Edap Tms SA (EDAP) 2003 Q3 法說會逐字稿

Good day. All sights are now on the conference line in a listen only mode. I would like to turn the program over to your host Mr. Ian Vawter.

Thank you Leo and good morning everyone. On behalf of EDAP TMS I would like to welcome you to the company's conference call to discuss the financial results for the third quarter 2003. On the call with me today is Philippe Chauveau, chairman and chief executive officer of EDAP TMS.

Before we begin I would like to remind everyone that some of managements remarks today may contain forward-looking statements regarding the company's growth and expansion plans. These forward-looking statements are based on the management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described there in.

Factors that may cause such differences include but are not limited to those described under the risk factors of the company's filings with the Securities and Exchange Commission. These forward-looking statements speak only as of today's date and the company expressly disclaims any obligation to provide public updates, revisions or amendments any forward-looking statements made here in to reflect changes and the company's expectations of future events.

With that said I now turn the call over to Philippe Chauveau.

Thank you, Ian. And welcome to EDAP TMS's third quarter 2003 financial results conference call. We will follow our normal format today.

First, Ian will review the results that we released yesterday with some additional financial comments and then I will finish with a few comments relating to the course of the business.

My comments will then be followed by the question-answer period, which I'm looking forward to.

With that I'll turn the call over to Ian for comments on the results.

Ian?

Thank you and as always pleased note that all the figures that I discussed here today are in euros and that for your convenience these numbers are translated into U.S dollars in the tables attached to last night's press release.

Revenues for third quarter 2003 were 4.7 million euros compared to 4.1 million euros in the same quarter of 2002. Revenues for the first 6 months ended September 30, 2003 were 13.9 million euros compared to 14 million euros in the same period of 2002.

Gross margins as a percent of sales for the third quarter of 2003 was 31 % versus 38% in the same period of 2002 and was 34% for the nine months ended September 30, 2003 versus 41% for the nine months ended September 30, 2002.

As we mentioned in the press release the decrease in gross margin is partially related to the continued strength in the euro.

Additionally, there was additional pressure on gross margins during the quarter due to a lower than expected number of treatments performed in our HIFU division.

Operating loss for the third quarter of 2003, was 1.2 million euros compared to 1.8 million euros in the third quarter of 2002 and was 3.9 million euros for the nine months ended September 30, 2003 compared to 3.4 million euros in the same period of 2002.

Net loss for the Q3 of 2003 was 1.1 million euros versus a net loss of 1.6 million euros in the third quarter of 2002 and was 4.6 million euros in the six months ended September 30, 2003 compared to 1.6 million euros in the same period of 2002.

The company's HIFU division as we mentioned in last night's press release did not meet expectations in terms of either revenues or treatments performed.

The total revenues in third quarter 2003 for the division were 400,000 euros with an operating loss of 1.3 million euros and total revenues for the first nine months of 2003 for the division were 2.5 million euros with an operating loss of 3.2 million euros. Philippe will add additional color during his comment.

The company's urology devices and services division continue to have strong unit placements during the quarter with 10 lithotripter sold and a back log of 7 machines. The UDS division has been quite successful in increasing the number of units sold versus expectations so as to offset the strength of the euro.

Additionally as we mentioned in the press release we are looking to make some additional announcements related to this division, an addition to its distribution platform during the fourth quarter of this year. The division for the third quarter had 4.7 million euros in total revenues with operating income of 246,000 euros.

And total revenues for the first nine months of 2003 for the division were 13 million euros with an operating profit of 486,000 euros.

The overall change in revenues versus the prior year is primarily due to the 1 million euro effect caused by the strengthening of the euro. The phase out of TMT revenues which were all off set by increases in the (inaudible) revenues.

Finally the companies cash position at the end of the quarter remain strong with 12 million euros in the bank. The company continues to manage its cash balances to ensure enough liquidity to realize the business plans and to reach profitability.

With that I will turn the call over to Philippe for his comments on the business. Philippe?

Thank you Ian. Before we open the call to questions, I would like to give you an update on the progress of the business. The third quarter was a challenging quarter for our HIFU business.

With continuing challenges in Italy, that we discussed already in the second quarter, as well additional delay's in orders else where and also all though its difficult to quantify the enormous heat wave pressures placed on the medical systems of our most productive countries in Europe.

These challenges were assumed when the board approved the business plan for this business and contingencies plan were part of the original plan, which is why the board has acted so swiftly.

Therefore, as we mentioned in the press release the board met on 21 October to review the milestones of the business plan and to give directives and determine changes so as to protect the overall goal of the company and of the HIFU division and this board will reconvene within this month of November, to confirm the changes made, to be made and to implement them.

Well all that and said, we are optimistic about the future of this business as we continue to see tangible increases in recognition and acceptance of this technology, particularly at patient and doctor level.

During the quarter, there were positive events that occurred, but have yet to positively impact the income statement of the HIFU division. These events included the new contracts with four operational hospitals as well as positive reimbursement progress in countries where we operate, where we are in final stages of receiving reimbursement approval.

And by the way, must be remembered that each country in Europe has its own separate reimbursement system.

Our UDS Urological devices and services division on the other hand sold ten machines during the quarter and continues on track for another record-breaking year. Even with the strength of the euro, we are seeing the benefit of strategically decreasing prices so as to gain additional market share. These increases in the installed base will only strengthen the future earnings potential of this division.

Our UDS division continues to grow its business as the number one lithotriptors provider in the number one litho market in the world, Japan and by offering the next generation of what we called the gold standard of ESWEO litho technologies.

Finally I would like to say that for both divisions, as we mentioned in the press release, we had hoped to have additional information regarding the US partner for our technologies by this conference call. Personally I have just run back last Saturday from the US, where I was addressing Metrics rating to this.

Currently the cost and time associated with this link with US partners is the issue at hand, however I must reiterate that this is not an issue of our technologies and the US market well obviously quite lucrative, it has not been factored in any of our business plans but is definitely where we want to be.

What is now required for the company to reach its goal and profitability and cash flow during the plan years. In conclusion, with the solid cash management firmly in place, was other development too soon to announce, but will be shared in press releases this quarter. This is for December.

We expect to retain the necessary liquidity to reach the company's overall profitability and positive cash flow within plan.

With that I will turn over the floor back to Leo for questions.

Leo?

Very good. If you like to ask a question at this time, please press star and "1" now on your touch-tone telephone. To withdraw yourself from the queue if your desire, you may press the "pound" sign. Once again, to ask a question, please press star, 1 now on your touch-tone phone.

We will take our first question from Mark Winderling of Tim Allen Financial. Go ahead please.

Good morning Mark.

Good afternoon.

Good morning, Mark.

Good morning. How are you?

Good. Thank you for your e-mail.

I - the set of question that I have got is based up on your plan, there has been unfortunately somewhat of a consistent price factor than on the value of the company if one excludes the amount of cash that sitting in the account of the (inaudible).

Could you perhaps fax more specific and give shareholders an idea of what your overall plan would be over the next couple of years? I know that there have been some shareholders have been in for plus or minus 3 years now that unfortunately if you are seeing the prices of hat spark decline and given their royalty.

I think that would be imperative for management's part to give us an idea of what we could expect of over the next couple of years?

Let me answer Mark. But I think that I fully resonate this the context and the contents of your question. It has been our role to say all strategies to implement, implement and implement with 2 carry-ups, one is to make sure that we have sufficiently liquidity to get to the cross over line and secondly to make sure that this technology particularly HIFU gets to just reward in terms of acceptability at patient and doctor level.

And this what is happening with the slightly longer time spent, but I would not go in to along this HIFU business to come through because it is going to come pretty quickly but respond to the value of the company in terms of its valuation and what could our shareholders expect.

Frankly, we are on track and the board and myself are clearly totally in line with meeting our commitments of the crossover line of both profitability and cash flow within the liquidity we have today. It is obvious that we are addressing market-by-market, we love to be able to say today we are in the US but we are not.

However, it is not the US is not dependent; we are not dependent on the US market, although we want to be there to get through that crossover line.

As to the valuation of the company it is very difficult for me to comment to say then we are focussing on delivering our commitments to the board and that what we say to each of you at each quarterly conference calls such as this. But we are on target and I am very comfortable that our targets would be met.

OK, thank you.

Once again, if you like to ask a question, please press star, 1 now on your touch-tone telephone. And it appears we have no further questions at this time. I would like to turn the program back over to our hosts.

I can't ask people who are on the call to ask questions if they don't wish to, but I am delighted to standby for another minute or 30 seconds to respond to their questions if they have any.

Please press star, 1 if you like to ask a question.

Leo, I am going to make you the timekeeper here and if there are no more questions, then I would like to thank all of you who are listening in. I know for some people on the West Coast has been an extraordinary effort because it is 6:00 a.m. your time.

So on this basis Leo, if there are no further questions on the line, Ian and will close it. Ian, are you okay with this.

I would just like to extend by thanks to people who are on the call and we look forward to updating you in the near future.

All right, don't forget if you have any questions by email following these results and the conference call address it to Ian or myself and we would respond in our usual manner. Thank you very much. Over now. Thank you Leo.

Thank you. This does conclude our conference call for today. You may now disconnect your lines and thank you for participating.