Earnings Call Transcript - BWAY Q4 2024

Operator, Operator

Good day, and welcome to the BrainsWay Fourth Quarter and Full Year 2024 Earnings Conference Call. All participants will be in listen-only mode. 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.

Brian Ritchie, LifeSci Advisors

Thank you all, and welcome to BrainsWay's fourth quarter and full year 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 months and full year ended December 31, 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 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. Please go ahead, Hadar.

Hadar Levy, CEO

Thank you, Brian. Welcome, everyone, and thank you for joining us today. We are excited to announce that we completed 2024 with another quarter of rapidly growing sales of our market-leading Deep TMS system. The steady rise in our performance reflects the successful execution of our strategy focused on building sales momentum and scaling our commercial distribution around the world. As you will see, these results further reinforce BrainsWay's true business and technological leadership position in the TMS field. On the top-line, we generated $11.4 million in revenue, marking a 27% year-over-year increase. Our multi-year agreement with large enterprise networks strengthened customer partnerships beyond one-time sales, ensuring alignment with their evolving needs. Additionally, our lease-based business model option continues to expand our recurring revenue base, providing a more stable foundation for long-term growth. In the fourth quarter of 2024, we shipped a total of 75 Deep TMS systems, representing a 25% increase compared with the same period last year. I think it is worth noting that combined with our growing backlog and record revenues, we have established a positive book-to-bill ratio over the past several quarters. This underscores the exceptional execution of our commercial team as we continue to partner with larger enterprise customers, those that have consistently delivered the highest return on our sales and marketing investment. We have significantly expanded our market presence, making Deep TMS accessible to more customers than ever before. To support this growth, we optimized our sales force to accelerate expansion within larger institutional and enterprise accounts in the US and internationally. Our global reach now extends across key markets, including Canada, Asia, India, and Europe. As we successfully transition into this new phase of growth, we are driving increased profitability, further setting us apart in our industry. This is reflected in our strong gross margin, which was 75% in the fourth quarter and for the full year. We generated positive quarterly net income for the fifth consecutive quarter, and positive adjusted EBITDA and cash flow from operations for the sixth consecutive quarter. Looking ahead, we are introducing full year 2025 revenue in the range of $49 million to $51 million. This would represent a growth of 20% to 24% over 2024. We also anticipate generating operating income of 3% to 4% and adjusted EBITDA of 11% to 12% for the full year 2025. We aim to further solidify our market leadership by leveraging our strong sales momentum and executing key strategic investments across three core areas: advancing our next-generation Deep TMS 360 system, conducting clinical trials to expand and enhance treatment capabilities, and strengthening our commercial presence through targeted sales and marketing initiatives. Our primary objectives are to drive market awareness, execute on our R&D roadmap and expand access to Deep TMS. We believe that these are critical as we work to further cement our role in shaping the future of mental health treatment. On the commercial front, we expect to see increased sales around OCD in 2025, as our system is the first TMS therapy approved for obsessive-compulsive disorder. OCD is a difficult-to-treat disease with limited treatment options, with a substantial potential market of roughly 400,000 patients annually who are resistant to current treatment options. As a reminder, our most recent data for this indication are very positive, with over 60% of patients responding to Deep TMS treatment. Turning to depression, doctors have been reporting an increase in anxious depression Deep TMS treatment in the US. As a reminder, this refers to the patients with major depressive disorder who also exhibit comorbid anxiety symptoms. This is a large addressable medical need that affects approximately 10 million to 60 million adults in the US each year. As a reminder, our system was the first TMS device cleared by the FDA to effectively treat this condition. We have also seen an increase in the utilization of Deep TMS to treat elderly patients with MDD in the second half of 2024. This traction in the market follows the US FDA's groundbreaking decision to raise the upper age limit from 68 to 86 years old for the indication in June 2024. As life expectancy continues to rise, many are looking for innovative therapeutic solutions to alleviate the significant burden this condition places on our aging population. This clearance made our system the first and only TMS device approved to treat elderly patients with MDD. We are also working on collecting data on Deep TMS for potential treatment for adolescent depression patients, and we'll update you all to the extent we make progress on this front as well. In September, we announced that the Israeli Ministry of Defense Rehabilitation Department granted approval for the reimbursement of Deep TMS therapy for qualifying patients in Israeli public hospitals with post-traumatic stress disorder, or PTSD. We will continue working to expand the available reimbursement for PTSD in Israel with the goal of potentially including more Israeli medical centers as well as adding private clinic settings. Another recent development on the research front was the recent publication in the Journal of Psychiatric Research showing that Deep TMS therapy, combined with psychedelic therapies, was significantly more effective in reducing depression levels among adult patients compared with standard medication alone. We believe this promising data supports additional research into the potential benefits of treating depression with a combination of Deep TMS and psychedelic therapies. Importantly, we continue to make progress in our randomized multi-center US clinical trial evaluating an accelerated treatment protocol for the Deep TMS system for MDD treatment as compared to the current standard of care Deep TMS protocol. As a reminder, the traditional Deep TMS protocol involves a four-week acute treatment phase with one session each day of the treatment. This is now being compared to an accelerated protocol, which involves a significantly shorter acute phase taking place over several treatment days. This has the potential to improve convenience and thereby make Deep TMS substantially more appealing to many prospective patients. Turning to alcohol use disorder, or AUD, we recently announced positive pilot data from a small independent third-party study conducted at Stanford University evaluating an accelerated protocol using our Deep TMS technology to treat alcohol addiction patients, which was reported in a publication in the Brain Stimulation Journal. We believe these promising preliminary results will pave the way for further research into the potential benefit of treating AUD and other addictions using Deep TMS with an accelerated protocol. This critical investment in our long-term R&D and clinical vision is supported by a strong balance sheet with no debt. As of December 31, 2024, we reported $69.4 million in cash. This includes approximately $20 million in gross proceeds received to date from our equity financing successfully completed with Valor Equity Partners. This financing will be used to support the key action items I just discussed, which are aimed at expanding our commercial footprint and supporting broader access for patients to Deep TMS. Obviously, the most important aspect of our growth strategy centers around our innovative Deep TMS system and the large enterprise customers we are focused on servicing. As a growing segment of our customer base, these enterprise accounts have been a major driver behind the larger 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 meaningful room to grow in the years to come. In closing, our team is executing our strategy on several fronts. As a result, we now stand as the clear leader in TMS therapy, uniquely positioned to expand mental health access while delivering shareholder value through transformative therapies, innovation, operational excellence, and sustainable growth. With that, I will now turn the call over to Ido for his review of our fourth quarter and full year 2024 financial results. Ido?

Ido Marom, CFO

Thank you, Hadar. Revenue for the fourth quarter of 2024 was $11.4 million, a 27% increase compared to the prior-year period revenue of $9 million. We placed 75 net Deep TMS systems in the fourth quarter. Our total installed base was 1,353 systems as of December 31, 2024, compared to 1,101 at the same point in the prior year. As a result of our strong performance in the fourth quarter, we hit the top-end of our guidance with $41 million of revenue recorded for the full year 2024. This represents a 29% increase compared to the $31.8 million reported for 2023. Gross profit for the fourth quarter of 2024 was $8.5 million or 75% gross margin. This is compared to $6.7 million during the prior-year period at the same gross margin. Gross profit for the full year 2024 was $30.6 million or 75% gross margin. This is compared to $23.5 million or 74% gross margin during 2023. Moving on to operating expenses. For the fourth quarter of 2024, sales and marketing expenses were $4.5 million compared to $4 million for the fourth quarter of 2023. For the full year 2024, sales and marketing expenses were $16.2 million compared to $16.5 million for 2023. Research and development expenses were $2 million compared to $1.4 million in the fourth quarter of 2023. R&D expenses for the full year 2024 were $7.2 million compared to $6.7 million in 2023. General and administrative expenses for the fourth quarter of 2024 were $1.6 million compared to $1.2 million for the fourth quarter of 2023. General and administrative expenses for the 12 months ended December 31, 2024, were $5.8 million compared to $5.3 million for 2023. Operating profit for the fourth quarter was approximately $430,000 compared to approximately $180,000 for the same period in 2023. Operating profit for the full year 2024 was approximately $1.4 million compared to an operating loss of $5 million for 2023. Adjusted EBITDA was $1.4 million, representing the sixth consecutive quarter of positive adjusted EBITDA compared to approximately $750,000 for the fourth quarter of 2023. For the full year 2024, we reported adjusted EBITDA of $4.5 million, which is also at the top end of our guidance, representing 11% of revenue. This is compared to an adjusted EBITDA loss of $2.4 million for 2023. For the fourth quarter ended December 31, 2024, we recorded net income of $1.5 million, including $1 million due to a positive impact from the valuation of warrants issued to Valor Equity Partners, compared to $127,000 in the same period of 2023. For the full year 2024, we recorded net income of approximately $2.9 million compared to a net loss of $4.2 million in 2023. We ended the year with cash, cash equivalents, and short-term deposits of $69.4 million on December 31, 2024, which includes the $20 million in gross proceeds received to date from the private equity investment by Valor Equity Partners announced this past September. As Hadar mentioned earlier, based on our backlog in the US pipeline and continued momentum internationally, we expect revenue in the range of $49 million to $51 million for full year 2025, which represents 20% to 24% growth over 2024 revenue. In addition, we anticipate reporting operating income of 3% to 4% of revenue and adjusted EBITDA of 11% to 12% for the full year 2025. This concludes our prepared remarks. I will now ask the operator to please open up the call for questions.

Operator, Operator

We will now begin the question-and-answer session. The first question comes from Steven Lichtman with Oppenheimer. Please go ahead.

Steven Lichtman, Analyst

Good morning, Hadar and Ido, and congratulations on the quarter and year. The 75 placements was certainly a standout. Were there particular drivers this quarter that stood out that you'd like to highlight, whether the enterprise network sales, international acceleration? So, any further color on some of the drivers in the quarter?

Hadar Levy, CEO

Yeah. Hi, Steven, and thank you for your question. As always, the fourth quarter is always the strongest quarter for the company. However, we do see some specific trends that I'm expecting to continue also in 2025. Obviously, the main driver is the enterprise accounts that are contributing significantly to our future sales; very high demand is coming from those enterprise accounts. The other two aspects of it are the increased use for the demand for the OCD, which is also the H7 Coil. We see a constant growing demand for this important indication. And I also mentioned, I think the last thing that is important also to add is the increasing utilization in our devices, both from the need from MDD, anxious depression and also treating elderly patients. All of those together have managed to increase the demand in the fourth quarter.

Steven Lichtman, Analyst

Great. You mentioned progress on the accelerated treatment protocol. What's the latest in terms of timing there when we could see data?

Hadar Levy, CEO

Yeah. So, we're in the final stages of recruitment for this very important indication. Our intention is to finish the follow-up period, which is around 30 days, and then start analyzing the data and submit it to the FDA. I do expect to come up with some news about this indication in the third quarter of 2025.

Steven Lichtman, Analyst

Got it. And then just lastly, I'll jump back in queue. On margin in 2025, can you talk to what you anticipate for gross margin this year? Thank you.

Hadar Levy, CEO

Yeah. So, we do expect the gross margin to stay at the same level as 2024, around 75%. I'm always saying there is more room for improvement on the gross margin, and we are taking the necessary steps to try and improve it, but we are expecting the gross margin for 2025 to stay at the same level as 2024, around 75%. And we also aim to keep the same profitability levels on the bottom line and the EBITDA. Thank you, Steven.

Operator, Operator

Our next question comes from Jeffrey S. Cohen with Ladenburg Thalmann. Please go ahead.

Jeffrey S. Cohen, Analyst

Good morning, Hadar and Ido, and thank you for taking our questions. Just a couple of quick questions. I wonder if you could talk about the psychedelics at current centers and newly placed centers. Are you seeing that current centers have an increasing level of psychedelic therapy as far as percentage? And what are you seeing also with new placements as far as centers out there?

Hadar Levy, CEO

Yeah. Thank you, Jeff. Good morning. What we are seeing is more and more psychedelic clinics are opening and are looking to embed the Deep TMS technology in their facilities. The main reason for that is that they already have a designated room and staff, and most of them are aiming for interventional psychiatry therapy. Some of them want to try a combination of these two treatments, but there is definitely a big demand from those centers from what I'm seeing in the market. What will be the impact going forward? I think it's hard to tell, but there is definitely room for us to grow through this channel. I see all those centers potentially offering our Deep TMS technology going forward.

Jeffrey S. Cohen, Analyst

Okay, got it. And could you talk about MDD a little bit? Are you seeing any changes in the treatment paradigm with the payers out there in the marketplace for MDD and also perhaps for OCD?

Hadar Levy, CEO

I would say that the paradigm for MDD was very positive in the last few years. They reduced the number of failures that are eligible for treatment from four failures in the past to only one or two. I do see some constant increase in some of the reimbursement per procedure. So, I think that the paradigm has been positive and I think it will stay positive as far as I see it, because at the end of the day, this is a very effective treatment that is saving money for the payers. As for OCD, we also see a very steady and slow growth in coverage by our payers. Today, we've got coverage for close to 100 million lives in the US. We need to do some more work to continue and increase this also for OCD because that's the only available and effective treatment by TMS for those patients, and I'm expecting the payers to continue to embrace this technology and to cover it in the near future.

Jeffrey S. Cohen, Analyst

Got it. And then, lastly for us, Hadar, could you talk about the 360 system? And perhaps, give us a sense of during 2025, what we may expect to hear about as far as any studies, indications, or any regulatory pathways?

Hadar Levy, CEO

Yeah. So, I think the most exciting thing for us on the clinical side with the next-gen TMS 360 is to launch the multi-center trial in the US with this specific 360 system. We believe it represents the future of the TMS segment. The first use of this device in a multi-center trial in the US will be done through this multi-center trial that we plan to launch in the second half of 2025. At the same time, we aim to launch some feasibility studies with the TMS 360 for Alzheimer's disease and Parkinson's, because we believe that this groundbreaking technology could be beneficial for these two indications, but we need to start conducting some small feasibility studies with this technology.

Jeffrey S. Cohen, Analyst

Okay. And when you talk about a back-half launch of a multi-center trial, are you referring to MDD specifically as the indication?

Hadar Levy, CEO

No. I'm referring to the AUD clinical trial in the second half of 2025.

Jeffrey S. Cohen, Analyst

Got it. Okay. Perfect. Thank you very much for taking our questions.

Hadar Levy, CEO

Thank you, Jeff.

Operator, Operator

Our next question comes from Carl Byrnes with Northland Capital Markets. Please go ahead.

Carl Byrnes, Analyst

Thanks for the question, and congratulations on the quarter. I'm just wondering, given the cash build that you have, do you see any opportunities for complementary acquisitions or anything that might be in the business development space that we should be looking for potentially in the next 12 to 18 months or less? Thanks.

Hadar Levy, CEO

Yeah. Thank you, Carl, and good morning. Yes, we do have a very stable situation with our balance sheet, but I think that 2025 is going to be a pivotal year for the company, mostly on the innovative side. We're going to do lots of interesting and compelling studies in 2025. But we're also looking to continue building our future and start planting all the right seeds for long-term growth for the company, which means to continue and strengthen our relationships and partnerships with growing and profitable enterprise accounts. Our intention is to grow organically, but also look for interesting collaborations and partnerships with growing mental health and potentially also addiction centers that can really increase our backlog for the long run. In terms of acquisitions, we are not actively looking for an acquisition on the horizon. We are always looking at some interesting technologies that could complement our Deep TMS system in the clinic, but we're also developing some new technologies that we believe could help us to bring new products to the market. So, just to summarize, we are looking to invest this money back into expanded growth for the company and enhance our collaboration with growing enterprise accounts and continue to invest in the future of the mental health and addiction arena.

Carl Byrnes, Analyst

Great. Thank you.

Hadar Levy, CEO

Thank you, Carl.

Operator, Operator

Our next question comes from Ram Selvaraju with H.C. Wainwright. Please go ahead.

Ram Selvaraju, Analyst

Thanks very much for taking my questions, and congratulations on a very solid end to 2024. Firstly, I wanted to ask if you could comment on the current broader macroeconomic and geopolitical situation? And if you expect any of this to pose any unaccustomed challenges or possible opportunities for BrainsWay as we look ahead to the rest of 2025, particularly as this pertains to pricing dynamics as well as uptake in emergent indications for the Deep TMS system?

Hadar Levy, CEO

Yeah. We don't see, as of today, any impact on the macroeconomic changes on costs. BrainsWay is a US-based company. Most of our business is in the US, and most of our team is also based in the US market. However, we do see lots of positive tailwinds to our business, specifically around some of the new indications that we're about to bring to the market that relate to the mental health industry. I do believe that the accelerated Deep TMS protocol could really mitigate some of the trends that we're seeing in the market. I do think that the PTSD treatment that has been approved for reimbursement in Israel, and we're currently seeing some favorable results may increase interest also in the macroeconomics and might potentially benefit us in the end. But for your question, the way we see some of the microeconomics, we've got lots of mitigation on the financial side and the way that we are partnering with our partners down the road, so we remain very positive on that front.

Ram Selvaraju, Analyst

Just as a follow-on to that question, I wanted to ask if you can confirm whether there has been, in fact, no impact to any governmental funding of exploratory work with the Deep TMS system. In particular, I recall that one of these initiatives was being supported by NIH funding. As we all have heard, there are cutbacks going on at NIH right now. Just wanted to confirm that this, in fact, does not affect any of the work that is being done with your system.

Hadar Levy, CEO

Yeah, that's a very good question. I'm not aware of any pushback. I think we made some kind of a publication regarding the grant from the NIH for the specific study. I would say, on the contrary, I think the funding that we announced was related to the addiction side, which is a very compelling and important disease that I believe the government and also the public want to see some progress. But as of today, there were no restrictions on any kind of funding for some of our projects.

Ram Selvaraju, Analyst

Thank you very much.

Hadar Levy, CEO

Yeah.

Operator, Operator

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

Hadar Levy, CEO

So, 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.

Operator, Operator

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