Q2 2023 BrainsWay Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the brain's way second quarter 2023.
Earnings Conference call at this time all lines are in a listen only mode.
During the presentation, we will conduct a question and answer session.
If at any time during this call you require immediate assistance. Please press star zero for the operator.
This call is being recorded on Wednesday August nine 2023.
I would now like to turn the conference over to Brian Ritchie with Lifesize. Please go ahead Sir.
Thank you.
And welcome to <unk> second quarter 2023 earnings conference call with US today, our brains waste Chief Executive Officer, Dr Levy, and Chief Financial Officer <unk> <unk>.
Mac for today's call will be a discussion of recent trends and business updates from Dr. Followed by a detailed discussion of the financials. Then we will open up the call for your questions.
Earlier today <unk> released financial results for the three and six months ended June 32023.
A copy of the press release is available on the company's Investor Relations website.
Before I turn the call over to <unk> 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 range, where its anticipated future operating and financial performance business plans and <unk>.
Prospects and expectations for its products and pipeline, which are all subject to risks and uncertainties, including shifting market conditions, resulting from the COVID-19 pandemic the global supply chain crisis 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 its other filings with the SEC, including the risk factors section.
<unk> in <unk> form 20-F, I would now like to turn the call over to Hadar.
Thank you, Brian and welcome everyone and thank you for joining us today and please.
To report.
Efforts towards implementing key initiatives aimed at growing the company's top line over the 2022.
While targeting breakeven operating income and positive adjusted EBITDA in the fourth quarter are progressing extremely well.
We remain focused on optimizing our existing commercial process, including enhancing our emphasize on larger institutional and enterprise customers that are playing an increasingly important role within the industry.
As a reminder, our goal is to our deep Tms technology into this expanding large mental health group all network.
The recent order of 30, new deep Tms systems by a large growing Tms network of clinics is it indicative of our execution of this strategy.
Moreover, our international business continued to perform well.
Most recently in India. Following a series of successive multi system order Usher neuromodulation clinics and its affiliate will own 25 deep Tms system.
The world's most populous country.
India represents a key international market <unk>.
Importantly, the resumed momentum we saw in our business during the first quarter.
<unk> in the second quarter and our outlook for the second half of this year is positive as well.
On the top line, our second quarter revenues increased 18% sequentially as compared to the first quarter of 2023, and we shipped a net total of 53 systems during the second quarter.
Moreover, demand for OCD treatment indications continues to grow as we shipped 34, OCD coils as add on elements to certain new and existing systems.
Nearly 50% of our total installed base now includes OCD treatment capability.
Our second quarter bottom line included some of the benefits of the cost optimization measures we executed on earlier this year.
We achieved significant improvement in operating and adjusted EBITDA results were.
We expect this improvement will become even more apparent in the second half of this year.
In addition, we continue to be supported by an extremely strong balance sheet, having ended the first half of the year with 40 $43 4 million in.
And cash and with no debt.
As our second quarter results indicate we are confident that our business is trending in the right direction and we look forward to further progress in the second half of this year.
Moving on to R&D, you will recall that we launched an investigator initiated study program earlier. This year that is designed to support further research on deep Tms by the clinical research community through data collaboration and equipment loan initiatives.
The program will aid investigator interested in advancing current knowledge about deep Tms.
We received over 30 applications through the July three deadline.
And our research Committee is currently evaluating each one.
We intend to accept 10 candidates to further advance this original research and will update you on the areas selected for additional work in the coming months.
On the reimbursement front Aetna now allows tms treatment to be ordered and administered under the supervision of behavioral health nurse practitioners for patients with MTT and has removed. The previously required four months psychotherapy trial before patients become eligible to receive an initial.
Cost of treatment with Dms.
These policy changes impact nationwide commercial plans covering $16 8 million covered lives.
Additionally, Blue Cross Blue Shield of Michigan recently issued their health care policy updates, reducing the number of funded the percent medications attempt.
Fall down to two priority Tms treatment eligibility.
We also continue to build clinical evidence in support of deep Tms most.
Most recently, we had three papers published highlighting deep Tms in multiple leading peer reviewed.
Medical journals.
The papers, one published in brain stimulation and the other in the journal clinical play country underscored the favorable safety profile of deep Tms.
The third paper published and brain Sciences. This comprehensive review of existing evidence of the use of Tms in addressing multiple addiction, including our existing indication of smoking addiction as well as other potential areas requiring more research such as alcohol use disorder.
Finally, I would like to welcome <unk> <unk>.
Simply joined as CFO and significantly strength.
<unk> strengthened our management team.
He is an experienced senior financial leader in global industries, including medical technology, We look forward to a significant contribution as we continue to grow our business as a global leader in CNS industry.
Before we review our financial results I would like to reiterate our confidence in Greenfields outlook for full year 2023.
A reminder, we continue to expect to demonstrate revenue growth over 2022.
Targeting breakeven operating income and positive adjusted EBITDA in the fourth quarter.
The market dynamic continues to show the Tms is a large market with strong momentum and there is ample room for <unk> to capture meaningful market share both in the U S and internationally.
With that I will now turn the call over to Don for his review of our second quarter of 2023 financial results.
Thank you very much for the warm welcome a dar im.
I'm thrilled to be here at such an exciting time for <unk> and look forward to interacting with our investors and analysts very soon.
With that I will review our financial results.
Revenue for the second quarter of 2023 was $7 8 million.
A 2% decrease compared to the prior year period revenue of $8 million. However, on a sequential basis revenue in the second quarter grew over 18% compared to the first quarter of 2023.
As expected total revenue in the second quarter was impacted by the inability to recognize approximately $1 million of lease revenue due to the financial condition of one of our customers.
As previously discussed we anticipate that this customer's financial condition will impact our recurring revenue throughout 2023.
Over the momentum previously discussed in both the U S and internationally was not impacted by this customer.
We placed 53 deep Tms systems in the second quarter with particularly strong performance in the U S. Our total installed base was 985 systems as of June 32023, compared to 829 system at June 32022.
Gross profit for the second quarter of 2023 was $5 7 million or 17, 73% gross margin.
This is compared to $5 8 million or 73% gross margin during the prior year period.
Yes.
Moving onto operating expenses for.
For the second quarter of 2023 sales and marketing expenses were $4 million.
Compared to $4 $6 million for the second quarter of 2022.
Research and development expenses were $1 $9 million compared to $1 $7 million in the second quarter of 2022.
General and administrative expenses for the second quarter of 2023.
Our $1 2 million.
Compared to $5 million for the second quarter of 2022.
With respect to <unk>.
For the second half of 2023, we expect costs to continue to decrease as compared to 2022.
As <unk> previously mentioned, we are strategically re prioritizing our investment in our commercial and research research activities.
Operating loss for the second quarter was $1 3 million.
Compared to an operating loss of $2 million for the same period in 2022.
Adjusted EBITDA for the second quarter of 2023 improved to a loss of only zero point $6 million compared to a loss of $1 2 million for the second quarter of 2022.
For the second quarter ended June 32020, 'twenty, three we incurred a net loss of $1 7 million compared to a net loss of $2 5 million in the same period of 2022.
Yes.
Moving to the balance sheet, we ended the second quarter with cash cash equivalents and short term deposits.
$43 4 million as compared to $47 9 million at December 31, 2022.
In addition, we see an improvement in our cash burn rate in Q2 compared to the previous quarter with only 0.9 million our cash burn in Q2 versus $3 $5 million in the previous quarter.
Based on our robust U S pipeline and continued momentum internationally, we are confident in our positive outlook for the remainder of 2023.
This concludes our prepared remarks I will now ask the operator to please open up the call for questions operator.
Thank you, ladies and gentlemen, we will now conduct a question and answer session.
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Thanks, Amit.
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Yes.
The first question in the queue comes from Jeffrey Cohen.
With Lindbergh Thalmann. Your line is open. Please proceed.
Alright in the door and you know how are you.
Alright, good Jeff good to hear you Hey, Jeff Nice to meet you. Thank you.
Thanks again for hosting.
So over the last months much appreciated a few questions from our side so.
First of all you talked about the U S account with a I think it was 30 plus.
<unk> could you give us a sense of where the economy is geographically and what might be the timing of installs.
Installs and training.
Yes. So first first of all that was a big a big win for the company.
But these are showing great confidence in the value of the deep Tms set technology.
This is a very large Tms network with nearly 20 clinics across six states in the western and Central U S.
As for your second question.
So they place an order for 30 deep Tms system.
Has been deliver.
<unk> delivered and we will get installed in the upcoming months.
Got it Okay, and then could you jump over to India for a moment as far as the B.
The order there what's in India today.
And when might this order also be placed and trained as far as targeting.
Yes sure sure. So India is again this is another great example.
For.
Our very nice progress on the international market and India represent a huge market opportunity for us.
This specific.
Hospital Arsenal Neuromodulation that clinic and its affiliate.
Purchased from US 25 systems.
In.
In a few.
<unk> some of them are already placed and some of them will be place.
Toward the end of this year.
Overall the total.
System placed in India.
Is currently 35 system and this market has continued to grow.
Okay got it and then.
Peter on the financial side could you just give us a sense you talked about.
A reduction of some of the costs in the back half of the year off with Q2, which has already reduced from.
Q1, and most of last year.
Is there a sense that youre able to do as much and continue to grow our swiftly with the current level of spend.
Yes, so as you can see if you compare the second quarter to the first we managed to reduce significantly our operating costs from $8 5 million to $7 million and on the other end, we actually increased our revenue from six 6% to seven eight so we actually as far as I see that are not right now in the right <unk>.
<unk> for the company and we still also are claiming to improve even better but the reduction in cost didn't impact our revenue actually the opposite we managed to increase the revenue and we are now in a much better operating structure that we had before.
Okay got it and then lastly for us.
Hi, Dara any discussion or any recent news about mulch.
Multichannel studies as far as studies ongoing publications or any data that we'll see for the balance of 'twenty three.
Yes, we are in the process.
Assembling.
<unk>.
Multichannel.
Our plan is to.
Launch some.
Feasibility study.
Studies towards the end of the year, it's too soon now to our show.
The specific information, but once we've gone to.
Some more interesting.
<unk>.
<unk>.
Clinical evidence that we are trying to.
To develop here, so we're going to share with.
All of the investors, but the plan is to launch the multi center.
The multichannel system toward the end of the year.
Got it okay that goes across thanks for taking our questions. Thank you Jeff. Thank you.
Thank you and the next question comes from Jayson Bedford with Raymond James. Please proceed.
Good morning, and congrats on the progress here just a few questions I guess, maybe just following up on the last one.
Mentioned.
Large orders for 30 systems in the West Central U S 25 in India, how many of those were recognized in <unk>.
So.
Roughly around.
30 system has been recognized in Q2.
Okay and then.
When you look at.
Deep Tms systems in the U S. I'm, just wondering what percent roughly are new systems sold.
So two new adopters versus existing users and are you seeing.
I'm just wondering if this is changing in any way or are you seeing new folks come on in adoptive therapy.
Yeah, absolutely I would say that I think at the moment, we're still keeping some good momentum with both current customers again that we're putting lots of focus and efforts to increase our partnership with our existing customers.
<unk>.
The recent.
Our growth, but we announced both in the U S and in international of our current customers. So that means that our strategy on focusing on.
This strategic customers.
It is really benefiting us.
We're also focusing on new customers.
There is ample of room for us to grow I would say the balance is roughly around 50 50.
Between these two.
So we are also focusing on new customers, but mainly focusing on large and current customers.
We are working with us very closely.
Okay.
And then just looking at kind of the ratio.
Deep Tms system shift versus OCD coils.
The bigger Delta this quarter between the two is that just reflective of more international where international maybe less likely to adopt OCD.
Wondering that the mix of deep Tms versus LCD in the quarter.
I think most of the adoption for the for the OCD coil is mainly due to the.
Favorable reimbursement in the U S.
And so we do see and I'm expecting to.
To continue to drive some very nice and positive demand for the OCD.
<unk> tried to think about.
The mix between international and the U S always I think that.
Most of the U S customers.
<unk>.
<unk> will demand.
The OCD coils.
Okay and then.
Appears that this is the case, but I just wanted to confirm the pricing seems pretty stable out there or is that a fair.
A fair assumption.
Yes, yes, I believe that.
Customers are really.
Volume our value proposition, our differentiation in the market and the pricing is still staying very <unk>.
Very steady state the same as the gross margin.
Okay. Thank you.
Thank you Jason.
Thank you and the next question comes from Steve Lichtman with Oppenheimer. Your line is open. Please proceed.
Thank you, hi, Dara and congratulation veto.
Wanted to ask on international So you obviously had success and placement in India can you talk more broadly about.
The opportunity ahead for you guys internationally, where you're focused.
And what percent of of the business was international as you look back in the second quarter.
Yeah. Thank you. Thank you for the question.
So on.
On international the international market is growing I believe that we do intend to grow spin.
Specifically net.
Asia.
In multiple countries.
But also in Europe , that's going to be our main.
Our main focus.
The international business is growing is growing.
And I do anticipate in terms of the number of.
Of shipment to the international I believe the ratio will be around.
AED, 2% to 20% between domestic and international.
Okay got it and then I guess.
In connection with that how should we be thinking about the gross margin outlook.
And to the back half of the year and looking to <unk> to 'twenty four do you see.
There's stability there or should we be thinking about a little bit of a tempering with some increasing international sales.
So.
Im not sure what what are trying to ask our gross margin right now is we.
We see it very stabilized towards the end of the year and with our expected the pipeline and revenue.
We are aiming to keep the same gross margin numbers until the end of the year now of course, increasing the volume of their revenue.
Can you help us by increasing the gross margin, but on the other end the margin of course that we have internationally is a little bit lower than what we see in the U S market.
Overall, Steve the gross margin impact from two main factors one is the ratio between international and domestic and the other one.
It is about direct purchase versus lease.
So I believe that we have.
The right mix and based on our projection I do believe that the gross margin will stay pretty stabilized.
Where is it today.
Okay.
Some offsetting factors and keep it stable okay.
That's helpful.
And then just on the sales force in the U S. I think you talked last quarter about some sales changes.
Is there anything else.
Underway. There is there is some stability now after those changes on the U S.
Sales force.
Yeah, definitely I think that.
We have the right team in place.
Extremely focused and motivated.
Selling this product.
<unk>.
And I see it on a daily basis I think the overall pipeline is growing we're gaining some very good.
Very good momentum.
And if we're going to see a discontinued too often.
We even.
Open to to increase the number of ourselves differently. There is a very good momentum.
Gentlemen, the market very good demand.
Very stable and promising pie.
Pipeline and.
I am very optimistic.
Great. Thanks, so much.
Yes.
And ladies and gentlemen, as a reminder, should you have a question. Please press star one on your Touchtone phone.
And the next question in the queue comes from.
With H C. Wainwright. Please proceed.
Hi, Good morning, Tim and thanks for taking our questions.
So a few from us firstly as you compare the adverse event profile for pre coils.
The paper that you just published recently so I was wondering if you gleaned any new information that might give to DPM is a competitive edge over standard Tms involving figured all paid claims.
No I believe I believe you know at the forefront of.
Tms manufactures.
There are many many publications.
And from from data that we're collecting I think those were specifically around the safety, we believe and we know that this treatment is.
His very very safe and.
And we're very proud of this publication, but no there is no really big.
Big News.
As compared to a traditional theater.
Okay.
And then I was.
Was hoping to get additional clarity about the customer who purchased 30 deep Tms systems.
So maybe on a high level can you provide maybe some clarity on.
The customers' familiarity with deep Tms and then the volume of the business and that presents for each one of US is H seven doing routine practice.
Yes.
This customer is.
You opened is gate.
In the early 2000.
And if it's a mental health facility that is focusing their main focus is on.
He is on a Tms and ketamine.
This is is walking.
Very closely with bringing through along the years.
His main focus is.
<unk> is in psychiatry, the soldier, both mbd unexciting PTSD.
<unk>.
And also <unk>.
<unk> is definitely a huge interest in our 87 coil for OCD as well as the H one for <unk>.
Alright, Thanks, a lot thats it from them.
Thank you.
There are no further questions in the queue at this time I will turn the call back over to her dark for any closing remarks.
I would like to thank all of the investors analysts and other participants for their interest and brain flee with US. Please enjoy the rest of your day. Thank you.
Thank you ladies and gentlemen. This concludes your teleconference. Please disconnect your lines.