing better survivorship and hospitals now realize that this is something that they’re going to need at some point, if they are going to provide total cancer care for their communities.

You have me sold on it, but you got to get one of these hospitals sold on it. Dr. Ernest Bates: You are right about that.

Again, this is a public company and we have been extremely patient. And the market today is reacting negatively because the carrot keeps going further down the road. So, let’s get it done this time. Thank you. Dr. Ernest Bates: We will.

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

We’d just like to thank everyone for joining us this afternoon. And we’ll look forward to speaking with you on our fourth quarter conference call in March.

This call will be available on digital replay immediately following today’s conference. To access the system, dial 888-843-7419 and enter the passcode 45970345 followed by the pound sign to access the replay. The webcast of this call will be available at www.ashs.com and www.streetevents.com. This concludes today’s teleconference. Thank you for participating. You may now disconnect.