Edap TMS (NASDAQ:FOCL) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.

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Summary

Edap TMS, now rebranded as Focal Therax, reported a significant 39% year-over-year revenue growth in its HIFU segment, reaching $13.2 million in the second quarter.

The company completed an equity offering to raise $40 million, aimed at supporting strategic priorities, including expanding into new markets like BPH and endometriosis.

Edap TMS achieved a gross margin of 55.6%, up from 51.1% year-over-year, due to cost reductions and a disciplined pricing strategy, and anticipates further margin improvements with increased procedure volumes and CMS reimbursement adjustments.

The company continues to expand its Focal One installations globally, with notable sales at prestigious institutions and in emerging markets, reinforcing its position as a leader in focal therapy.

Future outlook includes maintaining a strong growth trajectory with a revenue target of $50-54 million for 2026, alongside advancing its clinical and regulatory programs to support growth in prostate cancer, BPH, and endometriosis markets.

Full Transcript

OPERATOR

Good afternoon, everyone. Welcome to today's Focal Therax second quarter 2026 conference call. At this time, all participants are in a listen-only mode. After the prepared remarks, you will have the opportunity to ask questions. During the question-and-answer session, to register to ask a question at any time, please press star one on your telephone. If you would like to remove yourself from the queue, press star two. Please note today's call is being recorded.

It is now my pleasure to turn the meeting over to Ms. Louisa Smith from Gilmartin Group. Please go ahead.

Louisa Smith, Gilmartin Group, Investor Relations

Good afternoon. Thank you for joining us for the Focal Therax second quarter 2026 financial and operating results conference call. Joining me on today's call are Ryan Rhodes, Chief Executive Officer, and Ken Mobeck, Chief Financial Officer. Before we begin, I would like to remind everyone that management's remarks today may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those anticipated.

We direct you to the Risk Factors section of our most recently filed Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission, as well as our other filings with the SEC, for a description of factors that may cause such differences. These statements speak only as of today's date, and we undertake no obligation to update or revise them, except as required by law. Additionally, this call is being recorded and constitutes a public disclosure for purposes of Regulation FD.

I would now like to turn the call over to Chief Executive Officer Ryan Rhodes.

Ryan Rhodes, Chief Executive Officer

Thanks, Lisa, and thank you all for joining us on our call today. Before I turn to our second quarter results, I want to take a moment to frame up today's call. We view this as a transformative moment in the evolution of our company's history, including the transition of our name from Edap to Focal Therax, debuting as a pure-play, high-growth, market-leading focal therapy company. In the first half of this year, we have completed the steps necessary to become a U.S. domestic filer, and we are now reporting our business in U.S. dollars. Additionally, this quarter we moved our ESWL and distribution businesses to discontinued operations to further establish clarity in our financial reporting in alignment with our strategic priorities. And now, with the recently announced equity offering, we believe we are fully capitalized to drive meaningful growth while penetrating our large addressable markets and thus becoming a breakout success story within the healthcare landscape.

Our team is encouraged by the notable progress we have made to date, and we're even more excited by the large global opportunity that lies ahead for Focal Therax. I am more confident than ever that we are positioned to emerge as the market leader in the growing category of focal therapy, along with our ability to create durable shareholder value. Now turning to our results, we delivered another strong quarter with $13.2 million in HIFU revenue, representing 39% year-over-year growth.

We recorded 13 Focal One capital system sales in the second quarter, a 44% increase, making this our best second quarter ever for HIFU capital systems sales. Globally, our total worldwide install base now stands at 184 systems, with 96 in the U.S. and 88 internationally, reflecting the continued broadening of our global commercial footprint across hospitals in both academic and community settings. In the U.S., we recorded eight capital system sales, including two conversions from existing operating leases at Vanderbilt University Medical Center and the University of Michigan, both of which are NCCN member institutions, NCI-designated comprehensive cancer centers, and SUO-approved fellowship programs. Adoption at leading academic institutions such as these allows the next generation of urologists to gain hands-on training and exposure with Focal One through their accredited fellowship programs, which we believe helps build broader clinical awareness and scale as those surgeons move into clinical practice. We now have 15 U.S. hospital networks that have invested in two or more Focal One systems.

During the quarter there were four hospital networks that invested in an additional Focal One system, including another placement within Cleveland Clinic, which marks our fourth in the U.S. and sixth within their worldwide healthcare network. We also added a second system within Kaiser Permanente, expanding into their San Diego market following the strong performance of their first program in Los Angeles. This expanding footprint across many of the country's most respected healthcare systems continues to validate Focal One's position as the platform of choice for hospitals building a comprehensive focal therapy program, and we believe it reflects growing confidence among some of the most influential thought leaders in the field of urology. Internationally, we delivered five capital system sales in the second quarter across Europe, India, and Latin America. This reflects the strength and continued expansion of our global commercial infrastructure. Of note, Imperial College London in the U.K., one of the pioneering and most highly published focal therapy programs in the world, has converted their HIFU activity from a competitive HIFU technology to Focal One, reinforcing the growing preference of our technology platform amongst some of Europe's most established focal therapy programs.

In France, we completed a new capital sale following the recent announcement of the universal coverage for use of HIFU by the French national health system. This reimbursement coverage outcome was the result of a landmark large prospective multicenter HIFU study published in December of 2024. We also continue to expand our footprint in several important developing markets outside of Western Europe, including India, where we completed two additional capital system sales as we build our presence in one of the largest and most underpenetrated prostate cancer markets globally.

Turning our attention to utilization, U.S. Focal One procedure volumes increased 47% year over year, demonstrating strong usage by existing programs as well as the impact of new Focal One programs launched during the quarter. This sustained growth demonstrates the durable recurring revenue streams created by each new Focal One system placement. As our install base has grown over the past several years, we continue to see procedure volume scale, and this quarter's results are a continuation of this positive trend.

Turning to our clinical and regulatory programs, in July we submitted a 510(k) application to the FDA for Focal Connect, our proprietary remote connectivity technology. Focal Connect enables remote maintenance, remote proctoring, peer-to-peer collaboration, and unlocks the opportunity to accelerate surgeon training and broaden patient access to expert care. For example, an experienced Focal One surgeon can remotely support a physician in real time, whether that connection spans across a single large hospital campus or across a broader regional network.

Last year we demonstrated the scope of this capability with the world's first transcontinental Focal One telecollaboration, where two surgeons within the Cleveland Clinic network in Ohio and Abu Dhabi collaborated to perform a Focal One patient treatment while more than 7,000 miles apart. On the positive reimbursement front, CMS has proposed an increase in HIFU facility payment of approximately 12% for 2027 compared to the current rate for 2026. If confirmed in the final rule, this would represent the fifth consecutive annual increase by CMS in the facility payment for use of Focal One robotic HIFU.

We believe this proposed increase continues to provide hospitals and physicians with a clear and predictable Medicare reimbursement pathway, which supports and justifies an investment in Focal One as the core foundation of a world-class focal therapy program. We will continue to monitor the CMS payment rule as it moves forward toward finalization, which we expect in late fall. We also continue to make progress expanding from prostate cancer into new indications with our BPH clinical program.

Through a natural orifice approach and direct access to the prostate without an incision or blood loss, the Focal One platform is ideally suited to treat BPH, or benign prostatic hyperplasia, and its related symptoms. Leveraging our growing install base and existing community of urologists specialized in prostate care and trained on Focal One, we believe that upon regulatory approval we are positioned to capture a meaningful share of the large and highly fragmented BPH market.

Our ongoing study in Latin America continues to progress with 14 patients treated to date. As a reminder, this initial clinical work is led by U.S. physicians, who have received IRB approval to expand their research at the Icahn School of Medicine at Mount Sinai in New York. The first BPH patients in the U.S. are planned for treatment with Focal One later this year in New York. As for indication expansion with endometriosis, we recently announced that Toulouse University Hospital in France became the site of our first commercial endometriosis program in Europe and has since treated several additional patients.

Since the initial program launch, more than ten additional hospitals across Europe, the United Kingdom, and Latin America are now moving to our clinical training pathway. With a dedicated CE marking for this clinical application, we continue to view the treatment of deep infiltrating endometriosis as a large and growing market opportunity, offering a treatment option to women suffering from this highly debilitating condition while avoiding major pelvic surgery and its associated complications and morbidity.

Together, BPH and endometriosis represent two significant opportunities to expand utilization for use of Focal One. We estimate that across prostate cancer and our expanded indications into BPH and endometriosis, this represents a total addressable market of more than 4.3 million procedures and over $10 billion in potential revenue. With an updated company name, a fortified balance sheet, and a refined reporting structure, Focal Therax is now fully aligned to capture the high-growth opportunity in front of us.

Going forward, we will remain focused on the disciplined execution of our strategic growth plan, as reflected in our near- and long-term financial targets. With that, I will now turn it over to Ken to review the financials in more detail.

Ken Mobeck, Chief Financial Officer

Thank you, Ryan, and Good afternoon, everyone. Before I turn to our results, I want to spend a moment on a change to our financial reporting. As Ryan mentioned, beginning this quarter we are classifying our non-core ESWL and distribution businesses as discontinued operations, consistent with our continued and disciplined focus on our core HIFU business. As a result, going forward our financial statements and related commentary will reflect our HIFU business as continuing operations.

I will walk through both our continuing HIFU operations and our discontinued non-core operations to provide a clear basis of comparison as we transition to this new presentation. As we have discussed previously, we believe this removes a layer of complexity that has made it difficult for investors to understand HIFU's underlying financial trajectory on its own terms: the growth rate, margin structure, and the level of investment required to support this core business going forward.

We recognize change introduces a new set of comparisons for investors to work through, and we intend to be as clear and consistent as possible as we present this new reporting classification going forward. I'd also like to highlight a key subsequent event related to raising additional equity. On August fourteenth, we expect to close an underwritten public offering with gross proceeds of forty million dollars. This amount will be reflected in our cash balance and shareholders' equity in the third quarter of twenty twenty six.

With our recent cash raise, we now feel confident that we have sufficient financial resources to execute on our previously announced strategic priorities. As a reminder, all my commentary, unless otherwise noted, is in reference to the HIFU segment, which is now classified as continuing operations. As Ryan mentioned earlier, this was our best second quarter for revenue, which grew thirty-nine percent compared to the second quarter of twenty twenty five.

Revenue for the quarter was thirteen point two million dollars as compared to nine point five million dollars for the second quarter of twenty twenty five. The thirty-nine percent year-over-year increase in revenue was driven by thirteen capital system sales in the second quarter of twenty twenty six versus nine capital system sales in the prior-year period, as well as a thirty-eight percent increase in Focal One treatment-driven revenue. As mentioned earlier, Focal One procedures in the U.S. grew forty-seven percent year over year. Gross margin was fifty-five point six percent, up from fifty-one point one percent in the second quarter of twenty twenty five. The four hundred forty-four basis points increase in gross margin is due to lower Focal One system cost and a disciplined global pricing strategy for our capital system sales. Operating expenses were fifteen point four million dollars in the second quarter of twenty twenty six, compared to eleven point five million dollars for the second quarter of twenty twenty five.

The increase in net loss was driven by incremental operating loss of one point four million dollars, an unfavorable foreign exchange rate impact of four hundred thousand dollars compared to the prior period, as well as a six point three million dollars non-cash charge related to the change in fair value of the European Investment Bank warrants, as well as interest expense on the Tranche A and Tranche B drawdown. Turning to the balance sheet, cash and cash equivalents at the end of the second quarter of twenty twenty six were twenty-one point five million dollars compared to fifteen million dollars at the end of the first quarter of twenty twenty six. As previously reported, approximately fourteen million dollars for Tranche B was drawn under the credit facility agreement with the European Investment Bank in April of twenty twenty six. The shareholders' equity at the end of the second quarter of twenty twenty six was negative three point two million dollars. The negative equity is the result of our recurring losses as well as the impact of recording changes in the fair value of the warrants issued to the European Investment Bank.

These non-cash fair value changes are reflected in our statement of operations each quarter and have resulted in an increase in accumulated deficit and a decrease in shareholders' equity of approximately nine million dollars since the first drawdown of the credit facility. As mentioned above, our recent equity raise will be reflected in the balance sheet during the third quarter of twenty twenty six and will provide a meaningful increase to shareholders' equity.

The tariff impact on the second quarter statement of operations and balance sheet was approximately five hundred thousand dollars. Now I will provide you with the financial results pertaining to our non-core ESWL and distribution segments, which are now classified as discontinued operations. Total revenue for discontinued operations for the second quarter of twenty twenty six was five point six million dollars, a decline of thirty-four percent, or two point nine million dollars, compared to the second quarter of twenty twenty five, driven primarily by our ongoing termination of distribution agreements in the U.S. and France. Gross margin for discontinued operations was thirty-six point four percent in the second quarter of twenty twenty six, compared to thirty-two point nine percent in the same period prior year. Operating expenses for discontinued operations were two million dollars in the second quarter of twenty twenty six, compared to two point seven million dollars in the same period prior year. The reduction in operating expenses was due to our strategic shift to invest in our core HIFU business.

Operating income for discontinued operations was twenty-one thousand dollars in the second quarter of twenty twenty six, compared to operating income of seventy-six thousand dollars in the second quarter of twenty twenty five. Net loss for discontinued operations was seventy-five thousand dollars in the second quarter of twenty twenty six, compared to net loss of fifty-one thousand dollars in the second quarter of twenty twenty five. Inventory balance pertaining to discontinued operations was four point five million dollars at the end of the second quarter, compared to five point one million dollars at the end of the calendar year twenty twenty five. Turning to guidance, we are reiterating our full-year twenty twenty six guidance, with continuing operations core HIFU revenue in the range of fifty million to fifty-four million dollars. I would now like to turn the call back to Ryan for closing comments. Thanks.

Ryan Rhodes, Chief Executive Officer

Ken, as we look to the second half of twenty twenty six, our priorities remain focused on continued commercial execution across our U.S. and international hospital networks and advancing BPH and endometriosis toward broader commercial launch. We remain confident in our ability to build on the momentum established in the first half of the year. We are proud of the work behind our transition to focal therapy and refining our high-growth strategy, and have tremendous confidence in our ability to capitalize on the opportunities ahead.

With that, I will now turn the call back over to the operator for questions.

OPERATOR

Thank you very much, Mr. Rhodes. Ladies and gentlemen, at this time, if you do have any questions or comments, simply press star one. If you do find your question has been addressed, you may remove yourself from the queue by pressing star two. Additionally, to get to as many questions as possible, we do ask that you please limit yourself to one question and one follow-up. We'll go first this afternoon to Anthony Petrone with Mizuho.

Brad, Analyst at Mizuho (for Anthony Petrone)

Hey there, thanks, guys. Congrats on the quarter. You have Brad on for Anthony today. Maybe the first one, just wanted to talk about box orders, some promising systems getting their second incremental boxes. Just maybe wanted to refresh us on what a mature department looks like, and then also, you know, when they're buying a second box today, is that just for the prostate cancers that they're seeing? Is that for additional throughput there, or is it too early to evaluate some of the other indications?

Ryan Rhodes, Chief Executive Officer

Yeah, so our pipeline remains extremely strong. As we showed at the investor day event in New York, we have three hundred additional deals that we're working through that are qualified, and by no means is that our TAM—TAM is significantly higher than that. But back to the sales we made this quarter, one thing of importance is we're growing both in the U.S. and outside the U.S., as shown, demonstrated. I think the other comment around this is that we now have thirteen centers that have two or more Focal One machines.

They've invested to grow their capacity, typically in other hospital sites. An example, of course, is Cleveland Clinic, and as stated, Cleveland Clinic now has six sites operating with Focal One. So again, we continue to focus and execute, and we're excited about the momentum building. Again, the utilization today is really anchored on our prostate cancer business. BPH and endometriosis are incremental and do play into the narrative for accelerated sales, but we're not materially seeing that as of yet.

I think over time, as we progress, that'll become more obvious in our business model.

Brad, Analyst at Mizuho (for Anthony Petrone)

That's helpful, thanks. And then maybe just one—you touched on utilization—but just, you know, you've had some strong placements over the last few quarters, you know, three straight quarters and, you know, over ten systems placed. Imagine that the procedure utilization kind of ramps, so maybe just a reminder on, you know, when these boxes placed can get to full capacity and kind of how we should think about, you know, I guess specifically the number you give, the U.S. HIFU procedures number, you know, in the back half of this year. Thank you.

Ryan Rhodes, Chief Executive Officer

Yeah, so we get better all the time onboarding and building programs, and in many hospitals, especially in the U.S., we typically see patients already booked in advance of them receiving their Focal One machine, and that's a positive sign. That means there's obviously patient demand for this type of treatment, and hospitals then waiting to receive their Focal One system, and then training the team and then onboarding them. So some will ramp faster than others, but typically we've gotten better at our metrics in terms of the onboarding process, and I think that theme will continue to grow and evolve as we sell more centers.

Again, there are some hospitals that have invested in the technology because they don't want to lose those patients to a neighboring hospital, but I think most would understand the value and utility of focal therapy is real, and you've got to answer to that. And I think, as we've demonstrated, Focal One is the top priority when you look at capital purchases supporting their Focal One HIFU program, or Focal One program in prostate cancer.

OPERATOR

Thank you. We'll go next now to Jason Bednar of Piper Sandler.

Jason Bednar, Analyst at Piper Sandler

Hey, afternoon, everyone. Thanks for taking the questions. With the recent raise in hand, or effectively in hand, can you talk about the pushes and pulls of future cash use in order to build out Focal One as a platform across multiple indications, and the resourcing that's necessary to accomplish this as you aim for that forty percent growth profile? What kind of additional sales resources should we be thinking about, and also how are you planning for incremental R&D spend to advance this multi-indication approach?

Ryan Rhodes, Chief Executive Officer

Yeah, so we've socialized the equity raise really supports three buckets of growth. The first is commercial, accelerated commercial growth, so it could be investments that we want to make either in sales structure, marketing, and anything tied to market development and accelerated commercial growth. The second bucket is really the investment we're making in the expanded indications. That includes both BPH and endometriosis. We may run some clinical studies in the U.S. as well that will be material of value, but we've got a process in place and we're executing on that. The third area is in new innovative technologies, to include the work we're doing in histotripsy. We're very excited about that as demonstrated on June first at our investor day. We've already filed some very important patents and we want to accelerate that development process as well. So, you know, also when we look at making these investments, we're also looking to optimize our current infrastructure inside the company and trying to act more efficiently so we can be very responsible about the additional spending we add to the P&L going forward.

UNKNOWN, Analyst

All right, if I could double-click and come back just to follow up on specifically the sales resources and the R&D spend. Any quantification you want to give there, Ryan or Ken, around how much additional upside in, say, the sales support line or the R&D line that we should be thinking about as we build our models forward? And then a separate question: I think your disposables and procedure volume growth has been very good for the past twelve months.

I think you're coming up against some tougher comps here in the second half of the year. Can volume growth continue to outpace that of total system growth as we look ahead?

Ken Mobeck, Chief Financial Officer

Yeah, so I'll answer the first question. When you look at the investments we need to make into the future, when you look at R&D and SG&A as a percent of revenue, as we grow the top-line revenue the percentage investments in each of those categories will come down a few percentage points each year. So I think that's a good way of looking at it as you're building your models for R&D and SG&A. R&D will ramp down a little bit, and then SG&A, as a percent of revenue, will come down nicely because in the U.S., for example, we'll have targeted areas that we will need to invest in the sales growth to build out a few channels, but we won't have to do anything radical. And I would also mention with BPH, we're already in the urology call point, so we're in those hospitals already. We're working with typically the same urologist or the same urology team, so we've not looked at adding notable headcount as we move forward with that new indication. I think we can do more with less and scale accordingly.

UNKNOWN, Analyst

Right, sorry, just the volume growth question relative to the capital growth question.

Ryan Rhodes, Chief Executive Officer

So again, the way I would look at it is, obviously we're growing in both categories—capital and the recurring revenue models, both from our disposables, razor-blade business as well as our service. The lion's share of revenue will still come from the capital system sales side as of now, but we're encouraged because that was one of the investments we're making: to do more on the same platform. If we can offer multiple treatments, to include endometriosis in women's health, that allows us obviously to grow our procedures and thus grow more recurring revenue tied to our disposable or consumables business.

But in the near term, obviously capital equipment is going to be the bigger driver, but we will see notable increases in revenue coming from both capital and from our disposables business.

UNKNOWN, Analyst

All right, understood. Thank you.

OPERATOR

Thank you. We'll go next now to Michael Sarcone with Jefferies.

Michael Sarcone, Analyst at Jefferies

Good afternoon, and thanks for taking the question. I guess just to start, another one on utilization but just looking at it a different way. When you think about surgeon users, Focal One adopters across your different accounts, how many surgeons are adopting in your highest utilization accounts versus your lower utilization accounts? And I guess what's the average number of surgeons for an account?

Ryan Rhodes, Chief Executive Officer

So we've spent more time training incremental doctors where appropriate. I would say we've come up in the number of physicians who are accessing or using the technology at a site. Some of our busiest sites, it's commonly at least two doctors; we have some that have as many as seven doctors who have privileges and who are trained and have access to do Focal One procedures. So it ranges by institution, but if I was going to average it out, I'd say the number would be somewhere probably around 2.5 and trending upward.

Some of our busiest sites, if you look specifically across the board, 130 to 140 procedures a year on the higher end, and again that's with the prostate cancer indication—nothing else. Then if you truncate down into kind of a middle group, you can have that number somewhere around that. It takes time to launch and build a program, but we've gotten better at that onboarding process, and we typically see, as I mentioned earlier, a faster ramping coming because more hospitals today have a bolus or backlog of patients who are already requesting a Focal One treatment.

But again, we're excited for the momentum we're building. There is additional request for training new doctors, and we answer to that request. And of course, as I referenced earlier, new indications will be important as we think outward in the models in terms of some level of growth. Now we've been very conservative in some of our models just because we want to be accurate in terms of what the impact would be at the time of launching, say, BPH, or in the limited launch we have going on with endometriosis.

But we're encouraged with the direction we're going. I think we have a structured launch plan as we think about adding in these new indications over time.

Michael Sarcone, Analyst at Jefferies

Ryan, and then just second question: I think in mid-June you announced an agreement with Melling Medical to expand access for veterans. So I just wanted to get a sense for how meaningful is the opportunity at the VA or at different VA hospitals. Are you in any VA hospitals today? And when you mentioned that 300-system number for the active—for the qualified leads—how much of that is in VA hospitals? Thank you.

Ryan Rhodes, Chief Executive Officer

Yeah, so one of the good things in our install base is we're notably well represented and continuing to grow our penetration into leading academic centers, and typically there's a VA hospital in close proximity. So right now, I can actively say that the engagement with Melling Medical allows us to look deeper at government accounts, VA and even military accounts, and I can tell you we have three we're working on in our immediate near term—VA hospitals—and I think we've got good progress coming together there.

The doctors who will come over there in some cases will have already been exposed to Focal One because the academic center is likely in very close proximity to that VA hospital, so that works out really well for us. And what I like about it is it exposes both residents and fellows to Focal One robotic HIFU, which they can learn there and then adopt and maybe practice or implement clinically at that VA site. But back to that number that I mentioned earlier, there are a handful of VA hospitals that are referenced in those 300 pipeline accounts that we're going after that are qualified.

I can't give you the exact number, but they are counted—some are counted in that number, not all of them, but some. So a lot of upside potential. We're excited about the momentum again as we look outward with VA hospitals.

Michael Sarcone, Analyst at Jefferies

That's helpful. Thank you, Ryan.

OPERATOR

Thank you. We'll go next now to Sean Lee with H.C. Wainwright.

Sean Lee, Analyst at H.C. Wainwright

Good afternoon, Ryan, Ken, and thanks for taking our question. I just have one on the gross margin. It's great to see the improvement this quarter versus last year. What contributed to this increase, and what else do you need to get to the 60% gross margin that you highlighted in your long-term plan?

Ken Mobeck, Chief Financial Officer

Yeah, thanks for the question. So there are several things that are attributed to our strong gross margin increase. Notably, we finished the year last year at 48% HIFU gross margin. Q1 we finished 51%, and Q2 55%. The things attributed: number one, really a global disciplined pricing strategy. We implemented our Focal One i system at the end of last year, and we're seeing the good strong pricing with that product. We worked on lowering our BOM cost reductions with certain materials, and as a result of our increase in demand, we're also seeing good strong factory absorption.

And then when you layer in the increase in consumables and the growth rates of that, that's also attributing to strong gross margins to date. As we move forward, we're going to continue to focus strategically on further BOM cost reductions, and we will also see, as procedure volumes continue to grow, that is very accretive margin to our total gross margins. So those are the main factors that will contribute to the gross margin improvement today and in the future.

I'd also say real quick that notably the proposed rule came out from CMS, and it's calling for an 11.6% increase in reimbursement. As Ryan referenced, we're methodical and very structured in how we offer pricing. This will be the fourth year in a row that HIFU reimbursement has gone up from CMS, and that's important because it allows us to revisit our pricing models, which will play accordingly in the improvement of gross margin. So again, I think there are three areas that we can continue to focus on.

We're excited about the direction we're going, and we're excited about continuous upside in terms of margin improvement.

Sean Lee, Analyst at H.C. Wainwright

Got it. That's very helpful, and thanks again for taking the question.

OPERATOR

We'll go next now to Alex Nowak with Lucid Capital Markets.

Alex Nowak, Analyst at Lucid Capital Markets

Great. Good afternoon, everyone. Can you speak to the upcoming clinical data that we need to watch out for? The one in particular that I'm watching for is the HIFUSA study, but anything else we should be watching? And then also on the HIFUSA study, when can we see a readout for that, and just maybe speak to how important that one could be?

Ryan Rhodes, Chief Executive Officer

Yeah, great question, Alex. The HIFUSA study, to my understanding, the patients have been done and treated. I think we're, again, just in that follow-up period. We will likely see this readout, I would assume, potentially the very end of this year in some form factor, or maybe the beginning of next year. It is an important study because it is looking at active surveillance. I'm going to be with the principal investigator on Monday this coming week, and that's one of the questions I'm going to have for him in getting an update, but my understanding is that we should see that published out fairly soon.

I can't give you an exact date, but I think it will be an important study. It's one that many people have been asking about, and we're excited because we know that it will likely be favorable to the story—the story today about use of focal therapy amongst a patient population to include low to intermediate risk.

Alex Nowak, Analyst at Lucid Capital Markets

Yep, absolutely. Good to hear. And then with the first endometriosis program coming online in Europe, how material do you expect this disease state to be towards the revenue line over the next few quarters? Is this going to be something we're going to see a few more systems get placed directly related to endometriosis? And then it might be a little premature, but any update on the regulatory strategy for the U.S. market there?

Ryan Rhodes, Chief Executive Officer

Yeah, so right now I would say we've got 11 centers that are going through the training pathway, and we're managing that group. We really don't want to expand it yet just because we're in this onboarding training process, and we want to get these centers up and running. Toulouse was an example of one of those sites. In the first quarter of this year, we had three Focal One system sales that were attributed to hospitals knowing that they could treat endometriosis and prostate cancer on the same machine.

So that's a favorable data point. We'll likely see more of that in the future, especially as it relates to CE Mark countries where we're cleared now for endometriosis. But in terms of the numbers contributing to revenue, I think it will be very small and will start playing out more next year, in 2027, when we really start ramping up things. And I'm excited about this because I think, again, it allows us to define ourselves not only in men's health but in women's health.

Where are we in the U.S.? We've already won a Breakthrough Device Designation award, and the manuscript for the randomized controlled trial will be published later this year — that's the expectation. I know it's being submitted to a top-tier, high-impact journal. But that dataset is really important for us because that dataset allows us to get back in front of the FDA and have the next conversation as to what is necessary to win a new indication or clearance on endometriosis with Focal One in the U.S. And so we're awaiting that publication to come out.

UNKNOWN, Analyst

All right. Excellent. Well, appreciate the update. Thank you.

Ryan Rhodes, Chief Executive Officer

Thank you.

OPERATOR

We'll go next now to Josh Jennings with TD Cowen.

Josh Jennings, Analyst at TD Cowen

Hi. Good afternoon, Ryan. Thanks for taking the questions. It's great to see continual momentum here. Wanted to just circle up on one of the standouts at the Investor Day, and I think you mentioned earlier on the call, Ryan, on the histotripsy development program. With the new capital, you're going to be able to fund that development more fully, and it seems like the team is very confident that this development program will be successful, and ultimately you'll have a combo HIFU–histotripsy technology offering that could be super differential.

But maybe just help us frame up — I mean, I know it's too early to talk about regulatory timelines and next steps — but is this a three- to five-year horizon that we should be thinking about? And maybe just reiterate or review why your team is confident that this development program will be successful. Thank you.

Ryan Rhodes, Chief Executive Officer

Yeah, so on the Investor Day event on June 1st, we talked about this, and I'm glad you brought it up. I think it's an important discussion. As referenced, we've been in sound-based therapy for well over 30 years, so sound-based therapy is in our DNA, and of course our history in lithotripsy for treating kidney stones naturally sets us up well for adding new technologies to our platform. So we've got a full development team in place. We filed a couple of patents, as we referenced on June 1st, and if I had to point to a timeline, I would say I'd like to see it more in the one- to two-year range.

Now, again, we've got critical milestones to hit, and we're working on some of these in the near term, but we have others in front of us. So it is a high focus for us, and I think because of our background and work in lithotripsy and, of course, in HIFU — which is another sound-based therapy — this fits really nicely into the Focal One ecosystem. And so it is a high priority, and we've got the best and brightest working on it. We're excited because, with the equity raise, we can fund accelerated growth here, and we're going to continue to make prudent investments in this specific area.

So we're excited. Thank you.

Josh Jennings, Analyst at TD Cowen

Outstanding. Thanks again.

OPERATOR

Thank you. And ladies and gentlemen, that's all the time we have for questions this afternoon. Mr. Rhodes, I'd like to turn things back to you for any closing comments.

Ryan Rhodes, Chief Executive Officer

Before we conclude today's call, I'd like to underscore the broader significance of the work we are doing in prostate cancer. Prostate cancer remains one of the most commonly diagnosed cancers in men, and its global burden is expected to rise substantially. The Lancet Commission projects annual cases could reach approximately 2.9 million by calendar year 2040, with deaths approaching 700,000 each year. Against that backdrop, we see a meaningful opportunity to advance the standard of care for appropriately selected patients.

The growing momentum we are building across our global business reinforces our conviction in that opportunity as we expand the adoption of Focal One and deepen our relationship with physicians, hospitals, and health systems. Focal One robotic HIFU offers a non-invasive, organ-sparing, and function-preserving approach that enables physicians to precisely target cancerous tissue while preserving surrounding healthy tissue. For certain patients, it can provide an alternative to help delay more radical whole-gland therapies that carry the risk of greater morbidity and lasting urinary and sexual side effects.

As we approach Prostate Cancer Awareness Month in September, we are reminded of the importance of awareness, early detection, education, and access to these important, innovative treatment options. At Edap TMS, we remain committed to expanding access to technologies that help physicians treat prostate cancer effectively while preserving quality of life. We are grateful to our employees, physician partners, hospital customers, investors, and other stakeholders who support that mission.

Thank you again for joining us today. We appreciate your continued interest in Edap TMS and look forward to updating you on our progress in the coming quarters.

OPERATOR

Thank you, Mr. Rhodes. Again, ladies and gentlemen, this does end today's meeting. We do appreciate your time and participation. You may now disconnect.

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