Earnings Call Transcript - BWAY Q4 2023

Operator, Operator

Good morning everyone. My name is Chris and I will be your conference operator today. At this time I would like to welcome everyone to BrainsWay’s Fourth Quarter and Full Year 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. Thank you. Troy Williams, Investor Relations from LifeSci Investors. You may begin.

Troy Williams, Investor Relations

Welcome to BrainsWay's fourth quarter and full year 2023 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 12 months December 31, 2023. 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 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 now like to turn the call over to Hadar. Hadar?

Hadar Levy, CEO

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 break-even operating income and positive adjusted EBITDA in the fourth quarter. I am thrilled to report that we significantly exceeded those expectations. Specifically, our revenues grew 17% in 2023, as compared to 2022. Most importantly, we generated positive quarterly net income in the fourth quarter. In Q4, we also recorded positive adjusted EBITDA and cash flow from operations for the second 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 million to $40 million. This would represent growth of 16% to 26% over full year 2023 revenue. In addition, we 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 lie ahead. I'd now like to take a few moments to articulate exactly why we are 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 emphasis 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. As our results indicate, we continue to execute well on this strategy. Recent key agreements include increased collaboration with growing mental health treatment providers based in the western region of the United States. After a series of successive orders, BrainsWay's most recent delivery brought this provider's install base to a total of seven Deep TMS systems. Moreover, our international business continued to perform extremely well. To this end, we extended the availability of our Deep TMS technology in South Korea, where the most recent delivery of systems increased the installed base in this important country to over 20 systems. In the fourth quarter, 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 install 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 budget, having added 2023 with $46.3 million in cash with no debt. 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 1.9 million lives went from four failed medication trials to two. 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 two important papers highlighting Deep TMS in future potential applications. 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 a 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 a 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 BrainsWay’s Deep TMS can potentially treat depression in older adults. Moving on, we also recently initiated the clinical evaluation of BrainsWay's exclusive patented Rotational Field TMS or Deep TMS 360 in two new feasibility trials. Deep TMS 360 employs a method of stimulation that enables activation of greater numbers of neurons in the brain than 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 360 in OCD utilizing an accelerated protocol. We believe that our Rotational Field technology holds significant potential to change the current TMS paradigm and look forward to generating clinical data from these important studies. In closing, we believe BrainsWay is in the strongest position it has ever been in. We are coming off a 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's ability 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 fourth quarter and full year 2023 financial results. Ido?

Ido Marom, CFO

Thank you, Hadar. Revenue for the fourth quarter of 2023 was $9 million, a 50% increase compared to the prior year period revenue of $6 million. On a sequential basis, revenue in the fourth quarter grew 9% as compared to the third quarter of 2023. We placed 60 Deep TMS systems in the fourth quarter. Our total installed base was 1,101 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 $31.8 million, an increase of 17% as compared to full year revenues of $27.2 million in 2022. Gross profit for the fourth quarter of 2023 was $6.7 million or a 75% gross margin. This is compared to $4.3 million or a 71% gross margin during the prior year period. Gross profit for the full year 2023 was $23.5 million or a 74% margin compared to $20 million or a 74% margin in the prior year period. Moving on to operating expenses, for the fourth quarter of 2023, sales and marketing expenses were $4 million compared to $4.8 million for the fourth quarter of 2022. Research and development expenses were $1.4 million compared to $2.2 million in the fourth quarter of 2022. General and administrative expenses for the fourth quarter of 2023 were $1.1 million compared to $1.7 million for the fourth quarter of 2022. Operating profit for the fourth quarter was $184,000 compared to an operating loss of $4.3 million for the same period in 2022. Adjusted EBITDA was $757,000, representing consecutive quarters of positive adjusted EBITDA and compared to a loss of $3.6 million for the fourth quarter of 2022. For the fourth quarter ended December 31, 2023, we recorded net income of $127,000 compared to a net loss of $3.9 million in the same period of 2022. We ended the fourth quarter with cash, cash equivalents, and short-term deposits of $46.3 million as compared to $47.9 million at December 31, 2022. However, when compared to the cash balance of $44.2 million at September 30, 2023, we achieved positive cash flow from operating activities for the second consecutive quarter during the fourth quarter. Based on our robust U.S. pipeline and continued momentum internationally for full year 2024, we expect revenue in the range of $37 million to $40 million and anticipate that our profitability momentum and positive cash generation will continue throughout the year. 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. Our first question is from Jeffrey Cohen of Ladenburg Thalmann. Please go ahead.

Jeffrey Cohen, Analyst

Hello Hadar and Ido, how are you?

Hadar Levy, CEO

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

Jeffrey Cohen, Analyst

Just a few questions from our end. 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 NDD 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?

Hadar Levy, CEO

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. 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's in some clinics. So we see more and more demands coming from those areas. We believe that we managed to sign from a strategic partnership with the right distributors internationally. And I'm expecting the momentum in those areas to grow in 2024.

Jeffrey Cohen, Analyst

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

Hadar Levy, CEO

Yes. I mentioned this in our last call as well. We are actively engaging in discussions with interested parties on a regular basis regarding potential business development and partnerships, particularly focused on the addiction and smoking addiction sectors in the U.S. There is no set timeline for a formal agreement yet, but we are making progress. We believe there is strong demand, and we are looking to find the right partner for the distribution of this product.

Jeffrey Cohen, Analyst

Okay. Got it. And then, Ido, 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?

Ido Marom, CFO

So we currently don't give guidance on EBITDA or profit, but we definitely had a very strong momentum during the second half of 2023. And as Hadar mentioned in each session we are expecting 2024 to be also positive in all of the KPIs, including EBITDA.

Jeffrey Cohen, Analyst

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

Hadar Levy, CEO

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.

Jeffrey Cohen, Analyst

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?

Hadar Levy, CEO

The U.S. market environment is quite strong, and we have achieved significant commercial wins both domestically and internationally. There is considerable demand for our service models, whether they are structured as fixed leases or pay-per-use. Our customers truly appreciate the level of service we offer, and they prefer to continue with this business model. While some customers will still opt to purchase the device, the prevailing trends are shifting towards leasing or recurring revenue models.

Jeffrey Cohen, Analyst

Okay, perfect. That’s all for us. Thanks for taking the questions.

Hadar Levy, CEO

Thank you Jeff.

Operator, Operator

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

Steven Lichtman, Analyst

Thank you. Congrats guys on the progress in the quarter. And I guess, first, a couple of questions on Deep TMS 360. 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?

Hadar Levy, CEO

So we conducted some feasibility studies before on stroke, and we saw some good results around this area because today, for rehabilitation centers, basically, that's the only technology that can really target the damaged 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 a stroke. And we do believe that by activating more neurons in the brain in a shorter time will result in better efficacy rates even from what we're seeing today. So that's why we're definitely seeing the significance in this unique technology, but also with accelerated protocol.

Steven Lichtman, Analyst

Got it, yes. And then that was the second question here. So what would an accelerated protocol look like for OCD and could that accelerated protocol also be applicable to depression?

Hadar Levy, CEO

Of course, yes, absolutely. I think there is a current trend toward moving to an accelerated protocol for both MDD and OCD. We understand that one of the barriers for TMS in the market is the time commitment required for patients to visit the clinic. By reducing the treatment from 20 daily sessions to just six days, we believe this can be significantly beneficial for both patients and providers. This is what we are currently testing in our feasibility studies for OCD and, in the future, for MDD as well.

Steven Lichtman, Analyst

Okay, great. And then maybe lastly, just in terms of the overall U.S. environment for the market, which you noted is very positive. Can you talk a little bit more about what you're seeing that gives you that confidence and 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?

Hadar Levy, CEO

Yes. So we definitely see that the market space is evolving. It's evolving and there is a greater penetration in demand by institutional and enterprise accounts, in the U.S. They want to seem like a one-stop shop that can offer a variety of treatment. It can be TMS, it can be ketamine and it can be also MET management. So there is a good adoption, specifically for a noninvasive technology like we are offering. So that's one. You said it right. We're also seeing that the market awareness around ketamine clinics is also a great opportunity for us. We do see that if a clinic is already facilitating the necessary rooms and stuff to treat patients with ketamine, they will be probably the first ones to adopt also a noninvasive 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 complete business model that helps our customers to grow. So we're not just bringing our technology, we are also bringing 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. My confidence is around the pipeline that is continuing to grow, and it's a mix between enterprise accounts, 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.

Steven Lichtman, Analyst

Great, thanks for the color Hadar.

Hadar Levy, CEO

Thank you, Steven.

Operator, Operator

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

Hadar Levy, CEO

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, 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.