Earnings Call Transcript - EDAP Q1 2022

Operator, Operator

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. As a reminder, this conference is being recorded. It is now pleasure to introduce your host, John Fraunces, from LifeSci Advisors. Thank you, you may begin.

John Fraunces, Host

Good morning and thank you for joining us for the EDAP TMS's first quarter 2022 financial and operating results conference call. On today's call, we will hear from Marc Oczachowski, Chief Executive Officer and Chairman of the Board; Ryan Rhodes, Chief Executive Officer of EDAP US; 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'd now like to turn the call over to EDAP’s Chairman and Chief Executive Officer, Marc Oczachowski. Marc?

Marc Oczachowski, CEO

Thank you, John and good morning, everyone. I’ll start by providing a brief personal update before turning the call over to Ryan Rhodes, our EDAP US Chief Executive Officer for a review of the US business strategy, and then Francois Dietsch, our CFO will present our financial performance. I will start by recapping a few of the highlights. For the quarter, we generated total revenue of EUR 13 million or $14.5 million, representing an increase of 26% as compared to EUR 10.3 million or $12.4 million in the first quarter of 2021. The increase was driven by a very strong quarter, particularly in the US. 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 US and one was outside the US. We also sold nine ExactVu 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 and our clinical utility in indications outside of prostate cancer can be greatly enhanced. As a reminder, we are running a Phase II study evaluating HIFU using the Focal One 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 technology. As we said before, we believe that 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 currently no effective, minimally invasive options. With over $51 million of cash, we are well financed to continue to execute our US 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 US operations. Ryan?

Ryan Rhodes, CEO of EDAP US

Thank you, Marc. As we pre-announced on April 12th, the first quarter 2022 was very successful for us in terms of additional Focal One and ExactVu placements in the US. As stated, we sold three Focal One machines. Notably, all three sales occurred at prestigious academic integrated health network reference centers including New York-Presbyterian/Weill Cornell Medical Center, Beth Israel Deaconess Lahey Health, an affiliate of Harvard Medical School, and University of California Davis Medical Center in Sacramento. University California Davis represents our fourth placement within the University of California Health System. Following earlier placements at UC San Francisco, UC Irvine, and UC San Diego. These results indicate our progress in further penetrating both groups of very large and very prestigious network hospitals. In addition, we announced the sale of five ExactVu micro ultrasound systems in the US during this quarter. 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 US. 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 of it is comprised of community hospitals, in addition to academic medical centers. This is not surprising, as the vast majority of hospitals in the US are community hospitals, but it is also indicative of the growing acceptance of focal therapy as a leading treatment option within urology suites and hospitals of all sizes. Just a few days ago, we had a notable presence at the Annual Meeting of the American Urological Association, 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, with 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, ExactVu 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 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 US 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 with many leading institutions in 22 of the 25 largest MSAs in the US. 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 with the quality of this team, and I've 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 are responsible for driving utilization within existing customer accounts and have also had an immediate impact. In summary, overall, I'm very pleased with the trajectory of the US business, 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?

Francois Dietsch, CFO

Thank you, Ryan. And good morning, everyone. Please note that our figures, except for percentages, are in euros. For conversion purposes, our US dollar exchange rate was 1.1177 for the first quarter of 2022. Total revenue for the first quarter of 2022 was EUR 13 million, a 26% increase as compared to a total revenue of EUR 10.3 million in Q1 2021, reaching a new high for our first quarter. Looking at revenue by division, total revenue in the HIFU business for the first quarter of 2022 was EUR 3.8 million as compared to EUR 1.8 million for the first quarter of 2021, representing a 112% increase. In Q1 2022, we sold four lithotripsy devices versus zero in the first quarter of 2021. The total revenue in the LITHO business for Q1 2022 was EUR 2.2 million as compared to EUR 2.9 million for the first quarter of 2021. We sold one lithotripsy 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 EUR 7 million as compared to EUR 5.6 million in Q1 2021. This is a 24% increase, primarily driven by nine ExactVu units sold during the first quarter of 2022 as compared to five units sold during the first quarter of 2021. Gross profit for Q1 2022 was EUR 5.8 million compared to EUR 4.4 million for the year-ago period. Gross profit margin on net sales was 44.3% in the first quarter of 2022 compared to 42.4% in a year-ago period. The increase in gross profit margin and net sales was primarily due to the higher sales effects on fixed costs. Operating expenses were EUR 5.9 million for the first quarter of 2022 compared to EUR 4.1 million for the same period in 2021. The increase was driven by the ongoing build-out of the US team and commercial infrastructure and included EUR 0.6 million of non-cash impact related to share-based compensation programs. Operating loss for the first quarter of 2022 was EUR 0.1 million compared to an operating profit of EUR 0.2 million in Q1 2021. Excluding the impact of non-cash share-based compensation programs, operating profit for Q1 2022 would have been EUR 2.5 million compared to an operating profit of EUR 0.3 million in Q1 2021. Net income for the first quarter of 2022 was EUR 0.4 million or EUR 0.01 per diluted share, as compared to a net income of EUR 0.8 million or EUR 0.03 per diluted share in the year-ago period. As of March 31, 2022, the company held cash and cash equivalents of EUR 46.4 million or US $51.6 million as compared to EUR 47.2 million or US $53.4 million as of December 31, 2021. And I will now turn the call back to Marc.

Marc Oczachowski, CEO

Thank you, Francois. In summary, we are very pleased with our performance in the first quarter, and I believe this sets us up for a very successful year. Both US capital placements and treatment volumes continue to reflect the thoughts 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?

Operator, Operator

Our first question comes from Frank Takkinen with Lake Street Capital.

Frank Takkinen, Analyst

Great. Marc, 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. Could you speak to the growth in the dollar value of the funnel versus 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?

Ryan Rhodes, CEO of EDAP US

Yes, so we've got a very strong pipeline, as we've referenced on this call, and we continue to add new centers into that pipeline. I would say, coming after AUA, which was a great event for the company, we continue to see added interest from both academic centers and community hospitals. So I still think you'll see a lot of movement on the academic side, as 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. This fits very nicely into the treatment pathway for many of these patients. 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 of both academic and community.

Frank Takkinen, Analyst

Okay, that's helpful, and then maybe talking about regular or irregular seasonality of the business. If I remember correctly, 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 of the year with Q2, 3 and 4 rolling off the baseline set with Q1?

Marc Oczachowski, CEO

Well, in our business, historically speaking, Q1 is not the weakest; Q3 usually slows down before getting back to a lot of activities in Q4. So we see Q1 and Q2 as usually kind of equal, with Q3 being a little low and Q4 the strongest. That's the seasonality. We'll see. And again, as we're ramping up and as we are growing significantly, as you could see and hear today, our US business, this may affect the seasonality as usual.

Frank Takkinen, Analyst

Okay, and then maybe just the last one for me. I know this was talked about on the last earnings call, but any update on CMS conversations? We think we're waiting for a preliminary read in July, which would set the stage for a final read in around the fall on whether or not you'll be upgraded to APC Level 6. Any comments on that?

Ryan Rhodes, CEO of EDAP US

Yes, so as mentioned before, we had a call with CMS back in mid-February. It was a good discussion. One of the things we were probing was 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, it was based on 2021 data, which shows an increase in procedures and hospital-reported costs, putting us closer to the payment of APC 6 as opposed to APC 5. So again, I remain cautiously optimistic, and we'll know in July with the proposal coming out where we stand. We've done everything on our side to work efficiently and effectively with CMS. But we will have to sit tight and be patient to see what may play out. I will also highlight that we continue to sell and place systems today based on the current reimbursement in the market. We have full reimbursement today with the CPT code and facility payment, and we are placing systems with the current reimbursement while we await the outcome in July.

Operator, Operator

Our next question comes from Jason Bednar with Piper Sandler.