Good day, everyone, and welcome to today's EDAP Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. It is now my pleasure to turn the conference over to John Fraunces with LifeSci Advisors. Please go ahead.

Good morning. Thank you for joining us for the EDAP TMS Second Quarter 2025 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. 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. As we will review today, EDAP Focal One HIFU remains instrumental in driving the execution of our defined growth strategy. In Q2, we experienced strong and accelerating demand for Focal One robotic HIFU. We reported global HIFU revenues of USD 9.7 million, up 89% on a year-over-year basis. This increase was driven by the net placement of 12 Focal One systems, representing a year-over-year growth of 140% as compared to the second quarter of 2024. The 12 system placements comprised of 9 capital sales, including 1 conversion of an operating lease to a capital sale at Kaiser Permanente as well as operating leases at 4 large hospital systems. We are encouraged to see hospital networks from our current installed base such as Hackensack Meridian Health, Baptist Health and NewYork-Presbyterian Health purchased a second Focal One system to support the expansion of their focal therapy program across multiple locations. Additionally, we are also proud to report that we now have a total of 4 Focal One placements in Cleveland Clinic facilities worldwide. These include Cleveland Clinic Ohio, Cleveland Clinic Abu Dhabi in the United Arab Emirates, Cleveland Clinic London in the United Kingdom and Cleveland Clinic Indian River in Eastern Florida. We believe our strong second quarter HIFU performance represents a significant inflection point of accelerating growth of Focal One and signals the potential of a broader adoption of focal therapy by community-based urology practices. Based on our most recent assessment of the market, we believe this accelerating growth is driven by 3 main factors: First and foremost, increased demand for Focal One is being driven by new rigorous scientific clinical data supporting HIFU and focal therapy in the treatment of prostate cancer. The groundbreaking HIFI study, which was recently published in European Urology,…

Thank you, Ryan, and good morning, everyone. For conversion purposes, our average euro-dollar exchange rate was USD 1.1489 for the second quarter of 2025. Total revenue for the second quarter of 2025 was EUR 16 million, an increase of 1.6% as compared to total revenue of EUR 15.8 million for the same period in 2024. The increase in revenue was driven by significant strength in our core HIFU business, which grew 76.8% over the second quarter of 2024. Growth in our HIFU business was offset by expected continued decline in our noncore distribution and ESWL businesses, which declined by 31.2% in Q2 2025 versus Q2 2024. Total HIFU revenue for the second quarter of 2025 was EUR 8.5 million as compared to EUR 4.8 million for the second quarter of 2024. The 76.8% year-over-year increase in HIFU revenue was driven by 9 Focal One capital sales in the second quarter of 2025 versus 3 capital sales in the prior year period as well as a 16.1% year-over-year increase in Focal One treatment-driven revenue. The second quarter worldwide HIFU disposable revenue was up 23.9% on a year-over-year basis. U.S. procedures grew 4.8% year-over- year. For the first half of 2025, HIFU revenue was EUR 14.7 million, an increase of 38.5% compared to the 6 months ended June 30, 2024. Gross profit for the second quarter of 2025 was EUR 6.8 million compared to EUR 5.9 million for the same period a year ago. Gross margin was 42.5% in the second quarter of 2025 compared to 37.5% in the same period a year ago. The increase in gross margin year- over-year was primarily due to the strategic focus on our high-margin HIFU business segment. Gross profit for the 6 months ended June 30, 2025, was EUR 12.5 million compared to EUR 12.3…

Thanks, Ken. The company is updating its 2025 financial guidance. Core HIFU business revenue is now expected to grow within the range of 26% to 34% year-over-year, and our combined noncore ESWL and distribution business revenue is expected to decline within the range of 25% to 30% year-over-year. This compares to our earlier guidance issued at the beginning of the calendar year, which had our core HIFU business growing between 16% and 25% and our combined noncore ESWL and distribution business revenue declining between 20% and 25% year-over-year. This quarter, we hit a major inflection point for Focal One adoption with record second quarter HIFU results, signaling the start of accelerated growth. Adoption is being driven by 3 forces: Strong clinical data validating Focal therapy with the use of Focal One; focal One's best-in-class robotic HIFU platform with increased capabilities; and a growing awareness among patients and physicians. Notably, much of our growth from the U.S. community hospitals in major metropolitan areas, and this is a clear sign that hospitals are responding to rising demand. With our leadership position, differentiated technology and expanding footprint, we are poised to both define and lead the rapidly growing focal therapy market for early-stage prostate cancer. With that, I will now turn the call over to the operator for questions. Operator?

We'll take our first question from Michael Sarcone with Jefferies.

I guess just wanted to start and dig into some of the payer issues you mentioned, Ryan. I guess you said you're starting to see some improvement there given that you're working with the market access providers on prior auth. Could you just give us a little color on the efforts you're taking there to improve the reimbursement situation and maybe what you're baking into the revised HIFU growth guide for the year as it relates to some of that improvement?

Yes. So to answer your question, Michael, a couple of things. One is, obviously, we showed solid growth maintained in our HIFU business year-over-year. We've stated some challenges tied to Medicare Advantage plans in select markets but these are being actively addressed. We're proactive in our mitigation, meaning we have strong collaboration with our marketing access partners, helping to accelerate pre-authorizations for Focal One procedures. And really early signs of improvement are emerging with more approvals coming through for individual procedures. We think also getting and disseminating out the landmark HIFI study and of course, the F-A-R-P study or FARP studies provide compelling clinical evidence, which, again, support broader coverage and bolster payer confidence. And equally, we are also seeing an increase in training new urologists seeking to learn how to use Focal One. So I think in context with your question, we've seen activity with Medicare Advantage but it's been regional. And usually, it's addressed right away, and we see, again, a lot of the -- what I would say, some of the -- a lot of the issues we've had kind of resolved, again, using our outside market access partners as well as working with the hospitals, the physicians and elevating the clinical data as suggested.

Okay. Very helpful. And I guess just one follow-up there. If we look back to the end of last year, I think your HIFU procedure growth was growing at kind of the 30% plus range, and now we're in the mid-single digits. I guess do you attribute that decel entirely to some of these regional Medicare Advantage issues? Or is there anything else going on there? Just trying to get a sense for when you think we see higher growth. Can we get back to the 20% plus HIFU procedure growth?

Yes. We're deeply focused on that. And again, as mentioned, where we've had issues with Medicare Advantage plans, which, again, we've communicated in the past, we have resolved a lot of those issues. Some of those go on to ALJ rulings, and we've been able to elevate a lot more of this -- more of the clinical evidence as referenced. I would say that we continue to be hyper-focused on our procedure growth. And again, I think there's a couple of contributing things is we've seen an increase of urologists at install accounts wanting to be trained on the technology. So we're activating on that. Again, I think we're heading in a positive direction with our procedure growth. We had quarter-over-quarter increase, though it wasn't communicated here but we had a quarter-over-quarter increase and certainly a year-over-year increase. So we're hyper focused on it. And I think looking at the activities in our pipeline and pipeline of training new urologists, I think it bears well for future growth.

And we'll take our next question from Swayampakula Ramakanth with H.C. Wainwright.

Congratulations on a strong quarter. Just trying to understand a little bit more behind CMS trying to -- I mean, increase in the reimbursement rates. So what do the CMS take into account when they are giving you a higher reimbursement rate? Do they look into the evidence? Do they look into the procedure volume or the -- what other factors go into that calculation?

Well, one is they look at, I think, a number of things. Obviously, they look at things across the board. Again, these are average payments. So they look at cost of service in those relative markets. So there's a service to value, clinical value ratio that they use. Additionally, they look at volume of procedures and volume of treatments and billing that comes in. Remember, in our business, we have a disposable as noted, right, for every procedure we perform. With Focal One, we also sell a corresponding Focal pack. So I would say that HIFU is growing categorically. We've seen that data. That is a driver. And there's some incidental things like in the market, they evaluate everything. The cost of malpractice insurance is factored into that RVU calculation, and et cetera. So we've shown in our communication the proposed rule, the final rule comes out in October. We'll see what happens there. But it's encouraging that CMS really recognizes the value of the HIFU procedure. And I think that's an important sign for us that the value there, the clinical value, I think the data, all of it helps determine together what that payment rate may be or that increase. And it's obviously placed into a category. In our case, it's Category VI or APC VI. So all of that really goes into driving that number and that increase.

Yes. No, I was just trying to understand if I can use that as a leading indicator for volume growth and also for capital purchase growth. So that's why I was just trying to ask that question, how they calculate that. In terms of the multiunit purchases that you talked about, whether it is in the Northeast here in the New Jersey area or in the Cleveland Clinic, how much effort is your commercial team placing in such sales?

Well, there's a considerable effort, obviously, placed in every sale. I'd say what was such a good sign here is we've seen 3 distinct regional integrated hospital systems now acquire their second Focal One system in Q2. As I referenced earlier, NewYork- Presbyterian, Baptist Health and Meridian Health as well in the Northeast. So again, I think it's a strong validation that the technology is bringing value to the institution because when they look at purchases, especially premium-priced capital equipment, they're looking at the existing programs. And so we've done a very good job of kicking off the original program. And again, it's leading to second system sales within these integrated networks. So I think it's a very positive sign and obviously speaks to the validity and clinical value demonstrated by Focal One.

And then on the BPH, you said that CMS is -- I think I understood -- if I understood it wrong, please help me. I believe the CMS is giving -- is providing reimbursement on the BPH indication. So if you have that already, and doesn't your label allow for use in BPH as such? Or do you need to do some additional work to show the utility in BPH?

Yes. So our labeling allows for ablation of prostate tissue. That would be, as it's stated, that would be cancer and noncancer using the terminology. I think here is that -- the reality is that we are working through a process internally. And I'll just -- to bring you back up to speed, we've had an ongoing combined Phase I/II study in France with BPH. We are still recruiting patients in that study. But we're also, importantly, in active discussions with prominent U.S. academic partners and sites. And with our goal to be able to deliver on a U.S. clinical study or kick a study off no later than the early part of next year, 2026. We believe Focal One's precision, HIFU delivery and a noninvasive approach really offer a differentiated treatment option for BPH. With that said, if we enter into a study, we'll obviously be -- we'll be enrolling these patients corresponding, our goal would be to roll in those patients so we would be able to access reimbursement. But right now, there is -- we don't have -- there's not a defined indication as it stated for BPH. We have ablation of prostate tissue, as mentioned, and this gives us an opportunity to further do procedure and clinical development in BPH with the intention of getting into the U.S. market.

Okay. And then on the endometriosis trial, ongoing trial, can you provide us an update on that study?

Yes. Great question. Our Phase III double-blinded study, if you remember, the patients who were part of the sham arm at time of unblinding were offered Focal One treatment. if they wanted treatment per protocol. What's important to understand is over 80% of those sham arm patients chose to have the Focal One procedure once unblinded. These patients are now being tracked in a long-term follow-up study. And then importantly, in March, we announced CE mark for endometriosis in CE mark countries. And currently, we have a limited European launch underway with active patient recruitment and scheduling. And again, we feel, again, our Focal One i platform, our new platform was designed with new features tailored for endometriosis. So that's part of this CE mark country limited launch. And so we continue to work through that process. We're excited, as I explained today on the call, an important study comparing Focal One, HIFU ablation of endometrial nodules versus surgery, you can see that they're reading that paper that there may be some very distinct advantages using targeted HIFU therapy versus something more radical such as surgery.

Okay. One last question. I know I've taken a lot of your time. The EUR 36 million that you have signed a letter of intent, how much of that has you have already received? And is all of that pretty much earmarked for development in -- either in histotripsy or endometriosis studies? Just trying to understand how you earmarking those funds.

Yes. Great question, RK. I'll take the first part of the question, and I'll have Ryan answer the second. So in our current financials, we've taken no dollars on our balance sheet, okay? We are currently working with the EIB legal and our external counsel to document all the final agreed-upon terms. So we'll disclose all the Ts and Cs once the final agreement is signed. But just to emphasize, no cash from the EIB is currently on our balance sheet. Now with regards to the funding, I'll let Ryan answer that.

Use of funds, are really targeted for accelerated commercial growth, right, growing our HIFU business but also investing in some of the clinical indications as referenced and also some of the new technologies within our HIFU ecosystem. And so anyway, we -- it's a number of things in those kind of distinct areas. We want to grow faster in HIFU, and we want to invest properly. With that said, we also have some clinical development areas that we want to support indications and corresponding studies to support those indications. And then, of course, being a company that has market leadership in our HIFU technology, we want to continue to build on that with new complementary technologies.

We'll go next to Jason Bednar with Piper Sandler. Can you hear me okay?

So in the interest of time here, just ask a couple. I wanted to first start, Ryan, you seem confident. I think you made a comment that your comp in the second quarter is an inflection point. If I could just pressure test this, do you have the visibility with respect to your Focal One backlog over the next 3 to 6 or 6 to 9 months that 2Q isn't truly an establishment of a trend. The demand sounds good, but we've also seen capital go through fits and starts over the years, even for those that are disruptors or you have new service lines for hospitals. So I guess just trying to get a sense of your confidence level that 2Q truly is start of a trend and whether 3Q can be as good as what we saw here in 2Q.

Yes. I said on a go-forward basis, looking outward, we believe we've got a very, very strong pipeline. We build on that. We've added some headcount to our commercial teams, and Ken can comment on that. But our pipeline remains strong. We sell a clinically necessary strategic revenue-enhancing service line in the #1 cancer in men. And aside from the fact that there's other capital equipment out there, -- what we sell is clinically necessary. Focal therapy is growing as a category quickly. In prostate cancer, it is growing. The numbers support that. We have a technology advantage with our platform. So -- and with that said, we're talking about arguably the #1 cancer diagnosed in men. This is -- with reimbursement behind it. So all this breathes into that story but we sell strategic capital, unlike other companies out there that are selling capital equipment. We really believe that Focal One is the core to a focal therapy program in a hospital that treats prostate cancer patients. And so with that said, we believe our pipeline remains strong and growing. Ken can comment on investments we've made on our commercial teams. Ken?

Yes. So a couple of things, Jason. As Ryan mentioned, we have strengthened our sales team in the U.S. We recently brought in a new central leader. We've added key headcount in key regions where we believe MSA growth is strong. okay? So we are making the investments. Now I did want to highlight on your revenue question. So just as a reminder, right, Q3 with holidays in Europe tends to spike down, and then we always end the fourth quarter strong. We still see those trends continuing here as we finish the year. But we do feel very confident, hence, upping the HIFU revenue growth year-over-year from 16% to 25% to 26% to 35% for the year.

Are you willing to talk about where your backlog sits today even relative to where we were maybe to start the year or a year ago at this time?

I mean, arguably, I would say it's certainly stronger. We -- as Ken mentioned, we've added more commercial headcount in the right key areas, not only in the U.S. but even in the OUS markets. And we continue to leverage that. We -- our pipeline, I would say if you looked at a year in time and if you -- pipeline as it can be a very vague term, as you know, Jason, when I look at a qualified active pipeline on a year-over-year basis, clearly, our pipeline is stronger than it was last year. We have arguably more boots on the ground, but more importantly, we have a stronger level of engagement. And if you remember, we leveraged the HIFI study, which came out the very end of the year. So that has been helping make a notable impact. And our OUS pipeline has also been contributing more to our overall sales. So I'm excited for that. I hired -- recruited 2 strong leaders, Damien Desmedt, who is at Intuitive Surgical for 15 years and Alex Fromm, who also was at Intuitive with me. And they're leading a lot of our key efforts throughout the whole European, Latin America and Eastern Europe markets to include the Middle East. So I've got a very -- what I believe, a strong team in place to help us further drive those sales.

Okay. That makes sense. Last one for me. Just on the U.S. procedure volume number, I mean we've touched on it already a bit. I guess I'm curious how patients and hospitals are electing to move forward when this -- when some of these reviews get hung up? I mean are patients selecting alternative therapy options? And then are the hospitals seeing any -- are you seeing any elongation of capital sales trends as a result of what you're seeing play out with these procedure hangups?

No. I don't see any impact on our capital sales. It's -- again, when you do the pro forma analysis, which we commonly do, working closely with our hospitals, hospital customers, we have strong reimbursement in place. And those who invest see this as strategic to their operating plan. We're talking about cancer, cancer and men, men's health and all these kinds of things. So -- but back to your question on denials and repeals and those -- in that process, the appeal process, we work through that, and we've gotten better. And again, it's regionally based. We have some hospitals that had a few incidents and then they kind of sail through and now payers are approving those procedures and improving the reimbursement. So it continues to evolve. I'd say a lot of our hospitals now are armed with new data, and they're using that data. All the dossiers that have been out there reflecting HIFU as a treatment for prostate cancer are up to date, especially with the HIFI study that's already out, and we will see ideally the FARP clinical trial data, the randomized controlled trial also published. So all this breeds into the opportunity to work through the -- any slowdown with the payers. And we get better, too, arguably as a team, working with our market access team outside the company. So again, we -- I feel like we've got good momentum developing. We've got a lot of engagement. Remember, we have a very large, highly impressive academic installed base, and many of these folks are activated too in this process. We're in some of the top cancer hospitals and academic centers in prostate cancer on a worldwide basis. So we're -- we have everybody involved. And again, we continue to see projected growth.

This does conclude today's question-and-answer session. I will now turn the program back over to Ryan for any additional or closing remarks.

As we close this call, I want to underscore the significance of the growing disease of prostate cancer, the #1 diagnosed cancer in men. Each year, September is recognized as Prostate Cancer Awareness Month, a time dedicated to educating, informing and drawing greater attention to a disease that affects millions of men worldwide. According to projections published by the Lancet Commission on prostate cancer in April 2024, the number of diagnosed cases for prostate cancer is expected to double to 2.9 million men by 2040 with the annual deaths rising to 700,000. These numbers are alarming and they demand our collective attention. Awareness is the first step toward action. I encourage each of you to share this knowledge, advocate for early screening and support initiatives that promote education and research. Together, we can make a meaningful difference in making available newer, effective, less invasive treatment options that both save lives and improve quality of patient care. In closing, I want to thank everyone again for joining us on today's call, and we look forward to seeing you at the upcoming H.C. Wainwright Annual Global Investment Conference on Tuesday, September 9, in New York City. Thank you.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.