EDAP TMS S.A.

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. 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. 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'll hear from Mark Oksakowski, Chairman and Chief Executive Officer, and Francois Dietsch, Chief Financial Officer. Before we begin, I'd 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'd like to now turn the call over to EDAP's Chairman and Chief Executive Officer, Mark Oksakowski. Mark?

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 Francois Dietsch to review our financial performance. We made significant progress during the second quarter and subsequent period, 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 revenues. Total revenue in the quarter was 9.3 million euros or $10.3 million as compared to 12.5 million euros or $14 million in the second quarter of 2019. The year-over-year decline was in part due to lower HIFU device sales. We sold three 4.1 units and two ABSM units in the year-ago period versus two 4.1 units in the second quarter of this year. Sales of HIFU disposable also declined as we anticipated due to lower portfolio volumes during the quarter. Despite the negative impact 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 maintain our focus during these challenging times. We recently announced four focal-1 cells, three of which also included the XactView high-resolution micro ultrasound pollution that we are now marketing as a result of our partnership with XactImaging. Recall that 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 biases in real time. Using this technology, urologists can see details that evade other imaging modalities. They can use the exact view system to perform targeted biopsies, whether trans-rectal or trans-perineal, to confirm with a high success rate the suspicious lesions seen on the image. During the second quarter, we added Édouard Ayot University Hospital in Lyon, France, and Ochsner Medical Center in New Orleans, Louisiana, to our roster of highly regarded photo and hospital customers. Early in the first quarter, we completed another bundled sale to Mount Sinai Health System in New York, a well-renowned cancer center and influential reference site for the company. Also, earlier this quarter, we sold the focal one system to Keck Medical Center of University of South California, USC. Keck Medicine of USC was the first institution to adopt our first-generation hypersystem, Aglotherm, when the technology was cleared by the FDA in 2015 and has decided to upgrade to the latest generation HIFU by acquiring focal ones. We also signed three standalone ExactView purchase orders. These sales confirm that we are realizing the synergies that we envisioned when we announced the ExactImaging partnership in May. Together, these solutions represent the first end-to-end urology solution that can be used all the way from diagnosis to equipment. Our growing pipeline shows the value that urology has seen in this combined offering, and we look forward to announcing many more similar deals in the future. Trusted cancer diagnosis and treatment can only be delayed so long but ultimately must be addressed. Therefore, we remain optimistic that these Short-term impact will not affect the long-term momentum of market adoption of HIFU and its numerous benefits for patients, most notably quality of life preservation. Last quarter, we told you about the numerous online webinars and online training sessions that we held with urologists, agents, and distributors. These allow us to stay in front of these key stakeholders. We are carefully monitoring our key markets in the U.S. and elsewhere for signs of loosening of restrictions and to discount different countries at different levels of success. But I believe that none of this will affect our long-term mission, which is to make these technologies available to the broadest possible patient population. We continue to build inventories so that we are in a position to ship systems as soon as we are able to do safely. Turning now to reimbursement. You will recall last year we announced that the American Medical Association's CPT editorial panel, at its May 2019 meeting, accepted our application to establish a new Category 1 CPT code that would facilitate reimbursement for the ablation of malignant prostate tissue with HIFU technology. On August 12, CMS released the proposed rules for Hospital Outpatient Payment, or OPPS, and Physician Fee for 2021. Although these are proposed rules and TMS has the opportunity to make adjustments by December when they will release the final rule based on the comments they receive in the meantime, the proposed rule usually gives a fair indication where the payments will be the following year. On the hospital payment side, TMS proposes to maintain the HIFU procedure in the level 5 urology APC in 2021, This translates into a payment for a hospital performing a HIPAA procedure on a Medicare patient of around $4,500 at the national average, adjusted locally based on the weight index. This represents an increase of $256, or 6%, from the payment hospitals get today from Medicare for a HIPAA procedure.