Edap Tms SA (EDAP) 2012 Q1 法說會逐字稿

Good morning, and welcome to the EDAP first-quarter 2012 conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note, this event is being recorded.

I would now like to turn the conference over to Ms. Stephanie Carrington, Investor Relations, The Ruth Group. Please go ahead.

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.

Before we begin, I'd like to remind everyone that management's remarks today may contain forward-looking statements. These statements include those regarding the Company's growth and expansion plans.

Such statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ from those described in any forward-looking statements. Factors that may cause such a difference include, but not are limited to, those described in the Company's filings with the Securities and Exchange Commission.

Now I would like to turn the call over to Mr. Philippe Chauveau. Philippe?

Good morning, everyone. I have had many meetings in the US, both in April and in this month of May, with major shareholders and with Board members. All these highlighted the critical importance of the US market to the future of EDAP. Thus, yesterday, the EDAP Board unanimously approved, with immediate effect, the move to the US of our EDAP CEO, Marc Oczachowski.

Marc, US-based, with continued responsibility for EDAP worldwide, will focus on three US objectives. First, sell many more EDAP lithotripters in the US; two, successfully drive EDAP's HIFU FDA submission for FDA approval; and three, continuously increase EDAP's share price. This is the implementation of the EDAP realigned strategic direction. I will now let Marc tell you more.

Thank you, Philippe. And thank you, everyone, for joining us on our first-quarter 2012 earnings call. Before discussing some of the highlights for our quarterly results and the recent developments across both our Lithotripsy and HIFU businesses, I would like to further comment on Philippe's opening remarks with regard to EDAP's focus on US opportunities and priorities.

As we reported several times during our last conference calls and in our press releases, major opportunities and growth drivers for EDAP exist in the US. There are three main priorities and goals for EDAP in the US; one is to grow our Lithotripsy revenues and take significant market share in the US; two is to successfully drive the Ablatherm-HIFU FDA filing to expected approval in the course of 2013; and three, continuously increase EDAP's shareholder value.

With regards to the lithotripsy opportunity, we received FDA clearance for complete, unique and renewed range of lithotripters only a few months ago. We moved quickly, following that approval, to build our presence in the US lithotripsy market. To date, we have recorded three sales within five months to major urology groups in the US, and the great majority of our demonstrations were converted into sales.

We need to accelerate our promotion and marketing program to go faster and deeper in our market penetration plan, as our products have demonstrated superiority. Being on the ground in the US will allow me to focus on improving and increasing our sales and marketing potential in order to optimize our lead generation and capability presentations; thus, increasing sales.

On the FDA filing, we are now completing the two-year follow-up phase of our trial in the coming weeks, and we will then collect and analyze the final datasets. We plan to submit the final data and analysis to the FDA during the fourth quarter of 2012. A response from the FDA is mostly likely anticipated in the 2013 timeframe.

This follow-up phase went very well, with a very high level of tracked patients and, thus, shows the high quality of our trial and its participating clinical sites.

We are now entering a crucial and critical phase. This consists of building the file for FDA submission; working with the agency on the questions and answers sessions; initiating design for a reimbursement strategy; and planning for the HIFU commercialization model. These initiatives need to be started now in order to develop the US market.

As the CEO of EDAP, it is imperative that I be locally based in the US to monitor, follow, and build the team of experts that will work on this essential phase for our US HIFU project.

Last, but not least, the Board of Directors and the management of EDAP are committed and dedicated to increasing shareholder value. In addition to our two US-based Board members, the decision of moving the CEO of the Company to head our US-based operation will be invaluable in contributing to growing the Company's value more rapidly, which is in the best interests of EDAP shareholders.

Finally, I am also confident that this strong focus in the US will benefit our outside-US operations in terms of positive influence. I know that the team in place in Asia and Europe are very well experienced and stabilized to highly contribute in making it happen.

This being said, let me go through the highlights of our quarterly results and recent developments. In line with historic seasonality and typical hospital equipment purchasing patterns, EDAP's device sales continue to be weighted towards the second half of the year. As such, we had a very strong second half of the year in 2011, with 14 devices sold in the third quarter and 16 devices sold in the fourth quarter.

As anticipated, our first quarter 2012 results were flat year over year, and reflected the lighter device sales volume traditionally seen in the beginning of the year.

Late in the first quarter of 2012, we delivered and installed our third Sonolith i-move lithotripter in the US, which we announced on our year-end investor call on March 21.

We are very pleased with the results of our US device demonstrations, as most of these have successfully led to a sale. This, in addition to the very positive feedback received from the centers, validates the high degree of superiority and its revolutionary and innovative features of our Sonolith i-move.

This last machine was purchased by Allied Metro, a very well regarded practice with over 300 urologists in New York's tri-state area, has since commenced treatments with its Sonolith i-move.

EDAP's [i-move] has received excellent reviews from Allied Metro's team, which recognizes the advantages afforded by the Sonolith i-move's superior integration of ultrasound localization.

We are continuing to conduct product demonstrations across the country and are maintaining an active self-presence of medical meetings, including the upcoming American Urology Association annual meeting that starts this weekend in Atlanta. Please stop by our booth, number 2837, if you will be attending the meeting.

We are confident in our ability to transform demonstrations into confirmed purchase orders.

The estimated replacement volume in the US stands approximately 50 to 60 machines annually out of a total of US installed base of 600 to 700 machines. Leveraging our renewed product range and the strength of our sales team, we are well positioned to rapidly become a major player in the US lithotripsy market.

We continue to aggressively work on our outside US pipeline of projects and, despite the low volumes due to seasonality, we already recorded at mid-Q2 a backlog of confirmed purchase orders of 11 lithotripters.

Turning to our Ablatherm-HIFU division, we recorded the sale of one device in the first quarter of 2012. This device was placed at the HIFU clinic in Warsaw, Poland, that provides prostate cancer patients with the latest innovative treatments, as performed by a leading team of urologists and oncologists.

We are continuing to see strong interest in Ablatherm-HIFU from the international urology community as a must-have complement to surgery and as a unique solution to enter new and growing niche markets, including the focal approach, as well as salvage, as an increasing need.

As we have reported and have seen recently in Lancet Oncology publication, HIFU is extremely well positioned as an innovative and attractive method of treating prostate cancer in today's demanding environment, which requires a preservation treatment for the increasing population of young and early stage patients.

It has been agreed, by the urology community, that an increasing portion of radical treatments, meaning surgery and radiation treatments, are considered to be over-treatment. The growing population of younger patients views active surveillance as the most acceptable solution to most newly diagnosed patients.

We estimate that the population should be included in the new focal treatment approach is about 200,000 new cases per year worldwide. Again, HIFU and its unique features, repeatable, non-invasive, radiation-free, accurate, and preserving quality of life, is certainly the best positioned technology to answer this new targeted population.

For salvage treatments for patients that have failed radiation treatment, Ablatherm-HIFU showed great long-term results on [long cord] of patients.

There is an increasing number of patients with a recurrence after radiation treatment with 30% to 40% failure rate after five years. Due to the large number of radiation procedures performed during the last decade, this is a promising niche market for HIFU as it brings a unique curative answer and solution as compared with the palliative treatment with [almonds].

At the American Urological Association annual meeting that starts this weekend, new supportive data will be highlighted in two scientific sessions. The first one, a podium presentation on May 20, will focus on salvage HIFU after failed radiation therapy in almost 1,000 patients.

The second one, a poster presentation on May 22, will cover oncology outcomes for 1,098 patients with localized prostate cancer treated with HIFU.

In addition, three posters will be presented on May 19, at the annual meeting of the Engineering and Urology Society that is being held in conjunction with the AUA in Atlanta.

This past quarter, we have significantly improved our financial profile. In early January, we streamlined our capital structure by exchanging the convertible debt to $10 million of straight debt. In late March, we further strengthened our profile by completing a $5.6 million registered direct offering. It was important and crucial to achieve these milestones so that we can now focus more on the operating challenges.

Our priorities are to work hard to facilitate and prepare for the approval of Ablatherm HIFU in the US within the next 12 to 18 months, and strengthen our aggressive marketing and sales initiatives to further penetrate the US lithotripsy market, where preliminary sales success is promising and shows that our Sonolith lithotripters can take a significant part of the market, very quickly.

With that, I will now turn the call over to Eric, who will review our first quarter 2012 financials in detail. Eric?

Thank you, Marc, and good morning, everyone. Let's now take a few minutes to review our first quarter 2012 financial results.

Total revenue for the first quarter 2012 was EUR4.8 million, or $6.8 million, as compared to EUR4.8 million, or $6.7 million, for the first quarter 2011.

Total revenue for the HIFU division was EUR1.3 million, or $1.9 million, for the first quarter of 2012, compared to EUR1.3 million, or $1.8 million, for the same period last year.

Results for the first quarter 2012 reflected the sale of one Ablatherm-HIFU device installed in Poland.

Total revenue for the Lithotripsy division was EUR3.5 million, or $4.9 million, for the first quarter 2012, compared to EUR3.5 million, or $4.9 million, for the year-ago period.

During the first quarter 2012, the Company recorded sales of five lithotripsy machines, comprised of three Sonolith i-move devices and two Sonolith i-sys devices, compared to a total of seven devices sold in the first quarter of 2011.

Gross profit for the first quarter 2012 was EUR1.9 million, or $2.7 million, compared to EUR2 million, or $2.7 million, for the year-ago period.

Gross profit margin was 39.3% in the first quarter 2012, compared to 40.7% in the year ago period. The change in the gross profit margin can be attributed to the evolution in product mix and service costs.

Operating expenses were EUR2.9 million, or $4.1 million, for the first quarter 2012; up 10%, from EUR2.6 million, or $3.7 million, for the same period last year.

The increase in expenses was related to R&D efforts to continuously develop Ablatherm-HIFU solutions, as well as to gradual increase in sales efforts in Japan and the United States. As a result, operating loss was EUR1.0 million, or $1.4 million, for the first quarter 2012, compared to EUR670,000, or $932,000, for the first quarter 2011.

Net loss for the first quarter 2012 was EUR2.9 million, or $4.1 million, or EUR0.16 per diluted share, as compared to net income of EUR213,000, or $295,000, or EUR0.02 per diluted share in the first quarter of 2011.

Net loss in the first quarter of 2012 included a non-cash interest expense, which is currently estimated at EUR1.5 million, or $2.1 million, to reflect the accounting fair value impact of the January 2012 exchange offering on our convertible debt and related warrants.

Excluding this estimated non-cash interest expense, which is still under review, the net loss for the first quarter 2012 was EUR1.4 million, or $1.9 million, or EUR0.07 per diluted share.

As Marc discussed a few minutes ago, we have significantly improved the financial profile during the first quarter. In January, we exchanged the Company's convertible debt to $10 million of straight debt with extended maturity, and in late March we completed a $5.6 million registered direct offering, thus giving the Company the financial strength to conduct its development programs with a clear focus on immediate US opportunities, as Philippe and Marc just explained.

At March 31, 2012, cash and cash equivalents including short-term treasury investments were EUR10.7 million, or $14.3 million; a EUR4.2 million increase over the quarter.

At March 31, the cash position did not yet reflect the EUR2 million debt repayment that was announced as part of the March placement, and which has been affected since early May, to reduce the outstanding debt principal from $10 million to now $8 million.

Without the EUR4.2 million gross proceeds from the placements that were received in late March, the cash position over the quarter was flat, despite the typically low first quarter activity and as a result of improved cash collection on client receivables.

We are now entering the rest of the year with a solid cash position, and we will work at using this valuable resource for the Company's development programs, again, most of those programs will take place in the US, and in line with the Company's shareholders' best interests.

With that, I will turn the call back to the operator, who will open the line for questions. Operator?

Thank you, sir. We will now begin the question and answer session. (Operator Instructions) [Mark Windling], JHS Capital.

I'm a little bit curious, in your discussion of increasing shareholder value, among the things that I've done is I've just gone back and glanced at the number of shares outstanding when you were first appointed CEO, Marc.

There was 9.2 million shares outstanding at that point, and with this latest offering we're now at 18.6 million. And the revenues from '07 through '11 on your annual report increased -- actually decreased between 2007 and 2011. I would appreciate an explanation of how you've been increasing shareholder value.

Well, the fact is that we want to work on the shareholder value by, again, focusing in the US, where we believe there are significant opportunities and priorities for the development of the Company and for the growth of our revenue. And that's what's we are exactly doing, and that's what we exactly announced.

I guess one of my biggest concerns is that this last raise of capital had a decided dilution involved with it. And the biggest concern I've got is as you continue to develop there's going to be an increased need for capital. Are you going to continue to raise and dilute as significantly as this last raise, because that's a real source of concern?

We understand that and, again, the idea is to focus on the operations to bring more revenues and more -- again, net income to the Company so that we don't need to do so.

I heartily agree. Also, I'm sorry, I've got one other question. In going through your annual report I came across an issue that EDAP has got with the French taxing authorities, to the tune of over EUR700,000. I see that you're challenging that, or you challenged that in March of 2011, has there been any resolution to that yet?

No, not yet, Mark. The procedure was started about six month ago. As you understand, it's quite a lengthy procedure, which has basically there is no risk for the Company but only expected benefits, if any. But we believe the procedure will last -- still several months to go.

Okay. All right, well, I sure hope that this move is going to increase revenue because you're exactly right, Marc, the solution to this issue would be more sales.

Absolutely.

Ladies and gentlemen, this will conclude our question and answer session. I would like to turn the conference back over to Philippe Chauveau for any closing remarks.

I want to thank you all for joining the call today. And if there are no more questions, I would like to complete the call and say thank you, again, and talk to you next time.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.