Greetings and welcome to the BrainsWay Third 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]. As a reminder, this conference is being recorded. I’d now like to turn the call over to Bob Yedid of LifeSci Advisors. Thank you. You may begin.

Thank you, all, and welcome to BrainsWay’s third 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 of today’s call will be a discussion of third quarter results and a business update from Scott -- excuse me 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 and nine months ended September 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 forward-looking statements regarding among other topics, BrainsWay’s anticipated future operating and financial performance, business plans and prospects and expectations for its products and pipeline, which are all subject to risks and uncertainties, including shifting market conditions from the COVID-19 pandemic, the global supply chain crisis, as well as the use of non-GAAP financial performance. Additional information regarding these and other risks are available in the company's earnings release and its other filings with the SEC, including the Risk Factors section contained in BrainsWay's Form 20-F. 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. We are extremely pleased with the strong momentum in our business that continued during the third quarter. We expect that the current positive operating trends experienced throughout our company and driven by recent achievements on the commercial, clinical, regulatory and reimbursement fronts will lead to further growth for BrainsWay going forward. I'll discuss all this in greater detail shortly. But first, I will provide a brief overview of our key third quarter financial results. We generated $8.1 million in revenue for the third quarter 2021, which representative a substantial 34% increase over our third quarter 2020 and is indicative of the growing demand for our Deep TMS therapy in multiple indications. We have now demonstrated year-over-year growth in five consecutive quarters. We believe the progress we've achieved during this period is sustainable. In addition, our revenue for the first nine months of 2021 has nearly reached the total revenue achieved for all of 2020. We continued to shape our business practices to meet the challenges of the pandemic and the spread of the Delta variant during the third quarter, which appears to have had minimal impact on our business. As we've discussed previously, and as many of you are likely aware from the increasing significant media attention it has received in recent months, mental health and addiction issues continue to rise dramatically, especially as we all live through the impacts of the pandemic. However, it seems that the pandemic really only amplified an already growing increase in depression. According to research recently published by PharmacoEconomics, there was a dramatic rise of 13% in major depressive disorder in the U.S. during the pre-pandemic period of 2010 to 2018. During that time, the number of adults with depression grew from…

Thank you, Chris. BrainsWay had another strong quarter of revenue growth, and as Chris mentioned, it is the fifth consecutive quarter of growth versus the prior year period. For the third quarter of 2021, revenue was $8.1 million, a 34% increase compared to third quarter 2020 revenue of $6 million. As I've noted previously, sequentially, third quarter revenue of 2021 grew $1.1 million, or 15% over the second quarter of 2021. We believe this growth demonstrates the continued value of the BrainsWay solution given typical third quarter seasonality and the uncertainty of the ongoing pandemic. For the first nine months of 2021, revenues were $21.2 million, representing a 41% or $6.2 million increase compared to revenue of $15 million for the first nine months of 2020. As of September 30, 2021, BrainsWay's installed base totaled 717 Deep TMS systems, which reflects an increase of 35 net systems on a sequential basis, an increase of 124 net systems or 21%, as compared to the end of third quarter of 2020. Gross profit for the third quarter of 2021 was $6.1 million, compared to $4.5 million during the prior year period. Gross margin for the quarter was 76%, as compared to 75% in the third quarter of 2020. Gross profit for the first nine months of 2021 was approximately $16.5 million, or a 78% margin, compared to $11.5 million gross profit or a 77% margin during the prior year period. Margins can fluctuate slightly. However, we expect margins to stay within this range in the fourth quarter. Moving on to operating expenses. For the third quarter of 2021, research and Development expenses were $1.8 million as compared to $1.4 million in the third quarter of 2020. Research and development expenses for the first nine months of 2021 were $4.4 million as compared…

[Operator Instructions] Our first questions come from the line of Steven Lichtman with Oppenheimer.

Chris, you obviously saw a clear step up in OCD helmets again here this quarter. Are you seeing the pickup in areas where reimbursement coverage by Centene and HCSC is stronger? Or is it broader than that because of the halo effect of the positive reimbursement used earlier this year? Any more color on that would be great.

Thanks, Steven. Good morning and thank you for your comments about the quarter. Yes, we're really excited about the quarters as you could possibly tell. Regarding OCD, yes, I would say it's more of a halo effect. Most of the systems that we shipped this quarter came within OCD helmet. So we're very pleased. And as I mentioned that, in the comments that we prepared, we really feel that people are getting on board, because we're getting some gains and traction with reimbursements.

And then going on the next steps in the smoking addiction launch, I think you were at 10 centers initially. Are you moving that up now to another tranche before going full? And when do you expect to move to a full launch?

Yes. So I think we may have mentioned in the last call, we went from the 10, the first in the controlled market release and then we went up to 15 in the controlled market release. And we're now in a limited market release phase. So we actually train the entire salesforce, I think I mentioned that on the last call. And then we started in this limit launch where we're taking orders, and we're delivering systems to particular people. And I think, Scott, what do we have now totally installed?

Closer to 30.

Closer to 30, again, at this point.

Including the limited controlled market release.

Yes. Controlled market release, yes.

Great. And I guess lastly for me and I'll jump back in queue. On the salesforce, I don’t know if I missed this. I know you were at 16 last quarter targeting I think to get to 18 by year-end. Is that still the case? Any update on the salesforce side?

Yes, thanks. So I think on the last call, we had 16 sales professionals, we're up to 17 sales professionals, we're still targeting that 18 before the year-end.

Our next questions come from the line of Jeffrey Cohen with Ladenburg Thalmann.

Good morning, Chris and Scott. This is actually Destiny on for Jeff. How are you?

Destiny, how are you? I was going to say you didn't sound like Jeff.

Yes. No. A little more feminine may be but anyway. I was wondering -- I'd like to start, there was a press release regarding seizures a couple of months ago. And I was wondering if you could talk a little bit about that and what impact you think that has on the overall TMS market?

Good question. I thought this perhaps may come up on the call today. So at the outset, let me just say that TMS systems, which have been researched over many years, have a very favorable safety record, including the BrainsWay’s Deep TMS System. So my belief is that it's a mistake for the industry overall to even talk about seizure rates, as if they were an issue, and it's unfortunate that some in the industry feel they need to raise it. But as long as you brought up the topic, I want to be clear whether using traditional TMS systems or the BrainsWay Deep TMS System, seizures are an extremely rare but a well-known side effect associated brain stimulation. We regularly publish our own seizure rates, and we did so last November. BrainsWay comprehensive data involved about 95,000 Deep TMS patients and found seizure rates to be about 2 in 10,000, when following instructions for use. And this is comparable to previous published outcomes seen with other TMS studies also. As for specific claims about the document that you were talking about, in particular with the higher seizure rates, regarding Deep TMS’ H1-Coil, these were based on a questionnaire that were distributed via SurveyMonkey, which is both I think, misleadingly -- was misleadingly presented, and worse, the analysis was based on really shoddy science. Specifically, the survey claims to have resulted from outcomes of 25,000 TMS patients, less than 2,000 of which have been treated with Deep TMS. Our publication is more comprehensive, again, with 95,000 Deep TMS patients, which is a vastly larger sample size than the dataset used in that misleading survey. And I just want to point out as a comparative reference, the most popular anti-depressants and anti-psychotic medications show significantly higher seizure rates, ranging between 1 to 6 out of 1,000 patients, not 10,000 patients. And finally, Destiny I just wanted to add, I think it's worth noting that BrainsWay systems are used in some of the top psychiatric hospitals in the country, like Johns Hopkins; McLean Hospital, which is the largest psychiatric teaching hospital, part of medical school here in Boston; Stanford University Medical Center; UC San Diego Health Center, among others. And this is not to mention the largest TMS provider in the country Greenbrook, who also uses BrainsWay. So I don't think any of these centers would be using the BrainsWay Deep TMS System, if they felt there was any type of safety issue. Hopefully that addresses your question there.

Yes, that’s super helpful. Thank you for all that color. And then I'm curious, if you could just maybe remind investors and whoever else may be new to the story, about the importance of having this dual-pronged strategy, where you not only are driving commercial expansion, but also providing your psychiatrist with other indications of use. Could you just help us -- expand a bit more on that and how it impacts the company in the longer term?

Yes. That’s a great question. I think one of the things that we've seen since I joined, is really the overall, I would say, market, about our platform and why people are choosing our technology. And I think obviously depression, OCD has been a big and we've seen it now, especially with reimbursement coming on. Smoking addiction, we're just early into. And then I think with our latest FDA clearance on anxious depression which I think is really, really important for not only the providers to be able to talk about anxiety within depression patients, but also to be able to talk to the patients about it. And I think it really makes a real good thing for our platform. Does that help?

Yes, definitely. And then maybe just lastly for me. I'm curious if you could talk to maybe some of the trends for Q4, not necessarily guidance or anything, but more around what you're seeing in terms of seasonality versus COVID versus staffing disruptions, et cetera?

Yes, I think our trends that we had in Q3 were extremely powerful. We were less, I think, affected by Delta variant that maybe some of the other manufacturers and people within medical device as well. And we've seen continued positive momentum in our business. It's really tough to tell. I think I've mentioned this on previous earnings calls as well. A lot of our secret sauce happens in the last several weeks of the quarter, but it all feels really good right now, as we're heading into the later stages of the quarter.

Our next questions come from the line of Jayson Bedford with Raymond James.

Just a few questions I guess for me. Just on the OCD momentum there, near 40% of your install base has helmets. Can we assume that the other 60% is just waiting for more established reimbursement coverage? Is that kind of the speed bump here?

Yes, Jayson, great question. I think I may have mentioned this in previous calls as well, but glad you brought it up. There are some practices where we have our systems in psychiatric offices, they don't really focus on OCD, and we've seen that. But I think the latest round of systems we've been selling this year, especially since we've had the momentum on reimbursement, we've seen much more people or much more of our customers taking the OCD helmet. I think we will see the install base also start to do that at some point. And probably, I guess it will get over 50% of our install base at some point, maybe even closer to 60%.

And then just on OCD reimbursement, you've got coverage for what, 40 million lives. Are there any additional reimbursement wins anticipated over the next couple of quarters?

Well, it's obviously tough to predict and I don't like giving guidance. I remember when we did the call earlier in the year, it was very hopeful, it's hoping before the end of the year we would get at least one insurance coverage before the end of the year. We got two as obviously I mentioned that Centene and HCSC. And then of course we got the positive coverage determination but it was a draft policy from Palmetto and that still has to be finalized. We have reached out to over 60 of the top insurance companies in the company -- sorry in the country. And then of course with Medicare MACs, we've reached out to all of them and talked to them. And in fact, at the end of September, there was a public call, which happened, I think it was on September 29th, it was all the Medicare MACs, excluding Palmetto, they all got together. And in this public call, they brought on six or seven experts, where there was six or seven experts actually reviewed all of BrainsWay's literature about OCD. It was really exciting to listen to the call. But in the end, it's really difficult to know whether the other MACs will all pick up coverage, some of them will pick up coverage, or maybe they'll delay it. So it's, but I was really encouraged by the call. That's what I'll say.

On the label expansion that you received mid-quarter or 3Q for decreasing anxiety symptoms, you mentioned, I think, in the call that it's already contributed to the success. Can you identify orders that you believe directly stemmed from this label. And just on the timing of the marketing and the salesforce training efforts, did this occur in September?

So the training happened early in September. We really closed after our -- I think we got the clearance in August, I believe, at the end of August. I actually remember exactly where it was. But it definitely contributed to the quarter. It's hard to put on specifically what system didn't. But hearing from the salesforce and talking to the salesforce, the ability to talk about anxiety and depression patients makes a big deal. And there's -- I can talk for hours about this really. But in a nutshell, I think it's pretty powerful to be able to have our customers be able to speak about anxiety within their depression patients, it's such a comorbid issue. And the ability to use our H1 helmets in the depression treatment, in the same setting, not only handles the depression but also anxiety, is extremely powerful. And the data was really compelling. I think it was something that we’ve known from some time, but the ability to look at it in these controlled clinical studies where we really saw the difference between the placebo or sham was just really compelling, and even actually be competitive to medication as well. But I think that differentiation really helps from a competitive sales standpoint, when we get in there as well. It's another further offering that we have.

I guess what I'm getting at is, I assume that this label will have a bigger impact in 4Q than in 3Q, just given that you'll have it for the full quarter here versus what is a partial quarter and a summer quarter at that. Okay. Maybe just for Scott -- and perhaps I missed it. What was direct versus recurring revenue in the quarter?

Yes. So it was about 60% direct versus 40% recurring.

Okay. Thank you.

So just back to the comments about anxious depression, look, it's just -- it becomes part of our overall toolkit for our sales team to go out and continue to market, right?

Next questions come from the line of Ram Selvaraju with H.C. Wainwright.

This is Boobalan Pachaiyappan dialing in for Ram Selvaraju. Congrats on your progress. So just couple of questions from our end with respect to OCD. So I know OCD is an umbrella disease comprising of at least four disorders. So do you think the Deep TMS System could be particularly effective against one disorder versus the other within the umbrella OCD?

Can you just expand what you mean by the four disorders?

This was mentioned during KOL call.

Okay. Got it. Very good point. So, yes, there's sort of other deviations of OCD, right? Like, body dysmorphic disorder and things like that, yes. We're doing further studying for that. We plan to do further studying to see how it will impact those other different variations. But I think obviously, this is a big pool population, 6 million people will just get pure OCD in their lifetime. And about 3 million of those, about half of those, obviously, will not respond to medication. And as I think I probably have mentioned in the past, in depression, there are over 40 medications, and then you can do combination of medications. There are only five medications approved for OCD. So it's obviously a much more complex disorder.

Great. So the four disorders that were mentioned during the call were body dysmorphic disorder, hoarding disorder, hair pulling disorder, and skin picking disorder, just for a reference.

Yes.

All right. So thanks for the clarity there. And then the next, so it appears at least OCD takes 14 to 17 years to diagnose. So given BrainsWay penetrating the OCD market, what potential marketing strategies might be required to ensure patients can obtain benefits of early treatment?

So I think one of the things that we're doing -- well, let's just say first, the clinicians are completely aware of this, right? And we are working lockstep with them and obviously, the earlier diagnosis, the earlier treatment, they're going to benefit quite a bit more from it. Today, obviously, our clearance is for 18 and older and we do actually have a study going on in younger adults at the moment. It's more of a pilot study at one of the large universities in the U.S. So we're looking forward to getting those results over time. We know that patients are treated off label at a younger age. But I think you're right, the earlier we can get this diagnosed, treat it, and you've probably heard from that KOL call, the better outcomes you'll have in the patients in general. And by the way, the same thing goes for depression as well.

Okay. And one, lastly, maybe this is for Scott. So the gross margin continues to be impressive. So just curious to hear your thoughts on whether inflation would affect your gross margins moving forward? If that's what mitigating strategies might be required, and lessen the impact?

Yes, it's a great question and something we've been thinking about and watching the economic trends. I think, at least for the fourth quarter, most of our inventory is in and built and already ready to ship because we have parts with some longer lead times. And then we're just working to really manage through this and haven't really thought about our outlook too far for 2022 yet as we sort of have enough inventory for the near-term here. But if inflationary pressures continue, it will obviously have an impact on our cost of parts, and we'll have to determine how we can either pass that on or how we'll manage through it.

Thank you. We have reached the end of our question-and-answer session period. I would now like to turn the call back over to Chris von Jako for any closing comments.

Thanks. I'd like to thank all the investors, analysts and other participants for their interest in BrainsWay. And with that, please enjoy the rest of your day.

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day.