BrainsWay Ltd.
Q3 2020 Earnings Call Transcript

Published: 18 Nov 2020

[Operator:]

Greetings, and welcome to the Brainsway Third Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Bob Yedid of LifeSci Advisors. Thank you. You may –

[Bob Yedid:]

Thank you, Darryl, and thank you all for joining us this morning, and welcome to Brainsway's Third Quarter 2020 Earnings Conference Call. With us today are the company's President and Chief Executive Officer, Chris von Jako; and Chief Financial Officer, Judy Huber.

[Chris von Jako:]

Thank you, Bob. Welcome everyone and thank you for joining us today. Today, we're extremely pleased to report third quarter 2020 revenues of $6 million, representing a significant 25% increase over our second quarter of 2020, and even a small increase over the same period last year, which of course was prior to the onset of COVID-19. These results were driven by a multitude of positive catalysts in our business in the industry overall. First, I'd like to provide a brief update on the current operating environment. Importantly, the large majority of clinics are now operating at or near-normal levels with some even experiencing patient treatment volumes above pre-COVID levels. This provides us with optimism as we head into the final months of 2020, but we have continued our judicious approach of implementing expense reductions without sacrificing our long-term growth objectives.

[Judy Huber:]

Thank you, Chris. We are excited by the momentum in our business and believe we are well positioned for a potential continued growth in the foreseeable future. Let's turn to our financial results for the third quarter of 2020. We generated quarterly revenue of $6 million, a 25% increase sequentially from the second quarter of 2020 and a 1% increase from the third quarter of 2019. This revenue was driven by an increase in our direct sales arrangements. Our recurring revenues primarily derived from leases were $3.4 million consistent with the third quarter of 2019. These recurring revenues were 57% of our total revenue. Revenues for the first nine months of 2020 were $15 million, a decrease of 11% from the same period in 2019. The as of September 30, 2020, BrainsWay's installed base totaled 593 Deep TMS systems, which reflects a quarter-over-quarter increase of 26 units. Over the last 12 months even taking into account the impact of COVID-19 through the third quarter of 2020, BrainsWay's installed base has increased by 105 systems or a solid 22%. As a reminder, in response to the impact of COVID-19 on our business, we initiated the cash preservation program in late March with the goal of increasing efficiency and managing spend without impeding our growth efforts. This program largely continued in the third quarter. However, while we continue to manage expenses prudently, the company continues to proceed with its broader growth strategy and to appropriately invest in the long-term acceleration of our business.

[Operator:]

Thank you. We'll now be conducting a question-and-answer session. . Our first question comes from the line of Steven Lichtman of Oppenheimer. Please proceed with your question.

[Steven Lichtman:]

Thank you. Good morning. A couple of questions. First, the patient appointment increase you mentioned Chris during 3Q is definitely encouraging. I was wondering, how has the environment eased further if at all for your reps to get into offices? What's the level of interaction they're able to have with clinicians now?

[Chris von Jako:]

Steve, good morning, thanks for the question. I appreciate it. Yeah. So we were very, very pleased obviously, very optimistic about what happened in the third quarter. We have seen a definite trend in the direction of more in office visits by our salespeople, which has increased since June on. It's still obviously not the pre-COVID levels. And a lot of the meetings are still being conducted obviously by telephone, and through web conferencing. But there's been a steady increase, I don't want to say it's 50-50, but it's somewhere in that range 50-50.

[Steven Lichtman:]

Okay. Got it. On OCD reimbursement with the addition of the reimbursement expert you mentioned and the data recently published. I was wondering, what are the next key steps you expect to securing OCD reimbursement as we look ahead?

[Chris von Jako:]

Yeah. We were very excited about. In the last several – I think earnings calls I've been talking about this peer-reviewed publication that we were waiting on. And it just got released I think last week so we're very excited about the data very, very positive data. So we're going to take this data that we have. And as I mentioned, we have a new addition to the team and we're already setting up meetings with payers going into 2021. In order to speak about this data, and probably, we have an additional somewhere around total of about I think around 10 peer-reviewed articles that have been written about OCD this one being the biggest one with the 219 patients.

[Steven Lichtman:]

Okay. Got it. And then just lastly, as we start thinking about your third indication with smoking cessation, how should we be thinking about the impact next year? I know, there won't be reimbursement will kind of be following the same sort of OCD path. Will you be selling another helmet with the system that will get recognized? I know ultimately, you want to do it on a per click basis. But how are you thinking about sort of the initial contribution in 2021?

[Chris von Jako:]

Yeah. Thanks. So you know we have three different coils now that are approved. So we have our coil, or helmet that's used for depression. We have our coil or helmet that's used for OCD. And this is another coil or helmet that we use for the patients that will be used for smoking. So as I mentioned, we're going to be going into a controlled market release early or sometime in Q1, and we're going to be working with our current TMS customer's right there. They are the obvious only to kind of work with them to begin with. And then, we'll go into a limited market release sometime later next year, where we'll probably start attributing a small amount of revenue and this – similar to OCD, as you mentioned reimbursement will probably be important part of the factor. Obviously, cash pay may make sense. This treatment as opposed to our depression and OCD treatments are less treatments. There are only 18 treatments that are acquired here as opposed to over 30 treatments that you need for depression and OCD.

[Steven Lichtman:]

Got it. Great. Congrats on the quarter guys. Thanks, Chris.

[Chris von Jako:]

Thank you so much, Steven.

[Operator:]

Thank you. Our next question comes from the line of Jayson Bedford with Raymond James. Please proceed with your question.

[Jayson Bedford:]

Good morning, and thanks for taking my question. So, just a few. When you look at the performance in the third quarter, how much of that was more new demand versus fulfilling the orders that may have been deferred in 2Q? And if there's any commentary on kind of trends or backlog into fourth quarter that would be great.

[Chri von Jako:]

Yes. Thanks, Jayson. Thanks for the question. So as typical and I think I've mentioned this on my first earnings call, that our deals tend to happen at the end of the quarter and we did see a really nice pickup in orders in June. So some of this trickled into Q3 and typically Q3, amongst medical device companies happens to be a slower month, but we had really great traction in the third quarter. Judy, do you know -- I don't know what the balance was, but I think we had really good orders at the end of June and that comprised also with great orders in Q3 as well.

[Judy Huber:]

Yes. I think that we will always see an overlap for one quarter to the next. I think that in Q3 that was no different. I do anticipate that we'll see the same thing in Q4 to some extent. But the majority of units, we do try to get out the door is just -- it's a question of real timing and installation and acceptance by the customer as well.

[Jayson Bedford:]

Okay. And in reference, I think, you alluded to it, but obviously, we're kind of coming into this second wave of COVID. Have you seen any kind of contractions from a center perspective any impact on the business over the last few weeks?

[Chris von Jako:]

We haven't. I think that -- I think our customers -- current customers have kind of and I probably also talked about in the last earnings call as well. I kind of understood how to deal with the new normal going into this, maybe a rise up in COVID cases. They really understand well how to bring the patients in, how to really keep safety. So I think we haven't seen anything. I think patients have also like I mentioned visits with psychiatrists are up 60%. A lot of that happens to be telepsychiatry, but to pre-COVID levels it's almost there with pre-COVID levels of in office visits as well. So I think our customers have -- we've done a lot of things around education with them and work with them. And I think they're much better equipped, if there's a big spike up again this time. Again, the technology that we're providing is a medical necessity. And I think that's really, really important to understand.

[Jayson Bedford:]

That's helpful. Wanted to go back to OCDs. I apologize, if I missed this, but did you disclose how many coils you placed in the quarter?

[Judy Huber:]

We didn't disclose that. The total coil for the quarter was a 198. In total, which was an incremental I think 13 coils.

[Jayson Bedford:]

Okay. And do you feel like there's a backlog of OCD interest just waiting for reimbursement? I know it may be tough to gauge here but what's your sense on that?

[Chris von Jako:]

We're asked about it a lot from our customers. It's something every time I'm talking to our customers it comes up quite often. I know, Judy was talking to customers yesterday in Utah and they were mentioning that in order to get reimbursement sometimes it happens and you have to go through an appeal process when you go to do denial. In this case, the physician was mentioning that it was actually the mother of the patient that was working really hard with the Medicare -- with a PrEP care, Medicaid provider and actually got reimbursed for the treatment. So it does happen. We want to make sure that we get it on a wider scale. And I think it's something that a lot of our customers are talking to us about all the time. Again, I think you may know this, but it's a very complex disorder right now and there are only five approved medications that are on the marketplace. And these patients are really seeking as well as clinicians seeking an other alternative and adjunct that really help these patients.

[Jayson Bedford:]

Helpful. Helpful. Last question for me. And you mentioned it on this call, last call, payers seem to have relaxed some of their criteria for reimbursement and depression. It may be difficult to get visibility on this, but is this translating into an increase in orders perhaps in those regions where you've actually seen the criteria relax?

[A –Chris von Jako:]

Well, I know, specifically for our office-based psychiatrist, those are the ones that have patients sitting in their waiting rooms socially distance of course that have had two failures that they can actually get them up on TMS treatment now and that's a really big difference. I was talking to a customer of ours last month in Texas and says, it really made a difference to them right now. So I think our customers see it and we're trying to translate that also to new potential customers. So I think it can translate to a couple of things more demand for current customers that may -- they may look to increase the number of systems they have in that office or they may look to expand into other locations. So I think overall it is important and it's an important trend that the psychiatrists are really happy about. And of course the patients are as well.

[Jayson Bedford:]

Got it. Thank you.

[Operator:]

Thank you. Our next question is come from the line of Jeffrey Cohen of Labenberg. Please proceed with your questions.

[Jeffrey Cohen:]

Hi, Chris and Judy. How are you?

[Chris von Jako:]

Good.

[Judy Huber:]

Good.

[Chris von Jako:]

Good. Jeff, how are you doing?

[Jeffrey Cohen:]

Just fine. So firstly, if you could provide any further detail it would be helpful as far as total placement and what was sold and what was leased, at least in depression and then perhaps give us a little further color on general utilization and utilization trends? For...

[Chris von Jako:]

So let me start with utilization trend first. We did see a big upswing in the third quarter on the utilization. And we also -- a good indicator for us as you may know we sell a cap that goes with the treatment for each patient. And we saw a good increase in the number of caps that were sold as well, which to me also indicates that the customers are really bullish about new treatments coming in. So I think overall, we're really excited about what was happening in the third quarter and we see this trend also continued in the fourth quarter. Judy, do you want to?

[Judy Huber:]

Yes. So just on the mix between the lease and the sold, I think we referenced that the lease revenues were 57% this quarter versus 43% for the sale. Year-to-date, that's a little bit lower. Year-to-date, typically our leases were around 68% versus 32%. So right now, the lease revenue was slightly lower than our usual mix in that regard.

[Jeffrey Cohen:]

Okay. I got it. And could you provide any further clarity on any specific COVID effects on treatment and compliance that your data indicates or the clinicians have indicated?

[Chris von Jako:]

On -- when you say compliance, are you specifically speaking, if the patients stop coming or…

[Jeffrey Cohen:]

Yeah, yeah, patient compliance.

[Chris von Jako:]

We saw this Jeff, good question. We saw this actually in April and in May and from talking to a number of our customers that either had to close down because they had a COVID patients that came in. So they had to close the facility down for two weeks. And then we know anecdotally from some customers that they did have like some COVID patients that had to stop and then they had to retreat again. We haven't heard of that with any of our customers in the last several months. So I think that's also a good trend. I think it's the experience that not only that the centers are having, but in general also that the patients are more equipped on how to leave the homes and how to enter into the facilities and being safe overall. So we haven't heard of anything in the last several months around that at all.

[Jeffrey Cohen:]

Okay. Got it. And then lastly, as we think about OCD and your marketing campaign, can you talk about some of the metrics that you've been measuring as far as patient engagement and views and the size of the audience that you're aiming to capture with your four social platforms? Thank you.

[Chris von Jako:]

Yes. Thanks. So as I mentioned, our overall organic growth for our website grew by 30%, which means that -- that means that those -- people are coming to our website to kind of learn about the technology. And they're not being driven by any means. They're coming to our website, which is great. I think that overall is a good sign that indicates that we're really getting the word out about Deep TMS technology. We did this last campaign, which was new for us by using some social media influencers, and we were just really pleased with the overall outcome that we had and we're looking at additional ways of doing this also in the future. So again 400,000 impressions of this campaign in a one-week period I think is really outstanding. In addition to that, like I mentioned, we got picked up by over 80 media outlets and a number of news organizations actually had new stories one in particular that I'm thinking about was in Portland, which where one of our OCD patients lived. In that particular case that picked up by the morning news outlook there and she was interviewed in Portland on her local station and the quote that really resonates with me is that she couldn't have made it through 2020 without her BrainsWay TMF treatment.

[Jeffrey Cohen:]

Perfect. That's it for me. Thanks for taking the questions.

[Chris von Jako:]

Thanks, Jeff.

[Operator:]

Thank you. Our next question is come from the line of Kyle Mixon with Cantor Fitzgerald. Please proceed with your questions.

[Kyle Mixon:]

Hey, guys. Thanks for taking the questions. So I understand the trends and the kind of the challenges of the environment due to COVID in 3Q. But could you just kind of talk about the breakdown between systems sold in the quarter? The TMS-only providers versus the traditional psychiatrist offices. And I guess just thinking about it from historical context, was that generally in line with what we did in the past. And how has the mix kind of changed during COVID? Like what factors kind of drove the shift in mix? Thanks.

[Chris von Jako:]

Kyle, we heard the first part of your question, but can you -- you kind of went out of the second part of the question? Sorry.

[Kyle Mixon:]

Yes, I was just wondering if the mix between TMS only providers like a Greenbrook and the offices that mix has kind of changed during COVID. Is it similar at this point to what you've seen in the past? And what has kind of been changing that mix?

[Chris von Jako:]

Okay.

[Judy Huber:]

Yes. No, I think just on the mix, I think I referenced it is about the 57

[Kyle Mixon:]

Okay. That's helpful. Thanks, Judy. And in terms of like the progression of capital spending in the third quarter compared to what you kind of expected our last call in August. I know there's a lot of uncertainty here going forward, but what do you expect in the fourth quarter? I guess another Greenbrook talked about some strong trends in 4Q. And you talked about how utilization really picked up nicely in 3Q. So just wondering if you can kind of talk about what you're expecting for purchasing and even leasing in the fourth quarter here?

[Judy Huber:]

Yes. I mean, I'll start and Christ can comment further. But traditionally fourth quarter is a pretty strong quarter for us. Obviously, we have the second wave impact to -- there is a question in terms of what it will really end up being, especially given that most of the strong purchase sales usually happen at the end of that quarter. So we still have a little bit of time here before we would see some of those materialize and know whether or not they're going to come to fruition this quarter. But we remain bullish around the quarter. And I think it's -- we haven't seen anything that is leading us to believe that the Q4 wouldn't be as strong as at least Q3.

[Chris von Jako:]

I don't have anything to add. Well stated, Judy.

[Kyle Mixon:]

Thanks, guys. Obviously, notice that the lease revenue has remained pretty flat for the past five quarters or so around that $3.4 million, $3.5 million level. And as you said Judy, the percentage of total revenue kind of declines in 3Q from the year-to-date levels. So I guess what drove that modest performance since 3Q? I mean you would think that the lease model was pretty attractive in this environment. So I mean, is that 3Q results driven by some of the payment regimens that you mentioned on the last quarterly call? And I guess how should we think about the lease revenue mix going forward going from that 57% level?

[Judy Huber:]

Yes. I think, that's right, Kyle. I think that you -- as I mentioned on the last quarter, we have seen some slower payments coming from those customers. Many of them did shutdown for several months in the early part of COVID. And it does take a good three to four months to come back up in terms of cash flow for those customers. Once they start to see patients again. So given our policies internally in terms of how we would recognize that revenue, we have frozen a lot of that revenue until we kind of see the customer's ability to pay on those leases. So that has hampered the growth that we would see overall on the lease side because obviously we're still placing units, new units on the leasing side. So I think, we will see that number come back up as the patient flow continues and the centers get back into a good position.

[Kyle Mixon:]

All right. Thanks for that. And just one, last one for me, another housekeeping question. Obviously, the gross margin stepped down quite a bit in 3Q on the 79% in the second quarter. It's actually closer now to the first quarter level. So do you expect that some of the -- I guess inventory obsolescence like that kind and that could kind of flow through to the 4Q gross margin as well and maybe even totally 2021, or are we kind of past that now?

[Judy Huber:]

I think that there was a -- we continually look at inventory obsolescence overall. But we have -- we took a deeper dive into this quarter in terms of evaluating some of the upgrades of units that we've done in the field. And as we reassessed basically the remaining value of some of those units that we returned. So I think that some of that margin is definitely a discrete event in Q3.

[Kyle Mixon:]

Okay. It makes sense. Thanks a lot guys.

[Chris von Jako:]

Thanks, Kyle.

[Operator:]

Thank you. There are no further questions at this time. I would now like to hand the call back over to Christopher von Jako for closing comments.

[Chris von Jako:]

In conclusion, I'd like to thank all of the investors and other participants for their interest in Brainsway and we look forward to keeping you up-to-date on our progress. With that please enjoy the rest of your day.

[Operator:]

That does conclude today's call. Thank you for your participation. You may disconnect your lines at this time.