Edap Tms SA (EDAP) 2004 Q2 法說會逐字稿

On behalf of the EDAP TMS I would like to welcome you to the company's conference call to discuss the financial results for the second quarter 2004. On the call today is Philippe Chauveau, Chairman of the Board, Hugues De Banterl, Chief Executive Officer of EDAP TMS; and Thierry Turbant, Chief Financial Officer of the company.

Before we begin, I would like to remind everyone that some of management's 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 therein. 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 to any forward-looking statements made herein to reflect changes in the company's expectations or future events.

With that said, I will now like to turn the call over to Philippe Chauveau. Please go ahead

Thank you and welcome to our second quarter 2004 financial results conference call. First before I turn the call over to Thierry Turbant, for a review of the results that we released yesterday I would like to say as Chairman of the Board that I am pleased with the results of the second quarter and first six months of 2004 as they are in line with our first quarter results and with our expectations. With that said I will now turn the call back to Thierry for a financial review of these results and then to Hugues who will continue with comments relating to the operations of the business over the period and conclude with a discussion of the future course of business in 2004 and beyond. Following Hugues comments he will then open the call for question-and-answer period where Thierry and I will join Hugues in response to your questions. With that I'll turn the call over to Thierry Turbant for comments on the results. Thierry?

Thank you Philippe. As always please note that all of the figures that I discuss here today are in euros. For your convenience these numbers are translated into U.S. dollar, in the tables attached to the press release.

Revenues for the second quarter 2004 were 5.2 million euros compared with 4.7 million euros in the same quarter of 2003. This equates to an 11% increase over the prior year same period. Revenues for the first six months of 2004 were 11 million euros versus 9.1 million euros for the six months ending June 30, 2003, which corresponds to a 20% increase over year 2003 same period and a 22% increase at a constant exchange rate.

As we mentioned in the press release these revenues included the sale of 16 lithotriptors and 5 Ablatherms. Gross margin as a percentage of sales improved from 34% in the second quarter of 2003, up to 39% in the second quarter of 2004 and from 35% for the first six months of 2003 up to 37 in the first six months of 2004. Despite the continuing strengthening of the euro against the U.S. dollar and the Japanese yen. The companies operating expenses in the second quarter of 2004 were 2.5 million euro versus 3.1 million euros for the second quarter of 2003 and were 4.7 million euros for the six months ended June 30, 2004 compared with 5.9 million euros in the same period of 2003.

During the first six months of 2004 the company recorded a 20% decrease in its operating expenses from the prior year same period. Operating loss for the first six months of 2004 was 0.6 million euros compared with 2.7 million euros for the six months ending June 2003. This includes a non-recurring charge of 200,000 euros linked to Headquarters' restructuring. Each division again made an operating quarterly profits in Q2 for a total operating profits of 103,000 euros during the quarter and 267,000 euros for the first six months of 2004. At June 30, 2004 the company had 9.3 million euros in cash and a net book value of 18.5 million euros.

I will now turn on the call over to Hugues De Banterl to give more specifics on the results of the first six months of 2004 and to discuss the prospects for the business in 2004 and beyond. Hugues?

Thank you Thierry and good morning everyone. I am pleased with our second quarter and six months results which are fully in line with our budget expectations and confirm that we now are on the right trend. The company has managed a large turnaround but there are still challenges to be met in the months to come. The company's Urology Devices and Services, UDS division, experienced another strong but steady quarter with 7 lithotripters sold. Our total revenues for the division over the six months period amounted to euro 8.6 million. Thanks to our increased lithotripters installed base, we have now seen our consumables revenues increasing by 23% from last year's six months period.

On the manufacturing side our cost cutting initiative associated with strong management of our suppliers helped improve our gross margin sequentially.

The UDS division ended the quarter with a backlog of 7 machines which positions the divisions preferably to enter the third quarter.

The HIFU division total revenues for the first six months of 2004 increased dramatically by 73%, amounting to euro 3.5 million compared to 2 million over the same period of last year. As we mentioned in the press release we are very pleased with the revenues derived from our Ablatherm mobile business which increased by 161% from last year’s same period. More and more hospitals are using our Ablatherm on a mobile procedure basis and we plan to develop that type of business in order to facilitate access to the HIFU technology and offer this non-invasive treatment option to a larger number of patients.

This quarter we installed two Ablatherm devices in two highly regarded European centers. Noxie (phonetic) University Hospital which Urology Department is headed by Professor Mosha (phonetic) President of the French Urology Association and another one at the Princess Grace Hospital in Monaco. We expect this hospital to become an international show case for the Ablatherm. Both sites have been successfully using Ablatherm on a mobile basis, before opting to acquire the device.

With more 50 clinical sites using the Ablatherm as of today, we are quite enthusiastic on the potential HIFU division growth. We now clearly have a greater visibility in terms of revenues directly related to the HIFU business.

Again, the division reached positive operating income in Q2 as it did in Q1, amounting euro 163,000 for the first six months of the year and we are very pleased to see that this trend is being confirmed.

On the clinical side acceptance of HIFU with Ablatherm as an option to treat localized prostrate cancer is growing and the credibility of HIFU technology has been validated by a recent article from Dr. [inaudible] on 5 years long-term follow-up clinical results published in the journal of Urology. Furthermore Dr. [inaudible] also demonstrated that HIFU with the Ablatherm can be used to treat radiotherapy failures. This is very encouraging as no other option is being offered so far to patients suffering from a recurring prostrate cancer after undergoing radiotherapy.

With more than 14 clinical articles published in international journals, more than 5000 patients treated, 10 years of experience using HIFU, EDAP with the Ablatherm is the undisputed market leader in this field.

Based on our 2004 first six months results we confirm our commitment to meet our key objective for the year, double-digit growth for the company in revenue and operating profit in the two divisions. With that we think that we have now positioned the company for steady long-term growth.

With that I turn the call over to the operator for question.

Holly

At this time if you would like to ask a question you may do so by pressing “*” “1” on your touchtone phone. You may withdraw your question anytime by pressing the “#” key. Again to ask a question you may do so by pressing “*” “1” on your touchtone phone. Our first question will be from David Baker of Core Fund (phonetic) Management. Please go ahead.

Good morning gentleman nice quarter.

Thank you.

Hugues or Thierry can one of you gentlemen address -- first question is reimbursement in France can you talk about that with respect to HIFU?

Well, reimbursement in France is really a key milestone for us. We are very happy with the recent progress with regards to the reimbursement in our key market. We believe that we shall be able to bring up some nice news within the next few months on this particular subject.

And what about the rest of Europe in terms of reimbursement? What are the issues there and timing and so on and so forth?

Well, HIFU is [currently] reimbursed in two other markets, in Italy and Germany, and we see progress in these two markets -- a clear progress in these two markets with our mobile business thanks to this reimbursement. In the other European countries we expect reimbursement to come within the next, I would say 2-3 years.

Okay and you have got seven Ablatherm’s to be shipped in the third quarter, or is that correct or will they not all be shipped in Q3?

No the seven units we are talking about are lithotripters [that including] the UDS division.

Okay and those will be shipped in Q3?

These are already ordered. They will be shipped in Q3, and we expect to ship more.

And what about Ablatherm count for Q3, is there any visibility there?

As mentioned in the conference call and in the press release we have got more visibility on the Ablatherm now no doubts about that. But we won't release any information on the number of units for Q3.

Okay and what did free cash flow look like for the quarter?

You mean for the second quarter or the third quarter?

I am sorry for -- excuse me operating cash flow what did it look like for second quarter?

We are looking it up David, hold on.

Sure.

We were within 60,000 euros end of Q1 to end of Q2 in terms of total cash, and Thierry has the answer?

Minus 1.3.

So the free cash flow was negative.

The operating cash flow is negative 1.3.

Got it. And R&D, it declined significantly is that because of the agreement with HealthTronics, now HealthTronics Prime Medical in connection with HIFU and going for U.S. approval or why did R&D seem to go down a fair amount?

Do you mean why did R&D went down from one quarter to another?

Right.

You mean from last year to this year?

Correct. From this recent quarter versus same quarter previous year.

Okay. That's quite clear now. Now, mainly because we decided last year to focus our R&D team on HIFU for prostrate cancer mainly. So, some of the -- part of the restructuring plan by the end of last year was concerning R&D so we reduced our R&D team by the end of last year.

Got it. And with cash holding very, very nicely and operating results continue to improve and the progress you are making in HIFU, the regulatory approval opportunity you are hoping to get in the next couple of years in the U.S. and the stock at such a low value on every metric, has the company been approached yet by [suitors] in connection with buying the company?

I can definitely say no. We have not been approached and if I -- if there were I would be the first to know.

But its certainly something that you've thought of I would assume given the fact that again if the results continue to get better and better the cash is building and you have such an enormous opportunity globally for HIFU?

Well we’re always open to conversations on any subject. Subject obviously our Board approving and eventually our shareholders approving. But so far we are not there yet.

Got it. And I assume the company is going to continue just to hold its cash and there is not going to be any use for it except for the ---

That’s absolutely right David. Our first priority is to maintain our cash position to remain independent and not be vulnerable to any, what I call undesirable, sort of, acquisition or movement. However as you know from all our businesses across the world, cash is king and we are holding to our cash priority as you can see from the numbers.

I think it’s very smart and it’s going to do you good. Thank you for your time gentlemen and congratulations on a good quarter.

Thank you David.

Thank you very much.

Again if you would like to ask a question you may do so by pressing “*” “1” on your touchtone phone. It appears that we have no further questions I would like to turn the call back over to Mr. Chauveau.

We had Mr. Seagle (phonetic) and Mr. Windling (phonetic) who were obviously ready for questions are they not responding to asking questions?

No they’re not.

Okay. Well on the basis of no further questions I would just like Hugues to close the conference call with some -- his feelings about Q3 and Q4.

Thank you Philippe. Thank you everyone for attending the conference call. As mentioned in the press release and in the conference call today, we start to be very confident about the future for the company. We have clear visibility on both HIFU and lithotripter business for the future and we are quite optimistic about the fact that we will meet our target for the year which is again to turn the two operational division positive, and to maintain our cash at a very good level. Thank you everyone.

Thank you. Thank you Holly.

Thank you. This does concludes today’s conference you may disconnect at anytime.