Good afternoon, ladies and gentlemen, and welcome to the First Quarter of Fiscal Year 2019 Earnings Conference Call for Helius Medical Technologies. Please note that this conference is being recorded, and that the recording will be available on the company's website for replay shortly.

Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on our current expectations of management, including statements regarding the potential FDA marketing authorization of the PoNS device, the future commercialization of the PoNS treatment and expected future clinical and regulatory timelines and projected financial results.

These forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the risk factor section of our most recent annual report on Form 10-K filed with the SEC on March 14, 2019, as well as those in the 10-Q for our first quarter ended March 31, 2019, which was filed with the SEC this afternoon.

Such factors may be updated from time to time in our filings with the SEC, which are available on our website. All statements made during this call as of May 9, 2019, we undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise, except as required by law..

Thank you very much, operator, and welcome everyone to Helius Medical's First Quarter of 2019 Earnings Conference Call. I'm joined on the call today by Joyce LaViscount, our Chief Financial Officer and COO. Please let me provide you with a quick agenda of the topics that we intend to cover today.

I'll begin with a brief review of our first quarter revenue results, followed by a discussion of our recent operational progress and notable developments during the initial months of the year, and this discussion will include an update on our commercial activities in Canada and an update on our regulatory strategy in the U.S., Australia and Europe.

Following these remarks, I'll turn the call over to Joyce, who'll discuss our financial results for the first quarter ended March 31, 2019, in greater detail and review our guidance for 2019, which we reaffirmed in our earnings press release this afternoon.

Then I'll provide some additional closing thoughts on our key areas of focus for 2019 before we open it up for questions. So let's begin with a recap of our Q1 revenue performance. During the first quarter, we achieved one of the most important milestones in the history of our company.

Specifically, we began selling our PoNS device to two neuroplasticity clinics in Canada and generated $677,000 in revenue during the first quarter, marking our official transition to a commercial stage company. This exciting achievement was made possible by the impressive execution of our regulatory, commercial and operations teams in recent months.

By way of background, during the second half of 2018, our team was focused on securing regulatory clearance in the United States and Canada and implementing our strategy to begin commercializing our PoNS treatment as therapy for chronic balance deficit in patients with mild to moderate traumatic brain injury, or MMTBI.

We made important progress last fall including two notable accomplishments. First, we obtained a medical device license for -- from Health Canada, which enabled us to begin marketing our PoNS treatment to address this condition.

Second, we entered into a strategic alliance agreement with HealthTech Connex to form Heuro Canada in order to facilitate the commercialization of our PoNS treatment in Canada.

As a reminder, we believe that this agreement will allow us to effectively commercialize our PoNS treatment in Canada by ensuring that a robust company-certified clinic system is established to give access to as many Canadians sufferers as possible.

With this agreement in place, we have engaged and trained the first two PoNS-certified Canadian neuroplasticity clinics already..

Thanks, Phil. We've reported revenue of $677,000 for the first quarter of 2019 compared to no revenue in the prior year period. Our revenue in the first quarter was comprised of sales of our PoNS devices to the two neuroplasticity clinics in Canada to which we began shipping in February.

Operating expenses for the first quarter 2019 increased $2.5 million or 54% year-over-year to $7.3 million.

The change in operating expenses was primarily driven by a $2.4 million increase in selling, general and administrative expenses primarily due to increased headcount and commercial operations expenses related to our commercial infrastructure build-out.

Loss from operations for the first quarter of 2019 was $6.8 million compared to a loss from operations of $4.7 million for the prior year period..

Thank you, Joyce. We're really excited about the commercial progress that we've made during the first quarter in shipping our first PoNS devices for the treatment of patients in Canada.

We're also pleased by the strong demand we saw from the patients at the two PoNS-certified Canadian neuroplasticity clinics and by our strategic alliance with HTC to perform Heuro Canada, which has enabled us to begin commercialization in Canada quickly and cost effectively.

Overall, our commercialization in Canada is off to an encouraging start for the year, and we're reaffirming our 2019 guidance revenue guidance..

Your first question comes from Sean Lavin from BTIG..

It's Marie Thibault on for Sean Lavin tonight. Yes. I appreciate the update you've given us on the FDA, and I understand that you'd like to await more clarity before updating us on what the next steps are.

But I'm wondering if you can walk us through a couple of options that you're considering discussing with the agency and then if you have an idea when we might get a update, kind of a timing update around next steps..

Yes. So I think that we're certainly going to have a much more thorough update at our Q2 call probably early in August. The process of working through with FDA is a time-consuming one just by definition. And what we really want to do, Marie, is to make sure that we're not shooting in the dark here.

FDA offered, and we're going to take them up on every offer to make sure that we understand exactly the language in the refusal letter first. So that's the first part of the process. And then as they suggested, they'd like us to come back in and do a pre-submission meeting. And we're going to avail themselves that invitation.

And in that pre-submission meeting, basically, FDA don't direct you to do anything. So we'll be proposing plans to them based on the clarity that we'll have obtained in the first, and then we'll be proposing very specific plans that we want to seek their approval for.

And only then are we really going to proceed in establishing how much that's going to cost and the timing of being able to develop it, because it could range from doing an additional few patients with just PT alone to doing a full study. We really don't know at this point.

And so that's why, frustratingly, we can't give more information than we have right now..

Okay, understood. I appreciate that. And then it was nice to see that strong revenue result in Canada. So great job on that. I'm wondering, Joyce, if you can....

Thank you. We're excited....

Yes. I'm wondering, Joyce, if you can offer me a little more clarity on kind of how shipment timings might work.

Since I know this is new to both of us, but do you expect that centers kind of make a bulk order, treat patients and then come back after they've done a bolus of patients? Or do you think it's a continuous stream? I'm just trying to think about how to think about my model cadence for the year..

Yes. No, no, great question, Marie. So when we look at the way the clinics are ordering, they're ordering on a monthly basis. And in general, they'll order roughly a month ahead of when they are planning on treating the clinic -- treating the patients.

One of the things that we also know is that they are not going to be stocking a whole lot of inventory because we do have a supply agreement with them with payment terms. So they're not going to take in more than they can manage because there's the cash impacts of managing those expenses.

So we do believe that there's always that initial bolus of patients that came in because there was a lot strong interest in our technology. But we do expect it to be a continued flow of orders coming in going forward..

That's really helpful. I'll sneak one more in here, if I can. You've mentioned some of the OUS regulatory strategies and the submissions you've done there. I know it's looking ahead down the road.

But if you were to gain European CE mark, what would be the plan there? Would be looking at something similar to what you've done in Canada? I just like to get an early idea of how that might look..

So that's certainly a good assumption to start with. As we're just beginning in our seventh or eighth week up in Canada, we're learning. And we are beginning to understand the dynamics in Europe and Australia to be able to evaluate any of the dynamics that may be different. But that's certainly a good place to start.

And right now, the ball is in both their courts. Unlike FDA, neither of those jurisdictions give you a timeline for when they give you back. So unfortunately, your guess is as good as ours exactly when they'll get back to us.

So we're sitting there waiting but also evaluating and doing our own analysis for those markets so that we can answer the exact question that you asked..

And we're looking forward to the update on FDA. Appreciate it..

All right..

Your next question comes from Steven Lichtman from Oppenheimer..

This is Aamir filling in for Steve.

So my first question is would you guys be able to discuss a little bit more on the cost-cutting efforts you guys are making, I guess, following the FDA decision?.

Yes, sure. So following the FDA decision, we went through and looked at our organization and looked at the expenses that were focused around the U.S. commercialization. So in the first quarter, we had done some work on the market access and reimbursement.

We had done some pricing, market research and marketing materials development that were focused on the U.S. So we were forced to eliminate the resources that were working directly on those activities, and so it was the head count roughly of 30% reduction overall as well as the elimination of the operating expenses associated with that headcount.

We also looked at our -- the other part of our U.S. commercial launch would have been with the medical science liaisons and some of the work done in building some of the key opinion leaders and those activities were also shut down. So in general, we reduced 30% of our headcount. We also -- we were planning to ramp up more over the course of the year.

So that 30% is really -- is closer to 35% versus our total budget for the year. But we were in the ramp-up stage. So you'll see the impact of our expenses coming down in the future quarters, but not 30% from what the actual was in Q1..

The other perspective was we -- since we're a commercial organization, there are certain infrastructure that we absolutely need to maintain our good standing in commercialization and able to withstand any audits that Health Canada or any other regulatory authority would ask of us.

So that was certainly very large in understanding what the core infrastructure necessary for our business..

And we also -- and the last thing we did is we did reallocate the expenses that were going to be focused on the U.S. commercialization to move those and to help drive Canada forward as well..

We currently are showing no additional participants in queue. That does conclude our conference call for today. Thank you for your participation..