Edap Tms SA (EDAP) 2005 Q1 法說會逐字稿

Good day. All sites are now on the conference line. This is Jamie, your operator. (OPERATOR INSTRUCTIONS). On behalf of EDAP TMS, I would like to welcome you to the Company's conference call to discuss the financial results for the first quarter of 2005. 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 the management's remarks today may contain forward-looking statements regarding the Company's growth and expansion plans. These forward-looking statements are based on 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 turn the call over to Philippe Chauveau. Please go ahead, sir.

Thank you and welcome to our first quarter 2005 financial results conference call. On today's call, Thierry Turbant will review our financial results. And then Hugues will comment on the operations of the business over the period, and then conclude with a discussion of the future course of the business in 2005 and beyond.

Following Hugues' comments we'll open the call for a question and answer period, during which time Thierry and I will join Hugues in responding to your questions. We would like to encourage our shareholders to utilize this time to make inquiries about the Company, our strategic plans and our long-term goals, as the quarterly reports represent a significant opportunity to share these important factors. With that I will turn over the call to Thierry.

Good morning everyone. Please note that all of the figures that I discuss here today are in Euros. For your convenience, these numbers are translated into (indiscernible) in the table attached to the press release.

I will now review total Company numbers and (indiscernible) will review key numbers by division. Total Company numbers in Euros were as follows. Q1 2005 revenue in Euros was 5.1 million, down 11% versus Q1 '04 revenues of 5.8 million Euros, essentially due to three undeterminates (ph) sold in Q1 '04 versus two in Q1 '05. Q1 of 2004 was specifically strong on units served, whereas 2005 is a more normal portion for our corporate plans.

The machine sales represents a significant block of revenue, particularly under on the HIFU side, and can represent a significant gross margin impact upward and downward due to different price levels, depending on the market.

I do want to remind our investors to take note of the increased gross margin. Q1 margins for the Company were up 4 points from 36% in Q1 '04 to 40% this quarter. This was caused by an increase in the average product selling price due to mix for both the lithotripsy and other term (ph) HIFU units, as well as improved costs of goods sold.

Q1 operating expenses increased 6% to EUR2.4 million versus EUR2.2 million in Q1 '04. This slight increase was in line with our strategy to further improve awareness and education for other term HIFU, to enhance our technical leadership in HIFU and to accelerate the reimbursement process in key countries. Expense also reflects increases in G&A expenses, due principally to higher fees and expenses as facilitated with our compliance with the Sarbanes-Oxley Act of 2002.

While our Q1 '05 operating results by division remain positive as in Q1 '04, in terms of total Company numbers our Q1 net loss was EUR140,000 versus a total net loss of EUR13,000 in Q1 '04.

At March 31, 2005, the Company had EUR8.2 million in cash, and recorded a net book value of EUR17.9 million, level with the prior quarter ended December 31, 2004. Change in the Company's cash position were primarily driven by EUR800,000 increase in working capital needs, mainly accounts receivable and inventory.

Overall, I can confirm that our current cash position is tracking to our internal plan. We continued to be very cost-conscious and are strategically investing our cash in operating activities designed to support the long-term financial goals of the Company.

I will now turn the call over Hugues de Bantel to give more statistics on the Q1 2005 results and to give -- and to discuss the Company's business prospects for the rest of the year and beyond.

Thank you. Good morning everyone. We made significant progress in the first quarter in several areas, many of which have been reported as they occurred. I will summarize these items in addition to providing updates on our operating divisions in order to give you a more complete picture of our broad strategy to build a sustainable and growing business through the use of several concurrent programs.

Let me start by reviewing the Company's HIFU division. For the first quarter, the HIFU division posted good results with two other firms sold and a significant increase in our (indiscernible) residual (ph) mobile business. While this number is one less than in the prior quarter, Q1 last year had a uniquely strong sales base. At the same time, every unit we place contributes to our future revenues through both the service needs and procedure utilization of consumable elements.

Our primary focus is on growing the base of treatment, which continues to be the case. And unit sales will occur unrelated on a relatively regular basis, although there will be fluctuations in the quarterly composition on occasion.

Our mobile business represents a strong growth engine, which allows us to enter markets without the sale of a machine. Choosing (ph) the Ablatherm-HIFU unit is often a major capital investment for the hospital or clinic, even with the significant upside potential the treatment can offer to the practice center. The mobile business lets us grow our treatment base and work with the clinic to help them build the demand. That will eventually lead some of them to a purchase.

The increasing mobile procedures was particularly spectacular in countries where reimbursement is secured. In Germany and Italy, for instance, where patients are reimbursed for about half the total costs of treatment, mobile HIFU revenue increased threefold. We anticipate confirming this trend in reimbursed countries as this program develops, since reimbursements are carry-out (ph) purchase in our strategies.

Our sales pipeline line is clearly getting stronger for mobile business. Over time, this will provide a strong predictable and recurring revenue base. Most importantly, HIFU is becoming a widely accepted treatment alternative to traditional but more difficult options, such as surgery and radiation. As patients and their doctors become more and more aware of the treatment options available and the benefits of HIFU, they're increasingly seeking to utilize this option.

Our clinical data also continues to grow in the history of treatment for those not able to use a traditional treatment method due to their health history, for those who failed in an attempt to be treated with a traditional method, and even in elective options, where the patient may choose to try HIFU as their first treatment course because of specific concerns about their quality of life and a desire to quickly to their cancer, and receive a faster confirmed PSA test following treatment.

This confirms the importance for us to secure satisfactory level of reimbursement in every key country in Europe. Patients, and very importantly their doctors, are clearly wishing to pursue (ph) HIFU. And reimbursement is a key element in making sure this treatment is available to a much broader population, and therefore anticipating an increase in our resources to speed up the process in every other European country.

During the quarter, the EDAP division's margin improved from 40% to 50% mainly due to a sharp decrease in manufacturing costs, combined with a slightly higher selling price per unit. We're continuing to manage these elements of the business aggressively for the long-term.

EDAP division's expenses increased by 32% compared with 2004. We anticipate a steady increase during the year as we work to secure reimbursement in key countries, to support our strategy to rapidly educate the market and to provide support to HealthTronics with a clinical study related to FDA approval in the latter part of this year. All of these areas are designed to support the long-term growth of the company in multiple markets. The EDAP division is focusing on continuing to increase awareness of the Ablatherm technology in approved markets while opening new territories.

Milestones for the quarter include -- first, we launched the European HIFU club at the EAU conference during Q1. This club includes a number of highly regarded urologists who have many years of experience using the Ablatherm. In fact, many of them are included in our champions (ph).

Those physicians were to train new users of the Ablatherm for use in new clinics. This club will help us to broaden awareness of Ablatherm-HIFU as well as provide a more direct and formal vehicle to assist EDAP in marketing and educating the market about this very beneficial technology. These doctors can provide very direct and personal accounts of experiences with Ablatherm and the benefits it has given to their patients, perhaps some of the most compelling uses of our time and energy.

Second, a major publication and major (ph) clinical practice in April 2005 compared results at four of our European centers, concluding Ablatherm-HIFU is a safe, effective and desirable treatment option for many patients. Additionally, the publication clearly indicates growing credibility that this treatment is leaving the stages of experimental behind and becoming a more widely accepted treatment standard.

While we're still a long way from the kind of history of that surgery and radiation have, continued support and education in the medical community will only further enhance our position.

Third, we opened the North American market through our new Toronto clinic with our partner Maple Leaf, who treated their first patients at the end of April. (indiscernible) significant and steady, with inquiries from patients throughout North America continuing to arrive daily. We are very excited to enter this market, which is similar in size to the European market.

Fourth, in the UK, NICE, which stands for National Institute of Clinical Excellence, guidance for the use of HIFU was confirmed in the first quarter. In addition to the report on the benefits of Ablatherm-HIFU, this opens the door to reimbursement potential with the UK's largest insurer. Our first clinical partner in Stepping Hill, Stockport, has seen steady demand even without reimbursement. But we are excited at the possibilities in the UK first (ph) reimbursement approval.

Five, we're building our distribution network in the UK. The NICE guidelines also will help to expand this market through the addition of more clinics and urologists, as NICE is considered one of the critical buddies to support the growth of new treatments in the UK.

Finally, in Q1 significant media coverage in OT countries has been achieved from these and other milestones. This coverage continues to help broaden awareness of Ablatherm-HIFU in both the doctor and patient community. While we want doctors to be educated and supportive of treatments, it is also important that patients understand their treatment options and the lifestyle implications that can come from each choice. Both audiences are important to our future growth, and our increases and marketing activities will address their needs directly. As of today, 73 sites are using Ablatherm-HIFU on a fixed or mobile basis, and over 7200 treatments have been performed so far.

To conclude on the EDAP division, I would like to discuss the changes in profitability this quarter. While our total net earnings declined in absolute Euro measures, our model clearly demonstrated its strength and scalability as we add new markets, rather (ph) reimbursement coverage and more patients and doctor awareness.

Margins (indiscernible) through cost controls and selling strength. At this point, our efforts are focused on activities that will directly grow the long-term demand for Ablatherm-HIFU. Our quarter to quarter comparison, both in annual and sequential terms, may move up and down depending on the mix of machines, mobile treatment and services. But we will continue to make significant progress in treatments, regulatory approvals, locations served, physician support for Ablatherm-HIFU, patient awareness and reimbursements, all key drivers of growth, scale and profitability.

In every sense, achieving scale is the key to this model. And we believe we are clearly making the right decisions in driving to that goal.

Now let me comment on the Company's Urology Devices and Services division. The UDS division continued to deliver a steady performance with 9 lithotripters sold and a strong backlog of 5 machines. UDS revenues likely decreased this quarter compared to Q1 '04, with the same number or of unit sold. This decrease is due to a higher number of mid-branch products sold rather than higher priced units. In the replacement market that dominates me lithotripsy, these things (ph) are relatively normal. And management of the total UDS business allows us to continue our margin strength and performance.

The UDS division's gross margin improved from 29% in Q1 '04 to 30% in Q1 '05, mainly due to a decrease in manufacturing costs combined with a stronger pricing per unit on both product lines.

UDS division's expenses decreased by 6% compared with Q1 '04, in line with our program to strictly control internal expenses in this division.

Lithotripsy remains a good market for generating cash flows and maintaining contact with a larger base of urologists, the same physicians who can become our partners in Ablatherm-HIFU. We continue to gain market share in lithotripsy, a significant achievement considering the metric of this marketplace, which is a testament to our ability to give the urologist the tools he needs for his practice as a total solution.

As an additional note, we will be at the AUA conference in San Antonio of the week of May 23. This is the largest urology conference in the United States, and we plan to continue our aggressive education doctors about Ablatherm-HIFU as well as our lithotripsy options.

To conclude my comments, we also will continue with our outreach efforts to tell the EDAP story to the investment community. We plan to make additional trips to the U.S. over the summer and early fall, to visit key markets where investors have expressed interest in learning more about EDAP's role in bringing HIFU to the forefront of prostate cancer treatment worldwide.

If you have questions, or would like to arrange a visit by telephone or as part of the planned roadshows, please contact Halliburton Investor Relations, also listed on our press releases. We value the important questions from these meetings, and continue to expand our disclosures to more fully answer your questions about the Company and our long-term plans.

In conclusion, I would like to reiterate the great growth opportunity of the Ablatherm-HIFU business. We will now open the call for your questions.

(OPERATOR INSTRUCTIONS). Mark Wineling, Dunn Allen Financial.

I have a couple of questions. The first question that I've got is, do you have some idea as to the type of patient that you're getting with the -- in Canada? Are they Canadians, Americans, etc.?

Well, they actually get phone calls from Canada and America. And I would say the U.S., yes. They do get recruitment (ph) from the two countries.

Okay.

Their plan is really to promote the technology everywhere in North America.

The second question, did I understand correct that you have had to date 7200 treatments?

Correct.

Yes, absolutely, that's correct.

I'm trying to remember back, did you say that right towards the end of fourth quarter last year that you had approximately 6600 treatments?

Absolutely.

So you have had 600 procedures since -- or during essentially the first quarter?

Absolutely. And again, it is an estimate. It might be a bit higher than that. But it is a conservative estimate of the number of treatments we performed over the first quarter. Absolutely.

Given the number of procedures which, as I recall, that is a pretty high number comparatively speaking. Where would the number of procedures for the quarter fit as compared to previous quarters?

We see a nice increase in our mobile services, especially in the two countries where we are reimbursed, namely Germany and Italy. There is a lot of momentum building there on the mobile services. And it is also coming from our fixed sites in the three key countries where we are established, namely France, Italy and Germany.

(OPERATOR INSTRUCTIONS). Steve Champ (ph), Rubicon Holdings.

Can you give us -- following on that treatment question, what you saw in France, some additional detail? You say Germany and Italy are ramping nicely, but how is France going?

In the French market, the number of treatments remains stable. And this is quite expandable because we don't have reimbursement in France as yet. And really, we will get some -- increasing the number of treatments in France once we get reimbursement. We treated last year in France somewhere around -- we performed last year somewhere around 1000 treatments in France. If we want to increase the number, what we need now is a clear reimbursement from Medicare. And that is what we are working on.

But your treatment level in France is remaining stable at this point?

Yes. And it will -- I believe that it will slightly increase over the year. It won't increase dramatically in France as long as we don't have reimbursement. It will certainly increase dramatically in Germany and Italy, especially with the mobile procedures. And we saw that over the first quarter, and we expect that to get some additional momentum over the year.

You seem to express some optimism on reimbursement out of the UK. But you've also been working on reimbursement in France for quite some time. Is there any update to report there?

If we speak about the UK, the system is quite different from the one we've got in France. In the UK you can get reimbursement from private insurance, and they tend to be much faster then Medicare in France. Now speaking about France, I think that we will have some clear news on the French market before the end of the year, but I cannot comment further because really the answer lies in their hands. We're doing all we can to secure reimbursement as soon as possible. But it is quite political, and until I get it I cannot comment further.

So UK is with private insurers. What about Germany and Italy? Are they also sort of like the French system or are they --?

It is a Medicare-sponsored system, yes. So reimbursement is already achieved there. And what we will do in these countries is working on securing higher reimbursement. But with the type of reimbursement we've got at the moment, we believe that we can significantly increase the number of treatments. The idea will be to keep on working on increasing the level of reimbursement in these two countries.

And it was nice to see the margins improve. Is that -- will we continue to see further improvements in the margins, or have you pretty much squeezed all the costs and you've seen as much improvement we're going to see for a while?

With regards to the margins, they are related first to the cost-cutting work we've done on equipment. And we did that and we implemented that from the second or third quarter last year. So this has a very clear impact on our first quarter operating margin. And this will have a positive impact throughout the year. Whether we can increase that in the future, I believe so -- once we significantly increase the number of treatments, once we significantly increase our revenue.

You'll get further improvement with increases in revenue?

Absolutely.

Is there sort of a target rate that we should be looking for as the revenues do increase?

We did not release any guidelines on that. And I do believe it is too soon to do that.

(OPERATOR INSTRUCTIONS). Martin Byrne, a private investor. (ph)

I had a question about Masonics (ph) and whether you're seeing any competition from them, and also whether they are also contributing resources towards obtaining reimbursement in some of the countries you talked about?

To answer question, nobody really knows Masonic in Europe. I believe that in some countries they are trying to enter the market. I do believe that it is going to be pretty tough for them, because we've got more than 73 sites now promoting the Ablatherm. We've got a huge number of treatments performed in Europe. And we are clearly considered the HIFU Company in Europe. So they are in Europe. They are in some countries in Europe, trying to develop their business. But we don't really feel them.

Now as far as their contribution to the reimbursement is concerned, I am sure that if they want to be serious about getting involved in the European market, they will have to work on that too. We're not combining our strength to achieve that until now. That is what I can answer. I don't know whether they are doing that now. I have no information.

Can you also comment on the progress of the work with HealthTronics seeking to get U.S. approval for Ablatherm?

Yes. Where we are now is really at the last stage of securing a clear protocol for clinical study in the U.S. And we envision starting our clinical study in the latter part of this year.

Is there any chance that the procedures that have already been performed, the more than 7600 procedures, could be utilized to convince regulatory agencies in the U.S. to fast-track approval of Ablatherm?

I do believe that the results we've got in Europe and the number of years of follow-up we've got on equipment will help securing a fast approval. Now the question is what do you call a fast approval, fast-track approval? I do believe that will be -- that HealthTronics is doing a great job at the moment in trying to secure the best possible clinical protocol with the FDA. And I am sure that they would comment on that as you soon as they've got a clear answer from the FDA. And I do believe that we can expect that for -- within the following few months.

It appears as though we have no further questions. I will go ahead and turn the call back over to Mr. Chauveau for any final comments.

I would just like to comment that the EDAP TMS team appreciates the questions and values the comments that we get from our investors in these calls and also in our roadshows. We would like to encourage our shareholders to make further inquiries and about the Company, about our plan and about our long-term goals outside these conference calls as well as during these conference calls.

So I would like to thank everyone who was on the call, some of those who asked questions and those who did not. Thank you very much and I will close the conference call.

This concludes today's EDAP TMS conference call. Thank you for your participation. At this time I will now disconnect all lines from the conference and have a pleasant day.