Edap Tms SA (EDAP) 2004 Q3 法說會逐字稿

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 and 9 months of 2004.

On the call today is Philippe Chauveau, Chairman of the Board, Hugues de Bantel, 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 managements’ remarks today may contain forward-looking statements regarding the Company’s growth and expansion plans. These forward-looking statements are based on the managements’ 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 update provisions 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 turn the call over to Philippe Chauveau. Go ahead sir.

Thank you Cassandra and welcome to our third quarter and 9 month 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'm very pleased with the results of this third quarter and first 9 months of 2004 as they are in line with our Company expectations.

With that said, I will now turn the call back to Thierry for a financial review of these results. 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 the business in Q4 2004 and beyond.

Following Hugues comments, we will open the call for questions and answers where Thierry and I will join Hugues and respond to your questions.

Let me now turn the call over to Thierry for comments.

Our results and also all the figures that I discuss here today are in euros. For your convenience these numbers are translated into US dollars in the tables attached to the press release.

Revenues for the third quarter 2004 were €5.5m compared with €4.7m in the same quarter of 2003. This equates to a 17% increase over the prior year same period.

Revenues for the first 9 months of 2004 were €16.5m versus €13.5m for the 9 months ended September 30, 2003, which corresponds to a 19% increase over year 2003 same period and a 21% increase at a constant exchange rate.

Gross margins as a percent of sales improved from 30% in the third quarter of 2003 up to 41% in the third quarter of 2004, and from 33% for the first 9 months of 2003 up to 38% in the first 9 months of 2004, despite the continuing strengthening of the euro against the US dollar and the Japanese yen.

The Company’s operating expenses in the third quarter of 2004 were €2.5m versus €2.6m for the third quarter of 2003 and were €7.2m for the 9 months ended September 30, 2004 compared with €8.6m in the same period of 2003.

During the first 9 months of 2004, the Company recorded a 16% decrease in its operating expenses from the prior year same period.

Total operating loss for the first 9 months of 2004 was €0.8m compared with €3.9m for the 9 months ended September 30, 2003.

The 2 divisions made a total operating profit of €328,000 for the first 9 months of 2004.

I am pleased to report that at September 30, 2004 the Company had €9.1m in cash and net book value of €18.2m.

I will now turn the call over to Hugues de Bantel to give more specifics on the results of the first 9 months of 2004 and to discuss the prospects for the business in Q4 2004 and beyond. Hugues.

Thank you Thierry and good morning everyone. I'm pleased with our third quarter and 9 months results, which are fully in line with our budget expectations and confirm our growth trend.

The Company implemented a significant turnaround, but there are still challenges to be met in the months to come.

Let me start reviewing the Company’s urology devices and services (UDS) division. UDS division recorded a very strong third quarter with 12 lithotriptors sold which brings the total number of lithotriptors sold to 28 at the end of September 2004 versus 26 for the same period of last year.

I am particularly pleased with the product mix, with more high-end Sonolith Vision lithotriptors sold compared with last year same period, which significantly improved our margins.

We aggressively took market share in our key markets in Asia and Europe and confirm the distribution of our Sonolith products with our US partner, HealthTronics.

There is still a slight decrease in service revenues for this division due to the relative [indiscernible] associated to the replacement of machines. Nevertheless, as from 2005, we anticipate to reverse trend, with an increase in our service and consumable revenues that stems from the last 2 years’ high sales of lithotriptors and which is high margin revenue.

Excluding the exchange rates effect, margins increased by 2% compared to last year same period thanks to a combination of systematic cost of goods sold reduction and sales of Sonolith Vision with higher margins.

However, euro continued fluctuation against the US dollar and Japanese yen could impact onwards the future results of the division.

UDS expenses increased by 10%, as planned, mainly due to an increase in our marketing and R&D expenses to effectively support our aggressive sales strategy and our future development program.

We anticipate increased worldwide competition in the future. However, we believe that we will successfully maintain our steady growth and position on this market thanks to first, our strong distribution network. Second, our continued appeal for our superior technology, third, the potential synergies with the Ablatherm sales, and finally, the development of our manufacturing activities for the medical device suppliers, reducing UDS cost of goods sold.

We also plan distributing additional medical equipment product lines through our subsidiaries and especially in Japan, which should contribute to our revenue growth for 2005.

The UDS division ended the quarter with a backlog of 5 machines, which positions the division [correctly] to enter the fourth quarter.

Now let me comment about EDAP, the HIFU division. For the first 9 months of 2004, the HIFU division posted excellent results ,with 7 Ablatherms sold versus 3 for the same period of last year.

The HIFU division total revenues for the first 9 months of 2004 increased dramatically by 108%, more than doubling, amounting to €5.1m, compared with €0.25m over the same period of last year.

The division recorded a sizeable progress of 123% in our HIFU mobile business. We believe that this mobile business will represent a significant part of our revenue stream in the future, and this will facilitate access to the HIFU technology and we offer this non-invasive treatment option to a larger number of patients. This is already confirmed by the doubling of our HIFU mobile revenues in our key European markets, such as Germany and France.

Reimbursement has already been confirmed in Germany and Italy, and we anticipate progress on this front and other European markets. We plan to report soon on this progress.

In addition, I would like to emphasize that [treating] people from cancer is far more critical a driver to our HIFU business than concern of reimbursement. This growing demand is confirmed by the significant increase in the number of sites having access to the HIFU technology and the number of patients treated.

For the first 6 months of 2004, we recorded a 54% increase in the number of patients treated. This is success. This was over 1,000 patients in 6 months. As of September 2004, the total number of patients treated so far exceeded 6,000, with more than 57 sites using Ablatherm.

We anticipate to maintain the strong HIFU growth in the next quarter for several reasons. More and more patients are being diagnosed with prostate cancer among an aging population. Higher demand from patients and physicians for this new, non-invasive treatment option, confirmed by the number of various contacts and leads we see [indiscernible].

Further reasons are a most typical increase in the number of treatments performed in every single existing center.

Finally, all our representatives confirm this increase in terms of leads and demand for our treatment.

EDAP margins improved from 32% to 44%, mainly due to an increase in revenues, with proportional decline for the cost of goods sold such as medical application specialists, supply chain and service.

Expenses were reduced by 48% compared with last year same period and were kept under control.

We anticipate starting to increase the level of expenses in 2005 to further strengthen our technological and clinical leadership for the years to come, with investments in R&D, clinical and marketing, but plan to maintain high margin levels.

Let me say this in conclusion, with 3 successive quarters in a row for our 2 divisions, the strong partnership in the US with HealthTronics, the confirmed clinical and technological leadership in HIFU, we are poised to enter 2005 and beyond to finally demonstrate the true and sustained profitability of EDAP TMS.

I would like to close this conference, before we open it to questions, there is one thought about our vision. It’s about time the EDAP TMS story should be told.

Over to you Cassandra for the questions from our people online.

Thank you. [OPERATOR INSTRUCTIONS]. We’ll go first to the site of David Baker with Core Fund Management. Go ahead please.

Good morning gentlemen, nice results.

Thank you David.

Hugues, can you please discuss for us reimbursement environment for some of the countries in Europe and speak to that please?

Yes sure. As I mentioned in the conference call, we confirmed the reimbursement in Germany and Italy where we actually showed very good progress within the last quarters. Now what we are really focused on, focusing on at the moment is reimbursement in France and the UK. We should be in a position to come back to you pretty soon with some good news about France and the UK will be, I think, a little bit longer.

Okay. Thank you and does reimbursement in -- what about Canada?

Well we're just a [indiscernible] in Canada. So we can actually sell the other firm in Canada. We can treat patients in Canada and we are currently putting a lot of effort to try and find the right partners to establish centers in Canada.

I think that we should be able, within the next few months or quarters, to come back to you about this. But I'm very confident about the progress in Canada.

And lastly Hugues, what about Scandinavian countries? Are those opportunities, or not so much?

Well Scandinavia is not a huge market for prostate cancer in Europe. First of all because many of the patients are just on a much good way embedded. Second of all, because their capacity to absorb equipment is not very high.

Now, what I can tell you is that we are doubling our revenue in Germany. The German market is progressing very well and I think that this progress will have a very strong influence in the future in Scandinavia because Scandinavian doctors plan to rely more on what is happening in Germany than what is happening in France.

Understood. Thank you very much.

Thank you David.

Thank you. It appears we have no further questions at this time. I would like to turn it back over to you Mr. Chauveau.

I'd like to thank all of you who attended. Hopefully you will call us or write to us with your questions is you were not able to, or didn’t want to raise them today.

Again, thank you Cassandra and I'll close the conference call. Thank you.

Thank you and that concludes today’s conference. You may disconnect at any time.