Q3 2019 Earnings Call

Gentlemen, thank you for something by and welcome to todays Brian <unk> reports.

Hi.

Operational highlights coal.

This time, all participant signed in listen only mode.

They will be a presentation, followed by question and answer session at which time, if you wish to ask a question.

And one.

I must advise you that this conference is being recorded today trying to say.

<unk>.

I wouldn't know liked under contract.

And then touch a day, Brian Ritchie. Please go ahead.

Thank you and good morning, everyone.

I would like to welcome all of you the Braves waste third quarter 2019 conference call with us today.

Range waste, chairman and interim Chief Executive Officer, David Cool.

Chief operating officer in Chief Financial Officer Hotdog.

Also with US today is Dr. Christopher Jaco when the company has just appointed to be its new President and Chief Executive Officer.

After damaged Dod provide an overview of the company's business activities and developments for the third quarter, we'll open the call for Q1 day.

Before I turn the call over to David I would like to remind you that this conference call, including both management's prepared remarks, and the question answer session may contain projections or other forward looking statements regarding future events for the future performance of range, including but not limited to any statements relating to commercial.

Lands or activities financial projections clinical studies, R&D plans and or anticipated timelines when used in this call. The word you anticipate could enable estimate intend expect believe potential well should project.

Similar expressions as they relate to brains way are as such forward looking statements.

These statements are only predictions and brings we cannot guarantee that they will in fact occur Raceway does not assume any obligation to update that information investors are cautioned that all forward looking statements involve risks and uncertainties, which may cause actual results may differ from those anticipated wide range way at this time.

Additional risks.

Concerning factors that could cause actual events or results or achievements to materially differ from those contained in the forward looking statements can be found in the company's registry registration statement on form F. One and it's other filings with the Securities and Exchange Commission.

Hey, the company issued press releases announcing its financial results for Q3 as well as regarding Dr. about yacos appointment.

Participants in this call may not have already done so can find news releases on brains ways website as we provide a summary of the results on this call I'd now like to turn the call over brains waste Chairman David.

David.

Hi, Good morning, Thank you Ryan London get everybody welcome to graduate their growth that do doesn't and IDN earnings scores our business continued to perform well and most importantly, the month of I would disappear mill system continues to grow.

Before turning the call over to literally our CFO to discuss various highlights.

This is.

Let me begin.

Well.

Leadership transition.

Earlier today readily announced it.

The board.

I'm pleased that Dr. Christopher.

As a president and CEO .

Oh, the 25 years of experience managing businesses and leading global medical Technology company.

His appointment reflects the board's commitment to a strategic transition.

It's based leadership and we would become effective in January 2012.

We're going to that I have been serving goes into interviewed she also since September 2000, and they do.

We are extremely excited when countries to graduate.

Yes, we looked to be taking about today's <unk> session.

We are pleased.

With us on todays call.

Victory, introducing says to you.

Thank you Chris please.

Thank you David for your warm welcome and for your face that you and the entire board placed in me to lead brains way into the next phase of growth.

Probably excited to join this exceptional organization and truly passion about this opportunity to be apart the difference that brains way in deep Tms are making in People's lives, just a little bit about myself.

I've been fortunate to gain over 25 years of experience in managing businesses, and leading global medical technology companies, including in the development commercialization of minimally invasive medical technologies.

Most recently served as CEO Don tries corporation it publicly traded medical device company that designs manufactures and sells high quality was started products.

[noise] previously I served as president and CEO of nine point medical and advanced image guidance company and before that as president and CEO of north or on a minimal invasive interventional pain management company.

There my career I held at other leading medical device companies, including and take a life Sciences, Covidien and Medtronic and radio clinics.

Through the various roles I've held I have designed and implemented commercialization strategies for a variety of medical devices offering solutions to patients to arrange a disruptive technologies.

For example from the use a pioneering in troponin MRI imaging.

System for minimum base, a brain surgery to the advent of radio surgery noninvasive solution that utilizes pure precise radiation to target brain tumors.

I'd now plan to use his experiences that brains way to create a heightened focus on commercial excellence to leverage the strategic opportunities that exist in this dynamic space and to continue brains ways impressive track record of scientific and clinical achievements as well as its commitment to patient health.

Again, I'm honored to be joining brains way I look forward to working with the entire team and also to meeting our investors and analysts in the coming months.

We'd like to now turn the call back over to David.

Thank you very much group.

I'll now turn the call over to a dollar. Please go ahead the though.

Thank you David were very pleased with our strong performance in the third quarter of the year.

As David noted our positive results reflected the continued increase in demands of our deep Dms system.

However, before I discuss our third quarter performance I'd like to begin with a very brief reminder, rent spread business.

Our a difficult Mems technology and keep targeted markets.

Our next year message them, if they get wins from major depressive disorder, MTD and obsessive compulsive disorder or Cindy.

50, M.F. system, they demonstrated clinical efficacy and empty didn't know Cindy.

He is well tolerated and also the potential to address that wide for younger people psychiatric why did you call an addiction disorders.

Well significance.

Our FDIC clearance in Boston did you an ultra deep provide us with is substantial competitive advantage in the marketplace.

Customers can drink both sets of patients with our technology, what other Dms technologies can only treat MDD patients.

With that overview, let's turn to argue results over the third quarter of 29 Kim.

We generated quarterly records revenue 5.9 million and increased 38% over the third quarter of 22.

Strong performance is further notable in light of the seasonality typically associated with the third quarter.

Our recurring revenue were 3.4 million, an increase of 40% over the third quarter of 2018.

These recurring revenues demonstrate the benefits the brings her business model in which a significant portion before a difficult I miss customers enter into a lease arrangement that generates recurring revenue over a three to four year period.

Yes recurring revenue provides greater predictability.

Gross and we believe it offers investors rig visibility offerings raising rents were a result.

It is also important to consider that our list customers are those that typically treat an average of three to four patients per day.

Therefore, cummins commensurate with the increase in revenue from our lease model is continuous strong utilization of our system.

Since September 30, as 20, Dean rents are installed base of increased by 138 systems, reaching a total of 488 dip dms system, and reflecting a quarter over quarter in Greece 32 systems.

As of September Thirtyth, winning 19, the company has shipped 130 due mostly because.

At all elements to certain of friends for a new and existing system since marketing clearance was obtained in August 2018.

I should the demands for additional always see because all these our ability to fully satisfied all the orders we received in the third quarter. We anticipate this additional demand will for field in the fourth quarter Importantly, Brinci continues to work too thin reimbursement in the U.S.

For our all should be therapy.

Well I want to review our financial results in greater detail. Shortly you will note and increasing our operating expenses year over year into first quarter.

It is primarily due to the investment we're making into future growth of our business and that was one of the key objective. We said when we successfully completed our U.S. IPO earlier this year.

We added a net of six new sales rep in Q3, when compared with Q3 28 deem ending the quarter with 18 total sales reps in the U.S.

We intend to add around two new sales reps in Q4.

You will recall that the key parts of our strategy.

That we intend to accelerate our growth by increasing the size of our sales force and enhancing our markets marketing activities globally.

We are confident these investments will help drive long term growth.

We also continue to ramp up our R&D activities.

We offer a boost clinical pipeline, including studies in other indication for DPM and.

First we completed the treatment phase of our multi center smoking cessation study.

This result.

From the data are expected to published.

It did give the we continue to accept.

The availability often dream resolved by the end of this year.

In opioid abuse, we continue to work with the FDA in an effort to initiate the study following the selection rents way by the agency.

We exit we expect to submit an investigational new device application and be in a position to initiate the study in the first quarter of next year.

In booked about six sclerosis, Matt we continue walking towards initiated a multi center.

Starting to treat for big symptom Ms patients with CMS and anticipating beginning this body shortly.

We also remain focused on developing and multi channel stimulator and close stimulator with real time, you reading capability.

With that I'd like to provide a brief update of our effort to expand into additional territories, including Asia.

As announced previously we recently entered into exclusive distribution agreements.

Juan Philippines.

South Korea and Thailand.

That this agreement to obtain contributing our to our results in the fourth quarter and into next year.

No I would like to provide a detailed review of our financial performance in the third quarter of 29 team.

As I mentioned earlier total revenue in the third quarter was 5.9 million, which represent 38 increase over the prior year border.

Well.

3.4 million was recurring lease revenue, which represents an outstanding 40% in Greece in recurring revenue over the prior year quarter.

Gross profit for the third quarter of 2019 was 4.8 billion an increase of 43% from 3.4 million during the third quarter of 28.

Gross margin for the first quarter.

29 gain was 81% which is increased from first quarter 28 in gross margin of 78%.

Research and development expenses for the quarter were one point.

1.9 billion compared to 1.4 million in December period into anything you did the continuing development of R&D Pms technology, including finalizing the smoking cessation study and conducting clinical trials for the treatment of PTSD and other disorders.

Sales and marketing expenses for the first quarter of Threenineteen were 3.5 million increase of 1.5 million over the barrier prior year.

The increase was primarily driven by an expansion of sales force and enhanced marketing activities for Mt. Dnos Cindy.

General and administrative expenses for the quarter were 1.5 meter as compared to 0.1 9 million for the same period. In 2018. This increase was driven by the additional cost associated with our current status as a public company in the U.S. and an increase in non.

I wish provision for doubtful debts.

Total operating expenses for the third quarter totaled 7 million compared to 4.3 million in the third quarter of 20 team.

For the first quarter ended September Thirtyth 2019 will include a net loss of 2.6 million or 12 cents per share as compared to loss of 1.5 billion or nine cents per share for the three months ended September Thirtyth 20 team.

Moving to the balance sheet, we ended the third quarter with cash and cash equivalent of 23.9 million compared to 27.6 billion as of June Thirtyth 2019.

Cash usage cash usage during the quarter was in line with our expectation wherein enthusiastic about our strong balance sheet and believe that are substantial cash position will allow us to expand our sales and marketing guesswork further to drive additional adoption of the dip Dms system continue to invest.

In R&D in order to explore new in potential indication.

Move toward profitability.

So to summarize our performance in the first quarter and recent highlights.

38 grow 38% growth in the year over year revenue driven by demand for and use of R&D Pms system.

We are growing our sales force and expanding into additional territories.

We have achieved keep progress in advancing our clinical pipeline and multiple upcoming key R&D related companies, including final results expected soon from our smoking cessation study.

However, we continue to well supported by strong balance sheet with the cash and cash equivalent of 23.9 million as of September Thirtyth 29 team.

Looking ahead, our outlook for the fourth quarter and into 2020 rigs remains highly positive. This confidence is driven by the continued strong market demand for our deep Dms system.

So with that I will now walk the operator, please open up the goal for question.

Thank you.

Ladies and gentlemen, just a reminder, if you wish to ask a question. Please press star and one on your telephone keypad and between him to be announced if you wish to comes from your request. Please press star scale.

Canada and wanted to ask a question.

We have so if your question underline the first question comes from Brett.

Your line is open please ask your question.

Okay.

Thanks for taking the questions.

Congrats on the shrunk quarter, and the CEO higher and welcome to Christopher and look forward to working with you.

I wanted to ask maybe a couple of questions on some of the leadership transitions that have been going on so.

You guys announced on the last call. The head of sales was leaving in mid October .

And then obviously CEO Reg resignation in September so I just wanted to see if you guys could you talk about how much if any sales disruption you saw as a result of any of those departures and if there's anything that you would expect in Q4 or even the early part of 2020.

There was nothing no disruption.

Because of those two.

The.

Joe and the lack of the left the company and.

Business as usual even better.

Okay.

Yes for that.

And Oh, CD coils, I guess were down just a little compared to the to the prior quarter.

Just wanted to see if you could provide a little bit color on user demand there and how we should think about your progress towards gaining reimbursement I know you guys mentioned it in the script, but what's what's the progress towards towards.

Getting that reimbursement.

Our down so yes. So we continue to press hard we saw reimbursements default and we believe it is added to the right direction.

However.

I'm sure you can understand we cannot predict when exactly this effort will be.

Judy has an impact our bottom line.

In in terms of.

The number of installed base.

Usually a and Thats was expected you know thats was in line with our expectation in Q3.

To the seasonality of this summer at time.

We did some degree Cindy.

In the overall demand, but we can.

So now as we are expecting for Q4.

We're expecting a much stronger demand for the obesity calls.

Great. Thanks, one last one for me and appreciate the your positive outlook for Q4 in 2020.

Maybe looking ahead to 2020, just how should we think about the growth expectations for each component of the business the direct system sales the system leases.

And then Oh CD.

So our men's business model is is to lease the devices and this is where we are aiming to I think the rasho between the lease and the sales would remain the same.

For for 2020, we feel very very comfortable with.

Our business opportunities.

Even.

I believe that once we will get the reimbursements for the city.

We see a great potential for growth as well so we have a great confidence about alright.

Business for the upcoming year.

Great. Thanks for taking the questions.

Thank you in.

The next question comes from the line from Jason Bedford.

Your line is open please ask your question.

Hi.

Good good morning, and I guess good afternoon for some so thanks for taking the questions and welcome Dr. <unk> Jacko.

I don't think Thats fully caught all of the LCD commentary was there a manufacturing issue that prevented you from filling all the LCB orders I got the sense that demand exceeded supply in the quarter.

No. It again I said it was mainly due to this seasonality I think there are some orders.

Derived very late in a in September I think it must be much more related to a cat official.

We'll see the ramp up at back again in Q4.

Okay, and just in terms of gauging the pull through here.

The LCD helmets, what percent went to new customers or existing MDD users.

So it's pretty similar.

You know I would say roughly 50, 50%, 50% from new customers and existing customers.

There is still we can still is as the you know some.

Very good demands from existing customers are now looking.

A very carefully to our these add on coil of the CD and obviously you know we truly believe that every new customers.

Yeah.

Renting or buying the our Nvidia call well also wants to ask the.

Comparative advantage Oh, the ability to also treat those patients. So we anticipate the desperate dented produced a percentage to grow but for now it's 50 50.

Okay, just a couple of other questions.

What's the timing on reimbursement in Japan.

So.

We are pressing very very hard on this issue as well.

It's very it's very difficult due to give.

A timeline, but we expect to two of reimbursement.

We hope to two of its very soon.

I don't have a clear answer right now.

Okay and then just lastly from me gross margin was quite strong in the quarter can you maybe comment on where the strength stem from.

So.

The strength come from.

The ASV, we are principally as a premium technology is trying to keep the ASV.

As high as we can.

And.

We hope to continue.

To keep this level of.

Prices. This is one second.

We also see D.

Goals are also benefits to our gross margin as well as it as an all coil.

He said very high.

Gross margin.

Okay. Thank you.

Thank you Jason Kim.

Next question comes from the line from Steven Lichtman.

Hi. This open please ask your question.

Thank you hi, guys and congratulations Chris.

Guys can you can you talk a little bit about the revenue opportunity.

You see in the countries you'll be launching in Asia.

And can you also remind us what selling model you're expecting to use it in in those countries will that be lease risk risk scare outright purchase or mix of those.

So so did the Jeff Japanese market these fees fees.

It's a huge market opportunity we are very good distributable over there.

The bill moler going to be a lease model, we're not going to sell the the devices over there.

As you.

As we mentioned before it varies we're still waiting for the reimbursement we truly believe that once we are going to get the reimbursement this can be very huge.

Opportunity for us, it's very difficult now too.

To provide some some guidance and we're not providing any guidance.

All the impact to our.

Financial reports for next year.

However, this is a very material market.

After the U.S. and we expect to have a substantial growth once we go any idea reimbursements over there.

Okay, great. Thanks, and on smoking cessation sounds like the date will be out soon as you mentioned are you still expecting it by yearend.

And what form will it be release will be published in a journal or company press release, how should we be looking out for that.

It should be and.

Fewer rigs and it will be published as a press release.

Okay Fantastic and then just lastly can you talk a little bit about the sales force ramp in terms of how many.

Accounts each is each wrap is able to handle what you're seeing in terms of the.

The efficiency in the build out of the of the Salesforce overall in the U.S. that'd be helpful. Thanks.

Okay. So we're walking according to.

We are focused that when we just got out.

With the IPO.

So.

Currently we are 18 sales reps in the U.S., we are trying out too.

To focus on the big hops off.

Psychiatrist around that the U.S.

And.

For now we see that.

The average per rep.

Well the set aside just to cover the.

Certain number is effect clinics.

We're not expecting too.

To increase this level intensively.

For now I think.

We have enough sales rep to cover.

The U.S. as I said the plan is just to our additional two more.

By the end of the year and that should be sufficient.

Follow coverage for this year.

Okay, great. Thanks, guys.

Thank you.

For the moment last question comes from the low end from Jeffrey Cohen.

And this open please.

Hi, Good morning, German and very serious force, Chris just a few questions from or.

We're in firstly could you comment a little bit in or any utilization trends you've seen over.

For third quarter, and perhaps during the fourth quarter and using that we should look out for.

2020 approaches.

Are you referring to the utilization in DMD.

Yes, predominantly yes.

So our among business model.

This is.

Unlimited use.

We have we have a system that we can only tour.

Some.

Our utilization.

I mentioned it.

We see that everyone that is signing for the six lease business model.

It means that the many more me you will probably three to four patients per day.

We are tracking this this number we see this number very closely and we're very happy to have a very strong utilization with our customers.

Okay got it could you speak to any particular geographic constraints throw a third quarter fourth quarter inter 2020 in the U.S. that you're seeing by region or by a commercial team.

Yes. So so you know there are always the strongest hobbs.

In the USA territories, California, New York.

Takes us and you know in Florida.

The main.

Hubs that creating great.

Revenue and they also have a great reimbursement coverage and rates.

And this.

Specific territories, we anticipate these said territories to continue.

To beat the main.

Drive for growth and we are.

Single, the right focus and attention to.

These main hubs. However, we still we're trying to develop some new other territories.

In the U.S Submarket.

Okay got it lastly from me could you talk about any trends you're seeing in leasing versus purchasing for MTT and how you expect to look going forward would you expect a more of the same or some of those trends to change.

So we do expect more more off.

Same.

I think we're offering to our customer at very very attractive business model with with the lease model.

That's we see more and more customer are leaning toward these.

Business model of the lease however, if you know hospitals still wants to purchase this.

And machines, and obviously out of the U.S., we are selling the the machines.

Upon will be an exception but.

We will continue to sell the said device, but the main business model in the U.S. will continue BD the lease model.

Perfect, but those are for me. Thank you very much good corridor.

Thank you Jeffrey.

Thank you.

We have no further questions.

The call back.

David.

Any final remarks.

Thank you all for participating on todays earning school I would like to take this opportunity to wish you and your families.

Thanksgiving.

And.

During the three months in the growth.

Next time.

Bye.

Thank you. So today. Thanks for participating you may now disconnect.