Q3 2022 Brainsway Ltd Earnings Call
Ladies and gentlemen, this is the operator.
The meeting for Brinci will be starting shortly.
Thank you.
[music].
Ladies and gentlemen.
And welcome to the train speed fourth quarter 2022 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.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host.
Bob you did of Lifesize advise us please.
Please go ahead.
<unk> third quarter 2022 earnings conference call.
What about today are <unk>, President and Chief Executive Officer, Chris von JAKO Chief.
Chief Financial Officer, Scott <unk>.
The format for today's call will be a discussion of recent trends and business updates from Chris.
By detailed discussion of financials from Scott Yeah.
Will you open up the call for your questions.
Earlier today <unk> released financial results for three and nine months ended September 30.
2020 to copy.
A copy of the press release is available on the company's Investor Relations website.
Before I turn the call over to Chris and Scott I'd like to remind you that this conference call, including both management's prepared remarks, and the question and answer session may contain.
Projections or other forward looking statements regarding among other topics <unk> anticipated future operating and financial results business plans and prospects and expectations for its products and pipeline, which are all subject to risks and uncertainties, including shifting market conditions result.
<unk> from the COVID-19 pandemic.
Mobile supply chain constraints as well as the use of non-GAAP financial information.
Information regarding these and other risks are available in the company's earnings release and its other filings with Securities Exchange Commission, including the risk factors section.
And in <unk> form 20-F.
With those prepared remarks, my pleasure to turn the call over to Chris von JAKO, Chris.
Thank you Bob welcome everyone and thank you for joining us today to begin as I stated on our last call. The current macroeconomic environment, including staffing shortages higher interest rates inflation and recessionary fears continued to impact our customers and patients and in turn our third quarter.
Results simply put smaller practices, which make up a large portion of our current customer base continue to take a cautious approach to purchasing decisions in this environment.
Given these conditions the company is increasingly cognizant of its spending levels. It remains focused on conserving cash in order to ensure that we make the most prudent use of our shareholders' capital.
Additionally, while we remain committed to strengthening our sales force to penetrate the market the economic environment and tight labor market has made it more difficult to hire the right talent, which is making our planned expansion take longer than expected you may recall in our previously stated objective of expanding the sales force.
'twenty one territories. We currently have 14 sales professionals and we believe these challenges could lead to a longer ramp up period before we are able to reach our desired sales force size.
You will also recall that Erik Hirsch joined Us in May as our vice president of sales since that time. He is laying the groundwork toward building a truly transformational commercial infrastructure for brain's way. He is focused on putting new pipeline tracking measures in place and improving the messaging and education related to the.
Our deep Tms platform technology.
Also as we target larger enterprise customers that are somewhat more insulated from the economic fluctuations Eric is focused on ensuring that when the commercial team is appropriately build out is done with experienced professionals with the requisite experience to meet the needs of the sizable accounts.
Specifically, the right professionals for us need to effectively communicate our scientific differentiation as well as the significant return on investment that can be generated using deep tms in their clinics and practices.
Dr. Calling hamblin, our recently appointed Vice President of Medical Affairs will play an important role here Dr. Hamlin, formerly a professor at Wake Forest University School of Medicine, and a member of the Wake Forest Centre for addiction Research brings nearly 20 years of experience in the field of <unk>.
Brain imaging and brain stimulation research.
One of her roles at brain's way will be to drive the integration of medical and scientific intelligence.
We will also be instrumental in working with key opinion leaders to enhance awareness.
Including among the larger more sophisticated institutional and enterprise customers that are playing an increasingly important role within the industry. We believe that this will help us to improve the sales process and commercial results.
So while we're focused on being good stewards of capital. It is important to know that we have the right plan in place to continue investing in growth, including our commercial team and leverage the substantial opportunities, we see with enterprise customers when conditions warrant.
As we prepare for this moment there are several tailwind in our business and the industry overall that I'd like to highlight.
First we are building momentum in our international business, while these international sales generate lower average selling prices and margins are out of U S performance bodes well for our business long term.
As further context for our thriving prospects internationally, we've sold multiple systems to the largest Tms provider in Australia, and even more systems in India in recent months as we penetrate those markets.
We're also achieving significant progress with reimbursement.
Most recently, we announced that another blue Cross Blue Shield licensee will be extending positive coverage for deep Tms for the treatment of OCD.
Effective February three 2023.
The policy will impact commercial healthcare coverage for more than $2 6 million people the Pacific northwest.
Policy also reduces its Tms coverage criteria for depression, now requiring only three failed medication trials instead of four.
In addition final in draft local coverage determinations, respectively were recently issued by CGS and Lgs, two Medicare administrative contractors or macs, reducing the number of previously previous medication failures required to qualify for deep Tms treatment for depression.
From four to two.
These mass collectively represent $14 5 million covered lives.
And once implemented.
The changes will result in all $60 million plus Medicare beneficiaries qualifying for deep Tms depression coverage after either one or two failed medication trials.
Furthermore, <unk> is now expanding as Tms coverage criteria to include psychiatric nurse practitioners, making it the first Mac to join the commercial players who have already taken this step including Magellan.
<unk>.
HCC.
And select health Intermountain healthcare among others.
Also in the third quarter, Cigna announced positive coverage, which will apply to deep Tms for the treatment of OCD.
Now one of the largest major medical insurance companies in the United States provides commercial healthcare coverage to about 17 million members.
Has Medicare advantage plans in 16 states and participates in the health insurance marketplace online exchange.
Through the positive coverage decisions, we now have approximately 90 million covered lives for OCD indication.
Moreover, approximately 45% of our total installed base now includes OCD treatment capability.
We view this progress not only as a testament to our customers' strong belief in the benefits of deep Tms treatment for OCD, but also our growing success in securing reimbursement in this important indication.
Switching gears to our key clinical and regulatory process progress.
Most recently, we received five 10-K clearance from the FDA for the use of our deep Tms.
<unk> hundred seven coil in treating adults suffering from depression, including those suffering with co morbidity xiety symptoms, commonly known as anxious depression.
This was our ninth FDA clearance for the deep Tms and represents an important differentiator for our industry leading technology team.
Tms treatment for depression is not a one size fits all solution.
For all anatomical targets.
The H one targets one region of the brain and the age seven targets a different region and we now see that stimulating either of these regions can mitigate depressive symptoms.
We believe this additional clearance supports our goal of enabling clinicians to provide more personalized medicine for their patients.
Another key driver for us is generating additional market awareness. This is the intent of our recent Li announced collaboration with no CD.
And the organization that facilitates access to online therapy for people with OCD through its innovative telehealth platform.
The goal of the collaboration is to raise awareness about the lifesaving treatments of both companies amongst patients caregivers and clinicians brain.
<unk> collaboration with OCD will help patient spine the treatments they urgently need with access to no Cds therapist, and deep Tms providers nationwide.
Staying with raising treatment awareness. We also participated in five on site medical conferences in and outside of the U S. During the third quarter, including the World Congress of Psychiatry, and the annual convention of the American Psychological Association.
Another critical positive indicator for our business as the medical community is growing focus on dramatically rising and mental health issues and in some cases, the use of Tms as a potential treatment.
I'd like to highlight two very compelling recent developments.
First the U S preventative services task force and the independent volunteer panel of National experts and prevention and evidence based method.
Medicine.
Issued a public proposal, stating that U S doctors should regularly screen all adults under 65 for anxiety.
The recommendations are based on a review that began before the COVID-19 pandemic, which has been shown in numerous studies and published literature to have worse in the U S mental health crisis.
The task force said that the evidence for the benefits of Regulus screening include the availability of effective treatments of significance. This is the first time. This influential group has recommended the anxiety screening in primary care for adults without symptoms.
Next Psychiatry news recently published an op Ed advocating for Tms to be considered as a first line treatment for moderate to severe depression.
This is important for two reasons first psychiatry news as the official print and electronic New service of the American Psychiatric Association or API and is the primary and most trusted source of information for API members, other physicians and health professionals and the public about.
Developments in the field of psychiatry that impact clinical care and professional practice.
I'd also like to highlight that the API promoted the op Ed on our social media channels, including Linkedin.
The second reason this op Ed is important is because the author Dr. Richard <unk>, Chief Medical Officer Mindful Health solutions in California is a long time user of deep Tms, we are grateful to Dr. Byrd meters for advocating for changes to the AP as current treatment guidelines for depression and would certainly agree with ascent.
I meant that the compelling evidence for the use of <unk> has grown steadily since the initial guidelines were published in 2010.
Of course, we are proud to be at the forefront of innovation trend since that time.
With a spotlight firmly remaining on mental health and Tms specifically, we believe brands way is well positioned to leverage this enhanced visibility to further grow our business for the long run.
With that I would like to look ahead to the remainder of the year as the current macroeconomic environment continues to present challenges to both our smaller customers and their patients we intend to remain vigilant in controlling our expenses, we will focus on ensuring that our strength of our sales force as a measured pace.
And we're doing so with professionals, who can help us further penetrate key enterprise accounts as I mentioned earlier, we believe that this ramp up will take longer than previously anticipated.
Until such time, we have four to five with a strong balance sheet and continued to be buoyed by advancements in several key areas, including sustainable success internationally.
The progress with reimbursement additional clinical and regulatory milestones increased market awareness and favorable long term industry trends and most and multiple growth catalysts.
With that I will now pass the call to Scott for his review of our third quarter 2022 financial results Scott.
Thank you, Chris and good morning, everyone.
As Chris noted.
And more than we expected our business was impacted by inflationary and recessionary headwinds in the third quarter.
Revenue for the third quarter of 2022 was $5 2 million.
A 36% decrease compared to the prior year period revenue of $8 2 million.
We placed 22 deep Tms systems in the third quarter and continued to experience strong international momentum a trend we believe is sustainable.
Our total installed base is now 851 systems as of September $30, 22, compared to 717 systems or 19% growth as compared to September 32021.
For the first nine months of 2022 revenues were 20.
$21 1 million.
Flat as compared to the first nine months of 2021.
Gross profit for the third quarter of 2022 was $3 8 million or <unk>, 74% gross margin compared to $6 $1 million or a 76% gross margin during the prior year period.
Gross profit for the first nine months of 2022 was approximately $15 $7 million or a 74% gross margin compared to $16 5 million or 78% gross margin during the prior year period.
The.
<unk> gross margin was largely attributable to expenses related to inventory obsolescence charges.
Increased shipping and inventory costs.
A higher mix of international sales.
We expect margin pressure in the fourth quarter as well due to these factors.
Moving onto operating expenses for the third quarter of 2020 to research and development expenses were $2 2 million compared to $1 $9 million in the third quarter of 2021.
The increase was driven primarily by clinical data projects to support our ongoing clinical differentiation in the marketplace.
Sales and marketing expenses for the third quarter of 2022 were $4 8 million.
Two $4 million for the third quarter of 2021.
These increases are due primarily to increased cost of travel.
Marketing events in the quarter and increased personnel to support our customers.
Bob.
Moving on to G&A expenses for the third quarter of 2022 were one $7 million.
Compared to $1 5 million for the third quarter of 2021, due primarily to increased consulting costs.
Looking ahead as the macroeconomic challenges Chris outlined earlier continued to impact our operating environment.
We remain focused on prudently managing expenses in the current quarter and strategically investing in our commercial and research activities to reflect current market dynamics.
Operating loss for the third quarter was $4 9 million.
<unk> to an operating loss of $1 2 million for the same period in 2021.
For the third quarter ended September 32022, we incurred a net loss of $5 million compared to a net loss of $1 8 million in the same period of 2021.
Moving on to the balance sheet, we ended the third quarter with cash cash equivalents and short term deposits of $49 6 million as compared to $57 3 million at December 31, 2021.
Our strong balance sheet and ongoing prudent management of expenses has positioned us well to face temporary headwinds presented by the current macroeconomic environment.
We will continue to appropriately invest in commercial efforts commercial and marketing efforts to drive greater adoption of our multi indication deep Tms system as.
As well as in product development and clinical research to ensure our technology remains highly differentiated.
We are confident that this approach will support shareholder value now and into the future.
This concludes our prepared remarks prepared remarks, I will now ask the operator to please open up the call for questions operator.
Thank you.
Ladies and gentlemen at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your terms.
Key pad.
A confirmation tone will indicate your line is in the question queue.
Press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset.
Before pressing the star Keith.
Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Our first question comes from the line of Steven Lichtman from.
From Oppenheimer and company.
Please go ahead.
Thank you good morning, guys.
Yes.
Wondering in terms of the <unk>.
Mix of units.
The units being lower sequentially.
Should we assume that you saw it frequently higher increase in lease.
At least to systems versus direct I mean is that really where you saw the.
Dropoff.
And then <unk>.
Secondly, can you talk about the sales force.
I think you said 14 reps.
Where were you at the end of Q2 I thought it was a lot higher than that if you can talk a little bit about what's what's going on in terms of the churn of the sales force.
Hi, Steve Good morning, Scott.
So the first question I think just if you look at the math on our lease revenue has been relatively consistent over the quarters.
With revenue being down the lease versus sale mix is just going to shift to a higher percentage of leased just in.
Because the revenue is overall lower and the consistency of lease revenue on a quarter to quarter basis.
Hi, Steve It's Chris So your question about the salespeople I think maybe at the end of Q2 or maybe we talked about in the period. We may have been around 16 or 17 at that time, we just go through the normal course, obviously.
Evaluating reps and Eric has done a great job of doing that and I think thats part of the normal process. So we've been doing and I think he has been doing a great job of really bringing on some new additional people not only sales reps, but in the practice development team as well, which is really enhancing the entire commercial team.
Can you talk about the enterprise customer opportunity.
I guess.
In your mind, if you could scale it for us.
Versus what you've been going after on the smaller customer size.
Syed and.
Can you talk to us in terms of.
Preparations are two.
To go after that size of the market.
Yes, no great question. So just to give some context, there you know and I'm asked this by <unk>.
Investors from time to time in talking about like enterprise accounts, and we've had a number of smaller customers that continue to grow and they continue to get scale.
And some of these customers that we've had has been acquired by larger.
By larger Tms providers.
So theres definitely some consolidation that's going on in that market.
And we feel that that is an opportunity for us to kind of impact some of these largest psychiatry networks not doing PFS today.
That we are trying to penetrate in there. So we have been bringing in several people within the organization at a higher level can be able to talk commercially but as I stated in the prepared remarks also about return on investment and the things that we can do for those centers.
So we're making that a focus right now that's something that has been key to Eric hurt over the last number of months, we've been really focusing in that area.
And we're hoping that as we believe it will be fruitful moving forward.
Okay got it and then and then just lastly, maybe Chris a little bit more color on what Youre hearing from your customers and particularly during this third quarter versus the second quarter.
Obviously, we know the macro headwinds but.
What what furthered or changed during this quarter and what sort of your visibility in terms of the.
Any sort of backlog of systems that may be building as there's interest, but perhaps reservation given the economic.
Environment.
So Steve I think we mentioned on the last call we start to see those headwinds and we made those statements on the last call. It was those headwinds.
Obviously, a little bit larger than we felt our pipeline.
Is vast.
I won't say I won't use the word strong.
It's fast there are a lot of centers that are looking to acquire the technology.
But the problem is they can just keep pushing it off they continue to push it off so.
We're hoping now that.
As things hopefully in the next several quarters begin to stabilize that we'll be able to continue to make inroads there with those smaller customers.
Okay, Thanks, Chris I'll jump back in queue.
Thanks, Dave.
Thank you.
Our next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann. Please go ahead.
Alright, Chris and Scott how are you hi, Jeff.
Good morning.
Firstly could you give us.
Update on each work rules.
From Q3, or maybe an outlook for Q4 and talk a little bit about.
Some programs out there and placements clues.
Yes, so the H for coil is for our smoking addiction products, we don't actually give numbers of the number of systems that we put out there, but I think roughly Scott how many do we have out there at this time.
Over 50 over 60 over 60 systems yet.
In our focus continues to be there like it had been on OCD in the beginning is to acquire.
To continue to acquire <unk>.
Clinical data there in support of reimbursement efforts that we're looking at.
Okay and are you seeing any payers come forth or have you submitted a new paperwork, Jamie payers for reimbursement.
<unk>, yes.
We have it at this time.
For us.
With our experience without really good experienced obviously, you've seen from OCD, we're getting closer and closer to about $100 million Theyre uncovered lives. We see it's a combination of a good clinical data followed by a combination of good post marketing data.
So we don't want it we don't want to go too quickly to the payers and started talking about that until we actually have that some of the things that we've learned before in the past with the OCD.
Okay got it and then I did want to follow up on in the third quarter. So it looks like accretion starts were Laurie, we're where there any interruptions in patient care scores early stops or delayed store and should we expect more of that or some of that into the fourth quarter.
Scores.
Folks out there.
Starting.
Or poultry sessions.
Midway through it and what might that look like as far as.
Capital goes in the fourth quarter, it's traditionally been strong in any outlook there on the capital front.
So from a patient perspective, you know we can monitor so how our customers are doing with patients. It looks like it was fairly flat between Q2 and Q3 now obviously, we added a number of systems, but it looked like it was fairly flat, but we also look at numbers of patients that are going into psychiatry offices.
There are some reports that we get on a weekly basis to see that.
And from July on we saw kind of a drop off in the number of patients that we're visiting psychiatric offices. So we feel that may also have somewhat of an effect obviously that are smaller.
Customers are seeing as well.
Got it and then lastly on the some of the international placements.
Are they all capital sales or some of our leases as well as any color there would be helpful. Thank you.
Yes, no Jeff typically the sales outside the U S have all been capital placements.
So we're selling to a distributor.
To a distributor editor.
Got it thanks for taking our questions.
Thanks, Jeff.
Thank you.
Our next question comes from the line of Jayson Bedford from Raymond James. Please go ahead.
Yeah.
Alright good.
Morning, just a few for me.
I guess, just I realize that you have an existing kind of lease versus direct sales offering but is there an opportunity to be even more flexible in terms of price or lease terms, just given the constrained environment.
Yes, I mean, I think there's always that opportunity.
Jason you May remember quite well when I first started back in 2020 with Covid right. We saw this happen.
The environment that we got with the pandemic and that first and second quarter, and we started doing certain things with the with leasing that really kind of got us back in the ballgame. So there is definitely.
Things that we can do.
To make it a little bit more flexible on all customers that are looking to expand and we've done that right. So I think.
We will do things like extending out lease terms et cetera to lower payments.
Longer term, there, but obviously those take longer to contribute to revenue when you do that right.
Okay, but you are implementing.
Absolutely, Yes look I think.
The bottom line is we still want to build our install base and get systems, I think getting into an account and being a first mover in an account is a really important thing as customers learn how to use your system and get trained it gives us better opportunities for repeat business and we're focused on trying to get into accounting.
Get first position there wherever we can.
Okay.
You mentioned supply chain challenges.
It may have been.
Tied to some market commentary, but did any supply chain issues hold back system placements at all.
<unk> not.
Okay, Okay, and then Chris you have them.
Good balance sheet here is there opportunity to.
Strengthen the business through capital deployment.
Youre contemplating now or is the environment.
A little choppy for that.
So capital deployment in what sense I, just want to make sure I E.
Well either.
Are there acquisition licensing apology buyback however, you want to use.
40, some odd million in cash.
Yes.
Again, I think we want to be measured and things. We do we are always evaluating things.
And.
What we're continuing to do is I think what we've talked about in our prepared remarks are we're focused on building the best commercial team possible.
Continuing to strengthen our clinical and regulatory areas and making sure. We're doing the right things look I think it was it was incredible we brought on Dr. Colleen Hamlin to the team.
Issue as she is a really well known person in this space. She has a lot of expertise not only in.
Psychiatric conditions for Tms, but also in the addiction space.
So we know she is going to be an added value in working together with our commercial team as well.
Okay. Thank you.
Thank you, Jason and have a great day. Thank you.
Thank you.
Our next question comes from the line of Brooklyn.
Chapman from H C. Wainwright. Please go ahead.
Hi, Chris and Scott can you hear me.
Yes, Hi, how are you.
Yeah, great. Thanks for taking my questions.
Firstly, you mentioned about CGS NGF Medicare coverage updates for deep Tms.
Depression, So do you foresee any such updates for <unk> in the near future any thoughts.
With Medicare in particular or.
But I hear.
Hear you correctly with Medicare in particular.
Yes.
So we have one Medicare already that's come on with Palmetto.
The ones that are continuing to look.
The data we are continuously talking with them at all points. So we have won so far so we're really focused on the other six two as well.
Okay got it and then.
One of your competitors.
It was a tool called THQ10 patient health questionnaire and then they came that at Hudson to identify patients within the treatment practice, so I would like to hear your thoughts about THQ.
Utilization in your practice.
Did you guys consider implementing one or have you implemented one already.
So so far from our side, we our practice development consultants work directly with our customers and looking for the patients that fit that mix. So we go through that quite extensively in the training process and I think that's has been really sufficient for us and the needs for our.
<unk> at this time.
Okay. One more question so as we look into the fourth quarter and maybe 2023.
Listen to the macro headwinds that we just discussed that impacted Q2 sales.
Are there other growth restaurant, you can think of.
Other growth constraints.
Yeah, I'm not sure we heard you at the end there sorry its strengths.
Yes.
Yeah.
That's a really good question I think.
Sorry.
Comes off top of my mind I <unk>.
I think right now we've been looking at the challenge has really been the macroeconomic areas right and that's why we're looking to also again.
Enterprise areas as well.
Gross constraints.
Well, thank you tahira.
Yes.
Alright Thats it from me. Thank you so much thank you.
Yes.
Thank you.
Next question comes from the line of Jason Wittes from Loop capital. Please go ahead.
Hi, Thanks for taking the questions just sales force.
Hi, guys.
On the Salesforce it sounds like you are.
Youre reevaluating sort of.
With sales people you bring in I guess, a couple of questions related to that first.
Or have you been getting your salespeople and is that changing or what are you looking now and then secondly, I don't know if it was clear in terms of how long you think it might take to reach the previously stated goal.
Or whether there's new Gold's if you just want to get a sense of the outlook and how you see the sales force shaping out for the next six to 12 months.
Yes. Thanks for the question. So like I said, we're at 14 right now our goal is really to get to 'twenty, one and obviously with a new leader like Eric Kirk coming in place and.
Things change within the sales force a little bit and he has different criteria and he has been doing I think an amazing job of kind of bringing in the right talent that we need.
So.
We're trying to be measured we're trying to make sure we have the right people in place. So I think our goal continues to get to 'twenty, one, but it may be measured over time as we kind of see the macroeconomic environment is changing.
Okay. That's helpful and then.
Sure.
And then in terms of.
Things you can do you can do.
Hey, guys Fermi you guys here.
Yes.
Sorry, guys just a connection problem.
In terms of just I realize.
Our focus is getting first trying to get.
I'm trying to be the first one in.
And locking in customers in terms of your current customer base do you have any.
Leverage in terms of pricing or.
Different pricing options or just increases that you can.
Especially for.
For your current installed base that you are thinking about or.
Is that model pretty much set the way it is at the moment.
Listen we're always looking we did the same thing I think we mentioned a little bit earlier during Covid, we're always looking at getting some flexibility in our models to make sure that we can do things in the right way and it obviously our goal is to place. These systems in customers that to treat these patients. So we're continuously looking at different <unk>.
Models and.
I think that there are some opportunities that lie ahead for sure definitely.
Okay, and then just to follow up on our housekeeping you may have answered. This I apologize, but did you give the number of OCD helmets place this quarter. The total installed base currently.
I thought we did but it was <unk>.
380, I think it was 12 OCD coils in the quarter 380 in total.
Great. Thanks for the detail I will jump back in queue.
Thanks.
Ladies and gentlemen.
We have reached the end of the question answer session.
I'd now like to turn the conference to Chris One Jaco CEO for closing comments.
Thanks, I would like to thank our valued partners and providers as well as the entire <unk> team for elevating their commitment to boldly advancing neuroscience to improve health and transform lives.
I'd like to thank all of the investors analysts and other participants for their interest in brands way with that please enjoy the rest of your day.
Thank you.
Conference of brain suite has now concluded thank.
Thank you for your participation you may now disconnect your lines.
Okay.
Yeah.
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Yes.
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