Q2 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the brain <unk> second quarter 2019 conference call. At this time all participants in a listen only mode. After the speaker presentations, there will be a question and answer session.
Ask a question you need to press star one on your telephone and wait for your name to be announced.
I'd now like turn the conference ex your speaker today, Bob Yedid. Please go ahead.
Thank you [laughter] summer I'd like to welcome all of you to brain waves that negates second quarter 2019 conference call with US today Hope brings ways Chief Executive Officer, Yeah, commissioning and Chief Financial Officer had gone leaving.
He will provide an overview of the companys business activities and developments for the second quarter.
After prepared remarks, we'll open up the call for questions and answers.
Before I turn the call over to Yacov Guar I would like to remind you that this conference call, including both managements prepared remarks and mix Una session.
May contain projections or other forward looking statements regarding future events or the future performance of brands way, including the got limited to any statements relating to commercial plants or activities.
Financial projections clinical studies, R&D plan and or anticipated timelines.
When used in this call the words anticipates could enable estimate intend expect believe potential will should project and similar expressions expressions as they relate to brings way are as such a forward looking statement.
These statements are only predictions and brands, we cannot guarantee that they will in fact occur brands way does not assume any obligation to update update that information.
Investors are cautioned that all forward looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by Brian's way at this time additional risks concerning factors that could cause actual events results or achievements to materially differ from those contain forward looking statements are found in the company's registration statement on form 40 F. One and in our other filings with the Securities and Exchange Commission.
Today, the company issued a press release announcing its financial results for Q2, So participants in this call who have not Oregon sale can find this release on brands ways website as we provide a summary of the results on this call.
Those prepared remarks, it's now my pleasure to turn the call over to brands was Chief Executive Officer, Yacov Michelin Yacov.
Thank you both.
Welcome to brands way second quarter, when do 19, earning score we entered the second half of the year with growth and strong confidence in our business I will focus my remarks today on what is driving the growth in our business and that if you were to cut the lease anticipated form our pipeline I would like to begin with a very brief reminder, brands way business I'll give tms technology and key targeted markets.
Well the DTN X system has airplay clearance, all major depressive disorder, or MDD and marketing authorization for obsessive compulsive disorder, Ole study and outside the US we have CE mark for additional indications.
Oh, the Pms system has demonstrated clinical efficacy in MDD and also I'd is well tolerated and has the potential to address a wide variety of psychiatric neurological in addition to somebody else.
We believe that deep Tms technology, a significant key advantages over other available for click Vms solutions, including greater depth extensive real one activation and deep and blow treatment.
A significant market opportunity exists follow ft, a clear indication.
Based on luck of estimate there are 16 million MTD us adult patients, we estimate that over 3 million us adults, who suffer for them to be do not reach a mission after crank fleet to fall onto the blessing of drugs and have private or public insurance coverage. There are about 2 million. All C.D.U.S. are those patients overdose, we estimate that about 400000, all CBS stations outflow seem to think about that as they sell and looking for a different solution other than drugs and cognitive and behavioral treatment.
We are blending continues to walk to gain insurance coverage in the U.S. will also detail.
As a reminder, in the second quarter, we completed the successful NASDAQ IPO Weve glos lawsuit over $50 million and began trading on the NASDAQ on April 17th.
Lets down to L. king size for the second quarter.
We are very pleased with our second quarter. These Winston 40 deep Dms system. In addition, Ferreted gift Yeah. There's also the courts will shift to current and new customers as released that those that have one other than 15, obviously decoys shipped as Ed on helmets throughout DPM assistance to current and new customers.
I reminded you that blends we had a sea of gay marketing clearance in this indication only in August 28, we all quarterly records for revenue of 5.7 million Bucks increase of 53% over the second quarter was 2018. Moreover, we enjoyed a substantial increase of 43% and debit card income portion of the revenues.
These recurring revenues demonstrate the benefit of the brands way business model in which a significant portion of our deep dms customers enter into a loose ollie's sharing arrangement with a minimum annual payments that generates recurring revenues over fleet to full year period. This recurring revenue provides greater predictability for our growth and we believe it also invest those greater visibility of brands way of these items.
Oh I see a full house Levy will review our financial results in greater detail you will note an increase in our operating expenses year over year in the second quarter.
This is primarily due to the investments we are making into future growth will follow business as planned and established a goal you know listen you asked IPO. We added a net of five new sales led to in Q2, when compared with Q2 of 28 team, including one in Germany, along with additional logistics and training personnel to work with our customers. We plan to add three new sales lift in Q3.
Okay. This year, a key part of our strategy is that we intend to accelerate our growth by increasing the size of FFO, salesforce and enhancing our marketing activities globally.
We also continued to ramp up our R&D activities, which I will detail shortly.
Next though I would like to discuss another important growth driver for US building clinical evidence for CMS will keep publication.
In the second quarter.
Hello pivotal study demonstrating the deep Dms showed a significant clinical benefit compared to sham, increasing Oh C. D. As an adjunct therapy in an approximately one others patient clinical trial well versed in domestic on doing it looks like I agree. There is also the patient previously had insufficient response to pharmacologic therapy, Alright fair delayed insufficient response, the cognitive behavioral therapy.
Dip Dms achieved a 58% response rate among patients after six weeks of treatment, which was a statistically significant improvement, although the only 11% achieved by the shampoo and 45% of that mission was eight whether chip after an additional four weeks a follow up we doubt treatment, which was also statistically significantly greater than the 17% achieved for the sham.
More recently excess.
Sadly demonstrated that deep Dms classic standup medication was significantly more effective at generating because admission rates and what have you seen deflation levels among MDD patients compared with standup mitigation alone was published in the joint it looks like you had to pick. This sales. This was actually the film head to head that underlies controlled trial of its gyn compelling deep Dms for Dms and medication in depression patients adult out of 228 patients were randomized to either full weeks of deep Dms, Oh standup dms each in conjunction with standout pharmacotherapy all to a control group rate that Weve Pharmacotherapy alone. There was 70 to 75 or 81 patient in each arm of the study respectively.
Did I Miss out on a date for deep Dms was nearly 60% for standout DM as it was about 43% and both were statistically significant.
The control group, which was only 11%.
Published studies such as these do are critical in order to continue building and growing body of clinical evidence regarding the efficacy of the treatment with our deep Dms in MDD and obesity, we intend to leverage these public data in multiple ways, including through the type usage of the pms and in deductions with sales in regard to investment.
With that I would like to provide a brief update on our efforts to expand into additional territories, including the far east we entered into exclusive distribution agreements. We forgive me some healthcare group amongst the largest distributor of medical equipment in Taiwan, and fly medics that provital safe and innovative healthcare solution in the Philippines. There's agreements follow I'd at least on distribution agreements for deep Dms in South Korea, and Thailand, as well as did a sick of regulatory clearance in Japan.
Additionally, last week dominated its distribution agreement, we fit easily distributor and we have started selling directly to customers anyway.
Furthermore, we sell sell sell spent in Germany and agents in the European Union together with our ability to sell our new generation stimulating in Europe , We expect continued growth in Europe .
An update about changes in our US management team led by our CFO joining me for this call will relocate to the U.S. and assumed additional goal of Chief operating officer. This newly created position of COO located in the US is expected to enhance the alignment of our global organization and support the next phase of blended rate growth in the us which is our largest market.
Just got a kopka senior Vice President of says at ablation for North America has notified us that off his intention to resign full blends right effective October 15, and he has a great to state owned until that time to assist in the transition we would like to take this opportunity to thank Joe for the only played in our activities in the U.S. and on behalf of the entire blends lithium release, Joe well in his future position.
Moving on to our next planned indication for deep Dms, Let's review our clinical pipeline.
The for smoking cessation, we announced the completion of targeted equipment in the second quarter. We have just reached that goal of 165 patients completing treatment for smoking addiction.
Demise double blind Multicenter study final is expected in Q4.
Secondly, PTSD recruitment is proceeding nicely into them with results expected by year end 2019 as planned opioid abuse. We are walking we have the EBITDA in an effort to initiate this study following the selection of brands way by day agency as part of its innovation challenge and receipt of a delay for the pipe resignation by the FDA.
Last multiple sclerosis, we continued walking toward initiating a multi center study to Blake peak symptoms in multiple sclerosis patients with deep Dms and hope to file and I'd soon.
Our research and development activities are also focused on developing and multi channel to stimulate deal and closed loop stimulate though we feel time EG reading capabilities and we hope to start selling the Phelps closed loop of devices fully such purposes in the near future.
I will now pass the call on to adapt our CFO for a detailed review of the second quarter spend and Jeff.
Adeptly.
Thanks Nicole.
We are extremely pleased with our financial performance in the second quarter of 2019.
Strong demand for our DPP amid systems continued to drive top line growth.
Our total revenue in the second quarter was 5.7 medium that substantial 53% increase over the prior year quarter or 3.2 million was carrying lease revenue, which represented and outfitting, 43% increase in recurring revenue over the prior year quarter and accounted for over 57% of our total revenues.
During the quarter, we saw our active installed base increased to 456 deep Dms Houston, which represented an increase of 40 systems for the first quarter of 2019.
During the second quarter, we shipped 30 dip Tms oath decor, we have now reached to a total of 115 also decreased as Ed on elements to our system since having received marketing clearance less than a year ago back you know gross 2018.
Gross profit for the second quarter of 2019 was 4.3 million an increase of 1.4 million from $2.9 million during the second quarter of 2018.
Gross margin for the second quarter of 29 team was 76%, which is slightly lower than the second quarter of two anything with a gross margin of 77%.
The modest change in the gross margin was a result of increasing our servicing operation cost.
The result of higher so.
Research and development expenses for the quarter were 2.4 million compared to $1.3 million in the same period in 28.
Due to continued development of our deep Tms technology, including conducting clinical trials.
For treatment of post traumatic stress disorder smoking cessation and other brain disorders.
Sales and marketing expenses for the second quarter were 3.3 million, an increase of 1.4 million over the period prior year.
The increase was primarily primarily driven by an expansion of the sales force and enhanced marketing activities.
General and administrative expenses for the quarter were 1.4 million as compared to 700000 for the same period in 2018. The increase was driven by increased cost associated with becoming a public company in the us.
And our typically nature of Companys listing on the knot dark and were expected by our team.
Total operating expenses for the second quarter totaled $7 million compared to $3.9 million in the second quarter of 2018.
For the second quarter ended June 20, 910, when crude the net loss of 3.5 million or 17 cents per share as compared to $1.8 million or 12 cents per share for the three months ended June Thirtyth 2018.
Moving to the balance sheet.
We ended the second quarter with cash and cash equivalent of $27.6 million compared to 7.7 million.
As of March 31st 2019.
Cash usage during the quarter was in line with our expectation after the completion of the Companys us IPO, which generated 26.3 million in net proceeds.
Following our 3.3 million debt repayment, we have no debt.
Once again, we are in through the us think about our strong balance sheet and believe that our substantial cash position will allow us to extend our sales and marketing effort.
Further to drive additional adoption of the deployment system continue to invest in R&D in order to drive new indication and move toward profitability.
That concludes my remarks concerning our financial highlights.
I will now turn the call back over to Yacov.
Thank you, our though to summarize our performance in the second quarter and recent highlights 53% growth in revenues for the deep Dms systems installed 30, LCD coil shaped that expanding salesforce synthetic though is growing clinical evidence of the effectiveness of our therapy and key progress achieved in advancing our clinical pipeline. Moreover, we have were supported by a strong balance sheet with cash and cash equivalents of over 27 million as of June 32019, securing our future growth plans.
Thank you very much and I now turn it to the operator for questions.
Thank you ladies and gentlemen, we will now begin the question answer session.
As a reminder, if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced please stand by while we can post acute and acute this will only take a few minutes.
Its star one to ask a question.
And our first question comes from the line of Craig Beachy. Please ask your question.
Great. Thanks for thanks for taking the questions and congrats on a strong quarter.
I know you guys don't provide guidance, but just wanted to see if you guys could help us think about what we should expect from a revenue perspective in the second half if you look at over the last four quarters.
We've increased revenue sequentially by roughly $500 million, sorry, 500000 on average each quarter. So is that the right way to think about.
The cadence of Q3 and Q4 from a revenue perspective.
Thank you Craig for the question again, we are not ample binding at this stage a specific guidance as to 11 years, but as I mentioned in the call there.
Jim will follow with lease agreements and then focusing on what we call the six lease NLC and and they share more data with an annual and minimal fee and that was a certain a visibility and then obviously we ask.
I think we are positioned well in terms of the addition of dairy those outside of the us to grow also the revenues in terms of the direct sales. However, we at this stage, we are not giving specific guidance as revenues are like enough to relate to the numbers.
Okay.
So it sounds like CD didnt contribute much revenue during the quarter.
And and correct me, if I'm wrong, there, but now that you have 115 helmets out there.
I just wanted to know how should we start to think about the utilization of those systems or how should we think about that utilization today, where could go and then the timing of any revenue contribution from from LCD specifically.
So this is a this is a great question as a as you know when we are shipping in LCD in most cases, we are challenging and relatively small amounts for the treatment of.
A small number of patients at Swan, but other than that it's a totally risk shale modeling concept and as well as I mentioned in our call. We just got that will be in August . Since then we've managed to in instead of one ship 115 coins, which we see as a great achievement, we see continuous growth of the usage of the LCD, but obviously, we expect that the boost will come following the receipt of the reimbursement by to ensure we are walking holiday to get this.
And the next coming weeks, we will open Air center to assist our clinics do fivefold their embarrassment and I guess that the big ramp up will happen. When we'll have the first and Joel I fully agree embarrassment for LCD.
To date, we are doing some marketing efforts and I think the publication the American journal of Psychiatry, and the growing clinical evidence and the good results that our clinics that are using all city are achieving is helping us to grow the use of our device.
And we are optimistic about the potential of this indication.
And the.
I think we are well positioned to the growth in our city.
Great Thats helpful. One one more from me.
I was hoping that you guys could provide a little bit more color on the departure of Joe Your head of sales. So what steps are you taking two inch ensure a smooth transition there and how should we think about any potential disruption to the sales force or just sales in general.
Okay. It's a good question. So first of all as Joe has been with US for about four wells since the accident just out of the structure of the current authorization. The U.S. and we appreciate what you did with lesson for US at both me and had a we are targeting a lot to the U.S. had Tao Levy our CFO . It is now becoming also the COO is very much as familiar with the activities in view as to sell spares and the sales team were in close touch with the clients and maybe more importantly, I think we managed to build a very strong team in place in the U.S., we as a manager of the sales in the East coast and we have the manager of the cells of the West calls and we have a strong marketing person in the U.S. So although we regret any departure, but I think as for the organization and I think that we should they handle it.
Awfully smoothly and we don't expect any issues, we are going to expand the team in the U.S. and in near future. So we are continuing the goals.
Great. Thanks for taking the questions guys.
Thank you.
Next question comes from the line of Jason Please ask your question.
Thanks, and good morning, or good afternoon for some.
Wanted to just follow up on the LCD line of questioning.
The units that you sold in the quarter Im just curious of the.
30.
How many were to new customers versus your current installed base and again, just as a follow up to that.
When you look at your large install base that don't have LCD helmet today is reimbursement the primary source of pushback there.
So to your first question first of all thank you Jason So it's about a 50 50 in terms of new customers and current customizing the split of the deferred the Additionally, LCD cause as to the main reason of why seven customers are not ordering the LCD. There are some places that are not trading RCD at all to Hell take out today that are not dealing with all study. This is the situation. However, we think that the major driver is there an existence of reimbursement and we believe that once reimbursement will be granted that not only that we will see substantial increase in the U.S, but also I think we will ramp up there.
Pace of new shipments and installations.
Okay. That's helpful.
You mentioned a.
New.
Stimulator Nexgen stimulator in Europe can you just talk about the features and benefits of that system and when that may be launched in the us.
Okay. So thank you for the clarification. So it's just it's the actually we launched these new stimulator in the last few months to go after FDA clearance, but we didnt have the approval in the annual opiates. So no. It was actually cleared. So we were also starting selling the new stimulator, but it's not a new product into their product that we have been selling to us in the last month just to mention it's a it's our own stimulate though it's a very robust in its technical capabilities and allows a small say exchange between their deployed and it positions us very well for the future for the additional features that we are walking you know the linkage to the G and the multi channel. So we have I don't want in this investor call to get into this the technical specification.
But we're seeing great to talk stimulator comparative what is currently in the market.
Okay Thats helpful clarification in terms of the sales reps I think you said you added five relative to this time last year.
Did you add many reps in the second half of last year I'm. Just wondering what was the increase from from the beginning of the year.
So just to add to this and we as we said when we were on the road for the IPO and also we mentioned it in to the IPO, we expanded the sales force relatively in a slower pace before we raise the money and denials that now as I mentioned on in Q3, we are going to slay mall sales person and we will continue to grow also in Q4. So obviously not we accelerated to a pace of growth and as we mentioned before our plans is if you compare to 2018, so towards mid to end of 2020 , we want to double our sales force in the U.S.
Okay.
Okay last one for me just on on gross margin it always seems to be a little bit softer into Q at least relative to one Q at least the last couple of years.
Do you expect gross margin to improve off of this level going forward.
And outside follows as the fall, we have only 1% defense and they are too.
Factors walking in different direction a for example, the LCD use it will probably.
It is expected to increase our gross profit however, an additional dimension data at the agreement that I mentioned in the far east obviously, the selling prices in these territories.
And might be lower than what we are selling in the way. So all this will walk as a counter the effect. So I cannot now predict what will be the impact. So there are two factors walking two opposite direction.
Okay. Thank you.
Thank you.
And our next question comes from the line of Jeffrey Cohen. Please ask your question.
Good morning, your coverage at or are you.
Thank you Jeff.
So can you give us a little further to turn colors version.
Q4 results for the readout of the smoking cessation study.
From what we see there in the public domain you expected another conference or in a German or is your press release you answer you also comment as well.
Teachers to return.
The year end interim results.
So no as I mentioned I think today the great achievement. In this perspective is we completed treatment of 165 completed wells and this is what was our target goal for the study it will probably take US a weeks to minus two open analyze the reside in Oakland the data and publish the results.
I guess that what we are currently planning to do is to issue.
To set there.
A call like this right. After I cannot expect now what will be the timing of this but this is the the plan as for the PTSD add because it's an interim results when I do the same math, depending on the robustness of the data.
And so these are two interesting news that I hope were both will walk in the positive way that are there.
Expected during Q4.
Okay got it and could you further expand upon your commentary regarding do you expect your phone R&D will return indication could you remind dish bridge.
Yes, we had a very interesting and feasibility results from and group of leases during the shutdown Berlin that show. The good results, we file system and creating fatigue symptom of multiple sclerosis patients based on these a good result, and based on the concept behind it I would not get into the details here on the mechanism of action of it we decided to go for a more robust pivotal study. So I mentioned that we expect in the next week.
To file an I'd to launch this pivotal study in multiple levels.
Okay, and what was the update today on opioid abuse is furnished clinical work.
And we have discussions back and forth with David Beard, with the FDA and August delayed a little bit in on both side because of the vacations and the where the very nice the interaction with the FDA I do hope that we will agree on a protocol in the coming weeks and we will announce it and be able to find an idea and move forward also with this important study.
Okay got it and then lastly for me could you talk a little bit about your parent.
The current status and what you could expect over the coming months as far as the regulatory environment and partnership.
Yes, so we have a strong.
This dividend to find a company called Cm I actually I went on it all drip and met with them and the other distributors just recently and we got the PMDA approval early next this year in general the Japanese authorities granted.
Like nationally embarrassment for Tms, we are working with our distributor in Japan that the reimbursement will apply also to brands way I hope it will happen in the next month and then now as a distributor is totally equipped and ready and we are ready to full commercial launch of our product in Japan just after the.
Inclusion of us under the national reimbursement.
Perfect. Okay that does it for me.
Thank you Brent Asia.
Thank you and our next question comes from the line of Steven Lichtman. Please ask your question.
Hi, This is David on for Steve.
Thanks for taking my question.
Japan comments.
Could you provide any color on how should we should model.
That opportunity for us.
I'm not honestly I I. It was hard to hear you can you. Please repeat the question.
Yes, hi.
Just following on the Japan comments could you provide any color on.
How we should model the revenue impact from that for the rest of 2019.
I I don't see any practical impact of fed Japan on our revenues was 420 90.
Okay.
Add the allowance is expected towards the end of the year and then the impact will starting 2020 .
Thank you there are no more questions at this time please continue.
Okay. So thank you very much in closing we had a very strong quarter and we believe that we are well positioned for continued growth in the future I would like to thank you all very much for joining today's call and look forward to our next call. Thank you very much.
Thank you that does conclude our conference for today. Thank you for participating you may all disconnect.