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. [Operator Instructions] 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' will 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 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 placement that for logistical reasons were delayed into the first few days of the first -- of the fourth quarter. This has happened in both our HIFU and ESWL business and in different regions of the world, including 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 of 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 updates, one of which occurred subsequent to the end of…

Thanks, Mark. I want to begin by stating why I came to EDAP and my enthusiasm or 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, an excellent functional outcomes and benefits. Focal One robotic HIFU is the most advanced platform for precise targeting of the 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 five 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 with the following year. However, at -- while the half panel serves only as an Advisory Board to CMS, we review 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…

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 the region, total revenue in the HIFU business for the third quarter of 2021 was €1.9 million, a decline of 25.6% as 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 effect on fixed cost 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 mix of product. 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 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 increase revenues 14.4% over the comparable period in 2020, demonstrating that we are successfully navigating through 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. [Operator Instructions] 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 its 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 the 2022?

Yes. Hello, Frank. I mean, that's a great question. And as Ryan elaborated in his path today, we are getting organized, we are increasing the structure and we have significantly again increase our pipeline of projects. Now giving too much details in where -- in what discussion and where we are is probably not appropriate on the kind of call like that, I mean, again for confidential reasons. But again, I mean everything is being put together to continue increasing discussions with most of those Tier-1 hospitals. And as you've seen, I mean we've already announced two placements amongst this kind 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 base commercial organization as far as sales personnel goes? And where can we see that number expand to over the next call it 12 months to 18 months?

Yeah. So we've added a couple of notable hires, as of recent, 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 to adding several others. We're looking obviously for highly skilled, highly capable individuals to come join the company. And I think we're excited with some of the momentum we have. And we'll look to be deeply focused, obviously on growing our sales as we roll into coming year to 2022.

Perfect. That's helpful. And then last one for me, Ryan. Appreciate all the color on the APC, level 6 verses 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?

Yeah. So I think a couple obvious things jumped out. One is, obviously our treatment volumes were higher, when you comparably look at the year 2021, but just to understand that CMS uses a -- an average cost of charges as it relates to these treatments. There's a geometric mean cost, the average cost. They look at these things. They have a methodology of weighting these in their calculations. So we kind of do our own analysis as well. And we, in some cases have actually worked closely with hospitals at their request to really look at and monitor and educate them on the process of capturing appropriate charges. So I can't -- it comes back to the charges established. I think the way to look at it is our analysis and analysis using outside consultants, which shows that the proper average charge rate would clearly put us into this APC 6 category. So, hence why they either looked at the 2020 data, as we think they should have. There would have been a notable difference in the average cost of charges. So that's kind of how it works. They start this process that is CMS in the springtime. And we're working through the process as well. We're going to be having or requesting a conversation with CMS. Just putting some color on how we believe that they need to look at the appropriate data and I think we're well-positioned to be in an ABC six level as we look at year 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.

Marc or Ryan, -- hey, glad to hear the fourth quarter is already off to a good start. You did reference today and then the release yesterday just good leading indicators of demand. Sounds like the funnel building -- I mean, can you see any more directly to what the leading indicators are? Just -- and -- are there -- these developments, are they come in by way of some of the early stepped-up commercial investments that are made this year, or do you think these commercial investments we end up -- we need to wait until 2022 or maybe even deeper into 2022, before we see them start paying dividends?

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 a 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 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 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, we -- I would say we've navigating pretty well in environments. And of course, we're very cautious about all those points. But again, that is such a momentum and excitements and 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. I mean, we're held to really what CMS will release in terms of its final rule, which, as we know, just came out beginning of this month. We, as expected, work very closely with our installed base customers and specifically leading surgeons, or I should say, doctors, urologist, who are actively using our product and technology. So, as noted, when we had met with the HOP panel back in August, we obviously meant -- we weren't the only company that met with the HOP panel, but we had physicians with us shoulder to shoulder, as providers recommending the increases noted, moving to AP 6. And so, I think there's a strong clinical validation. I mentioned some of the data coming out and there's more and more data going on. There's more treatments going on. And so, I think, at this point, we can't influence the final rule, but we can continue the conversations with CMS in preparation for the review they'll do next year. And remember, these rulings come out on an annual basis. So, as mentioned, they'll start the process in the spring time. And we'll be involved directly with that process, all the way up until they announced the final rule for the forthcoming year. And I think, your -- to your questions in terms of supply chain or anything like that, I don't -- unless Marc has any comments, I don't see anything that has really disrupted us there. We talked about the San Diego sale and that sale was made and shipped in Q3. Unfortunately, it -- we had -- it wasn't out of our control, an issue with the transportation company and in route to the hospital. That is really what happened on that deal. That would have normally been recognized as a Q3 sale. So -- but it had nothing to do with COVID that I believe, that was just a mix up of transportation company. But, anyway, we're excited for continuing to progress, working with CMS, and we're using all available resources to make sure that we are well positioned 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 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 exact few sales do you have in ESWL systems?

So, yes, I mean, as we just said, and as Ryan just mentioned, we had only one sell-in in Q3 at the University of Washington though. The second one, University of California, San Diego was sold and shipped in Q3, but will be recognized as Q4 transportation and logistics reasons. In terms of number of -- exact number, I will let Francois Dietsch answer. Francois?

Yes. We saw the five exact new devices over the third quarter, and in lithotripsy, we saw the three equipments.

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?

Yeah. So just a couple of notes on that, AUA, unfortunately this year became a virtual meeting. We were well-prepared to be there physically, and really at the last minute they changed it to a virtual format. So that was a real disappointment, because we had a lot of activity planned, in fact, we even had some hands on courses that were set up specific to that meeting. But back to the conversation on data, I think the data is, again, it shows strength in a couple of very key areas. One is oncologic control. The data supports that we can deliver safe and efficacious oncologic control. When compared -- you're looking at cancer control outcomes compared to surgery, radical prostatectomy. And on the second note, it reinforces the benefits that we talked about routinely in the area of the functional domains, urinary control and sexual function outcomes. Where -- the treatments as compared are very different. We don't take out the prostate gland. We treat the cancer, or I should say, we ablate the tissue in the prostate gland and where surgery obviously is removing the gland. So we just -- again, we're excited, because one of the studies, Debaco [ph] study is a randomized control trial, level one evidence, it is European data. But it's not the only study out there that shows and points to the efficacy of HIFU as a means to ablate prostate tissue. So we believe again, more and more data will be coming out and we're excited too now that we have more American centers that have purchased Focal One robotic, Focal HIFU, and we'll be tracking their data and likely submitting both abstracts and manuscripts in future journals. So our dataset, I think it continues to build momentum and gain strength.

Got it. Thanks. One more question for me. Obviously, there's still a lot of over hanging 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, by region. We as expected, work through their processes in order for us to sell our place a system in their institution. I would say that, what may be different for us is I really and our teams truly believe, 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 in 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 maybe other capital purchases that may be going on in a hospital institution. So we're about building out a Focal therapy program in the domain of men treated with prostate -- 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 were excited to continue the momentum as we work through the buying committees, et cetera in these various institutions.

Got it. Thanks for taking the questions.

Thank you. [Operator Instructions] Our next question is coming from the line of Swayampakula Ramakanth, H.C. Wainwright. Please proceed with your question.

Hi. This is RK from H.C. Wainwright. So Ryan in your remarks you were stating how CMS was looking at that 2019 claims. And so based on that they had provided for level 5 again in 2022, just trying to understand -- so when they go into this decision-making again next year, would they be looking at the 2021 numbers then? And how are the 2021 numbers currently looking so that we can get into level 6 come 2023?

So the -- 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 cost, et cetera 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 structures. 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 very good, 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. And then you’ve talked about some of this data being -- that was presented at AUA. Do you have any idea of when that will be published as publications -- in terms of paper publications so that you can utilize them for your conversations with the private payers?

This I mean -- RK, this study is -- I mean, the one from Dr. Baco from Norway, it’s not over yet. So, that's where preliminary results. So, we have to wait until the end of the study when it's completed, so that it could be published. And it's the same for the Hi-Fi study, which is the French study in the context and frame of reimbursement in France. Same it was the -- this was a preliminary results. The end of the fourth period will be next year. And then they will, of course, go into the process publishing. So, it's going to take some time still until we'll get paper published, but they will continue releasing and presenting results as the follow-up moves forward.

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.