Greetings and welcome to the EDAP TMS First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host John Fraunces. Thank you. You may begin.

Good morning. Thank you for joining us for the EDAP TMS First Quarter 2024 Financial and Operating Results Conference Call. Joining me on today's call are Ryan Rhodes, Chief Executive Officer; Ken Mobeck, Chief Financial Officer; and Francois Ditch, Chief Accounting 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 Chief Executive Officer, Ryan Rhodes. Ryan?

Thank you, John, and good morning, everyone. Following our strong fourth quarter, I am pleased to report that we continue to maintain our positive momentum through the first quarter of 2024, driven by additional Focal One system placements and robust year-over-year procedure growth, which clearly indicates that the adoption of robotic technology for the management of prostate cancer is on its growth path. In the first quarter, we reported total revenue in U.S. dollars of $16.1 million. HIFU grew over 10% year-over-year in Q1 to $6.3 million, reflecting continued procedure growth and the placement of new systems. In the quarter, we placed 7 Focal One systems, including 5 capital sales. Demand for Focal One is growing across multiple geographies and among both academic and community urology practices. We placed a Focal One system at the Thomas Jefferson Hospital in Philadelphia, which is part of the largest health system in the Philadelphia region. Additionally, the Mount Sinai Hospital System acquired a second Focal One, further expanding our relationship with a leading cancer research and treatment institute. As a reminder, during the third quarter of 2023, we entered into a clinical research collaboration with the Icahn School of Medicine at Mount Sinai to explore immunotherapy's role in conjunction with high food therapy for prostate cancer patients. Dr. Tiwari will supervise this innovative research. We also placed a Focal One system at the Kuakini Medical Center, marking our first system placement in Hawaii. Kuakini Health System is part of a large healthcare alliance in the U.S. that supports about 3,000 hospitals and 110,000 healthcare providers for purchasing benefits and other services. Our international Focal One business remained strong, with multiple placements, including in Spain and Taiwan, where health authorities approved Focal One for prostate cancer treatment in December 2023. The Taiwan market represents an attractive opportunity for further Focal One sales. U.S. Focal One high food procedure growth remained strong, with positive quarter-over-quarter growth for the seventh consecutive quarter and a 92% increase year-over-year. As we compare year-over-year growth against larger volumes, we remain encouraged by the ongoing trends in utilization. Several factors contribute to the increased demand for Focal One, such as our investments in capital, sales, clinical teams, and improved reimbursement. We believe that demand is also driven by a growing body of robust clinical data supporting robotic HIFU as a mainstream treatment for prostate cancer. To emphasize this point, the final results from the HIFI study were presented at both the European Urology Association Meeting and the American Urology Association Annual Meeting. The HIFI study, the largest clinical trial comparing robotic HIFU and radical prostatectomy treatment outcomes, showed that Focal One robotic HIFU delivers effective oncologic control compared to surgery, with potential benefits for preserving erectile function and urinary continence. I will discuss the significance of this groundbreaking study in more detail shortly. Now, I want to touch on some regulatory and clinical achievements in our pipeline. There is growing interest in applying our Focal One Robotic HIFU technology for deep infiltrating endometriosis treatment, an area with significant unmet medical need in women's healthcare. The FDA granted Focal One Robotic HIFU a breakthrough device designation for this treatment, underscoring the need for safer alternatives for women suffering from this condition. The Phase III trial evaluating Focal One for deep infiltrating endometriosis has been designed as a comparative, randomized, double-blind trial focused on acute pelvic pain in 60 patients. We completed patient enrollment in January and expect results in the second half of 2024. I would like to discuss our recent participation in two prominent urology scientific meetings: the European Association of Urology Meeting in Paris and the American Urological Association Meeting in San Antonio. These conferences attract thousands of stakeholders focused on advancing science, technology, and clinical outcomes in urology. There were several studies on Focal One Robotic HIFU technology presented at these meetings, showcasing growing interest among urologists in integrating Robotic HIFU into prostate cancer treatment programs. Key among these was the HIFI study, with final results presented at both meetings, highlighting its importance and the potential practice-changing implications. The HIFI study included 3,328 patients across 46 centers, with patients treated with EDAP's robotic HIFU technologies being followed for 30 months. At the EAU meeting, Gian and Professor Patrick presented findings on the oncologic and functional outcomes. At 30 months, salvage treatment-free survival was significantly higher in the HIFU arm at 89.6%, compared with 86.2% in the surgery arm, demonstrating that robotic HIFU therapy is at least as effective in oncologic control as radical prostatectomy. The study also assessed safety and quality of life impacts, showing lower urinary symptom profiles and better preservation of erectile function in the HIFU-treated group. Despite being 9.6 years older on average, HIFU patients maintained better outcomes. Professor Pascal Richman, the lead investigator of the HIFI study, delivered an oral presentation at the AUA’s major plenary session, emphasizing the visibility and recognition of Focal One Robotic HIFU in localized prostate cancer management. Our exhibition at AUA allowed us to engage with hundreds of urologists and hospital executives, leading to increased inquiries about starting Focal One programs. As demand for effective noninvasive procedures grows in prostate cancer treatment, we believe the HIFI study results will accelerate robotic HIFU adoption. Besides the HIFI study, multiple presentations at AUA supported Focal One Robotic HIFU technology’s role in providing effective cancer control with excellent functional outcomes. The findings from Dr. Yamini and Dr. Eduard Baco reinforced the clinical evidence from the HIFI study. Dr. Nagraj presented results from 160 patients treated with Focal One at the Martini Clinic, confirming a 6.3% need for radical treatment after over 7 years of follow-up, with all patients maintaining urinary continence and minimal impact on erectile function. Dr. Baco’s interim analysis also confirmed that focal ablation was non-inferior to radical prostatectomy after two years, with a slightly better outcome for the focal ablation group. The robust evidence from this clinical trial supports Focal One Robotic HIFU’s role in prostate cancer management. Additionally, in Q1 2024, the American Urological Association finalized new guidelines for salvage therapy in prostate cancer, including HIFU as a recommended option for local recurrence post-radiation failure, validating the acceptance of HIFU among urologists. I will now turn the call over to Ken to review our financial results for the first quarter.

Thanks, 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 $1.08 for the first quarter of 2024. Total revenue for the first quarter of 2024 was EUR 14.9 million, an increase of 0.8% as compared to total revenue of EUR 14.8 million for the same period in 2023. The increase in revenue was driven by an increased number of HIFU treatments as well as increased unit sales versus the prior period. Looking at revenue by division, total revenue in the HIFU business for the first quarter of 2024 was EUR 5.8 million, as compared to EUR 5.3 million for the first quarter of 2023. We sold 5 Focal One systems in the first quarter, and we experienced 55.7% year-over-year growth in worldwide disposable-based revenues, reflecting strong procedure growth during the quarter. Total revenue in the distribution business for the first quarter of 2024 was EUR 6.9 million as compared to EUR 6.8 million for the first quarter of 2023. The increase in distribution revenue was driven primarily by 11 units sold during the first quarter as compared to 8 units sold during the first quarter of 2023. Total revenue in the litho business for the first quarter of 2024 was EUR 2.3 million as compared to EUR 2.8 million for the same period in 2023. The decrease in litho revenue was driven by 2 units sold in the first quarter as compared to 4 units sold in the first quarter of 2023. Gross profit for the first quarter of 2024 was EUR 6.4 million compared to EUR 6 million for the year-ago period. Gross profit margin on net sales was 42.8% in the first quarter compared to 40.8% in the year-ago period. The increase in gross profit margin year-over-year was primarily due to the high level of Focal One treatment-driven revenues, which generate higher gross margin. Operating expenses were EUR 11.2 million for the first quarter compared to EUR 12.6 million for the same period in 2023. The decrease in operating expenses was due to the recording in Q1 2023 of a one-time nonrecurring employee compensation expense. The impact from this one-time expense in Q1 2023 was offset by the continued investment in the company's U.S. commercial operations. Operating loss for the first quarter of 2024 was EUR 4.8 million, compared to an operating loss of EUR 6.6 million in the first quarter of 2023. Excluding the impact of noncash share-based compensation, the operating loss for the first quarter would have been EUR 4.1 million, compared to an operating loss of EUR 3.9 million in Q1 2023. Net loss for the first quarter of 2024 was EUR 4.5 million or EUR 0.12 per diluted share, as compared to a net loss of EUR 7.5 million or $0.20 per diluted share in the year-ago period. Our manufacturing, service, and functional teams are busy implementing new defined programs and activities to drive operational efficiencies to improve overall profit margins. Turning to the balance sheet, ending inventory was EUR 17.5 million in the first quarter of 2024, as compared to EUR 15.1 million at the end of the first quarter of 2023. Most of the growth in inventory was due to material increases in anticipation of future system sales. Total cash and cash equivalents at the end of the first quarter was EUR 38.4 million, or USD 41.5 million as compared to EUR 43.5 million at the end of the fourth quarter 2023. The EUR 5 million decrease in cash and cash equivalents was driven primarily by cash used in operating activities and capital expenditures. As always, we continue to monitor our capital resources as we invest and grow our business. Those are our key financial highlights for the first quarter of 2024. And with that, I would like to turn the call back to Ryan.

Thanks, Ken. In summary, we have entered 2024 with solid momentum. Our Focal One business continues to expand both with respect to new placements and procedure growth, and our pipeline remains strong, and we now have the most robust externally validated body of clinical evidence that supports robotic HIFU therapy becoming an essential treatment modality in the management of prostate cancer. And EDAP is exceptionally well positioned to take advantage of this ongoing paradigm shift towards robotic HIFU therapy. With that, I will now turn the call back over to the operator for questions.

The first question we have is from Michael Sarcone of Jefferies.

I guess, just on the HIFI study, do you think you can talk about or elaborate more on the physician feedback you've received since publication? And then how you think this data is going to impact your conversations with potential customers and Focal One updates?

Yes, thanks, Michael. The feedback has been very positive. As mentioned, when considering trifecta outcomes for treating prostate cancer, it always begins with cancer control, followed by preserving sexual function and urinary control. What is exciting about this study is that, while it is a non-inferiority study, we meet an acceptable standard of oncologic control. This has long been a question among urologists regarding whether HIFU, when used appropriately in the right subset of men, can provide adequate cancer control. We have received a lot of positive anecdotal feedback from the urology community. Looking ahead, we know patients are looking for effective treatments that are either minimally invasive or, in our case, non-invasive, and we believe that Focal One can lead in the area of focal therapy. The positive feedback has energized our capital sales, clinical, and commercial teams to carry this message forward, and we have been well received by both new and active customers in our sales pipeline.

Got it. And in the past, there's been a lot of focus on system placements, and you've talked about we need to cross the chasm here. I guess does this data enhance now help you accelerate the timeline for which you can cross that chasm? And with this data, when do you think we could see the inflection in system placements?

The data we've been waiting for has taken over seven years to complete. We have other actively referenced studies, including the BACO study, which is a randomized controlled trial. We believe the evidence from this study, involving over 3,000 patients, creates significant momentum for the company. It will allow us to engage more effectively in discussions about the efficacy of HIFU for treating and managing prostate cancer. This will definitely enhance our narrative. The study has just been released and will soon be published in a peer-reviewed journal. We are already sharing this information with our customers, and the feedback has been very positive. We expect this will favorably influence our discussions with physicians in both community and academic settings. We're excited to present this data to interested customers regarding the use of HIFU for prostate cancer treatment and management.

The next question we have is from Frank Teknon of Leg Street Capital.

Maybe I'll stick with something around the new data as well. I think in previous guidelines there's been something along the lines of HIFU has been advocated for but still awaiting adequate long-term data. Does this study satisfy that? And how should we think about maybe HIFU moving into potentially a first-line treatment option in the guidelines?

Yes. Frank, this should certainly help support emerging guidelines. Again, we're written currently into the NCCN guidelines and now the AUA guidelines for use of HIFU in failed radiotherapy, so salvage radio therapy. That is very positive. But as noted, I think we're seeing more evidence coming out from these studies, as noted, that are just going to make it more compelling for updates on guidelines, right? And we know guidelines take a while to update. I mean they tend to lag. The market moves and then guidelines kind of in retrospect try to be updated. So we believe that this is going to help. We are sharing this information not only with customers but also out into the payer community. And we think this is really important. And I think we're really at the beginning of seeing more and more compelling data coming out supporting the use of robotic HIFU in the treatment of a subset of men who have been diagnosed with prostate cancer. And I'd say from a patient perspective, patients are looking for a highly efficacious treatment that allows them adequate cancer control that maintains the functional outcomes; very important functional outcomes are preserving sexual function and urinary control. And so we now have something with data that we can offer patients that is not invasive. And we're just really excited to charter the message forward. And as mentioned, we are sharing this actively with customers on a daily basis.

Perfect. Let's shift our focus to our expectations for placements in 2024. Last year, we had a sequence of 7 placements in the first quarter, followed by 4 in the second quarter, 2 in the third quarter, and 10 in the fourth quarter, totaling 12 placements and 10 sales in the fourth quarter. Should we consider this pattern for this year with anticipated growth, or how should we view placements, seasonality, and revenue recognition throughout 2024?

Yes, we continue to see a growing pipeline. Our active pipeline is expanding among our sales teams. There is an increase in interest in the technology as we look ahead. While we haven't provided specific guidance, it's important to note that interest is increasing, particularly within our capital sales team. The figures that have been discussed seem accurate to some extent. There may be some seasonality in the third quarter, but historically, we tend to experience a stronger second half of the year. I believe we will see a similar trend this year. We are currently in Q2, and I think there is positive momentum as we look forward to the remainder of 2024.

The next question we have is from Jason Bednar of Piper Sandler.

Nice start to the year here, guys. Ryan, would love to start with you just on probably another question here, just following up on AUA. A lot of good data, HIFI looks like it should be pretty impactful. Two questions, maybe to start from here. I know you referenced the meeting being a record on a number of fronts; you have had at the meeting. For prospective Focal One users, wondering if you can put the interest in context of past AUA meetings or relative to your own internal expectations? And then the second question is maybe somewhat related to what Frank was just asking. But anything you can draw from past AUA meetings regarding how you can use interest from the meeting as a guide or indicator of future demand, really trying to get a sense of how you see AUA influencing growth of Focal One units this year, after you got off to a real nice start with placements in sales in the first quarter?

Yes, Jason, thank you. First, AUA was a significant success for the company, marking our largest attendance ever. We were prominently featured during the meeting, with multiple presentations delivered at our booth, including data from the HIFI study as well as other studies mentioned earlier. For those skeptical about HIFU, there appears to be a turning point in acknowledging the importance of focal therapies. The next consideration is how to effectively deliver these therapies, and we emphasize our robotic platform, which provides precise HIFU ablation directed at specific structures. A significant value of AUA is the opportunity to connect with customers and demonstrate what our treatment entails. During the meeting, we conducted simulations where we worked closely with doctors to develop treatment plans, showcasing how easy it is to utilize the imaging features of the Focal One system and other interactive benefits our technology provides. Looking back at this AUA, we experienced our busiest event to date, and I can affirm that over the last three years attending AUA for EDAP, we have grown each year. The excitement this year was palpable, especially with many attendees familiar with the HIFI study, as we were sharing data at our booth. Overall, there is increasing demand and awareness, which is essential for driving that demand. The HIFI study presented at both AUA and the EAU meeting in Paris, the second-largest urology meeting globally, highlighted a significant study utilizing exclusively EDAP’s HIFU technology. Looking ahead, we will continue to engage more with interested customers and follow up on the leads generated from this meeting.

The hospital capital expenditure environment in the U.S. is quite unique right now, as procedure volumes are strong. This typically encourages spending on high-value capital items. However, the challenge lies in the current interest rates and financing conditions, which may not be as favorable. Are you experiencing any effects from this prolonged higher interest rate scenario? Is it influencing your sales discussions or causing any delays or adjustments in your plans? Or are your capital sales and commercial conversations largely unaffected by financing factors?

That's a great question. It's fair to say that hospitals are still making significant investments in both operational and strategic capital. It's important to understand that we fall into the strategic capital category. We're offering a clinically necessary service line that enhances revenue and has a CPT code with proper reimbursement for both facilities and physicians. Economically, it's quite valuable, especially for patients with prostate cancer, a critical men's health issue. When we engage with hospitals, the buying cycles may take time due to their value analysis committees, which assess capital investments and prioritize them accordingly. Our offering is compelling as it's related to a major cancer affecting men worldwide, and we have supporting data. In financing discussions, it's essential to be prepared for various possibilities. We offer different leasing and subscription models and provide guidance on these options, allowing us to be flexible. The key takeaway for premium-priced capital equipment is the need for flexibility, which we are well-equipped to provide. However, purchasing cycles for capital equipment can be lengthy, and we've noticed that the process often takes longer than expected. Nevertheless, there remains strong interest from hospitals to make these investments, and we are responding appropriately.

Yes. And Jason, just to follow up on that. When we look at our active pipeline today and where we drop those in our forecast, what we're seeing is it's just taking the hospital more time to go through all the buying mechanics to actually purchase the system, right? We're not losing deals in our pipeline. They're just taking longer to revenue.

Could you provide any specifics on the extent of the delays, such as whether projects are being postponed by an average of 3 months, 6 months, or something else?

It really varies. Some sales can take many months to complete while others happen quickly. Behaviors differ across hospitals; community hospitals often make decisions faster. When we present a compelling case and they recognize the value we offer, they engage with us, and we collaborate closely throughout the process. As Ken noted, deal cycle times differ greatly. Some hospitals can move rapidly, while others may take more time, making it challenging to assign a specific timeline. You'll likely notice this variability. The positive aspect for us is that we provide something that is both clinically essential and strategically beneficial, yielding immediate economic returns. This reduces obstacles in the process. Typically, when we engage with them and they perform a pro forma analysis, we work closely with them to provide flexible financing options if needed.

The last question we have is from Swayampakula of HC Wainwright.

When I review your numbers, it appears that some of the procedure volume is still on the rise. After the AUA conference and the HIFI presentation, do you have a sense of how established the HIFU system is in the centers where it has been implemented? I'm trying to understand if you expect any growth in procedure volume as a result of the presentations and the feedback from the doctors who attended the conference.

We've received very positive feedback. When engaging with a hospital, we focus on developing a comprehensive program that isn't limited to just one urologist. Today, we have significantly improved our efforts to communicate the value of implementing a Focal One Robotic HIFU program in hospitals. Consequently, we see increased interest in training more urologists to use this technology. After installing the system, we initiate our program, which usually includes training additional urologists according to a structured plan that we support actively through our clinical team. HIFU is primarily used for treatment, covering a large patient population, indicating substantial opportunities ahead. Currently, we are still at the early stages of adoption of this technology, even among hospitals currently utilizing HIFU. Typically, hospitals that have operated the system for some time tend to see increased usage, as expected. Additionally, recent guideline changes expanding HIFU's use in salvage therapy present new market opportunities for hospitals. With many cases of radiation failures, it's vital that we present all treatment options to patients. Thus, we are just beginning to observe positive trends and anticipate growth as more hospitals adopt and frequently use the technology or train new urologists interested in Focal One HIFU. We believe there is significant potential for growth, and we are still in the early phases of market adoption.

Very good. And then on the endometriosis front, you expect data to be released from the Phase III study in the second half. I'm just trying to understand what's the game plan beyond it? And what should we actually expect in that initial release of data in the coming months?

Yes. So again, a couple of things. We've shared the Phase II study has been submitted for publication, so that's something exciting that is out there. The Phase III study results should be available sometime in the second half of the year. But I think the most important thing here is we are taking advantage of the breakthrough designation given to us by the FDA for use of Focal One in deep infiltrating endometriosis, meaning that we are now actively in a plan with the FDA to work through the necessary process to receive clearance at some future date. So we have data now that we can use from these studies, and that was part of this breakthrough designation application. We can use this data effectively, and we are now in that process of interacting with the FDA to move forward to receive clearance at some future date.

If I can squeeze in a quick question on the international markets. You gave some metrics in terms of the placements in U.S. How do you see that ex-U.S. market growth from here onwards? I know there's a lot of focus in the U.S., but the ex-U.S. market could easily become as interesting down the line.

Yes. Great question. We saw a lot of interest from people who attended both the EAU meeting in Europe, quite a bit of interest. We were very busy in Paris at that recent meeting, as well as international attendees who came to AUA. So the interest is very high. I'd say a couple of things. We see more centers outside the U.S. As mentioned, we have sold our second system into Taiwan. But when you think of Europe, we last year received reimbursement in Switzerland in July. So there's a market opportunity. We have the economics, we have clinical value, we have the right product; there's an opportunity there. Also, we socialized openly that the French high authority, which was part of the endorsement of creating and supporting the HIFI study, this study was done with the intention of receiving near future reimbursement in France. So again, we're working through that process or waiting for that process. It's outside the company. But we believe that there will be a reimbursement opportunity at some future date in France. And so these are just some small sound bites that play into the narrative. I think we're seeing more interest from international physicians. They look at what's going on in the U.S., and they tend to look over their shoulder and see that HIFU is being adopted, and our results are excellent. And so with that said, we'll see probably more activity over time here, growing as well in the outside U.S. markets.

Thank you. That concludes the Q&A session. And I would like to turn the floor back over to Ryan Rhodes for comments.

I want to again thank everyone for joining us on today's call, and we look forward to seeing you at the upcoming Jefferies Healthcare Conference in New York City from June 5 to June 6.

Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.