Greetings. Welcome to the BrainsWay Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Brian Ritchie with LifeSci Advisors. You may begin.

Thank you, all. And welcome to BrainsWay’s second quarter 2021 earnings conference call. With us today are BrainsWay’s President and Chief Executive Officer, Christopher von Jako; and Chief Financial Officer, Scott Areglado. The format for today’s call will be a discussion of second first quarter trends and business updates from Chris, followed by a detailed discussion of the financials from Scott. Then we will open up the call for your questions. Earlier this morning, BrainsWay released financial results for the three months and six months ended June 30, 2021. A copy of the press release is available on the company’s Investor Relations website. Before I turn the call over to Chris and Scott, I’d like to remind you that this conference call, including both management’s prepared remarks and the question-and-answer session, may contain projections or other forward-looking statements regarding among other topic BrainsWay’s anticipated future operating and financial performance, business plans and prospects and expectations for its products and pipelines, which are all subject to risks and uncertainties, including shifting market conditions resulting from the COVID-19 pandemic, as well as the use of non-GAAP financial information. Additional information regarding these risks are available in the company’s earnings released and in its other filings with the SEC, including the Risk Factors section contained in BrainsWay’s Form 20-F. I would now like to turn the call over to Chris.

Thank you, Brian, and welcome, everyone, and thank you for joining us today. We are extremely pleased with our strong performance in the second quarter. We expect that the current operating trends in our business and our most recent achievements, especially on the reimbursement front will continue to drive further growth and momentum for BrainsWay. I’ll discuss all of this further shortly, but first, I will provide a brief overview of our key second quarter financial results. We achieve $7 million in revenue for the second quarter of 2021, which represents a significant 45% increase over our second quarter 2020 and demonstrate the continued resiliency of our business through the pandemic. We have now demonstrated a strong year-over-year growth in multiple consecutive quarters and believe the progress we have achieved during this period is sustainable throughout 2021. Importantly, the operating environment continues to improve as we learn to cope with the pandemic. That said, in light with a recent spread of the Delta variant we will, of course, continue to closely monitor the situation and work to adapt appropriately. I noted on our last call that patient treatments with Deep TMS were continued to increase since the end of 2020. I’m pleased to report that this is once again the case in the second quarter. As I’ve mentioned in prior quarters, mental health issues continue to rise dramatically as we all live for the impacts of the pandemic. As a result, we have all seen an increase in the prominence of mental health in the media. Moreover, these issues are affecting those at younger ages that historically been the case. According to a recent article published by the Washington Post, the pandemic has negatively impacted college students’ mental health during a year of remote schooling and increased isolation. The article…

Thank you, Chris. I will jump right into the discussion of our financial results. Revenue for the second quarter of 2021 was $7 million, a 45% increase compared to the second quarter 2020 revenue of $4.8 million, which was impacted by the pandemic. This year-over-year revenue growth was driven by the increase in direct sales. On a sequential basis second quarter revenue of 2021 grew $0.9 million or 14% over the first quarter of 2021. Our recurring revenues, primarily derived from leases were $3.6 million. Lease revenue in the second quarter of 2021 represented 51% of our total revenue, highlighting the recurring nature and predictability of BrainsWay’s overall revenue. For the first half of 2021, revenues were $13.1 million, representing a 46% or $4.1 million increase compared to revenue of $9 million for the first half of 2020, which as I mentioned previously, was pandemic impacted. As of June 30, 2021, BrainsWay’s installed base totaled 682 Deep TMS systems, which reflects an increase of 30 systems on a sequential basis. Gross profit for the second quarter of 2021 was $5.7 million, compared to $3.8 million during the prior year period. Gross margin for the quarter was 81%, as compared to 79% in the second quarter of 2020. Gross profit for the first half of 2021 was approximately $10.4 million or a 79% margin, compared to a $7 million gross profit or a 78% margin during the prior year period. Margins can fluctuate slightly, however we expect margins to be in this range in the back half of 2021. Moving on to operating expenses, for the second quarter of 2021, research and development expenses were $1.7 million, as compared to $1 million in the second quarter of 2020 and primarily consists of costs associated with the continued development of our patented…

[Operator Instructions] And our first question is from Jayson Bedford with Raymond James. Please proceed with your question.

Good morning and congrats on the progress. Just a few questions. First, Chris, you alluded to the Delta variant, have you seen an impact on your business over the last few weeks?

We haven’t. And obviously -- and you go into Q2 and just looking at procedure volumes, procedure volume has actually continued to increase in all of Q2 and actually going into Q3 as well. And nothing -- no changes also on the side of the sales front either.

Okay. And then just in terms of the 2Q strength, do you feel confident that this wasn’t just a fulfillment of kind of backlogged orders and I guess it’s just you talked about seeing continued momentum and maybe that answers the question, but I guess, just commentary on backlog and was 2Q helped by just fulfillment of backup orders?

You mean, coming from Q1?

Correct.

Yeah. No. I don’t think we had any hangover from Q1 at all. I think we continue to build up momentum going into Q2. As you know, we we’ve been increasing sales people this year as well. And I think, we’ve been continuously working on improving our sales force and our talents, and I think that, that kind of shows through into Q2.

Okay. And then just a couple OCD questions, is there a direct correlation between the new OCD reimbursement and OCD helmet placement, meaning, are the new coils being placed in settings where there is comparatively heavy -- heavier coverage from Centene or HCSC?

Yeah. That’s a great question. I think that, probably, the news of the first three positive coverage policies was definitely more helpful in the second quarter, as they started to see the trend continue. So we saw, obviously, with the number of systems that we shipped with a higher number of components of OCD add-on helmets to it. So I’m -- we’re extremely encouraged by this. So there’s the highest, probably, number of OCD helmets with number of systems that we shipped. So we’re really excited about that. I mean, obviously, the announcement of the coverage termination actually came right after our last earnings calls and I think it ramped up the sales team, as well as a number of our customers.

Okay. Just, I guess, on that and looking on the other side, it looks like only a couple of your existing users added OCD in the quarter, which I’m a bit surprised by. But what’s the source of resistance right now for those users who have not yet adopted OCD, which appears to be two-thirds of the base?

Well, I think, in general, there are certain practices that are not focused on OCD in particular, right? There are some practices that just don’t focus on OCD. And I think others are probably encouraged by the news, but continuing to wait for further expansion of the OCD coverage. Right now we have probably about 40 million covered lives and we still have some continued work to do. But, I think, overall, both from our customer base, as well as from our sales force, there’s a great deal of excitement and we continue to have great results with our post-marketing efforts as well on understanding how these patients are doing.

Okay. That’s helpful. Maybe this last one for Scott, gross margin strength in 2Q, your comment suggest that it will continue in the second half, what’s the driving force around the step up in gross margin? Is it just…

Yeah. Maybe my comment might bit on...

…the platform…

Yeah. I think Q2 in particular was a little blip there. I think what I was trying to say is that, the year-to-date margin is probably more reflective of where we’re going to be in the back half. Maybe that didn’t come out right.

Okay.

I think we’re still going to see 78%, 79% in the back half there. I think Q1 was a bit of a blip.

Okay. Thank you.

Yeah.

Thanks, Jayson.

And our next question is from Steven Lichtman with Oppenheimer. Please proceed with your question.

Thanks. Hi, guys, and congratulations.

Hi.

Chris, how are you thinking about the potential for incremental OCD revenue here in the near-term by treatments in the geographic areas where there are new policies? Is that something we could see here in the second half of the year or should we thinking about that as a more noticeable pickup in 2022?

I think it’s probably further down, Steve. Again, we’re still in the early phases, right, with Centene and HCSC, right? And obviously, we are really excited about Palmetto. It’s only covering a certain number of states and a certain number of covered lives. So I would say, probably, going into 2022, we’ll see probably further momentum around it.

Got it. You talked about sales force investments. Where are you now in terms of number of reps and what’s your latest thinking on where you’d like to end at, at the end of the year?

Yeah. If memory serves me correctly, I think, at the beginning of the year we’re at 12 and we’re up to 16 now. And as I probably mentioned before, our short-term goals right now get to 18, and I think, probably, by the end of Q3 we’ll be at 18.

Okay. Great. And then just on the smoking cessation, when are you thinking of timing wise about the limited launch and then the potential full launch?

Yeah. Thanks for the question. So, as I mentioned in the prepared remarks, early data has been really extremely good for us in the controlled market release. We’ve actually hit our criteria for all of that to head into the limited market launch now. We just -- over the last several weeks, we just finalized our education with a sales force and we’re already starting to quote out to a more limited group of customers there. So we’re already into the limit market phase and we’re looking for probably the full commercial phase, probably start sometime later this year.

Great. And then, lastly, obviously, OCD reimbursement has been sort of the headline here in the last few months, but the reduction in number of failed meds on the depression side, as you mentioned, those continue? What have you seen in terms of that driving increased demand for systems for potential new customers, you guys look back over the last few quarters?

I think it’s really impactful when it comes to the small private psychiatrists offices, who have these patients already in their waiting room and to be able to go to a patient that has already two failed medications, as opposed to waiting for an additional two additional medications, which could push it out another year or a year and a half or two years in timeframe before they’re applicable to have reimbursement. I think it’s a big difference. And I think that, when it happened with a number of our customers, anecdotally, I spoke to a number of them in different places in the U.S. and they were very excited, and we may said it impacted them quite a bit, just looking and understanding of how they’re going to be treating these patients moving forward.

Great. Thanks, Chris.

Thanks, Steve.

And our next question is from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Hi, Chris and Scott. How are you?

Good morning, Jeff.

Good. Thanks, Jeff.

Just a couple from our end, I guess, firstly going back to Jayson’s original question two. If you could give us a little color perhaps on just your two graphic overlay versus some hot spots on the COVID side, we’re just trying to get a better quantification of cadence for Q3 in general back half commentary?

Yeah. Thanks, Jeff. Like I said earlier, we haven’t seen any real effects as of recent. I looked at the numbers we were tracking from a sales perspective. The number of meetings something, I’ll say that, it’s steadily progressing Q1 to Q2 and its increased also into Q3. So, we’re not seeing any regional effects at this time.

Okay. Great. And then, secondly, could you talk a little more about the payer environment and how that reflects pharma sales? You had some commentary that it looks like you’re moving a little earlier in the treatment paradigm from one or two pharma sales as opposed to three or four. Can you provide any commentary there…

Yeah.

… and what kind of discussion the company is having on the payer side?

Yeah. One of the great things, Jeff, is that, since we’re having all these conversations directly with the payers related to OCD, we also take the opportunity to actually chat and update information about depression as well. And as I mentioned in my prepared comments, more and more, even a smaller players are now moving from four medications down to either three or two, which is I think really exciting. And then, as I also mentioned that, seven there are Medicare administrators throughout the United States that cover the whole global area. And now, in fact, with Palmetto moving from four down to two, that makes four out of the 70 to two or one. In fact, the other three Medicare providers are actually at one failure. So, I think it’s -- overall, it’s a really good trend. It’s going to open up access. It’s going to be good for patients and it’s going to be good for the providers as well. No one doubt, I think, we’ll see that continue, I hope to be a trend of moving closer, even getting to maybe one like some of these Medicare providers allow.

Okay. Got it. And then, one more quick one, cadence in rollout as you’re kind of planning and expecting on the nicotine addiction side. So, it kind of looks similar to the OCD coils as we saw in 2018 the original 58 and they’re getting toward the 200 a couple of years later?

Yeah. I think it’s probably too early to kind of give some numbers around that this time. I mean, as I mentioned, probably, on the last call, we rolled out to 10 of our customers with our new smoking addiction helmet or as we call it internally H4 system. And then, over the second quarter, we rolled out to additional five. So we’re at 15 customers right now that have the technology. And once we’ll get into limited market, we will continue to kind of provide insight in later quarters.

Perfect. Okay. Thanks for taking the questions.

Thanks, Steve, oh, Jeff, sorry.

Our next question is from Jason Wittes with Northland. Please proceed with your question.

Hi. Thanks for taking the questions. So, for OCD, you guys, it seems have done a pretty good job of making sure that, if I’m correct, that the reimbursement is specific to deep brain. Is that the strategy or has that been the strategy and the case in terms of most of your discussions with the insurers? And secondly, does that help in terms of copycats trying to sneak in even though I know they don’t necessarily have direct OCD approval?

Jason, thanks for the question. Yeah. You’re right. That has been the strategy for us. I think, as I mentioned in our prior calls, when we’re meeting with these payers, it’s really a primary focus for us to make sure they understand the difference between Deep TMS and traditional PMS and the benefits of Deep TMS. Us going deeper and broader makes a huge difference, especially in the outcomes of the patients. And as you know, we’re very, very particular about the way we do our research and conduct our clinical trials. And in that way, we’ve shown the benefits of what Deep TMS is doing, particularly for these OCD patients. And we have been very particular, as you mentioned, in getting Deep TMS as to be the provider of this OCD technology or treatment, as you mentioned. So it has been…

Okay. Thanks.

…an important part of the strategy. Thanks, Jason.

Yeah. No. Helpful. And also related to that, the MACs decision to go from four to two failed therapy attempts, that’s specific to all stimulant or deep -- stimulation or is that specific to deep brain stimulation? Just want clarification on that?

No. That’s for all TMS whether for us with Deep TMS or traditional TMS.

Okay. And then I know it’s still early in smoking cessation. So you may have limited comments, but the big question I have and I think a lot of investors have is, it seems like there’s a big out of pocket opportunity here. Has that been tested yet? Can you comment on how big or how realistic or that opportunity might be?

Yeah. That’s been a big part of our focus with the controlled market release to try to understand how we’re marketing to patients. Are there opportunities for other reimbursements associated around the treatment as well? We in fact just a couple of weeks ago we brought all of our controlled market release customers together and had a call with them. It was really helpful to kind of understand thoughts specifically best practices around patient targeting, patient messaging, insurance billing and treatment protocol. So we’re learning a lot and we look forward to share further information as we continues down this path. But I think, as I mentioned the prepared remarks, early and total evidence was very good about treatments. We’ve probably treated around a couple dozen patients to-date and it’s been very well accepted so far.

Okay. Helpful. And then on OCD, I know that you talked about different pricing strategies. Is there a separate -- is it still basically a leasing type agreement or is there actual additional payments related to OCD from the third of your install base that has opted to get the helmet?

Yeah. Thanks for that question. So, traditionally in the past we were more on a fee-per-use but we’ve kind of opened it up with all of our three strategies. So, doing what we call like a risk share model, which is the fee-per-use. We also sell the helmet directly and we also lease the helmet as an uptick on increased, if they’re depressions system and then they can opt to also lease the helmet as well.

Okay. Is there is there an incremental break piece of OCD in those revenue numbers that you supplied that today or is that, I guess, it’s just not something you’re breaking out at the moment?

Yeah. So we don’t break it out, but certainly, this incremental revenue associated with the additional helmet.

It also obviously drives…

Okay.

… additional sales…

Yeah.

… overall -- it’s system sales, right, because the differentiation of the technology between us and other traditional TMS systems.

Okay. And then maybe last question, I think you mentioned, your goal is to get to 18 sales reps in the U.S.?

Yes.

It seems like you could go bigger especially -- or are you -- or is that something that maybe you reevaluate after you look -- you kind of complete your evaluation of the smoking cessation trials or commercial trials?

Yeah. We definitely -- we can definitely go bigger. We just wanted to do it in a kind of a phased approach. So our goals for this year was 18. Those we are going to probably most definitely increase going into 2022. But right now our short-term effort is to get to 18.

Okay. Great. Thanks I’ll jump back in queue.

Yeah. Thank you.

[Operator Instructions] Our next question is from Ram Selvaraju with H.C. Wainwright. Please proceed with your question.

Thanks very much for taking my questions and congratulations on a really solid quarter here. Firstly, I wanted to drill down a little bit further into what you envisage to be the long-term plan, the long-term goal for the expansion of the number of sales reps in the field? And if you could please relate that to the target prescriber base, because it seems as though the prescriber base is enormous relative to the number of sales reps that you currently have and I just wanted to know kind of what’s the ultimate goal or what’s the ultimate sales rep number objective that you have relative to the prescriber base that you’re targeting?

Yeah. Ram, thanks for the question. I appreciate it. So, in general, we were at 12 and our goal was to grow by 50% in a systematic way. We think, probably, over time, in the short-term, probably, up closer to around 40 is where we’re thinking to kind of cover the complete territories that we’re looking at. But that can change, obviously, depending on our rollout of smoking, which is we may go in a number of other different areas with smoking as well as an indication. Obviously, we know it’s outside of psychiatry as well. And so, I think, just to give you kind of a short-term thought, that’s sort of the thinking.

Okay. And then, just a couple of questions regarding the revolving reimbursement picture, are you seeing an evolution in the thinking among reimbursement agencies regarding coverage of Deep TMS procedures in patients who may already have had Deep TMS applied once, at least once in their prior treatment history or are you seeing that remaining effectively static? And then the second question is whether you are seeing any changes in the thinking among reimbursement agencies with respect to prior authorizations, the number of prior treatments, for example, in the context of MDD?

So, is your first question, I assume is also related to depression, correct?

Correct. Yeah.

Yeah. So, in general, without getting too technical and too deep, there are a couple of things that when your depression patients come in, they look for response and someone to get to remission. And if somebody has a response on the technology, the payers will continue to actually pay for TMS treatments in the future, which I think is important. And we’ve shown in a head-to-head study that our response rates are actually higher than traditional TMS. So, I think that’s an important indicator. So and remember that depression is episodic. So as soon as somebody gets to remission, if they come back and have another episode of depression, as long as they respond to the technology, currently the payers are paying in. And then to your second question, as I mentioned, initially when TMS started getting reimbursed by payers on a broader wider scale, they started four failed medications. And the recent trend starting in about late 2019 has been moving down from four down to two. We’ve seen, as I mentioned in my prepared remarks, that that trend continues of going down from four down to two and in some cases even one, which I think is just extremely helpful with all the details around where medications in. After the first medication there’s only roughly about a 50% chance that there’ll be a response and then it just gets worse and worse after the next medications. So getting it down closer to one failed treatment I think is going to be a continued trend that happens.

Okay. And then on the reimbursement front also, I wanted to ask if you expect any additional draft LCDs before the end of this year.

I mean, we’re hopeful to it. I can’t give guidance around it. I was -- in my last couple of calls including the last one that we had, I was very hopeful that we would end up getting at least one coverage just from the receptiveness of the conversations we were having around OCD. And then boom the day after the call we got one and then a couple days later we got another one and then the third one. So I’m hopeful, but I can’t give guidance on it. It’s really very hard to predict. But I think…

Okay. And with…

I think one…

Okay.

… additional thing, Ram, is that we have actually met with all the Medicare providers, all of the MACs and introduced all of the information to them already.

Great. And then with respect to the smoking cessation controlled launch, can you just give us a bit more color on how the kinetics of the launch are going to dovetail with what you expect to be evolution in the reimbursement picture there?

Yeah. Again, it’s probably too early to kind of predict on how that will go. Obviously, we have done we’ve done a bunch of work around understanding the reimbursement landscape in smoking and also trying to understand exactly what our strategy is moving forward. I think it’s really important as we’ve done with OCD to be focused on gathering post-marketing data and also making sure that we’re publishing that data in an appropriate way to give us further evidence to support any reimbursement efforts moving forward.

Thank you.

Thanks so much.

And we have reached the end of the question-and-answer session. I will now turn the call over to Chris von Jako for closing remarks.

Thank you so much. I’d like to thank all the investors and other participants for their interest in BrainsWay. With that, please enjoy the rest of your day.

This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.