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spk08: Greetings and welcome to the EDAP TMS first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, John Francis from Lifestyle Advisors. Thank you, John, and you may begin.
spk09: Good morning. And thank you for joining us for the EDAP TMS First Quarter 2022 Financial and Operating Results Conference Call. On today's call, we will hear from Mark Oksuchowski, Chief Executive Officer and Chairman of the Board, Ryan Rhodes, Chief Executive Officer of EDAP U.S., and Francois Adige, 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. I would now like to turn the call over to EDAP's Chairman and Chief Executive Officer, Mark Oksuchowski. Mark?
spk06: Thank you, John, and good morning, everyone. I will start by providing a brief personal update before turning the call over to Ryan Rhodes, our EWS Chief Executive Officer, for a review of the U.S. business and strategy, and then Francois Ditch, our CFO, will present a financial performance. I will start by recapping a few of the highlights. For the quarter, we generated total revenue of 13 million euros, or $14.5 million, representing an increase of 26%, as compared to Euro 10.3 million or $12.4 million in the first quarter of 2021. The increase was driven by a very strong capital quarter, particularly in the U.S. We sold four Focal One robotic HIFU units during Q1 of 2022, as compared to zero in the year-ago period. Three of those sales occurred in the U.S., and one was OUS. We also sold nine exact units as compared to five in the year-ago period. By any measure, the first quarter was a very strong start to the year due to the investments we've made in our US team and infrastructure last year. I'm excited about the opportunity in front of us in 2022 and beyond. At this point, I would also like to provide an update on our expansion activities where we believe HIFU can have clinical utility and indications outside of prostate cancer. As a reminder, we are running a phase two study evaluating HIFU using the 4K1 robotic platform for the treatment of deep infiltrating endometriosis. We announced on our last quarterly update that we completed enrollment and patient treatments, so we are in the six-month follow-up period that will likely conclude at the end of September of this year. Investigators are evaluating the safety and efficacy of HIFU for this pathology. As we said before, we believe the treatment of endometriosis may be greatly improved and the use of HIFU technology could offer an important minimally invasive treatment option for these patients. The alternative for these patients is often an extensive surgical removal of the bowel. We look forward to results from this important study as HIFU could really add significant value in the management of complex endometriosis, for which there are no currently effective minimally invasive options. With over $51 million of cash, we are well-financed to continue to execute our U.S. growth and expansion plans, while in parallel exploring these and other clinical expansion opportunities. At this point, I would like to turn the call over to Ryan Rhodes, CEO of EDAP-US, for an update on our U.S.
spk05: operations. Ryan?
spk02: Thank you, Mark. As we pre-announced on April 12th, the first quarter of 2022 was very successful for us in terms of additional focal one and exact view placements in the U.S. As stated, we sold three focal one machines. Notably, all three sales occurred at prestigious academic and integrated health network reference centers to include New York Presbyterian Weill Cornell Medical Center, Beth Israel Deaconess Leahy Health, an affiliate of Harvard Medical School, and University of California Davis Medical Center in Sacramento. University of California Davis represents the company's fourth placement within the University of California health system, following earlier placements at UC San Francisco, UC Irvine, and UC San Diego. These results are a result of our progress in further penetrating both groups of very large and very prestigious network hospitals In addition, we announced the sale of five XactView micro ultrasound systems in the U.S. during this quarter. Taking together, this was a record quarter for capital equipment sales for the company and reflects the tireless work of the world-class team that we have assembled in the U.S. Another strong leading indicator, of course, is our sales pipeline. Not only does it continue to grow in terms of absolute dollar value, but more and more that is comprised by community hospitals in addition to academic medical centers. This is not surprising as the vast majority of hospitals in the U.S. are community hospitals, but it is also indicative of the growing acceptance of focal therapy as a leading treatment option within the urology suite at hospitals of all sizes. Just a few days ago, we had a notable presence at the annual meeting of the American Urological Association, or AUA, which is the largest annual gathering of urologists worldwide. We exhibited and showcased focal one, and it was a featured topic during both plenary presentations and instructional courses. In addition, several leading academic medical centers were on hand to give presentations on the growing acceptance of focal therapy in the management of prostate cancer. During the meeting, we supported an accredited AUA course hands-on skills training which taught urologists how to implement focal treatments in their practice while allowing them to utilize focal one under the guidance of expert faculty. Additionally, ExactView micro-ultrasound was also featured in three sessions of skills enhancement workshops led by highly experienced urologists. This year's meeting was the most significant presence that we as a company have ever had at AUA. And we believe it is a function not only of the growing acceptance of focal therapy as part of a comprehensive prostate cancer treatment paradigm, but also a reflection of our technological leadership position with the most advanced platform available on the market today. Turning to our U.S. team, as I indicated last quarter, we closed 2021 with a right-sized team capable of strategically covering multiple geographies. This gives us the ability to actively engage the many leading institutions in 22 of the 25 largest MSAs in the U.S. The profile of our capital team is universally made up of sales professionals with a proven track record in selling disruptive medical capital equipment. And I'm very pleased at the quality of this team and have been impressed with the speed from which they have ramped up while making a significant impact on our business. On the clinical sales side, the new clinical sales managers that we added were responsible for driving utilization within existing customer accounts have also had an immediate impact. In summary, overall, I'm very pleased with the trajectory of the U.S. businesses on. And while we are not disclosing or discussing Q2 results today, we did enter the second quarter with continued sales and utilization momentum. And now our CFO, Francois Dietsch, will provide some details on our financial results. Francois?
spk04: Thank you, Ryan, and good morning, everyone. Please note that all figures except for percentages are in euros. For conversion purposes, our average euro-dollar exchange rate was 1.1177 for the first quarter of 2022. Total revenue for the first quarter of 2022 was €13 million, a 26% increase as compared to a total revenue of €10.3 million in Q1 2021, reaching a new record level for the first quarter. Looking at revenue by division, total revenue in the IFU business for the first quarter of 2022 was €3.8 million, as compared to 1.8 million for the first quarter of 2021, which represents a 103% increase. We sold four 4K1 units in the first quarter of 2022 versus zero in the first quarter of 2021. Total revenue in the little business for Q1 2022 was 2.2 million euros as compared to 2.9 million euros for the first quarter of 2021. We saw one metatrixy device during the first quarter of 2022 versus six in the year-ago period. Total revenue in the distribution business for the first quarter of 2022 was 7 million euros as compared to 5.6 million euros in Q1 2021. The 24% increase was primarily driven by nine exact GDNs sold during the first quarter of 2022. as compared to 5,000 listed during the first quarter of 2021. Gross profit for Q1 2022 was 5.8 million euros compared to 4.4 million euros for the year-over-period. Gross profit margin and net sales was 44.3% in the first quarter of 2022 compared to 42.4% in the year-over-period. The increase in gross margin In gross profit margin and net sales was primarily due to the higher sales impact on six costs. Operating expenses were 5.9 million euros for the first quarter of 2022 compared to 4.1 million euros for the same period in 2021. The increase was driven by the ongoing build-out of our U.S. team and commercial infrastructure and included 0.6 million euros of non-cash impact related to share-based compensation programs. Operating loss for the first quarter of 2022 was €0.1 million compared to an operating profit of €0.2 million in Q1 2021. Excluding the impact of non-cash share-based compensation programs, operating profit for Q1 2022 would have been €0.5 million compared to an operating profit of 0.3 million euros in Q1 2021. Net income for the first quarter of 2022 was 0.4 million euros, or 1 cent of euros per diluted share, as compared to a net income of 0.8 million euros, or 3 cents of euros per diluted share, in the year-over-period. As of March 31, 2022, The company had cash and cash equivalents of 46.4 million euros or 51.6 million US dollars as compared to 47.2 million euros or 53.4 million US dollars as of December 31, 2021. And I will now turn the call back to Mark.
spk06: Thank you, Francois. In summary, we are very pleased with our performance in the first quarter. and I believe this sets up for a very successful year. Both U.S. capital placements and treatment volumes continue to reflect the efforts of Ryan and his team, and I believe they are just scratching the surface in what is clearly our most important market and opportunity. I look forward to our next quarterly update in August. We will now open the call to your questions. Operator?
spk08: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hand step before pressing the star keys. One moment please while we poll for questions.
spk10: Thank you.
spk08: Our first question comes from Frank Pakenin with Lake Street Capital. Please proceed with your question.
spk01: Great. Mark, Ryan, Francois, congrats on the results. A couple for me today. I wanted to start with some comments around the funnel. Appreciate the update there and the call out for the mix of community hospitals in there. So maybe a two-parter. Maybe could you speak to the growth in the dollar value of the funnel and versus maybe last quarter and last year? And then two, how has that mix on a dollar value basis shifted between community and academics over the last year?
spk02: Yeah, so we've got a very strong pipeline. I think we've referenced that on this call and we continue to add new centers into that pipeline. I would say, you know, coming off the AUA, which was a great event for the company, we continue to see added interest both from the academic centers and community hospitals. So I still think you'll see a lot of movement on the academic side because they have a strong anchor in treating prostate cancer patients. They also have some of the more robust programs in terms of providing active surveillance as an option for men diagnosed with prostate cancer. And this fits very nicely into the treatment pathway for many of these patients. So I would say just looking backward, we're going to see more activity in the community hospitals. Our pipeline is made up of both academic centers, regional cancer centers, and, of course, community hospitals. So I think as we look outward, obviously, more activity in community hospitals over time, but I think we have an equal mix in both academic and community.
spk01: Okay, that's helpful. And then maybe talking to regular or irregular seasonality of the business. If I remember correctly, I think Q1 is normally the weakest for all business lines, but obviously Q1 was nowhere near weak this year. So I was just curious if you could comment on any seasonality expectations for 2022? Do you expect Q1 to carry its regular cadence of being the lightest quarter normally of the year with Qs 2, 3, and 4 growing off of the baseline set with Q1?
spk06: Well, on our business and historically speaking for EDAP in ourselves, Q1 is not the weakest. Q3 is usually where it slows down before getting back to a lot of activities in Q4. So I would say Q1, Q2 are usually, you know, kind of equal. Then Q3 is a little bit lower, and Q4 is strongest. So that's the seasonality. And we'll see. And, again, as we're ramping up and as we're growing significantly, as you could see and hear today, our U.S.
spk05: business, this may affect a little bit as well the seasonality as it is usual.
spk01: Okay. And then maybe just last one for me. I know this was talked about on the last. earnings call that wasn't that long ago. But any update on CMS conversations, I think we're waiting for a preliminary read in July, which would set the stage for a final read or decision in around the fall time on whether or not you'll be upgraded to APC level six. I think there was some data review going on too. So any comments you can provide on there or any update on your latest thinking around APC level six eligibility?
spk02: Yeah, so as mentioned before, we had a call with CMS back in the middle of February, and it was a good discussion. One of the things we were probing at is to understand if they would be looking at the 2021 data to factor in their proposed rule. With that said, we never got confirmation from them. However, if you look at the inpatient proposed rule, that was awarded, the inpatient proposed rule was based on 2021 data. And why I reference this is the 2021 data shows an increase in procedures and an increase in hospital reported cost, which puts us closer to the payment of APC-6 versus where we're at today at APC-5. Again, I remain guarded optimistic, and we'll know in July with the proposed rule coming out where we stand. We've done everything on our side to work efficiently and effectively with CMS, and we'll have to sit tight and be patient to see what may play out. I will also highlight, and very important, we continue to sell and place systems today based on the reimbursement that is current in the market. We have full reimbursement today. We have a CPT code. We have a facility payment. We have a professional fee payment. And as noted here, we are selling and placing systems with the current reimbursement. But we will see what happens in July.
spk10: Okay. Really helpful. Congrats on a strong start to the year. Thanks. Thanks, Frank.
spk08: Thank you. Our next question is from Jason Bednar with Piper Sandler. Please proceed to your question.
spk07: Hey, good morning. Thanks for taking the questions. This is Joe. I'm for Jason, and congrats on a nice start to the year here. Yeah, so on the OpEx side, the spending level trailed what we were expecting yet again in the first quarter, and you're clearly demonstrating strong commercial progress even without taking OpEx even higher than you have. And your current commentaries that measured investments will continue to be made. But what's the right way we should be calibrating ourselves and thinking about the growth of OPEX in the context of top-line growth that's running at a 15% to 20% plus rate? Thanks.
spk06: Yeah, as commented by Francois during the call today, we increased our operating expenses as, again, we're building the company here in the U.S. And, again, that's an ongoing process. So, as we get on board more people, more salespeople, more marketing and clinical people here in the U.S., we'll definitely increase the OPEX, and that will be seen in our P&L in the next quarters. So, again, we're in a moving situation. We're not just adding a few people last year. I mean, Ryan has brought on board a number of talented, world-class people during the first quarter, and they came back. They didn't all come at the same time, and we are continuing here to hire, again, first-in-class people to help develop and grow the market in the U.S.
spk05: So that will continue to increase indeed.
spk07: Great. Thanks. That's real helpful. And then one more from us. Yes, on the balance sheet, I did want to ask, it looks like your inventory levels moved lower than what we've seen over the past couple years. Was this a purposeful drawdown as you're managing working capital more efficiently? Was there any timing element at play here, or was this at all a function of supply chain or sourcing headwinds eating into some of the safety stock you might normally carry? Thanks.
spk05: Well, no, I mean, nothing much to say there.
spk06: I mean, we're, as usual, digitally work on our supply, manufacturing, and inventory, so we're trying to be as effective as possible.
spk10: Fair. Thanks a lot. Appreciate the answers. Thanks, John.
spk08: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from Dwayama Pakula, Ramakant, with HC Wainwright. Please proceed with your question.
spk03: Thank you. This is RK from HC Wainwright. Good morning, Mark, Ryan, and Francois. Congratulations on a great start for 22. So Mark, Focal One has been in the U.S. market for about four years now, almost to the date. So during this time, and obviously, tremendous work has been put into commercialization of Focal One. Can you comment on the time it is taking these days from a lead to a final purchase, how has that time been trending? Is it getting better by the quarter? Just want to get a feel for things so that we can have an idea about the trajectory of placements from here onwards.
spk02: Yeah, RK, I'll answer that. You know, we see, you know, the time from interest to time of closing a deal, it can span several months or longer. I think what's really been impactful is obviously having a built-out sales team on the capital side. So our regional business directors now, we've got a well-led team by a notable vice president, Scott Finger, and we've got that team working now trained up, active in their accounts, covering their geographies. So, you know, again, there's always nuances in terms of sales cycle times. And I can't even give you an average, but I will say that there are some hospital systems that see the strategic value of focal therapy in the treatment of prostate cancer. And as mentioned, we are best-in-class technology. So when hospitals are looking at adding focal therapy strategically and they recognize the clinical value and even the economic value, if we get in front of the right people, those sales cycle times come down in terms of duration. So I would say that over time, it would be fair to say that the cycle times would become shorter. But if you look at the law of averages, some deals take longer, some can move very quickly. sometimes the community hospitals will move very fast because they're used to buying disruptive medical equipment and they understand the strategic value. So I think as we build out more of a mix, the cycle times will come down. But we are a premium-priced product. We have best-in-class technology. And I think when customers look at us as a company and look at our product, they want our product. And a good gauge of that was the interest that we had just here this past week at AUA. So we're very excited as we look throughout the rest of 2022 and beyond, and we'll continue to focus heavily on our commercial growth strategy.
spk03: Fantastic. Thank you very much, Ryan, for that. And then on the – any commentary you can provide on the procedure volume, you know, just to get – flavor for the utility of the unit over the last year, year and a half because coming out of COVID has the number of cases been increasing, same. I'm just trying to understand how that's working out for you folks. Obviously, that impacts other pieces within the revenue lines.
spk02: Yes, RK. So we continue to see growth, sequential growth, quarter over quarter, double-digit growth. And we would continue to obviously see more centers coming online. We're training more doctors today as we place more systems. But we're also training additional doctors at current install sites. And I think that's a good sign, meaning more are interested in using technology and have identified a subset of patients who are ideal candidates for follicle therapy. So again, as mentioned, we continue to see sequential growth, double-digit growth, quarter over quarter.
spk03: Perfect. The last question for me is for the long-term utility of the platform. So Mark, you kind of gave a teaser out there saying that you're looking at other indications outside of endometriosis. Is it too early for you to comment on what such indications could be or you could give something now?
spk06: No, no, actually we discussed that on the last quarterly conference call. We're also working on expanding into a BPH treatment. As I said last time, we did the two first patients in Lyon two months ago and we also are exploring working on pancreatic cancer as we said but it's on a very early stage animal study so far so we're engaging in various other indications again to get to a full multi-application robotic hypo platform on the long term as the vision of the company.
spk03: And then on the endometriosis itself as you said you would be able to get some data later this year. So, which is the smaller phase two study at this point. How soon can you transfer from there into a larger study? And, you know, is there any way you can talk about how large of a study you could be doing in the endometriosis indication itself?
spk06: Yeah, as I said earlier today, we will be at the end of the fall period in September, so we might be able to get some analysis and data disclosed by the end of the year on that study. And as we said as well in the past, we will continue to build clinical studies and potentially a phase three study will get started in the next month to come. So we continue to move in the clinical evidence space in building the clinical evidence of that indication with HIFU.
spk03: Perfect.
spk10: Thank you, gentlemen, and thanks for taking all my questions. Thanks, Ake.
spk08: Thank you. There are no further questions at this time. I would like to turn the floor back over to Mark Akuzakowski for any closing comments.
spk05: Okay. Well, that concludes our call this morning. Thank you again for your interest in EDAP, and have all a good day.
spk10: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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