Edap Tms S.a. (EDAP) Q4 2015 Earnings Report, Transcript and Summary

Good day and welcome to the EDAP TMS Fourth Quarter and Full Year 2015 Earnings Conference Call. All participants will be in a 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 Lee Roth from the Ruth Group. Please go ahead.

Thanks Emily and once again good morning and thank you all for joining us. With me from company management are Philippe Chauveau, Chairman of the Board, Mark Oczachowski, Chief Executive Officer 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. These 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 uncertainties and risks that could cause our actual results to differ from those described in such forward-looking statements. Factors that may cause such difference include, but are not limited to those described in the Company’s filings with the U.S. Securities and Exchange Commission. With that said, it’s now my pleasure to turn the call over to EDAP’s Chairman of the Board, Mr. Philippe Chauveau, Philippe?

Good morning everyone. I have three opening remarks to share with you. First, it was EDAP's and my personal ambition in recent years to really improve the quality of life of men who suffered from early prostate cancer in every country. With EDAP this was achieved across the world in 2015 with the FDA clearance of EDAP's Ablatherm HIFU. Also in 2015 EDAP also crossed the historical operational profit line, a company landmark with €488,000 profit for the year and €1.6 million for Q4 2015. And finally EDAP is showing great momentum in the U.S. Now I will turn over the call to Marc who will talk in detail about our U.S. progress and future plans. Marc?

Thank you, Philippe. Good morning everyone and thank you for joining us on our pivotal fourth quarter and full year 2015 investor conference call. As you all know this is not a typical quarterly result call, as this is our first quarterly report since our Ablatherm Robotic HIFU was cleared by the FDA. This clearance was a successful culmination of almost 10 years of investigation and investments. This is done and achieved and it is bringing our Company to a new era to the next level. Ablatherm was cleared by FDA on November the 6th and it is a huge news for the Company, its shareholders and employees. This is why I'm very bullish today and I'm pleased to share with you some of our recent accomplishments and our excitement for the future. The market has been extremely receptive to that great news and we started to sign contracts very quickly after clearance from FDA was announced. We are receiving strong interest from different types of customers from academic centers, service providers and mobilizers, as well as from private groups of urologists. We have come to understand that not only was EDAP eagerly waiting for HIFU to be available in the U.S. but many of the 10,000 American urologists were waiting for this non-invasive solution in order to provide the patients an effective option to ablate prostate tissue that enables greater preservation of patients’ quality of life. We can really feel a strong momentum growing and a high and increasing demand from the urology community. In addition to urologists some of the 220,000 newly diagnosed prostate cancer patients per year will now be able to benefit from the advantages of this ablative technology without required to travel abroad and leave their home country as thousands of them have done in the years leading up to HIFU's availability in the U.S. Thanks to this we've been able to sign contracts in a record timeframe with academic centers, doctors and urology groups that were making themselves ready to go immediately after clearance. Some of these contracts were executed and recorded in the fourth quarter and some others are being implemented during the beginning of 2016. In addition to these early sales we're continuously building our pipeline of prospects and projects for HIFU in the U.S. And we are rapidly gaining traction from every segment of the market including university and residence hospitals, service providers and mobilizers and private urology and physician groups. This is a very exciting time as our technology is being pursued by interested customers as aggressively as we are pursuing prospects. In conjunction with answering the strong demand from the field, we are expanding our U.S. operations as well as our factory capacity in order to keep warranting quick lead time and minimize delays in product deliveries, installation and training for new customers. In addition to strengthening our U.S. sales team we're recruiting marketing professionals, engineers and application specialists to support the growth of Ablatherm and our other urology devices in the U.S. Our new base of customers and growing number of users are consuming the trend of positive adoption and validating the need for a compliment between -- through Robotic Surgery in order to provide non-invasive ablation of prostate tissue. As we announced the first two machines in operation we've placed respectively at Keck of Medicine, University of Southern California and Sylvester Comprehensive Cancer Center at the University of Miami, two of the most recognized and respected robotic surgery centers led by Dr. Inderbir Gill and Dr. Dipen Parekh. The demand for an alternative between the radical treatment or watchful waiting or between too much nandinas is not only real, but it is growing everyday in the world and particularly in the U.S. where prostate screening is the most advanced in the world. Again, we are having a fantastic and exciting time with the great feeling of being at the right place at the right time with the clearance of our uniquely Robotic Ablatherm HIFU device. After these early success stories in the U.S. commercial launch, we're looking forward to the 2016 American Urology Association Annual Meeting next month in San Diego, it will be the first AUA meeting where we are showcasing our FDA cleared Ablatherm robotic HIFU device, usually about 12,000 urologists are attending the event, among which more than the half practice in the U.S. EDAP plans to invest significantly in advertising and promoting its Ablatherm HIFU device and its lithotripters range of products during this major event for the urology community. We are expecting strong attendance and interest at our booth at which live demos will be conducted on Ablatherm and meet the expectations will be organized with our most experienced users from Europe. Turning to some of our care regulatory accomplishments outside the U.S., in December Russia's Federal Service for Surveillance in Healthcare approved Focal One for sale in Russia. This is another important milestone for EDAP and an important advancement for our Russian patients who can now receive our next generation Focal HIFU treatment for prostate cancer. Additionally, our Japanese subsidiary, EDAP Technomed Japan secured approval for the Quanta Litho Laser from the Japanese PMDA. The grant of this approval and our global collaboration with Quanta System allows us to exclusively distribute the Litho Laser in Japan. These approvals also validates EDAP's ability to navigate through international regulatory guidelines to achieve approvals necessary to commercialize our innovative devices and build of our partners. We have also maintained an active presence at major international medical congresses in the recent months. We showcased our full range of HIFU and lithotripsy devices at the 31st European Association of Urology Congress, last month in Munich, Germany, at which we generated a number of highly permitting sales leads for both our divisions. Also in March, our long time partners at Interim presented datas from studies using our HIFU technology for the treatment of lever, breast, and prostate cancer at the International Society for Therapeutic Ultrasound Annual Meeting in Tel Aviv, Israel. Based on the attendance at these important events, it is clear to us that interest in HIFU is growing rapidly not only in our core urology markets, but across many other areas of medicines. HIFU also plays an important role in the recently released eBook, The Tumor from bestselling author John Grisham in which a patient’s brain tumor is treating using the technology. We believe that such mainstream attention will be significant in raising patient awareness of HIFU and its benefits of the traditional procedures potentially helping drive further demand for our devices. As we have said at the beginning of the call, we have achieved tremendous regulatory milestones in 2015, including FDA clearance of Ablatherm in the U.S. but we also achieved fantastic financial results and performance. Our net sales reached a record of €32.3 million in 2015 which was a 20.4% increase over full year 2014 results. Similarly, very strong activity was observed in the fourth quarter with net sales of €11.8 million a 82% increase as compared to fourth quarter 2014. In the HIFU division, sales tripled in the fourth quarter 2015 as compared to our fourth quarter 2014 driven by our first Ablatherm sales in the U.S. Annual HIFU’s net sales grew just over 3%, but it should be noted that full year procedure-driven HIFU revenues increased 41% over 2014. This strong growth in procedure-driven HIFU revenues which includes consumable and paper used machine is a reflection of the worldwide growth in HIFU treatments. We continue to expect positive trends in procedure-driven revenue as more patients recognize HIFU as an efficacious non-invasive treatment option that allows patients to maintain a greater quality of life than that typically associated with traditional treatments. In the UDS division we recorded the strong net sales with growth of over 32% year-over-year, confirming EDAP’s ability to expand its market share in lithotripsy and urology distribution. As we stated in past calls and meetings our operating breakeven point was close and we could reach that inflection point with a few additional equipment sales. This is now really be based on our strong record top-line performance, which resulted in full year operating profit and positive cash flow for a year. I’d like to repeat this EDAP achieved operating profit on its full year 2015’s P&L and is cash flow positive at the end of 2015. As a result, it gives us a strong balance sheet of €14.6 million in cash as of the end of the year. All this together shows clearly that EDAP has now reached the next level and poised for success in 2016 and well into the future. We are already experiencing growing momentum for Ablatherm devices in the United States as our Q1 activity has been intense and busy so far. Moreover, we’re also experiencing solid growth in treatment driven revenue which is indicative of the growing worldwide acceptance of HIFU. Finally, we have a strong pipeline of HIFU and lithotripsy devices at the beginning of 2016, both in the U.S. and rest of the world. This is an exciting and amazing time for EDAP that we’ve all been waiting for and that is now happening for real. We thank you all for your continued support. With that, I will then turn the call over to Francois to review our financial results.

Thank you, Marc, and good morning everyone. I will now take a few minutes to review our financial results for the three and 12 months period ending on the 31st of December 2015. Total revenue for the fourth quarter of 2015 was €11.8 million or $12.8 million compared to €6.5 million or $8 million for the first quarter of 2014, which represented an 82% increase. Total revenue for the HIFU division tripled over the fourth quarter of 2015 with €3.3 million revenues or $3.6 million compared to €1 million or $1.3 million for the same period last year. Total revenue for the lithotripsy division was €8.5 million or $9.2 million compared to €5.5 million or $6.7 million during the year ago period, which represented a 56% increase. Gross profit for the fourth quarter of 2015 was €5.3 million or $5.7 million compared to €2.4 million or $3 million for the year ago period. Gross profit margin and net sales improved from 37.6% in Q4 2014 to 45% in Q4 2015 thanks to the significant increase in net sales. Operating profit for the fourth quarter of 2015 amounted to a recovery road of €1.6 million or $1.7 million compared to an operating loss of €400 million or $1.3 million in the fourth quarter of 2014. Net income for the fourth quarter of 2015 essentially non-cash was €5.1 million or $5.5 million or $0.18 per diluted share as compared to a net loss in the fourth quarter of 2014 of €2.6 million or $3.3 million or $0.11 per diluted share, net income for the fourth quarter of 2015, including non-cash interest income of €3.7 million to address the accounting fair value of the outstanding warrants. Turning to the result for the full year of 2015 total revenue for 2015 was €32.2 million or $35.6 million up 20.4% compared to €26.8 million or $35.4 million for the full year of 2014. Total revenue for the HIFU division was €8.5 million or $9.4 million in 2015 compared to €8.7 million or $11.5 million in 2014. We saw the total of seven HIFU machines in 2015 comprised of five Focal One systems and our first two U.S. Ablatherm machines. This compared to six Focal One machines and four Ablatherm machines in 2014. Throughout 2015 we saw a steady increase in treatment driven revenue resulting in a 41 machines compared to 2014. Total revenue for the lithotripsy division was €23.8 million or $26.2 million for 2015 compared to €18.1 million or $23.9 million in 2014 a 32% increase year-over-year. In 2015 we sold 52 lithotripsy machines compared to 42 in 2014. Gross profit for the year was €13.8 million or $15.2 million and gross profit margin and net sales was 42.8% up from 42.7% in 2014. In 2015 we recorded an historical full year operating profit amounting €0.5 million or $0.5 million compared to an operating loss of €1.7 million or $2.3 million in 2014. For the full year of 2015 the Company recorded a non-cash interest expense of €2 million to address the accounting fair value of the outstanding warrants which resulted in a net loss of €1.7 million or $1.8 million or $0.07 per diluted share as compared to a net loss in 2014 of €0.5 million or $0.7 million or $0.02 per diluted share. This non-cash expense was mainly due to the increase in the company's stock price at closing date, between the 31st December of 2014 and the 31st December of 2015. As of 31st December, 2015, cash and cash equivalents including short-term treasury investments was €14.6 million or $15.8 million. These cash and cash equivalent position represented an increase of €2.4 million from the 1st of January, 2015, including 1.3 million of cash provided by operating activities. With that, I will turn the call over to the operator who will open the line for questions, operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Swayampakula Ramakanth of H. C. Wainwright. Please go ahead.

Congratulations on 2015 and obviously on getting Ablatherm to the finish line.

Thank you.

I'm sure it's a great feeling. I have a few questions. I know you told us a little bit about the machines that you have sold in the U.S. since November 6th and going into the quarter, into the first quarter of '16, could you comment a little bit on what sort of missions around backlog both in the U.S. and the yield on the HIFU?

Well I would prefer to withhold that information for competitive reasons but what I can tell you is that there is a very strong and growing momentum, there is a very strong traction on the U.S. market for HIFU and also we can also feel that echoing in the international market. So, we are working on a very dynamic and increasing pipeline of projects and prospects and that was started at the beginning of the year as well.

Okay, that's a good takeaway for me. How does the U.S. approval helped you in terms of commercialization in other countries, I am guessing the usage basically on this three months or thus do you also get a little bit of a bump in terms of sales calls and what not, because now that you have the FDA approval?

Yes, absolutely, again there is obviously a very strong momentum in the U.S. but also and as expected we can feel that this great news of HIFU being cleared in the U.S. is adding some influence in other markets in the rest of the world and that gives more confidence to people in the technology as it is a sort of recognition and again we're also feeling a very strong traction and momentum in the rest of the world on HIFU.

Okay then you also mentioned a little bit about Russia and Japan and Russia approving the machine. So, what do you think about -- when do you think people start seeing some sales in both Russia and Japan and in your own thinking what kind of adoption could we expect in these two geographies and how quick can that be?

Well, as Russia is concerned, Russia is a very strong market for EDAP in terms of HIFU, as we have one of our biggest installed base of other than HIFU machine in Russia, so we achieved the approval of Focal One at the end of last year, while as you know the economical situation in Russia is not completely favorable to any business but again, I mean, that's a country where HIFU has been adopted and recognized very early and now to have the entire EDAP range of HIFU devices approved in that country is very promising as far as the economy could get back into normal type of situation. For Japan as we said we approved the Litho Laser from Quanta, and that was done at the end of last year and we already started to recall sales.

And then just to close off on the HIFU business since you received the reimbursement from the French government and also it's been almost a year and a half or two years since data in urology association guidelines has been mentioning HIFU prices. How has that -- those two events helped both of sales in France and the east, can you give us a little bit of a color of how we should think about surplus in sales in the future years [Multiple Speakers]?

Well, I think that was very well reflected in our treatments driven revenue numbers. And as you’ve heard on the call, in 2015 we increased that treatment revenue driven by 41%. So that was pushed by those news that you just commented as well as a great momentum at the end of the year due to FDA clearance as well.

And my last question is on the lithotripsy business. It suddenly seems like you have confirmed that the 32% increase in the lithotripsy sales business. And I am wondering how much of that is sustainable, is that a one-time event or you’re seeing some kind of a change in trends and utilization of lithotripsy machines?

So we don’t see a change in utilization but that’s a result again of having a pretty complete range of products being able to address most of the needs in the different segments of the markets. And as well as being extremely competitive in expanding our operations and distribution channels over the world and we clearly benefited from that in 2015.

[Operator Instructions] And our next question is from Stanley Mason, Private Investor. Please go ahead.

Good morning Marc, congratulations on the results. I have a few questions I think some of them were answered just before. I realized that we sold in the last quarter to the University of Southern California and the University of Miami Sylvester Clinic but we’ve also reported in the news that we’ve done a mobile HIFU I believe in New York State?

Yes.

And is that something that we’re looking forward to in other parts of the U.S., these Ablatherm being put into a mobile unit and being shared by different institutions?

Well absolutely, yes. That’s a very common model in the urology world, so definitely that will be an important part of the business.

Okay. And are we seeing in the U.S. it's been rumored that some of the insurance companies like in healthcare, possibly Medicare are approving this as a treatment for early stage prostate cancer?

Well, I have not heard about that at least from the intended use. We know that some patients that were treated could get some level of reimbursements working with their insurances but I didn’t get that the information you mentioned on an official basis.

Okay.

And we on our side are currently working in the reimbursements, so we’re working on it and as everybody knows this is taking a little bit of time as we are just been cleared.

It always does, yes. The Focal One, is that in the process of being reviewed by the FDA here in the U.S.?

We’re working on it.

Okay. And I am pleased to see as I visited your place about a year ago this time and France has just approved reimbursement and it's great to see that the software products or whatever that we sell along with each treatment. We've seen a 41% rise in revenue that way. I mean that really gives us a good indication I guess from Europe primarily France and Germany that are currently reimbursing for HIFU that there's an increase in a volume of patients receiving HIFU in Germany and France.

Yes, I fully agree with that, that's a very clear and positive signal in the recognition and acceptance of the technology.

Okay. And the other thing is are we going to some more, or maybe we're waiting until where you start to get reimbursement to actually advertise, but it would be nice to see you know advertisements for HIFU and I don't know whether you're doing that in Germany and France. I guess I could ask my son who's over in France, that's when I was over there to visit you, but we don't see it here in the U.S. that any type of advertising and as you know the drug companies in the United States are very big on advertising their drugs to the U.S. public so that the public then goes to the doctor and says I want this type of medication or whatever. And I think at some point in time we're going to have some type of budget to make sure that the public is aware of this as one of their choices and a very good choice as you know I've been through the HIFU procedure some probably about 10 years ago very successfully and I'm a firm believer in HIFU. And I'm hoping more people in the U.S. and throughout the world understand that this is a phenomenal procedure which leaves little or no residual deficits to the patient and so I'm happy that we are approved here in the U.S. and looking forward to seeing more advertisement of this and more people availing themselves of this procedure, and I guess my final question would be we know that the Cleveland Clinic up in Toronto has the Ablatherm and we're wondering I guess you're in talks possibly with the Cleveland Clinic here in the United States and some of their other branches within the United States to get that modality here in their facilities as well?

Well as I said you know I will not disclose our prospect and project list that as I said during the call, I mean we're working very closely with most of the major institutions and residence centers in prostate treatment and prostate cancer treatment as well.

Okay, well again congratulations and as I've said before when I was there if there's anything I can do as far as helping to spread the word of the wonderful results of HIFU I would be more than happy to. I've been a long time investor now in HIFU and continue to hold a strong position, as well as have strong feelings for this being one of the best modalities if not the best modality available today to men in the United States as well as the world. And I thank you again.

[Operator Instructions] I am showing no additional questions, this concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Well, thank you very much for attending that call, that again was not a regular conference call and we're happy with the great results of last year and looking forward to a great 2016. Thank you very much.

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