BrainsWay Ltd. (BWAY) Q3 2020 Earnings Report, Transcript and Summary

Greetings, and welcome to the Brainsway Third Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Bob Yedid of LifeSci Advisors. Thank you. You may –

Thank you, Darryl, and thank you all for joining us this morning, and welcome to Brainsway's Third Quarter 2020 Earnings Conference Call. With us today are the company's President and Chief Executive Officer, Chris von Jako; and Chief Financial Officer, Judy Huber. The format for today's call will be a discussion of the third quarter trends and business updates from Chris, followed by detailed discussion of financials from Judy. Then, we will open up the call for your questions. Earlier today, Brainsway released financial results for the third quarter ended September 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, including 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 statements regarding 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. The company does not assume any obligation to update that information. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by Brainsway at this time. Additional risks concerning factors that could cause actual events results or achievements that materially differ from those contained in the forward-looking statements can be found in the company's registration statement on Form F and its other filings with the Securities and Exchange Commission. With those prepared remarks, it's my pleasure to turn the call over to Chris von Jako, CEO. Chris?

Thank you, Bob. Welcome everyone and thank you for joining us today. Today, we're extremely pleased to report third quarter 2020 revenues of $6 million, representing a significant 25% increase over our second quarter of 2020, and even a small increase over the same period last year, which of course was prior to the onset of COVID-19. These results were driven by a multitude of positive catalysts in our business in the industry overall. First, I'd like to provide a brief update on the current operating environment. Importantly, the large majority of clinics are now operating at or near-normal levels with some even experiencing patient treatment volumes above pre-COVID levels. This provides us with optimism as we head into the final months of 2020, but we have continued our judicious approach of implementing expense reductions without sacrificing our long-term growth objectives. Of course, business conditions during COVID continue to evolve and we will continue to monitor the impact of the pandemic on the fourth quarter operations, especially with the latest spike in cases across the U.S. With that said, according to the information from IQVIA, total patient visit metrics both in person and telehealth continue to improve in the U.S. We view patient visit data as a leading indicator of treatment volume and these metrics help provide us with confidence on the outlook of our business. To this end, patient visits to psychiatrists are up almost 60% and versus pre-COVID levels. These trends are very likely to continue as depression rate in the U.S. adults has tripled since the onset of COVID. Because Deep TMS has a clear patient impact and customer economic benefit, we believe that Brainsway has a critical role to serve in treating patients suffering from both depression and OCD. Importantly, Brainsway and our innovative Deep TMS therapy are highly differentiated by superior science, robust clinical evidence in industry-leading customer support. We have a vast clinical and commercial experience with our Deep TMS system. Which has been subject to – of no less than 32 completed randomized clinical trials, which is more than any other company in our field. Furthermore, Brainsway's Deep TMS has been utilized to treat over 95,000 patients for depression and OCD and this translates into over 2.5 million individual treatment sessions. Moreover, our flexible business model allows customers to be the lease or purchase our system, which continues to help grow the demand for our technology. In addition, favorable reimbursement trends for Deep TMS depression treatment continued to be an important tailwind for our business. We continue to see reductions in reimbursement requirements from four prior antidepressant treatment failures to two-prior failures. This significantly reduces the hurdles patients must overcome in order to access our life-changing treatment. Just in the last six months reimbursement requirements have been eased by Blue Cross Blue Shield in five states as well as by Cigna and Aetna. As of the end of the third quarter, Deep TMS for depression was covered by over 60 commercial insurers and all seven Medicare administrative contractors. These payers collectively represent more than 275 million covered lives. In general, we continue our efforts to leverage these favorable trends in depression reimbursement. This together with our efforts to obtain further clearances in seeking expanded coverage for these indications will help us expand our total addressable market. In this regard, we are highly focused on securing reimbursement in OCD, our second major indication which is a critical priority for BrainsWay. To further support our continued efforts, we recently expanded our reimbursement and market access team including the addition of a professional with over 20 years of relevant experience to lead our initiatives in this important area. I would like now to emphasize the ways in which BrainsWay has adopted a systematic wide-scale effort to utilize a meticulous data-driven approach towards commercial success. This ranges from significantly increasing our data for OCD to further bolstering the data around our positive safety profile and to tracking our marketing efforts and reach. In terms of OCD, we collected new post-marketing clinical data on 219 patients at 22-clinical Deep TMS sites, which was published in the peer-reviewed journal of Psychiatric Research. Our analysis of this real-world information resulted in several interesting findings within various subgroups. For example, the study show that 73% of patients reach initial response at an early stage of Deep TMS treatment, which was administered as an agile form of therapy. The data also revealed that the therapeutic effect can be maintained for weeks after treatment. We intend to leverage this new data with insurance companies as we continue our efforts to obtain reimbursement. As far as our safety profile as many of you may know, our device is not associated with any systematic side effects. However, BrainsWay has diligently collected comprehensive safety data to give us a better understanding of the risks or treatment and recently published its analysis in the Journal of Brain Stimulation. These findings indicate a marketed decrease in the risks associated with our device. We now have the most comprehensive published clinical safety data by far of any TMS company and we believe that it suggests a safety profile that is second to none in the TMS industry. It's also worth noting some impressive gains from our data we now track to better measure our website user volume and patient education initiatives. From April through October, approximately 3,200 registrants participated in 57 webinars hosted by BrainsWay. In the third quarter alone, organic user volume of our recently launched website increased by a robust 30%. To mark OCD awareness week, which took place in October, we teamed up with social media influencers in two OCD patients treated with Deep TMS to launch a social media campaign called #TheRealOCD. We yielded about 400,000 impressions from this campaign. And it was picked up by over 80 media outlets with a cumulative potential reach of 244 million. As I mentioned, we believe the metrics, initiatives and achievements all clearly demonstrate a persistent commitment to a data-driven commercialization approach. Moving on since becoming CEO of BrainsWay in January, I've spent a considerable amount of time working to strengthen our commercial structure into an industry-leading team. In order to further expand our sales efforts over the course of 2021, we intend to increase the number of U.S. sales territories we cover from the beginning of this year at 12 to 16. We also continue to see significant progress and opportunities for our business outside the U.S. Even amidst the pandemic we have seen a ramp in sales efforts from some of our distribution partners and agents. In Japan, we received regulatory approval for Deep TMS to treat depression. We continue to work through our distribution partner towards securing reimbursement in our steady contact with the relevant governmental authorities. Our commercial team is also actively working on developing various synergistic opportunities in other new territories around the globe. As I stated, expanding the marketing indications for Deep TMS is a key to our growth strategy to this end we were thrilled to announce in the third quarter that we received the third FDA-cleared indication for Deep TMS for smoking addiction. We view this milestone as further validation of our scientific leadership position and this represents the first FDA clearance in the addiction space for any TMS device. Smoking is one of the leading causes of death in the U.S. and also leads to other serious conditions such as lung cancer and heart disease. Approximately, 34 million U.S. adults smoke cigarettes and nearly 500,000 die from smoking each year. Further only around 6% of those who try to quit each year are successful. While other therapies are currently available, a substantial medical need continues to exist for treatments that can assist smokers in quitting. BrainsWay received FDA clearance in this indication based on data from a pivotal study of 262 patients. These patients were highly addicted to cigarettes with a long history of smoking and with 70% having failed three or more attempts to quit. Of those patients who completed a full course of Deep TMS treatment, 28% achieved four consecutive weeks of absence of smoking. In addition, the average number of cigarettes smoked per week dropped from 127 at baseline to 32 by week six. These compelling data has been submitted to a peer-reviewed journal for publication. As I mentioned on the previous earnings call, we are excited about this new indication and we're gearing up for a controlled market release during the first quarter of 2021. Our focus will be gathering closed marketing data and refining our broader launch strategy. Turning to Investor Relations. I want to emphasize that Judy and I remain highly active in sharing BrainsWay's compelling growth story with both institutional and retail investors. We recently participated in several virtual investor conferences sponsored by Cantor Fitzgerald, Oppenheimer, H.C. Wainwright and others and have multiple other investor events on a calendar over the next few months. Moreover, I'm pleased to share with you today that we will be hosting a key opinion leader virtual investor event this coming Monday, November 23 at 10:00 a.m. Eastern Time. This exciting event will feature Dr. Owen Muir of Brooklyn Minds who will discuss the current treatment landscape and unmet medical need in treating patients with depression and OCD. Before turning the call over to Judy, I want to acknowledge my gratitude to our hard-working customers on the front line of this mental health crisis. And to the entire BrainsWay team for their continued support and dedication which has produced significant achievements during the first nine months of this year. Thank you again for joining us today. With that, I will now pass the call to Judy for her review of our third quarter financial results. Judy?

Thank you, Chris. We are excited by the momentum in our business and believe we are well positioned for a potential continued growth in the foreseeable future. Let's turn to our financial results for the third quarter of 2020. We generated quarterly revenue of $6 million, a 25% increase sequentially from the second quarter of 2020 and a 1% increase from the third quarter of 2019. This revenue was driven by an increase in our direct sales arrangements. Our recurring revenues primarily derived from leases were $3.4 million consistent with the third quarter of 2019. These recurring revenues were 57% of our total revenue. Revenues for the first nine months of 2020 were $15 million, a decrease of 11% from the same period in 2019. The as of September 30, 2020, BrainsWay's installed base totaled 593 Deep TMS systems, which reflects a quarter-over-quarter increase of 26 units. Over the last 12 months even taking into account the impact of COVID-19 through the third quarter of 2020, BrainsWay's installed base has increased by 105 systems or a solid 22%. As a reminder, in response to the impact of COVID-19 on our business, we initiated the cash preservation program in late March with the goal of increasing efficiency and managing spend without impeding our growth efforts. This program largely continued in the third quarter. However, while we continue to manage expenses prudently, the company continues to proceed with its broader growth strategy and to appropriately invest in the long-term acceleration of our business. Moving on, gross profit for the third quarter of 2020 was $4.5 million, compared to $4.8 million during the prior year period. Gross margin for the quarter was 75% compared to the third quarter of 2019 gross margin of 81%. This decrease was due to an increase in inventory obsolescence recognized in the quarter. Gross margin for the first nine months of 2020 were 77%, compared to 78% during the prior year period. Research and development expenses for the third quarter were $1.4 million, as compared to $1.9 million in the third quarter of 2019, and primarily consists of costs associated with the continued development of our patented Deep TMS technology. Research and development expenses for the nine months of 2020 were $4.2 million, as compared to $6.1 million in the prior year period. SG&A expenses for the third quarter were $3.7 million, compared to $5 million, a decrease of $1.3 million as compared to the third quarter of 2019. The decrease is in line with the company's efforts to enhance efficiency as well as to lower operational expenses given the financial impact of the pandemic. SG&A expenses were $11.7 million for the nine months of 2020, as compared to $13.5 million in the prior year period, a reduction in expenses of over 15%. Total operating expenses for the third quarter were $5.1 million, compared to $7 million in the same period last year. Total operating expenses for the first nine months of 2020 totaled $15.9 million, as compared to $19.6 million in the prior year period. Operating loss for the third quarter was $586,000, compared with $2.2 million for the same period in 2019. Operating loss for the first nine months of 2020 totaled $4.4 million, as compared to $6.5 million in the prior year period. For the third quarter ended September 30, 2020, we incurred a net loss of $966,000 compared to a net loss of $2.6 million in the third quarter of 2019, a year-over-year improvement of $1.7 million. Net loss for the first nine months of 2020 totaled $5 million, as compared to $8 million in the prior year period. As for the balance sheet, we ended the quarter with cash and cash equivalents of $16 million, compared to $21.9 million at December 31, 2019. Cash used during the third quarter of $1.8 million was in line with our expectations. We believe that our strong balance sheet will allow us at the appropriate time to expand our sales and marketing efforts to drive additional adoption of the Deep TMS system and to continue to invest in R&D in order to explore new potential indications for our innovative technology. This concludes our prepared remarks. I will now ask the operator to please open up the call for questions. Operator?

Thank you. We'll now be conducting a question-and-answer session. [Operator Instruction]. Our first question comes from the line of Steven Lichtman of Oppenheimer. Please proceed with your question.

Thank you. Good morning. A couple of questions. First, the patient appointment increase you mentioned Chris during 3Q is definitely encouraging. I was wondering, how has the environment eased further if at all for your reps to get into offices? What's the level of interaction they're able to have with clinicians now?

Steve, good morning, thanks for the question. I appreciate it. Yeah. So we were very, very pleased obviously, very optimistic about what happened in the third quarter. We have seen a definite trend in the direction of more in office visits by our salespeople, which has increased since June on. It's still obviously not the pre-COVID levels. And a lot of the meetings are still being conducted obviously by telephone, and through web conferencing. But there's been a steady increase, I don't want to say it's 50-50, but it's somewhere in that range 50-50.

Okay. Got it. On OCD reimbursement with the addition of the reimbursement expert you mentioned and the data recently published. I was wondering, what are the next key steps you expect to securing OCD reimbursement as we look ahead?

Yeah. We were very excited about. In the last several – I think earnings calls I've been talking about this peer-reviewed publication that we were waiting on. And it just got released I think last week so we're very excited about the data very, very positive data. So we're going to take this data that we have. And as I mentioned, we have a new addition to the team and we're already setting up meetings with payers going into 2021. In order to speak about this data, and probably, we have an additional somewhere around total of about I think around 10 peer-reviewed articles that have been written about OCD this one being the biggest one with the 219 patients.

Okay. Got it. And then just lastly, as we start thinking about your third indication with smoking cessation, how should we be thinking about the impact next year? I know, there won't be reimbursement will kind of be following the same sort of OCD path. Will you be selling another helmet with the system that will get recognized? I know ultimately, you want to do it on a per click basis. But how are you thinking about sort of the initial contribution in 2021?

Yeah. Thanks. So you know we have three different coils now that are approved. So we have our coil, or helmet that's used for depression. We have our coil or helmet that's used for OCD. And this is another coil or helmet that we use for the patients that will be used for smoking. So as I mentioned, we're going to be going into a controlled market release early or sometime in Q1, and we're going to be working with our current TMS customer's right there. They are the obvious only to kind of work with them to begin with. And then, we'll go into a limited market release sometime later next year, where we'll probably start attributing a small amount of revenue and this – similar to OCD, as you mentioned reimbursement will probably be important part of the factor. Obviously, cash pay may make sense. This treatment as opposed to our depression and OCD treatments are less treatments. There are only 18 treatments that are acquired here as opposed to over 30 treatments that you need for depression and OCD.

Got it. Great. Congrats on the quarter guys. Thanks, Chris.

Thank you so much, Steven.

Thank you. Our next question comes from the line of Jayson Bedford with Raymond James. Please proceed with your question.

Good morning, and thanks for taking my question. So, just a few. When you look at the performance in the third quarter, how much of that was more new demand versus fulfilling the orders that may have been deferred in 2Q? And if there's any commentary on kind of trends or backlog into fourth quarter that would be great.

Yes. Thanks, Jayson. Thanks for the question. So as typical and I think I've mentioned this on my first earnings call, that our deals tend to happen at the end of the quarter and we did see a really nice pickup in orders in June. So some of this trickled into Q3 and typically Q3, amongst medical device companies happens to be a slower month, but we had really great traction in the third quarter. Judy, do you know -- I don't know what the balance was, but I think we had really good orders at the end of June and that comprised also with great orders in Q3 as well.

Yes. I think that we will always see an overlap for one quarter to the next. I think that in Q3 that was no different. I do anticipate that we'll see the same thing in Q4 to some extent. But the majority of units, we do try to get out the door is just -- it's a question of real timing and installation and acceptance by the customer as well.

Okay. And in reference, I think, you alluded to it, but obviously, we're kind of coming into this second wave of COVID. Have you seen any kind of contractions from a center perspective any impact on the business over the last few weeks?

We haven't. I think that -- I think our customers -- current customers have kind of and I probably also talked about in the last earnings call as well. I kind of understood how to deal with the new normal going into this, maybe a rise up in COVID cases. They really understand well how to bring the patients in, how to really keep safety. So I think we haven't seen anything. I think patients have also like I mentioned visits with psychiatrists are up 60%. A lot of that happens to be telepsychiatry, but to pre-COVID levels it's almost there with pre-COVID levels of in office visits as well. So I think our customers have -- we've done a lot of things around education with them and work with them. And I think they're much better equipped, if there's a big spike up again this time. Again, the technology that we're providing is a medical necessity. And I think that's really, really important to understand.

That's helpful. Wanted to go back to OCDs. I apologize, if I missed this, but did you disclose how many coils you placed in the quarter?

We didn't disclose that. The total coil for the quarter was a 198. In total, which was an incremental I think 13 coils.

Okay. And do you feel like there's a backlog of OCD interest just waiting for reimbursement? I know it may be tough to gauge here but what's your sense on that?

We're asked about it a lot from our customers. It's something every time I'm talking to our customers it comes up quite often. I know, Judy was talking to customers yesterday in Utah and they were mentioning that in order to get reimbursement sometimes it happens and you have to go through an appeal process when you go to do denial. In this case, the physician was mentioning that it was actually the mother of the patient that was working really hard with the Medicare -- with a PrEP care, Medicaid provider and actually got reimbursed for the treatment. So it does happen. We want to make sure that we get it on a wider scale. And I think it's something that a lot of our customers are talking to us about all the time. Again, I think you may know this, but it's a very complex disorder right now and there are only five approved medications that are on the marketplace. And these patients are really seeking as well as clinicians seeking an other alternative and adjunct that really help these patients.

Helpful. Helpful. Last question for me. And you mentioned it on this call, last call, payers seem to have relaxed some of their criteria for reimbursement and depression. It may be difficult to get visibility on this, but is this translating into an increase in orders perhaps in those regions where you've actually seen the criteria relax? A –Chris von Jako: Well, I know, specifically for our office-based psychiatrist, those are the ones that have patients sitting in their waiting rooms socially distance of course that have had two failures that they can actually get them up on TMS treatment now and that's a really big difference. I was talking to a customer of ours last month in Texas and says, it really made a difference to them right now. So I think our customers see it and we're trying to translate that also to new potential customers. So I think it can translate to a couple of things more demand for current customers that may -- they may look to increase the number of systems they have in that office or they may look to expand into other locations. So I think overall it is important and it's an important trend that the psychiatrists are really happy about. And of course the patients are as well.

Got it. Thank you.

Thank you. Our next question is come from the line of Jeffrey Cohen of Labenberg. Please proceed with your questions.

Hi, Chris and Judy. How are you?

Good.

Good.

Good. Jeff, how are you doing?

Just fine. So firstly, if you could provide any further detail it would be helpful as far as total placement and what was sold and what was leased, at least in depression and then perhaps give us a little further color on general utilization and utilization trends? For...

So let me start with utilization trend first. We did see a big upswing in the third quarter on the utilization. And we also -- a good indicator for us as you may know we sell a cap that goes with the treatment for each patient. And we saw a good increase in the number of caps that were sold as well, which to me also indicates that the customers are really bullish about new treatments coming in. So I think overall, we're really excited about what was happening in the third quarter and we see this trend also continued in the fourth quarter. Judy, do you want to?

Yes. So just on the mix between the lease and the sold, I think we referenced that the lease revenues were 57% this quarter versus 43% for the sale. Year-to-date, that's a little bit lower. Year-to-date, typically our leases were around 68% versus 32%. So right now, the lease revenue was slightly lower than our usual mix in that regard.

Okay. I got it. And could you provide any further clarity on any specific COVID effects on treatment and compliance that your data indicates or the clinicians have indicated?

On -- when you say compliance, are you specifically speaking, if the patients stop coming or…

Yeah, yeah, patient compliance.

We saw this Jeff, good question. We saw this actually in April and in May and from talking to a number of our customers that either had to close down because they had a COVID patients that came in. So they had to close the facility down for two weeks. And then we know anecdotally from some customers that they did have like some COVID patients that had to stop and then they had to retreat again. We haven't heard of that with any of our customers in the last several months. So I think that's also a good trend. I think it's the experience that not only that the centers are having, but in general also that the patients are more equipped on how to leave the homes and how to enter into the facilities and being safe overall. So we haven't heard of anything in the last several months around that at all.

Okay. Got it. And then lastly, as we think about OCD and your marketing campaign, can you talk about some of the metrics that you've been measuring as far as patient engagement and views and the size of the audience that you're aiming to capture with your four social platforms? Thank you.

Yes. Thanks. So as I mentioned, our overall organic growth for our website grew by 30%, which means that -- that means that those -- people are coming to our website to kind of learn about the technology. And they're not being driven by any means. They're coming to our website, which is great. I think that overall is a good sign that indicates that we're really getting the word out about Deep TMS technology. We did this last campaign, which was new for us by using some social media influencers, and we were just really pleased with the overall outcome that we had and we're looking at additional ways of doing this also in the future. So again 400,000 impressions of this campaign in a one-week period I think is really outstanding. In addition to that, like I mentioned, we got picked up by over 80 media outlets and a number of news organizations actually had new stories one in particular that I'm thinking about was in Portland, which where one of our OCD patients lived. In that particular case that picked up by the morning news outlook there and she was interviewed in Portland on her local station and the quote that really resonates with me is that she couldn't have made it through 2020 without her BrainsWay TMF treatment.

Perfect. That's it for me. Thanks for taking the questions.

Thanks, Jeff.

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

Hey, guys. Thanks for taking the questions. So I understand the trends and the kind of the challenges of the environment due to COVID in 3Q. But could you just kind of talk about the breakdown between systems sold in the quarter? The TMS-only providers versus the traditional psychiatrist offices. And I guess just thinking about it from historical context, was that generally in line with what we did in the past. And how has the mix kind of changed during COVID? Like what factors kind of drove the shift in mix? Thanks.

Kyle, we heard the first part of your question, but can you -- you kind of went out of the second part of the question? Sorry.

Yes, I was just wondering if the mix between TMS only providers like a Greenbrook and the offices that mix has kind of changed during COVID. Is it similar at this point to what you've seen in the past? And what has kind of been changing that mix?

Okay.

Yes. No, I think just on the mix, I think I referenced it is about the 57:43. So in terms of the total 26 units, I think that correlates pretty closely that we placed in the quarter. I think as it relates to the trend around what we're seeing -- we have seen a good amount of business from our existing customers as well as new business in terms of expansion as well as new business. So I think, we're seeing customer bases expand as well both at a hospital level as well as at the chains and some new psychiatrists. So it really was kind of a mix across the board I would say as far as the new business and existing business, but about a 50:50 split there for this quarter.

Okay. That's helpful. Thanks, Judy. And in terms of like the progression of capital spending in the third quarter compared to what you kind of expected our last call in August. I know there's a lot of uncertainty here going forward, but what do you expect in the fourth quarter? I guess another Greenbrook talked about some strong trends in 4Q. And you talked about how utilization really picked up nicely in 3Q. So just wondering if you can kind of talk about what you're expecting for purchasing and even leasing in the fourth quarter here?

Yes. I mean, I'll start and Christ can comment further. But traditionally fourth quarter is a pretty strong quarter for us. Obviously, we have the second wave impact to -- there is a question in terms of what it will really end up being, especially given that most of the strong purchase sales usually happen at the end of that quarter. So we still have a little bit of time here before we would see some of those materialize and know whether or not they're going to come to fruition this quarter. But we remain bullish around the quarter. And I think it's -- we haven't seen anything that is leading us to believe that the Q4 wouldn't be as strong as at least Q3.

I don't have anything to add. Well stated, Judy.

Thanks, guys. Obviously, notice that the lease revenue has remained pretty flat for the past five quarters or so around that $3.4 million, $3.5 million level. And as you said Judy, the percentage of total revenue kind of declines in 3Q from the year-to-date levels. So I guess what drove that modest performance since 3Q? I mean you would think that the lease model was pretty attractive in this environment. So I mean, is that 3Q results driven by some of the payment regimens that you mentioned on the last quarterly call? And I guess how should we think about the lease revenue mix going forward going from that 57% level?

Yes. I think, that's right, Kyle. I think that you -- as I mentioned on the last quarter, we have seen some slower payments coming from those customers. Many of them did shutdown for several months in the early part of COVID. And it does take a good three to four months to come back up in terms of cash flow for those customers. Once they start to see patients again. So given our policies internally in terms of how we would recognize that revenue, we have frozen a lot of that revenue until we kind of see the customer's ability to pay on those leases. So that has hampered the growth that we would see overall on the lease side because obviously we're still placing units, new units on the leasing side. So I think, we will see that number come back up as the patient flow continues and the centers get back into a good position.

All right. Thanks for that. And just one, last one for me, another housekeeping question. Obviously, the gross margin stepped down quite a bit in 3Q on the 79% in the second quarter. It's actually closer now to the first quarter level. So do you expect that some of the -- I guess inventory obsolescence like that kind and that could kind of flow through to the 4Q gross margin as well and maybe even totally 2021, or are we kind of past that now?

I think that there was a -- we continually look at inventory obsolescence overall. But we have -- we took a deeper dive into this quarter in terms of evaluating some of the upgrades of units that we've done in the field. And as we reassessed basically the remaining value of some of those units that we returned. So I think that some of that margin is definitely a discrete event in Q3.

Okay. It makes sense. Thanks a lot guys.

Thanks, Kyle.

Thank you. There are no further questions at this time. I would now like to hand the call back over to Christopher von Jako for closing comments.

In conclusion, I'd like to thank all of the investors and other participants for their interest in Brainsway and we look forward to keeping you up-to-date on our progress. With that please enjoy the rest of your day.

That does conclude today's call. Thank you for your participation. You may disconnect your lines at this time.