BrainsWay Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 15, 2023

There are 9 speakers on the call.

Operator

Good day, and welcome to Brainsway Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the prepared remarks presentation. As a reminder, this conference is being recorded. I will now turn the conference over to Brian Ritchie.

Operator

Please go ahead.

Speaker 1

Thank you all, and welcome to Brainsway's 3rd quarter 2023 earnings conference call. With us today are Brainsway's Executive Officer, Hadar Levy and Chief Financial Officer, Ito Marom. The format for today's call will be a discussion of recent trends and business updates from RangeWay released financial results for the 3 9 months ended September 30, 2023. A copy of the press release is available on the Before I turn the call over to Hadar, 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-nineteen pandemic, the global Supply chain crisis as well as the use of non GAAP financial information. Additional information regarding these Form 20 F.

Speaker 1

I would now like to turn the call over to Hidar. Please go ahead.

Speaker 2

Thank you, Brian. Welcome, everyone, and thank you for joining us today. To begin, I would like to extend our gratitude To so many of you who have continued to reach out to us to express your concern regarding the health and safety of our employees, Given the horrible act of violence taking place in and around Israel, while no one in Israel is unaffected by the events unfolding, We remain resilient and will emerge stronger. We have encouraged our team in Israel to prioritize Their well-being, look after their physical and mental health and spend time with loved ones. As a company, We remain committed to the consistent availability and delivery of our products and services, and the impact of our current events And our operation remains limited.

Speaker 2

We are taking steps to ensure that we have enough inventory and stock on hand To continue our supply of devices on an uninterrupted basis to meet our projections and our additional contingency plan in place, should there be any need for alternative supply channel in the future. Of course, we will provide further updates if and when material events so warrant. With that, I will now discuss the strong momentum that currently exists Throughout our entire business, you will recall our goal of growing the company's 2023 top line over 2022, While targeting breakeven operating income and positive adjusted EBITDA in the 4th quarter, our plan For the achievement of these objectives, we remain on track and in some areas ahead of initial projections. We will discuss this further shortly, But we are very pleased to nearly reach Brickhaven operating income and to record positive adjusted EBITDA in the 3rd quarter, 1 quarter sooner than anticipated. We continue to optimize our existing commercial process, including enhancing Our emphasis on larger institutional and enterprise customers that are playing an increasingly important role within the industry.

Speaker 2

We remain focused on adding deep TMS technology into this expanding large mental health group or networks. As our results indicate, we are executing well on this strategy. Recent key agreements include the formation of an important partnership With a mental health clinical treatment provider with an increasingly expanding footprint in the Northeast region of the U. S. As a result of this partnership and the series of successive order, a total of 10 deep TMS systems We'll be installed by this provider in 2023 alone with the potential for additional system thereafter.

Speaker 2

In addition, our long standing partner, Catisway Plus has ordered an additional 10 DIPTMS systems, which will be more than double its existing offering. This agreement is especially gratifying again That it will support CarisawayPlus in its vital mission to provide focused care to U. S. Service members, veterans And their families. Moreover, our international business continued to perform very well.

Speaker 2

To this end, we expanded the availability of our deep TMS technology in Taiwan, where the most recent delivery of system increased the installed base This important Asia Pacific country to 16 systems. Importantly, the momentum we experienced in our business during the first half of the year Continued in the Q3 and our outlook for the Q4 is positive as well. On the top line, our 3rd quarter revenue increased 61% year over year, and we shipped a net dollar of 56 systems During the Q3, moreover, demand for OCD treatment indication continued to grow as we shipped 48 OCD coils As a add on elements to certain new and existing systems, nearly 50% of our total installed base now includes OCD treatment capability. As we said would be the case, our 3rd quarter bottom line included Meaningful benefit of the cost optimization measures we executed on earlier this year as we generated substantial improvement In operating and adjusted EBITDA results, we expect further bottom line improvement in the Q4. In addition, We continue to be supported by an extremely strong balance sheet, having ended the period with $44,200,000 in cash with no debt.

Speaker 2

Moreover, we are cash flow positive in the 3rd quarter. As our 3rd quarter results reflect, We are confident in the upward trajectory of our overall business and look forward to further progress in the 4th quarter. In order to achieve further growth, we continue to achieve significant progress in expanding the clinical and real world evidence In support of deep TMS, we recently presented 2 deep TMS posters at the World Congress of Psychiatry. The first poster highlighted the benefit of DIPTMS in the difficult to treat elderly population. The second poster focused on the positive results from a group of patients receiving an accelerated deep TMS regime.

Speaker 2

This accelerated treatment approach was also the subject of the publication of new real world post marketing data Demonstrating the efficacy of DIPTMS administered over the multiple sessions each day to allow for quicker overall treatment time for depression patients. The compelling results were published in the peer reviewed journal psychiatry research And the data suggested that outcome can be achieved with accelerated DIPKMS, which are comparable to those resulting from longer traditional These preliminary results could be leveraged to support the effort to expand current labeling for deep TMS, and we intend to further investigate the potential efficacy of accelerated deep TMS in the treatment of depression. On the commercial front, following the reprioritized allocation of our commercial investment, we have decided to seek A distribution partner for smoking cessation indication. Importantly, the data from the initial patients utilizing DPMS therapy for smoking continues to look favorable and we are beginning to gain commercial traction with this offering. In addition, the recent positive recommendation issued by the Clinical TMS Society that advocates for reimbursement related TMS for the treatment of smoking addiction is an important step toward securing insurance coverage for this indication.

Speaker 2

Moving on, Before I pass the call over to Ito for ease review of our financial results, I would like to reiterate our confidence in the Brainsway outlook For full year 2023 and beyond, for full year 2023, we continue to expect to demonstrate revenue growth Over 2022 and are now targeting positive operating income in the 4th quarter as well as positive adjusted EBITDA For the 2nd consecutive quarter, looking ahead, the market dynamic continue to show that TMS It's a large market with strong momentum and there is ample room for Brainsway to continue capturing significant market share, both in the U. S. And internationally. With that, I will now turn the call over to Ido for his review of our Q3 2023 financial results. Idar?

Speaker 3

Thank you, Adar. Revenue for the Q3 of 2023 was $8,300,000 A 61% increase compared to the prior year period revenue of $5,200,000 On a sequential basis, Revenue in the Q3 grew 6% as compared to the Q2 of 2023. We placed 56 TMS systems in the Q3. Our total installed base was 10 41 systems as of September 30, 2023, compared to 851 systems at the same point in the prior year. Gross profit for the Q3 of 2023 Was $6,200,000 or 74 percent gross margin.

Speaker 3

This is compared to $3,800,000 or 74% gross margin during the prior year period. Moving on to operating expenses. For the Q3 of 2023, sales and marketing expenses were $3,600,000 compared to $4,800,000 compared to $2,200,000 in the Q3 of 2022. General and administrative expenses For the Q3 of 2023 were $1,200,000 compared to $1,700,000 for the Q3 of 2022. Operating loss for the Q3 was $133,000 compared to an operating loss $4,900,000 for the same period in 2022.

Speaker 3

As Adao previously mentioned, Adjusted EBITDA was $337,000 representing the first time we achieved positive adjusted EBITDA compared to a loss of $4,100,000 in the same period in 2022. We expect to achieve a second consecutive quarter of positive adjusted EBITDA In the Q4. For the Q3 ended September 30, 2023, We incurred a net loss of $230,000 compared to a net loss of $5,000,000 in the same period of 2022. We ended the Q3 with cash, cash equivalents and short term deposits of $44,200,000 As compared to $47,900,000 at December 31, 2022. However, When compared to cash balance of $43,400,000 in the previous quarter, we achieved positive cash flow from operating activities in the 3rd quarter.

Speaker 3

Based on our bus pipe U. S. Pipeline and continued momentum internationally, we are confident in our positive outlook for the remainder of 2023 and into the next year. This concludes our prepared remarks. I will now ask the operator to please open up the call for questions.

Speaker 3

Operator?

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. A confirmation tone will indicate your line is in the question Our apologies. The next question is from Jayson Bedford of Raymond James. Please go ahead.

Speaker 4

Hi, good morning. My sympathies with what's occurring in your country right now. But congrats on the progress. You guys are doing a nice job of turning this business around here. Can I ask you if you could compare the selling environment in the U?

Speaker 4

S. And the international right now? And just As a bit of a tag on to that question, the international U. S. Mix in the quarter much different than in past quarters?

Speaker 2

Yes. Hi, Jason. Thank you for the question. So there is definitely an improvement In the U. S.

Speaker 2

Market, it's slowly improving and we have experienced large commercial wins recently, Both in the U. S. And internationally, we continue to see positive sign in the U. S. Marketplace Of increasing demand for the deep TMS therapy, and I'm expecting this momentum to continue.

Speaker 2

Outside the U. S, also, we managed to sign with some very impressive Agreement with distributors and the demand continue to grow. There is a very large market [SPEAKER JOSE RAFAEL FERNANDEZ:] Outside of the U. S, and just to remind you, we also have some other approved indication Then the U. S, the demand for those indications is also continued to grow.

Speaker 2

So I'm expecting Both market U. S. And international to continue to be deliver strong momentum for us. In terms of your second question, the ratio between U. S.

Speaker 2

And international continue [SPEAKER MIHAEL POLYMEROPOULOS:] To stay the same, I would say like seventy-thirty U. S. And international, that's the current ratio. In the previous quarter, I think it's similar to this quarter as well. And I'm anticipating this Q2 also go into Q4.

Speaker 4

Okay, very helpful. And then in terms of new systems, Are they largely going to existing users or are you opening up new accounts as well?

Speaker 2

So, traditionally,

Speaker 4

it goes

Speaker 2

fifty-fifty between new customers and current customers, our practice development team is doing a phenomenal job with developing the current business To be much more successful, to increase utilization and they're ready to pull the trigger and expand their practice. The other $50,000,000 is with our capital sales team that continue to push and increase the market.

Speaker 4

Okay, great. I'll get back in queue. Thank you.

Speaker 2

Thank you.

Operator

Thank you very much. The next question is from Jeff Cohen of Ladenburg Thalmann. Please go ahead.

Speaker 5

Good morning, Hadar and Ito. Can you hear us okay?

Speaker 2

Yes. Hi, Jeff. Good morning.

Speaker 3

Hi, good morning.

Speaker 5

Wonderful. Technical problems. So, few questions from our end. Could you give us a sense of the 56 placements from the quarter percent of numbers that were leased and or purchased?

Speaker 2

Yes. So actually the 56%

Speaker 3

system was the net amount. And after a few returns like we always have when customers are ending their lease agreements, Out of the net amount that we have shipped this quarter, dollars 46,000,000 were for sales for purchase deals and the rest were for leasing, again, net amount of leasing after a few returns.

Speaker 5

Okay, perfect. That's very helpful. Could you talk about the accelerated Keep TMS treatment approach a little bit as far as number of visits that have been studied, minutes On the system as far as durations and then maybe hypothesize with us a little bit about the payers and the costs And the reimbursements that may be the same or not?

Speaker 2

So this is a very preliminary results on the Accelerated TMS, it's a different treatment regime that is basically we are providing Few treatments a day, 5 treatments a day in a course of 6 days. We intend to collect the data and potentially also to [SPEAKER PIERRE YVES LESAICHERRE:] Work with the FDA on submitting a protocol for a study with the FDA in this matter. It's too early for me to share the information, but based on the data that we collected so far, The data is very favorable, very similar to the I would say to in terms of safety and efficacy to what we've seen Under Q3's protocol.

Speaker 5

Okay. Got it. So the same energy delivery just over a 6 to 8 period? Got it. Okay.

Speaker 5

And then lastly for us, any current updates on rotational fields at all? Any studies Or papers or presentations that are out there?

Speaker 2

Yes. We are planning to launch the first Multi channel system toward the end of the year. We intend to do some feasibility study With this new and impressive technology, with to investigate few Areas, some of them relates to neurology like dementia and stroke rehabilitation. Some of them relates also to psychiatry. But the current timing for launch the first system is toward the end of the year.

Speaker 5

Perfect. That does it for us. Thanks for taking the questions.

Speaker 2

Thank you, Jeff.

Operator

Thank you very much. The next question is from Steven Lichtman of Oppenheimer. Please go ahead.

Speaker 6

Hi, everyone. Good morning. This is Amir on for Steve. And I just wanted to quickly ask, You've talked about positive developments at payers with regard to lowering hurdles for MDD coverage. Can you talk about whether this has started to change customer behavior?

Speaker 6

And as a follow-up, are you seeing overall more demand as a result? Thank you.

Speaker 2

Yes. Thank you for the question. Absolutely. And this is not a trend that started yesterday. I would say in the last 18 months, we see a release from a peers To treat with TMS, there is a release On the number of antidepressant failures before you can prescribe the TMS treatment, This is definitely something that is driving utilization, and I'm expecting that it will continue To grow that from this aspect, on the other end also, I believe that on the OCD, the continuation and the increase On the OCD coverage is also could be a good driver for the adoption of the DIPTMS technology.

Speaker 6

Great. Thank you. And just quickly also moving on to international. On your international expansion efforts, Where do you see the biggest near term opportunities? And can you guys update us on your outlook for international expansion in Asia and Europe?

Speaker 6

Thank you.

Speaker 2

Yes. I think you said it right. I would say that the main Big hubs internationally are Asia Pacific. It could be Japan, China In India, we're definitely going to grow in those markets, although we also have a great success with In the Taiwan market and also in South Korea, but this is on Asia Pacific. We have a very, very good footprint and I'm I think that this important market will continue to grow.

Speaker 2

The other important market is obviously Europe. Europe there is A really strong demand. This is an I would still say it's an undeveloped Area for our technology, there is ample room for us to grow in those area. We continue to look and find The right partnership and that's where we're going to focus in 2024.

Operator

The next question is from Carl Byrnes of Northland Capital Markets.

Speaker 7

Thanks for the question and congratulations on the progress. Most of my questions have been answered, but I was wondering, given the cash flow from operations, I think it was around $1,400,000 generated in the quarter, We see that progressing in 2025 and 2006 if you can. And then also can you add a little more detail with respect to the prospects of the partnership Relating to smoking cessation.

Speaker 2

Thanks. Yes. Thank you for the question. So for your first question, we're not providing guidance. But what I can say is that, as part of our vision is To build a healthy and growing company, healthy means that, yes, we still continue to focus On growing the company, but also looking very carefully on the profitability and the bottom line results.

Speaker 2

And for your second question, so we're having active dialogue with Potentially interested parties on a consistent basis, we are looking for the right partner for the I believe that there is plenty of room for us to grow in this market and finding the right partner Can really help us to push this important indication forward.

Speaker 7

Thanks and congratulations again.

Speaker 2

Thank you so much.

Operator

Thank you very much. The next question is from Bhubaland Bhatraya of H. C. Wainwright. Please go ahead.

Speaker 8

Hi. Thanks for taking our questions and congrats on the progress. So the 3rd quarter numbers came out very strong. So Just curious, what are your expectations in terms of growth trends for the Q4 and maybe for early 2024? And what could be the underlying assumptions behind these expectations?

Speaker 8

[SPEAKER MIHAEL

Speaker 2

POLYMEROPOULOS:] So again, [SPEAKER RAMON ALVAREZ PEDROSA:] We're not providing guidance for But we do have a very strong confidence very, very strong confidence about our outlook Going forward, we definitely believe that we will be able to grow year over year And continue to build a healthy and strong profitability going forward.

Speaker 8

Okay, fair enough. Speaking of H4 coils, do you expect the sales to gain traction, Particularly in light of the clinical TMS Society's recently published post coverage recommendation or do you think you might need additional data

Speaker 2

So the H4 is Treating today is cleared for the smoking addiction. We definitely believe that We see that the demand for this coil is growing. I believe it will grow even faster with finding The right partner could be a partner that is mainly focused In addiction centers, it can be cancer centers. We are collecting very important data on some other addiction Symptoms with the H4 and potentially that could be used

Speaker 8

All right. You briefly spoke about entering European markets. So I'm just curious whether the European strategy would be any different From, say, the other international markets such as India or Taiwan? Or will it be sort of hybrid between U. S.

Speaker 8

And India and Taiwan market? Thank you.

Speaker 2

So in Europe, we are going to work we're not going to work to sell directly. We are going to Find a strong distributor that is familiar with the space. We can find more than 1 distributor. 1 distributor can be focused on the mental health and another one could be focused on some neurology. Just to remind everyone that in Europe, we have cleared for 10 indication, not only 3 like in the U.

Speaker 2

S. So we are wide and open to sell for some other indication. And I anticipate that The demand in these important countries will continue to grow.

Speaker 8

Thank you so much for taking our questions.

Speaker 2

Sure. Thank you.

Operator

Thank you very much. Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to the CEO, Haydard Levy, for some closing remarks.

Speaker 2

I would like to thank all of you, the investors, analysts And the other participants for their interest in Bransway. With that, please enjoy the rest of your day. Thank you.

Operator

Thank you very much, sir. Ladies and gentlemen, that then concludes this event and you may now disconnect your lines.

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