La Rosa Q4 2023 Earnings Call Transcript

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March 6, 2024

There are 6 speakers on the call.

Operator

Good morning, everyone. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to Brainsway's 4th Quarter and Full Year 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. Roy Williams, Investor Relations from LifeSci Investors, you may begin.

Speaker 1

Welcome to Brainsway's 4th quarter and full year 2023 earnings conference call. With us today are Brainsway's Chief Executive Officer, Hadar Levy and Chief Financial Officer, Ito Marrone. The format for today's call will be a discussion of recent trends and business updates from Adar, followed by a detailed discussion of the financials. Then we will open up the call for your questions. Earlier today, Brandsway released financial results for the 3 12 months December 31, 2023.

Speaker 1

A copy of the press release is available on the company's Investor Relations website. 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 questions 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 geopolitical, supply chain and other factors 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 in its other filings with the SEC, including the Risk Factors section contained in Brainsway's Form 20 F. I would like to turn the call over to Dhar. Dhar?

Speaker 2

Thank you, Troy. Welcome everyone and thank you for joining us today. I'm excited to discuss the strong momentum that currently exists throughout our entire business as well as our positive outlook for 2024. As a reminder, we previously set a goal to grow the company's 2023 top line over 2022, while targeting breakeven operating income and positive adjusted EBITDA in the 4th quarter. I'm thrilled to report that we significantly exceeded those expectations.

Speaker 2

Specifically, our revenues grew 17% in 2023 as compared to 2022. Most importantly, we generated positive quarterly net income in the Q4. In Q4, we also recorded positive adjusted EBITDA and cash flow from operations for the 2nd consecutive quarter. While we have not historically done so, based on our strong performance in 2023 and the expectation that this significant momentum will continue throughout 2024, we are providing specific top line annual financial guidance. For full year 2024, we expect revenue in the range of $37,000,000 to $40,000,000 dollars This would represent growth of 16% to 26% over full year 2023 revenue.

Speaker 2

In addition, anticipate that our profitability momentum and positive cash generation will continue throughout the remainder of 2024. As you can tell from our most recent results and expectations for 2024, we are confident in the upward trajectory of our overall business, as well as the current market dynamics and the opportunities that play ahead. I'd now like to take a few moments to articulate exactly why we're so excited and what we are doing to leverage the momentum that so clearly exists. We continue to optimize our existing commercial process, including enhancing our emphasize on larger institutional and enterprise customers that are playing an increasingly important role within the industry. We remain focused on adding our deep TMS technology into this expanding large mental health group or networks.

Speaker 2

As our results indicate, we continue to execute well on this strategy. Recent key agreement include increased collaboration with growing mental health treatment provider based in the Western region of the United States. After a series of successive orders, Brainsway's most recent delivery brought this provider installed base to a total of 7 deep TMS systems. Moreover, our international business continued to perform extremely well. To this end, we expanded the availability of our deep TMS technology in South Korea, where the most recent delivery of system increased the installed base in this important country to over 20 systems.

Speaker 2

In the Q4, revenue increased 50% year over year, and we shipped a net total of 60 systems. Moreover, demand for the OCD treatment indication continued to grow as we shipped 64 OCD coils as add on helmets to certain new and existing systems. Approximately 50% of our total installed base now includes OCD treatment capability. We expect further bottom line improvement in 2024. In addition, we continue to be supported by an extremely strong balance sheet, having ended 2023 with $46,300,000 in cash with no debt.

Speaker 2

Importantly, the commercial trends in our business continue to appear favorable. From a reimbursement standpoint, there is a growing list of payers that have reduced the patient eligibility requirements for TMS treatment. Most recently, a major private insurer in Louisiana covering 1,900,000 lives went from 4 failed medication trials to 2. In order to attain further growth, we continue to achieve significant progress in expanding the clinical and real world evidence in support of deep TMS in multiple large disease areas. Most recently, we published 2 important papers highlighting deep TMS in future potential applications.

Speaker 2

The first published in Human Neuroscience included the results from multiple trials demonstrating deep TMS as a novel therapeutic approach for Parkinson's disease. The compelling data from these studies involving a total of 220 Parkinson's disease patients showed that deep TMS treatment led to significant improvement in motor symptoms as well as meaningful impact on non motor aspects of daily living and mood symptoms. A second paper published in the Journal of Clinical Medicine highlighted deep TMS for the treatment of late life depression and included the positive result of a post marketing study of 247 older adults suffering from major depressive disorder. The result showed a 79.4% response rate and 60.3% remission rate for patients receiving at least 30 treatment sessions. While the current FDA labeling does not extend to these older patients and further analysis is needed, we are very excited about these results as they suggest that Brainsley DIPTMS can potentially treat depression in older adult patients.

Speaker 2

Moving on, we also recently initiated the clinical evaluation of BrainSway's exclusive patent rotational field TMS or deep TMS 360 in 2 new feasibility trials. DIPTMS-three sixty employs a method of stimulation that enables activation of greater numbers of neurons in the brain that currently available forms of TMS. One study will test the safety and efficacy of this technology in the field of rehabilitation following stroke. The second study will evaluate deep TMS-three sixty in OCD utilizing an accelerated protocol. We believe that our rotational film technology holds significant potential to change the current TMS paradigm and look forward to generating clinical data from these important studies.

Speaker 2

In closing, we believe Brainsway is in the strongest position it has ever been in. We're coming off very strong 2023 and are now forecasting 2024 top line growth of at least 16%. In addition, looking even further ahead, we remain focused on leading innovation within the TMS industry, increasing our confidence in Brainsway ability to continue capturing significant market share, both in the U. S. And internationally.

Speaker 2

With that, I will now turn the call over to Ido for his review of our Q4 and full year 2023 financial results. Ido?

Speaker 3

Thank you, Adar. Revenue for the Q4 of 2023 was $9,000,000 a 50% increase compared to the prior year period revenue of $6,000,000 On a sequential basis, revenue in the Q4 grew 9% as compared to the Q3 of 2023. We placed 60 deep TMS systems in the 4th quarter. Our total installed base was 1101 systems as of December 31, 2023 compared to 884 systems at the same point in the prior year. For the full 12 months of 2023, revenues were $31,800,000 an increase of 17% as compared to full year revenues of $27,200,000 in 2022.

Speaker 3

Gross profit for the Q4 of 2023 was $6,700,000 or 75 percent gross margin. This is compared to $4,300,000 or 71% gross margin during the prior year period. Gross profit for the full year 2023 was $23,500,000 or a 74% margin compared to a $20,000,000 or a 74% margin in the prior year period. Moving on to operating expenses. For the Q4 of 2023, sales and marketing expenses were $4,000,000 compared to $4,800,000 for the Q4 of 2022.

Speaker 3

Research and development expenses were $1,400,000 compared to $2,200,000 in the Q4 of 2022. General and administrative expenses for the Q4 of 2023 were $1,100,000 compared to $1,700,000 for the Q4 of 2022. Operating profit for the 4th quarter was $184,000 compared to an operating loss of $4,300,000 for the same period in 2022. Adjusted EBITDA was $757,000 representing consecutive quarters of positive adjusted EBITDA and compared to a loss of $3,600,000 for the Q4 of 2022. For the Q4 ended December 31, 2023, we recorded net income of $127,000 compared to a net loss of $3,900,000 in the same period of 2022.

Speaker 3

We ended the Q4 with cash, cash equivalents and short term deposits of $46,300,000 as compared to $47,900,000 at December 31, 2022. However, when compared to the cash balance of $44,200,000 at September 30, 2023, we achieved positive cash flow from operating activities for the 2nd consecutive quarter during the 4th quarter. Based on our robust U. S. Pipeline and continued momentum internationally, for full year 2024, we expect revenue in the range of $37,000,000 to $40,000,000 and anticipate that our profitability momentum and positive cash generation will continue throughout the year.

Speaker 3

This concludes our prepared remarks. I will now ask the operator to please open up the call for questions. Operator?

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Our first question is from Jeffrey Cohen of Ladenburg Thalmann. Please go ahead.

Speaker 4

Hello, Hidar and Ito. How are you?

Speaker 2

Very good. Thank you. Good morning, Jeff. Thank you very much.

Speaker 4

Just a few questions from Aaron. So could you talk about OUS a little bit? I know there's 20 placements in South Korea. Can you give us a sense of total placements that exist OUS? What specific types of treatments being MDD or OCD and perhaps some sense of geography and maybe some sense of how that would look for 2024 as far as growth in placements and geographies?

Speaker 2

Sure. So we believe there is a great market that is growing outside the U. S. On the international market. Our main focus today is on the Far East and Europe.

Speaker 2

Just to remind you, in Europe, we are cleared for 12 other indications. So the demand for our product is not only around the treatment of MDD and OCD or smoking addiction, but also for stroke rehabilitation and some Parkinson in some clinics. So we see more and more demands coming from those areas. We believe that we managed to sign some strategic partnership with the right distributors internationally. And I'm expecting the momentum in those areas to grow in 2024.

Speaker 4

Okay, fantastic. Can you give us an update on H4 helmet placements in U. S. Please?

Speaker 2

Yes. I think I said it also on our last call. We are having an active dialogue with potentially interested parties on a consistent basis on some business development scenario and about some partnership about the around the addiction and smoking addiction space in particular in the U. S. There is no timetable related to the establishment of a formal agreement.

Speaker 2

However, we are making progress. We feel that there is a good demand, but we do want to find the right partner for the distribution of this product.

Speaker 4

Okay, got it. And then, Ito, just a quick one for you on the cash generation and EBITDA metrics. So Q4 was about 9% adjusted EBITDA. Should we expect to see some, call it, low or mid or high single digits for 2024 on the adjusted EBITDA line as well?

Speaker 3

So we currently don't give guidance on EBITDA or profits, but we definitely had a very strong momentum during the second half of twenty twenty three. And as Lazar mentioned in his session, we are expecting 2024 to be also positive in all of the KPIs including EBITDA.

Speaker 4

Okay. And that also infers positive cash flow generation at least perhaps not for every quarter but for 2024 as a whole?

Speaker 2

That's correct. And if I can add, Jeff, I think our growth and profitability profile are unique when compared to other companies with the device space. And we are very, very proud of it. But definitely the momentum on the growth and the profitability will remain for 2024.

Speaker 4

Got it. And then lastly for us, could you just touch upon the U. S. Commercial model, what you've seen over the past 12 months as far as trends or anything of note to call out regarding selling, leasing, etcetera?

Speaker 2

So the U. S. Market environment is reasonably strong and we have experienced large commercial wins, both in the U. S. And also outside the U.

Speaker 2

S. We're seeing some great demand for our service model, recurring model, either on a fixed lease or on a pay per use. I think our customers really, really value the level of services that we provide to them and they want to stay with us with this business model. There are always going to be some customers that will ask to purchase the device, but I see that most of the trends are linked toward lease or recurring revenue business model.

Speaker 4

Okay. 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 Steve Lichtman of Oppenheimer and Co. Please go ahead.

Speaker 5

Thank you. Congrats guys on the progress in the quarter. And I guess, first, a couple of questions on DTMF360. Why do you see a stroke as a particularly attractive target for this technology? And what are the clinical endpoints you're evaluating for stroke in this initial testing?

Speaker 2

So we conducted some feasibility studies before on stroke and we saw some good results around this area because today for rehabilitation center basically that's the only technology that can really targeted the damage area, which is the brain, rather than just treating the peripheral muscles. So we have seen some significant improvement on the upper limb motors for a patient that suffered from stroke. And we do believe that by activating more neurons in the brain in a shorter time will result with a better efficacy rate even from what we're seeing today. So that's why we're definitely seeing the significant in this unique technology, but also with accelerated protocol.

Speaker 5

Got it. Yes. And then that was the second question. So what would an accelerated protocol or how might it look for OCD? And could that accelerated protocol apply to depression as well?

Speaker 2

Of course. Yes, yes, absolutely. I think overall there is a trend now for moving, going to accelerated protocol both for MDD and for OCD. We know that part of our TMS barriers in the market is the amount of time that the patient needs to show up into the clinic. So by shortened it from 20 daily sessions into only 6 days can be something that can be something very significant for the patients and also for the providers.

Speaker 2

So that's exactly what we're trying now to test in our feasibility studies in OCD and in the future also for MDD.

Speaker 5

Got it. Okay, great. And then maybe just lastly, just in terms of the overall U. S. Environment for the market, which you noted is very positive.

Speaker 5

Can you talk a little bit more about what you're seeing that gives you that confidence, whether it is the expansion of the networks. I think in the past you've talked about awareness increasing relative to Ketamine treatment. Can you talk a little bit more about sort of the market environment overall?

Speaker 2

Yes, yes. So we definitely see that the market space is evolving. It's evolving and there is a greater penetration and demand by institutional and enterprise account in the U. S. They want to seems like a one stop shop that can offer a variety of treatment.

Speaker 2

It can be TMS, it can be ketamine and it can be also med management. So there is a good adoption specifically for a non invasive technology like we are offering. So that's one. You said it right. We're also seeing that the market awareness around Ketamine clinic is also a great opportunity for us.

Speaker 2

We do see that if our clinic is already facilitating the necessary rooms and stuff to treat patients with ketamine, they will be probably the first one to adopt also a non invasive technology like deep TMS. And I think the last but not least is that, I think that we are very flexible in our business model and we're coming with a robust and a complete business model that helps our customers to grow. So we're not just bringing our technology, we also bring some additional services and support to grow their business together. So it's kind of a partnership and with that we are removing some barriers down the road. So I think all those three factors can really, really put us in a good spot for 2024 and we see the pipeline.

Speaker 2

My confidence is around the pipeline that is continue to grow and it's a mix between enterprise account, current customers of Brainsway that continue to grow with us and that's a very good sign, but also new customers that are looking to adopt this technology.

Speaker 5

Great. Thanks for the color, Hardar.

Speaker 2

Thank you, Stephen.

Operator

Thank you. Ladies and gentlemen, we have no further questions in the queue. And I would like to turn the call back to the CEO, Mr. Hadar Levy for closing remarks.

Speaker 2

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

Operator

Thank you very much, sir. Ladies and gentlemen, that concludes today's conference. You may disconnect your lines at this time and thank you for your participation.

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