Edap Tms SA (EDAP) 2004 Q4 法說會逐字稿

Ladies and gentlemen, welcome to today's conference. On behalf of Edap TMS, I would like to welcome you to the Company's conference call to discuss the financial results for the fourth quarter and year end 2004. On the call today is Philippe Chauveau, Chairman of the Board; Hugues de Bantel, Chief Executive Officer of Edap TMS; Thierry Turbant, Chief Financial Officer 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 can 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 obligations 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 turn the call over to your host, Mr. Philippe Chauveau.

Hello, everyone, and welcome to our fourth quarter and year end 2004 financial results conference call. We are pleased with Edap's results for the fourth quarter and for the fiscal year ended 2004 as they are in line with our expectations. On today's call, Thierry will review our financial results and then Hugues will comment on the operations of the Company business over the period and conclude with a discussion of the future course of the business in 2005 and beyond. Following Hugues' comments, we will open the call for a Q&A question and answer period, during which time Thierry and I will join Hugues in responding your questions. I particularly am looking forward to all of your questions today. With that, I will turn over the call to Thierry for a review of the results that we released yesterday. Thierry?

By the way, please note (technical difficulty) all of the figures that I give currency here today are in Euros. For your convenience, these numbers are conflicted (ph) into U.S. dollars in the (indiscernible) attached to the press release. I will now review total Company numbers as Hugues will review key members by division.

Total Company numbers in euros were -- Q4 (indiscernible) EUR5.7 million, up 24 percent versus Q4 '03; full-year revenues, EUR22.2 million, up 21 percent versus 2003; Q4 margins, up to 38 percent versus 17 percent in Q4 '03; full-year margins, also up to 38 percent versus 29 percent in '03 despite the strong euro; Q4 operating expenses down to EUR2.1 million versus EUR4.9 million in Q4 '03, which included (indiscernible); full-year operating expenses down to EUR9.3 million versus EUR13.5 million, a 31 percent decrease. Again, in terms of total Company numbers, Q4 operating results were materially breakeven versus EUR4.2 million less (ph) in Q4 '03. Q4 net loss was EUR300,000, which included onetime only items totaling EUR504,000 versus a total net loss of EUR4.3 million in Q4 '03. Full-year net loss was EUR1.1 million versus EUR9 million in 2003. At year end 2004, the Company had EUR9.4 million in cash and a net book value of EUR18 million.

I will now turn the call over to Hugues de Bantel to give more specifics on the 2004 results and to discuss the Company's business prospects for 2005 and beyond.

Thank you, Thierry. Good morning, everyone. I am extremely pleased with our fourth quarter and year-end results which are fully in line with our budget expectations and confirm our growth trend. These improved financial results demonstrate the clear execution of our commitment and could not have been accomplished without the involvement of the entire Edap TMS team and full support of our Board and our shareholders. Today (technical difficulty) despite the (indiscernible) impact on UDS, both divisions reported a fourth consecutive profitable quarter with a total operating profit of EUR571,000 for the full-year 2004 and EUR745,000 without the balance (ph) impact.

Let me start reviewing the Company's urology devices and services, UDS division. UDS recorded a strong fourth quarter with 11 lithotripters sold, which brings the total number of lithotripters sold to 39 at the end of December 2004 versus 34 for 2003. This is fully in line with our aggressive type (ph) marketshare strategy. We have confirmed our successful marketshare growth in Asia and, have made clear progress in Europe and have begun to penetrate the U.S. market with our partner Astronics. There is still a decrease in service revenue for this division due to the (indiscernible) period associated with the replacement of machines. Nevertheless, during 2005, we do anticipate that we will reverse the trend with an increasing outservice and consumable revenue that stems from the last two years of high (ph) sales of lithotripters, which is high-margin revenue.

Growth margin is up 30 percent in '04 versus 27 percent in '03, demonstrating our manufacturing effectiveness. UDS division operating expenses decreased by 8 percent, as anticipated. The UDS division ended the quarter with a backlog of four machines, which positions the division favorably to enter the 2005 fiscal year. Even though we are anticipating increased worldwide competition in the future, we do believe that we will maintained our steady growth in this segment, mainly due to our service capacity, credibility and proximity, the continued appeal for our superior technology, our global reach through a strong distribution network worldwide, and finally, the possible synergies with our Ablatherm sales. The division's sustained margins and predictable revenue flows provide momentum to our overall business and supports our growth.

Now let me comment on the HIFU division. For 2004, the HIFU division posted excellent results with 9 Ablatherms sold versus 3 sold for 2003. The HIFU division revenues for 2004 increased dramatically by 136 percent, more than doubling HIFU's 2003 revenues. The division, we called it clear progress of 135 percent in our (indiscernible) Presidio mobile business. This endeavor is proving our business model and priming the pump for future business. The growing progress with HIFU is confirmed by being increasing number of sites, now up to 53, and the number of treatments up to 6600 at the end of December. We believe that this mobile business will represent an even greater portion of our revenue stream in the future as it will facilitate access to the HIFU technology and will offer this non-invasive treatment option to a larger number of patients.

During 2004, Edap's margins improved from 31 percent to 46 percent, mainly due to an increase in revenues. Expenses were reduced by 59 percent, compared with 2003. We anticipate an increase in 2005 expenses as we work to support our strategy to rapidly indicate (ph) the market on the indication for HIFU and to further strengthen our technological and clinical leadership through additional investment in development, clinical and marketing. Despite this initial investment, we would like to maintain our high operating margin levels.

The market potential for HIFU is huge. With more than 250,000 cases currently in Europe and 230,000 in the U.S., this represents a huge growth opportunity for HIFU, even though it requires patients, doctors and insurance providers, education, which is part of our marketing strategy. By successfully executing our marketing strategy, we should be able to develop this opportunity. We have clinical credibility in Europe and are building our (indiscernible) in the U.S. through our relationship with Astronics.

Now let's talk about the balance. As we discussed in yesterday's press release, our fourth-quarter revenues were impacted by a non-cash charge related to warrants (ph) issued to Astronics, our U.S. marketing partner, based on our distribution agreement with Astronics. The non-cash charge recorded related to a series of warrants that vested in 2004 upon the purchase of lithotripters by Astronics. These warrants entitle Astronics to acquire 100,000 shares at an investment sized (ph) price of U.S. dollar 1.5 per share.

It is important to note that although we regarded a non-cash charge to our financial operation, this charge reflects success in meeting performance goals that will benefit shareholders in the long-term. Astronics is assisting Edap TMS in entering the North American market, a key region for long-term growth. We expect that we will book future non-cash charges of the same nature as Astronics continues to meet and exceed key growth metrics necessary to (indiscernible) into the market for our United States.

However, we are confident that as additional warrants vest upon the completion of the milestone set out in our distribution agreement the element (ph) of resulting non-cash charges recorded by the Company in future financial periods will be more than offset (technical difficulty) significant Edap TMS business progress. This will all be good news.

With regards to share price and valuation, as we mentioned in the press release, Edap management is beginning an announced investor outreach program and we are planning mergers (ph) in a number of major financial centers this year. We are asking you to contact (indiscernible) in earlier call and after getting (ph) to visit the West Coast in early May.

In addition, Edap is participating in the next European Association of Urology EAU meeting to be held in Istanbul, Turkey from March 16 through 19, 2005. Edap will also be present at the American Urology Association Conference to be held in San Antonio, Texas from May 21 to 26, 2005.

While we are pleased with the improvement in our stock price performance, we believe the Company's unique business opportunities provide tremendous upside potential for new investors at Edap. We look forward to the opportunity to more widely communicate our story to the investment community.

In conclusion, let me restate our commitment -- to grow revenues with positive operating income in the divisions; to drive the highest number of (indiscernible) treatments possible by expanding HIFU availability worldwide; to maintain strong cash management. Again, with four positive quarters in a row for our two divisions, a strong partnership in the U.S. with Astronics and come from clinical and technological leadership in HIFU, we are entering 2005 well positioned to demonstrate the true and sustained profitability of Edap TMS. We will now open the call for your questions.

(Operator Instructions). Mark Wineling (ph), Dunn Allen (ph) Financial.

I want to congratulate you on a great fourth quarter. Unfortunately, the way that Dow Jones put the press release out, it was a non-event because it took place fairly late in the evening, before they had it out. But it was a great fourth quarter, and I want to congratulate you.

Thank you, Mark.

I do have a couple of questions. From an accounting of warrant into the common shares, I'm assuming that the way that will take place will be as they pay for these warrants, they will then become shares outstanding. Is that the way you will handle it from an accounting standpoint?

Yes, absolutely.

Yes, Mark.

Okay. So based upon whatever of Healthtronics' different levels are as they eventually reach this, the total of million shares, do you have a kind of a specified timeframe that they have to do this in, or is this just as they meet each of the different levels that you need to have them meet?

We do for the litho business, which is 100,000 shares for '05 and '06 and '07 and '08. These are very specific dates and they are related to very specific numbers of lithos, and that is pretty easy. The one which is exact but less easy to explain in terms of timing is as follows. So far, 4100 is 400, okay? Now we've got -- for HIFU, we have 200,000 warrants for completion of clinical trials, then we have 200,000 for filing of the PMA, and then we have the final 200,000 when the PMA is obtained. And let me address, or maybe you possibly can address, the next question which you probably will raise, Mark, in advance of that in terms of -- what are your expectations in terms of the timing of the FDA milestone? Is that a fair question?

That is a fair question, but I am hysterically afraid to ask it.

I will ask it for you, and I will let Hugues respond to it.

Well I think that what I can really do is just repeat what was said by Brad Hummel (ph), the CEO of Astronics, regarding (technical difficulty) during his conference call last week. What he clearly said is that we do not have a clear pathway today that we're in a position to discuss publicly. So as it revolves itself of use (indiscernible), we will let you all know. We cannot speak of how fast yet this process will be, but we will of course as soon as we can. And as far as I'm concerned, I would just add to that I feel very comfortable by the process underway.

Okay. I will not press you any further on that. Another question that I have is -- do you -- I guess I will ask something you may or may not be able to answer. Do you expect to announce any sales in Canada relatively soon, hopefully very soon?

Let me answer this question, Mark. I will say that Canada is progressing well, and I would even say very well. But because of competitive issues, we will update on Canada on next quarter only.

Let me add to that, that next quarter, you will have an answer to your question.

Lastly, from a competition standpoint, do you foresee any sort of a major push by competition into Europe at this juncture, or do you think that the competition is going to be coming into the U.S., you know, the ability to get approved here?

Mark, thank you for this question. I think that you are talking about one of our U.S. competitors; I would like to answer in two manners. First of all, I'd like to update you on that. Nobody knows this Company in Europe really. They've been in Europe before for a few months now, I believe. Nobody knows them, they have no credibility at all in Europe as far as their results are concerned.

Now to answer your question more broadly, I would like to insist on one thing. We're talking about prostate cancer, and prostate cancer is a serious issue where the number of cures and the number of treatments backed by scientific publication are the only measure. As far as I'm concerned, what I know is that we have 8 years and 6600 treatments performed. We have 8 years follow-up on this technique, we have published results of more than 5 years on this technique and will have during the next EAU, presentation with the result of 8 years from this technique. Our competitor has some now 2 years publications, 2 years follow-up publication and 300 patients treated in Europe. They Power Wave (ph). And less than 5 years is not credible when you talk about cancer, when you talk about prostate cancer. So to now answer fully your question, I would say that I do really welcome competition backed by truth as it further open the market while our clinical and technological leadership prevails.

So essentially, it will just be a matter of having Halliburton, among others, help you get the word out to the investment community as well as to obviously the docs you're going to be doing yourself.

Absolutely. I mean education (ph) in Europe is already in place. We have to work on that further in 2005. We're going to be extremely aggressive on that in Europe in the months to come and we report on that on a regular basis so that you are updated on our effort. And for the North American market, I think that our approach of the Canadian markets will have a huge impact on the North American communication on HIFU.

Thank you very much. I appreciate it.

Thank you Mark. take care.

(Operator Instructions). At this time, there appear to be no more questions. Mr. Chauveau, Ill turn the call back over to you for closing remarks.

I would have loved to have more questions on the call, but obviously we as the management team are available as individuals to respond to any of our investors who whish to call us. So on behalf of the team here and, operator, thank you for organizing this, and I will officially close the call. Thank you very much.

Ladies and gentlemen, this concludes today's Edap TMS conference call. Thank you for your participation. At this time, I will disconnect all lines from the conference call. Have a pleasant day.