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EDAP TMS SA (NASDAQ:EDAP)

Q4 2013 Results Earnings Conference Call

April 3, 2014 8:30 AM ET

Executives

Stephanie Carrington - IR, The Ruth Group

Philippe Chauveau - Chairman

Marc Oczachowski - Chief Executive Officer

Eric Soyer - Chief Financial Officer

Analysts

Suraj Kalia - Northland Securities

George Zavoico - H.C. Wainwright

Operator

Good day. And welcome to the EDAP TMS Fourth Quarter and Full Year 2013 Earnings Conference Call. All participants will be in 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 Ms. Stephanie Carrington, Investor Relations of The Ruth Group. Please go ahead.

Stephanie Carrington

Thank you, Operator. With us today from management are Philippe Chauveau, Chairman of the Board; Marc Oczachowski, Chief Executive Officer; and Eric Soyer, Chief Financial Officer.

Before we begin, I’d like to remind everyone that management’s remarks today may contain forward-looking statements. These statements include such comments 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 actual results to differ from those described in any 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.

Now I would like to turn the call over to Mr. Philippe Chauveau. Philippe?

Philippe Chauveau

Good morning, everyone. And thank you for joining us on our fourth quarter and full year 2013 investor conference call. Let me start by highlighting the significant progress that EDAP has made over the past year in advancing the PMA submission for Ablatherm HIFU as we continue to work very closely with the FDA.

We have now advanced from filing the PMA by completing a very important question-and-answer phase. We are looking forward with the planned next phases of the FDA process.

EDAP’s current business is solid. At the start of 2014 EDAP device sales backlog has reached record levels of over 50 lithotripters and five HIFU devices in the period. This is a testament to the strength of EDAP’s global sales team.

Now I will turn it over to Marc.

Marc Oczachowski

Thank you, Philippe. And thank you all for joining us for our fourth quarter and full year 2013 earnings call. I will review recent developments across our business segments and then I will turn the call over to, Eric, to discuss the financial results for the quarter. Following Eric’s comments we will be happy to answer any questions you may have.

Let me start by saying that EDAP has achieved several key milestones in 2013 in advancing the PMA application for Ablatherm HIFU device through the FDA review process.

To start with, we submitted a full and complete PMA application to the FDA in late January of last year. We received administrative acceptance in February 2013, obtained filing acceptance in late March 2013. This filing acceptance is a very important step and milestone in the review process.

When you look at reported statistics approximately one-third of the PMA applications on file are rejected at that stage. EDAP’s file continued to make progress as the 100-day review meeting with the FDA was held in early June.

The purpose of this meeting is to discuss items that may need clarification and to start reviewing questions and requests from the FDA on our application. We then continue to interface very closely with the FDA, while compiling the answers and adding some requested information and data to our file. We finally completed our answers, comments and information file and it was delivered to the agency two weeks ago in March of this year.

Similar with other PMA projects, EDAP’s process of obtaining FDA approval for its Ablatherm HIFU device inclusive of conducting the PMA trail completing the two-year follow on phase, preparing the PMA file and the FDA review process has been lasted for many years.

We are very pleased and extremely excited that we were able to advance this process significantly throughout 2013 and during the first quarter of 2014. We remained in ongoing communications with the agency as the next step will be the tabling and preparation for the Advisory Committee Meeting. We anticipate that the FDA will conduct a site [inaudible] of our manufacturing facility in Lyon [inaudible] and potentially some of the clinical trial sites as well. The FDA is now in the process of organizing and planning these events that should happen in the coming months. We will keep you posted on these other important steps as we are informed by the agency.

We are continuing to amass clinical evidence for Ablatherm-HIFU device for the treatment of localized prostate cancer. Over 40,000 procedures has been performed to date outside of the U.S. and more than 70 peer reviewed publications have been released in medical journals and presented at urology medical meetings.

Last year and as previously communicated, three long-term studies from three different hospitals in two different countries were published in three major medical journals. These studies showed long-term data up to 17 years on large cohort of patients totaling more than 2000 total patients.

In aggregate, these results were first very consistent and stable from one paper to the other, and second, they showed a very high efficacy level with 98% of cancer specific survivor rate and 95% of metastasis-free rate at 10 years following treatment with Ablatherm HIFU.

These are very positive results and showed much not inferiority in efficacy based on more than 10 year of results as compared on [surgeries] [ph]. These results also showed a very low morbidity profile and reproducibility of the treatment which confirmed again that Ablatherm HIFU is continuing to demonstrate its advantages as a non-invasive robotic device that offers men a better quality of life as compared to the standard-of-care radical surgical prostatectomy and radiation therapy. In addition, this body of clinical evidence is continuing to drive interest from U.S. patients who are traveling overseas to obtain HIFU treatments.

Turning to our operating results, a handful of secured device purchase orders did not close before year end for a variety of reasons beyond our control. And these are now in our record backlog that I will touch on in a few moment. Combined with the significant exchange rate loss of the euro as compared to the Japanese yen, our total sales for the fourth quarter 2013 were down slightly year-over-year.

Turning to our 2013 results, our total revenues on a GAAP basis were impacted primarily by the significant exchange rate loss of the euro as compared to the Japanese yen. On a constant currency basis, our full year 2013 revenues were in line stable with the prior year.

Overall the global market for lithotripters and HIFU devices continues to be a dynamic and robust one. Our lithotripsy business is continuing to gain traction in key countries. In the U.S. we experienced a two-fold increase in the number of devices sold in 2013 over the past year.

As we enter 2014, our backlog stands at a record level with confirmed purchase orders for over 15 lithotripters, which is extremely high for first quarter of the year. This is due in part to some project that we previously expected to be closed before December 31st that shifted into early 2014.

The good news is that none of these projects were [allotted] [ph] to competition or cancelled but rather they were just delayed. Starting 2014, we start seeing in concrete orders driven by the increased market awareness and enthusiasm generated by our new and complete range of HIFU devices as we count on the purchase order backlog of five HIFU devices including two Focal Ones and three Ablatherms.

We have never had such a strong start of the year for HIFU device order collection. We are seeing strong signs that our superior HIFU technology coupled with its great achievements in terms of clinical publications and the recent progress with the PMA on file with the FDA is generating strong interest and enthusiasm among the key players across the international urology community. Our entire sales organization is focused on generating sales leads and closing deals as we move forward in 2014 business year.

With that, I would now like to turn the call over to Eric who will review our key financials for the fourth quarter and full year 2013. Eric?

Eric Soyer

Thank you, Marc and good morning everyone. I will now take a few minutes to review our financial results for the three and 12-month period ended December 31, 2013.

Total revenue for the fourth quarter 2013 was €8.1 million or $11 million. The current quarter revenue compared to €9.4 million or $12.3 million for the fourth quarter 2012 and a 45% sequential increase over €5.6 million or $7.4 million for the third quarter 2013.

Total revenue for the HIFU division was €1.5 million or $2.1 million for the fourth quarter 2013, compared to €2.3 million or $3 million for the same period in 2012. The company recorded the sale of one Focal One HIFU device in the quarter.

For the three months ended December 31, 2013, total revenue for the Lithotripsy division was €6.6 million or $8.9 million, compared to €7.1 million or $9.3 million during the year ago period.

During the fourth quarter 2013, the company recorded sales of 18 Lithotripsy machines comprised of 13 Sonolith i-move devices and five Sonolith i-sys devices, compared to total of 21 devices sold in the fourth quarter of 2012.

Gross profit for the fourth quarter 2013 was €3.3 million or $4.4 million, compared to €3.9 million or $5.1 million for the year ago period. Gross profit margin was 40.2% in the fourth quarter 2013, compared to 41.3% in the year ago periods. The change in the gross profit margin was mostly attributed to the negative currency variations against the euro.

Operating expenses were €3 million or $4.1 million for the fourth quarter 2013, compared to €3.6 million or $4.7 million for the same period of 2012. Operating profit was €226,000 or $309,000 for the fourth quarter 2013, compared to an operating profit of €254,000 or $331,000 in the fourth quarter of 2012.

Net loss for the fourth quarter 2013 was €570,000 or $778,000, or €0.03 per diluted share, compared to net loss for the fourth quarter of 2012 of €1.1 million or $1.4 million, or €0.06 per diluted share.

Turning now to the full year, total revenue for 2013 was €24.1 million or $32 million and €26 million on a constant currency basis, compared to €26.1 million or $33.6 million for 2012. 2013 revenue included the sales of 45 lithotripsy devices and three HIFU devices.

Gross profit for 2013 was €9.3 million or $12.4 million, compared to €10.4 million or $13.5 million for the full year of 2012. Operating loss was €2.8 million or $3.7 million, compared to €2 million or $2.6 million for the same period of 2012.

Net loss for the full year 2013 was €5 million or $6.7 million, or €0.24 per diluted share, compared to a full year 2012 net loss of €7.5 million or $9.7 million.

At December 31, 2013, cash and cash equivalents, including short-term treasury investments were €7.7 million or $10.6 million. The company's net cash utilization was €396,000 in the fourth quarter 2013 and included the €8.5 million net proceeds from the May 2013 capital raise and the €6 million full repayments in June 2013 of the remaining financial debt.

With that, I will now turn the call over to the operator who will open the lines for questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from Suraj Kalia of Northland Securities. Please go ahead.

Suraj Kalia - Northland Securities

Good morning, Marc and Eric.

Marc Oczachowski

Good morning, Suraj.

Eric Soyer

Good morning, Suraj.

Suraj Kalia - Northland Securities

So, Marc, my apologies, I just jumped in a few minutes late. Did you say how many Ablatherms you all sold in the quarter?

Marc Oczachowski

Well, we said that in Q1 of 2014, we recorded already and received selected confirmed purchase order for five HIFU devices, including two Focal Ones and three Ablatherms.

Suraj Kalia - Northland Securities

Fair enough. Okay. Marc, and I know you all, it is still relatively earlier in the lifecycle. But in terms of total Ablatherm in Europe that are active, could you give us a sense of how many treatments are being done per year? I know it’s a very -- it’s quite early in the lifecycle, so maybe an unfair question, but any color would be great?

Marc Oczachowski

Yes. I think it’s quite early as you said, and we have currently approximately 80 machines that are active in Europe. And there is a big variation from one machine to the other taking into account that some of these machines are mobile and performing more treatments and some others are big. Some of the big machines are in big institutions and some others are in smaller, so it’s very variable.

Suraj Kalia - Northland Securities

Fair enough. And finally Marc, in terms of -- obviously you finished the Q&A with the FDA for your PMA application, which was very good news. Any update on how your thought process is, is still you’re looking at panel probably within four, five months? Or, I mean, am I wrong in saying probably by mid-May or latest by the end of May we should have an idea about a panel date or I am thinking it’s -- love to get some color on that?

Marc Oczachowski

Well, I mean, we indeed delivered and submitted our answers, comments to the FDA about two weeks ago and now the next step is in the hand of the FDA and as we mentioned it, usually the FDA takes between 30 to 60 days to give and confirm panel meeting dates. And it’s in the average that panel meetings are usually held approximately between four to six months after the submission. So hope you said the correct, and now we’re waiting from the FDA to give us notification and confirmation of panel date and panel meeting.

Suraj Kalia - Northland Securities

Let me one last question Marc and I will get back in queue. Let me rephrase that question. At what point would you all start developing mock panels in anticipation of what the line of questioning and what not? Also, I am just curious how you guys think on the compositions of panel, again to the extent that you can share? Thanks for taking my questions.

Marc Oczachowski

You are welcome, Suraj. And we -- I mean we’ve started the [next day] [ph] after our submission to really working preparing the next steps, which indeed include some mock panels and other preparation work. So we’re focusing on that and making sure that we organize ourselves to get the best preparation for the panel.

Suraj Kalia - Northland Securities

Thank you, gentlemen.

Operator

Our next question comes from George Zavoico from H.C. Wainwright. Please go ahead.

George Zavoico - H.C. Wainwright

Hi. Good morning, gentlemen. And thank you for taking my questions.

Marc Oczachowski

Good morning, George.

George Zavoico - H.C. Wainwright

I have a question regarding your -- the finances, so this is directed more towards Eric. Your basically revenues, gross profit were fairly flat from year-over-year, but the revenue was -- but your profit – sorry, your loss was a little bit less. And it looks like you implemented some changes on your R&D side and your SG&A side to reduce expenses there. What exactly -- what changes did you actually implement over the year to save some -- to save on your expenses there?

Eric Soyer

Well, that’s, as you said, I mean, it was really flat in terms of revenue when you look at it on a constant currency basis. We indeed made some savings and that's a continuous and ongoing process to streamline the structure. And more specifically, we were also able to get some additional grants and tax rebates on R&D programs to reduce the total operating expenses.

George Zavoico - H.C. Wainwright

No. That's good. The grants are very, very helpful, of course, non-dilutive and add to your bank account. With regard to the sales, you had -- you said there were 15 instruments backlog on lithotripsy, right, and some of it was carried over from the fourth quarter into the first quarter? So conceivably your fourth quarter and full year ’13 sales could have been better, had those not been delayed and I think you partially answered that question from the last questioner? How many of the new -- how many new orders that you get in the first quarter, if you could say that, that weren’t backlog from the last quarter and does that sort of meet your expectations or exceed your expectations, if you’ve provided that guidance before?

Marc Oczachowski

Well, we don’t have the distribution -- the exact distribution and some -- and again, some of the carry-forward orders were almost confirmed last year or we will confirm in Q1, so we don’t have the distribution between what was confirmed as a purchase order in Q4 and Q1. But the fact is that we have a very strong and solid backlog of confirmed purchase order as we start 2014 and as well, I mean, our pipeline of project is getting extremely strong and high.

George Zavoico - H.C. Wainwright

And the backlog, is that from any particular geographical area or is it just distributed pretty evenly across the planet?

Marc Oczachowski

It’s pretty well distributed in -- around the planet.

George Zavoico - H.C. Wainwright

Okay. Great. That's good news. Thank you very much.

Marc Oczachowski

You’re welcome, George.

Philippe Chauveau

Thank you.

Operator

(Operator Instructions) Our next question comes from [Harry Trecartin] (ph), private investor. Please go ahead.

Unidentified Participant

Yes. Good morning. Thank you for taking my call.

Philippe Chauveau

Good morning.

Stephanie Carrington

Good morning.

Unidentified Participant

I have got a couple of questions and comments, what I am -- I am interested in knowing if you fellows have or coming up with a revenue model upon approval for commercializing the HIFU tool in America?

Marc Oczachowski

Yes. Of course, I mean, we are working and again our focus today is to make sure we go through the next steps and milestones on the FDA project that was of course as we are reaching the end of the process, we stop strategizing and working on marketing, sales, clinical strategy, as well as business models.

But for obvious reasons as well we won’t disclose too much of information because we don’t want to put any of our competition or whatsoever ahead of our program. So be assured that we are focusing on preferring that and making sure that we will be as much adapted as we can to the market in the U.S.

Unidentified Participant

Yes. Well, my personal opinion is that a revenue per procedure model is one that would help investors and shareholders quantify future revenue more easily than just outright sale of the units? Is that direction that you are considering?

Marc Oczachowski

Well, what I can share with you is that knowing the -- that the way the market is organized among the urology community and the urology devices in the U.S. the sales and revenues will certainly be driven by treatments.

Unidentified Participant

Yes. Well, I guess my feeling is if you sell the unit then to some extend you’re giving the store away, because then future revenues are going into the urologists’ pockets and then you’re not necessarily reaping long-term benefits of the technology that you spend so many years developing.

Marc Oczachowski

I understand and thank you for your advice, knowing that even if we sell machines, we have to count on single-use disposable sales during the life of the machine. So, even if the machine is sold, we still can count on the revenue per treatment based on again, single-use disposable.

Unidentified Participant

Okay. Great. One other general interest question, I also have a sense that work, the quickest way to adapt this technology for use in the United States might be by selling it to a larger established medical device company such as an intuitive surgical. Has there been any discussion along those lines, have you guys ever been contacted by a medical device company to possibly consider selling?

Marc Oczachowski

Well, I mean, I don’t have any real comment on that. Just one is that, as you said and based on what we’ve invested worked and making efforts to bring the technology to the U.S. markets. We would like as a company to get as much of the benefit of the sale of the technology in the U.S. market so. And I think, we are well equipped as well to remain independent again, everything is on sell and to grow.

Unidentified Participant

Great. One other thought regarding market capitalization and promoting the knowledge of HIFU even prior to approval. I believe that getting out in the public domain, perhaps on programs like CNBC, not in medical journals but in more widely distributed areas of news to share knowledge of this with the public, what’s been known that it’s coming. I think this could do a lot to help the company and create demand for procedure prior to and after approval.

Marc Oczachowski

Yeah. And again I think there are plenty of ways and again, the goal is to be able to -- to be the one to choose. So, we will keep on working and again, before independence, so that we can make the best choices for the company and its shareholders.

Unidentified Participant

Yes. Thank you very much.

Marc Oczachowski

You are welcome, Craig.

Operator

This concludes our question-and-answer session. I would like to now turn the conference back over to Philippe Chauveau for any closing remarks.

Philippe Chauveau

There being no further questions, this is to formally conclude the conference call. Thank you everyone for participating on today’s call and I’ll talk you next time.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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