EDAP TMS S.A. (NASDAQ:EDAP) Q4 2022 Earnings Call Transcript

EDAP TMS S.A. (NASDAQ:EDAP) Q4 2022 Earnings Call Transcript March 30, 2023

Operator: Ladies and gentlemen, greetings, and welcome to the EDAP TMS Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Fraunces, Managing Director of Life Advisors. Please go ahead.

John Fraunces: Good morning. Thank you for joining us for the EDAP TMS fourth quarter and full year 2022 financial and operating results conference call. On today’s call, we’ll hear from Marc Oczachowski, Chief Executive Officer and Chairman of the Board; Ryan Rhodes, Chief Executive Officer of EWS; 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, Marc Oczachowski. Marc?

Marc Oczachowski: Thank you, John, and good morning, everyone. I’ll start by providing some operational highlights of our fiscal year 2022 and then turn the call over to Ryan Rhodes, our EDAP U.S. Chief Executive Officer; who will review our U.S. business and strategy. Our Chief Financial Officer, Francois Dietsch, will then present our financial performance. Thanks to the continued hard work of our dedicated employees and the growing acceptance of our technology, 2022 was a great year for setting new records at EDAP. During the fourth quarter, we generated record revenue of €15.7 million or $16.2 million for the year. And we announced record revenue of €55.1 million or $58 million, representing year-over-year growth of over 25%.

Without question, our strong top line performance was driven by our high intensity focused ultrasound, or HIFU, segment that grew by 58% compared to 2021. The HIFU growth was particularly strong in the U.S. as Ryan and his team continued to execute by expanding the number of medical centers that are now using our therapeutic ultrasound solutions Focal One Robotic Focal HIFU. As the global leader in therapeutics HIFU, EDAP enjoys a significant technology advantage in the marketplace. And we continued strong market execution, we anticipate momentum in the form of increased in placements and utilization will continue throughout 2023. Our Distribution segment also performed very well during the fourth quarter. We sold 11 ExactVu units during the quarter as compared to nine in the fourth quarter of 2021.

This is concluding a strong year for the ExactVu business as we doubled our system sales as compared to 2021. I’d now like to provide an update on our pipeline, where we continue to make significant progress in demonstrating the utility of therapeutics HIFU beyond prostate cancer. In January, we announced positive clinical results from the end of HIFU Phase 2 study, evaluating the safety of therapeutics HIFU for the treatment of rectal endometriosis. Results from the trial serve to validate the safety of Focal One HIFU treatment in this difficult and challenging endometriosis population. The study enrolled 60 patients across four centers in France between August 2020 and March ’22. And the results were based upon the six months follow-up evaluation post-HIFU treatment.

Study coordinator Professor, Gil Dubernard, of Croix-Rousse University Hospital in Lyon, France presented results from the study on January 27 at the Paris Santé Femmes French Congress in Lille, France. As previously announced, treatment with Focal One resulted in significant improvements in endometriosis symptoms and quality of life. In addition, the treatment had a very positive safety profile with 96.7% of patients with no or non-significant adverse event. Finally, the study also blindly evaluated the evolution of nodule volume via MRI, and a significant prediction of the volume of lesions was observed at six months. Based on these positive safety and preliminary efficacy data, we intend to complete the efficacy of Focal One HIFU treatment in rectal endometriosis by initiating a Phase 3 study in the second quarter of ’23.

As a Level 1 study, this trial will be a multi-center, double-blind, randomized, controlled clinical trial that will enroll 60 subjects across eight centers in France with 30 subjects randomized to each group. The primary efficacy endpoint is acute pelvic pain three months post-procedure. If successful, this reversely designed study will provide a strong clinical evidence to-date, demonstrating the utility of parabolic HIFU to address this painful and debilitating condition. As a reminder, the part of care treatment of deep infiltrating endometriosis typically involves surgical resection of the bowel or rectum, which is a highly invasive procedure that presents risk to the patients along with significant recovery rate time. We believe the use of our Focal One Robotic HIFU technology could greatly improve the treatment of complex endometriosis by offering patients a less invasive treatment option without the mobility and possible side effects associated with surgery.

We look forward to the results from this important study. As we execute on our commercial strategy and grow our pipeline, we are doing so from a position of increasing financial strength. We ended the year with $67.5 million in cash, which is practically unchanged from the prior quarter. As our business continues to grow, both with respect to increased system placements and higher utilization, we expect to maintain a strong balance sheet while making an appropriate level of investment to further drive top line growth and expand operating margins. As announced earlier today via our press release, the Board of Directors have decided to change the leadership of the Company to further develop EDAPs global growth strategy focusing particularly on its continued extension in the United States and in the rest of the world market.

The Board has therefore appointed Ryan Rhodes, Chief Executive Officer of EDAP TMS, effective May 1, 2023, to lead, strengthen and accelerate this important global commercialization strategy. The Company has now reached an important inflection point in its growth trajectory and needs a strong, focused and aggressive strategy to the executive, the Board of Directors and myself are confident that Ryan has the capability, the experience and skills to lead this new and higher state of development for EDAP and HIFU adoption. I am pleased and committed in continuing to serve as Chairman of the Board of the Company. At this point, I would like to turn the call over to Ryan Rhodes for an update on our U.S. operations and activities. Ryan?

Ryan Rhodes: Thank you, Marc. I first want to say thank you to both Marc and all the EDAP Board members for their confidence my abilities to lead EDAP as the worldwide CEO. As stated, we are focused on an important mission of growth to expand both in the U.S. and in outside U.S. markets. I take personal pride in leading our global teams as we embark together in alignment to further establish EDAP’s strong position in the market. As a global leader in therapeutic HIFU, it is becoming increasingly clear that EDAP’s technology leadership, product offering, as well as customer support and distribution capabilities are all translating into increased recognition of Focal One Robotic HIFU as a leading non-invasive treatment option for men diagnosed with prostate cancer.

As a result, we continue to see ongoing market momentum across our U.S. business. The fourth quarter of 2022 clearly reflects this momentum as we completed a record of nine Focal One transactions, which included six unit sales and three operating leases. As we continue to demonstrate our technological leadership in therapeutic HIFU, we also expect to benefit from higher levels of reimbursement for Focal One procedures. As touched upon earlier, last year, the Centers for Medicare and Medicaid Services, or CMS, released the outpatient prospective payment system final rule on October 31, 2022. The final rule confirmed the upgrade of Medicare hospital payment for prostate HIFU to Ambulatory Payment Classification Level 6 from Level 5 previously, which translates to increased reimbursement of approximately 90% to, on average, $8,558 per procedure.

This appropriate increase in reimbursement officially went into effect on January 1, 2023 and should further serve to help drive a positive assessment of cost and ROI to centers who invest and offer Focal One procedures to their patients. As noted on our prior call that bears repeating, higher Medicare reimbursement can oftentimes result in higher reimbursement from commercial payers who typically follow CMS’ lead on such decisions. Also, as the global leader in therapeutic HIFU, we are constantly engaged in a multipronged strategy of educating clinicians, patients and providers on the benefits of our technology. Attending major medical meetings publishing peer-reviewed clinical data and sponsoring webinars and symposia are each critical components to this strategy.

During the fourth quarter, we attended several noteworthy meetings, including the Society of Urologic Oncology, SUO meeting, which was held in San Diego in early December. The SUO is a large group of leading neurologists whose mission is to collaborate in the care of patients with malignant genitourinary diseases, including patients diagnosed with prostate cancer. EDAP had the largest showing ever as a main exhibitor, given numerous hands-on treatment simulations highlighting the use of Focal One Robotic HIFU. In the area of clinical publications, on October 26, 2022, researchers led by Stefano De Luca from the University of Turin, Italy, published a paper in the peer-reviewed journal, Minerva Urology and Nephrology, entitled MRI real-time ultrasound image fusion guided high-intensity focused ultrasound, HIFU, a prospective comparative and functional analysis of different ablative techniques.

Highlights of the publication included the results from 100 patients who were treated with Focal One Robotic HIFU, all having a follow-up control biopsy at one year post treatment. The paper noted that 82% of the patients showed negative biopsy upon follow-up at one year, thus demonstrating excellent short-term cancer control. Also, the paper noted the procedural efficiency delivered by Focal One’s proprietary dynamic focusing technology, coupled with the system’s robotic capability, which resulted in operative times of only 55 minutes on average. Additionally, we hosted two high-impact peer-to-peer webinars in the fourth quarter, led by leading academic urologists from the University of California Los Angeles, UCLA, and the University of Miami.

One webinar was focused on the use of ExactVu Micro-Ultrasound for targeted prostate biopsy presented by Dr. Wayne Brisbane of UCLA. The other webinar was led by Dr. Bruno Nahar from the University of Miami, highlighting the role of Focal One Robotic HIFU technology in the management of prostate cancer. These webinars provide an excellent venue for thought-leading clinicians to present important new data and outcomes to a wider physician audience who are interested in adding these procedures to their clinical practice. As we look outward, EDAP will be hosting the first worldwide live-stream broadcast of the Focal One Robotic HIFU procedure performed by Dr. Andrea and Dr. Amir Lebastchi from the University of Southern California, USC, Keck School of Medicine.

This exciting global event will take place on April 18 at 12 noon Pacific Time. Please all plan to watch. For more information and to register, please visit focalone.com. Another important event will be EDAP’s participation at the upcoming meeting of the American Urological Association to be held in Chicago, Illinois from April 28 through May 1. The AUA is the largest gathering of urologists in the world with a defined focus in providing the latest advances in urologic medicine. EDAP will have its largest presence ever while exhibiting during this important scientific congress. We would certainly encourage any of our investors as well as interested clinicians to stop by our booth and to see our Focal One Robotic HIFU technology in action. Looking ahead, I remain very optimistic about our sales pipeline and our team’s ability to execute.

As of today, we were extremely busy and active in closing the last days of the first quarter. As such, we continue to see positive momentum with customer engagement and a strong interest from new customers in obtaining Focal One Robotic HIFU. In closing, I believe EDAP will continue to build on its ongoing success throughout 2023. And now our CFO, Francois Dietsch, will provide some details on our financial results. Francois?

Francois Dietsch: Thank you, Ryan, and good morning, everyone. And please note that all figures, except for percentages are in euros. For conversion purposes, our average euro-dollar exchange rate was 1.02 for the fourth quarter of 2022. Total revenue for the fourth quarter of 2022 was €15.7 million, a 12.5% increase as compared to total revenue of €40 million in Q4 2021. Looking at revenue by division. Total revenue in the HIFU business for the fourth quarter of 2022 was €5.4 million as compared to €4.2 million for the fourth quarter of 2021, an increase of nearly 28%. We sold seven Focal One units in the fourth quarter of 2022 versus five in the fourth quarter of 2021. Total revenue in the LITHO business for the fourth quarter of 2022 was €3.6 million as compared to €3.3 million for the first quarter of 2021, a 7.5% increase year-over-year.

We sold 11 lithotripsy devices during the first quarter of 2022 versus nine in the year ago period. Total revenue in the Distribution business for the fourth quarter of 2022 was €6.7 million compared to €6.4 million for the first quarter of 2021. The 5% increase was primarily driven by 11 ExactVu sold during the first quarter of 2022 as compared to nine units sold during the first quarter of 2021. Gross profit for the first quarter of 2022 was €7.2 million compared to €6.2 million for the year-ago period. Gross profit margin and net sales was 45.9% in the fourth quarter of 2022 as compared to 44.5% in the year-ago period. The improvement in gross profit year-over-year was driven by the higher sales effect and fixed costs and the development of the HIFU division, which has better margins.

Operating expenses were €8.9 million for the fourth quarter of 2022 compared to €5.8 million for the same period in 2021. The increase was primary driven by the ongoing build-out of the U.S. team and commercial infrastructure. Operating loss for the first quarter of 2022 was €1.6 million compared to an operating income of €0.5 million in the first quarter of 2021. Excluding the impact of the non-cash share-based compensation, operating loss for Q4 2022 would have been €0.8 million compared to an operating income of €1.2 million in Q4 2021. Net loss for the fourth quarter of 2022 was €5.1 million or €0.15 of per diluted share as compared to a net income of €1.4 million or €0.04 of per diluted share in the year-ago period.

As of December 31, 2022, the Company had cash and cash equivalent of €63.1 million or $67.5 million compared to €47.2 million or $53.4 million as of December 23, 2021. I will now turn the call back to Marc.

Marc Oczachowski: Thank you, Francois. In summary, our strong fourth quarter results reflect increasing demand for our leading therapeutic HIFU solution, which addresses early intermittent state prostate cancer patients. This dynamic, coupled with significant improvement for reimbursement from CMS, will support our continued growth and expansion throughout 2023, as Ryan’s team continues to introduce Focal One to an increasing number of urology practices and cancer treatment centers in the U.S. I’m glad the Company is now embarking in a new era of leadership, which I am confident will bring its development and the adoption of HIFU to the next level. We will now open the call to your questions. Operator?

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Q&A Session

Operator: Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. Our first question comes from the line of Michael Sarcone from Jefferies. Please go ahead.

Michael Sarcone: First, I’d say, Marc, congrats on many years of successful execution, and Ryan, congrats on the new role.

Ryan Rhodes: Great. Thank you.

Michael Sarcone: You’re welcome. I guess just to start, for Ryan, as you think about transitioning to the new role, can you just give us an update on how you think about strategy, where the Company is now and what you will reinforce versus where you might change course?

Ryan Rhodes: Yes. I think from the strategy standpoint, obviously, looking at our playbook in the U.S. and our momentum and strategy there and does it cross-pollinate into outside U.S. markets, so I think looking at how we can bridge some of that success and bring it to regional markets outside the U.S. Obviously, a high focus is where we don’t have current distribution or approval yet to sell our flagship product, Focal One, that will be a high priority in those markets. Equally, our distribution business continues to perform well for us. And I’m excited when I look at our micro ultrasound product, ExactVu, and where it can grow in various country markets where we’re starting to distribute and/or sell that product. So I think a lot of it, in closing, is going to be taking kind of lessons learned from our markets in the U.S. and seeing where we can make an appropriate fit in — outside U.S. markets and work closely with our teams broad-based on driving a plan of success.

Michael Sarcone: Got it. Okay. And just one on the sales funnel in the U.S., can you talk about how that’s shaping up so far? You noticed you mentioned customers continue to indicate strong interest. I was just curious if you could elaborate a little more on that, the different types of accounts, maybe the size of those customers expressing interest and how you’re thinking about system placements in 2023?

Ryan Rhodes: Yes. So again, we see continued interest. Our pipeline is growing. And we see interest not only in the academic centers, and we’ve shown that we can sell effectively in those centers. But equally, we see the uptick in interest in community-based hospitals. So, we’ve worked them both categorically. And whether large or small, we look for early adopters that want to take advantage of the market momentum building around focal therapy. And again, we continue to add salespeople to our ranks. Our numbers are going up on the sales side, at least in terms of sales executives and as well as our pipeline growing. We’re winding down the first quarter. And I can say we’re delivering on the promise, meaning that we are delivering on the momentum we would expect to see as we embark on a strong 2023. We will continue to drive the market and take advantage also of the new reimbursement that went into place January 1.

Michael Sarcone: Great. And then just one last one from me. It doesn’t sound like you’re seeing any of this, but do you have any hospital — large or small, hospital customers that express some hesitancy around capital equipment expenditures? Just trying to get a sense for what you may be seeing there in terms of either hospital margin pressure and hesitancy to spend on a large ticket item.

Ryan Rhodes: Yes. Well, I think all hospitals will do their due diligence in terms of the economics. I think, again, as we’ve done in the past, we’ve been effective selling our technology to hospitals with the older reimbursement, call it. With the new reimbursement that went into place January 1, with the pro forma analysis done correctly, adding Focal One Robotic HIFU, they can show an immediate return on investment. And so, we behave differently, I think, in the capital equipment space. First of all, it’s a clinical necessity today to be considering focal therapy as an offering for men diagnosed with prostate cancer. Equally, the advantages with our technology and making the investment in the equipment, specifically HIFU, can generate new incremental patients to that individual hospital catchment market and paid well for the provider that is the hospital as well as the physician.