Edap Tms S.a. (EDAP) Q1 2016 Earnings Report, Transcript and Summary

Good day and welcome to the EDAP First Quarter 2016 Earnings Conference Call and Webcast. 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 of the Ruth Group. Please go ahead.

Thanks, Emily and once again, good morning and thank you all for joining us for EDAP's first quarter 2016 earnings conference call. Joining me today from 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. And 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, it's now my pleasure to turn the call over to EDAP's Chairman of the Board, Mr. Philippe Chauveau. Philippe?

Thank you, Lee. Good morning and welcome to EDAP's Q1 2016 conference call. This morning I have three opening comments to share with you. First, EDAP's HIFU continuing patient success, worldwide the number of patients treated by Ablatherm and Focal One HIFU is growing exponentially achieving 37% growth in Q1 year-over-year in treatment revenues. This demonstrate EDAP's HIFU's ongoing strong embrace by patients and physicians. Second, EDAP's worldwide business model ahead of increased marketing spending in the U.S. is delivering quarterly profitability. EDAP's total year revenue in 2015 made EDAP cross the operating income delivery line. Now in Q1 alone, EDAP delivered a Q1 record EUR700,000 total operating profit. Finally third, now cleared by the FDA, EDAP's HIFU revenues in the U.S. are now truly ramping up. Now I'll hand over to Marc.

Good morning everyone and thank you for joining us on our first quarter 2015 conference call. Although we had a fantastic first quarter generating strong results across both segments of our business, and building significant momentum for the rest of the year. The key takeaway from our first quarter 2016 results was the 102% increase in revenue from the HIFU division compared to last year. This strong growth was driven not only by increased systems sales, mainly in the U.S., but also by unique treatment driven revenue which was up 37% of the first quarter of 2015. Treatment driven revenue which includes consumable sales and relate to the total number of treatments using devices in the field is a reflection of the growing adoption of our technology worldwide and speaks to the urology communities increasing the acceptance of HIFU as a viable tool for the safe and effective ablation of prosthetic tissue. We are actively treating patients in the U.S. using fixed systems of academic centers and university hospitals, and also via mobilizing partners and service providers well established in the urology community. The response from both, the physicians and the patients has been extremely positive. In January we sold other Ablatherm Robotic HIFU at Sylvester Comprehensive Cancer Center in Miami, Florida. Sylvester has since become the country's first certified HIFU site and would serve as the Ablatherm HIFU training and working [ph] center for the U.S. East Coast. Most recently we completed the installation of an Ablatherm system at Methodist Hospital in Houston, Texas; an 828-bed facility consistently ranked among the top hospitals in the country. Earlier this month, the University of Southern California, our first U.S. installation site hosted a pre-U.S. symposium that featured a live hands-on and simulation training course using Ablatherm Robotic HIFU. This course, the first of its kind in the U.S. was very well attended and resulted in significant interest in our technology. The symposium was an excellent showcase for our Ablatherm device and the section from SNB [ph] served as an ideal kick-off to the one of the largest worldwide urology events of the year. I would provide additional details on our successful presence of AUA in a minute. With the U.S. commercialization of Ablatherm underway and getting traction, we have begun working to bring our full range of HIFU products to physicians and patients in the U.S. with the submission of our high 10-K application for the potentially FDA clearance of our next-generation Focal One device. As with Ablatherm, the aim of this application is to obtain FDA clearance of Focal One for prostate tissue ablation. If cleared, we believe that Focal One will provide a highly complementary technique to Ablatherm and another important tool for urologists in the U.S. Our regulatory team is working closely on the process with the FDA and we will provide further updates as appropriate. We remain focused on developing and enhancing our sales, marketing and clinical abilities with the aim of expanding our global installed base of both, Ablatherm and Focal One systems with a positive focus on increasing Ablatherm's footprint in the U.S. We believe that the investments we are making in our U.S. sales and marketing infrastructure will not only drive the continued growth of Ablatherm but also report a successful commercial launch of Focal One following potential FDA clearance. We are dedicated to maximizing the adoption of the technology and increasing the utilization of each installed system around the world. We recently received approval for Focal One by the Brazilian Health Surveillance Agency, the ANVISA. This approval in Latin America's largest market represents an important milestone for the company as Brazilian patients will now have access to our next-generation Focal hyper-treatment. We continue processing regulatory approvals for Focal One in other international markets including the U.S. and look forward to further expanding our installed base through entering through new strategic markets. Although HIFU is the primary driver of our future growth, our UDS lithotripsy products remain an important and steady contributor to our current business. Total revenue from the division was EUR5.5 million, an increase of 18.5% over the first quarter of 2015. Lithotripsy is a much more mature market than HIFU and we are pleased with our strong performance in such a crowded and competitive market. Our continued success in lithotripsy provides clear evidence that urologists value our reverse portfolio of lithotripters and urinary stone lasers, as well as the high quality of our innovative technology. As mentioned earlier, we recently participated in the 2016 annual meeting of the American Urological Association and the L.A. LIVE Pre-AUA Symposium hosted by Dr. Gill and his team at USC. At AUA, we showcased Ablatherm Robotic HIFU for the first time as a commercially available product in the U.S. I have been attending the AUA annual meeting for almost the last 20 years and I must say this was by far the busiest and most exciting meeting I've been part off. Our group was busy with urologists and all the stakeholders in urology every day, and all along during the exhibition hours. We also had numerous meetings outside the exhibition time and hosted an extremely successful EDAP event on Monday [ph] where around 200 urologists could meet, discuss, and share experiences with our HIFU. Again, we saw significant traffic throughout the show owing to the live demonstrations of Ablatherm as well as lithotripsy and laser systems. In addition to the product demonstrations and mid-explanation [ph] at our booth, EDAP was featured in two vendorization on HIFU technology and presented outcomes achieved with Ablatherm HIFU through five poster sessions. As a special note on the poster presentations, the poster on Ablatherm HIFU from Dr. Purdie [ph] in Lyon, France, was awarded best poster of the session. Overall, we could not have expected a better level of activity at this year's AUA. We believe that it was a significant and effective step forward in our efforts to more grow the market, our HIFU technology in the U.S. The AUA was also very important and productive as we could showcase our Ablatherm HIFU device to a huge contingent of urologist through our live demos. Besides generating great exposure, it has strongly contributed to a better understanding among urologist of the clear differences and advantages between our unique and fully robotic technology and the old manual platform from competition as well as the robustness of EDAP's complete range of products covering the majority of urologist's present needs. In addition, it provided the opportunity for us to showcase our development and innovation capabilities in area in which we have been the leader for more than 35 years with many new development projects in hand. This commitment to innovation and the development of next-generation, next level technologies is again the clear couple difference between EDAP and its competition. Our marketing program for HIFU will include initiatives that directly target both urologists and patients, and highlight the newly available technology, as well as substantial quality of slight benefits HIFU provides compared with traditional approaches. Following the end of Q1, we strengthened our financial position with the completion of registered direct offering in which we raised $11.5 million through a group of U.S. traditional ambassadors. We intend to use the proceeds of the offering, primarily to support the ongoing sales, marketing and commercial initiatives for HIFU in the U.S. We believe that these investments will provide a near-term benefit by driving accelerated adoption of Ablatherm in the U.S. as well as longer term advantages by helping establish a strong foundation for the potential U.S. launch of Focal One. We will also utilize a portion of the capital to expand Ablatherm and Focal One manufacturing capacity, seaport R&D, and the development of early stage products and to advance regulatory projects in other key markets such as Japan, the second largest medical device market in the world. In summary, the first few months of 2016 were busy and extremely productive, and we are well positioned to continue advancing in several key strategic areas. EDAP achieved strong growth in the HIFU business providing clear evidence of increasing adoption, as well as utilization of our installed systems to treat patients. EDAP filed a 510(k) application for Focal One and submitted it to the FDA to initiate the review process. EDAP had a strong presence of AUA and is beginning to execute an aggressive physician and patient focus sales and marketing plan. And finally, EDAP completed the quarter with solid cash position of EUR14.5 million, and further strengthened our balance sheet with a registered direct offering in Q2. As always, we thank you for your continued support and look forward to updating you on our future accomplishments. With that I would like to turn the call over to Francois to review our financial results. Francois?

Thank you, Marc, and good morning everyone. I will now take a few minutes to review our financial results for the three months period ending the 31st of March 2016. The total revenue for the first quarter of 2016 was EUR8.7 million or $9.6 million compared to EUR6.2 million or $6.9 million for the first quarter of 2015. This represented the highest first quarter revenue in EDAP's history. The total revenue for the HIFU division was EUR3.3 million, or $3.6 million for the first quarter of 2016 compared to EUR1.6 million or $1.8 million for the same period last year. This 102% increase is based on the growth of equipment and treatment driven revenue. Total revenue for the lithotripsy division was EUR5.5 million or $6 million for the first quarter of 2016 compared to EUR4.6 million or $5.1 million during the year ago period. For Q1 2016 the company recorded sales of 10 lithotripsy machines which compares to total of 7 devices sold in the first quarter of 2015. Gross profit for the first quarter of 2016 was EUR4.3 million or $4.7 million compared to EUR2.6 million or $2.9 million for the year ago period. Gross profit margin and net sales increased to 49.2% in first quarter of 2016 compared to 41.5% in year ago period driven by the strong growth in HIFU net sales. Operating expenses were EUR3.6 million or $3.9 million for the first quarter of 2016 compared to its EUR2.2 million or $2.5 million for the same period in 2015. The increase in operating expenses was primarily related to an increase in selling expenses as we continue building out our sales and marketing infrastructure. Operating profits for the first quarter of 2016 was EUR0.7 million or $0.8 million compared with an operating loss in the first quarter of 2015 of EUR0.6 million or $0.7 million. Net income for the first quarter of 2016 was EUR1.4 million or $1.5 million or $0.05 per diluted share as compared to a net loss of EUR2.4 million or $2.7 million or $0.10 per diluted share in the year ago period. Net income in the first quarter of 2016 including non-cash interest income of EUR0.5 million addresses the accounting fair value of the outstanding warrants. At the 31st of March 2016, cash and cash equivalents, including short-term investment were EUR14.5 million or $16.6 million. 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 is from Salim [ph] of H.C. Wainwright. Please go ahead.

This is RK [ph]. Thank you for taking my call. So every quarter we used to hear some idea of backlog going into the next quarter. Are you able to give that to us at this point?

Well, we -- like we said during the last conference call, we tried not to disclose too much of our pipeline and backlogs as again, we -- I mean, competition is obviously listening to the call as well, and we would like to be as discrete as possible so that we advise in different competition on that. But I can tell you that we have a very strong and solid pipeline that is including every day.

Okay. Let me ask you in a different way -- you would hopefully didn't get some idea qualitatively. How engaged are you with some of the major urology centers and what kind of penetration of Ablatherm by the end of 2016 will seem comfortable for you?

We are in very close and deep discussions with major hospitals and university centers in the U.S. on prostate cancer and I won't give any important statements for the end of 2016 but again, first of all, we had a very -- and we had since we got clearance of very strong pipeline of project that is increasing with a very high quality and very high level sensors. And then at the AUA as I said during the call, we generated a number of additional leads from both private centers but also institutional and academic centers.

Great. And then switching to Focal One, and considering that Focal One will potentially be approved say in 12 months from now, would some centers wait towards the Focal One device rather than invest in Ablatherm?

I mean that's two questions in one, I'm not maybe the one to give you answer. First of all, on timing it's very difficult to know investing in FDA and again, we are working very closely with them, we are making everything we can to make that as fast and smooth as possible but now the AUA runs the clock. And on the second question on what the hospital will do between now and Focal One, again, it's their decision and we're helping them as much as we can in making decision as fast as possible. Again, the big advantage here for us is that this is the same company marketing and selling both devices, so there are ways to lower them to start into HIFU before Focal One is there and again, Ablatherm is a fantastic product that could read into lot of the needs together already in the market.

Okay. Last question for me for now, what -- how is the approval of Ablatherm in the U.S. impacting sales and other geographies such as Canada, Japan, and obviously, very recently the Brazilian market opened up. How do you think the U.S. approval is helping out in those areas?

Though as expected and anticipated, the FDA clearance of Ablatherm has definitely resonated in other region of the world and as kind of confirmed the interest and evidence and recognition of the technology outside of the U.S. Yes, there is a momentum that has been generated by the FDA clearance.

Thank you.

Our next question is from Peter [ph] of First Hand Financials. Please go ahead. And Peter your line is live, is the phone muted on your end.

Peter?

The next question comes from Stanley Masson, a private investor.

Good morning, Marc. I have some questions with regards to number of HIFU procedures in comparison with fourth quarter 2015 compared to first quarter of 2016. Can you give us some idea as to what that percentage increase was and what the increase in revenue was from the software packages that are sold for individual treatment?

So as we've said earlier, we increased our shipment driven revenue by 37% as compared to last year first quarter. Now I don't have in mind the number that's increased the difference in number between Q4 of last year but we see a continuous increase in use and again like, the question from RK, we can really feel the momentum in the U.S. but also as that of the U.S. since you got the FDA clearance, not only on the set of equipment but also on the use of the installed systems in the world by increasing again the number of treatment.

Okay. And can you repeat the earnings per share in the first quarter of 2016?

The first hand a few positive results [ph].

What was that -- say that one more time.

$0.05 [ph].

$0.05, okay? And the other question I have -- I know right after our last conference call, you had a private offering and I'm wondering if in the future if there are any other further private offerings -- the long-term stock holders can be made part of that process so that we can partake in the same process that those newcomers are entitled to. I've seen this in other corporations. So in other word, if you need $11 million, yes, of course you're going to have to go out, there is some big investors to get that. But in other corporations I've seen where the current investors are also made available those same terms and some take advantage of it, some do not. And I was wondering if you would at least consider if you go out again on a other private offering to make some time of arrangements where are long-term investors and EDAP might also protect of that process.

Sure. Message is taken, and as far as the near-term is concerned, now are pretty well funded to execute our strategy for a good better time. So we have no further plan to raise firms in the near-term but I got the message.

Okay. And another question, I know you submitted your Focal One, 510 (k) which was just after our conference call I believe the -- and I know it's not a firm content frame but I think it's 120 days or is it 90 days? And if whichever one of those two days it is, has their bidding back and forth with the FDA where they've asked further documentation because I know that delay is the application.

Yes, again, it's 12 game. So 100 point, maybe just we should hope 180 basis. The clock sorry, can be stopped during the extensive information or questions. And as I said in the column, or regulatory, these is focused on the project and closing work with the FDA. So we're following the process.

Very good. And the other -- the last question, I think I heard you say that the Ablatherm is in 10 states right now. Is that correct or did I miss here something?

Is in what -- 10 states, you said?

Yes. I know it's been done, performed in New York, California, Florida, Texas, I believe Virginia.

And because we've got now a number of mobile units so it's -- the device is travelling in the U.S. I mean we've got devices falling in U.S. as we have -- as I said New York I mentioned some of our academic centers where on the six stages [ph] that we also have now a number of mobile machines that are travelling and crossing over different states of the country. So we are expanding the coverage of Ablatherm access in the U.S. by these mobile providers as well.

Great. And is your increase in manufacturing be done there on France?

Sure.

Good. Okay.

Thank you.

Thank you for a good quarter.

Thank you very much.

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

As there are no further questions I will now close the conference call. Thank you everyone for participating on today's conference call. Thank you and goodbye.

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