Greetings, and welcome to EDAP TMS Second Quarter 2020 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. I would now like to turn the conference over to your host, Mr. Glenn Garmont, Investor Relations. Thank you. You may begin.

Thanks very much Laura. Good morning, and thank you for joining us for the EDAP TMS Second Quarter 2020 Financial and Operating Results Conference Call. On today's call, we will hear from Marc Oczachowski, Chairman and 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. With that, I would like to now turn the call over to EDAP's Chairman and Chief Executive Officer, Marc Oczachowski. Marc?

Thank you, Glenn, and good morning, everyone. As we continue to grapple with the global COVID-19 pandemic, we hope all of our listeners are safe and healthy. We appreciate you taking the time to join us this morning. I will start with a brief operational update and then turn the call over to François Dietsch, to review our financial performance. We made significant progress during the quarter and subsequent periods further solidifying our position as a leader in the field of High-intensity focused ultrasound. I would like to begin my comments this morning with a review of our most recent news. As we first discussed last quarter and in line with our expectations, the COVID-19 pandemic did impact our ability to call on doctors and hospitals during the second quarter and reduced treatment volume across our installed base as well, which affects our treatment-driven recurring revenue. Total revenue in the quarter was €9.3 million or $10.3 million as compared to €12.5 million or $14 million in the second quarter of 2019. The year-over-year decline was impart due to lower HIFU device sales, we sold three Focal One units and two Ablatherm units in the year ago period versus two Focal One units in the second quarter of this year. Sales of HIFU disposables also declined as we anticipated due to lower procedure volumes during the quarter. Despite the negative impacts in our revenue due to the challenging international business environment, we carefully managed our expenses and delivered a profitable quarter on an operating basis. As we recently announced, the clinical value of Focal One was further validated by a number of sales successes late in the second quarter, despite the impact of the ongoing COVID-19 pandemic. This is a testament to the entire EDAP team that we were able to…

Thank you, François. In closing, the second quarter was a challenging one again in the backdrop of COVID-19, but we were able to maintain our focus and continue to build our HIFU pipeline while also advancing developments of new indications. We will now open the call to your questions. Operator?

[Operator Instructions] Our first question comes from the line of Andrew D'Silva with B. Riley FBR. You may proceed with your question.

Good morning. Thanks for taking my question. Glad to hear everybody sounds well. Just a couple of quick ones for me. We ran a series of channel checks and that indicated as the second quarter which come into the close just into the – beginning of the third quarter, procedure volumes were approaching pre-pandemic levels, at least in certain regions and I was curious if that was aligning with what you are seeing across your segments effectively as the second quarter was coming to an end and into the third quarter or are you seeing volumes kind of snap back at pre-pandemic levels?

Hello, Andy. Good to talk to you. Actually, we saw definitely more activity, I mean, more close to normal activity in the third quarter than we had during the second quarter where in the lot of countries confinement was observed. So, at the same time, as you know, at least in Europe, but also little bit in the U.S. the summer, I mean the months of July and August in the middle of summer are not the most active time in terms of treatments and business activity. But at least we’ve seen that some – more normal activity – close to normal Q3 activity after the – at the end of the second quarter.

Okay. That’s good to hear. And could you repeat what the facilities that you look for HIFU? And was it APC level 5 or level 6 payment? And just because the timing is a little bit off as it relates to most years in the past, we should sort of assume that the reimbursement will be in place starting at January 1, 2021, correct?

Yes. Absolutely, absolutely, and as I explained today, what we got is the proposed rule which is again only a proposed rule and that may change. But as I said, unusually as we see it gives a fair indication of what will be the level of reimbursement for the next year. And as I said as well on the technical parts of the reimbursement, the proposed rule maintains the level 5 that we had this year and last year for HIFU reimbursement with the real new thing that we got this year on the proposal is because we are starting to CPT code next year from the C code this year is that we got that physician fee and RVU as a safety to that physician fee which actually delivered a bit below what was the recommendation given by the American Medical Association RUC panel which is where they give the recommendation on the values. And – but it was pretty well positioned and again, as I said, 30% higher than what prior surgery and other established minimal invasive therapy for prostate cancer has in the U.S. and it’s a little bit below what surgery – what radical surgery can be done virtually. This now definitely will be – the reimbursement will be in execution in next year on January 1, but now this needs to be confirmed by the final rule and usually they give the final rule somewhere in November, but we see – we’ve seen some delays in the proposed rule of this year. So we might expect some delays as well in the final rule, because there is a time trend in which there could be some permanent questions – requests from the proposed rule. So we are expecting to get the final rule somewhere in December.

Perfect. And has there been any discussions with commercial payers yet or is that’s going to be starting subsequent to be final rules being implemented?

No, I mean, of course, we are trying to maintain some discussion, but real discussion about payments will certainly happen when the strategic growth will be more final in terms of the rule and also the – we’ve not been given yet the code – the number of the code for the CPT and that should happen probably in September, October. So, once we have the value, the final rule and of course then we can really get started into a negotiation with the commercial payer.

Okay. Perfect. And just a last question for me, just couple of balance sheet items. Could you just let me know how much debt you had outstanding at the end of the quarter? And, as far as the $4 million that you received subsequent to the second quarter, is that forgivable or do you expect to have to pay that back?

Well, let me – let’s François check for you the debt at the end of June, but as far as for the loan that we got the €4 million loan that we got granted by French government, these are loans. So they are not forgivable. But as François said, it’s a very favorable conditions and terms as we will start repaying them only within a year from now and we have the choice in paying them back from one year to five year period with an interest rate between 0.25% to 1% annual rate. So, it’s very favorable.

Okay. Perfect. Wonderful. Hey, go ahead.

Yes. Just - François will just give you the level of debt that we had at the end of June. François Dietsch : Yes. Our financial debt remains low at the end of June of between €2 million and €3 million and on top of that, we have then this €4 million.

And it’s mainly, I mean, the debt we have at the end of June is like, usually mainly operational, nothing else.

Okay. So, it actually went down from the end of last year, the financial debt that you had? François Dietsch : Yes.

Yes.

Okay. Perfect. Great. Hey, thank you very, very much and best of luck going forward.

Thank you, Andy.

Our next question comes from the line of Brooks O'Neil with Lake Street Capital Markets. You may proceed with your question.

Good morning. I hope you guys are safe and well over there in France.

Hey, Brooks, yes, we are doing good. I hope you are doing good too.

Yes, so far so good. Everything fine. Appreciate your asking. I want to follow-on with Andy’s last – well, not last question, almost last question about the commercial payers, I was curious what you both expect and hope for from the conventional payers as it relates to reimbursement for the hospitals, as well as reimbursement for the doctors? Is it – I mean, specifically, is it reasonable to expect that commercial payers might pay more than Medicare? Or would you expect commercial payers to pay less?

That’s a very good question and I would love to have the accurate answer on that, but basically the – the usual game is that, commercial payer will pay more. They will usually use the - on the basis of the CMS payments value and then utilize and it’s great variable from one payer to the other and even from one region from the other. So, it’s very difficult. I think the most important thing is to get registered and to get into the program of those commercial payers and then, again, like as I usually did, there is a notification decision that is used by the commercial payer. So usually it’s more.

Sure. That’s good. And just sort of thinking along the same lines, obviously, the Medicare, the traditional Medicare program is big here in the United States. Have you got any feel for the Medicare advantage payers? I mean, obviously, same basic population, elderly people, relatively high problem with prostate cancer. Do you think – do you see any indication that any of the big Medicare advantage guys are – see this as a really important development?

I am not sure I get your question, but, yes indeed, I mean, Medicare patients are usually patients over 65. So there is a strong population with prostate cancer at this concerns and need of treatments.

Sure. Okay, let me just switch gears for a second and say, I am not as aware of the reimbursement for the exact yield. Can you just give us a quick sense for where you are at in terms of reimbursement there?

Absolutely, so, today there is no specific reimbursements for the - exactly with the micro-ultrasound application itself. But the exact new machine can apply for the same reimbursement level as the targeted biopsy devices. So, we are using that and at the time we are working on, as you know, we just get – we just started with that technology in May and June. And we will definitely also work in trying to continue using that targeted biopsy reimbursement level, but also build a specific reimbursement for the micro-ultrasound diagnostic itself. It’s going to take – it may take some time to get there.

Sure, of course. So, all of that, obviously, we are very interested in your progress on the prostate side, but I am also pretty interested in the endometriosis. What do you think is timing as it relates to the next few key milestones in endometriosis? Are we thinking – we might see some significant progress with the trial in 2021 or is that going to take longer?

Yes, the next milestone is really to conclude the inclusion of patients and as I said just earlier, we will get started in treating the first patient next month, which is almost next week. And again, I mean, there is a lot of enthusiasm from the clinical team led by Professor Dubernard and again, a lot of enthusiasm based on the results of the feedback we got from the patients from the Phase 1 trial. So, we have strong expectation that we might be able to go quick in recruiting. Though, as I said also, we will start with Professor Dubernard, who is the Chairman of Gynecology in Croix-Rousse and then we will extend the trial to other sites in some. So, there will be some training minute as well. So it might take some time. But again, we expect to be extremely active and working hard and fast in recruiting and treating patients by the end of 2020 and in 2021, as well. So that we can go quick into the follow-up phase.

Great. Thank you very much. Keep up the work. I know it’s a strange time. But just keep the pedal to the metal.

Thank you very much.

[Operator Instructions] Our next question comes from the line of Ramakanth Swayampakula with H.C. Wainwright. You may proceed with your question.

Thank you. This is RK from H.C. Wainwright.

Hello, RK.

Good afternoon, Marc and François. Hope you guys are doing fine and staying healthy.

Sure. Thank you, RK.

Yes. Couple of questions. So, now that you have Exact Imaging product ExactVu and you are commercializing that along with your Focal One. Are you seeing any increase in leads or previous leads converting into clients, because now that you have a better mousetrap and it’s an end-to-end solution?

Yes. Actually, we can feel that this is definitely helping us to get into new prospects and in both aspects people doing Exact Imaging, these are some from Exact Imaging, obviously it’s interesting to Focal treatment, so we can really bring them a solution with Focal One and also it helps like we did and we saw that it was a great success in the four machines we sold lately. Three of them were bundle deals. So, people are getting our – urology department or hospital that really wants to get started into a new prostate cancer focal program really needs to get – if you want to be posted on that, we need to get to the devices to be complete and really to manage the machine from scratch to the end. So that’s – as we can see that brings more interest of that increasing interest and motivation to get the deals done. So, we can really feel the added value of getting the two products together.

Okay. And then, also with the CMS proposing a dollar reimbursement both for the HIFU procedure and the urologist. So, there are two questions, one is like, what percentage of eligible patients who could go through your procedure have been waiting for such an announcement in the sense try and get a good feel for the reimbursement. And also for the doctors, do you see some of these doctors becoming more enthusiastic now that they can also dip into this and at a little better dollar number than what they will get with trial surgery or other things. Whether it is anecdotal information or real? How would you sensing the enthusiasm if there is any from the hospitals and also from the doctors itself?

No, it’s difficult and again, I mean, the proposed rule was just announced less than two weeks ago. So it’s pretty new and it’s a proposed rule still. So it’s not reality in its proposition. So, we have to wait until the planned rule is developed. Certainly, it will at least give a clear path to both the patients and the urologists in terms of the dollar amount to be spent or to be received for the procedure. So, it will really give a frame to the treatment that will sort of normalizes or come valid and that will definitely help adoption and at the same time, it will stress with the R&D that will also help us to get started when it’s the right time into commercial payer negotiation, which again might interest a lot of patients.

, :

So, for the timeline it’s very difficult and it’s usually difficult, because it’s very related to the inclusion of the patient to the way the training of the new centers and all that. And in the current context, it is very difficult to have any expectation or any view of the planning. I mean, if we get back to sort of do some product confinement, I mean, hospitals just start clearing those studies. So, it’s very difficult. But like I said before, I mean we have a leader on the clinical study, Professor Dubernard, who is extremely motivated and so just he knows the technology well because he has ran the Phase 1 trial. And we also have among the best centers in France that are joining the trial and everybody really see that as a great opportunity. So, there is strong motivation. You may see moving forward tests, but now it’s difficult to give some real timeline expectation. And your second question was on the technology. Today the study was approved to be performed with the Focal One. That’s the exact same team as we use for prostate. So there is no technical development could be done so far.

Okay. Thank you very much and talk to you soon.

Thank you, RK.

Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn this call back over to Mr. Marc Oczachowski for closing remarks.

Well, again, thank you for joining us today. Stay safe. And we hope to give you updates on our development very soon. Again, stay safe and thank you for joining us today. Have a good day. Bye-bye.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.