Edap Tms SA (EDAP) 2005 Q4 法說會逐字稿

On behalf of EDAP TMS, I would like welcome you to the Company's conference call to discuss the financial results for the fourth quarter and full year 2005. This call is being recorded and will be available for playback by telephone and online; details of the playback are available in the Company's press release.

On the call today is Phillippe Chaveau, 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 management's remarks today may contain forward-looking statements regarding the Company's operations, 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.

Company details of factors affecting forward-looking statements can be found in the Company's SEC filings available at the Company's website, www.edap-tms.com.

With that said I will turn the call over to Phillippe Chaveau. Please go ahead.

Thank you and welcome to our full year 2005 results conference call. I'd like to encourage you to use this public forum to ask questions, since these opportunities only occur four times a year and set the tone for our disclosures. We are more than happy to discuss the topics which we can and help provide the big picture necessary for you, our shareholders, to more thoroughly understand our business and the opportunities ahead, which we believe are significant.

Of course, there are some topics on which we cannot provide detailed information for competitive or regulatory or other reasons and we will defer to future opportunities when we will be able to more fully answer your questions on those topics.

On today's call I will address three general themes. Thierry will then review our financial results, and Hugues will comment on the operations of the business over the period and conclude with a discussion of the future course of the business.

Following Hugues' comments, we will open the call for a question and answer period, during which Thierry and I will join Hugues in responding to your questions.

So let me begin with the three general themes, looking at both the 2005 year and also the factors affecting 2006.

First, our business is not one of steady quarters. Second, we have a clear indication of the health and flexibility of our model. Third, (indiscernible) Ablatherm-HIFU works.

First the Company's financial results for the full year were trailing prior periods in the first nine months followed by a rather dramatic fourth quarter in which we benefited from a significant upwelling of interest. Our business is not one with steady quarters and 2005 clearly demonstrated that. We invest our resources in ways which we believe will yield future growth. In 2005 we launched in Canada, Australia, and the UK investing assets to make these markets future (indiscernible).

The fourth quarter showed that these investments are paying off; but we have substantial growth yet to realize in all of these markets. Hugues will talk about these in more detail during his comments.

Second the health and flexibility of our model. Even with the Company's results being slow to develop during the year the Company managed itself well, monitoring expenses and making good decisions for the long-term. The uses of our cash have been carefully controlled as we invested to build growth opportunities in many markets. Operating margins and income grew during the period from the effective management of cost and resources that we will continue to strive for improvements. This is clearly an indication of the health and flexibility of our model.

Third and finally, and quite simply, Ablatherm-HIFU works. I would like to focus on what I believe is the most important element underlying all our efforts, regardless of the market, the revenue model, or reimbursement status. Quite simply, Ablatherm-HIFU works. This is an effective treatment. Feedback from patients who have experienced it are very positive on the outcomes, whether it was the first indication treatment or a last resort for those who opted for traditional therapy and had a recurrence.

Our success in the market is due to real, credible, and clinical verifiable results over many years and at many centers. It has brought us this far and earned for EDAP the right to market Ablatherm-HIFU. We are building on this foundation with our new marketing efforts and our patience, diligence and perseverance are paying off as the market is open to the idea of a new treatment. This gives us the opportunity to demonstrate we can fulfill the promises we make regarding success of Ablatherm-HIFU and grow. We're doing just that. And we will continue to do so in 2006 and beyond.

With that, I will turn the call over to Thierry Turbant for a review of the financial results that we released yesterday.

Good day, everyone. Please note that all of the figures that I discuss here today are in euros as is our practice. For your convenience, these numbers are translated into U.S. Dollars in the (indiscernible) attached to the press release. But we use euros for comparisons as a constant guarantee reserve and (indiscernible) rate translation. I will now review total Company numbers in euro as follows.

Beginning with revenues. All quarterly [2005] revenues were EUR6.2 million compared with 5.7 million in the same quarter of 2004. Revenues are [up] from the third quarter (indiscernible) which was EUR4.5 million. This increase in revenue is mainly attributable to strong growth in the HIFU division of revenue, compared to prior period. (indiscernible) 2005 revenue were EUR20.8 million compared to 22.2 million in 2004. The decrease was evident in the first nine months of the year while strong revenues (indiscernible) closed the gap substantially from the contribution of the new markets and HIFU centers during the course of the year.

The 2005 period reflects a non-cash redemption of EUR275,000 from revenue for (indiscernible) related to our [electronics] agreement. Compared EUR174,000 in 2004. Details or disagreements are discussed in the release and in our filings. 2005 operating expenses increased 4% from EUR9.3 million in 2004 to 9.7 million in 2005, related to our strategy of market education for Ablatherm-HIFU and to announce our clear global leadership position.

Net income for the group for the fourth quarter 2005 was a profit of EUR171,000, compared to a loss of 251,000 in the same period of 2004. A EUR542,000 shift.

Full year net income was a loss of EUR941,000 in 2005 compared to a loss of 1.1 million in 2004 in spite of the lower total revenues in the 2005 comparable period. (indiscernible) we are feeling the effects of the efficiencies and leverage in our model. Both margins increased from 38% in the fourth quarter of 2004 to 42% in the fourth quarter of 2005 and from 58% in the full year 2004 to 41% in the full year 2005.

Both divisions ended the year with positive (indiscernible) income. The Company's cash position increased by EUR800,000 to more than EUR8.3 million at December and compared to 7.5 million at September 30, 2005.

I will now turn the call over to Hugues de Bantel to give more specifics on 2005 results and to take care of the Company's business (indiscernible).

Thank you. Good morning, everyone. I am very pleased to be speaking with you this morning after releasing good results for the end of 2005. We typically look at years rather than quarters. So this call will be a little different as 2005 clearly had two very different cycles appearing.

We believe the trends reported at the end of the year are more indicative of our future, that we expect to see uneven quarters on that (indiscernible). Patience has served us well in the past and we will continue to be patient where we can merit in the future (indiscernible).

Today, I will give you an update on several key markets as well as a general overview of where EDAP is going in 2006.

Phillippe outlined several key themes in his introduction that clarify our philosophy on the results obtained so far and our outlook for the years ahead. I will begin with some general comments on our numbers. I know that for many of you who have been with us for some time that 2005 was a difficult year during the first nine months. Clearly, the fourth quarter demonstrated the effects of new market launch in 2005, combined with growth in our legacy market and some financial management.

The fourth quarter was very strong and we are not promising that the numbers will continue to grow every quarter going forward. But we do believe we will continue to see growth in our markets, leading to strong sales and strong cash flows. We will continue to invest in new markets as we did in 2005.

On the [HI-FU] side, first, we've made a successful transition from being a manufacturing business to a marketing company. We have a diverse revenue base with strong margins in a rapidly growing field where our [practice] and credibility is clearly paying off by strengthening our position as the global leader in HIFU treatment of localized prostate cancer.

We have a growing base of service contracts and disposable sales, related to our existing equipment installation.

We caution you to turn new Ablatherm units where the market demands are permanent (indiscernible) installations, based on significant demand for the treatment. However, we also have a rapidly growing revenue path for a [six-year] model which we are very pleased to offer to both sides where there is a smaller demand from the smaller population, where we are just starting toward [progressive] treatments or where the upfront capital investment is not preferred like the chemical partner.

This model is very strong. As we mentioned, regarding revenues borrowing on the quarterly basis, revenue will come more and more from revenue (indiscernible) compared to unit sales, making long-term profitability very compelling and worth the patience.

Second, when we launched a new HIFU [templer] there is nothing (indiscernible). Instead the physicians typically treat the group of patients then watch them carefully to confirm the outcomes. Once they have been able to do this, typically three to six months past launch, we begin to more aggressively use the Ablatherm-HIFU treatment and grow from there.

Clearly in the UK we are still early in this cycle, with some of our first centers growing strongly while newer centers are coming online and evaluating their results obtained with Ablatherm-HIFU. In fact, our progression from 63 to 96 sites in 2005 shows that we have ,much potential still to be seen in 2006 from our 2005 launches worldwide.

Third, we sold four Ablatherm-HIFU units in the fourth quarter which is a strong number of [matching] sales. This was driven by growth in legacy markets with sites converting from their particular to fixed installations (indiscernible) markets. We also believe (indiscernible) as per our agreement with HealthTronics. (indiscernible) do not include the (indiscernible) HealthTronics.

In 2005 we sold ten Ablatherm units as compared to nine in 2004 and three in 2003. Our revenue (indiscernible) business is growing. And we spend more time on that area of contribution by country in a few moments. It will clearly be a key element in our future growth.

Let me review the progress in UK, Germany, Italy, France, Canada and, finally, U.S. trials. I will begin with the UK. Our newest launch with the reimbursement approvals and events at (indiscernible) in late 2005. We updated you on a number of events in the recent UK press release. I will just summarize a few key points as reminders. We jumped from three to 13 sites since December with (indiscernible) being trained from the UK. Most of these sites are early in their treatment cycles. But the outcomes are very strong and (indiscernible) relief. Both the doctors and the patients are very positive about the results.

But this is to be expected as we've seen data from nearly ten years (indiscernible) to be confident in our comps at each new site. We are starting our marketing efforts in the UK, actively to grow outside as rapidly as possible. Most of the new sites are taking advantage of our revenue (indiscernible) model to get rapid access to our Ablatherm-HIFU treatment.

This means revenues and profits will come in smaller units but also in (indiscernible) and continuous manner. We are very pleased with these trends and quite happy with our early progress in the UK. We will be adding to our marketing effort at the end of (indiscernible) for prostate cancer (indiscernible) in the UK.

In Germany, we have a strong successful model of what our future looks like with reimbursement and a strong user base. In the summer of 2005, we added a second mobile Ablatherm unit to meet increasing demand as revenue (indiscernible) are up 79% in Germany alone. We now have 26 Ablatherm-HIFU sites in Germany, up from 21 at year end. We are (indiscernible) in this market, we had a fourth training center, converting a short-term commitment into a sale in (indiscernible) where they've been treating for three years.

This site was a strong brachiotherapy center in the past. And we are pleased that such a large number of patients are now benefiting from what we would say is a higher standard of care. But, even with all the success we report to you, Germany represents a largely untouched market and we are growing aggressively.

In Italy, growth rates are even more aggressive. We have a new (indiscernible) for the year as our base grew rapidly. We now have 14 sites, eight on the revenue (indiscernible). Clearly, our strategy could (indiscernible) local credibility with national urology leaders who can champion the Ablatherm for therapy, has done very well in Italy.

We simply, we also continued another trend of installation at the larger and much respected center in this country by launching a large oncology center in northern Italy. This is a cooperation between radiologists and urologists, especially prostate patients (indiscernible) radiotherapy treatment.

In France, treatment rates remain steady with 36 sites using Ablatherm (indiscernible) today and we are continually working our (indiscernible) opportunities. Hospitals are using their own version to convert lesser (indiscernible) for treatment, (indiscernible) in France.

Our results are furthering our (indiscernible), and we will make an announcement at such time as a decision is made. However, that timing is in the event of preventative emergencies so despite clear progress, we have not set (indiscernible).

Canada is operating strongly. We recently updated you on Canada and (indiscernible) first indication patients and then treating patients with (indiscernible) and radiation and experienced a return of their cancer. For these patients, Ablatherm is a true lifesaver in that most of the (indiscernible) are not available to these patients and they are often forced to choose from the least appealing treatment (indiscernible) or simply accept living with cancer.

We look forward to continuing growth and success in this market as the patients involved are very pleased with the outcomes.

Throughout Europe and other markets where we are just beginning to establish our credibility, we continue to see progress and really grow from our champion centers in each country. Local credibility and real outcome continue to (indiscernible) Ablatherm and distinguish it as the global leader in this treatment.

(indiscernible) continue to advance as well which will benefit EDAP in the future. We welcome competition and are pleased to see other companies while showing (indiscernible) for other pathologies as this further interests (indiscernible) and opens the door for EDAP (indiscernible) on our global leadership position.

As we had said in the press release and (indiscernible) updates, today we service more than 105 sites with Ablatherm-HIFU. This compares to 96 sites at year end 2005. 80 sites at third quarter; and 63 at year end 2004. We have now treated approximately 9,000 patients at year end 2005, yes, and 6,600 patients at year end 2004. Clearly our sites and patient counts are beginning to show the effects of market penetration.

We will continue to advance this as aggressively as visible in the markets.

Finally, a brief word on U.S. trials. We continue to hold (indiscernible) out of respect for the FDA process which is focused on ensuring the safety. But, as we stated in the release, trials start at those sites or (indiscernible) with several centers already approved and currently enrolling patients.

More information will become available on this process at the appropriate time. We remain confident that we will successfully demonstrate the safety, efficacy and appeal of our Ablatherm-HIFU treatment as we can clearly point to our existing and (indiscernible) clinical data showing predictive outcome at multiple sites with multiple providers.

Electronics is an outstanding partner for this process, [which involves] the experience and the network necessary to conduct a world-class trial. We will provide updates on this at the appropriate times and have the fullest expectation that patients in the trials will be very pleased with the outcomes.

Let's spend a few minutes on lithotripsy. The UDS division had a stronger cycle for much of the year. Rather than [shipping idle] and waiting for changing trends, we continue to aggressively manage this business to maintain our margin and operating cash flows, even on lower revenues. This has (indiscernible) to realize even better returns and stronger replacement cycles and opened the door to additional value from distribution of older products into our network of customers.

During the course of 2005, we sold 73 lithotripters. The (indiscernible) [trends] were weighted towards our midmarket machine, which sells at a lower price than our premium unit. in our third quarter report we told you that the fourth quarter would be stronger, and I am pleased to say that we delivered on this promise. The future of this business will depend on scale and market share in the periods. We are not only focused on keeping strong performance in lithotripsy, but also adding value like distributing other urology products through our highly regarded network in key areas. We will report on these topics at later dates of the (indiscernible) initiatives.

Most importantly, the Company managed the litho unit effectively, keeping a gross margin of 29% and increasing operating income even on slightly lower revenue (indiscernible) from dedicated attention at (indiscernible).

To close my remarks, I would like to reiterate a number of points. First, Ablatherm HIFU is growing at accelerated rates in Europe. Our strategy is to conquer Europe in the next two years. Second, our model of revenue per procedure is, today, very healthy. Third, Ablatherm-HIFU is clearly the global leader in HIFU for localized prostate cancer, preserving at best the patient quality of life.

And lastly, we have the interest and resources to make important strides forward in our markets.

We will now open the call for your questions.

(OPERATOR INSTRUCTIONS). Ken White, private investor.

My first question -- actually, I wanted to know if you could tell us the amount of all the backlogs of orders, including the Ablatherm?

We mentioned back in January that we entered the quarter with our biggest backlog ever, and we won't comment further than that.

I've also noticed that EDAP appears to be years ahead of competition. Some people would call it like a so-called best of breed, yet it is still relatively low on a price-to-sales ratio basis, compared to like that of China Medical. EDAP appears to be trading at a three times sales ratio with China Medical in the 30s or 40s. Can we expect any major analyst coverage to help evaluate the tremendous possibilities here?

Well, analysts have certainly expressed interest in EDAP. And we have several open relationships with those interested in our successful results so far. As to when any of them may take action, it is still an unknown question. We try to be very accessible to the markets whenever possible, and are active in taking our story directly to the street. Does that answer your question?

Yes, it does. And I'd also like to ask you, is the Germany -- you added five new sites since the fourth quarter of 2005?

As I said during the conference call, we are adding approximately one a month. Sites three to four for the first quarter.

As I stated in the last summer's conference call I believe you guys are really onto something that's truly great here; and I applaud the intense efforts you guys are putting out, and I really appreciate it.

Mark [Windling] with Gunn Allen Financial.

I was wondering, firstly, if you could describe a bit more in detail the relationships that EDAP has with Inserm, particularly as it relates to -- there was a news release recently of a company that has done some sort of a deal with you on discovering how HIFU could work with head and neck tumors.

Absolutely. We actually licensed an application for head and neck to a French company, and this company recently raised I believe EUR2.5 million to fund the development and they are aiming at getting a [target] on their FDA trial within the next few months, I believe. And we've got (indiscernible) this application to this particular company.

Now, with regards to the relationship with Inserm, Inserm is a French government-sponsored research lab. And we have been working with them for 25 years on several developments. They were a part of our development of lithotripsy, they are working together on the next development for Ablatherm-HIFU and also working with us on HIFU application beyond prostate cancer. And their [work] is quite straightforward. The work on research, on certain applications, on certain applications for as. And in exchange for that, we get royalties, if and when we bring technology to the markets.

So does this work whereby -- well, like with this company that is doing the head and neck tumor research, I assume you're getting some sort of a royalty stream based upon their success?

Exactly.

And then, so Inserm is almost like a sharing of intellectual property among companies? Would that be an apt description?

Well, yes. And I will say, mainly with us actually. I believe that we are one of their biggest partners. But that's what they do, yes; we do share some of our (indiscernible) with them, and in exchange for that, they get royalties at a certain level, on both the (indiscernible) and the Ablatherm. And in the future you can expect us to share with them for a new application using HIFU.

Are you going to have a booth at the AUA or are you just going to share one with HealthTronics?

We got one next to the HealthTronics one. So we'll be together at the AUA.

And then I guess we've covered France as far as where you think you may beyond reimbursement. But --

Mark, let me tell you one thing on France, though, and comment on that because I do have right now in my hand a letter from the highest French authority requesting French Medicare organization to reimburse Ablatherm treatment in France. With that being written, I don't know -- and I said that before -- how long this will take. But I've got this (indiscernible) recently on my desk, and this is clearly a good sign.

Now, again, I don't know how long this will take from there.

So hopefully somewhere between April 4 and 9, at the Congress, at the European (indiscernible) of Urology, you may have an opportunity to make an announcement?

That would be nice news.

Yes, it would be great news.

Lastly, and I don't know if you are willing to do it; obviously, I would love for you to. And that is, would you be willing to give us any kind of estimates on growth in your opinion, pretty much worldwide, of centers and/or procedures of those countries where you are presently in and/or any new countries, perhaps, that you're looking to go into?

Well, as we said earlier, we are not sharing any forward-looking statements for the time being. Now, as I said, in the (indiscernible) conference call, the fourth quarter was very strong. And again, we are not promising but the numbers would chiefly grow every quarter going forwards. But we do believe, again, that we continue to see growth in our markets leading to strong sales and strong cash flows. We are very confident in the growth in our revenue of that particular segment. We are experiencing growth in every single country where we are reimbursed in this particular segment, and this is strong growth.

Now, as far as the [therapy] treatment is concerned, as we said before, therapy treatment, because of our current revenue base, has a huge impact on the growth rate. And whether we sell two, three or four other therma (indiscernible) will have an impact on the growth rate that quarter.

So, again, we won't comment on anything in this regard.

Are you willing to share with us who those four sales of the Ablatherms were to?

Well, they were mainly in the UK. We had two of them, actually, in the UK. And for the two others, I believe that one of them was in Italy, and the other one in France, I believe.

Okay. So HealthTronics didn't buy another one?

Not during the course of the fourth quarter. Whether they bought one is a different story, but whether we (indiscernible) one, we did not invite any equipment to HealthTronics during the quarter during the course of the fourth, to answer your question properly.

John Campbell with Campbell Research.

I have a few questions regarding the size of the market. Can you tell us, just in those European countries where Ablatherm is now being marketed, what are the number of newly diagnosed cases a year?

Well, Ablatherm is approved for distribution and sale in every single country in Europe. And if you look at Europe, at the market, we're getting about somewhere around [260,000] new cases a year. Now, we are not able to treat all these cases, as the technology is currently proven for submission to the [localized] (indiscernible) cancer. Now, if you look at the statistics, 70% of these 260,000 new patients a year could be [addressing] (indiscernible) localized prostate cancer.

I see often a good indication for patients that filed [external B] radiation. And that's, again, additional patients.

So now, to answer your question, 70% of 250,000 patients a year is the scope, is the market scope in Europe.

That's for newly diagnosed, right?

Exactly.

How many recurring cases do you have there, and what percent of those would be possibly treated with Ablatherm?

Well, if we think about physicians will actually sell a external beam radiation or brachytherapy, for instance, again, based on statistics we know that is approximately 30% of the patients treated with radiation services. So if you look at the numbers, I believe that in [urology] last summer, around 30% of the patients we treated with external beam or brachytherapy at the moment, but we're talking about 50 to 60,000 patients a year and 30% out of the circulation we will [serve]. And we talk about somewhere around -- I will say 50 to 60,000 patients a year will (indiscernible) be addressed to Ablatherm for (indiscernible) cells radiation treatments.

Another question here is, what are your plans for getting into Eastern European countries such as Hungary, Poland and maybe the Scandinavian countries?

Well, as far as the Eastern countries are concerned, first, we have got a strong presence in Russia. We did sell equipment to Russia; I believe that we got four or five installations in Russia right now.

Now, for the other Eastern countries, we have got a network of distributors that [could sell] lithotripters for us, while [dutifully] came to distribute Ablatherm HIFU in these countries.

Now, as far as Scandinavia is concerned, we expect to announce a new installation in Scandinavia within the next shipment, and that will be at least in one of the most renowned prostate cancer centers in Scandinavia. And again, we are bracing these countries through the network of distributors.

What are your plans for reaching more of the prostate cancer patients? I can't believe any man would not want to know about the availability of Ablatherm. But how do you go about reaching the patients?

It's a very good question, and I think that the timing for that is absolutely perfect. We have been working on building our credibility on this technique for somewhere around ten years. And I believe that we are there. Phillippe started the conference call saying that one of the highlights was (indiscernible) that Ablatherm HIFU works. We say that it not only works but it is certainly the option to preserve quality of life for the patients. And that's the main thing about this technique.

Now, how are we going to do that? I believe that the market now and the scientific community is ready to accept from us a very aggressive marketing campaign. Because we've got this level of clinical predication, more than 100 centers in Europe and all credible centers, the timing is very good for us to start our marketing campaign. And that is what we're going to do from now.

How is this going to be? First, we're going to use the Internet. The Internet is a very strong means to reach the patients. We know by statistics, again, that somewhere around 70 to 80% of the patients who are actually diagnosed with prostate cancer will go on the Internet and try to learn more. So we need to be there, and we need to be very strong on the Internet.

And that's what we think preparing (indiscernible) is you go on goodwill in the UK, in France, in Germany, in Italy, and Canada, in all our key markets; you'll see that Ablatherm HIFU is very strongly present.

And the idea there is to communicate to the patients directly on what Ablatherm HIFU does. So that's one.

Second, we're getting much more aggressive on our media coverage. We recently had media coverage in France, in Italy, in Germany, in the UK. And we plan to be even more aggressive in the future. And again, the timing is perfect because now we have got the centers where the patients can be treated. So this is second.

And third, as you see, we're now communicating with other challengers. And we work with them, give them all the material they need to understand the benefits of Ablatherm HIFU for the patients so that they can relay information to the patient groups in their (indiscernible) countries. I don't know whether you are familiar with [S2] in the U.S. But S2 is one of the strongest patient advocacy groups in the world, and you'll see on the their website that Ablatherm HIFU is very strongly present.

So that's the kind of things we're doing to get closer to the patient.

Now, we are also advertising and working more aggressively on spreading the gospel to the scientific community and to the (technical difficulty). And a lot of energy doing that. And you'll see that from now the European Institution of Urology Conference or the American Urology Association Conference, EDAP will be there supporting symposium, supporting workshops, supporting (indiscernible) for the urology to get more familiar with the technology.

And I'm saying that, if we address the patients directly and the urologists directly both of them at the end will make up their minds.

Scott Butler with [Arubic] and Global Holdings.

I just had questions about you made some comments in the press about adding equipment. I'm wondering if, given the success of the RPP model, if you could give us a sense of how aggressively you plan to roll this out to continue to drive the growth. And then I have a couple of other questions.

Well, as far as the revenue procedure is concerned, we see that as our main engine for growth. Possible reasons first of all, because it does provide access to more centers without initial investment. Just have to pay for the treatment they perform, and this is very (indiscernible) especially in Europe at the moment, where it's difficult for many centers to get a confirmed budget for EUR550,000 worth of equipment. So this is one.

Second, this is producing a very healthy business. If we look at our gross margin, revenue per procedure, it's significantly higher than the one we get from either selling the treatment or from providing services.

So, on the long run, we see there a very nice opportunity to transcend our margins. Obviously, this is also a way to develop even more proximity to your customer base. And once you are with them, providing treatments within their center, you get extremely close to them. And that's, again, very healthy for the long-term growth of this Company.

So we plan to, again, emphasize more on our revenue per procedure. Now, that being said, we know that some centers, because of their large recruitments, because they can reach more than 75-100 patients a year, these centers will grow and buy their equipment because it would make more sense for them financially.

And I guess that's my point. It sounds like, even in the fourth quarter, the revenue per procedure model has actually been an effective marketing device for the equipment. And I was wondering if you could give us more color on that and kind of what you are hearing as you talk to customers that are currently operating under the RPP model?

Well, I think that they are quite clear on what -- they are quite clear on the process. The final service is very appealing. Again, because of the quality of the service we give them and because of the (indiscernible) an up-front investment. Now, the (indiscernible) that when they reach 50, 60, 70 patients a year, they go and buy one. And then it becomes much easier for them to negotiate with their administrations or negotiate with their financial people within the institution to get the equipment purchased. Does that answer your question?

I think so. And so is it fair to say that you are able to go in on a revenue per procedure model and do an installation and kind of prove the content. And then you can redeploy that equipment as the operation decides they want to do their own installation, to own the equipment?

Absolutely.

And I guess -- I'm not sure if this is a question you are going to answer, but it seems to me that as that continues, as you continue to gain traction with the RPP model and continue to just demonstrate the efficacy of the treatment, that you should drive future equipment sales also. Would that be a fair expectation?

Absolutely. I think that some centers will instill with the revenue per procedure model, just because they are small Euro oncology Center, just because they are a small prostate cancer center, and they don't have the total number of patients required on a yearly basis to acquire their own equipment.

Now, for the other one, as you just said, once they get familiar with the equipment, once they have recruitment of patients, which at a certain stage they go for, they have acquired their own equipment.

And again, I don't want you to give out competitive information. But based on, I'm sure you guys track this in the productivity per site. Is it fair to say that, given kind of the increase in the productivity that you've seen, that it would be reasonable to think again that down the road you would see an acceleration of sales in actual equipment?

I believe that's -- I mean, what you just described is certainly the trend in the future. And then, once again, the more (indiscernible) will get familiar with the equipment, and once they reach a certain number of patients in their center, they will certainly acquire their own equipment.

Now, to conclude on that, obviously we've got now more than ones (indiscernible) centers, while using our services. And out of this 100, they are somewhere around 34 to [55] who actually require their treatment. And as I said, during the course of the conference call, we have just achieved some of the centers who are currently using our revenue per procedure model, we are turning this into acquiring an equipment. And so certainly in the future, some of the centers, certainly in the future, will acquire more equipment.

You guys grew the number of centers you were in from 2004 to 2005 by about a little over 50%. And I know, as you get bigger, it's hard to keep the kind of growth rate up. But in terms of centers and what you guys are targeting right now, I realize you can ratchet your marketing and so on to kind of whatever level you want to. And I guess I would like to get a little guide is on that, also. But what is your expectation for growth in centers this year? Can you give us an idea?

I won't comment on that, but I do believe that there is room for high growth in the number of centers.

And then, in terms of marketing expense and building the infrastructure to support this larger network, can you give us an idea of operating expenses for the 2006 timeframe? Do you expect them to continue to run at the fourth quarter run rate, or would you expect that to increase as you get more aggressive?

Well, as I said, we are very clearly entering a new era where we are planning to spend more on marketing. There is no question about that. The Company is clearly entering a stage where marketing and education becomes extremely important to (indiscernible) and it becomes extremely important to make as many patients as possible aware of the benefits of Ablatherm-HIFU and as many urologists as possible aware of the benefits of Ablatherm-HIFU.

So, to answer your question, there is no doubt that we are going to increase our marketing expenses and sales expenses in the quarter to come.

Well, great execution, guys. It looks like everything is unfolding nicely and the market is kind of waking up to you. So, congratulations.

Walter Ramsley with Walrus Partners.

Hello, Hugues. Good evening, nice to talk to you again. I had (technical difficulty) about the kidney stone business. The Ablatherm looks like it's flying, so I think we can be happy with that. [Is it] the warrants that were canceled by the American company, the 200,000 warrants -- could you explained what their thinking was there?

Yes, absolutely. I think that HealthTronics had their own supply of Lithotripters, seems to (indiscernible) the assets from (indiscernible) [six years ago]. They have got their own supply of Lithotripters. So, they have been buying from us for a few years, roughly two years at the latest, and then realized that they have got their supply, and that it was not making a lot of sense for them to get Lithotripters from different companies. So that's what happened, and for that particular reason they decided to stop the relationship on lithotripsy and declined access to 200,000 warrants.

So can you tell us approximately how much that will affect the sales volume, the fact that they won't be buying those lithotripters this year?

Well, I think it won't affect it, at all. I believe that we are now back to normal with regard to lithotripsy. We've been working on strengthening our team, as I mentioned in the previous press release. In Japan, where we are the slightly slower growth last year, we are now back to the normal markets. And I believe that we will see growth and lithotripsy from 2006 onwards.

Okay. So it's reasonable to assume that that business will at least grow modestly in 2006?

Exactly.

Well, thanks again. Congratulations.

At this time, there appear to be no more questions. Mr. Chauveau, I will turn the call back over to you for closing remarks.

Thank you very much for joining us today for this update. As an original and additional reminder, we will be conducting investor meetings in the UK in March and have plans already in place to be in the U.S. in April and May. We also will be at both the AUA and the EAU, the AUA in the U.S. and the EAU in Paris, presenting new results from studies and furthering our global leadership position.

In the interim, we are happy to provide information and answer questions if we are able. Please contact our Investor Relations firm, [Halliburton's]. Thank you very much, and I will close the conference call.

This concludes today's EDAP TMS conference call.