Good day, and welcome to the BrainsWay Third Quarter 2024 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Brian Ritchie of LifeSci Advisors. Please go ahead.

Thank you all, and welcome to BrainsWay's third quarter 2024 earnings conference call. With us today are BrainsWay's Chief Executive Officer, Hadar Levy; and Chief Financial Officer, Ido Marom. The format for today's call will be a discussion of recent trends and business updates from Hadar followed by a detailed discussion of the financials. Then we will open up the call for your questions. Earlier today, BrainsWay released financial results for the three and nine months ended September 30, 2024. 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 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 were 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 Form 20-F. I would now like to turn the call over to Hadar. Please go ahead, Hadar.

Thank you, Brian. Welcome, everyone, and thank you for joining us today. As reported earlier this morning, we had another outstanding quarter of growth. Most importantly, global market demand for our industry-leading Deep TMS system continues to be strong and led to a year-over-year increase of 26% in revenue to $10.5 million for the third quarter of 2024. In addition, we generated positive quarterly net income for the fourth consecutive quarter and positive adjusted EBITDA and cash flow from operations for the fifth consecutive quarter. Our performance this past quarter speaks to the strength of our team and market-leading technology. However, we still see significant room for development, and we are focused on expanding our position as a leader in the industry by executing our long-term growth strategy by making key investments across three core areas, including developing our next-generation Deep TMS 360 system, conducting clinical trials to broaden and enhance treatment capabilities and extending our commercial presence through targeted sales and marketing efforts. These investments in our long-term vision are supported by a strong balance sheet with no debt. As of September 30, 2024, we reported $48.4 million in cash. In addition, subsequent to the end of the quarter, we recently completed a strategic private investment equity financing with Valor Equity Partners for approximately $20 million in gross proceeds to date before any exercise of warrants by Valor. As a result, our pro forma cash position after the contribution from this financing is currently approximately $68.4 million. I'll discuss our strategy for this investment in a moment. In terms of guidance, our outlook for the fourth quarter of 2024 remains highly positive and we are increasing our full year 2024 revenue guidance to a range of $40 million to $41 million. This would represent growth of 26% to 29% over full year 2023 revenue. Moreover, we are providing initial profitability guidance. Specifically, we anticipate generating operating income of 3% to 4% and adjusted EBITDA of 10% to 11% for the full year 2024. I'd now like to take a few moments to dive a little deeper into the key growth driver behind the momentum in our business. Starting out with a closer look at our sales team's performance in the first nine months of the year, we have shipped a net total of 177 systems, a 12% increase over the same period last year. Importantly, we offer the most advanced TMS technology platform in the market. As a result, we are constantly well positioned to work with some of the largest enterprise mental health group networks. For example, in September, we announced an order of 14 of our innovative Deep TMS systems for a large and growing enterprise network customer on the East Coast of the U.S. As a growing segment of our customer base, these enterprise accounts have been a major driver behind large and repeat orders for our Deep TMS systems over the past year. In addition, by elevating our customer base, we have seen new doors open to additional enterprise customers of the same size and caliber, if not larger. With the opportunity to achieve additional large and repeat orders from both new and existing enterprise customers, we see additional room to grow in the year to come. Another part of our growth strategy that's been successfully implemented is the expansion of our global distribution and sales network. This network is made up of distribution agreements, agent arrangements, and direct sales efforts in key territories around the world, such as in Canada, Israel, Europe, and Asia. We have seen steady demand grow across these countries and are pleased by the new opportunities we're seeing through our distribution partners. For example, last month, we announced the placement of 15 new Deep TMS systems in Taiwan and in South Korea. These systems will be used by mental health centers and are indicative of the continued commercial success we are having in the East Asian market. Looking ahead, we are always seeking additional regulatory approvals and broader reimbursement coverage in order to drive further demand for and access to our system. Under this directive, we recently announced that the Israeli Ministry of Defense Rehabilitation Department granted approval for the reimbursement of Deep TMS therapy for qualifying patients at Israeli Public Hospitals with post-traumatic stress disorder, often referred to as PTSD. We will continue working to expand the available reimbursement for PTSD within the country with the goal of potentially including more Israeli medical centers as well as adding private clinic settings. Turning to R&D. In September, we were pleased to welcome Dr. Richard Bermudes as our new Chief Medical Officer. Dr. Bermudes brings extensive experience with TMS and brain stimulation therapies as a practicing physician for over 20 years. He has been at the forefront of improving mental health through innovative care for decades. I would also like to thank Dr. Aaron Tendler, who has served as our Chief Medical Officer since 2015 and will continue to serve as a collaborator on important strategic research projects for his significant contribution to BrainsWay. Our multicenter clinical trial evaluating an accelerated treatment protocol for our Deep TMS system to treat major depressive disorder is now fully underway with enrollment progressing nicely. We believe that positive outcomes for this study, if achieved, could make Deep TMS more efficient and appealing to patients, which has the potential to further expand the possibilities for our unique therapeutic platform. Before I turn the call over to Ido, I want to say how excited we are to have recently completed the strategic $20 million equity financing with Valor. I refer to this financing as strategic because this capital better positions us to explore new markets, revenue channels, commercial partnerships, and ultimately strengthen the potential for accelerated growth of Deep TMS. We will now also have access to strategic resources of Valor Equity Partners, which has provided some of today's most exciting tech companies, including SpaceX, Tesla, Neuralink, Harmony Bioscience, and K Health with unique expertise to solve the challenges of growth and scale. In closing, our team is executing our strategy on several fronts, and we see tremendous opportunities to grow, increase profitability, and build shareholder value. However, perhaps most importantly, we are dedicated to leading our industry in providing impactful and accessible solutions for patients worldwide. With that, I will now turn the call over to Ido for his review of our third quarter 2024 financial results.

Thank you, Hadar. Revenue for the third quarter of 2024 was $10.5 million, a 26% increase compared to the prior year period revenue of $8.3 million. We placed 63 Deep TMS systems in the third quarter. Our total installed base was 1,278 systems as of September 30, 2024, compared to 1,041 systems at the same point in the prior year. Gross profit for the third quarter of 2024 was $7.7 million or a 74% gross margin. This is compared to $6.2 million or 74% gross margin during the prior year period. Moving on to operating expenses. For the third quarter of 2024, sales and marketing expenses were $4.1 million compared to $3.6 million for the third quarter of 2023. Research and development expenses were $1.8 million compared to $1.5 million in the third quarter of 2023. General and administrative expenses for the third quarter of 2024 were $1.5 million compared to $1.2 million for the third quarter of 2023. Operating profit for the third quarter was approximately $300,000 compared to an operating loss of $133,000 for the same period in 2023. Adjusted EBITDA was $1.1 million, representing the fifth consecutive quarter of positive adjusted EBITDA and compared to $344,000 for the third quarter of 2023. For the third quarter ended September 30, 2024, we recorded net income of approximately $650,000 compared to a net loss of $230,000 in the same period of 2023. We ended the third quarter with cash, cash equivalents, and short-term deposits of $48.4 million as compared to $46.3 million on December 31, 2023, and $48.1 million at June 30, 2024. As Hadar mentioned earlier, based on our backlog and U.S. pipeline and continued momentum internationally, we continue to expect revenue in the range of $40 million to $41 million for full year 2024, which represents 25% to 29% growth over 2023 revenue. In addition, we anticipate reporting positive cash flow and profitability for the full year. As part of our guidance, we expect to report operating income of 3% to 4% and adjusted EBITDA of 10% to 11% for the full year of 2024. This concludes our prepared remarks. I will now ask the operator to please open up the call for questions.

The first question comes from Steven Lichtman with Oppenheimer. Please go ahead.

Thank you. Good morning and congratulations, Hadar on first question on Valor. Can you talk about where you think you can leverage their expertise the most? What are the areas of primary focus there? Certainly, you've talked about the TMS network. I think you've also talked about the at-home market. A little bit more, if you could, on where you see their expertise playing a part?

Yes, sure. Good morning, Steven, thank you for the question. I think we feel very blessed to partner with Valor Equity Partners. I think what this fund is pretty expert in is scaling up some growth ventures and opportunities around reimbursement, around opening some additional doors to large-scale enterprise accounts. So I believe helping us to make this technology much more accessible to large enterprise accounts and helping us provide all the necessary support around reimbursement and operations could be a great help for where we are today.

Great. And it's great to see the accelerated TMS program or trial underway. How quickly do you anticipate that enrolling? And can you remind us of the follow-up period to get a sense of when we could potentially see data there?

Yes. So this is more likely a 2025 clearance that we are hoping to receive from the FDA. We are hoping to complete the recruitment sometimes in Q1 2025 and the submission will probably take some additional months. So we're expecting to finalize everything somewhere in the second or the third quarter of 2025.

Got it. And then lastly, just on the P&L. Obviously, the gross margin continues to afford you flexibility on the OpEx side. I appreciate the guidance for the year now. How are you thinking about balancing investment versus drop-through looking forward? What opportunities do you see maybe to reinvest on the OpEx side, again, given the firm gross margin that you have?

We have numerous plans to incorporate into the operating expense budget for 2025, while also aiming to achieve positive EBITDA for that year. We will continue to invest in research and development as well as in clinical initiatives to foster the company's long-term growth. Our focus will primarily be on sales and marketing, all while maintaining a healthy gross margin consistently, similar to what we achieved in 2024.

Okay, got it. Thanks, Hadar.

Sure. Thank you, Steven.

Thank you. The next question comes from Jeff Cohen with Ladenburg Thalmann & Company. Please go ahead.

Hi. Good morning, Hadar and Ido. Thanks for taking our questions. A couple for Marom. I guess, firstly, could you talk about year-to-date units placed, which is tracking a fair amount better than our estimate and talk about leased versus sold and what trends you're seeing there and maybe how that looks for 2025? And also, could you mention coil helmets or coil helmets as a percent of fleet? Thank you.

Yes. Ido, do you want to maybe just start with an overview about the lease versus sales trends and number of units? I will complete the picture.

Yes, sure. So in terms of the revenue in our books for this current quarter, we had more or less a ratio of 60-40 towards the capital sales, but this was in terms of revenue recognition due to orders that we already received in the past. In terms of new sales, new bookings, which actually create our backlog for the future, we see kind of an increase towards the lease agreements versus the sales. So the ratio is actually more or less the opposite of the revenue recognition in the books currently around the 60-40 to the lease versus the capital. What was another question that I forgot?

Yes, I will also provide the details on the number of units. In Q3, we shipped 63 systems, which is a significant increase from the previous quarter. Additionally, we placed 87 coils in Q3.

Okay. That's super helpful. Thanks for that. And then I guess, secondly, could you talk a little bit about some of these expanded territories? Remind us what existed prior to the 15 systems in Taiwan and South Korea as well as any specific commentary regarding APAC and also LatAm. Thank you.

Yes. We are currently not working in LatAm. I think the most growing market for us as of today is Asia Pacific and Europe. We continue to sign on new distribution agreements. I think the most appealing ones are the ones in India, Taiwan, South Korea, and Japan. Japan could also be a very promising market, and we hope to see some of the benefits from it most in 2025. In Europe, we continue to see some very good demand and growing demand for our products, both in the mental health arena and also in neurology and rehabilitation centers. We continue to look for the right distribution channels, and we believe this is the best way for us to expand our growth in those growing markets.

Thanks. That's helpful. And just a quick one for you, Ido, if you could. Q3 share count and pro forma share count, any commentary there?

Again, can you repeat the question?

Share count for Q3 and pro forma.

It was very hard to hear you, so I apologize for that. Hadar, can you hear and maybe repeat for me?

I think we had a share count of 34.2 million. Any comment on that?

34.2 million shares. Ido, it was 34.2 million shares. Jeff, are you asking about the pro forma count?

Yes, if you have so.

Yes. The numbers are the same. It's the 33 million to 34 million. I can check the exact number. We will see a change in Q4, but no change that we had in Q3 about that. But I can check again and get back to you on that.

Okay, perfect. Thanks for taking our questions.

Sure.

The next question comes from Ram with HC Wainwright. Please go ahead.

Good morning. This is Dan on for Ram. Thanks for taking our questions and congratulations on the earnings Deep. We wanted to ask, do you expect to see any disruption to your Israeli business from geopolitical risk? And where do you see the principal drivers of growth coming from in 2025? And I'd like to ask a follow-up, if I could.

Yes, sure. So we don't see any disruption currently coming from Israel. We've got a continuity plan in Israel in terms of production, and we have enough production and enough systems to support the market for the next six months. But we're also exploring moving some of the operations outside of Israel. But currently, there is no disruption at all. For your second question in terms of the 2025 growth, I think the main growth will continue to derive from focusing on repeat sales business, repeat customers, focusing on enterprise accounts that potentially can sign with us on some strategic partnership and significant deals and the potential growth of the international business. I think all those three factors will continue to drive the growth of the revenue for the company.

Thank you. That makes sense. And what additional clinical indications do you expect to assess with Deep TMS going forward? Is there any specific areas or indications of interest? Thank you.

We are seeking FDA approval for a new protocol of accelerated TMS, which we aim to achieve in 2025. Additionally, we are working on expanding labeling for adolescents who are suffering from major depression and PTSD, and we are currently gathering data for submission to the FDA. In the long term, we plan to initiate a multicenter trial focused on addiction for alcohol use disorder, and we are also exploring other neurology trials, potentially including pain management or Alzheimer's, though these discussions are still ongoing.

Thank you. I appreciate the answers. Congratulations again.

Thank you so much.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Hadar Levy for any closing remarks.

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.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.