Good day, and welcome to the EDAP TMS Second Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to, John Fraunces of LifeSci Advisors. Please go ahead.

Good morning. Thank you for joining us for the EDAP TMS second 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 Dietsch, 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. Now, 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. In the second quarter, we reported total worldwide revenue in U.S. dollars of $15.8 million, up 10.6% on a year-over-year basis. U.S. Focal One HIFU procedure growth remained strong in the second quarter with the number of procedures growing by 63% on a year-over-year basis. We placed five Focal One systems during the second quarter, which included placements with the City of Hope, National Medical Center in Los Angeles, Robert Wood Johnson University Hospital in New Jersey, the VA Bronx Healthcare System in New York, El Camino Hospital in Silicon Valley, and the Morton Plant Hospital in Florida. City of Hope is a world-renowned pioneer in both cancer research and treatment. It is also a National Cancer Institute-designated Comprehensive Cancer Center and a National Cancer Center Network member institution. Placing Focal One at such a well-regarded medical institution speaks not only to the quality of the Focal One technology platform, but also reflects a growing trend, among top cancer centers in adopting robotic HIFU, as a treatment option for localized prostate cancer. The Robert Wood Johnson University Hospital is also another notable win for us this quarter. As part of the Robert Wood Johnson, Barnabas Health System, Focal One will now be utilized in the largest integrated healthcare delivery network in the state of New Jersey, which provides treatments and services to over 3 million patients annually. In partnership with the Rutgers Cancer Institute, the Robert Wood Johnson University Hospital is a leader in robotic-based treatment solutions for prostate cancer. Like the City of Hope, Robert Wood Johnson University Hospital is also an NCI designated comprehensive cancer center. With these two placements, Focal One is now installed in 20 of the 59 NCI-designated comprehensive cancer centers across the United States. We also placed…

Thank you, Ryan, and good morning, everyone. Please note that all figures except for percentages are in euros. For conversion purposes, our average euro-to-dollar exchange rate was 1.0747 for the second quarter of 2024. Total worldwide revenue for the second quarter of 2024 was a record EUR15.8 million, an increase of 10.6% as compared to total worldwide revenue of EUR14.3 million for the comparable period in 2023. Total worldwide revenue for the first half of 2024 was also a record coming in at EUR30.7 million an increase of 5.6%, compared to the six months ended June 30, 2023. Looking at revenue by division, total revenue in the HIFU business for the Q2 of 2024 was EUR4.8 million, as compared to EUR4.9 million for the second quarter of 2023. As Ryan mentioned, we placed five Focal One systems in the second quarter, which included three cash sales. Second quarter worldwide HIFU disposable revenues were up 29.4% on a year-over-year basis reflecting strong U.S. procedure growth. For the first half of 2024, HIFU revenues were EUR10.6 million an increase of 4.5%, compared to the six months ended June 30, 2023. Total revenue in the distribution business for the second quarter of 2024 was EUR8.7 million, as compared to EUR7.2 million for the second quarter of 2023. The majority of the increase in distribution revenue was driven primarily by 12 ExactVu units sold during the second quarter, as compared to nine units sold during the second quarter of 2023. Total revenue in the distribution business for the six months ended June 30, 2024 was EUR15.6 million an 11.4% increase compared to the six months ended June 30, 2023. Total revenue in the LITHO business for the second quarter of 2024 was EUR2.3 million as compared to EUR2.2 million for the same period in…

Thanks, Ken. As demonstrated by our sustained growth in U.S. procedure volumes, it is clear that an increasing number of urologists are recognizing Focal One as a necessary treatment option for the management of localized prostate cancer. This demand is also being driven by growing awareness among prostate cancer patients who are seeking less invasive tissue-sparing treatment options that can address their disease without compromising their quality of life. As noted on numerous occasions, we are really just at the beginning of what I believe is a long and sustainable upward demand curve that will establish robotic HIFU as a cornerstone treatment option for localized prostate cancer. We have in place the team, technology and infrastructure to fully support the continual global expansion of the Focal One pipeline as the market demand for our technology continues to build. With that, I will now turn the call back over to the operator for questions. Operator?

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

I guess just to start 5 Focal One placed in the quarter, congrats on that. I was hoping you can give us just an update on what the sales funnel looks like and how we should think about placements in 2H versus 1H, just an update there. And then any update on what you're seeing in terms of the CapEx environment in the hospital customers?

Yes. So thanks, Michael. Yes, pipeline is strong and building. We're actively out obviously talking to a lot of centers. And I think if you think of the sales we made this quarter, I mean these are notable institutions. So we continue to talk with hospitals, both academic and community, even some that have a designated focus in treating cancer. And so pipeline remains strong and growing. I would say back half of the year, obviously, Q3 and Q4 tend to be stronger quarters, at least the back half. And I would see that here playing out the rest of 2024 we'll have a stronger back half of the year, and that is on our road map. And then in terms of the other question on your third question.

On CapEx?

Yes.

So on the capital expense environment, I think what we're still seeing is with the hospitals it's just longer cycle times. I think it's due to a couple of things. It's due, I think, partly macro economically, given interest rates I just think when you get approvals in the hospital, there's a lot more committees to go through, and it's just taking longer. And as Ryan mentioned, our pipeline remains strong. A lot of these deals at the end of the quarter come down to timing.

Got it. And then just maybe one follow-up. On the VA system, Focal One sale, I guess, can you talk about what logistically that process looks like? Is there kind of one approval process to get through to then basically hunt in the entire VA system? Or do you kind of have to go hospital by hospital, just trying to get a sense of what that will look like logistically.

Yes, great question. Typically, a lot of the A hospitals, obviously, they're in major metropolitan markets and commonly associated with large teaching hospitals or in near proximity to university teaching hospitals. So again, if you look at our installed base, we've had a growing pedigree of academic centers who buy our technology, they look at everything, but they buy our technology. So that gives us a good opportunity to speak to the local VA hospitals in those markets. And again, many of the academic faculty will actually have a staff appointment in those VA hospitals. So we continue to look at those hospitals strategically across the country. That is the VA system. And at this time, I think it's a notable win that we're in a new VA hospital and we have others that are interested, and we continue to work them into our active pipeline.

The next question comes from Joseph Downing from Piper Sandler.

Starting with gross margin, if finished below what we were looking for in our model. And obviously, you can understand there is some lumpiness or impact from product mix. But just curious what it's going to take for that margin to move significantly higher, specifically in the HIFU segment?

Yes. Thanks for the question. So when I looked at -- when we look at gross margins in the second quarter, number one, obviously, product mix, not just within our HIFU business with lower volumes but also with regards to our distribution and ESWL. With regards to HIFU though, I think there's three key elements here, right? Number one, we converted 2 operating leases this quarter. Remember, when the customers on an operating lease, they're actually paying us. So when it comes to the buyout and oftentimes, the purchase price might be a little bit lower. Number two, I mentioned we're transferring vendors, so we're going to see some cost a little bit on the higher side. And then number three, we had some probe costs as well in the second quarter as well. So those are the 3 things that had the drag on the HIFU margin for the second quarter. And to answer your other question, we're working with a new vendor, right, where we will see improved margins going forward as well as in the second half when HIFU business picks up, right, we'll see accretive gross margins as the volumes grow.

Great. That's helpful. And then just touching on the BPH study that you gave some detail on today. Can you give any more detail for color relating to the enrollment size or time lines or anything of the sort? And then relatedly, is there anything we can take away from the endometriosis program with respect to key learnings or things you to improve upon that could help with the execution of this trial?

So as far as BPH study, again, it's a combined Phase I and II study. So obviously, we're defining the optimal HIFU treatment parameters that's part of the Phase I component. And then we're looking both at safety and effectiveness in the Phase II component. So combining the study, we're able to kind of look and validate safety and effectiveness and then be able to take that data set and use it to achieve a couple of things. One, obviously, go after CE mark and MDR, but importantly, also go back to the FDA with the ability to look more specific at BPH as a treatment. And so again, we're just getting the study underway and we want to start enrolling patients in September. Now noted, this is not a cancer study. So we've got the best team working on it, and we should be able to make notable progress in the many weeks and a few months throughout the rest of the year. So I can't really give you an adjusted time line. However, we are enrolling patients as soon as the month of September. And we're excited about moving forward on this, understanding that we did a Phase 0, 9 patient study really proof-of-concept study back last year. And we can now really focus in on the effort here, and we've got a lot of interested folks that are wanting to participate in this study. In terms of endometriosis, as noted, we continue to follow the patients up from the results of the Phase III randomized controlled trial. Again, we're looking at subsets of data. I think the positive news here is a couple of things. One is we've shown that the treatment described as reducing lesion size is effective, it does what it needs to do. And we also noted that there's been a large or I should say, a growing number of patients in this crossover effect. And meaning that patients that were treated in the sham arm have now requested to be treated with Focal One robotic HIFU. So their pain has obviously come back to a level where they want and seek out a treatment. And per protocol, they have access to have that treatment. We've treated a number of patients already with more on the docket. And so looking beyond that, we've got additional data analysis we're working through to get back in front of the FDA, and we want to be able to do that here in the next, say, 60-, 90-days in that time frame. So we're excited for some of the progress we're making, and we continue to follow up on these patients accordingly.

The next question comes from RK Ramakanth. Please go from H.C. Wainwright.

In terms of the top-tier cancer centers, I'd just like to have an idea of what percentage of that top-tier cancer center market as a focal one. And of that market, what's really accessible for you guys?

Well, RK, that's a great question. I mean, if you look at the hospitals we're in and if you look at kind of some data points, we're in 7 out of the 10 U.S. News World Report best ranked hospitals. So we're not 10 out of 10 yet. We're 7 out of 10. And but that's on a 70% basis, that's good progress. The SUO Society of Urologic Oncology fellowship hospitals. We're in 17 out of 35 and then as noted, with these 2 recent sales we made, placement sales, we're now upping our position in these what we call national comprehensive cancer network participating hospitals. Were over 42% now. And so there's still more market opportunity. And I think the takeaway story is that we show progress, retain progress in growing this installed base. With some of the top centers in the world. And we have continued to put more of them in our active pipeline. So I would look out and say we should be the dominant therapy or focal therapy in these prestigious academic centers or regional cancer centers. And we continue to focus on that in light of the other focus, which is in community hospitals. We continue to sell actively in community hospitals. So I still think there's a lot of more opportunity there, and we are highly focused on penetrating more of those accounts as we look forward.

And then in terms of the ex-U.S. geographies, you talked about EMEA and also other European countries where you place a couple of senior commercial management folks. So in your thinking, how long would it take for these geographies to start contributing meaningfully? And also, what are you trying to telegraph with this new appointments?

Yes. So we're blessed to have both Damien and Alex joined our teams. They worked at Intuitive Surgical with me. And there are exceptional individuals that can lead the efforts in these key markets. And what I see is, first, a couple of things. We received reimbursement in Switzerland back in July. And so if you go back and look in time where we've been, we've been making progress there, we sold a system in that market, and we'll continue to focus on that market. As part of the GAS region, the German, Austria, Switzerland region. The other thing that, as we know, the HIFI study has been presented in two notable scientific meetings and will come out in a peer-reviewed journal. So we're waiting for that. Ideally, 60, 90 days, somewhere in that time frame is what we hear today. But that data will be very, very important because the precedents of this study was based on the French government and the Association of French Urology to drive a reimbursement for HIFU in patients diagnosed with prostate cancer. So that would lead you to believe, obviously, a reimbursement awarded for HIFU for prostate cancer. When will that come? Potentially end of the year but more likely maybe in Q1. So again, the HIFI study data will come out, and we'll hear more back in terms of a response in terms of reward of reimbursement. So Damien, as noted, is French and lives in France. We have a strong leader looking over that market and driving our business, and we will continue to build the team out in a very precise prescriptive way to be able to capitalize on any changes forthcoming in reimbursement.

Okay. And my last question is on the BPH indication. At what point would you start adding centers in the U.S. and the rest of the European Union as we understand this is a very large indication. And the other question within that is, does this require in retooling of Focal One.

So as far as adding centers, again, the trial design and the studies we're doing really are to be able to get back in front of receiving CE mark MDR in Europe. And so we want that obviously. And the other is, if you remember on our FDA labeling we have the ability to ablate prostate tissue. And here, this would give us the ability to go back to the FDA at some near future date with data with the anticipation of being called out specifically for a BPH as a treatment. Now we've got work to do in the study. And if we look outward, I'm very encouraged that some of the results we saw from our Phase 0 study leads us where we're going now with a combined Phase I, Phase II study. So I can't give you a specific necessarily time line there. But arguably, we are working very hard. We've got the right people focused on this. And it's a real effort within the company to move this forward on a fast track. Additionally, you mentioned system changes of the system. Yes, we're looking at dose escalation in the protocol. And really, that's really looking at the right treatment parameters so we have that right to get the best outcomes in the right subset of men diagnosed with BPH. So that is written into the protocol. And again, we're always looking at improving our products whether it's hardware, software or other. And so that is built into the study itself. As we look at dose escalation, the ability to very dose accordingly for treating BPH effectively.

Operator?

This concludes our question-and-answer session. I would like to turn the conference over to Ryan Rhodes for closing remarks.

I want to thank everyone for joining us on today's call. And we look forward to seeing you at the upcoming H.C. Wainwright Healthcare Conference in New York in September. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.