Q3 2024 BrainsWay Ltd Earnings Call
Speaker Change: Good day and welcome to the Brainsway 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2.
Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Brian Ritchie of LifeSci Advisors. Please go ahead.
Brian Ritchie: 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,
Brian Ritchie: 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.
Brian Ritchie: Earlier today, Brainsway released financial results for the three- and nine-month-ended September 30, 2024.
Brian Ritchie: A copy of the press release is available on the company's investor relations website.
Speaker Change: Before I turn the call over to Hadar, I would like to remind you
that this conference call
Speaker Change: including both management's prepared remarks and the question and answer session.
may contain projections.
Speaker Change: or other forward-looking statements regarding, among other topics, Brainsway's anticipated future operating and financial performance, business plans and prospects, and expectations towards products and pipelines, which were all subject to risks and uncertainties.
Speaker Change: including shifting market conditions resulting from geopolitical, supply chain, and other factors, as well as the use of non-GAAP financial information.
Speaker Change: 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 Brains Race Form 20-F.
Speaker Change: I would now like to turn the call over to Hadar. Please go ahead, Hadar.
Hadar Levy: Thank you, Brian. Welcome, everyone, and thank you for joining us today.
Hadar Levy: As reported earlier this morning, we had another outstanding quarter of growth.
Hadar Levy: 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.
Hadar Levy: 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.
Hadar Levy: Our performance this past quarter speaks to the strength of our team and market-leading technology.
Hadar Levy: However, we still see significant room for development and we are focused.
Hadar Levy: 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 DeepTMS 360 system.
Hadar Levy: conducting clinical trial to broaden and enhance treatment capabilities and extending our commercial presence for targeted sales and marketing efforts.
Hadar Levy: These investments in our long-term vision are supported by a strong balance sheet with no debt.
Hadar Levy: As of September 30, 2024, we reported $48.4 million in cash.
Hadar Levy: 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.
Hadar Levy: 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.
Hadar Levy: 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 to 41 million dollars.
Hadar Levy: This would represent growth of 26% to 29% over 4-year 2023 revenue.
Moreover, we are providing initial profitability guidance.
Hadar Levy: Specifically, we anticipate generating operating income of 3-4% and adjusted EBITDA of 10-11% for the full year 2024.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Importantly, we offer the most advanced TMS technology platform in the market. As a result, we are consistently well-positioned to work with some of the largest enterprise mental health groups and networks.
Speaker Change: For example, in September, we announced an order of 14 of our innovative TIP-TMS systems.
Speaker Change: for large and growing enterprise network customer on the east coast of the U.S.
Speaker Change: 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.
Speaker Change: 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 years to come.
Speaker Change: Another part of our growth strategy that has been successfully implemented in the extension of global distribution and sales network.
Speaker Change: This network is made up of distribution agreement, agent arrangement, and direct sales efforts in key territories around the world, such as in Canada, Israel, Europe, and Asia.
Speaker Change: We have seen steady demand grow across these countries and are pleased by the new opportunities we are seeing through our distribution partners. For example, last month we announced the placement of 15 new DIPTI-MS systems in Taiwan and in South Korea.
Speaker Change: These systems will be used by mental health centers and are indicative of the continued commercial success we are having in the East Asia market.
Speaker Change: Looking ahead, we are always seeking additional regulatory approvals and no broadened reimbursement coverage in order to drive further demand for and access to our system.
Speaker Change: Under this directive, we recently announced that the Israeli Ministry of Defense Rehabilitation Department
Speaker Change: granted approval for the reimbursement of DIPTMS therapy for qualifying patient
Speaker Change: at the Israeli Public Hospital with Post-Traumatic Stress Disorder, often referred to as PTSD.
Speaker Change: 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.
Speaker Change: Turning to R&D in September, we're pleased to welcome Dr. Richard Bermudez as our new chief medical officer.
Speaker Change: Dr. Bermudez brings extensive experience with TMS and brain stimulation therapies.
as a practicing physician for over 20 years.
Speaker Change: He has been the forefront of improving mental health through innovative care for day kids.
Speaker Change: 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 a significant contribution to brain sway.
Speaker Change: Our Multi-Center Clinical Trial, Evaluating an Accelerated Treatment Protocol for a Deep TMS System to Treat Major Depressive Disorders, is now fully underway, with enrollment progressing nicely.
Speaker Change: We believe that positive outcomes for this study, if achieved, could make DeepTMS more efficient and appealing to patients, which has the potential to further expand the possibilities for a unique therapeutic platform.
Speaker Change: 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.
Ido Marom: I refer to this financing as strategic, because this capital better position us to explore new markets, revenue channels, commercial partnerships.
We will now also have access.
to strategic resources of VALOR equity partners.
Ido Marom: which has provided some of today's most exciting tech companies including SpaceX, Tesla, Neuralink, Harmony Biosense and K-Health with unique expertise to solve the challenges of growth and scale.
Ido Marom: In closing, our team is executing our strategy on several fronts.
Ido Marom: and we see tremendous opportunities to grow, increase profitability, and build shareholder value.
Ido Marom: However, perhaps most importantly, we are dedicated to leading our industry in providing impactful and accessible solutions for patients worldwide.
Ido Marom: With that, I will now turn the call over to Ido for his review of our third quarter 2024 financial results. Ido?
Thank you, Adar.
Ido Marom: 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.
Ido Marom: We placed 63 DEEP TMS systems in the third quarter. Our total install base was 1,278 systems as of September 30, 2024, compared to 1,041 systems at the same point in the prior year.
Ido Marom: Gross profit for the third quarter of 2024 was $7.7 million, or a 74% gross margin.
Ido Marom: This is compared to $6.2 million or 74% gross margin during the prior year period.
Moving on to operating expenses.
Ido Marom: 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.
Ido Marom: Research and development expenses were 1.8 million dollars compared to 1.5 million dollars in the third quarter of 2023.
Ido Marom: General and administrative expenses for the third quarter of 2024 were $1.5 billion compared to $1.2 million for the third quarter of 2023.
Ido Marom: Operating profit for the third quarter was approximately $300,000 compared to an operating loss of $133,000 for the same period in 2023.
Ido Marom: 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.
Ido Marom: For the third quarter ended September 30th, 2024, we recorded net income of approximately $650,000 compared to a net loss of $230,000 in the same period of 2023.
Ido Marom: We end the third quarter with cash, cash equivalents and short-term deposits of $48.4 million.
Ido Marom: Let's compare to $46.3 million on December 31, 2023 and $48.1 million on June 30, 2024.
Speaker Change: As Adar mentioned earlier, based on our backlog and U.S. pipeline and continued momentum internationally, we continue to expect revenue in the range of $40 to $41 million for full year 2024, which represents 25% to 29% growth over 2023 revenue.
Speaker Change: In addition, we anticipate reporting positive cash flow and profitability for the full year.
Speaker Change: As part of our guidance, we expect to report operating income of 3-4% and adjusted EBITDA of 10-11% for the full year of 2024.
Speaker Change: This concludes our prepared remarks. I will now ask the operator to please open up the call for questions.
Operator.
Speaker Change: Certainly, sir. We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.
Thank you. Thank you. Thank you.
The first question comes from...
Steven Lichtman with Oppenheimer please go ahead
Speaker Change: Thank you. Good morning and congratulations, Hadar and Ido. Hadar, first question on Valor. Can you talk about where you think you can leverage their expertise the most?
Speaker Change: 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.
Speaker Change: Good morning, Stephen, and thank you for the question. I think we feel very blessed to partner with Valor Equity Partners.
fund is pretty expert is to scaling up
could be a great help for where we are today.
Speaker Change: Great. And it's great to see the accelerated TMS program or trial underway.
Speaker Change: How quickly do you anticipate that enrolling, and can you remind us the follow-up period to get a sense of when we could potentially see data there?
Ido Marom
Speaker Change: clearance that we are hoping to receive from from the FDA
We are hoping to complete
Speaker Change: Lastly, just on the P&L, obviously the gross margin continues to afford you flexibility.
Speaker Change: on the OPEX side, 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.
Speaker Change: You know, we have lots of plans also to embed into the
Speaker Change: OPEC in 2025, but we are also looking to balance it with targeting positive Ibida for 2025 as well. So thank you for listening and for joining me.
Speaker Change: to build the long-term growth of the company, but most important, on the sales and marketing, while keeping the gross margin very healthy in a consistent manner, similar to what we've seen in 2024.
Okay, got it. Thanks, Idar.
Sure, thank you Stefan.
Thank you.
Speaker Change: The next question comes from Jeffrey Cohen with Leidenberg, Thalmann & Co. Please go ahead.
Speaker Change: Hi, good morning. Hadar and Ido, thanks for taking our questions.
Speaker Change: A couple from Erwin. I guess firstly could you talk about year-to-date units placed which is tracking a fair amount better than our estimated talk about
Speaker Change: leased versus sold and what trends you're seeing there and maybe how that looks for for 2025 and also could you mention Quill Helmets or Quill Helmets as a percent of fleet. Thank you.
Speaker Change: Ido, do you want to maybe just start give an overview about the lease versus sale trend, the number of units? I will complete the picture.
Thank you. Yeah, sure.
Ido Marom: So, in terms of the revenue in our books for this current...
Thank you. Bye.
Speaker Change: 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.
Speaker Change: which actually create our backlog for the future. We see kind of an increase toward the lease agreements versus the sale. So the ratio is actually more or less the opposite than the revenue recognition in the books currently around the 60-40 to the lease versus the capital.
There was another question that I forgot.
Speaker Change: I will also complete the picture on the number of units. In Q3, we shipped 63 systems as compared to Q4.
Speaker Change: which is a very nice increase also from previous quarter. In terms of the additional 8-7 quarrels, we placed 47 8-7 quarrels in Q3.
Speaker Change: 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.
Speaker Change: Yeah, 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 a new distribution agreement.
are the one in India, Taiwan, South Korea.
Speaker Change: and Japan. Japan could also be a very promising market and we hope to see some of the benefits from it, mostly in 2025. In Europe, we continue to see some
for our products.
Speaker Change: both in the mental health arena but 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.
Speaker Change: Thanks, that's helpful. And just a quick one for Ido, if you could, Q3 share account and pro forma share account, any commentary there?
Again, can you repeat the question?
Cheryl Carroll for Q3, a pro forma.
Thank you very much. Bye-bye.
Speaker Change: It was very hard to hear you, so I apologize for that. Adar, can you hear and maybe repeat for me?
on 34.2.
Speaker Change: million shares you know it was 34 million point two million shares
Speaker Change: 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. Sure.
Speaker Change: Thank you. Again, ladies and gentlemen, if you have a question, please press star then one.
Speaker Change: The next question comes from Ram with HC Wainwright. Please go ahead.
Speaker Change: Good morning, Baha'u'llah. This is Dan Al-Faram. Thanks for taking our questions and congratulations on the earnings beat. 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, excuse me, a follow-up if I could.
Speaker Change: Yeah, sure. So, we don't see any disruption with currently coming from
Speaker Change: from Israel. We've got a continuity plan in Israel in terms of production and we have enough production, enough system to support the market for the next six months.
No disruption at all.
For your second question, in terms of the 2025 goals,
I think the main growth will continue to derive.
Speaker Change: from focusing on repeat sales business, repeat customers, focusing on enterprise accounts.
Speaker Change: 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.
Speaker Change: factors will continue to drive the growth of the revenue for the company.
Speaker Change: Thank you, that makes sense. And what additional clinical indications do you expect to assess with DTMS going forward? Is there any specific areas or indications of interest? Thank you.
Yeah, so, um...
Speaker Change: You know, I think on the horizon, we are looking to get FDA approval for a new protocol of accelerated TMS.
Speaker Change: which we hope to get it in 2025. We also have on our horizon is the expansion labeling for adolescents.
Speaker Change: suffering from major depression and PTSD. So we are, as we speak, we continue to collect the data in order to submit it to the FDA. And this is for the, I would say on the short term, on the horizon.
discussions, internal discussions.
Thank you, I appreciate the answers and congratulations again.
Thank you so much.
Thank you.
This concludes our question and answer session.
Speaker Change: I would like to turn the conference back over to Hadar Levy for any closing remarks.
Hadar Levy: Thank you. I would like to thank all of the investors, analysts, and other participants for their interest in Brainswait.
With that, please enjoy the rest of your day.
Thank you.
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Ido Marom Ido Marom Ido Marom Ido Marom