Greetings, and welcome to BrainsWay First Quarter 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Yedid, with LifeSci Advisors. Thank you. You may begin.
Thank you, Doug, and thank you all, and welcome to BrainsWay's first quarter 2022 earnings conference call. With us today are BrainsWay's President and Chief Executive Officer, Chris von Jako, and Chief Financial Officer, Scott Areglado. The format for today's call will be a discussion of recent trends and business updates from Chris, followed by a detailed discussion of the financials from Scott. We open up the call for your questions. Earlier today, BrainsWay released financial results for the three months ended March 31, 2022. 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 would 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 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 resulting from the COVID-19 pandemic, the global supply chain crisis, as well as the use of non-GAAP financial information. Additional information regarding these and other risks are available in the company's earnings release and its other filings with the Securities and Exchange Commission, 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. To begin, our business continues to perform extremely well. While the Omicron variant had a slight impact early in the first quarter, demand for our therapy in multiple indications continues to remain steady. Importantly, we expect that our current positive operating trends that are driving our strong growth in recent quarters, highlighted by our latest achievements on commercial, clinical, regulatory, and reimbursement fronts, will lead to further growth for BrainsWay throughout 2022 and beyond. While I will review our future prospects in greater detail shortly, first, I will provide a brief summary of our most recent accomplishments and an overview of our key first quarter financial results. Our first quarter revenue of $8 million represented both a 30% increase over the first quarter of 2021 and our seventh consecutive quarter with year-over-year growth.
The demand for Deep TMS was driven by depression, anxious depression, and OCD therapies, reflecting an emerging balance in the business. In fact, we shipped a nearly equal number of H1 helmets for depression and H7 helmets for OCD during the quarter. I'd like to discuss our key recent accomplishments within the prism of the 2022 key priorities I outlined on our last call. The first of these pillars is becoming the market leader in the non-invasive brain stimulation market. BrainsWay's continued strong growth demonstrates that we are leading the way, and we are taking steps that we believe will allow us to further this trend. To achieve this revenue growth, we have assembled a best-in-class commercial team. Most recently, we appointed Eric Hirt as our new Vice President of Sales.
Eric is a veteran sales leader with more than 20 years of experience in the medical device sales at leading medical device companies such as Covidien, Teleflex, and Integra LifeSciences, as well as some smaller growing companies. We look forward to him leveraging his deep expertise to increase visibility for BrainsWay and its market-leading Deep TMS therapy. As I said in our last call, our focus for this year is to build out our infrastructure by going from two regions with 18 territory sales managers to three regions with 21 territory sales managers. Collectively, these sales professionals are focused on broadening our U.S. customer base. Our territory sales managers are complemented and supported by skilled teams of practice development consultants and field clinical engineers.
These highly knowledgeable professionals have in the past and will continue to be laser-focused on achieving customer success, cultivating our expanding customer base, and delivering on our overall mandate to provide superior support to our customers. Another aspect of this strategic pillar is increasing market awareness. Our recently overhauled website has been enhanced for search engine optimization to make Deep TMS therapy more visible for all in need. I am pleased to report that our organic website traffic continues to grow, increasing 46% in the first quarter of 2022 as compared to the first quarter of 2021. Our website chat robot, H-Coil, logged nearly 1,200 engagements with individuals in the first quarter. Importantly, approximately 20% of these online chats led to further discussions for prospective customers and patients. Additionally, nearly 50 sales meetings with potential clinics were also booked with this tool.
Moreover, May is Mental Health Awareness Month, and we have a number of exciting initiatives planned, including an online patient-centric campaign utilizing the hashtag Don't Miss Another Moment. This will feature Deep TMS patients describing certain experiences they are now able to enjoy following treatment. We'll share further details on Mental Health Awareness Month activities on our next call. Collectively, the goal of these initiatives is to reach any patient seeking an alternative to traditional medical management of their mental health. We believe that our increased website engagement and greater use of social media channels will ultimately lead to more patient engagement and awareness of our breakthrough technology. We have a number of other exciting marketing awareness-related initiatives planned for 2022 that we look forward to sharing with you in the coming months. Where and whenever possible, we continue to leverage critical in-person interactions with existing and prospective customers.
In fact, it picks up quite a bit over the next two months as we will participate in seven medical meetings on-site, including the Clinical TMS Society, the American Psychiatric Association Annual Meeting, and other psychiatric and mental health conferences across the U.S., Europe and Australia. I will now turn to our progress on Deep TMS for the treatment of OCD, another aspect of our first strategic pillar. As a reminder, BrainsWay is the first TMS device to achieve FDA clearance for this hard-to-treat condition and remains the only TMS company to have received this clearance based on pivotal placebo-controlled data conducted on its own device. During the first quarter, we shipped 35 add-on helmets for OCD treatments, increasing that total number to 337. We are pleased that nearly 45% of our total install base now includes OCD treatment capability.
We view this progress as a testament to our customers' strong belief in the benefits of Deep TMS treatment for OCD and within the broader context of our emerging reimbursement in this area. As a reminder, with our recent Palmetto coverage determination, the total number of lives now eligible for OCD reimbursement on our device is approximately 60 million. The Palmetto LCD also positively impacted those using Deep TMS to treat depression and anxious depression since it reduced the requirement of four failed medications to just two failed medications. Further expansion of OCD reimbursement is an ongoing area of focus for BrainsWay. I'm also excited that on May first, we launched a brand new and upgraded program to better support our customers with reimbursement.
This new program enhances the support, resources, training, and materials available to BrainsWay customers in order to facilitate their access to and increase the likelihood of broader OCD coverage. The collective OCD developments achieved to date, both in terms of customer adoption and in reimbursement, are indicative of the significant traction we are seeing in this key indication. In order to further accelerate customer adoption and additional reimbursement progress, we continue to publish compelling data in support of the use of Deep TMS in OCD. To this end, we are excited to have important research published earlier this year in two leading peer-reviewed journals highlighting the durability and cost-effectiveness of Deep TMS in OCD. Moving on, the second pillar in our strategic plan is to lead through superior science and evidence.
We continue to advance our real-world data collection efforts in all of our major indications, including depression and anxious depression, and OCD, and smoking addiction, with a focus on publications and presentations at key industry conferences. In addition, we intend to initiate several new key visibility studies in certain psychiatric, neurological, and addiction indications. The third and fourth pillars of this strategy are capitalizing on our platform and enhancing business development activities. These are both critical long-term drivers for us. To this end, we appointed Dr. Joe Seidel to the newly created position of Vice President of Corporate Development and Strategy. Dr. Seidel has more than 20 years of experience in the medical device industry and has held positions in business development, corporate strategy, program management, and research and development. He is responsible for pursuing strategic opportunities for BrainsWay and overseeing our global corporate development initiatives.
Dr. Seidel's appointment reflects our commitment to continue pursuing new market opportunities in both the U.S. and internationally in order to continue growing our business. In addition, this week we promoted Hadar Levy, previously Senior Vice President and General Manager of North America, to Chief Operating Officer. In this role, Hadar, who has been with BrainsWay since July 2014, will be responsible for leading operations for the entire organization with a focus on developing and implementing a strategic plan for long-term international business growth and enhancing our customer support function. In his prior role, Hadar's focus was on the U.S. business. During this three-year period, BrainsWay's U.S. revenues and total number of systems nearly doubled. We look forward to Hadar's broader impact on our business, including in international markets in his new role.
With that, I would like to now provide a brief update on our commercialization plan for Deep TMS for smoking addiction. As a reminder, this offering, the first of its kind in the medical device space and our first addiction product, was launched in a phased rollout about a year ago. We pursued this strategy in order to further cultivate our message, develop optimized business models for customers, refine ideal addressable patient population, and build post-marketing data to develop a reimbursement strategy. We previously completed the first phase, which was a controlled market release, and more recently concluded our limited market release. We transitioned to a full market release early this year, and we're pleased with the progress to date. We are currently developing patient testimonials to support our sales and marketing efforts.
As in our other key indications, we continue to publish compelling data highlighting the efficacy of Deep TMS in treating smoking addiction. Most recently, Nature, a leading scientific journal, published a randomized placebo-controlled Deep TMS study that used the BrainsWay H4 coil to treat schizophrenic patients who are also smokers. The results, which were presented along with imaging data, confirmed that active Deep TMS successfully reaches its deepest target, the insula, and alters blood flow in that region, allowing therapeutic intervention. Data such as these will be leveraged in our efforts to secure reimbursement in smoking addiction, which, as you know, does not yet exist for Deep TMS for this indication. To further facilitate our efforts in this regard, we also intend to conduct post-marketing research and data collection efforts in 2022, which we believe will serve us well in our commercialization efforts.
Turning to investor relations, we hosted a well-attended KOL event in March focused on anxious depression. This virtual event featured Dr. Shan Siddiqi , a neuropsychiatrist at the Brigham and Women's Hospital and Assistant Professor of Psychiatry at Harvard Medical School. He provided a terrific overview of the clinical and market importance of the recent expansion of our depression label to include anxious depression. We also conducted multiple institutional and high net worth-focused virtual non-deal roadshows in the first quarter, and we will present at several healthcare investment conferences throughout 2022.
Finally, as always, I would like to thank our valued partners and providers who battle the mental health crisis each and every day, as well as the entire BrainsWay team for elevating their commitment to excellence and delivering on our mission of boldly advancing neuroscience to improve health and transform lives. With that, I'll now pass the call to Scott for his review of our first quarter 2022 financial results. Scott.
Thank you, Chris. As Chris noted, revenue for the first quarter of 2022 was $8 million, a significant 30% increase compared to the prior year period revenue of $6.1 million. Revenue growth in the first quarter was driven by increased demand for our BrainsWay Deep TMS system with 36 system placements in the first quarter of 2022. This increases our installed base to 790 systems as of March 31st, 2022, as compared to 652 systems, or 21% growth versus March 31st, 2021. Gross profit for the first quarter of 2022 was $6.1 million or a 77% gross margin, compared to $4.6 million or 76% during the prior year period. Moving on to operating expenses.
For the first quarter of 2022, research and development expenses were $1.6 million as compared to $925,000 in the first quarter of 2021. Expenses are due primarily to data collection to drive reimbursement, expansion of our platform and other key indications, and development of our next generation system. We expect these priorities to be a focus for our R&D team. Sales and marketing expenses for the first quarter of 2022 were $4.1 million compared to $3.1 million for the first quarter of 2021. As Chris mentioned earlier, we have increased our investments in our commercial team and have expanded our in-person and digital marketing efforts. Awareness is key to driving long-term growth. Moving on to G&A.
Expenses for the first quarter of 2022 were $1.9 million compared to $1.4 million for the first quarter of 2021. Operating loss for the first quarter was $1.5 million compared to an operating loss of $801,000 for the same period in 2021.
For the first quarter ended March 31st, 2022, we incurred a net loss of $2 million compared to a net loss of $1.4 million in the same period of 2021. Moving on to the balance sheet. We ended the quarter with cash equivalents, and short-term deposits of $54.7 million, a decrease of $2.7 million as compared to Q4 2021. On the equity side, our current ordinary shares outstanding at the end of Q1 is approximately 33 million or 16.5 million American depositary shares.
With a strong balance sheet, we have the flexibility to expand our sales and marketing efforts to drive additional adoption of our multi-indication Deep TMS system, as well as invest in product development and clinical research to explore innovative new indications and markets for Deep TMS to ensure our technology remains highly differentiated. However, we will continue to be prudent in managing our investments. We are confident that these initiatives and investments will support long-term shareholder value. This concludes our prepared remarks. I will now ask the operator to please open up the call for questions. Operator?
Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask your question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
Oh, hi, Chris and Scott. How are you?
Hi, Jeff. How are you?
Just fine.
Good.
Firstly, from our end, if you could talk about the commercial force. I know you went through the expansion on the regions and managers to three and 21, but what's the size of the practice development consultants, at least domestically, and also field engineers in North America?
Yeah, we have eight practice development consultants, as we talked about this, supporting our, you know, soon to be 21 territory managers with three regions. We have, I believe, 11 field clinical engineers.
Perfect. Okay. You talked about, Chris, some current operational challenges, at least in the press release from Q1. How does that look into Q2, and can you talk about recent findings?
Yeah. Well, in my prepared statements, it was really focused on, you know, the beginning of the year with Omicron, the pandemic. I mean, sorry, COVID coming back. I don't foresee that at this time. You know, we obviously, we're not feeling that at all at this point, Jeff.
Okay, got it. As far as system placements, I think you talked about, was it 45% now, placements have OCD helmets.
Yeah, we have.
How does that look for new placements?
Jeff, yeah, that's right. I think I mentioned a number of times when I first started. I think we were around 30%. We continue to see an increase in the demand for the H7 for OCD, and now we're up to about 45%. I think if you looked at the numbers, we'd almost equal the amount of H1 and H7 helmets. I think I said in previous comments that, you know, I think that number will probably, you know, reach up to about 60% at some point. We just had a real great demand in the first quarter for the H7 helmets.
Okay. Got it.
I think really driven by, obviously, you know, the product, the progress we've made in the reimbursement side there, obviously.
Which leads to my next question. Any trends across the board on your pricing, psychiatric pricing and reimbursement trends that you can call out of note?
Yeah. Nothing. I mean, obviously Palmetto was a big thing from, you know, getting the, you know, OCD clearance to start on March 13th, you know, covering a bunch of southern states, on the East Coast. I think I mentioned also in the prepared statements that they went from four on the depression side and anxious depression side down to two, which was great. That I think puts over 60% of Medicare now at either one or two, failed medications for depression and anxious depression.
Okay, got it. Lastly, a shout-out and congrats to Hadar on the promotion. Thanks for taking our questions.
Thanks so much. Appreciate it.
Our next question comes from the line of Jayson Bedford with Raymond James. Please proceed with your question.
Hi. Good morning. Just a few questions for me. Maybe just to follow up on one of the questions earlier. When do you anticipate having 21 reps?
You know, probably my guess is, before the end of this quarter, sometime that range, beginning of next quarter.
Perfect. Just maybe more broadly, the selling environment. You know, there's been some mixed feedback this earnings call on capital trends. I'm just curious as to how you would characterize the environment for capital right now. Maybe just to put a finer point on it, in terms of kind of the new boxes going out there, are they going to existing customers, new customers? Would love to get a little bit more visibility there.
Yeah, sure. When you say capital trends on this call, you mean during this earnings season, or were you talking about broadly?
Yeah. No. Capital and I realize that your end market is much different than most other companies in medical technology. There's been some mixed trends in terms of some folks saying it's a tighter capital environment, some saying, "No, there's no issue, it's pretty loose." I'd just be curious as to your thoughts on appetite for capital from your customer base.
Yeah. I mean, obviously our customer base is a little bit different. We're dealing with clinics in the community.
Yep.
Obviously. You know, I think in general, our pipeline is pretty full. We continue to be obviously very positive on, you know, how we see Q2 and the rest of the year trending. You know, obviously it's different in the hospital environment for sure.
Okay.
Then just your question about the sort of the mix there. I think over the course of the pandemic, the two years we had the pandemic, a large majority of our boxes that were going out were more focused, I think, or a high majority were focused to existing customers. I think that was obvious. They understood the need, they understood the product, they understood how to actually make great business, and they were expanding in either their current facility or an additional facility. We had seen in Q1 we kind of expanded into a number of new sites. That number came down a bit.
I think our customers continue to fuel our growth, and I think they will continue to fuel our growth in the future.
Okay. Maybe just lastly for me, it looks like there's a new player in the OCD space. Just wondering, does this change your perception of the opportunity at all? Just from a positioning standpoint, does it change the message?
Well, I think, you know, there's a number of ways to look at this. Obviously, the information on that is pretty fresh, right? It came out yesterday, and I'll continue to highlight, you know, we're the only company that has Deep TMS, and we're the only Deep TMS company out there that's received the clearance with pivotal sham controlled data on its own device. But you can look at another view as well, right? In general, the market, you know, basically is pretty big from an OCD perspective, and I think it's gonna bring more awareness and develop the market, which ultimately probably serves the benefits of everybody in the market itself. We can look at it in two ways I think.
Obviously we stand behind our product and, you know, we've represented it, and we've seen really great things with it. You know, we're looking for future success and driving continued OCD, both from adoption to new customers, existing customers, as well as also getting access with reimbursement.
Fair enough. Thank you.
Thanks, Jason.
Our next question comes from the line of Steven Lichtman with Oppenheimer. Please proceed with your question.
Thank you. Morning, guys.
Morning, Steven.
Wanted to jump back onto the solid jump in OCD coils as a percent of total. Can you talk about where you're seeing that picked up momentum? You know, obviously you talked about reimbursement. Is where you're seeing it correlated in areas where reimbursement turned on, or is there a broader halo effect that you're starting to see?
No, that's a great question. I think in general, it's been since we started this and started getting reimbursement. I think a year ago after this call was the first time we got, you know, coverage that was big with Centene. As you remember, I think I called you after the call. In general, it has been a halo effect because people kinda feel the tide moving in the right direction. Obviously, you know, some of the coverages that we have are, you know, Centene is covered kind of across the country. So I think in general it's been a halo effect. You saw almost 100% of the systems that we shipped had H7 coils. I think it just speaks volume about the technology and what it's doing for this very difficult disorder.
Great. Thanks, Chris. I guess just turning to the recent executive announcements with Hadar and Dr. Seidel, it seems like international expansion might be increasingly in focus as you were talking about both. Is that right as a primary reason for the announcements? What do you see as the initial opportunities for expansion outside of the U.S. if so?
Yeah. Steve, thanks. That's a great question. With Joe Seidel, it's an absolute pleasure to get him on board. He's had really great experience from a, you know, corporate development standpoint and strategy, and we're obviously gonna utilize his resources in that. You're exactly correct. From a Hadar standpoint, we are looking out internationally as well. We wanna make sure that we're growing both in the U.S. as well as internationally. For Hadar and what his achievements, what he's done in the U.S. have been just phenomenal. We wanna sort of like lean on his expertise and be less, I would say, opportunistic, which has been our specifically strategy internationally to be a little bit more strategic.
He is working on plans with that effort as we continue to move forward. I look forward in future calls to kinda highlight what our strategy will be internationally. You know, we're focused in a few different markets internationally. We've had obviously some good luck you know with opportunities in Europe as well as in Asia. Yeah, we're looking forward to expanding that, and that's why we thought you know right now is the right time to make this call.
Okay, great. Then just lastly, just wondering what your latest thoughts are on smoking cessation, now with the full launch, you know, obviously just beginning. Do you see potential for out-of-pocket pay for that indication or, you know, are you really seeing, you know, you need to see some of that reimbursement and you'll build toward that, like with OCD?
You know, it's a mix with some of our customers. Some of our customers have actually done well with cash pay. But you know, we did some analysis on the market and actually looked at smokers in particular to find the ideal smoker that would be looking to quit and would wanna pay for the technology. We continue to have with the group from our limited and controlled market release to have calls. We just had another call a couple weeks ago to update and educate them on that, and we're trying to learn from them as well. In addition to that, we are really focused on specifically on collecting data for reimbursement. We've just started that effort in a grand way in the last three weeks.
The more data we get, the better, and we can use that data to help us in our reimbursement strategy. That's what we're doing today.
Got it. Thanks, Chris.
Thanks, Steve. Appreciate it.
Our next question comes from the line of Jason Wittes with Loop Capital. Please proceed with your question.
Hi. Thanks for taking the questions. I don't know if you have any comment about this lawsuit that was just filed relating to anxious depression from Neuronetics.
Oh, thanks, Jason. Thanks for bringing that up. Yeah, I guess there's a press release that was done. I mean, in general, we stand behind our studies, which are peer-reviewed, and the representation of our data. Without getting too much into the detail, our depression labeling expansion to include anxious depression followed our submission to the FDA of data from several pivotal studies, as well as other publicly available data. We look forward to examining the specific factual and legal allegations in Neuronetics' complaint and intend to mount a vigorous defense. As to the allegation that Neuronetics' effect size was manipulated by presenting an endpoint representing an incomplete course of therapy, we used the endpoint of four weeks after the start of the treatment, which is the same as Neuronetics' FDA-cleared protocol.
Um.
I hope that clarifies it well for you, Jason, there.
Yeah, that's very helpful. It does clarify a lot, so I appreciate that response. Moving on then. In terms of the, you know, the sales distribution expansion from two to three regions, how long should that process take, and in terms of when that gets fully executed? I assume we'll start to see the benefits immediately or starting in the next couple of quarters in terms of the effect on revenues.
Yeah. We started that process towards the end of last year. Fran Hackett, our previous Vice President of Sales, did an amazing job of actually developing three regions. We now have three sales directors that head up that area. That expansion is already done with the three regions. Now we're now filling in the territory sales managers into each one of those regions as part of the expansion. We also, as I talked a bit before, when I think Jeff asked the question, we, you know, enhanced our practice development consultant group as well as our field clinical engineers to continue our, you know, I would say, unrivaled support when it comes to making sure that we're enhancing customer success.
Great. Thank you very much. I'll jump back in queue.
Thanks, Jason.
Thanks, Jason.
Our next question comes from the line of Carl Byrnes with Northland Capital Markets. Please proceed with your question.
Great. Thanks for the question, and congratulations on the progress. What are your expectations with respect to gross profit margin through the balance of 2022, you know, considering the OCD placement growth, expansion of reimbursement, and also expansion of the sales force? Thanks.
Thanks, Carl. Thanks for the congrats there. Scott, you wanna take this?
Yeah. Look, I think the increasing our revenues will our gross profit should still remain sort of within the same range, Carl. Like, you know, we're gonna expand the markets, but the our gross profit should stay right where it is, right? Where it's been consistent with prior quarters.
Great. Thanks.
Doug, was that it?
Sorry, operator.
That's okay. There are no further questions in the queue. I'd like to hand the call back over to Chris von Jako for closing remarks.
I just wanna thank everybody for making the call today. I appreciate the time and effort and your continued support of BrainsWay. With that, we'll end the call.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.