Q3 2020 Brainsway Ltd Earnings Call
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Greetings and welcome to the brands way third quarter 2020 earnings conference call at this time.
All participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded net.
Now my pleasure to introduce your host Bob Yedid of Lifesize advisors. Thank you you may begin.
Thank you Caroline and thank you all for joining US this morning, and welcome to brain waves brains ways third quarter 2020, <unk> earnings conference call with US today are the company's President and Chief Executive Officer, Chris and Jaco and Chief Financial Officer, Judy Hubert.
The format for today's call will be a discussion of third quarter trends and business updates from Chris followed by detailed discussion and financials from Judy.
And we will open up the call for your questions.
Earlier today brands way released financial results for the third quarter ended September Thirtyth 2020.
Copy the press release is available on the Companys and Investor Relations website.
Before I turn the call over to Chris and Judy I would like to remind you that this conference call, including management's prepared remarks, and my question and answer session may contain projections or.
Other forward looking statements.
Regarding future events or.
For the future performance of brands way, including but not limited to statements regarding commercial plans are for activities for national projections.
Cynical studies, R&D plans and or anticipated timelines for these statements are only predictions and brands weighted cannot guarantee that they will and in fact occur the company does not assume any obligation to update that information and.
Investors are cautioned that all forward looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated price brands way at this time and.
Additional risks concerning factors that could cause actual <unk>.
Since results for achievements to materially differ from those contained and the forward looking statements can be found in the company's registration statement on for App and its other filings with Securities and Exchange Commission [noise].
Those are my prepared remarks, it's my pleasure to turn the call over to Christopher and Jaco CEO Chris.
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 2020.
And even a small increase over the same period last year, which of course was prior to the onset of cold at 19.
These results were driven by a multitude of positive catalyst and our business and 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 pretty cold and levels.
This provides us with optimism as we head into the final month for 2020, but we have continued our judicious approach and implementing expense reductions without sacrificing our long term growth objectives.
Of course business conditions during cold and continue to evolve and we will continue to monitor the impact of the pandemic for the fourth quarter operations, especially with the latest spike and cases across the U.S.
With that said according to the information from excuse me a total patient visit metrics, both and person and Tele health continue to improve and the U.S.
We view patient visit data as a leading indicator of treatment volume and these metrics help provide us with confidence and the outlook from our business.
To this and patient visits just psychiatrist are up almost 60% versus pre koby levels.
These trends are very likely to continue as depression and rate and the U.S. adult has tripled since the onset of coated.
Because the Tms has a clear patient impact and customer economic benefit we believe the brains way as a critical role to serve and treating patients suffering from both depression and owes TV.
Importantly brands way and our innovative deep CMS therapy, our highly differentiated by superior science robust clinical evidence and industry leading customer support.
We had a vast clinical and commercial experience with our new Tms system, which has been subject and Oh no less than 32 completed randomized clinical trials, which is more than any other company and our field.
Furthermore, our brains ways deep CMS has been utilized to treat over 95000 patients for depression and Ltd.
And this translates into over two and a half million individual treatment sessions.
Moreover, our flexible business model allows customers to be the lease for purchased our system, which continues to help grow the demand for our technology.
In addition, favorable reimbursement trends for deep Tms depression trade and continued to be an important tailwind for our business, we continue to see reductions and reimbursement requirements from for prior and depressed and treatment failures to two prior failures.
This significantly reduces the hurdles patients must overcome in order to access a life changing treatment.
Just in the last six months reimbursement requirements have been eased by Blue Cross Blue Shield, and five states as well as by Cigna and that now.
As of the end of the third quarter and deep CMS for depression was covered by over 60 commercial insurers and all seven Medicare administrative contractors.
These payers collectively represent more than 275 million covered lives.
In general we continue our efforts to leverage these favorable trends and the pressure and reimbursement. This together with our average to obtain a further clearances and seek expanded coverage for these indications will help us expand our total addressable market.
And this regard, we're highly focused and securing reimbursement and no CD, our second major indication, which is a critical priority for brands way.
To further support our continued efforts, we recently expanded our reimbursement and market access team, including the addition of a professional with over 20 years of relevant experience to lead our initiatives and this important area.
I would like now to emphasize the ways in which brands ways adopted a systematic wide scale effort to utilize that meticulous data driven approach towards commercial success.
This range is from significantly increasing our data data for OCA CD to further bolstering the data around our positive safety profile and tracking our marketing efforts and reach.
In terms of LCD, we collect it new post marketing clinical data and 219 patients and 22 clinical deep Tms sites.
Which was published in the peer reviewed journal of psychiatric research.
Our analysis of this real world information resulted in several interesting findings within various sub groups. For example, the study showed that 73% of patients reach initial response and an early stage of the Tms treatment.
Which was administered as an adjunct form of therapy.
The data also revealed that the therapeutic effect can be maintained for weeks after treatment.
We intend to leverage this new data with insurance companies as we continue our average to obtain reimbursement.
As far as our safety profile as many of you may know our devices not associated with any systematic side effects. However brands way has diligently collected comprehensive safety data to give us a better understanding of the rest for treatment and recently published its analysis and the journal of brain stimulation. These for.
Findings indicate a market it decrease and the risks associated with our device. We now have the most comprehensive published clinical safety data by far the any Tms company and we believe that it suggests a safety profile that is second to none and the Tms industry.
It's also worth noting some impressive gains from our data we now track to better measure our web site user volume and patient education. This EPS from April through October approximately 3200 registered and participate it and 57 Webinars hosted by brands way and third quarter alone organic user volume of.
Our recently launched website increased by a robust 30%.
Tomorrow, LCD awareness week, which took place in October we teamed up with social media Influencers and to LCD patients treated with deep Tms to launch a social media campaign called hashtag the real LCD.
We yielded about 400000 impressions from this campaign.
And it was picked up by over 80 media outlets with a cumulative potential reach of 244 million.
As I mentioned, we believed and metrics initiatives and achievements all clearly demonstrate our persist and a commitment to a data driven commercialization approach.
Moving on since becoming CEO of brands way in January I've spent a considerable amount of time working to strengthen our commercial structure into an industry leading team and.
In order to further expand our sales efforts over the course and 2021, we intend to be creates the number of U.S. sales toward and territories. We cover for the beginning of this year at 12 to 16.
We also continue to see significant progress and opportunities for our business outside the U.S., even amidst the pandemic, we have seen a ramp and sales efforts from some of our distribution partners and agents.
In Japan, we received regulatory approval for deep Tms to treat depression, we continue to work through our distribution partner towards securing reimbursement and our steady contact with the relevant governmental authorities.
Our commercial team is also actively working on developing various synergistic opportunities and other new territories around the globe.
As I stated expanding the marketing indications for deep Tms and the key to our growth strategy to this and we were thrilled to announce and a third quarter and we received a third FDA cleared indication for deep Tms for smoking addiction. We've.
We view this milestone is further validation of our scientific leadership position and this represents the first FDC clearance and the addiction space for any Tms device.
Smoking is one of the leading causes of death and the U.S. and also leads to other serious conditions, such as lung cancer and heart disease, approximately 34 million U.S. adults smoke cigarettes, and nearly 500000 die from smoking each year.
Further only around 6% and those who try to quit each year our successful well.
While other therapeutic currently available of substantial medical need continues to exist for treatments that can assist smokers and quitting.
Brands way received FDA clearance and this indication based on data from pivotal study of 262 patients. These patients for highly addicted to cigarettes with a long history of smoking and with 70% having failed three or more attempts to quit.
For those patients who completed a full course, a deep tms treatment, 28% achieve for consecutive weeks of abstinence from smoking.
In addition, the average number of cigarette smoke per week drop from 127 at baseline to 32 by week six day.
These compelling data has been submitted to a peer reviewed journal for publication.
As I mentioned on the previous earnings call. We are excited about this new indication and we're gearing up for a control marker lease during the first quarter of 2021.
Our focus will be gathering post marketing data and refining our broader launch strategy.
Turning to Investor Relations I want to emphasize that Judy and I remain highly active and sharing brands with compelling growth story, with both and institutional and retail investors.
We recently participated and several virtual investor conferences sponsored by Cantor Fitzgerald Oppenheimer, H.C., Wainwright, and others and have multiple other investor events on a calendar over the next few months.
Moreover, I am pleased to share with you today that we will be hosting a key opinion leader virtual investor event. This coming Monday November 23rd at 10 am Eastern time.
This exciting event will feature Dr. oil and we are a Brooklyn minds, who will discuss the current treatment landscape and unmet medical need and treating patients with depression and LCD.
Before turning the call over to Judy I want to acknowledge my gratitude to our hard work and customers and the front line of this mental health crisis and to the entire brands way team for their continued support and dedication which has produced significant achievements during the first nine months of this year.
Thank you again for joining us today with that I will now pass the call to Judy for her review of our third quarter financial results. Judy. Thank you, Chris we're excited by the momentum and 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 magenta.
Adjusted 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 is driven by an increase and our direct sales arrangements. Our recurring revenue is primarily derived from leases for 3.4 million consistent with the third quarter of 2019.
These recurring revenues for 57% of our total revenue revenue for the first nine months of 2020 were $15 million a decrease of 11% from the same period in 2019 and.
As of September Thirtyth, 2020 range face 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. A 2020 range ways installed base has increased by 105 systems or.
Sal at 22%.
As a reminder, and response to the impact of COVID-19, and our business. We initiated the cash preservation program in late March with the goal of increasing efficiency and managing and without impeding our growth efforts. This program largely continued and the third quarter. However, while we continue to manage expenses prudently.
The company continues to proceed with its product growth strategy and to appropriately invest and the long term acceleration of our business moving.
Moving on gross profit for the third quarter 2020, with $4.5 million compared to 4.8 million during the prior year period gross margin for the quarter was 75 per cent compared to the third quarter of 2019 gross margin of 81%. This decrease was due to an increase and inventory obsolescence recognized in the quarter gross margin for the first.
Nine month of 2020 for 77 per cent compared to 78% during the prior year period.
Research and development expenses for the third quarter for 1.4 million as compared to 1.9 million and the third quarter of 2019, and primarily consists of costs associated with the continued development of our patented the Tms technology research.
Research and development expenses for the nine months at 2020 were 4.2 million as compared to $6.1 million in the prior year period.
S.G. and a expenses for the third quarter for $3.7 million compared to $5 million, a decrease of 1.3 million as compared to a third quarter of 2019. The decrease is in line with the company's efforts to enhance efficiency as well as the lower operational expenses, given the financial impact of the pandemic assay and expenses for $11.7 million.
For the nine months of 2020 as compared to $13.5 million in the prior year period and reduction in expenses of over 15%.
Total operating expenses for the third quarter for $5.1 million compared to 7 million in the same period last year.
Total operating expenses for the first nine months of 2020 totaled 15.9 million as compared to $19.6 million in the prior year period.
Operating losses for the third quarter with 586000, compared with $2.2 million for the same period in 2019 operating losses for the first nine months of 2020 totaled 4.4 million as compared to $6.5 million in the prior year period.
For the third quarter ended September Thirtyth 2020, we incurred a net loss of 966000 compared to a net loss of 2.6 million in the third quarter of 2019 and year over year improvement of 1.7 million.
Net loss for the first nine month of 2020 totaled 5 million as compared to 8 million and the prior year period.
And for the balance sheet, we ended the quarter with cash and cash equivalents, a $16 million compared to 21.9 million at December 31, 2019 cash used during the third quarter of 1.8 million was in line with our expectations.
We believe that our strong balance sheet will allow us at the appropriate time to expand our sales and marketing efforts to drive additional adoption of the deep Tms system and to continue to invest and R&D in order to explore and new potential indications for our innovative technology.
This concludes our prepared remarks I will now ask the operator to please open up the call for questions operator.
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Okay.
Our first question is come from the line and Steven Lichtman of Oppenheimer. Please proceed with your questions.
Thank you.
Morning.
A couple of questions first the Haitian appointment increase you mentioned, Chris during Threeq you is definitely encouraging.
I was wondering how has the environment is further if at all for your reps to get into offices.
What's what's the level of interaction there, they're able to have a with with clinicians now.
Hey, good morning. Thanks, Thanks for the question I appreciate it.
Yes so.
We were very very pleased obviously very optimistic about what happened in the third quarter, we have seen a definite trend and the direction of more off in office visits by our salespeople.
Which has increased since June on.
It's still obviously not the pre cobiz levels and a lot of the meetings are still being conducted obviously by telephone and through web conferencing, but there has been a steady increase.
I don't know if I don't want to say, it's 50 50, but its somewhere in that range 50 50.
Okay got it.
I know C D reimbursement and.
With the addition of the reimbursement expert you mentioned in the data recently published I was wondering what are the next key steps you expect.
And you're just securing Oh C D reimbursement as we as we look ahead.
Yes, we were very excited about you know and the last several I think earnings calls had been talking about this.
Peer reviewed publication that 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 and New addition to the team and we're already setting up meetings with payors going into 2021 newer too so.
Speaking about this data and probably we have added additional somewhere around total about you know I think around 10 peer reviewed.
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Articles that have been written about LCD. This one being the biggest one with a 290 patients.
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 the impact next year I know there will be reimbursed and what kind of be following the same sort of OTV Pat will will you be selling another.
Helmet with with the system that that will get recognized they know ultimately want to do it on a per click basis, but how are you thinking about sort of the the initial contribution you and.
And 21.
Yeah. Thanks.
So you know we have a three different coils 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 LCD and this is another coil or helmet that we use for the patients that will be used for smoking.
So as as I mentioned, we're going to be going into a control Barker Elise early or sometime in Q1.
And we're going to be working with a current Tms customers right. There. They are the obvious on Lee to kind of work with them to begin with.
And then we'll we'll go into a limited market release sometime later next year, where we'll probably start contributing a small amount of revenue.
And this is similar to LCD as you mentioned reimbursement will probably be an important part part of the factor obviously cash pay may make sense. This tree been as opposed to our.
Our depression and obesity treatments are less treatments. They are only 18 treatments that are acquired here as opposed to over 33 events that you need for.
Depression and see day.
Got it great congrats on the quarter guys. Thanks, Chris Thanks.
Thanks, so much Steve.
Thank you. Our next question comes from the line of Jason Bedford with Raymond James. Please proceed with your questions.
Good morning, and and thanks for taking the question. So just a few.
When you look at the.
The performance and the third quarter, how much of that was more new demand versus just filling the orders that may have been deferred to Q and if there is any commentary on kind of trends are backlog into fourth quarter that would be great.
Yes, thanks, Jason Thanks for the question.
And so as as typical and I think I've mentioned this on my first earnings call.
That are 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 that's trickled into Q3, and typically you know Q3 amongst medical device companies happens to be a slower month, but we had really great traction and the third call.
Order share.
You know I don't know what the balance was but I think we had really good orders the and ended June and that comprised also with great orders in Q3 as well.
Yeah, I think I think that you know we will always see you know and overlap from one quarter to the next I think that and Q3 that was no different I do anticipate that and you know that well see the same thing and Q4 to some extent, but you know the growth.
Majority of units, we do try to get out the door. It's just it's a question of real timing and installation and acceptance by the by the customer as well.
Okay.
And in in reference I think you alluded to it but obviously, we're kind of coming into this second wave of Cove. It have you seen any kind of contractions from a from a center perspective any impact from the business over the last few weeks.
We haven't I think that.
I think our customers current customers.
Have kind of.
And probably also talked about it and less last earnings call as well as kind of understood how to deal with the new normal going into this.
Maybe a rise up and coated cases.
They really understand well how to bring the patients and how to how to really keep safety. So I think we havent seen anything I think patience and also like I mentioned.
You know.
For the visits with psychiatrists are up 60% lot of it happens to be.
Tell a psychiatrist day, but to pre cope and levels, it's almost there with pretty cold and levels of in office visits as well. So I think that I think our customers have we done a lot of things around education with them and work with them.
And I think they are much better equipped.
If there is a big spike up again this time.
Again that the technology that we're providing is a medical necessity and I think that's really really important to understand.
That's helpful.
Wanted to go back to those Cds I apologize if I missed this but did you disclose how many coils you placed in the quarter.
And we didn't disclose that the total core and total for the quarter was 198.
And total for which are the incremental I think 13 coils.
Okay.
And do you feel like there is a a backlog of both CD interest just waiting for reimbursement I know it may be tough to gauge here, but whats your sense on that.
You know we're asked about it a lot from our customers that something every time I'm talking to our customers that comes up quite often and no Judy was talking to customers yesterday.
In Utah and they were they were mentioning you know that and.
In order to get reimbursement, sometimes it happens and you have to go through an appeal process. When you got a denial.
And this case the physician was mentioning that it.
It was actually the mother of the patients that was working really hard with the Medicare and with a with a Medicare Medicaid provider and actually got reimbursed for that for the treatment and 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 talk to us about all the time.
Again again I think.
I think you May you may know this but.
It's a very complex disorder right now and they are only five approved medications that are on the marketplace.
And these these cut these patients are really seeking as well the clinician seeking and other alternative and adjunct and really help these patients.
Okay helpful. Last question for me and you mentioned that this call last call payers seem to have relax some of their criteria for for reimbursement and depression.
It may be difficult to get visibility on this but is this translating into an increase in orders, perhaps and those reason those regions, where you've actually seen the criteria relaxed.
Well I know specifically for our office based psychiatrist.
Those are the ones that have patience sitting there waiting rooms socially distance of course.
That has had no two failures.
That they can actually get them up on Tms free, but 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 too.
New potential customers. So I think it can translate to a couple of things more demand for current customers that may and they may look to increase the number of systems, they have and that office or maybe they may look to expand into other locations. So I think overall it is important and.
And it's an important trend that and that the psychiatrist are really happy about.
And of course, the patients are as well.
Got it thank you.
Thank you. Thanks for next question. Our next question comes from the line of Jeffrey Cohen of Ladenburg. Please proceed with your questions.
Hi, Chris and surety how are you.
Good good Jeff how are you doing for spring. So firstly, if you could provide anywhere from two to be how flows for some.
Total placements or what was sold and what Weve leased at least and depression, and and perhaps give us a little further color on general utilization and utilization trends.
For sure. So let me, let me start with utilization trend first.
We did see.
A big upswing.
In the in the third quarter.
On the utilization and we also a good indicator for US as you May know, we sell a cap on.
That goes with the with the for the treatment for each for each patient and we saw a good increase and the number of caps that were sold as well which to me also indicates that the the customers are really bullish about you know new treatments coming in and 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 yeah. So just on the mix between the leased and the sold and I think we referenced that the lease revenues or 57% this quarter and versus a 43% for the for the sale year to date, and that's a little bit lower year to date and typically our leases for around 60, 68% versus 32.
For sense so.
Right now the lease revenue was slightly lower than our usual mix in that regard.
Okay, I got it and could you prefer and any further clarity around or any specific career defects and.
Treatment and compliance that all your data indicates or the clinician sort of indicated.
On when you say compliance are you specifically speaking if the patients stop coming or for your patience.
We we saw this Jeff good question, we saw this actually and in April.
And in May and from talking to and number of our customers.
That either had to close down because they had a cold and patients that came in and 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 coated patients had to stop and they had to re trade again, we haven't heard of that with any of our customers and the last several months. So I think that's also a good trend I think it's the experience that.
But not only.
The centers are having but in general also that the patients are more equipped and how to leave the homes and how to enter into the facilities and being safe overall, so we havent heard of anything in the last several months around that at all.
Okay got it and then lastly, as we think about Oh, Suji and your marketing campaign and can you talk about some of the metrics that you've been measures first patient engagement and views and the size of the audience to your EBIT to capture with your which are for social platforms. Thank you.
Yes. Thanks.
As I mentioned, our overall organic growth for our website.
Grew by 30%, which means that that means that.
For those patients people are coming to our website to learn about the technology.
And they are 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 are really getting the word out about 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 400000 impressions of this of this campaign and a one week period I think is really.
Outstanding and.
In addition to that like I mentioned, we got picked up by over 80 media outlets and a number of news organizations actually had news stories, one in particular that and thinking about was in Portland, There, which is was where one of our our own CV patients lived and.
That particular case that picked up by the morning news outlets there and she was interviewed in.
In Portland on her and her local station.
And the quote that really resonates with me is that she she could have made it through 2020 without her brands way Tms treatment.
Perfect for those for me thanks for taking the questions.
Thanks, Jeff.
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Thank you. Our next question, it's comforting to line up tile mix and with Cantor Fitzgerald. Please proceed with your questions.
Hey, guys. Thanks for taking the questions. So I understand the trends and the kind of the the challenges and the environment.
Good cobot and three Cuba could you just kind of talk about the breakdown between systems sold in the quarter to Tms only providers versus the traditional psychologists offices, and I guess and just thinking about it from historical context was that and generally in line and the pass and how does the mix changed during cold and like what factors going and drove the and the shift in mix. Thanks.
Kyle we heard the first party and question, but can you kind of went out of the second part of the question sorry.
Yes, I was just wondering if the mix between.
CMS only providers like agree and Brooke and be the offices.
And at this kind of changed during co and the is it similar at this point to what you've seen in the past and water kind of and changing the mix.
Okay.
Yeah, and I think I, just just on the mix I think I referenced it is about the 50 743. So in terms of the total 26 units I think that correlates pretty closely and.
That we placed in the quarter I think as it relates to the trend around and what we're seeing you know we have seen a good amount of business from our existing customers as well as new new business in terms of expansion as well as do business. So I think we're seeing.
Customer bases expand as well both from at a hospital level as well as you know as well as at the chains and some new psychiatrists, though it really was kind of and mix across the board I would say as far as the new business and existing business line, but about a 50 50 split there for this quarter.
Okay. That's that's helpful. Thanks equity and in terms of the like the progression of capital spending in the third quarter compared to what you kind of expected.
Your last call and August.
No no other and there's a lot of uncertainty here going forward, but what do you expect and fourth quarter, I guess and other Green Brook talked about some strong trends and for Q and you talked about how utilization and look picked up nicely in threeq. So just wondering if you can kind of and talk about what you're expecting for purchasing and and need and we say in fourth quarter here.
Yeah, I mean, I I'll start and Chris can comment further but.
Traditionally fourth quarter is a pretty strong quarter for us. Obviously, we you know we have the the second wave impacted.
There's a question and in terms of what it 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.
Before we would see some of those materialize and to know whether or not they're going to come to fruition. This quarter, but we remain bullish around the quarter and I think its a.
We haven't seen anything that.
That is leading us to believe that the queue for wouldn't be as strong as at least Q3.
And our having that.
While stage anyway.
Thanks, guys.
Obviously I noticed that the lease revenue has remained pretty flat from past quarters, or so and around that three point for Threeq Onefive hundred dollar for dollar level and as you said duty and percentage of total revenue.
And declines Tom and directly from the year to date levels, So and that's what drove that mark for months in Threeq. You. I mean, you would think that the lease model would be pretty attractive and this kind of environment.
So I mean is that threeq results driven by some of the payment arrangements that you mentioned on the last quarterly call and I guess, how should we think about that lease revenue mix going forward from that going from that 57% level. Yeah. I think I think that's right Kyle I think that you.
As I mentioned on the last quarter, we have seen and some slower payments and coming from those customers.
Many of them did shut down for several months and the early part of Cove. It and it does take that three to four months to come back up you know in terms of cash flow for those customers and once they start to see patients again so.
Given given our policies internally in terms of how you would recognize that revenue. We have you know we have frozen a lot of that revenue and told me kind of see the customer's ability to pay on those leases. So that has hampered the growth that we would see overall on net lease side, because obviously, we're still placing units and new units.
And the leasing side. So I think we will see that number come back up as you know as the patient flow continues and the centers get back into a good position.
All right got it thanks for that and I guess, just one last one for me. Another housekeeping question, obviously, the gross margin stepped down quite a bit and re queue from the 79% and and the second quarter, it's actually for us or not for the first quarter level. So do set and some of the I guess inventory obsolescence, but like that time and kind of work.
True to the quirky gross margin as well and maybe even early 2021 are we kind of past that now.
And I think that there was a.
We continually look and inventory obsolescence and overall on but we have and we took a deeper dive into this quarter in terms of evaluating some of the upgrades of units that we've done and and the field and reassessed basically the remaining value and some of those units that we return so I think that some of that merger.
Definitely and discrete event in Q3.
Okay makes sense, thanks, a lot guys.
Thanks Scott.
Thank you there are no further questions at this time I would now like to hand, the call back over to Chris for Sun Jaco for closing comments.
In conclusion I'd like to thank all the investors and partners other participants for their interest and brains way.
And we look forward to keeping you up to date and our progress with that please enjoy the rest of your day.
That does conclude todays call. Thank.
Thank you for your participation you may disconnect your lines at this time.