Edap Tms SA (EDAP) 2008 Q3 法說會逐字稿

Good morning. My name is Sean, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Edap third quarter 2008 financial results conference call. (Operator Instructions). I would now like to introduce R. J. Pellegrino of the Ruth Group. You may now begin your conference.

Thank you, Operator. With us today from management are Philippe Chauveau, Chairman of the Board, Marc Oczachowski, Chief Executive Officer and Eric Soyer, Chief Financial Officer. By now you should have received the copy of the earnings press release. If you have not received a copy, please call Stephanie Carrington at 646 536 7017, and she will fax or email you a copy.

Before we begin, I would like to remind everyone that management's remarks today may contain forward-looking statements. Complete details of factors affecting forward-looking statements can be found in the Company's SEC filings available at the Company's website, at www.edap-tms.com, and are incorporated by reference for all remarks made during the course of this call. With that, I will now turn the call over to Philippe Chauveau, Edap's Chairman of the Board.

Thank you, everyone. Good morning. I would like to share some opening remarks. First, Edap is well funded to execute and deliver our strategy. Second, Edap has the momentum of machine and treatment revenue for growth in 2009. And, third, Edap is progressing well with its HIFU FDA trials. Because of its strong cash position and solid order flow and backlog, Edap is in good position to weather the current global economic storm. I'll now hand over to Marc.

Thank you, Philippe. And thank you, everyone, for joining us on our third quarter 2008 earnings call. During today's call I will review our fourth quarter 2008 outlook, provide additional comments on the strong cash position, discuss operations outside the US and explain our plans for extending HIFU in Europe. Finally, I will provide a brief update on our US clinical trial.

Before I turn to our third quarter 2008 performance, I would like to comment on the significant increase in order flow we have experienced so far in the fourth quarter. We are extremely encouraged with both our HIFU and lithotripsy backlog, which we believe will drive substantial revenue momentum in the fourth quarter.

Midway through the fourth quarter, we already have a backlog of three Ablatherm machines, equivalent to the number of machines we sold during the entire nine month period of 2008. In addition to our current backlog, we continue to actively develop a robust pipeline of projects.

That growth in our Lithotripsy division looks just as promising with our two lithotripsy machines delivered in September, which will be recognized in our October 2008 sales period, in compliance with accounting rules.

At the beginning of the fourth quarter 2008 the Company had a recall backlog of 12 lithotripsy machines, including six Sonolith I-Sys devices. A strong backlog of machines, [but also] our entire product mix, leaves us firmly in position for a solid close in 2008.

Our backlog of machines is complemented by our ample cash position, which was EUR14.1m, or $19.8m, at September 30, 2008. Given today's challenging economic climate and broader trends impacting liquidities across the board, we are confident that our robust cash position and in our basic technology position helps to position us well in an uncertain macro environment.

Most important, we are well funded to execute our growth strategy of investing in the expansion of Ablatherm HIFU in Europe, completing the US ENLIGHT clinical trial and advancing our big project pipeline. With approximately 17,700 treatments performed at 210 centers, Edap has emerged as one of the global leaders in research and clinical progress in HIFU therapy for localized prostate cancer.

With our solid IP portfolio, proven experience and strong cash position, we are well positioned to participate in the development of future minimal invasive HIFU options across multiple pathologies. These strengths will allow us to successfully move forward in this volatile environment and deliver maximum value to our shareholders.

Turning to our third quarter of 2008 outside of the US, we remain focused on increasing physician adoption and patient awareness of our Ablatherm HIFU technology. Edap had a major presence at several conferences in key European countries, where our product portfolio continues to expand.

Our participation in two major European urological conferences, the sixtieth Annual Congress of the German Society of Urology, the DGU, and the Italian Society of Urology, the SIU, provided Edap with a unique opportunity to educate neurologists about our minimum invasive HIFU technology for the treatment of localized prostate cancer.

During focused workshops, urologists have all Ablatherm experienced results and the opportunity to access HIFU's robotized approach, while sharing peer-to-peer experiences with the technology's proven track record. Live Ablatherm demonstrations successfully showcased the advantages of non-invasive Ablatherm treatment for both current and potential users.

Over the course of our 20 years' experience in HIFU, we have developed a strong global presence with a network of well-established subsidiaries and distributors that are driving increased patient awareness and awareness of Ablatherm's safe (inaudible) therapy.

Not only are we expanding our [provisional] supply, sales and training services across Europe, but we continue to actively train urologists with our partners and distributors at new IT centers.

Edap has emerged as the clear leader in HIFU for the treatment of localized prostate cancer, due to both the superior technology [pyramid] of our robotized technology, and the deep established network of urology-specific distributors and subsidiaries we have across Europe. We will continue to leverage our leading position to aggressively build the HIFU markets and support the adoption of our entire product portfolio through aggressive educational and marketing initiatives.

During the third quarter of 2008 we also capitalized on the opportunity to raise awareness of HIFU and other treatment [mobilities] for prostate cancer among US urologists who are [currently] familiar with robotic urologic surgery.

At the City of Hope annual conference on new technologies and innovative treatment strategies, called Genito-Urinary Malignances in San Diego, California, Dr. Douglas Chinn of Chinn & Chinn Urology Medical Associates in Arcadia, California, highlighted the benefits of HIFU as a minimally invasive, safe and proven alternative to other prostate cancer treatment options. Dr. Chinn's lecture also reviewed the FDA process and appropriate pathway for the patient access to HIFU technology via our ongoing US ENLIGHT clinical trial.

Turning to sales for the third quarter 2008, our RPP business has stabilized. As I talked about on the last earning call, we have implemented an RPP action program that will help to drive sales growth beyond current levels. Today, the patient population is increasingly educated and taking on a more active role in the ballooning treatment options.

To capitalize on this patient awareness, we continue new aggressive sales and marketing efforts, targeting both urologists and patients. This strategy in Italy and Germany has already resulted in an increase in RPP treatments for the month of October. We are also excited to see the expansion of our presence in Europe, launching the first new mobile RPP site in The Netherlands.

The center's first HIFU treatments were successfully completed with no complications, and we are pleased to report that two additional hospitals have commenced Edap's training program and are expected to start treating patients in the coming weeks.

To further drive our RPP market penetration across Europe, we are also executing new business models to provide our customers with a more flexible sales offering. We are confident that these new programs will effectively complement our existing business models and broaden our RPP customer base by providing quicker, easier and extended access to Ablatherm HIFU.

Our third quarter 2008 revenue reflected the anticipated seasonality for HIFU device sales. For the first nine months of 2008 we have sold a total of three Ablatherm HIFU systems, equivalent to the number of HIFU devices sold during the same period of last year. For the third quarter 2008, our Lithotripsy division experienced a return of sales to expected normalized levels, following the strong second quarter 2008.

As I have stated earlier in my comments, we believe our robust backlog across our entire product portfolio leaves us in an excellent position to drive a substantial increase in sales growth during the fourth quarter of 2008.

We are encouraged by the momentum from our marketing initiatives surrounding the US ENLIGHT clinical trial, which has [presented] with a significant increase in patient recall to participating sites. We are confident that this trend [reversal] is the first step towards increasing patient enrolment. With our recent stabilization of enrolment, we are aggressively working to improve the conversion rate of patient referrals into actual treatment.

Since initiating ENLIGHT, our patient focused-awareness program has helped us to enroll a total of 49 subjects in the HIFU area. More are expected to enroll in the coming weeks, including four patients currently scheduled to receive HIFU treatment in the next few days. We are confident that our referral efforts will drive increased enrollments, and look forward to providing you updates on our products.

In conclusion, we are extremely encouraged by -- with the outlook for the fourth quarter of 2008, and believe our recall backlog and strong pipeline of projects we already have in hand will leave us very well positioned for a great end of 2008. Our strong backlog of machines is further supplemented by our ample cash position.

The Company remains in excellent financial health, as our well-funded position allows us to continue investing in the growth of the Company. In these uncertain financial times, we are confident our strong cash standing will allow us to weather the economic crisis and successfully move forward with our growth initiatives.

Finally, we expect to make further progress on our US ENLIGHT clinical trial, as we work to improve the conversion rate of patient referrals into actual treatments. I will now turn the line over to Eric, who will review our third quarter 2008 financials.

Thank you, Marc. I will now discuss our third quarter 2008 financial results. Total revenue in the third quarter of 2008 was EUR4.6m, or $6.8m, compared to EUR4.7m, or $6.5m, for the same period in 2007. Our third quarter financial results reflected the anticipated seasonality for HIFU RPP sales and the return of Lithotripsy sales to expected normalized levels over the period.

In the third quarter of 2008 total revenue for our HIFU division was EUR1.9m, or $2.8m, flat from the same period in 2007, and reflected the sale of one Ablatherm HIFU machine in the third quarter of 2008. Revenues in our HIFU division were up 16.7% sequentially.

For the nine months ended September 30, 2008, we sold three Ablatherm HIFU machines, equivalent to the three HIFU devices sold during the first nine months of 2007. Currently, we have a strong backlog of three HIFU machines that we anticipate recognizing by year end 2008, coupled with a strong pipeline of projects.

Total revenue for Edap's Lithotripsy division in the third quarter 2008 was EUR2.7m, or $3.9m, compared to EUR2.8m, or $3.9m, for the same period last year. In the third quarter of 2008 we've sold seven machines, including one Sonolith I-Sys device.

We also converted the portion of the second quarter 2008 backlog into revenue during the third quarter of 2008 and returned to normalized machine sales, as anticipated, following the strong second quarter. Our current backlog in the fourth quarter consists of 12 Lithotripsy machines, including six Sonolith I-Sys devices.

During the third quarter of 2008 our gross profit was EUR2m, or $2.9m, compared to EUR1.8m, or $2.5m, for the first quarter of 2007, while our gross profit margin increased to 43.8%, up from 39.5% in the year-ago period.

The increase in gross profits and related rise in gross profit margin was due to improved margins from our Lithotripsy business, as well as a more favorable mix of machine sales. In the third quarter of 2008 our operating expenses of EUR3.3m, or $4.9m, were flat from the third quarter of 2007, and included EUR0.6m related to the US FDA ENLIGHT clinical trial for Ablatherm.

Excluding clinical trial costs, our total operating expenses for the nine-month period decreased EUR0.2m, or 2.7%, as a result of incremental tax reduction programs not only G&A. Our nine-month operating loss for the period ended September 30, 2008 was EUR4.3m, up from EUR3.3m in the year-ago period, based on an increase of EUR0.8m relating to the US ENLIGHT clinical trial.

The third quarter 2008 net loss was EUR4m, or EUR0.43 per diluted share, compared to a net loss of EUR1.4m, or EUR0.16 per diluted share, in the same period of 2007. The net loss for the most recent quarter included a EUR2.5m non-cash financial charge to adjust our convertible debt and outstanding warrants to fair value.

At September 30, 2008, I am pleased to reiterate Marc's emphasis on the robust position of cash and cash equivalents, including short-term Treasury investments, totaling EUR14.1m, or $19.8m, up 5.2% sequentially.

We primarily attribute our positive cash flow for the third quarter 2008 to improved working capital requirements and the favorable currency valuation of the US dollar against the euro. Year to date, our cash burden is EUR4.5m, in line with our expectations, and includes EUR1.6m dedicated to US FDA clinical trials.

During these difficult economic circumstances, we remain positioned to continue investing in our overall key initiatives for fostering growth across our entire product portfolio, advancing our US ENLIGHT clinical trial and continuing the innovation of our non-invasive HIFU technology across multiple pathologies.

As Marc mentioned earlier, we are all encouraged about Edap's cash position during this difficult economic crisis, which provides us with a clear advantage to execute on our commercial and clinical development objectives. These fundamentals, coupled with our current machine backlog, leave Edap poised for a promising end to 2008.

On that note, I would like to hand the call back to our operator to answer any questions you may have. Operator?

(Operator Instructions). Your first question comes from the line of Matt Dolan from Roth Capital Partners. Your line is open?

Morning, guys. This is Matt Palmer in for Matt Dillon. He sends his apologies. He's unable to make the call today.

Morning, Matt.

Hi. Let's see, I was just wanting to first touch on your commentary about the order backlog and outlook for the fourth quarter. They are very positive. I was just wondering if you can comment on any -- give any have any color on the impact you may have seen from the macroeconomic weakness, putting pressure on capital equipment sales, procedure volumes and distributor performance, both in the quarter and since the quarter's ended?

Okay, Matt, that's a good question. Actually, as you notice, we have a very strong backlog of machines. What we call backlog, just to clarify that, is confirmed orders we have on hand. And most of those orders will be delivered in Q4 indeed

And to answer your comment on the environment crisis, we -- I have to say that we don't feel it yet, probably because budgets for hospitals are benefiting from a kind of momentum in the year 2008. So I don't think we'll feel it until the end of the year.

Okay, great, that's very helpful. I was wondering, secondly, with respect to the ENLIGHT clinical trial, if you could help us understand how patient enrollment will ramp in 2009, and your expectations for the distribution level of spend in 2009 for the trial?

So we have good expectation because, as we explained, and when we started in February/March 2008 to implement and execute a marketing program to promote the trial and create awareness among American patients about the trial, and we are getting the fruits of this effort. And we are seeing more and more patients referred from those marketing initiatives.

So we believe -- and we are working now on getting all the actions so that we can convert as much of those patients from referrals to treated patients.

Okay, great. And, lastly, is there any color you're willing to provide in terms of new product initiatives?

In terms of new products? I don't get your point.

You mentioned a product pipeline.

The project pipeline?

Project pipeline.

So that means we have not only a strong and robust backlog, but we have also a lot of projects into the pipeline. But we are working on many projects for closing sales.

Right, okay, great. Thank you very much, guys.

You're welcome.

Thank you.

(Operator Instructions). Your next question comes from [Greg Borer] from Liberty Harbor. Your line is open.

Yes, thanks. I'm just curious, it seems like you're selling more HIFU machines in the current environment and RPPs staying relatively stable. I was curious why we're not seeing a shift more toward RPP, and how your customers are financing the purchase of these HIFU machines?

Thank you for the question. It's a great question. And, as we usually experience at the end of the year, there are a lot of capital investments done because of the hospitals utilizing the rest of their budgets.

So Q4 is as -- for the Company at least it's always a good quarter in terms of capital equipment sales, and for the -- so that's mainly -- mainly, we have good quarters in capital equipment sales in Q4 because of, again, hospitals trying to use their entire budget they have left --

Okay. On the --

-- before starting a new year.

And then, in terms of the favorable backlog for Q4, you said those are confirmed orders. Does the Company receive deposits from the customers on those orders in advance?

(Inaudible).

Yes, it depends, but they are -- most of the time, most capital equipment sales are having secured payments. So it's whether by credit -- the letter of credit or down payments, all things like that. And we usually deliver upon complete payment or complete secured payment.

And so, do you have secured payment for those -- for the three to be delivered in Q4?

Affirmative.

Okay. And then, the FDA process, is the timing still the same in terms of when you're hoping to get FDA approval?

Yes, absolutely. We are continuing to expect the same timing as we described and, again, we are working actively in converting all the referrals and increase of referrals we are getting from the ENLIGHT marketing initiatives.

And that's -- so timing's on track. And budget, in terms of budget for the project, is that on track as well?

Yes, absolutely.

Okay. And then, the positive working capital for Q3, can you break that down? There was no cash flow statement provided, so what was the positive working capital primarily from?

That was primarily from a collection of cash receivables and the management of our inventory.

Okay. And then, last question. Any comments on insurance reimbursement in France or other countries around the world?

In France we are continuing our efforts towards this objective, which is to get the technology reimbursed. We are [these days] participating to the French Urology Association annual meeting, which is held nowadays in Paris, and we are again working with the support of the French Urology Association in getting that reimbursed

But, as usual, this is something which is depending on the government and public authorities, and we have no control of dates and amounts. So we are continuing our efforts, and we are continuing to push the project to get it achieved, but we have no visibility as usual.

And how about any other project developments on that in any other countries?

Well, we are working, but other countries are a little bit different in terms of reimbursement. As you know, we are already reimbursed in Germany and Italy, privately in the UK. We are -- and other markets are also sometimes organized that you have global budget utilization, like in Spain, for example, or pure private patients, so it's really different from one country to the other. And we try, of course, to adapt ourselves and to adapt our offering to all those specifics.

Okay, great, and congrats on the positive guidance for Q4.

Thank you very much.

Thank you.

The next question comes from the line of [Mark Waveling] from [Polson] Investment Company. Your line is open.

Yes, I'd like to ask a few questions. Can you tell me the number of centers that are presently offering Ablatherm in Europe?

We have -- as I mentioned in our conference call, we have today a total of 210 centers that are fully trained on Ablatherm HIFU.

And, as far as the number of procedures, can you share actual number of procedures of last year's compared to this year?

We have today -- again, that's our estimation, and it's not particularly accurate due to the difficulty of getting all the data. But we have -- we have today approximately about 17,700 treatments performed so far.

That's in total? I'm -- is it not?

Yes, that's in total, affirmative.

Do you have the breakdown insofar as the quantity of treatments that were performed for 2007, as opposed to the number of treatments performed for 2008 to date?

Yes, we do have an estimate of that, but we don't have it precisely as, again, we need -- it's quite difficult to get all the data and numbers from 210 centers. So that's, again, an estimation, and we need to further work on the figures to make exact comparisons. But, basically, today we have an approximate number of 17,700 treatments so far.

Great, thank you.

(Operator Instructions). There are no further questions at this time. Mr. Chauveau, would you -- do you have any closing remarks?

As I close this conference call, let me repeat what I said at the opening. Because of its strong cash position and solid order flow and backlog, Edap is in good position to weather the current global economic storm.

On that, thank you for joining us, and talk to you either sooner or at the next conference call. Over and out.