Edap Tms S.a. (EDAP) Q4 2018 Earnings Report, Transcript and Summary

Greetings and welcome to the EDAP TMS Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to your host Jeremy Feffer. Please go ahead, sir.

Thank you. Good morning and thank you for joining us for the EDAP TMS’ Fourth Quarter 2018 Financial and Operating Results Conference Call. On today’s call, we will hear from Philippe Chauveau, Chairman of the Board; Marc Oczachowski, Chief Executive Officer; and François Dietsch, Chief Financial Officer. Before we begin, I would 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, Philippe Chauveau. Philippe?

Thank you, and thank you all for joining us today. Our first quarter 2018 was an exciting and very significant year in the evolution of our company. The highlight was the FDA approval of our Focal One Focused Ultrasound device in the U.S. in June. Notwithstanding a legacy sales cycle for hospital capital equipment, we quickly established significant sales momentum in the U.S., our most important market with four Focal One device sales announced through the end of the first quarter 2019 and one additional sale announced yesterday. At the same time, we continue to expand our international presence in key markets including Brazil and South Korea. By any measure, we entered 2019 with significant momentum that we have sustained through the first quarter. We remain excited about the potential of Focal One to disrupt the current prostate cancer treatment paradigm and believe we are well positioned to deliver long-term value to our shareholders while offering superior outcomes to prostate cancer patients. With that, I would like to turn over the call to EDAP’s Chief Executive Officer, Marc Oczachowski. Marc?

Thank you, Philippe, and good morning everyone and thank you for joining us for our fourth quarter 2018 conference call. I am very happy to start this conference call today with the news of the fifth year of consecutive growth in EDAP’s revenues. This is a great and consistent achievement of which we are very proud. This is showing the hard work of our teams around the world, as well as traction of the technologies are getting globally. We indeed recorded growth in all of our businesses in 2018 starting with our HIFU division where we grew sales 79% in Q4 2018 as compared with Q4 2017 and full year growth of more than 16% over 2017. During the fourth quarter of 2018, and only six months after getting the FDA clearance of our Focal One device for prostate tissue ablation we recorded the first U.S. sale, profit on sales jump again concerned to Q3 in California. The key to accounts the long sales cycle of this type of equipment, this is a great achievement and shows the high level of interest and motivation that reference centers, managing prostate disease have in our latest HIFU technology. And already in 2019, we signed and recorded four additional Focal One sales in major and key centers in the U.S. including the purchase order with the University of Chicago’s School of Medicine that we announced yesterday. This shows the momentum and strong traction Focal One is having in the U.S. markets. At the same time, we continue to prospect and work on our network to build and improve our pipeline of projects with a goal of placing more machines around the country. We will of course update the market as we move forward in completing more deals and sales of Focal One in the U.S. We are experiencing the same strong momentum with Focal One outside the U.S. and we were pleased with some new markets in Europe such as Greece and – where we sold two Focal One units in 2018. We also confirmed interest and traction from existing key markets such as Brazil where we sold the Focal One device at the end of 2018 and one in early 2019 bringing our total to five devices sold in the largest market in Latin America. As in the U.S., our pipeline continues to grow giving us conviction that additional deals will be completed in the future. Our UDS division which includes both our Lithotripsy and physician business also grew in 2018 and more specifically in markets where we combine our proprietary technologies with complementing devices such as lasers and Urodynamic equipments. We see many synergies with this approach and it also shows the strength of our direct sales network in key markets in Europe and Asia. Overall, we recorded a solid revenue growth of almost 10% bringing our total revenues to a record 39.2 million euros. This is the fifth consecutive year of growth for EDAP. François will detail the financial results from a very strong 2018 in a few minutes. But before turning the call over to him, I would like to provide an update on the developments and clinical programs for 2019 and beyond. Based on the FDA approving HIFU as a tool to ablate prostate tissue and based on the vision of more and more surgeons that energy-based HIFU represents the future of prostate cancer treatment for select patients, we remain focused on continued development of this existing technology. HIFU is the most advanced ablation technology available. Based on uric and plastic surgeons and expertise, we are treating more than 50,000 prostate cancer patients with HIFU. We are working to extend HIFU beyond prostate with a long-term vision of developing a HIFU platform to serve multiple soft tissue ablation indications. In that end, the two main milestones we are pursuing in 2019 are the initiation of our Phase 2 multicentric clinical study for the treatment of rectal endometriosis using our Focal One device and the initiation of our Phase 2 study for the treatment of liver metastases using a perioperative HIFU prototype. We are in a very exciting time in the lifecycle of our technology. HIFU has now proven via its prostate tissue ablation capability that it has potential in a number of development programs aimed at expanding the utility of HIFU for its indication and uses. Our team here at EDAP is dedicated and focused on making this happen in the near future. And now, our CFO, François Dietsch will provide a review of our financial results. François? François Dietsch : Thank you, Marc and good morning everyone. Please note that all figures except for percentages are in euros. For conversion purposes, our average euro/dollar exchange rate was 1.3070 for the fourth quarter of 2018 and 1.1784 for the full year of 2018. Total revenue for the fourth quarter was €13.3 million, an increase of 25% versus €10.6 million in Q4 2017. On the HIFU side, it generated sales of €4.3 million representing an increase of 79% versus Q4 2017 HIFU sales of €2.4 million. During the quarter, EDAP sold four Focal One devices included and as noted earlier with the first in the U.S. versus one Focal One during the same period of 2017 and we recorded a 14.1% in sales in HIFU treatment revenues. In the UDS business side, Q4 revenue of €8.9 million was up 9.4% versus the fourth quarter 2017 UDS revenue of €8.2 million. We sold 11 Lithotripsy devices in the quarter versus 19 in the same period last year. The increase was driven by an 88% growth in the sales of distribution products. Gross profit for the fourth quarter of 2018 was €16 million from €34.4 million for the year-on-year period. Gross profit margin on net sales was 43% in the fourth quarter of 2018 compared to 31.10% in the year-on-year period. The increase of 370 basis points year-over-year was mainly driven by the increase of the HIFU activities which has better margin than mid-year. Operating profit for the fourth quarter of 2018 was €0.8 million as both finance activities generated an operating profit compared to the prior year. This compares to an operating loss of €0.2 million in the first quarter of 2017. Net profit for the quarter was €1 million or €0.04 per share per diluted share versus a net loss of €0.5 million or €0.00 per diluted share in the Q4 2017. Turning to the full year of 2018, total revenue was €39.2 million, an increase of 9.2% as compared to €35.7 million for 2018 – 2017, sorry, on a new wake up level for our investors. The 9.2% growth of revenue is driven by the sales increase of our two segment activities, 16.1% growth for HIFU and 7.2% growth for UDS. For 2018, gross margin on net sales was 43.2%, an increase of 170 basis points year-over-year mainly driven by the higher level of activities. Operating expenses for 2018 were €18.2 million, an increase of €1.4 million compared to 2017 as we see increased investments in sales and marketing and development programs. The company recorded an operating loss for 2018 of €1.3 million compared to an operating loss of €2 million during the prior year period. Full year net loss was €0.3 million or a loss of €0.01 per diluted share as compared to a net loss of €0.7 million or a loss of €0.02 per diluted share in 2017. 2018 net loss included a non-cash interest income of €0.9 million to adjust the accounting fair value of the outstanding warrants. Lastly, we exited 2018 with a strong cash balance of €19.5 million or equivalents of $22.3 million U.S primarily during the fourth quarter – representing €4.3 million or €0.08 per fully diluted share this prior year which leads into filing our – which is now comprised a full year relief. And we now turn the call back to Marc.

Thank you, François. In summary, we believe that our newest accomplishments in 2018 laid a solid foundation for future growth. Focal One is the most advanced HIFU device available on the market today for targeted ablation of prostate cancer tissue and we are still in the very early stages of capitalizing this novel technology. I will now turn the call to question and answer. Operator?

[Operator Instructions] Our first question today is coming from Ramakanth from H.C. Wainwright. Your line is now live.

Thank you. Good morning, Marc. Couple of quick questions. So, the first one being, certainly we have seen the continuous news flow of different U.S. institutes, academic units about taking Focal One. So, how are things changing? Obviously, there is a change with this. Is this normal or is this something that your sales force and your commercial team is becoming more successful as time goes on? What is playing into the success is what my question is? And how are you utilizing that success to see an increased number of orders come through?

Well, I think, the – if I understand well your question, I would say this is a return on the investments on the efforts that the sales team has been doing in the last month and years in the U.S. by prospecting the markets and getting the products creating awareness around the product and so on. So, it’s just kind of consequence with what was done and that’s the return we are getting. At the same time, I think that we have very strong expectations from the urologists as well as competition and getting Focal One available in the U.S. and that’s why it has only taken six months instead of normally more days on the usual sales cycle of this type of equipment to get the first sales. So I think, it’s a mix of a strong expectation and the need of the market for again Focal One technology that really allows a very precise and targeted ablation across the tissue getting an effective treatment on the patient with a very high level of preservation of quality of life together with a strong and consistent work from the team in U.S.

Yes, now that is very good. And then, similarly, the question goes for the ex-U.S. market obviously and Brazil have made some good inroads. So, what’s the learning there? And I know there was some activity in South Korea at one point. So, how should we think about these with the contribution from this ex-U.S. markets and just so that, we can think about long-term growth?

Again, it seems that the same for us as momentum that we are getting in the U.S. and outside of U.S. and it will – trend, I mean, Focal Therapy and Focal Approach of treating prostate diseases and more specifically prostate cancer becoming more and more with the standard or more and more recommended or more and more utilized because that’s what the patients want and because that’s also what the urologist wants to give the option to his patients and the best option not only doing on based on a suit to see at all prices, but being based on suit to see and side-effects and preservation of quality of life and I think that’s the plan and that’s the – again, that’s probably only the beginning, but trends that need to accelerate as again, that’s the direction where people want to go in there included. So, I think that is a trend and again Focal One as we explained a number of times, was designed to specifically address that Focal Approach and that to get trained, go and trying the focal treatment and it’s a willing to do what’s needed for that giving again group results and get the specificity and very high level of preservation of quality of life. So, this is the momentum and I think that’s just a beginning.

Good. And then, any commentary on the liver indication that the company was working on? Just trying to see if we should be thinking about other indications and what’s the kind of progress you folks are making on that?

That’s – I normally seem to bring here in the call, that doesn’t had a presentation but that’s what I explained that we – and based on again on what we achieved and what we’ve been proving with high – of prostate tissue, we are now moving forward into our programs on prostate tissue and we are, in 2019, in that starting our multicentric study for endometriosis, a group of study on liver metastases. So we will see progress on that and we are – since committed into that program, again because we have now achieved the level of confidence and evidence of the capability of our HIFU technology to ablate soft tissue.

Thank you, Marc. Thanks for taking all my questions.

Thanks, RK.

Thank you. Our next question today is coming from Stefan Schwab from Linoa Holding. Your line is now live.

Hi, Marc. This is Stefan speaking. Hello.

Hello, Stefan. Good afternoon.

Good afternoon. First, congratulations for the last quarter results. Gives some hope for the next year. Let me ask two questions. First, from a internal and external point of view, where do you see the large risks or to grow fast that EDAP is now entering in?

Sorry, I didn’t hear very well. Can you repeat the risk of what?

The risk of the grow fast that EDAP is now entering in.

I don’t see any risk on our growing fast. I see more like an opportunity and again that’s the plan and that’s the momentum we want to do.

Exactly, you see, but, on the other side, there are always risks. Will you be able to deliver all the machines? I don’t know – just, where do you see the – what you have to achieve on this side?

Well, I didn’t - really the – one of the advantages about the sale cycle is long and it doesn’t go from one to 1000 in one day. So, we are trying to anticipate and we will be preparing ourselves as you know it has taken us a long time to get where we are as we go through the FDA and open other markets as well, there is some different regulation. So, we could anticipate and evaluate different options of growth and I seen the company to be prepared to take on that growth.

Okay. And maybe there was already a question about the early project, so then, let me – my question keeps simple, why you don’t communicate more open about this EDAP would say next big thing even the information is more or less public?

Yes, and that’s what we are going to start as again we did into more on six clinical trials and clinical developments in these new specific applications. So, we will definitely communicate more to the market on our progress and developments for this new indications and other [Indiscernible] products.

So we will hear and read from this project more in 2019?

Absolutely, absolutely.

Okay. Thank you, Marc. Thank you.

Thank you. We have reached the end of our question and answer session. I have to turn the floor back over to management for any further or closing comments.

Thank you very much for joining us in today's conference call and we look forward to keeping you posted on EDAP developments in the U.S. and worldwide. Thank you very much and have a good day.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.