BrainsWay Ltd. (BWAY) Q2 2020 Earnings Report, Transcript and Summary

Greetings. Welcome to BrainsWay Second Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. At this time, I'd turn the conference over to Bob Yedid with LifeSci Advisors. You may now begin.

Thank you, Rob and welcome to BrainsWay second quarter 2020 earnings conference call. With us today are Brainway's President and Chief Executive Officer, Christopher von Jako; and Chief Financial Officer, Judy Huber. The format for today's call will be a discussions of second quarter trends and business updates from Chris, followed by a detailed discussion of financials from Judy. Then we will open up the call for your questions. Earlier today, BrainsWay released financial results for the second quarter ended June 30, 2020. A copy of the press release is available on the company's Investor Relations website. Before I turn the call over to Chris and Judy, I would like to remind you that this conference call could include management's prepared remarks, and the question-and-answer session, may contain projections or other forward-looking statements regarding future events or the future performance of BrainsWay, including but not limited to, any statements related to commercial plans or activities, financial projections, clinical studies, R&D plans and/or anticipated timelines. These statements are only predictions and BrainsWay cannot guarantee that they will, in fact, occur. BrainsWay does not assume any obligation to update that information. Investors are cautioned that all forward-looking statements involve risks and uncertainties such as reliance on third-parties and shifting market conditions, particularly the COVID-19 pandemic, which may cause actual results to differ from those anticipated by BrainsWay at this time. Additional risks concerning factors that could cause actual events, results or achievements to materially differ from those contained in the forward-looking statements can be found in the company's registration statement on Form 20-F and in it's other filings with the Securities and Exchange Commission. With those prepared remarks, it's now my pleasure to turn the call over to Christopher von Jako, CEO. Chris?

Thank you, Bob. Welcome everyone and thank you for joining us today. Today we reported second quarter 2020 revenues of $4.8 million, which were below the revenues for the same period last year, but are nonetheless on the higher end of the guidance range we provided on our last earnings call, and are in line with the analysts' consensus estimates. We are very pleased that this represented a 16% sequential growth over the last quarter despite the impact the pandemic has had on many med-tech companies. As I described on the last earnings call, many clinics continue to progress toward near-normal operations and most importantly, patients are steadily returning for treatment. Many clinical practices have worked to develop protocols to allow patients back into their offices. A significant number of these clinics are offering a virtual touchless treatment experience. As continues to be noted in many press reports, the impact of COVID-19 extends far beyond physical health and is having a significant effect on mental health for many people. Unfortunately, this trend has continued to worsen as the pandemic continues. I will highlight just a few of the sobering statistics around this mental health impact. I previously noted the recent Census Bureau survey finding that one in three Americans are reporting symptoms of depression or anxiety. I would like to add that this is a staggering high rate since this is more than three times the rate from a similar survey conducted in the first half of 2019. Young adults especially seem to be struggling. According to a survey by the American College Health Association, 41% of college students reported feelings of depression from March through May of 2020. Consequently, patient visits with psychiatrists are up over 40% during this period versus the pre-COVID period. While lot of these visits occur via telepsychiatry platforms, this reflects an important increase in access to professional mental health care. This all serves to highlight how important a role BrainsWay needs to play with patients suffering from both depression and OCD and we're trying to do exactly that. We continue to have an enthusiastic response from our current and potential customers with our increased focus on education and awareness through both digital physician education programs presented by BrainsWay as well as by attending various virtual industry conferences. Specifically from April through July, about 2,800 registrants enlisted in the 44 webinars presented by BrainsWay. This is up from 31 webinars from our last earnings call, which was just seven weeks ago. We attended two recent virtual mental health conferences: The Elevate congress Virtual experience and the online OCD conference. The Elevate by Psych Congress included global mental health organizations and industry leaders and the online OCD conference included individual suffering from OCD, their family members and supporters and the professional to treat them. Both of these events were excellent opportunities for us to raise awareness around our innovative TMS treatment. In addition, we are gaining meaningful traction with our newly launched streamline website, which is intended to provide a more seamless web experience for both patients and providers. Education materials that are now more accessible to meet the heightened need of people-seeking treatment. Over each of the past two months, our organic user volumes has increased monthly by 9% and 30% respectively, with July reaching our highest volume in the past 12 months. We are encouraged by these results and believe this strategy will allow us to continue increasing market awareness of our groundbreaking TMS technology. Turning to our expenses. It's clearly seen from the quarter's financial results. We continue to act aggressively to offset the effects of COVID-19 from a financial perspective without diminishing any of our core capabilities. Our significant expense reduction program remains ongoing. However, as we mentioned on our last call in June, our financial results in the second quarter reflect that we are still in a challenging COVID-19 environment where physicians like most other businesses are hesitant to make capital expenditures and new financial commitments. In order to mitigate this, we have put an attractive lease pricing programs in place. I'm pleased to report that we began to see an increase in orders towards the end of the second quarter. We believe this is reflective of an overall increase in the willingness of providers to resume operations and in patients to proceed with treatment plans that were, to some extent, pulsive [ph] early in the quarter with the shelter-in-place restrictions. That said, we continue to operate in a dynamic and fluid health care environment as we see spikes in COVID-19 infection rates with various hotspots around the US. Therefore it would be premature to predict a return to normalized business operations. However, it's fair to say that at this point, we are encouraged by the general direction of the trend. I would like now to provide an update on some of the progress we have achieved recently with reimbursement. Let's begin with depression. As we mentioned on our last earnings call, there has been a recent trend of payers relaxing the reimbursement requirements for patients to allow for Deep TMS coverage after failing just two prior antidepressant medications rather than the four failures previously required. Now, Health Care Service Corporation continued this trend. They are one of the largest Blue Cross Blue Shield health insurer [ph] groups in the United States, operating plants in Illinois, Montana, New Mexico, Oklahoma and Texas. I'm pleased to report that on July 1, they reduced their requirements from selling four prior depressions to two before being eligible for Deep TMS coverage. This will increase access to Deep TMS for nearly $16 million Blue Cross Blue Shield members in these five states. These prior treatment failure reductions are an encouraging trend for our business. You may recall in our last call that we announced similar reductions from Cigna and Aetna. We believe that ongoing adoption and implementation will positively impact our business as more patients now have access to Deep TMS or can qualify after fewer treatment failures. In addition, I'm pleased to announce that PEHP, which serves Utah's public employees, is now for the first time covering BrainsWay Deep TMS for depression. They cover over 170,000 lives. For OCD, we continue to work with payers in our efforts to secure reimbursement. As I said in our last call, in support of this effort, we recently gathered post-marketing clinical data of 190 patients from 22 Deep TMS sites. Our analysis of this real world data revealed that about 58% of OCD patients benefited from Deep TMS treatment and that the onset of improvement usually occurs within about 18 sessions. We also started extending the treatment course beyond 29 sessions, resulted in the continued reduction of OCD symptoms, raising the prospect of examining extended treatment protocols for this hard-to-treat disorder. Again, we look forward to sharing these further details on the results of this post-marketing study in the future. We're also working to bolster the already robust clinical data surrounding the efficacy of Deep TMS in depression patients even further. And we look forward to sharing this information with providers, payers and the investment community in the future. As far as our clinical pipeline we have discussed on previous calls that in addition to our FDA-cleared treatments for depression and OCD, we have had various ongoing or planned studies in several potential new indications for Deep TMS. Our discussions with the FDA on our 5k-10k [ph] application for smoking cessation are ongoing. And we plan to make updates on any progress as it occurs. Before turning over the call, I want to emphasize that Judy and I have significantly increased BrainsWay's overall outreach to the investment community. We are sharing BrainsWay's compelling growth story as well as the continuing to build relationships with both institutional and retail investors that will serve us well. We've had a great number of virtual one-on-one meetings with investors in the United States, Europe and Israel over the past several months and we have several virtual Investor Conferences on the calendar coming up in September. We look forward to continuing to share our key messages with the investor community. With that, I will now pass the call to Judy for her review of our second quarter financials. Judy?

Thank you, Chris. We continue to be pleased with the way our business is performing amidst the ongoing COVID-19 pandemic. Let's turn to our key financial results for the second quarter of 2020. We generated quarterly revenue of $4.8 million, a decrease of 15% over the second quarter of 2019. Our recurring revenues primarily derived from leases were $3.4 million, an increase of 4% year-over-year. These recurring revenues was 70% of our total revenue. The recurring reliable nature of the majority of BrainsWay's revenue is a highly attractive feature of our business, as those customers enter into three year to four year leases for our Deep TMS systems. Revenues for the first half of 2020 were $9 million, a decrease of 17% over the first half of 2019. As of June 30, 2020. BrainsWay's installed base totaled 567 Deep TMS systems, which reflect the quarter-over-quarter increase of 19 units. Over the last 12 months, even taking into account the impact of COVID-19 over the past two quarters, BrainsWay's install base has increased by 111 systems or 24%. As Chris noted, in response to the impact of COVID-19 on our business, we initiated a cash preservation program in late March with the goal of increasing efficiency and managing spend without impeding our growth efforts. This program remain in place throughout the second quarter. This included cuts to sales and marketing activities, temporary employee salary reductions as well as postponing certain product development projects. That said, the Company is still proceeding with its broader growth strategy that's demonstrated by certain recent sales hires. We remain highly focused on profitably balancing our cash preservation and prudently managing our balance sheet during this temporarily challenging period with the need to appropriately invest in a long term acceleration of our business. Moving on. Gross profit for the second quarter of 2020 was $3.8 million compared to $4.3 million during the prior year period. Gross margin for the quarter was 79% compared to the second quarter of 2019 gross margin of 76%. This increase was due to lower manufacturing overhead costs as a result of our cost reduction efforts. Gross margin for the first half of 2020 were approximately $7 million or 78% compared to $8.3 million or 77% during the prior year period. Research and development expenses for the quarter were $1 million as compared to $2.4 million in the second quarter of 2019 and primarily consisted of costs associated with the continued development of our patented Deep TMS technology. Research and development expenses for the first half of 2020 were $2.8 million as compared to $4.1 million in the prior year period. Sales and marketing expenses for the quarter of 2020 were $2.2 million, a decrease of $1.1 million over the prior year period. The decrease was in line with the Company's efforts to enhance efficiency as well as to lower operational expenses, given the financial impact of the ongoing COVID-19 pandemic. Sales and marketing expenses were $5.9 million for the first half of 2020 as compared to $6.1 million in the prior year period. General and administrative expenses for the quarter were $824,000 as compared to $1.4 million in the prior year period, again, due to our focus on expense control. G&A expenses for the first half of 2020 were $2.1 million as compared to $2.4 million in the prior year period. Total operating expenses for the second quarter were $4 million compared to $7 million in the same period last year. Total operating expenses for the first half of 2020 were $12.8 million as compared to $12.7 million in the prior year period. Operating loss for the second quarter was $215,000 compared to $2.7 million for the same period in 2019. Operating loss for the first half of 2020 totaled to $3.8 million as compared to $4.3 million in the prior year period. For the second quarter ended June 30, 2020, we incurred a net loss of $571,000 compared to a net loss of $3.5 million recorded in the second quarter of 2019, a year-over-year improvement of $2.9 million. Our coordinated efforts to reduce costs resulted in BrainsWay's realizing substantial reductions in our net loss for both year-over-year and sequentially compared to recent quarters. It should be noted that some of these cost reductions were one-time occurrences such as furloughs and not expected to continue in subsequent quarters. Net loss for the first half of 2020 totaled $4 million [ph] compared to $5.4 million in the prior year period. As for the balance sheet, we ended the quarter with cash and cash equivalents of $17.8 million compared to $21.9 million at December 31, 2019. Cash used during the second quarter was in line with our expectations, given that most of the COVID-19 cost reduction efforts were implemented in the second quarter. 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 in R&D in order to explore new potential indications for our innovative technology. We continue to operate in a rapidly evolving health care environment. And although most clinics are now open and many patients have returned for treatment, as Chris noted, restoring the necessary commercial confidence of clinical practices to enable them to integrate Deep TMS as a process. With that said, based on the initiatives we put in place to raise awareness for Deep TMS, the progress we've achieved with reimbursement in our ongoing cost-cutting measures, we are confident that significant momentum in our business will emerge once the impact of COVID-19 subsides. With that, Chris will conclude before taking your questions. Chris?

Thank you, Judy. To conclude, we are proud of the resilience demonstrated by our loyal and growing customer base during this unprecedented period. We are honored to partner with them to provide our groundbreaking treatment to those who need it most. I would also like to thank our committed employees for their continued support and dedication, which has produced significant achievements during the first half of the year, despite the challenging environment we continue to conduct business in. With that, I will now ask the operator to please open up the call for questions. Operator?

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question is coming from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Hi, Chris and Judy. How are you?

Good. How are you doing, Jeff?

Very good morning. So, nice sales in 2019's quarter peak [ph]. Can you kind of correlate with us that it looks like as far as patients and treatments and number of centers that are open, trying to get a better understanding of how the lease payments track April, May, June and number of centers and your comments about highest volume in 12 months, is that utilization or patients or number of centers? Thanks.

Thanks, Jeff. So to talk about the number of centers. I think at the lowest point, I think we may have mentioned that we had probably on -- majority of our centers stayed open during the COVID period, probably somewhere in the 60% to 75% range and we believe that we're probably now up over about -- we are probably closer to the 80%, 85% of range with centers being opened. Does that help answer your question or do you have something else specific about that?

So, the open center least volumes were theoretically down 20% or 30% in April and May. It sounds like it's what you're saying. And then talk about the volume a little bit. Judy, you mentioned the highest volume of 12 months in July. So could you talk about that as far as -- are you referring to number of treatments, number of patients, number of centers or all of the above?

I don't know if we said the highest volume in July, Jeff. I don't think you said that right? The highest one in July?

We saw increase in orders and our highest order volume in June is what we said.

June?

Yes.

Okay. Highest order volumes in June. In the past 12 months?

No, no, no. What I said -- I was referring to actually web presence, our website visit, that might have been what you were talking about, which we saw highest organic growth in our web presence in June. That may have been what you were referring to, but we did have a good number of orders that we got in June. So, as you know, our focus really on April and in May was really focused really on education. And things started to open up in June and we put a number of these things in place regarding special promotions from a leasing perspective and we saw very good start. So, the high volume of orders towards the end of June, which I think is a great trend. And we obviously hope that continues.

Okay, got it. And then lastly from me, Judy, talk a little bit about the back half, OpEx, what we can kind of expect they had some more specific commentary on the sales force as far as coming back and the resources allocated for sales and marketing effort? Can you give us a little further color there please? Thanks.

Sure. So, so we did see a significant reduction in OpEx in Q2 as a result of the efforts that we made. I think that as I also noted some of those were discrete and that I think we're kind of one-time occurrences such as the furloughs, and the temporary salary reductions and we don't expect those to continue. And we are looking and continue to review the investments that we're making in the back half of the year to be able to enhance the growth strategies that we have in place. So, I do expect that we will see increases in OpEx in the Q3 and Q4 timeline similar -- not quite as high as, obviously, the Q1 area, but definitely higher than what we've seen in Q2, given the one-time nature of some of the cost reduction measures that we have.

Okay, got it. Thanks for taking my questions.

Thanks, Jeff.

Our next question is from the line of Jayson Bedford with Raymond James. Please proceed with your questions.

Hi, good morning, and I hope everyone is doing well. So just a few questions. On the increased order flow at the end of June, can we assume that this has continued in July and early August?

Good morning, Jayson. What I'll say is that we have had -- I think, still good trend is happening, probably not to the extent. Again, within our business, I think we've talked about this in the past. Typically, most of our order volume happens in the last month of the quarter. But, we've been pleasantly surprised with the number of orders that we received early in this quarter as well. So, we feel pretty positive, but we're cautiously optimistic, I would say.

Okay. And just the order flow in June; was that more fulfillment of the backlog that it has been built or was this genuine new order flow?

So, it's a combination. I think that there is -- we definitely had a fair number of new orders in June that we received. But given the fact that a lot of the centers were closed in April and May, we definitely had some fulfillment of orders from either the end of Q1 or the first part of Q2. So, I think that the majority of orders that we received in Q2 were new.

Okay. And I apologize. I missed the exact comment but you alluded to some favorable pricing terms. Is that something that will continue and are you seeing a direct impact from pricing?

Yes. We're not getting favorable pricing terms. I think what we're doing is -- so we're not reducing our ASPs or anything like that. What we're doing is we're working with our financial partner just to make the ease at least in the beginning as they acquire the technology a bit easier. So push payments out a little bit, that's what we're doing.

Okay. Got it, got it.

Yes. So to be specific there.

That's fair. And then, just a couple of others. The gross margin strength, you mentioned lower manufacturing overhead and I realize it's going to jump around a bit, but is this kind of high '70s a working level going forward?

I think we remain optimistic that we will continue that obviously on this quarter, again we were given the fact that we did have some temporary salary reductions and furloughs, which was a direct impact on the manufacturing overhead. It does. We just see that impact in this quarter, but I think that we should be in the upper '70s going forward as well.

Okay. And then, maybe lastly on the pipeline. On OCD, when are we going to see the publication of the post-market post approval data and then can you talk about maybe the influence that may have on getting reimbursement?

Yes. So, I think we mentioned on the last earnings call, I think we're hopeful that we'll see in the fall publication -- the publication. I can't think they'd -- obviously what's happening with the journals and how the review processes happen, but I think we'll probably see in early fall. I think it's additional ammunition that we can use talking to the payers and they're always looking for more data and obviously seeking peer-reviewed data is the best. So I mean that's basically where we stand right now.

Okay. I'll jump back in queue and let someone else ask.

Thanks, Jayson.

Our next question is from the line of Steve Lichtman with Oppenheimer & Company. Please proceed with your questions.

Thank you. Good morning guys. Chris, sounds like you're getting a lot of participation in the webinars. Any color either qualitatively or quantitatively you can provide on sort of how that's been feeding the pipeline of new customers?

Steve, great question. Good morning. No, we started this effort, I think probably, very quickly and probably quicker than some other med-tech companies and it's been amazing because we've gotten some of our customers involved in this process and we really started probably in April, and we continue that efforts all the way even through last week. I think I mentioned, we did about 44 of them to-date. We still have more that are planned. It has helped move the pipeline during this period. We're continuing to educate potential customers that are unaware of sort of the benefits of Deep TMS and it's been really good. And we've done everything from like education about Deep TMS, we've talked about how to start up a center. So there has been all different types of different education and we do track that on our pipeline statistics. I don't have the numbers off in front of me, but I know that it's been a great effort and moving along our pipeline in getting orders and it's made a very good difference for us.

Great, thanks. And then, just on OCD, as you await reimbursement. I'm wondering in your discussions with customers, how has having that indication you've have been a positive driver from a pull-through perspective for your efforts and bringing on new customers, I guess, particularly during this time?

Yes. No. I think that the data that we have from our randomized control study is really vital and it's kind of showing the benefits of what our Deep TMS product is doing with OCD. We have a number of centers that -- again, we don't have reimbursement and we do have people who are doing cash pay and we have some centers that are able to get reimbursement when they go back a number of times between insurance companies, it is definitely differentiator that we've had with our product and I think it will continue to be a differentiator, especially when we start getting specific information back about the real world data that we have coming out in this publication that I spoke about. So, as you know, it's an extremely complex disorder and to-date, there only five medications that are out there. So really the other -- there's not a lot of other options for a psychiatrist to go after and I think this is -- Deep TMS is definitely an excellent choice for them to give back to the patients.

And then lastly, Chris and Judy. The OpEx reductions were better than our thinking. I think on the last call you talked about you still thinking about adding sales force. Can you talk about that a little bit about how you may sort of be more aggressive on that front even while you're keeping OpEx down?

Yes. Thanks Steve. Great question. So, in fact, we have added two additional sales people in the last -- since the last earnings call. So, now we're up to 14 salespeople. So we're continuing to kind of latch that balance. And currently today, we still have some additional sales people in our forecast for the second half of the year. But again, we're watching that balance.

Yes. Thanks, Chris. Thanks, Judy.

Thanks, Steve.

Thanks, Steve.

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

Hi, Chris and Judy. Thank you for the questions. Just given there is an uptick in COVID cases in certain regions, I was wondering if you have a sense of whether there is risk of prolonged or permanent customer shutdowns and also is there any chance your customers in this type of situation would return their system. I guess how would that affect your economics?

Yes. Thanks, Kyle. Good morning. I think we're -- I don't want to call it a new normal, but we're in this state where we've seen patients really come back to our providers and it's been a kind of a steadily as the education with patients over the last couple of months. So again, April and May was really very quiet. They were continuing to treat the patients that were on treatment, but they were definitely taking less patients on. And that's started to really change in June and continues in July since we're starting to take on new patients. We haven't had any -- I guess to answer your specific question around returns. I think that we hadn't Judy, I don't know, if you want to comment there?

No. Kyle, we haven't had any specific returns relating to any customer shutdowns at this point. However, we have experienced a slowdown in some payments to customers due to the inability for them to be reopen their practice. So for these customers, we have stopped recognizing revenue, which has hampered our recurring revenue growth, although, we expect that many of these centers will open back up and the revenues will resume. So, we're not having any impacts from return.

And Kyle, I'll just add on the positive note there. We have had, over the last several weeks, customers that currently have systems that have reopened and are looking to expand as well or have stayed open the whole time and had wanted to expand because of the heightened nature of what's happening with the pressure in and around OCD. So, it's been on the other side as well.

Yes, that's really helpful. Thanks guys. And I know you did talk about volume and I guess I got the flow recently, but can you talk about specifically new patient starts and how that kind of trended towards the end of June and maybe more recently in July if you can. I know Greenbrook posted some impressive metrics in this area recently. I'm just wondering what you guys saw.

Yes. We saw a very similar things to what Greenbrook was presenting on their earnings call last week as well. The data that we have shown exactly sort of the upward trend as well. So I think again in this sort of this new normal with COVID patients, this particular thing, I mean it is a medical necessity. I think it was pointed out also last week on their call, patients really need this treatment and they are going in seeking the treatment, which is great and they're just learning sort of this new normal of how to go and I think our customers have been amazing about the way they have been really stepping up and allowing the sort of these virtual -- like touchless experiences of the way they're going into the clinics and getting the treatments completed. So, I think it shows really good progression.

Okay, it's pretty helpful. Thanks. And also going back to Greenbrook, they mentioned on their earnings call that they don't anticipate OCD, TMS treatment to gain reimbursement in 2020. I'm just -- yes, that's reasonable obviously, but is it also your expectation? And I'm just wondering what kind of holding it back? Is COVID the main culprit?

Yes. No. I saw Bill's comments around that. I think, we could have and again, I don't want to jump in front of myself here, but we could have some experiences with some insurance companies. But obviously widespread, it's going to take a little bit more time. People are looking for additional data, but at the same time, we have centers that have had worked with denials and have received reimbursement just an effort to get it there. So, we're hopeful, we're excited about the data getting published and we'll continue to move forward with the number of insurance companies that we've been speaking with.

Yes. Okay, that's fair. And then, I have a few questions on OCD. How many coils replaced in the quarter?

Judy?

So, we're off to a total of 185 coils currently.

That's perfect. Thank you so much, guys. Well, I think that's it.

Thank you, Kyle. I appreciate it.

Our next question is a follow-up from the line of Jeffrey Cohen with Ladenburg Thalmann.

I wanted to jump back on the OCD bandwagon as far as the MagVenture approval yesterday for OCD. Do you think that helps the landscape as far as two corporations out there now presumably driving data and pressing on the payers?

Yes, Jeff. Thanks for that. Yes, we saw that announcement yesterday and it's obviously too soon to really kind of understand what MagVenture did. But of course if there are several companies that have it, obviously helps with insurance companies. But again, I'm looking forward to kind of seeing sort of the data that they have with their with their OCD approval.

Okay, got it. Thanks for the question. Thanks.

Thanks, Jeff.

Thank you. At this time, we have reached the end of our allotted time for question and answers, and I will turn the floor back to management for closing remarks.

Thank you so much. In conclusion, I'd like to thank all the investors and the other participants for the interest in BrainsWay. And with that, please enjoy the rest of your day.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for participation.