EDAP TMS S.A.
Q4 2020 Earnings Call Transcript

Published: 31 Mar 2021

[Operator:]

Greetings, and welcome to the EDAP TMS Fourth Quarter and Full Year 2020 Earnings Call. . Please note, this conference is being recorded. I will now turn the conference over to your host, Jeremy Feffer. You may begin.

[Jeremy Feffer:]

Thank you, Shomoli. Good morning, and thank you for joining us for the EDAP TMS fourth quarter 2020 financial and operating results conference call. On today's call, we will hear from Marc Oczachowski, Chief Executive Officer and Chairman of the Board; 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.

[Marc Oczachowski:]

Thank you, Jeremy, and good morning, everyone. I will start with a brief operational update, and then turn the call over to Francois Dietsch to review our financial performance. As we previously announced on January 20, we turned in record fourth quarter 2020 revenue, notwithstanding the continued effect of the pandemic. In fact, these results are all the more impressive given that COVID-19 case counts around the world began to rise again midway through the quarter. We generated total revenue of €15.4 million, or $18.3 million, driven by the sale of 8 HIFU devices during the quarter, including to such renowned institutions as University of California, San Francisco Medical Center and Cleveland Clinic. These are in addition to sales to Mount Sinai Health System in New York and Keck Medical Center at the University of South California that we reported during our third quarter report. These are highly regarded institutions and important reference sites for our technology. This represents growth in total revenue of 28% over the fourth quarter of 2019 and 51% growth in HIFU revenue over the same period. Notably, we generated a sequential increase in revenue every quarter throughout 2020, which, again, reflects the hard work of the entire EDAP team in successfully adjusting to the drastically altered work environment caused by the pandemic. So even as hospitals devoted to treat the many patients infected with COVID-19, interest in our Focal One and ExactVu solutions remained high. As you may have seen in our press release, resulting the complete financial results for 2020 that we issued yesterday evening, we also managed to maintain high-growth margin and continue to prudently manage our level of expenses during this difficult pandemic time. Thanks to our careful management of the business, we were successful in generating positive operating income for the full year. This is a great achievement for our company, particularly as it was achieved in such a complicated environment. This demonstrates the solid foundation that we have established here at EDAP and gives me great optimism for the future. We also managed to increase our cash position to more than €24 million or $30 million at the end of 2020 from €20 million at the end of 2019. During the fourth quarter, we received very positive news on the U.S. reimbursement front, with the publication of final U.S. 2021 reimbursement rules for HIFU, which went into effect on January 1 of this year. And while final rates were consistent with the proposed rule previously reported, it bears repeating. On the hospital payment side, the final rule maintains the HIFU procedure in the level 5 urology ambulatory payment classification, or APC.

[Francois Dietsch:]

Thank you, Marc, and good morning, everyone. Please note that on figures, except for percentages, are in euros. For conversion purposes, our average euro-dollar exchange rate was €1.1942 for the fourth quarter of 2020 and €1.1424 for the full year of 2020. Total revenue for the fourth quarter was €15.4 million, an increase of 28.2%, versus €12 million in Q4 2019, reaching a new record level for our fourth quarter revenue, despite the ongoing impact of COVID-19 on our treatment revenue. Total revenue in the HIFU business for the fourth quarter of 2020 was €4.4 million, a 50.8% increase compared to €2.9 million for Q4 2019. During the quarter, we sold 6 Focal Ones and 2 Ablatherm versus 2 Focal Ones during the same period last year. Total revenue in the LITHO business for the fourth quarter of 2020 was €4.6 million, a 10.6% increase compared to €4.2 million for the fourth quarter of 2019. We sold 16 lithotripsy devices in the quarter versus 9 in the same period last year. Lastly, total revenue in the Distribution business for the fourth quarter of 2020 was €6.4 million, a 29.7% increase compared to €4.9 million for the fourth quarter of 2019, thanks primarily to the Exact Imaging license and distribution agreement. Gross profit for the fourth quarter of 2020 was €7 million compared to €5.1 million from the year-ago period. Gross profit margin on net sales was 45.8% in the fourth quarter of 2020 compared to 43% in the year-ago period. The year-over-year improvement is due to the higher HIFU sales. Operating profit for the fourth quarter of 2020 was €1.7 million compared to an operating profit of €0.1 million in the fourth quarter of 2019. Net income for the fourth quarter of 2020 was €0.8 million, an income of €0.03 per diluted share, including mainly a noncash currency exchange loss on U.S. dollar and regular tax impact, as compared to net loss of €1 million or €0.03 per diluted share in the year-ago period. Turning to the full year 2020. Total revenues were €41.7 million, a 7.2% decrease compared to 2019. As Marc mentioned, the full year of 2020 revenue reflects the impact of the ongoing COVID-19 pandemic and the company's activities. Gross profit for 2020 was €18.4 million compared to €21 million for the year-ago period. Gross profit margin and net sales was 44.1% for 2020 compared to 46.8% in 2019. The decline in gross profit was mainly due to the lower of sales in the HIFU business driven by COVID-19.

[Marc Oczachowski:]

Thank you, François. Before turning the call back to the operator to start our question-and-answer session, I would like to highlight again the fact that, despite the challenges post, the full year 2020 turns out to be extremely positive and constructive for our company. We sustained our operating profitability. We strengthened our cash position, increasing it to €24.7 million, and we successfully achieved significant milestones in key strategic projects, such as reimbursement of HIFU in the U.S. and the advancement of our endometriosis HIFU clinical program. Even if the pandemic continues to significantly impact the global economy this year, we feel well positioned to continue achieving great milestones in our clinical sales and marketing programs in 2021. We will now open the call to your questions. Operator?

[Operator:]

. Our first question is from Frank Takkinen with Lake Street Capital Markets.

[Frank Takkinen:]

Congrats on such a great year on such an uncertain environment.

[Marc Oczachowski:]

Hey, Frank.

[Frank Takkinen:]

A couple from me today. Starting with placements, you guys had such a solid quarter with 8 HIFU placements in the fourth quarter. I was hoping you guys could speak towards your expectations for 2021 in regard to placements. How should we be thinking about trends throughout 2021 given COVID is starting to abate and that reimbursement trends are looking more positive?

[Marc Oczachowski:]

Yes. Thank you for the question, Frank. Well, it's sure that we didn't give -- I mean, you know that we usually don't give too much guidance, forward-looking statements. And as I just explained at the end of the speech right now, we feel the company is well positioned.

[Frank Takkinen:]

Okay. That makes sense. In regard to the consultancies, MTP and Argenta, could you take us a little bit deeper into some of your expectations for what those could bring in 2021? And more specifically, do you believe we could start to see some commercial organizations issuing policies?

[Marc Oczachowski:]

So actually, we -- as I explained earlier in the previous communication, we increased our support, and we used to work with MTP in the past. So MTP was supporting us and working with us in getting the C-code and then the CPT code. Now we have increased again investment in supporting reimbursement and coverage by getting Argenta Advisors on board. The idea is really to work on different access of -- market access and coverage, working on giving a good and strong and probably deeper support to existing sites or new sites in placing their claim to Medicare, but also in working with the private payers and as well as the max to get automatic coverage positive both -- from both Medicare institution and the different private payers. So we have very strong expectation, and we really want to, again, support the market and get better coverage and increase the coverage. And obviously, the idea and the goal is to get more policies and more coverage from the max at Medicare and from the payers and commercial insurances.

[Frank Takkinen:]

Perfect. And then last one for me, a little bit higher-level question. Can you -- about the commercial organization. So I understand you've kind of exercised more of a tempered approach in the United States as you rolled out Focal One targeting only the Tier 1 centers in the U.S. Given the developments around reimbursement, the MTP and Argenta developments as well, should we expect kind of a next natural step for you guys to start to place more significant fund behind the commercial organization to start going after the next wave of Tier 2 or Tier 3 institutions to further the adoption of Focal One in the U.S.?

[Marc Oczachowski:]

No, you're absolutely right, and that's the plan. As we increase and expand coverage and have more and more payers supporting the technology and paying it, the idea is to expand from the Tier 1 institution to the Tier 2, and that will indeed require a broader commercial organization and network.

[Operator:]

And our next question is from Andrew D'Silva with B. Riley Securities.

[Andrew D’Silva:]

Congrats on the strong quarter. Just a few quick ones for me. Just to start, as it relates to the -- so as it relates to the fourth quarter, do you think the strength there was more tied to perhaps pent-up demand from the limited ability of your customers to make capital investments in the first half -- or the first 3 quarters of 2020? Or do you believe other factors were at play during the fourth quarter? And if you could, since we were at the very end of the first quarter of 2021, did you see the momentum change? Or has the momentum from the fourth quarter continue to carry over into 2021?

[Marc Oczachowski:]

No. I think on the fourth quarter, you're absolutely right. There is first -- and as we always say, there is, first, a seasonal effect in the sales of capital equipment, such as the one we are offering. And usually, fourth quarter are always bigger because that's, in most of the cases, the end of the fiscal year, and investment has to be made if they were not made before in the year. So we usually have more investment done by hospitals -- or private hospitals at the end of the year. And this year, I think that seasonal phenomenon has been completely increased and amplified by the COVID-19 effect of the first half of the year, which was extremely slow due to that new crisis happening worldwide. So we got a usual strong quarter, but it was again amplified by the crisis. Now turning to the momentum, I think by entering in 2021, and as I said before, the pandemic impact is unfortunately not over. Even though the vaccine things and the improvement that we have seen, there is still a very strong lack of visibility in the worldwide economy, so investments are still very, I would say, very slow or very -- people are getting shy in spending the money at the beginning of the year like it was last year. Like it is usually, but I understand that might be amplified a little bit this year. So we see something similar from what we've seen last year in terms of appetite for investment. Though the momentum in the technology and, again, the number of interest -- or interested institutions that we have in our pipeline is continuing to grow in the U.S. as well as rest of the world.

[Andrew D’Silva:]

Okay. And just to recap of what you're saying. So basically, while the pipeline is as large as it's ever been, and interest is continuing to grow, the first quarter of 2021 is likely to have more of an augmented seasonal impact than you would typically see because of COVID-19 and the second wave that actually took place during the winter.

[Marc Oczachowski:]

Yes. I think the seasonal effect in general over the year, last year and maybe this year, at least in the beginning will be amplified, yes.

[Andrew D’Silva:]

Okay, okay. Great. And then I know you provided hospital facility fees before, but are there any significant differences in HIFU reimbursement between the hospital facility fee and then, say, an ambulatory surgery center, an ASC facility fee? And there's been a positive pipeline development now, as you referenced with the Focal One. Are you able to maybe tie that to reimbursement? Or is it just initiatives that took place before final reimbursement was put into place in January?

[Marc Oczachowski:]

I think that's a bit of both. And again, the fact that the CPT code got in execution at the beginning of the year was not a surprise. I mean, that's something we've known for a long time. So everybody was prepared, and the hospital as well. So I think it didn't come as a news -- as a breaking news. It was known for almost a year since we got the grant from CPT -- from CMS on the CPT code. And the difference -- by law, I would say, the difference between the payment in a hospital or in an ASC is still the same and has always been the same for all procedures.

[Andrew D’Silva:]

Okay. Wonderful. And just last thing, if you can just refresh my memory on ExactVu. How exactly is reimbursement work there? And do you have a dedicated reimbursement? Or are you working on obtaining dedicated reimbursement for ExactVu?

[Marc Oczachowski:]

No. We don't have -- well, we don't have a dedicated reimbursement for the micro-ultrasound capability of the ExactVu. And today, what our sites are using is the reimbursement for ultrasound or -- and/or the reimbursement for targeted biopsy or MRI fusion capability of the device. You know Exact -- the ExactVu has a lot of different capabilities, including being a normal ultrasound, being a device that does MRI fusion images as well as targeted biopsy and then the micro-ultrasound capabilities. So there is reimbursement for the 2 first, but not yet a dedicated reimbursement for the micro-ultrasound, and this is something we're working on.

[Operator:]

And our next question is from Arthur He with H.C. Wainwright.

[Arthur He:]

This is Arthur for RK. I have two questions. First of all, could you guys give us anecdotal color regarding -- after the implement of the same -- the code, the CPT code? Could you -- is there any feedback from -- during your discussion with the payer?

[Marc Oczachowski:]

I'm not sure I understand exactly the question. And as we said before, I mean, we are -- now that we have the code, we are increasing and accelerating our market access strategy, and that includes discussion with payers and, more particularly, medical Directors at max level as well as private payer level. If that was the question, that's the answer.

[Arthur He:]

And my second question is regarding the gross margin. Is the fourth quarter gross margin could be at the run rate for the 2021? Or if you can give us more color on that part.

[Marc Oczachowski:]

It's difficult to answer. Again, we don't give forward-looking statements. But yes, I mean, it could be at the run rate. If we get the same sort of mix product, the gross margin is pretty effective between the three divisions. So yes, if the mix remains the same and the momentum on sales is about the same, that should be consistent. But in any case, it shouldn't be far from what we've seen in the full year 2020, as usual.

[Operator:]

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Marc Oczachowski for closing remarks.

[Marc Oczachowski:]

Thank you, operator, and thank you, everyone, for joining us today. We'll keep you informed and posted of further developments, and we'll be pleased to discuss our start of 2021 during our next earnings call for our Q1 results. You all have a good day.

[Operator:]

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.