EDAP TMS S.A.

Greetings and welcome to the EDAP TMS first quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jeremy Pfeffer, Investor Relations. Please go ahead, Mr. Pfeffer.

Thank you, Jerry. Good morning, and thank you for joining us for the EDAP CMS First Quarter 2020 Financial and Operating Results Conference Call. On today's call, we will hear from Mark Oksakowski, Chief Executive Officer and Chairman of the Board, and Francois 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, Mark Oksakowsky. Mark?

Thank you, Jeremy, 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 Francois Dietsch, our CFO, to review our financial performance. Despite the impact of the pandemic on our operations, we made solid progress advancing strategic projects for the companies. First, as announced this week, we finalized a worldwide exclusive distribution agreement with Exact Imaging for the company's micro-ultrasound technology. This is a significant addition to ADAPT's product portfolio and adds significant growth potential to our distribution business. It also fits perfectly with our FOCAL-1 HIFU device and will definitely help further its expansion and adoption in targeted prostate tissue ablation. Let me quickly introduce this unique technology and its great potential. The ExactView device is an ultrasound-based imaging system that can operate and be used the same way as a standard ultrasound, but it also has the unique capability of operating at a very high frequency of 29 MHz. By comparison, standard systems used in urology usually operate at frequencies between 7 and 9 MHz. This micro-ultrasound resolution is comparable or better than MRI and represents a 300% improvement over conventional ultrasound. Similar to MRI, it allows urologists to visualize and locate suspicious regions within the prostate and target biopsies in real time. Using this technology, urologists can see details that evade other imaging modalities. In an 866-subject study at nine clinical sites, ExactView demonstrated sensitivity of 95% for clinically significant prostate cancer as compared to 89% for multi-parametric MRIs. ExactImaging's technology also includes a solution called FusionView. Where an MRI is required, FusionView allows for the quick import, alignment, and targeting of MRI-identified lesions. After the MRI image is imported, ExactView, with its 70 micron real-time resolution, allows for very precise targeting that would otherwise not be available to most physicians. Using FusionView or simply using the real-time micro-ultrasound technology, urologists will use the ExactView system to perform targeted biopsies, whether transrectal or transperineal, to confirm with a high success rate the suspicious lesions seen on the image. The beauty of the concept is that in only one device, the physician gets a conventional ultrasound imaging system, an MRI fusion system, a guided biopsy device, and a unique micro ultrasound device that allows for diagnosis and targeting similar to MRI. Additionally, the urologist will control the entire workflow without the need to spend time, effort, and money transferring patient and patient data between the urologist and the radiologist. Thanks to this view, the urologist will maintain full control of his or her patient during the diagnostic process and in an office-based setting. As said earlier, in addition to being a great standalone device, ExactView perfectly complements our FOCAL-1 HIFU technology. ExactView offers all of the steps and procedures that need to be done prior to a prostate treatment. Prior to treating patients, the urologist needs to localize, identify, and locate the suspicious area, confirm the suspicion via biopsy, and treat. ExactView's high level of definition and ability to target biopsies in real time or via image fusion will provide the urologist with a great degree of precision to establish his or her focal ablation strategy. By combining our two technologies into a single complete offering, EDAP will be the only company on the market to offer the urologist a complete solution for focal prostate cancer management with full autonomy and capabilities from diagnostic to treatment. This type of complete care will also be extremely attractive to patients with prostate cancer as it represents the most non-invasive way of managing their disease by using diagnostics to eliminate unnecessary biopsy procedures and allow for a very precise non-invasive HIFU ablation of the suspicious and diagnosed region of the prostate. ExactView is supported by a distinguished and growing list of key opinion leaders at renowned healthcare institutions, including Cleveland Clinic and Johns Hopkins, among many others. There are approximately 72 installations globally, of which 24 are in the United States. We therefore see opportunity to sell focal one into hospitals that already employ ExactView and vice versa. Last but not least, in addition to distributing Exact Imaging's products, we also see opportunity to bring on some Exact sales and marketing personnel to ensure a smooth transition and continue our expansion. Needless to say, we are extremely excited to have entered into this distribution agreement and we are eager to approach both current customers and the sales pipelines of both companies with an integrated end-to-end urology solution. We look forward to providing the next update during our next conference call. I would like to spend some time now on the recent strategic decision we made that we believe will best position our company for long-term growth. As we announced in our press release last night, and after an extensive review of our different businesses, including Haifu, Distribution, and Lithotripsy, We have decided to strengthen and refocus our development efforts towards HIFU for both process applications and beyond. As part of this initiative, we will be revisiting our literacy R&D investment strategy, including the discontinuation of our EndoWeb platform, which has been delayed for many reasons, including technical and supply chain challenges, regulatory hurdles, and the ongoing COVID-19 crisis. Based on recent trends, we believe it is important to shift and narrow our R&D focus and marketing towards HIFU and distribution as these have shown strong growth and have the potential for continued growth and higher margin contribution. Importantly, our lithotripsy business generates revenue and significant and steady cash flow for the company and we intend to sustain this cash flow by continuing to sell and support our state-of-the-art Sonolift range of devices. But given the opportunities in HIFU that are in front of us and our technology leadership position, we believe now is the right time to pivot more fully toward that business and to accelerate HIFU expansion. As I said, we are not abandoning the literacy business altogether, but we will be narrowing our focus on other opportunities that we deem to be more promising. Turning now to the results, we were able to sustain the momentum that carried us through 2019 into the first quarter. However, as we indicated during our fourth quarter conference call in March, we expected and are now seeing decreased lithotripsy and high food treatment activity as a result of the ongoing COVID-19 pandemic. Not only does this affect our pipeline of potential machine sales, but also our recurring consumables business that is driven by FocalOne procedure volumes. But as we have stated before, our sales cycles are long and we expect that sales projects currently in process may be delayed but eventually completed. We are optimistic that this short-term impact will not affect a pipeline of projects nor the long-term momentum of market adoption of HIFU and its numerous benefits for patients, most notably quality of life preservation. We've been actively working with and communicating with key pipeline stakeholders through webinars and online training sessions that were very well attended by urologists as well as our global network of agents and distributors. This has been extremely helpful in maintaining our pipeline and has even added some new prospects along the way. There are signs in certain European markets of an easing of restrictions that were put in place during the pandemic. If this continues, it would be very good news for us as we have maintained in inventory several devices and accessories that are ready to ship. Hospitals and staff who just a short time ago were dedicated 100% to fighting COVID-19, will once again be able to perform more elective procedures and evaluate new technologies. On another note, we've done our best to protect and keep safe our employees around the world, providing them the ability to work remotely and have the necessary equipment to be effective in quickly addressing the needs of both customers and partners. We also have organized our manufacturing operations so that we could create a high level of inventory before the worst of the crisis. Notably, as restrictions are gradually being loosened in France, we have partially resumed manufacturing activities at a French factory with all possible safety precautions in place. We believe we are well positioned to resume delivery activities as soon as that becomes possible, Thank you, Marc, and good morning everyone.