Greetings. Welcome to the EDAP TMS Third Quarter 2021 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. Please note, this conference is being recorded. At this time, I'll turn the conference over to John Fraunces with LifeSci Advisors. John, you may now begin.

Thank you. Good morning and thank you for joining us for the EDAP TMS's third quarter 2021 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 would now like to turn the call over to EDAP's Chairman and Chief Executive Officer, Marc Oczachowski. Marc?

Thank you, John, and good morning, everyone. I will start by providing a brief operational update before turning the call over to Ryan Rhodes our new EDAP US Chief Executive Officer for a deeper dive into the US business and strategy, and then Francois Dietsch, our CFO will review our financial performance. I'll start by recapping a few of the highlights. Year-to-date revenue for the nine months ended September 30th was €30.1 million, or $35.9 million, representing growth of 14.4% over the first nine months of 2020. We were able to achieve this year-to-date results, notwithstanding, challenging headwinds created by the COVID pandemic. Total company revenue for the third quarter was €9.4 million or $11.1 million essentially flat with the year ago period. It is worth noting that both revenue and gross margins were impacted by machine placements that for logistical reasons were delayed into the first few days of the fourth quarter. This has happened in both our HIFU and ESWL business and in different regions of the world, including the US and Rest of the World. Had these deals closed during Q3 as anticipated, we would have shown year-over-year revenue growth in the third quarter. These delays resulted from COVID-related delays and restrictions, and were actually outside the company's control. The good news is that we started the very first days of Q4 by recognizing equipment sales in both our businesses. And we also added a strong pipeline of projects, on which our sales teams will focus as the fourth quarter is the most crucial quarter of the fiscal year for EDAP. Let's talk about recent sales. We were very pleased to announce a few notable Focal One placements since our last quarterly update, one of which occurred subsequent to the end of the third quarter. During the third quarter, we sold the Focal One device to the University of Washington, which is consistently ranked as the best healthcare institution in Washington State. More recently in early Q4, we sold the device to the University of California at San Diego. This represents our third UC placement following earlier sales at UCSF and UC Irvine. Later in the call, Ryan will elaborate on these placements as well as the broader progress of our pipelines. Regarding treatment volumes, a clear highlight continues to be the growth in US treatment volumes. Through the nine-month treatment volumes are up 68% over the same period in 2020. This is important for several reasons. First, as we had said before, growth in US treatment volumes is a leading indicator of growing adoption by urologists of Focal One HIFU as a prostate cancer treatment alternative. Second, we believe the growth in the US treatment volumes reflects the positive impact of HIFU category one CPT reimbursement code that went into effect on January 1 of this year. On the topic of reimbursements, CMS recently published the final Medicare Hospital Outpatient Prospective Payment System OPPS rule, which is set to go into effect on January 1, 2022. Despite the unanimous vote in favor of having HIFU reimbursement for malignant prostate tissue ablation upgraded to APC level 6, we acknowledge that the agency has elected to keep HIFU reimbursement at level 5 next year. It is worth noting that we have been operating at level 5 since 2019, and as such, we believe we can minimize the impact that decision will have on our sales of pipeline activities in 2022. At the same time, we have developed a comprehensive action plan to help demonstrate to CMS the value of HIFU technology and its clear benefits to Medicare patients, which is attracting interest among physicians. With this strategy in place, we remain confident that EDAP can secure increased facility reimbursement to level 6 starting in 2023. Regarding endometriosis, I will now provide a brief update on our endometriosis program. As a reminder, our Phase II study has so far enrolled a total of 38 women across five major hospitals in France, who will be assessed over a six-month follow-up period. We recently decided to increase total enrollment to 60 from 38 to strengthen the level of evidence brought by the study, as the initial enrollments tracked faster and smoother than what we anticipated. Investigators will evaluate the safety and efficacy of HIFU for this facility. We're extremely pleased to have Professor Sheldon Bernard from University Hospital in Croix-Rousse in Austin, Texas this week for the AGL Congress. Professor Bernard was invited by the Congress Scientific Committee this past Monday to present preliminary results from our endometriosis study. As a quick note, endometriosis was a major topic of focus during this year's conference, usually driving prevalence and impact on the health of so many women around the world. We believe the treatment of endometriosis could be greatly improved with applications of less invasive procedures and the use of HIFU technology will offer an important, minimally invasive treatment option for these patients. I will now turn the call over to Ryan, who will give us more details on our US operation and strategy. Ryan.

Thanks, Marc. I want to begin by stating why I came to EDAP and my enthusiasm for our ability to meaningfully improve the options for men facing prostate cancer. I worked closely with urologists over 18-plus years of my career both at Intuitive Surgical and before at Johnson & Johnson. Our understanding and ability to risk stratify and target prostate lesions has radically improved over the last several years. Focal therapy with high intensity focused ultrasound offers a non-invasive ablation treatment with excellent functional outcomes and benefits. Focal One robotic HIFU is the most advanced platform for precise targeting of prostate tissue and that's why it's been adopted by many leading centers for urologic oncology in the United States. Before getting into our sales and market development activities, I want to elaborate further on the reimbursement issue that Marc touched upon. Earlier this month, CMS published its final rule governing hospital outpatient reimbursement rates for calendar year 2022. Recall that Focal One is currently reimbursed under HCPCS code 55880, ablation of malignant prostate tissue, transrectal, with high intensity focused ultrasound including ultrasound guidance, which is currently set at an APC level 5 reimbursement. In August, the CMS advisory panel on hospital outpatient payment voted unanimously in favor of increasing reimbursements for HIFU prostate ablation APC level six for the following year. However, while the panel serves only as an advisory board to CMS, we viewed the unanimous vote as a sign of increasing recognition of the value of HIFU relative to other prostate cancer procedures. Due to a variety of factors, most notably the significant impact of COVID on the US healthcare system in 2020, the agency continued to rely on 2019 claims data when establishing 2022 reimbursement rates. Given the impact from the pandemic, the agency determined that 2020 claims would not represent the utilization or costs that would be observed in a normalized non-COVID environment. Although HIFU will continue to be reimbursed at level five, which in 2022 will equate to about $4,527 per procedure, we believe that when more current claims data is analyzed, a higher level six payment will be deemed more appropriate. It is worth noting that we have successfully operated at level 5 payments since 2019. Over this time, we have seen Focal One adopted by several highly regarded US urology centers and we have continued our ongoing focus to place Focal One in many more centers over the next year. We've seen this momentum over the past several months with additional urology programs adopting Focal One. Recently, University of Washington Medicine purchased the Focal One becoming the first institution to offer patients robotic Focal HIFU in the Pacific Northwest. Just subsequent to the end of the third quarter, we sold the Focal One system to the University of California at San Diego. Recall that we previously announced Focal One placements at University of California, San Francisco and University of California, Irvine. So, this latest sale to San Diego represents continued penetration amongst the major academic medical centers in California. Both University of Washington and UC San Diego are just two of 35 approved fellowship programs for the Society of Urologic Oncology. These hospitals add to the growing list of renowned medical centers that we count as customers and, just as importantly, can also act as reference centers that can champion our HIFU technology. Another highlight of the quarter was the American Neurological Association Annual Scientific Meeting where several sessions presented growing clinical evidence supporting focal ablation of prostate tissue utilizing our Focal One technology. Of note, Dr. Baco and his colleagues presented interim analysis of a randomized controlled trial evaluating focal ablation versus radical prostatectomy for intermediate risk prostate cancer. The interim data suggests that one year post-treatment, Focal One achieved good oncologic efficacy and preserved erectile function and urinary continence better than radical prostatectomy. Another highlight was the HIFI study by Dr. who presented cancer outcomes over two years for localized prostate cancer in Grade Group 1 and 2 patients. They concluded favorably of HIFU with Focal One over radical prostatectomy, as reflected in the intermediate results from data at 42 centers when compared to salvage-treatment-free survival rates at 24 months. Turning now to our U.S. infrastructure, we are continuing to build out the U.S. team, including regionally focused business directors and both business and clinical managers, who are separately responsible for driving capital sales and utilization within existing accounts. These additions are already having an impact as we continue to grow our pipeline. Additionally, we are also seeing a positive impact on utilization at existing installations, as those institutions build momentum with our programs. Overall, I'm very pleased with the trajectory that our U.S. business is on and I believe we're well positioned to drive significant growth in 2022. And now our CFO, Francois Dietsch, will provide some details on our financial results. Francois?

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 1.1747 for the third quarter of 2021. Our total company revenue for the third quarter of 2021 was €9.4 million, essentially flat to the same period in 2020. Looking at the revenue by region, total revenue in the HIFU business for the third quarter of 2021 was €1.9 million, a decline of 25.6% compared to €2.6 million for the third quarter of 2020. The decline was driven primarily by continued weakness in hospital CapEx spending. Total revenue in the LITHO business for the third quarter of 2021 was €2.5 million, an increase of about 3% versus the third quarter of 2020. And total revenue in the Distribution business for the third quarter of 2021 was €5 million, a 13.4% increase compared to €4.4 million for the third quarter of 2020, thanks to ExactVu emerging and laser sales development. Gross profit for the third quarter of 2021 was €3.6 million compared to €4 million for the year-ago period. Gross profit margin on net sales was 38.4% in the third quarter of 2021, compared to 42% in the year-ago period. The decrease in gross profit year-over-year was due to lower sales affecting fixed costs in the HIFU business. Taking into account only the variable costs, margin-wise net sales for Q3 remained consistent with our usual level of margin, considering the current product mix. Our operating expenses were €5.5 million for the third quarter of 2021, compared to €4.3 million for the same period in 2020. The increase was driven by the ongoing readouts of the US team and commercial infrastructure. Operating loss for the third quarter of 2021 was €1.9 million, compared to an operating loss of €0.3 million in the third quarter of 2020. Net loss for the third quarter of 2021 was €1 million or €0.03 per diluted share, as compared to a net loss of €1 million or €0.03 per diluted share in the year-ago period. As of September 30, 2021, we held cash and cash equivalents of €45.4 million, or US$52.6 million, as compared to €24.7 million, or US$30.2 million at the end of December 2020. The number of outstanding shares was approximately 33.5 million shares at the end of September 2021. And now I will turn the call back to Marc.

Thank you, Francois. In summary, for the first nine months of the year, we increased revenues 14.4% over the comparable period in 2020, demonstrating that we are successfully navigating this difficult hospital CapEx environment. At the same time, we continued to build our US pipeline and we remain optimistic that we will announce additional sales and key placements in the near term. We're also very excited that Ryan has joined us. As you heard today, he has already begun to implement actions and plans to support our market access and commercialization strategy in the US. All-in-all, I believe we are very well-positioned to establish HIFU and our robotic Focal One device as the leading therapeutic tool in ablating prostate tissue. I would like to thank you for your interest and support. We will now open the call to your questions. Operator?

Thank you. At this time, we will be conducting a question-and-answer session. Thank you. Our first question is coming from the line of Frank Takkinen with Lake Street Capital. Please proceed with your question.

Hey, thanks for taking my questions. I wanted to start on the sales funnel a little bit more, or due to different comments, it feels like it's growing solid. Can you just bring us a little bit deeper on maybe penetration into the 150 Tier 1 accounts that you've spoken to in the past? How many of those do you have active communications with? And maybe if you could even share with us a little bit on the number of late-stage conversations, just to give us a little better feel for what we could see coming down the pipeline in the fourth quarter as well as in 2022?

Yes. Hello, Frank. I mean, that's a great question. And as Ryan elaborated in his remarks today, we are getting organized, we are increasing the structure and we have significantly increased our pipeline of projects. Now, giving too much detail on where in what discussions and where we are is probably not appropriate on a call like this for confidential reasons. But again, everything is being put together to continue increasing discussions with most of those Tier-1 hospitals. And as you've seen, we've already announced two placements amongst these kinds of Tier-1 hospitals. And again, we will have more to come in the near term.

Okay. That's helpful. And then, maybe just a little bit more on the investment in the commercial organization. Where do we stand right now on US-based commercial organization as far as sales personnel goes? And where can we see that number expand to over the next 12 to 18 months?

Yeah. So we've added a couple of notable hires recently, a couple of folks that actually worked with me back in my tenure at Intuitive Surgical. So we're excited about that. We've looked deeply at the markets, as you referenced earlier, looking at academic centers, Urologic Oncology programs, NCCN participating hospitals, et cetera. So we feel that we've got the territories well laid out. And we're actively recruiting now on both sides on the capital and clinical side. So we've added two people, and we're in the process of adding several others. We're looking obviously for highly skilled, highly capable individuals to come join the company. And I think we're excited about some of the momentum we have. And we'll look to be deeply focused on growing our sales as we roll into 2022.

Perfect. That's helpful. And then last one for me, Ryan. Appreciate all the color on the APC, level 6 versus level 5. Can you share with us a little bit more on what was not seen in the 2019 cases that you expect to see in the 2021 cases that can justify that move up to level 6 for 2023?

There are a few noticeable points to highlight. First, our treatment volumes were notably higher compared to 2021. It's important to note that CMS calculates treatment costs using an average cost of charges, applying a geometric mean in their methodology. We conduct our own analysis and work closely with hospitals to ensure they understand and capture the right charges. Ultimately, our analysis, along with insights from external consultants, indicates that the correct average charge rate would place us in the APC 6 category. If CMS had examined the 2020 data, we believe they would have found a significant difference in the average costs. CMS initiates this process in the spring, and we are actively engaging in discussions with them to emphasize how they should evaluate the relevant data. We feel optimistic about our position for reaching the APC 6 level as we move into 2023.

Perfect. That's helpful. I'll stop there. Thanks for taking my questions.

Thank you.

Thank you.

The next question is coming from the line of Jason Bednar with Piper Sandler. Please proceed with your questions.

Hey, everyone, thanks for taking the questions here.

Hey, Jason.

Hey, glad to hear the fourth quarter is already off to a good start. You mentioned good leading indicators of demand today and in yesterday's release, indicating that the funnel is building. Can you provide more specifics on what these leading indicators are? Are these developments the result of some of the early increased commercial investments made this year, or do you think we'll need to wait until 2022 or even further into 2022 to see those investments start yielding results?

Yes, I mean I look at it a few ways. Obviously we're adding headcount and that would lead you to believe that we'll have more people interacting with future customers. So, that helps tremendously. We also have an installed base of customers, so we support them, and many of them as noted are growing the volume of treatments. There's a marketing effort tool, which I think we're just getting going with. I think our marketing story, or at least our story back to patients and physicians as providers, is an exciting story. I think a lot of academic programs and we mentioned earlier Tier 1 hospitals view that Focal therapy as a category fills critical gaps that may exist for low-risk and intermediate-risk patients. And so, I think we're seeing that the argument for Focal therapy, there really isn't a big argument; it's getting established as a strategic direction with the institution that adding Focal therapy, if you're not doing it already, is important. And then if you look categorically at how you deliver Focal therapy, we believe with robotic Focal HIFU, the Focal One system, we have the best offering in the market. And so we believe we have the right technology at the right time for those centers. So, we continue to socialize that with these pipeline accounts and are very engaged, and we look to engage further as we build out our sales organization.

All right. Excellent. Thanks for that Ryan. Also just curious if you could elaborate on some of the challenges that exist out there in the marketplace right now is very topical for all companies right now shipping, freight, labor costs, things like that, how is EDAP navigating some of these dynamics, and then I think related to that point, just talking about your confidence in HIFU gross margins improving off the levels that we're at today?

Well, I mean, so far, I would say we've navigated pretty well in these environments. And of course, we're very cautious about all those points. But again, there is such momentum and excitement; as Ryan said, the technology really feels an important need and gaps that exist today in the treatment of prostate cancer, so that we continue to benefit from that momentum and that will increase as we get more structured and more organized in the US market and as we continue to grow the pipeline.

Okay. Got it. And then, just one more for me on the reimbursement side. It sounds like CMS still did believe just the way they phrased some of their updates. They left the door open to some future adjustments for HIFU, moving up to that level six. I mean, I guess aside from having another year of claims data for CMS to use, are there any other next steps or areas where we could see reimbursement progress in the near term before we get to that next round of updates from Medicare? And then, I guess any recent wins or progress you can point to with some of the commercial payers?

Yes, we are dependent on what CMS will ultimately release in its final rule, which was just issued at the beginning of this month. We are working closely with our current customers and particularly with leading doctors and urologists who actively use our products and technology. During our meeting with the HOP panel in August, we had physicians present advocating for the proposed increases and moving to APC 6. I believe there is strong clinical validation for this. We are seeing more data emerging and an increase in treatments. While we cannot influence the final rule, we can continue our discussions with CMS in preparation for their review next year, which occurs annually. The process will begin in the spring, and we will be involved right up until the final rule announcement for the upcoming year. Regarding the supply chain, unless Marc has something to add, I don’t see any significant disruptions on that front. We did have the San Diego sale that was made and shipped in Q3, but there was a transportation issue on the way to the hospital, which affected that deal. Normally, that sale would have been recognized in Q3, but this was a logistics mistake unrelated to COVID. Regardless, we are optimistic about continuing our work with CMS and utilizing all resources available to ensure we are prepared for the next review.

All right, very helpful. Thanks so much.

Our next question comes from the line of Justin Walsh with B. Riley. Please proceed with your question.

Hi. Thanks for taking the questions. To start off, I know that you guys had the one sale in the Focal One and UW in the third quarter and then you just mentioned UC San Diego in the fourth quarter. Can you confirm there weren't any other Focal One sales in the third quarter? And then, also, maybe confirm how many ExactVu sales do you have in ESWL systems?

So, as we mentioned earlier, we had only one sale in Q3 at the University of Washington. The second sale at the University of California, San Diego was sold and shipped in Q3, but will be recognized in Q4 due to transportation and logistics reasons. For the exact number, I will let Francois Dietsch answer. Francois?

Yes. We sold five ExactVu devices over the third quarter, and in lithotripsy, we sold three additional devices.

Got it, perfect. Thanks. All right. So my next question is the AUA results were really intriguing. I'm wondering if there's any specific feedback you got from physicians? And if your clinical data package has helped with engagement efforts recently, particularly as you're moving to improve penetration in the US?

We were disappointed that the AUA meeting this year shifted to a virtual format at the last minute, as we had prepared to attend in person and had planned many activities, including hands-on courses. Regarding our data, it demonstrates strength in some critical areas, particularly oncologic control. The data indicates that we can provide safe and effective oncologic control compared to surgery, specifically radical prostatectomy. Additionally, it highlights the advantages we've consistently discussed in functional outcomes, such as urinary control and sexual function, where our treatment approach differs significantly. We do not remove the prostate gland; instead, we ablate the tissue within it. One of the key studies we're excited about is Dr. Baco's randomized control trial, which provides level one evidence from Europe. It's not the only study supporting the efficacy of HIFU for ablation of prostate tissue. We expect more data to be released, and we're optimistic now that more American centers have acquired the Focal One robotic Focal HIFU system. We will track their data and likely submit abstracts and manuscripts to future journals. Our dataset is gaining momentum and strength.

Got it. Thanks. One more question for me. Obviously, there's still a lot of overhanging uncertainty with how the pandemic has evolved. I'm wondering if you can provide any color on what you're seeing from hospitals from a CapEx perspective at this point?

Yeah, I think hospitals have returned in some capacity to a more normalized buying cycle. I won't say it's 100%; it varies by institution and by region. We, as expected, work through their processes in order for us to sell or place a system in their institution. I would say that what may be different for us is I really believe that we are a strategic value-add revenue enhancing service line to a hospital. And meaning that there's a gap that exists for men diagnosed with localized disease, early stage and intermediate stage disease and Focal HIFU would be a suitable option for a subset of men. So as you can imagine, there are a number of companies out there selling capital equipment. We are one of them but I think our value-add story is very strategic as compared to other capital purchases that may be going on in hospitals. So we're about building out a Focal therapy program in the domain of men being treated with prostate cancer. So the conversation can be different and interpreted differently, knowing that there's a large number of men every year who are diagnosed with the disease not including the many who are walking around with the disease today. So anyway, we are excited to continue the momentum as we work through the buying committees, etc. in these various institutions.

Got it. Thanks for taking the questions.

Thank you. Our next question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. Please proceed with your question.

Hi. This is RK from H.C. Wainwright. Ryan, in your remarks, you mentioned that CMS was reviewing the 2019 claims. Based on that, they provided for level 5 again in 2022. I am trying to understand if they will consider the 2021 numbers in their decision-making next year and how the 2021 numbers are currently looking to potentially move to level 6 in 2023.

So, yes, you're correct on that. They look at 2021 data, so that'll be happening next year starting in the springtime. And we feel just doing our own analysis and again, we use outside consultants to work with us that when they use the weighted average costs, etc., in terms of all charges that we look favorable as others in our space likely. We look favorable categorically to move up in the payment structure, APC 6 payments structure. So that's all I could say at this point. I – you know, again, we believe that they would look at the 2020 data versus 2019. We would be deemed in APC 6 level facility payment. So I don't think anything has changed when 2021. We're doing more and more procedures, which is good because they have more numbers to work with. And I think hospitals also are getting better educated and capturing all the appropriate costs for providing us treatments.

Thank you for that. You mentioned some of the data presented at AUA. Do you know when that will be published as papers so you can use them in discussions with private payers?

This study from Dr. Baco in Norway is not concluded yet, so we only have preliminary results at this time. We need to wait until the study is finished for it to be published. The same applies to the Hi-Fi study, which is the French study related to reimbursement in France. These results are also preliminary. The end of the fourth period will be next year, and then the results will go through the publishing process. It will still take some time before we see the papers published, but they will keep presenting results as the follow-up continues.

Thanks Marc. Thanks for that.

Thank you. At this time, I'll turn the floor back to management for closing remarks.

Well, thank you, everyone. Thank you for joining us today. We'll continue updating you and we'll continue moving forward in our strategy to increase and accelerate our high production plan in the US and rest of the world. You all have a great day.

Thank you everyone. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.