Greetings, and welcome to the EDAP TMS Third Quarter 2020 Earnings 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. Jeremy Feffer, Managing Director of LifeSci Advisors. Thank you. You may begin.

Thank you and good morning, and thank you for joining us for the EDAP TMS third quarter 2020 financial and operating results conference call. On today's call, we will hear from Marc Oczachowski, Chief Executive Officer and Chairman of the Board; 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 and Chief Executive Officer, Marc Oczachowski. Marc?

Thank you, Jeremy, and good morning, everyone. I will start with a brief operational update and then turn the call over to François Dietsch to review our financial performance. We are pleased with our third quarter results. While the planned third quarter is seasonally our softest quarter of the year in terms of business volumes, this year it was the strongest quarter so far. So while restrictions in Europe and elsewhere began to lift, we did see a gradual shift back towards normal. Obviously, these prostate procedures cannot be delayed in the period. Total revenue in the quarter was €9.4 million or $11.2 million as compared to €9.3 million or $10.3 million in the second quarter of 2020. Another interesting sign was the fact that despite an 8% decrease in overall revenues in the third quarter this year compared to Q3 of last year, we generated a slightly higher amount of recurring treatment-driven revenues in our HIFU division, and we sold the same number of Focal One units. So following a difficult first half of the year, we are pleased with our third quarter performance. We announced just a few days ago that we entered into an agreement with AB Medica, a leading distributor of medical technologies in Italy. AB Medica already distributes ExactVu, so they are already familiar with the product line. Italy is the fourth largest medical technology market in Europe and we are pleased to be able to partner with a recognized leader and significantly expand access to a portfolio in this important European market. COVID infection rates are again climbing in many parts of the world, including most of the U.S., and we are carefully monitoring our key markets. We are again seeing a modest impact on positive volumes as hospitals continue to focus on the…

Thank you, François. In closing, the third quarter was the strongest of the year thus far, despite the challenges posed by the ongoing COVID-19 pandemic. We believe that our strong cash position and efforts to grow our sales pipeline globally have positioned us well in 2020. We will now open the call to your questions. Operator?

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Brooks O’Neil with Lake Street Capital Markets. Please proceed with your question. Brooks O’Neil: Good morning, guys. I hope things are not too difficult in Lyon for you during the COVID crisis.

Good morning, Brooks. Well, it's not the busiest, but we're managing and navigating through it. Thanks for asking. Brooks O’Neil: Good for you guys. So obviously, it's a challenging environment to sell systems. But I'm curious if you're able to find ways to continue generating physician interest in the HIFU for prostate and if you have any comments on how that's going?

Yes. Actually it's true that it's difficult to generate equipment revenue or even activity in the hospital as everything is pretty much focused on the COVID-19 management. But as we explained, we continue to do a lot of educational sessions using webinar and also taking the opportunity of more time available from the urologists. So we continue to do a lot of marketing and a lot of communication to all our users or prospects, leads and also by our distributors. So that's one of the positive part of that is that again, most of those doctors not really involved directly in the management of COVID have more time for discussion or for training or for education and also on new technology. So that's – as a result of that, we've seen a continued increase in our pipeline of projects and leads, which is good. Now the question is, will we be able to access management, purchasing department, legal in the hospital so that we can bring those new prospects to deals? Brooks O’Neil: Right. That's the $800 question for everybody. It sounds like the partnership with ExactVu is going well. Are you pleased with that? Is it more or less on schedule or would you say it's even going better than you had hoped?

Well, we are very pleased with it. Again, everything as we had anticipated in terms of synergies between the products is really here. It's really helping as well to drive the pipeline of projects and to get the attention from urologists and from the hospitals. It has also allowed us to kind of build some very aggressive offering of, like vendor deals or these kind of things. And we were very happy. And, like we said, we sold three machines during the second quarter as we got started in June, and another eight during the second quarter which is good and it's probably our expectations. Brooks O’Neil: That's great. So you mentioned, Marc, the expectation for the Category I CPT code. My feeling is that's going to be a big deal for you guys. Is there anything specific that you've heard from FDA or the reimbursement folks in terms of that code or is it just sort of the expected timeframe of dollar figures sometime here in December probably and then going live in January?

So that's following the normal process in – again, usually the final rule is released by CMS somewhere around [indiscernible]. We expect some delays this year as it was for the proposed rules. So probably somewhere in December, we might have all the final numbers for next year. Brooks O’Neil: Great. And then --

And again, we’ll keep you guys updated once we have some news. Brooks O’Neil: Yes, that will be a big deal for you guys I think. So can you just – you talked about the endometriosis trial, but sort of when are you thinking you’d get through all of that and maybe be able to have an indication for endometriosis? And I think you alluded to HIFU for other indications even beyond endometriosis. And I'm curious if you could even – I don't need the specifics, but I'm curious if you can give an example of one or two additional areas where you think HIFU might have applicability?

Sure. Now we are also working on earlier stage research and development programs for other indications and that includes pancreas, pancreatic cancer, liver metastasis. So these are earlier stage developments and we are not yet in terms of patient treatments. Brooks O’Neil: Sure. And what is the timing on endometriosis?

Sorry, can you say that again? Brooks O’Neil: What's the timing for the Phase 2? And then how long would a Phase 3 trial for endometriosis be?

So the Phase 2 – as I said, we have 38 patients to treat in five institutions in France. We've already been – we got started in September and we've already enrolled and treated six patients. And we have another three that are planned to be treated in December. So we'll be probably around 10 patients by the end of the year. Then the uncertainty on conducting clinical studies in the environment makes it difficult to really anticipate the exact time of completing the enrollment. But the good news as well on the protocol that was approved by the French Health Authorities is that the follow-up period is only six months. So overall, it should be a pretty short study from an enrollment and follow up. And then again, based on what we achieve on the Phase 2, we will certainly conduct a Phase 3. Brooks O’Neil: Sure. Thank you very much. Congratulations. I know it's a difficult environment. But it sounds like you're making tremendous progress.

Thank you, Brooks.

Thank you. Our next question comes from line of Andrew D’Silva with B. Riley Securities. Please proceed with your question. Andrew D’Silva: Hi. Yes. Good morning. Thanks very much for taking my questions and congrats on the progress.

Good morning, Andy. Andrew D’Silva: Good morning. Thank you very much. So just to start, and I very much appreciate the additional financial information you provided this quarter. Could you just let us know as possible, what stock-based comp was during the quarter? And then I was also curious if you could let me know what ESWL and HIFU systems placements were during the quarter, if possible?

Can you repeat the beginning of the question, Andy? Sorry, I didn’t hear you well. Andrew D’Silva: No worries. Just stock-based compensation, if you have that figure for the quarter, just curious what it was? And then if you could just also let me know what ESWL and HIFU system placements were doing the quarter?

So, François will answer you on the stock-based compensation. As far as the unit placements, as we said earlier in the call, we sold two Focal One units during the quarter, similar – same number as last year. And you should see we sold I think -- François Dietsch: In the middle of this year we sold four devices [indiscernible]. Andrew D’Silva: Okay. And Ablatherm – there was no Ablatherm systems placed? François Dietsch: No. Andrew D’Silva: Okay, perfect. And are you able to find the stock-based comp or do you need a little more time?

Maybe if you had another question. Andrew D’Silva: Also curious just what engagements been like with potential customers since the proposed reimbursement came out? And have there been any discussions with private payers since the proposed reimbursement came out? And maybe give a little sense of what it has historically been like from previous experiences, does it typically start to mature or evolve with customers and private payers while the proposed reimbursement is out there, or do you have to actually wait and see what the finalized reimbursement is to get that kind of traction?

No. Usually the process is that we get the code enforced and use, and then that will be in January when the final rule will be released and then the CPT will be enforced next year. And then when you start using it, you start getting the coverage and getting the claims submitted to the different MAX [ph] of CMS around the country. And that's when you get to the point that you can start lobbying and discussing with the commercial payers and various insurances. So it was temporarily, but we – within six weeks from now, we'll be able to get started on all those kind of actions. Andrew D’Silva: Okay, very useful. And my last question is just related to the cadence in the fourth quarter. Can you maybe give a little bit of color around that? Are you seeing any change in traction from equipment sales quarter-over-quarter, or is the fourth quarter a situation where you expect much of the heavy lifting as it relates to revenue recognition to take place in the last couple of weeks? I know that's the trend typically, but with the holidays in the fourth quarter, I wasn't sure if placements come in earlier than typically seen in the quarter?

Well, again, the fourth quarter is usually the strongest and is very critical in terms of the yearly results. We see them – of course, there is a lot of excitement. Of course, there is a lot of pressure as well to get deals done by the end of the year, and everything will – again, the most important month of the quarter is December. So everything will be – a lot of things will be done during the month of December. And it will go until the end of the month, like usual. So there is more traction. There is a lot of excitement. We've also been working on making very aggressive offers as well to help in terms of – not only in terms of conditions but also in terms of financings and working with partners to offer our customers very interesting condition in the context so that they can make decisions and close deals before the end of the year. So we're – and everybody's on the field trying to close deals. And again, we'll see the results of that in the next six weeks. Andrew D’Silva: But just anecdotally as it looks with the pipeline and engagement with customers, would you believe that that same quarterly trend seasonality will continue this year as far as the fourth quarter most likely being the strongest quarter of the year, or anecdotally speaking do you feel like that isn't the case?

Anecdotally speaking, it’s a fourth quarter of COVID-19 year which makes it completely different or unpredictable. And to answer your question, there are two things. One is that our pipeline of projects and leads has never been that big. So we have plenty of projects to work on. Now the uncertainty is the ability to close deal and the ability for the hospital or the healthcare system to navigate normal business activity within the current environment. So as I said, we're trying to be creative and have a lot of initiatives to kind of help those hospitals and healthcare systems to make the right decision and get the purchase done despite the environment. So that will be the real challenge and the unpredictable and unknown situation that we're facing within the context of COVID-19. But again, we're doing our best to probably come up with solutions. Andrew D’Silva: Great. Thank you very much. If you don’t have the stock-based comp, I can just take it offline.

We do. François is ready to answer that. François Dietsch: Yes. The impact on the quarter is €30,000. Andrew D’Silva: Could you repeat that one more time? François Dietsch: On the quarter is €30,000. Andrew D’Silva: Okay. Thank you very, very much. Best of luck this year. And congrats on the progress during the third quarter.

Thanks, Andy.

Thank you. Our next question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. Please proceed with your question.

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

Hello, RK.

Hi. Good afternoon, Marc and François. Within the HIFU sales, we see then sales from leases and RPPs either being stable or actually growing. And as you were talking about trying to become creative in terms of how to generate revenues, do you think with all the budgetary constraints due to COVID and also from trying to be careful how much money these different organizations are able to outlay, do you think it's much easier to go the leasing route rather than an outright sale, especially for a device like HIFU? What's the appetite for that? And also how are you able to navigate those uncomfortable conversations with the organizations out there?

Actually, this is part of the options that we’re offering and we also have been able to design with a number of leading companies with who we partner for long-term lease or even short-term lease capital operationally. So we have all the options. And this is really depending from one hospital to the other, from one project to the other. But again, the idea for us is really to have the broadest potential offering in terms of financing so that we can answer most of the needs.

Perfect. And talking about distribution, congratulations on the Italian distribution collaboration that you just announced recently. Also looking into the distribution part of the revenue line, it certainly has been growing and I would think exactly is adding to it. So when you look at your leads out there for not only fourth quarter, but also for later, how much of that synergy is really working to your benefit? And also do you see that part of the revenue line becoming more of an important growth item within your revenues, not only for '21 but also beyond?

Yes. I think the – again, what works very well is the synergy between the usual – the product we have in distribution and the product we are manufacturing ourselves. And that's really the idea to grow both types of equipment and business sales. And it did pretty well [indiscernible] ExactVu. And again, ExactVu really works well with Focal One, first of all, because it's a good complement, but also because it really gives us a unique offering on the management of prostate cancer using Focal approach, which is again the big growing strategy of treating prostate cancer, and thus making a lot of sales. So I think the two types of businesses, distribution and manufacturing products, are really working in the same direction. And the way we choose and the way we decide also to implement new distribution products is really to help sort of upgrading – to upgrading our global business but also to help as well bring our homegrown technology like HIFU and Focal One.

Great. Then the last question for me is on endometriosis. You stated that you have six women in the trial at this point. Do you plan to wait for all the 38 women to go through the six-month follow up before you announce the data from this study or would we be able to see some data in the interim without waiting for the complete study to come to completion?

We’ll see. It will really depend on the pace of recruitment and enrollment that we have. And if we're able to continue on that base, which again it's really depending on the context, as you know with most of the clinical studies on hold now and we've been very lucky to be able to do that. And to continue to treat actually, we are very happy to have the confirmation of the slots for the treatment of the three other patients in December. So if we're able to recruit quickly, we might not need to go on interim results. Then if we have some – if it takes us some time to recruit the entire 38 women for the trial, then we may want to give interim results. So it will depend on the speed of enrollment and treatments. And again, we are making our best effort to do that as quickly as possible. And again, because the follow up is six months only, so it's a very short period of time. So we might not need to get some interim results optimization.

Thank you. Congratulations on what you have achieved so far, especially with the difficult COVID situation going on. And good luck for the fourth quarter and beyond. Thanks.

Thank you, RK.

Thank you. [Operator Instructions]. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Oczachowski for any final comments.

Thank you, operator. And again, thank you everyone for joining us today. Again, stay safe and we are looking forward to updating you very soon as we’re making some progress. You all have a nice day and stay safe. Bye-bye.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.