Edap Tms SA (EDAP) 2022 Q1 法說會逐字稿

Greetings and welcome to the EDAP TMS First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded It is now my pleasure to introduce your host, John Fraunces from LifeSci Advisors. Thank you, you may begin.

Good morning and thank you for joining us for the EDAP TMS First Quarter 2022 Financial and Operating Results Conference Call. On today's call, we'll hear from Marc Oczachowski, Chief Executive Officer and Chairman of the Board, Ryan Rhodes, Chief Executive Officer of EDAP US, and Francois Dietsch, Chief Financial Officer.

Before we begin, I'd like to remind everyone that management's remarks today may contain forward-looking statements, which include statements regarding the Company's growth and expansion plans. Such 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 in such forward-looking statements. Factors that may cause such a difference include but are not limited to those described in the Company's filings with the Securities and Exchange Commission.

I would now like to turn the call over to EDAP's Chairman and Chief Executive Officer, Marc Oczachowski, Askey. Marc?

Thank you, John, and good morning, everyone. I will start by providing a brief operational update before turning the call over to Ryan Rhodes, our EDAP's Chief Executive Officer, for a review of the U.S. business strategy, and then Francois Diestch, our CFO, will present our financial performance. I will start by recapping a few of the highlights for the quarter. We generated total revenue of EUR13 million or $14.5 million, representing an increase of 26% as compared to euros, $10.3 million or $12.4 million in the first quarter of 2021.

The increase was driven by a very strong capital quarter, particularly in the US. We sold four focal one robotic HIFU units during Q1 of 2022 as compared to zero in the year-ago period. Three of those sales occurred in the US and one was for U.S. We also sold nine ExactVu units as compared to five in the year-ago period. By any measure, the first quarter was a very strong start to the to the year due to the investments we've made in our U.S. team and infrastructure Lester. I'm excited about the opportunity for us in 2022 and beyond.

At this point, I would also like to provide an update on our expansion activities, where we believe high to kind of clinical utility in indications outside of prostate cancer. As a reminder, we are running a Phase 2 study evaluating HIFU using the focal one robotic platform for the treatment of deep infiltrating endometriosis. We announced on our last quarterly update that we completed enrollment and patient treatments.

So we are in the six months follow-up period that will likely conclude at the end of September of this year, investigators are evaluating the safety and efficacy of HIFU for technology. As we said before, we believe the treatment of endometriosis may be greatly improved and the use of HIFU technology could offer an important minimally invasive treatment option for these patients.

The alternative for these patients is often an extensive surgical removal of the Polo. We look forward to results from this important study at HIFU could really add significant value in the management of complex endometriosis, for which there are not currently effective minimally invasive options, with over $51 million of cash, we are well-financed to continue to execute our US growth and expansion plans while in parallel exploring these and other clinical expansion opportunities. At this point, I would like to turn the call over to Ryan Rhodes, CEO of EDAP US operations.

Thank you, Mark. As we pre-announced on April 12, the first quarter 2022 was very successful for us in terms of additional Focal One and ExactVu placements in the US. As stated, we sold three Focal One machines, notably all three sales occurred at prestigious academic and integrated health network reference centers to include New York Presbyterian, Weil Cornell Medical Center, Beth Israel, Deaconess Leahy Health, an affiliate of Harvard Medical School and University of California Davis Medical Center in Sacramento University, California. DAVIS represents the Company's Fourth placement within the University of California Health System following early earlier placements at UC San Francisco, UC Irvine and UC San Diego.

These results are a result of our progress in further penetrating both groups of very large and very prestigious network hospitals. In addition, we announced the sale of five ExactVu micro ultrasound systems in the US during this quarter. Taken together, this was a record quarter for capital equipment sales for the Company and reflects the tireless work of the world-class team that we have assembled in the US.

Another strong leading indicator, of course, is our sales pipeline. Not only does it continue to grow in terms of absolute dollar value, but more and more of it is comprised by community hospitals in addition to academic medical centers. This is not surprising as the vast majority of hospitals in the US are community hospitals but is also indicative of the growing acceptance of focal therapy as a leading treatment option within urology suite and hospitals of all sizes, just a few days ago, we had a notable presence at the annual meeting of the American Urological Association, or AUA, which is the largest annual gathering of urologists worldwide.

We exhibited and showcased Focal One and it was a featured topic during both plenary presentations and instructional courses. In addition, several leading academic medical centers were on hand to get presentations on the growing acceptance of focal therapy in the management of prostate cancer during the meeting, we supported in their credited a course with hands-on skills training, which taught urologists how to implement focal treatments in their practice while allowing them to utilize vocal one other under the guidance of expert faculty.

Additionally, exact view, micro ultrasound was also featured in three sessions of skills enhancement workshops led by highly experienced urologists. This year's meeting was the most significant presence that we as a company have ever had in a way. And we believe it is a function not only of the growing acceptance of focal therapy as part of a comprehensive prostate cancer treatment paradigm, but also a reflection of our technological leadership position with the most advanced place and available on the market today.

Turning to our U.S. team, as I indicated last quarter, we closed 2021 with a right-sized team capable of strategically covering multiple geographies. This gives us the ability to actively engage the many leading institutions in 22 of the 25 largest MSAs in the US. A profile of our capital team is universally made up of sales professionals with a proven track record in selling disruptive medical capital equipment. And I'm very pleased that the quality of this team and they've been impressed with the speed from which they have ramped up while making a significant impact on our business.

On the clinical sales side, the new clinical sales managers that we added were responsible for driving utilization within existing customer accounts have also had an immediate impact.

In summary, overall, I'm very pleased with the trajectory of the US business is on. And while we are not disclosing or discussing Q2 results today, we did enter the second quarter with continued sales and utilization momentum. And now our CFO, Francois Diestch will provide some details on our financial results. Francois?

Thank you, Ryan, and good morning, everyone. Please note that all figures, except our percentages are in euros, for conversion purposes, our average euro-dollar exchange rate was 1.1177 for the first quarter 2022. So total revenue for the first quarter of 2022 was EUR13 million, a 26% increase as compared to a subset of revenue of EUR10.3 million in Q1 2021 when reaching a new record level for Q1.

Looking at revenue by division, total revenue NDA for the US for the first quarter of 2022 for EUR3.8 million as compared to EUR1.8 million for the first quarter of 2021, which represents a 112% increase. We sold 41 units in the first quarter of 2022 versus zero in the first quarter of 2021. Total revenue in the LITHO business for Q1 2022 was EUR2.2 million as compared to EUR2.9 million for the first quarter of 2021. We sold one lithotripsy device during the first quarter of 2022 versus six in the year-ago period. Total revenue in the distribution business for the first quarter of 2022 was EUR7 million as compared to EUR5.6 million in Q1 2021.

This 24% increase was primarily driven by nine ExactVu units sold during the first quarter of 2022. This was compared to 20 new stores during the first quarter of 2021. Gross profit for Q1 2022 was EUR5.8 million, compared to EUR4.4 million for the year ago period. Gross profit margin on net sales was 44.3% in the first quarter of 2022 compared to 42.4% in the year-ago period. The increase in gross margin in gross project margin, unlike said, was primarily due to the higher selling costs and fixed costs.

Operating expenses were EUR5.9 million for the first quarter of 2022 compared to EUR4.1 million for the same period in 2021 the increase was driven by the ongoing with both of our U.S. payments and commercial infrastructure and included EUR0.6 million of noncash impact related to share-based compensation programs.

Operating loss for the first quarter of 2022 was EUR0.1 million compared to an operating profit of EUR0.2 million in Q1 2021. Excluding the impact of non-cash share-based compensation programs and operating profits for Q1 2022 would have been EUR0.5 million compared to an accounting profit of EUR0.3 million in Q1 2021. Net income for the first quarter of 2022 was EUR0.4 million or Euro 0.01 per diluted share as compared to a net income of EUR0.8 or EUR0.03 million per diluted share in the year ago period.

As of March 31, 2022, the company had cash and cash equivalents of EUR46.4 million of USD51.6 million. That's compared to EUR47.2 million of USD53.4 million as of December 31, 2021. And I will now turn the call back to Marc.

Thank you, Francois. In summary, we are very pleased with our performance in the first quarter and April setups for a very successful year. Both US capital placements and treatment volumes continue to reflect the thoughts of Ryan and his team, and I believe they are just scratching the surface in what is clearly our most important market and opportunity. I look forward to our next quarterly update in August. So we will now open the call to your questions.

[Operator Instructions]

Our first question comes from Frank Takinen with Lake Street Capital. Please proceed with your question.

Great. Marc, Ryan, Francois, congrats on the results. Couple of from me today, I wanted to start with some comments around the funnel. Appreciate the update there and the call out for the year mix of community hospitals in there. So maybe a two-parter, maybe could you speak to the growth in the dollar value of the funnel versus maybe last quarter and last year? And then two, how has that mix on a dollar value basis shifted between community and academics over the last.

Yes. So, we've got a very strong pipeline. I think Lisa referenced that on this call. And we continue to add new centers into that pipeline. I would say, coming after AUA, which was a great event for the company, we continue to see added interest both from the academic centers and community hospitals. So, I still think you'll see a lot of movement on the academic side because they have a strong anchor in treating prostate cancer patients. They also have some of the more more robust programs in terms of providing active surveillance as an option for men diagnosed with prostate cancer.

And this fits very nicely into the treatment pathway for many of these patients. So, I would say just looking backward at we're going to see more activity in the community hospitals, our pipeline is made up of both academic centers, regional cancer centers and, of course, competing hospitals. So, I think as we look outward, obviously more activity in community hospitals over time, but I think we have an equal mix of both academic and community.

Okay. That's helpful. And then maybe a talking to regular or irregular seasonality of the business. If I remember correctly, I think Q1 is normally the weakest for all business lines, but obviously, Q1 was nowhere near weak this year. So just curious if you could comment on any seasonality expectations for 2022, do you expect Q1 to carry its regular cadence of being the lightest quarter normally of the year with Q's 2, 3 and 4, the rolling off the baseline set with Q1?

Well in our business historically speaking for that in ourselves, the Q1 is not the weakest Q3, usually where it slows down before getting back to very to a lot of activities in Q4. So I would say Q1, Q2 are usually kind of equal than Q3 is a little bit low and Q4 is strongest. So that's the seasonality. And we'll see. And again, as we are ramping up and as we are growing significantly as you as you could see and hear today, our US business, this may affect a little bit as well the seasonality as it is usual.

Okay. And then maybe just last one for me. I know this was talked about on the last earnings call that wasn't that long ago, but any update on CMS conversations? I think we're waiting for a preliminary read in July, which would set the stage for a final read our decision is around the fall time on whether or not you'll be upgraded to APC [Logistics]. I think there was some data review going on, too. So any comments you can provide on there Or any update on your latest thinking around APC level 6 eligibility?

Yes. So as mentioned before, we had a call with CMS back in mid of middle of February, and it was a good discussion. One of the things we were probing at is to understand if they would be looking at the 2021 data to factor in their proposed rule. With that said, we never got confirmation from them. However, if you look at the inpatient proposed rule that was awarded at the inpatient proposed rule was based on 2021 data.

And why I referenced this is the 2021 data shows an increase in procedures and an increase in hospital reported costs, which puts us closer to the payment of APC 6 versus where we're today at APC 5. So again, I remain guarded optimistic, and we'll know in July with the proposed rule coming out where we stand, we've done everything on our side to a to work efficiently and effectively with CMS, and we'll have to sit tight and be patient to see what may play out.

I will also highlight and very important. We continue to sell in place systems today based on the reimbursement that is current in the market. We have full reimbursement today, the CPT code, we have a facility payment. We have a professional fee payment. And as noted here, we are selling and placing systems with the current reimbursement arm, but we will see what happens in July.

Our next question is from Jason Bednar with Piper Sandler. Please proceed with your question.

Hey, good morning. Thanks for taking the questions. This is Joe on for Jason and congrats on the nice start to the year here. And yes. So on the OpEx side, the spending level travel, we're expecting that again in the first quarter, and you're clearly demonstrating strong commercial progress even without taking OpEx even higher than you have. And your current commentary is that measured investments will continue to be made, but what's the right way we should be calibrating ourselves and thinking about the growth of OpEx in the context of top line growth that's running out of 15% to 20% plus rate? Thanks.

As I commented the by Francois, during the call today, we will increase our operating expenses as again, we are building the company here in the U.S. And again, that's an ongoing process. So as we as we get on board more people, more salespeople, more marketing and clinical people here in the US, we'll definitely increase the OpEx and that will be that will be seen in our in our in our in our P&L in the next quarters.

So that's again, that's a very moving situation. We're not just adding a few people last year. I mean, Ryan has brought on board a number of talented world-class people during the first quarter, and they came and they don't deliver all care at the same time. And we are continuing to hire again, first and best people to help developing broader markets in the US. So that will continue to increase in indeed.

Great. Thanks. That's real helpful. And then one more from us on just on the balance sheet, I did want to ask it looks like inventory levels move lower than what we've seen over the past couple of years. Was this a purposeful drawdown as your management, your managing working capital more efficiently? Or was there any timing element at play here? Or is this at all a function of supply chain or sourcing headwinds eating into some of the safety stock you might normally carry? Thanks.

Well, no, I mean, but nothing much to say there. I mean we are as usual diligently working on our on our supply, manufacturing and inventory. So we're trying to be as effective as possible, sir.

[Operator Instructions] Our next question comes from Swayampakula Ramakanth with H.C. Wainwright. Please proceed with your question.

Thank you. This is RK from H.C. Wainwright. And good morning, Mark, Ryan and Francois. Congratulations on a really great start for 22. So, Mark, on focal one, and he's been in the US market for about four years now, almost to the date. So during this time and obviously tremendous work has been put in into commercialization of Focal One.

Can you comment on the timing at the time it is taking these days from a from a lead to a final purchase, how has that time been trending? Is it getting better by the quarter. I just want to get a feel for things so that we can have an idea about the trajectory of placements from here onwards.

Yes, RK. I'll answer that and you know there, we see, you know, the time from interest to time of closing a deal. It can span several months or longer. I think what's really been impactful is obviously having a built-out sales team on the capital side. So our regional business directors now we've got a well that team by a notable Vice President, Scott Brinker.

And we've got that team now trained up active in their accounts covering their geographies. So again, there's always nuances in terms of sales cycle times and I can't even give you an average, but I will say that there are some hospital systems that see the strategic value of focal therapy in the treatment of prostate cancer. And as mentioned, we are best in class technology.

So when hospitals are looking at adding focal therapy strategically and they recognize the clinical value and even the economic value, if we get in front of the right people, those cycles, our sales cycle times come down in terms of duration. So I would say that over time, it would be fair to say that the cycle times would become shorter. But if you look at the law of averages, some deals take longer, some can move very quickly. Sometimes the community hospitals will move very fast because they're used to buying and disruptive medical equipment and they understand the strategic value.

So I think as we build out more of it and that's the cycle times will come down, but we are a premium priced product. We have best in class technology. And I think when customers look at us as a company and look at our product. they want our products, and a good gauge of that was the interest that we had just here this past week at AUA. So we're very excited as we look throughout the rest of 2022 and beyond, and we'll continue to focus heavily on our commercial growth strategy.

Fantastic. Thank you very much, Joanne, for that. And then on the on any commentary you can provide on the procedure volume, just to get it flavor for them for the for the utility of the unit, over the last year or a year-and-a-half because coming out of COVID, has the number of cases been increasing. I'm just trying to understand how that's working out for you folks. Obviously, that impacts other pieces within the revenue lines?

Yes, RK. So, we continue to see growth sequential growth quarter over quarter, double digit growth. And and we continue to obviously see more centers coming online. We're training more doctors today as we place more systems, but we're also training additional doctors at current install sites. And I think that's a good sign, meaning more are interested in using technology and have identified a subset of patients who are ideal candidates for focal therapy. So again, as mentioned, we had we continue to see a sequential growth, double digit growth quarter over quarter.

Perfect. The last question for me is for the long-term utility of the platform. So Marc, you kind of gave a teaser out there saying that you're looking at other indications outside of endometriosis, is it is it too early for you to comment on what such indications could be, or, you know, or if here or you could give something you now?

No, no, actually we and we discussed that on the last the last quarterly conference call. We are also working on expanding into BPH treatment. As I said, less than we did the first patient in Lyon two months ago, and we also are exploring working on the pancreatic cancer, as we said, but it's on the very early-stage animal study so far. So we're engaging in various other indications, again, to get to a full multi-application robotic HIFU platform on the long term is the vision of the company.

And then on the on the endometriosis itself, as you said, you would be able to get some data on that later this year. So some of that, which is a smaller Phase 2 study at this point, how soon can you transfer from there into a larger study? And is there any way you can talk about how large of a study you could be doing in the endometriosis indication?

As I said earlier today, I mean, we will have data before failure in September. So we might be able to get some analysis and data disclosed by the end of the year on that study. And as we said as well in the past, we will continue to build a clinical study and potentially a Phase 3 study will get started in the next months to come. So we continue to have to move into clinical evidence in building the clinical evidence of that in that indication with HIFU.

Perfect. Thank you, gentlemen, and thanks for taking my questions.

Thanks, RK.

There are no further questions at this time. I would like to turn the floor back over to Marc Oczachowski for any closing comments.

Okay. Well, that concludes our call this morning and thank you again for your interest in EDAP and have all a good day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.