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DATE

Thursday, Aug. 13, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer - Ryan Rhodes
  • Chief Financial Officer - Ken Mobeck
  • Gilmartin Group - Louisa Smith

TAKEAWAYS

  • HIFU Revenue -- $13.2 million, a 39% increase driven by higher system sales and procedure volumes.
  • Capital System Sales -- 13 Focal One systems sold globally, representing a 44% increase from nine units in the prior year period.
  • U.S. Procedure Volume -- 47% growth year over year, reflecting increased utilization at existing sites and new program launches.
  • HIFU Gross Margin -- 55.6%, up from 51.1% in the second quarter of 2025 due to lower system costs and factory absorption.
  • Full Year 2026 Revenue Guidance -- $50 million to $54 million for the HIFU segment, representing 34% to 45% annual growth.
  • Operating Expenses -- $15.4 million compared to $11.5 million in the prior year period, reflecting costs from corporate rebranding and domestic filer transitions.
  • Net Loss -- $14.4 million or $0.38 per share, impacted by a $5.5 million noncash charge related to the fair value of European Investment Bank warrants.
  • Cash Balance -- $21.5 million as of June 30, 2026, with an additional $40 million in gross proceeds expected from an underwritten public offering.
  • Installed Base -- 184 total systems worldwide, including 96 in the U.S. and 88 internationally.
  • CMS Reimbursement -- Proposed facility payment increase of 11.6% for 2027, marking the fifth consecutive annual increase for Focal One Robotic HIFU.
  • Discontinued Operations Revenue -- $5.6 million from the ESWL and distribution segments, a 34% decrease as the company exits these noncore businesses.
  • U.S. Hospital Networks -- 15 networks now own two or more Focal One systems, including a fourth U.S. system for Cleveland Clinic.
  • Qualified Sales Pipeline -- 300 qualified deals currently in progress across the global pipeline.
  • BPH Clinical Progress -- 14 patients treated to date in the Latin American study, with U.S. patient treatments planned to begin later in 2026.
  • Total Addressable Market -- $10 billion across prostate cancer, benign prostatic hyperplasia, and endometriosis, representing 4.3 million potential procedures.
  • U.S. Academic Adoptions -- Conversions of operating leases occurred at Vanderbilt University Medical Center and the University of Michigan, both NCI-designated comprehensive cancer centers.
  • Surgeon Training Metrics -- The company reported an average of 2.5 doctors trained per site, with high-utilization accounts having up to seven trained surgeons.
  • High-Utilization Facility Output -- The busiest sites currently perform 130 to 140 procedures annually within the prostate cancer indication.
  • India Market Expansion -- Two capital system sales were completed in India, which management identified as one of the largest underpenetrated prostate cancer markets.
  • Endometriosis Clinical Pipeline -- Over 10 additional hospitals in Europe, the U.K., and Latin America are moving through the clinical training pathway for the endometriosis application.
  • Discontinued Operations Gross Margin -- 36.4% in the second quarter of 2026, an increase from 32.9% year over year despite falling revenue.
  • VA Hospital Access -- The company established an agreement with MellingMedical to expand access to Veterans Affairs hospitals, with three active engagements in the near-term pipeline.
  • R&D Expenses -- $2.3 million for the HIFU segment, remaining flat compared to $2.3 million in the prior year period.
  • Shareholder Equity -- Negative $3.2 million at the end of the quarter, primarily due to the fair value impact of warrants issued to the European Investment Bank.

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RISKS

  • Mobeck stated, "The negative equity is a 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," explaining the negative $3.2 million shareholder equity at quarter end.

SUMMARY

Management reported a strategic transition to a pure-play focal therapy model, which included a corporate name change to FocalTherics (FOCL -2.29%). The company is reclassifying its Extracorporeal Shock Wave Lithotripsy and distribution businesses as discontinued operations to focus exclusively on High Intensity Focused Ultrasound technology. During the call, executives highlighted a $40 million equity raise and the transition to U.S. domestic filer status. The company is pursuing indication expansions for its Focal One platform into the treatment of benign prostatic hyperplasia and endometriosis while developing integrated histotripsy capabilities.

  • CEO Rhodes described the rebranding as "a transformative moment in the evolution of our company's history, including the transition of our name from EDAP to FocalTherics, debuting as a pure-play, high-growth, market-leading focal therapy company."
  • The company submitted a 510(k) application in July for FocalConnect, a remote connectivity technology designed for remote proctoring and real-time telecollaboration between surgeons.
  • Management is targeting the development of a combined HIFU and histotripsy offering, with CEO Rhodes stating he expects a 1 to 2-year range for achieving critical development milestones.
  • Internationally, the company expanded its presence in India with two capital system sales and launched its first commercial endometriosis program at Toulouse University Hospital in France.
  • CFO Mobeck stated, "With our recent cash raise, we now feel confident that we have sufficient financial resources to execute on our previously announced strategic priorities."
  • CEO Rhodes indicated that Focal One Robotic HIFU offers a "noninvasive organ-sparing and function-preserving approach that enables physicians to precisely target cancerous tissue while preserving surrounding healthy tissue."
  • Rhodes highlighted the conversion of Imperial College London from competitive HIFU technology to Focal One as a key validation of the platform's preference in Europe.

INDUSTRY GLOSSARY

  • HIFU: High Intensity Focused Ultrasound, a non-surgical technology that uses sound waves to destroy targeted tissue.
  • ESWL: Extracorporeal Shock Wave Lithotripsy, a noninvasive treatment for kidney stones using shock waves.
  • BPH: Benign Prostatic Hyperplasia, a non-cancerous enlargement of the prostate gland.
  • 510(k): A premarket submission made to the FDA to demonstrate that a device is safe and effective by showing it is substantially equivalent to a legally marketed device.
  • CMS: Centers for Medicare & Medicaid Services, the federal agency that administers the Medicare program.
  • Focal One: The company's flagship robotic platform used for personalized focal therapy.
  • NCCN: National Comprehensive Cancer Network, an alliance of leading cancer centers.
  • SUO: Society of Urologic Oncology.
  • Histotripsy: A non-thermal ultrasound technology that uses acoustic cavitation to mechanically ablate tissue.

Full Conference Call Transcript

Operator: Good afternoon, everyone. Welcome to today's FocalTherics Second Quarter 2026 Conference Call. [Operator Instructions] And 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, ma'am.

Louisa Smith: Good afternoon. Thank you for joining us for the FocalTherics 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: Thanks, Louisa, 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 FocalTherics, 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 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 health care 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 FocalTherics.

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 system sales globally. Our total worldwide installed 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 8 capital system sales, including 2 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 of 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 2 or more Focal One systems.

During the quarter, there were 4 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 health care 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 health care 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 amongst some of the most influential thought leaders in the field of urology.

Internationally, we delivered 5 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 the landmark large prospective multicenter HIFI 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 2 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 installed 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 FocalConnect, our proprietary remote connectivity technology. FocalConnect 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 2 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 installed 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 in 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 10 additional hospitals across Europe, the United Kingdom and Latin America are now moving through 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 2 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, FocalTherics 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: 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 noncore 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 noncore 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 would also like to highlight a key subsequent event related to raising additional equity. On August 14, we expect to close an underwritten public offering with gross proceeds of $40 million.

This amount will be reflected in our cash balance and shareholder equity in the third quarter of 2026. 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 continued operations. As Ryan mentioned earlier, this was our best second quarter for revenue, which grew 39% compared to the second quarter of 2025. Revenue for the quarter was $13.2 million as compared to $9.5 million for the second quarter of 2025.

The 39% year-over-year increase in revenue was driven by 13 capital system sales in the second quarter of 2026 versus 9 capital system sales in the prior year period as well as a 38% increase in Focal One treatment-driven revenue. As mentioned earlier, Focal One procedures in the U.S. grew 47% year-over-year. Gross margin was 55.6%, up from 51.1% in the second quarter of 2025. The 444 (sic) [ 450 ] basis point increase in gross margin is due to lower Focal One system costs and a disciplined global pricing strategy for our capital system sales. Operating expenses were $15.4 million in the second quarter of 2026, compared to $11.5 million for the second quarter of 2025.

The increase in net loss was driven by an incremental operating loss of $1.4 million and unfavorable foreign exchange rate impact of $400,000 compared to the prior period as well as a $6.3 million noncash 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 2026 were $21.5 million compared to $15 million at the end of the first quarter of 2026.

As previously reported, approximately $14 million for Tranche B was drawn under the credit facility agreement with the European Investment Bank in April of 2026. The shareholder equity at the end of the second quarter of 2026 was negative $3.2 million. The negative equity is a 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 noncash 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 $9 million 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 2026 and will provide a meaningful increase to shareholders' equity. The tariff impact on the second quarter statement of operations and balance sheet was approximately $500,000. Now I will provide you with the financial results pertaining to our noncore ESWL and Distribution segments, which are now classified as discontinued operations. Total revenue for discontinued operations for the second quarter of 2026 was $5.6 million, a decline of 34% or $2.9 million compared to the second quarter of 2025, driven primarily by our ongoing termination of distribution agreements in the U.S. and France.

Gross margin for discontinued operations was 36.4% in the second quarter of 2026 compared to 32.9% in the same period prior year. Operating expenses for discontinued operations were $2 million in the second quarter of 2026 compared to $2.7 million 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 $21,000 in the second quarter of 2026 compared to operating income of $76,000 in the second quarter of 2025. Net loss for discontinued operations was $75,000 in the second quarter of 2026 compared to net loss of $51,000 in the second quarter of 2025.

Inventory balance pertaining to discontinued operations was $4.5 million at the end of the second quarter of 2026 compared to $5.1 million at the end of the calendar year 2025. Turning to guidance. We are reiterating our full year 2026 guidance with continuing operations core HIFU revenue in the range of $50 million to $54 million. I would now like to turn the call back to Ryan for closing comments.

Ryan Rhodes: Thanks, Ken. As we look to the second half of 2026, our priorities remain focused on continued commercial execution across our U.S. and international hospital networks and advancing BPH in 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 FocalTherics 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?

Operator: [Operator Instructions] We'll go first this afternoon to Anthony Petrone with Mizuho.

Unknown Analyst: Congrats on the quarter. You've 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 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: Yes. So our pipeline remains extremely strong. As we shown at in the Investor Day event in New York, we have 300 additional deals that we're working through that are qualified. And by no means 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 U.S., as shown, demonstrated. I think the other comment around this is that we now have 13 centers that have 2 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 6 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 will become more obvious in our business model.

Unknown Analyst: That's helpful. And then maybe just one, you touched on utilization, but just -- you've had some strong placements over the last few quarters, 3 straight quarters and over 10 systems placed. Imagine that the procedure utilization kind of ramps. So maybe just a reminder on when these boxes placed can get to full capacity and kind of how that -- how we should think about, I guess, specifically the number you gave, the U.S. HIFU procedures number in the back half of this year?

Ryan Rhodes: Yes. 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: We'll go next now to Jason Bednar of Piper Sandler.

Jason Bednar: 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 40% 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: Yes. So we've socialized the equity raise really supports 3 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 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 in June 1 at our Investor Day, we've already filed some very important patents, and we want to accelerate that development process as well.

Ken Mobeck: So also when we look at making these investments, right, we're also looking to optimize our current infrastructure inside the company, right, and trying to act more efficiently. So we do not -- so we can be very responsible about the additional spending we add to the P&L going forward.

Jason Bednar: All right. If I could double click and come back just to follow up on the -- 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 12 months. I think you're coming up against some tougher comps here in the second half of the year. Just can volume growth continue to outpace that of total system growth as we look ahead?

Ken Mobeck: Yes. So I'll answer the first question. So 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 your -- as you're building your models for R&D and SG&A.

R&D will ramp down a little bit and then SG&A will -- 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.

Ryan Rhodes: 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 the same -- 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.

Jason Bednar: All right. And sorry, just the volume growth question relative to the capital growth question.

Ryan Rhodes: Yes. So again, the way I would look at it is, obviously, we're growing in both categories, right, in capital in 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.

Operator: We'll go next now to Michael Sarcone with Jefferies.

Michael Sarcone: 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: 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 2 doctors. We have some that have as many as 7 doctors who have privileges and who are trained and have access to do Focal One procedures. So it does -- it ranges by institution. But I'd say if I was going to average it out, I'd say it's -- 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. And then if you truncate down into kind of a middle group, you could have that number somewhere around that. It takes time to launch and build the 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: Okay. And then just second question, I think in mid-June, you announced an agreement with MellingMedical 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?

Ryan Rhodes: Yes. So one of the good things in our installed 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 MellingMedical allows us to look deeper at government accounts, VA and even military accounts. And I can tell you where we have 3, we're working on in our immediate near-term hospitals, VA hospitals. And I think we've got good progress coming together there. The doctors who will come over there, in some cases 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 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. So anyway, but back to that number that I mentioned earlier, there are a handful of VA hospitals that are referenced in that -- 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.

Operator: We'll go next now to Sean Lee with H.C. Wainwright.

Xun Lee: I just have one on the gross margin. So 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: Yes. Thanks for the question. So there are several things that attributed to our strong gross margin increase. Notably, we finished the year last year, 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, 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 a 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.

Ryan Rhodes: 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 Ken 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's 3 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.

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

Alexander Nowak: 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 could we see a readout for that? And just maybe speak to how important that one could be.

Ryan Rhodes: Yes. 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 it would be 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's looking at after surveillance. And so I think, again, 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, right? The story today about use of focal therapy amongst a patient population to include low to intermediate risk.

Alexander Nowak: Yes, 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: Yes. 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 3 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 we 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 data set is really important for us because that data set 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.

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

Joshua Jennings: It is great to see continued momentum here. I wanted to just circle up on one of the standouts at the Investor Day, and I think you mentioned earlier in the call, Ryan, 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 differentiated.

But maybe just help us frame up just -- I mean -- and I know you're not -- it's too early to talk about regulatory timelines and next steps, but is this a 3- to 5-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?

Ryan Rhodes: Yes. So on the Investor Day event on June 1, 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 the 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 1.

And if I had to point out to a timeline, I would say it's more in that -- I'd like to say it's more in the 1- to 2-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 of the equity raise, we can fund accelerated growth here, and we're going to continue to make prudent investments in the specific area. So we're excited. Thank you.

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, sir, for any closing comments.

Ryan Rhodes: 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 noninvasive 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 FocalTherics, 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 FocalTherics 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.