Jeremy Feffer - LifeSci Advisors Philippe Chauveau - Chairman of the Board Marc Oczachowski - Chief Executive Officer Francois Dietsch - Chief Financial Officer

Swayampakula Ramakanth - H.C. Wainwright

Good day, everyone. Welcome to the EDAP TMS Fourth Quarter and Full Year 2017 Earnings Call. Today’s call is being recorded. At this time, I would now like to turn the conference over to Mr. Jeremy Feffer. Please go ahead, sir.

Thank you, Alan. Good morning. And thank you for joining us for the EDAP TMS fourth quarter and year end 2017 earnings conference call. On today’s call, we will hear from Philippe Chauveau, Chairman of the Board; Marc Oczachowski, Chief Executive Officer; 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 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 over the call to EDAP’s Chairman, Philippe Chauveau. Philippe?

Thank you, Jeremy, and thank you all for joining us today. In year 2017, our Company continued to progress with the following significant accomplishments: First, EDAP’s HIFU treatment revenue achieved a double-digit growth; Second, in the United States CMS issued a C-Code allocation for reimbursement of HIFU for prostate tissue ablation; Third, also in the US, at the start of 2018, Cigna is to reimburse HIFU as salvage therapy for prostate cancer patients; Fourth, EDAP’s UDS division, including Lithotripsy, remained in 2017 one of the world’s leaders in urology; And finally, EDAP continued to strongly manage its cash balance reaching $24 million at the end of 2017. I will now turn the call over to EDAP’s CEO, Marc Oczachowski. Marc?

Thank you, Philippe. Good morning, everyone. And thank you for joining us for our fourth quarter 2017 conference call. Last night, we published fourth quarter and full year 2017 revenue of €10.6 million and €35.7 respectively as compared to €10.7 million and €25.6 million in the prior year period. Francois will detail our financial results a bit later on. But in short, our total revenue for the fourth quarter was negatively impacted by hospital customers’ delayed purchases of HIFU systems, while waiting for Focal One approval in the U.S. As reminder, we submitted our 510(k) application to the FDA in October after withdrawing our initial application to enroll for the inclusion of additional clinical data. The new data include studies from active and academic Focal One centers in Europe. We have maintained a regular dialog with the FDA regarding of submission and the data we presented. And we have a meeting scheduled for April 4th to clarify and reach a common understanding on the clinical data submitting in our October application. We did have our Ablatherm Fusion device cleared by the FDA in October. This device incorporates our proprietary Fusion software, which merges MRI and ultrasound images, providing increased accuracy during planning and treatment for physicians. But it is clear in our conversations with hospitals and clinicians that there is excitement and anticipation for Focal One, which is the first medical device designed specifically for the focal treatment of prostate cancer. It provides accurate and MR-fused imaging precise and efficient therapeutic HIFU images and of treatment validation imaging with contrast enhanced ultrasound. Focal One is the only design opening a new era of generation of HIFU devices for prostate and real targeted ablation, ahead of any other existing device and seeking the new treatment plan and strategies. We believe that focal therapy is the future of prostate cancer treatment and we very much look forward to our meeting with the FDA during which we expect to gain visibility of what we believe is the last and final stage in the 510(k) review process. In the meantime, we did experienced difficulty in selling our HIFU devices in the U.S. as sales were down 30% year-over-year. However, we are extremely encouraged by the growing interest in and adoption of HIFU as a treatment modality as evidenced by 13% year-over-year increase in HIFU treatment revenues worldwide, as well as strong pipeline of projects and reads of sales and marketing in the U.S. managed to build along the year. This was driven in part by the issuance on July 1st by the CMS, particularly for HIFU ablation of prostate tissue. This was an important milestone that opens the door the broader coverage from additional payers, particularly commercial payers. We continue to work on expanding coverage and on educating more physicians to make our innovative HIFU technology available to all patients in the U.S. To this end, we were thrilled to announce last week that Cigna became the first major U.S. private sales insurance company to reimburse prostate cancer patients in cell radiation and are eligible for HIFU as a target therapy. Cigna’s strategic coverage decision signals a clear shift in the private sales insurance market regarding HIFU procedures as Cigna’s 15.9 million and enrollee now have access to a salvage therapy. Cigna’s published the alliance with the guidelines of the National Comprehensive Cancer Network that met with globalized prostate cancer may benefit from salvage HIFU, particularly for patients with recurrent prostate cancer, following radiation therapy to meet certain medical criteria. The NCCN is with American Society of Clinical Oncology’s most authoritative guideline issuing bodies for cancer cure in the U.S. We are in active discussions with other payers to further expand coverage to ensure that all patients who can benefit from HIFU can have access to it. We also continue to actively promote HIFU to U.S. urologist and patients through educational and informational campaigns on local TV networks and in local newspapers and publications. Our U.S. marketing and sales teams are building their network and working to certify more urologists for HIFU, so this is an effort that will remain the first priority for us. Internationally, we continue to see strong growth in our distribution business as sales grew 41%. This business is primarily in France and Japan, although we are looking at opportunities to expand further by reaching new partnership and agreements with companies offering products, bringing clear synergies with our manufactured ranges of products and our expansion sizes. In terms of our pipeline, we continue to invest in our clinical development programs with the long-term objective of making our HIFU platform a tool for minimally invasive soft tissue ablation that can exist in every operating room. Indeed and as we’ve seen open surgery as almost it is clear to say why it was a gold standard some years ago, it’s been replaced by laparoscopic surgery and now robotic laparoscopic surgery. Based on the recent trends and needs, we strongly believe that the next step with surgical procedures will be centered on targeted energy based ablative technologies. And HIFU is the best positioned and most proven technologies in place on behalf of the surgical operation in each and every hospital. While our technology has presently brought and proven its ablation capability for both the tissue we are actively conducting clinical trials for HIFU as a treatment option for endometriosis and liver metastases, which constitute large unmet medical needs. Our aim is to validate EDAP’s advanced HIFU technology for the ablation of aiming soft tissue. Turning to our Lithotripsy business. We continue to see solid growth as sales increased 9% year-over-year. While this is a relatively mature market, it is dynamic and subject to burgeoning replacement cycle. And now, our CFO, Francois Dietsch, will provide a review of our financial results. Francois?

Thank you, Marc and good morning everyone. Please note that firstly years except for percentages are in euro. For conversion purposes, our average euro dollar exchange rate was 1.19 for the fourth quarter and 1.14 for 2017. Total revenue for the fourth quarter was €10.6 million, stable as compared to for the fourth quarter of 2016. On the HIFU side, we generated sales of €2.4 million, a 46.5% decrease compared to Q4 of 2016. As Marc explained, this decrease was caused in part by the decision of some hospital customers delay purchasing their HIFU device until the FDA clears the Company's 510(k) submission for its Focal One device. As it relates to HIFU treatment revenue, our revenue grew during Q4 2017 and we recorded 6% increase worldwide compared to Q4 of 2016 and 41% in the U.S. Q4 2017 Lithotripsy revenue was €8.2 million, a 34% increase versus Q4 2016. This growth has been driven by the sales of devices and we sold 19 Lithotripsy devices in Q4 2017 compared to nine Lithotripsy devices during the year period. Gross profit for the quarter was 41.6%, a decrease of 700 basis points year-over-year. This trend was mainly driven by the decrease in the HIFU activities, which has better margin level than UDS. Going forward, gross margin will depend largely on sales mix between HIFU and UDS. Net loss during Q4 2017 included a non-cash interest expense of €0.4 million to adjust the accounting fair value of the outstanding warrants. Turning to the full year 2017, despite the weaker HIFU system sales, total revenue for 2017 was mostly flat versus 2016, thanks to the 20% growth in our UDS division at a record level. The decrease in HIFU sales explains primarily the lower level of gross margin and net sales at 31.5% compared to 36.1% for the full year 2016. Operating expenses for 2017 was €16.8 million, which increased €0.8 million due largely to increased investments in U.S. sales and marketing expense and in HIFU pipeline development programs, despite the continued similar levels of investments in 2018. Net loss for the full year was 2017 including non-cash interest income of €2.7 million to adjust the accounting fair value of the outstanding warrants. Lastly, we ended 2017 with a strong cash balance of €20 million. I will now turn the call back to Marc.

Thank you, Francois. We have made important progress on several fronts, including HIFU adoption, continued investment in our HIFU clinical pipeline and more physician and patient education. We remain focused on our Focal One clearance process with the FDA and on securing additional commercial payer coverage for HIFU treatment. With that, we would now like to open up the call to your questions. Operator?

[Operator Instructions] We’ll take our first question from Swayampakula Ramakanth with H.C. Wainwright.

On the meeting with the FDA. Is this part of the process for the 510(k) review? And also, who called for this meeting, is it you or the FDA? And I know you gave us some idea about what’s going to be discussed. But can you give us a little bit more color as to what you are expecting as a sponsor from this meeting?

So this is indeed -- if the meeting happens is because it’s part of the process or could be part of the process at least. And actually we requested that meeting again to clarify some points that I will not disclose on the call today. And to like I said reach a common understanding on the clinical data. As you know, we submitted a new application in October to get some additional clinical data and actually we have some discussions and questions from the FDA. So we requested for this meeting to happen with the FDA and we’re going to get that done in April 4th.

So we cannot really understand the status of the application till you come out of that meeting to figure out if this is going to take a little bit longer for final approval or sooner. I mean is that -- because 510(k) doesn’t have a clock per se, correct?

Well, it has a clock, it has a clock that can be stopped and can be reactivated, I think it’s done by the FDA really. So it has a clock, it doesn’t mean we have to -- the FDA has to exactly be in the clock, so it has a clock.

And then on the Cigna's decision, congratulations on getting Cigna to sign up for reimbursement, which is obviously a big positive for HIFU. Since it has become effective from January 15. So what topics have you been seeing in terms of procedures since then. And how has that decision helped in making conversations with other private payers?

It’s difficult to see the impact right now, because again it’s a pre-recent news and we’ve learned as well with the CMS speaker that it takes a little while to hospital and surgery centers with the most top training and getting the feedback from that, so clearly to tell or to feel any impact. But it certainly will help again in that network but also in opening other networks and as I said before that’s opening the door and that’s the first put into the reimbursement from private payers and other companies. So that would certainly help.

And then with the New Year starting. Some of the decline in HIFU sales are during the end of 2017. Has some of that conversations picked up or you’re still getting the push back about trying to get a decision on Focal Run for those conversations to get started in the New Year?

In the U.S. again, I think until we get clerance from the FDA on Focal One, people will try to hold their decision as much as they can. And I think they need visibility to be able to move forward so we continue to see that at the beginning of the year. But I think what’s important is to see that the adoption is continuing to grow and again the sales of equipment in the U.S. in 2017 was much lower than 2016 so the installed base didn’t grow that much. We normally the same coverage of equipment has increased tremendously on number of procedures, which shows again that people are getting more and more comfortable and getting more and more patient on their machine. So I think that’s the important move. And again, we are continuing to increase our pipeline of projects and reads as well. So that’s why it’s important for us to push forward the FDA process so that we can get a clear visibility to our interested users so that we can make that decision between one or the other machine.

And talking about the procedures. Can you give us an idea of, if not exact numbers at least a percentage wise. How you are seeing or what we see in the revenue lines, is that directly indicator of your -- of the increasing number of procedures? Because I’m just trying to get an idea of what is the real impact in terms of procedures?

The number of procedures is increasing worldwide and the increase even higher in the U.S., of course, because we have less machines than in the rest of the world. But I don’t get exactly your question. Can you repeat that?

I was just trying to understand in terms of procedures, you said there is an increase in procedures. Is there a way for us to get an idea of what’s the number of procedures? Because we only see revenue numbers. Are you going to -- is that at some point?

No, because we don’t have the exact precise number for that. Because as you know sometimes, we are selling a bunch of disposables and we don’t get exactly know when they renew. So it’s difficult to exactly know the number of procedure at the precise time. But what we know is that the revenue linked to procedure that what we call the second driven revenue and that’s where we can measure the increase in production because as that number increases, it shows more activity on our installed base of equipment.

And then the last question from me is, you were talking a little bit about utilizing HIFU in other places just like liver metastates and what not. Can you just give us a little bit more color as to what’s the management’s thinking at this point and to execute it what time line, where are you in the process?

Actually, and as I tried to explain earlier in the call, we strongly believe that after more than 50,000 patients treated on prostate cancer after all the publication and I would say the expertise and experience we have on the HIFU technology, we program the ablation capability of HIFU on prostate tissue and as it was clear actually by the FDA as a tool to ablate prostate tissue is the recognition of the capability of the technology to do ablation of any soft tissue in the body. And I think this is again a proven fact. Now the idea is to adapt devices and develop new machines to access other organs. And as I said before, we are now starting from Phase 1 trial, so it’s the beginning of the clinical concept and proof on other organs to show that we can duplicate what was proven on prostate and other tissue. So it’s not a short-term project but it’s a vision and that’s also something that is again on clear proof of a technology that is able to ablate tissue on very targeted manner, which is again seeking and entering a lot of the new trends and needs in terms of including medicine.

Next we’ll go to [Nicole Gabreski with LifeSci Capital].

So first I just wanted to see, if you continue to develop next generation HIFU technology, do you feel that there will be any increases in R&D expenses over the next year?

So actually I just explain to the division so at this stage, there is nothing much that can disclose actually on it. But the idea is really to work and duplicate what was proven in terms of ablation of soft tissue in the processing in other organs and for other pathology. As I said, I mean we started and it’s not -- this is something we started already last year and the year before to do some Phase 1 clinical trial. So we are continuing to do that in 2018 we are finishing enrollment and recruitment in some of those clinical studies with the objective of going to Phase 2 probably by the end of this year or early next year. So in terms of expenses and expenditure, we already have started to spend some money. We also get some [indiscernible] from the French government and we continue to partner with [indiscernible] as we always did, so that’s also helping us to get this project going and to stop some of the cost and expenses.

And then you guys are the leader and without a risk what we thought just be. But I was wondering if there is any plan for technology improvement for the UDS division?

And that’s something we’ve been doing for the last many years. And we continue to constantly work on creating and replacing a range of products, so there is by new devices, brining new innovation new concepts. Again, we’ve seen last year that even though the market is pretty mature there is some of the types for technology and innovation and there is potential of growth. I mean we grew our business by 9% last year in lithotripsy. And again, that’s all about taking market share from the competition of that market and by bringing new developments that helps again replacing equipment from competition and that’s what we continue to do, so that’s our strategy and we continue to do so.

We’ll take our next question from [Mark Mason].

It’s been a number of years I’ve visited your facility as you may remember couple of years ago. And I’m still a stockholder in EDAP. I have several questions. One being that just recently, as recently as yesterday, we went through the National Cancer Institute site, a Division of the National Institute of Health and they are still listing HIFU as under clinical trial. Should not be Ablatherm the listed above clinical trials? I understand Focal One is in clinical trial, but Ablatherm has completed their clinical trial. Is that correct?

Actually they can list it wherever they want but what is correct is that Ablatherm was clear by the FDA to be using the U.S. for the ablation of prostate issue. Now different institutes can then classify the way they want in different technologies. And you may see other technologies that are available in the U.S. or in the world that may still be in their clinical in the positions. This is their only decision, so FDA cleared on us they can do whatever they want.

We have with prostate clarification on that, because obviously the person with prostate cancer may go to that site National Cancer Institute and then they’re afraid to go with HIFU, it’d be like years ago before it was approved. And say oh it’s going to clinical -- we’re not sure how effective this is, we don’t want to go with this. And so we’ve asked them for explanations and also to get it put on the top list of approved procedure. But I would think that the company itself would want to do this as well, I don’t -- once National Cancer Institute part of the national institute to develop, which as part of the U.S. government and could be on the same page as the FDA in my estimation. So that’s one thing…

I agree and actually we are also working on updating and making sure everybody, I mean is where that the FDA could determine and put up it basically.

And other question, how many countries have approved Focal One. I think we know Canada has, France has, several countries at least, right?

Yes absolutely. Well, a lot of countries -- I mean, all the European countries of course approved the key marking. Canada, as you know, we’ve got Brazil as big countries and with have a number of other countries as well. And other countries that would get registered based on key marking of other regulation approval. So basically today if we speak about major countries that have not cleared Focal One, we have like we said during the call, the U.S. and also Japan where we are now starting our regulatory program for Focal One care.

So if there are countries that have approved, is that my point. If these countries such as Canada have approved it, why aren’t seeing sales of Focal One to Canada to other places or the EU? Should we…

We do have in rest of the world.

I didn’t understand that?

We do sell Focal One in other part of the world.

How many Focal One’s did we sell in 2017 compared to 2016?

Last year, I was just checking to make sure, we sold three machines out of the U.S., I mean Focal One machines in Europe and rest of the world. And we have a installed base of Focal One equipment of course all of them are outside of U.S., that’s about 30 to 35 machines.

And has there been more of the dissemination machines in 2017 compared to 2016 as in other words, some of them and you certain agreements where they’re not actually sold, you own them or lease them or whatever. But have the leases or sales increased year-to-year from 2016 through 2017? In other words, worldwide you had, let’s say in 2016, five machines out there now on 2017, you have 35. I am just throwing out examples. So in other words, you’ve increased your exposure in 2017 by just the amount?

As you know, we also operate some machine by ourselves in Europe and we’ve increased that number as well in addition to the pre-sales. So the global activity that was your question has increased in 2017 as compared to 2016 in terms of equipment driven revenue that’s what we are seeing for.

And my other question, in the past when we have asked about the FDA when Ablatherm was up for approval. I would ask questions like how many times has the FDA contacted you with questions and updates, because as we’re understanding that when the FDA ask for more information the clock stops and they wait for that information to come. And this is the first time that I can remember in the number of years that I’ve been involved with this that you’ve actually posted a date, April 4th meeting with the FDA. And it appears like this is the meeting to clarify some clinical data. Have there been any other calls for clarification during this past six months that the applications has been pending for Focal One’s that have stopped the clock?

Actually the FDA has sent us some questions and also we have some interactive reviews and that’s begin to process with the FDA for a review. And so I don’t know that I want clearly exactly how many back and forth decisions, because interactive it was official and clock stopping on us that. But yes, as we said in the past few weeks and months that we are in constant discussion with the FDA and again that’s the way to make sure everybody is on the same page and we understand further on all the aspects, which again the main aspect is the clinical site about specification as we said.

It’s just as I said in the past, you’ve never given a date, a specific date and meeting with them and this is very -- this seem to me very unusual, that you’re stating April 4th your meeting with them. And also it’s hard to understand…

I mean, we don’t need to disclose any of the meeting or the discussions or the questions we have with the FDA is that we understood from the market that the pressure was even knowing what’s happening with the FDA. So we just like to give some information. But again, there’s no obligation for us to do -- it’s more for information so that again most of the people are asking about some information of what we do and where we are.

And the other thing, the FDA has approved Ablatherm and Focal One, the only enhances that procedure, it enhances with an overlay of MRI. Is that not true, I mean basically?

I don’t understand your question there.

The ablation of tissue on the Focal One versus Ablatherm is the same, isn’t it?

It is the same technology and concept, but it’s not the same device.

Okay.

And the FDA cleared the device, the technology and then our devices are clear. So each case is particular, that’s the process.

I thought that once the FDA approve of a procedure, in other words high intensity focus also down for the ablation of issue. And if you represent another piece of equipment that has it, but it’s been upgraded because now we overlay a MRI image to give a more accurate pin pointing of the ablation that that’s basically always -- that’s different. I mean if you took the overlay of the MRI off of the screen, you have basically an Ablatherm, is my way of looking at it.

I think you should try to understand the way regulation works and FDA too. Again, FDA, first of all, does not approve in that case this year and they don’t clear a technology or procedure or a concept a cure device, a specific device that has a name and that is a device. So if tomorrow -- and that’s the concept of the 510(k), so I don’t want to go and explain how it works and I think it’s available on the Internet. But if you have a advice that’s using a technology that is already approved or cleared by the FDA then it’s certainly the new device, again its device related, it’s more or so the new device then you use the process that’s called the 510(k) on which you compare with the predicate device that has been already cleared and that’s what we are doing.

You do use the previous device as a comparison to what you’re proposing to get the new device approved.

Okay.

I don’t want to pressure anymore, that’s it. I enjoyed speaking with you and good luck, and I hope that the FDA approval in the short-term, and thank you again for your time and keep up the expansion of HIFU and we look forward to better days ahead.

[Operator Instructions] And it looks like we have no further questions at this time. So I would like to turn it back to our speakers for any additional remarks.

So thank you again to everyone for participating on today’s call. We look forward to updating you on our commercial and development activities again in the near future. You all have a great day.

That does conclude today’s conference. We thank you everyone again for their participation.