Greetings and welcome to the Edap Tms third quarter 2023 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]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Fraunces. I think, John, you may begin.

Good morning, and thank you for joining us for the Edap Tms third quarter 2023 financial and operating results conference call. Joining me on today's call are Ryan Rhodes, Chief Executive Officer, François Dietsch, Chief Financial Officer, and Ken Mobeck, Chief Financial Officer of the US Subsidiary. 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. I will start today's call by providing highlights from the third quarter of 2023, and then turn the call over to Ken Mobeck, our US CFO, who will then present the corresponding details of financial performance. I'm pleased to report through the last fiscal quarter, we've continue to see strong growth in U.S. Focal One HIFU procedures. We attribute this growth to HIFU becoming an important modality in the treatment of prostate cancer, with Focal One being selected as a platform of choice amongst urologists. It is also clear that the strategic investments we continue to make in our commercial and clinical teams are further helping to drive increased utilization. In Q3, we recorded a 150% year-over-year increase in U.S. procedure volumes as well as our fourth consecutive quarter of double-digit percentage procedure growth. The growing number of procedures across our install base provides the most compelling market-based evidence that Focal One is fast becoming an essential part of prostate cancer management. Focal One is the leading prostate focal therapy controlled by urologists. The advantages of Focal One HIFU are clear, as it is a noninvasive procedure demonstrating excellent oncological control, with minimal patient downtime while also avoiding the need for radical surgery or radiation. We are confident that these benefits, along with strong clinical outcomes will continue to drive procedure growth, as well as new Focal One placements. We placed two new Focal One systems in the third quarter of 2023. The first Focal One was sold to the University of Florida, which adds to the growing number of major academic medical centers which have adopted Focal One. The second system was placed at Cleveland Clinic, Abu Dhabi, the number one ranked hospital in the UAE in Newsweek World's Best Hospitals 2023.…

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 USD1.0814 for the third quarter of 2023. Total revenue for the third quarter of 2023 was EUR11.7 million, a decrease of 4.1% as compared to total revenue of EUR12.2 million for the same period in 2022. The decrease in revenue was due to lower sales of Focal One and ExactVu units versus the prior year period. Looking at revenue by division, total revenue in the HIFU business for the third quarter of 2023 was EUR3 million as compared to EUR3.5 million for the third quarter of 2022. The decrease was driven by one Focal One system sold in the third quarter of 2023, versus three systems sold in the third quarter of 2022. As Ryan mentioned, our pipeline continues to grow, but we did see a delayed closing of deals in the third quarter. Two of the deals have already closed in the fourth quarter. Despite the modest decrease in overall HIFU sales, we are very encouraged to see a 49.2% year-over-year growth in disposable revenue, reflecting strong procedure demand. Total revenue in the LITHO business for the third quarter of 2023 was EUR2.7 million, as compared to EUR2.2 million for the third quarter of 2022. The increase in LITHO revenue was driven by seven lithotripsy units sold in the third quarter of 2023 as compared to two units sold in the third quarter of 2022. Total revenue in the distribution business for the third quarter of 2023 was EUR6 million as compared to EUR6.6 million for the third quarter of 2022. The decline in distribution revenue was driven primarily by nine ExactVu units sold during the third quarter of 2023, as compared…

As you can see in closing despite experiencing delays in HIFU sales in the quarter, our core pipeline remains very strong across a wide breadth of both academic and community urology practices. Moreover, the continued robust year-over-year growth in procedure volumes provides us with the strongest market-based evidence to date that robotic HIFU, and Focal One in particular, is becoming an essential treatment in the management of prostate cancer. As the global leader in robotic HIFU therapy, Edap remains well positioned to capitalize on the growing acceptance of Focal One HIFU as a market leading technology platform. We anticipate a strong finish to the year based on accelerating trends in utilization and additional placements of Focal One systems. I will now turn it back over to the operator for questions. Operator?

[Operator Instructions]. Our first question comes from Michael Sarcone from Jefferies.

Thanks for taking my questions. Just wanted to start on the capital equipment environment. I know last quarter, you had mentioned that higher rates have elongated the sales cycle somewhat. I was hoping you could just give us an update on how customers are thinking about capital equipment purchases, and any further impact on rates that it might have bled into 3Q?

Yes, Michael, we've said before, I think we are positioned and positioned strongly. In terms of capital, we are a strategic investment for a hospital. We're part of a clinically necessary revenue-enhancing service line that brings strategic value. So we fall into that category versus, say, operational capital. And even though we're in a we're in a good position, we saw some slowing down in the process. We're still engaged with many, many hospitals in our pipeline. You know, our pipeline is very strong. And as we move forward, we anticipate closing more of those sales in Q4. But I think answering your question, I think hospitals are certainly being prudent in determining what investments they're making. And with that, they're taking more time through that process.

Got it. That's really helpful. And I guess, also last quarter, you know, you sounded pretty positive on the funnel as you do today. You had mentioned you felt pretty confident in exceeding the number of placements that you had seen in the first half. I think that number was 11. Is it still the same today where you feel confident in exceeding that number? Or has anything changed on that front?

Yes, Michael, good morning. This is Ken. So regarding second half performance, we still see a very good Q4 picture lining up. You know, as we've mentioned, we had a couple of deals that came down to the very end of the quarter. We've closed two of those deals already, and we have good expectations here for the second quarter to be at or above first half.

Okay, great. Thank you.

Our next question comes from Sean Lee from H.C. Wainwright.

Hi, so thanks for taking my questions. My first question is the number of HIFU procedures. You mentioned there was a strong growth in that. And I was wondering whether you can provide a bit more color on what are some of the pushes and pulls on that number? And how does the new equipment sales translate into procedure growth? Does it take these new users some time to get up to speed? Or are they starting off running?

Yes, so we obviously track our procedures it at each installed Focal One placement. For accounts that are just starting their program, there's certainly a training period and onboarding period, and a ramp of their cases. We see that, and that's very typical. However, as we've also seen, many of the newer accounts that are engaging, want to move fast through that onboarding process to start contributing cases early. And that is one of the metrics we obviously look at. I will say that the evidence in terms of supporting the role of focal therapy, and what we've seen at both international, national, and regional urology meetings, focal therapy is a hot discussion. And within the category, we are the common discussions in terms of what's best-in-class technology. And our technology is getting a lot of praise and visibility. With that said, I think more centers are eager to be able to offer focal therapy to their prostate cancer patients. And I think all this, and the fact that we're making progress too with our clinical teams. As mentioned, we have a clinical sales team that is helping to drive the utilization at the facility level. So I think it's all of these things coming together, building more programs, a stronger migration to a better technology -- Focal One -- and the ability to ramp and onboard the clinical users in a timely manner through the help of our clinical commercial teams.

Great. Thank you for that. And then my second question is on, I think in the prepared remarks, you mentioned that one of the machines sold last quarter was in Abu Dhabi. And I was wondering whether the Middle East can become a geographic interest for you guys?

Yes, we were excited about the placement it up at Abu Dhabi Cleveland Clinic. In fact, they've already performed cases. And so that program has already launched, and we're excited to see for it and look out through the Middle East for other areas of opportunity. But the Cleveland Clinic Abu Dhabi facility has a very strong reputation in the Middle East. And I think it's a clear validation. When they looked at technology, they chose Focal One. So we're, again, looking outward for other opportunities throughout the Middle East.

Great. My last question is on the ExactVu sales. So I was looking at that, I was wondering whether you can give us some color on what exactly drives those sales?

Well those, again, ExactVu is used at time of biopsy. So again, further upstream, right, patient goes in for a biopsy. And as we know, micro ultrasound, 29 megahertz, has a measurable improvement in terms of visual acuity to look at prostate tissue and specifically better target regions of interest for placing biopsy needles. So I think the combination, either as a standalone technology, or combined with use of imaging from an MRI, hospitals realize that, wow, we can see better. And if we can see better, we can be more precise in terms of where we target and perform biopsy mapping and delivery within the prostate gland. So again, I think the evidence is strong. We have a large number of growing academic centers that have adopted this technology, and more to come. We have also, as a recent, added a dedicated clinical sales team and capital team specific to ExactVu. So looking out, we're excited for the momentum and building more momentum around this product.

That's great to hear. That's all I have, and thanks again for taking my questions.

Thank you.

Our next question comes from Frank Takkinen with Lake Street Capital Markets.

Alright. Thanks for taking the question. Ryan, was hoping you could talk a little bit about the purchase model versus a less capital intensive adoption model, whether that's a lease, or a bridge to buy, or something similar to that. What are you hearing in the field? And do you have any prediction for where this mix might start to shake out in Q4 and into 2024, as we are in a little tougher macro-environment?

Yes, Frank, we continue to focus on direct cash sales. And we've shown success in doing that. We have other options available -- operational leases as such, bridge to buy, and or other. So I think we're well-covered with various options at our disposal to be able to use with customers. And if we find that customers may need a different solution, we typically sit down with them and we would work out through the process to get them into the technology. They want our technology, and we want to get the program started, and we build programs. So if it matters to launch the program sooner, we can activate on various -- call it -- purchasing models, encompassing operational leases, bridge to buy, and or other. But again, we still remain successful in our ability to sell capital directly, and work closely with our hospitals as partners.

Okay. That's helpful. And then maybe one on the sales team. I know I think at the beginning of the year, you were targeting roughly doubling that organization with different variables across a direct selling rep or clinical support specialists. But maybe just talk to where that US-based HIFU sales team sits, and how you're thinking about further investments into Q4 if you haven't already gotten to where you anticipated getting to this year?

Yes. So Frank, this is Ken. Good question. Right now, our team is 15 people in the US. As Ryan mentioned, we've got a dedicated team of ExactVu now of four people, and that's split. So when you look at the four people against the 15, that leaves us 11 people focused now on HIFU sales. And we are going to continue to invest on the capital front, for capital sales, as we move into next year. We'll continue to to beef up the headcount.

Okay. That's helpful. And maybe just the last one for me. Excited to hear the update on endometriosis. Can you just drop the time line? What that might look like if you do achieve that enrollment completion by the end of this year? When could we see a readout? And then maybe it's too early to speak specifically to commercial strategy, but maybe broad strokes, how you're thinking about that market commercially, assuming everything goes to plan with the clinical trial?

Yes, so we're excited about the study in particular, and the fact that we're through a lot of the enrollment already. As mentioned, we want to finish enrollment by the end of the year. There will be some analysis and follow-up, of course, on the patients. And I would say sometime later next year, we would be in a position to use that data, or have that data presented, in the form of as submitted a manuscript to a major journal. But equally, we are working through the process to get ready for getting in front of the FDA. We've got some very compelling data. Remember that this is the Phase 3 study. There was a safety study, the Phase 2 study, and that data was around was reflective of 60 patients treated. And that study included, and we're looking to get that data out sometime probably in the early second quarter of next year. So we've got lots of great data that's coming out. We're excited to close the remaining study, the randomized controlled trial, and again, post-closing patient follow-up statistical analysis. And we'll move forward with that data in the form of a submission. So again, we're bringing our best people together to make sure we get this closed out and we look forward to being able to share the data and outcomes in the broader community.

Great. Thanks for taking the questions.

This concludes our question and answer session. I would like to turn the floor back over to Ryan Rhodes for closing comments.

I want to again thank everyone that joined us for today's call. If you are unable to join us in New York at either Morgan Stanley or H.C. Wainwright investment conferences, in September, we will be participating in the Jefferies Global Healthcare Conference in London, or Piper Sandler's Conference in New York City in November. We look forward to updating everyone on our fourth quarter and full year 2023 results early next year. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.