Brainsway Ltd (BWAY) 2023 Q1 法說會逐字稿

Greetings, and welcome to the BrainsWay First Quarter 2023 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brian Ritchie with LifeSci Advisors. Thank you. You may begin.

Thank you all, and welcome to BrainsWay's First Quarter 2023 Earnings Conference Call. With us today are BrainsWay's Chief Executive Officer, Hadar Levy; and Chief Financial Officer, Scott Areglado. 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 from Scott. Then we will open up the call for your questions.

Earlier today, BrainsWay released financial results for the 3 months ended March 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 and Scott, 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 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 contained in BrainsWay's Form 20-F.

I would now like to turn the call over to Hadar.

Thank you, Brian. Welcome, everyone, and thank you for joining us today. We remain focused on implementing key initiatives aimed at growing the company's top line while simultaneously advancing toward profitability. 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.

As a reminder, our goal is to add Deep TMS technology into this expanding large mental health group or networks. I'm pleased to report that momentum resumed in our business during the first quarter as we said would be the case on our fourth quarter call. Moreover, we continue to see positive signs in the U.S. marketplace of increasing demand for our Deep TMS system and expect this momentum to continue throughout 2023.

While I will let Scott provide you with the key details of our recent financial performance, our revenue increased 10% sequentially as compared to the fourth quarter of 2022, and we shipped a net total of 48 systems during the first quarter, which was nearly 50% more than the net total from the fourth quarter of last year. Importantly, our international business continued to thrive.

From a financial perspective, we executed a number of cost optimization measures in March that we expect to begin seeing the benefit of in the second quarter and more meaningfully in the second half of this year. As we said we would, we have reprioritized the allocation of our R&D resources and commercial investment. In R&D, as some of our new clinical development focus areas evolve, we will share further details with you.

Further to this, we recently launched an investigator-initiated study program. The program 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. As we are accepting applications through July 3, we will share further details on this program later this year.

On the commercial side, as we said on our last call, we are focusing less on digital marketing than in the past, but our other more impactful sales initiatives are aggressively continuing. As a reminder, we are targeting breakeven operating income in the fourth quarter of 2023 while demonstrating full year revenue growth over 2022. Our first quarter performance was in line with our expectations and we are on our way to achieving these objectives.

I'd now like to pivot to some of our recent accomplishments. On the reimbursement front, Blue Cross Blue Shield of Mississippi issued a health care policy update that allows TMS-trained health care professionals to order and provide TMS treatment to their patients with MDD. In addition, UnitedHealthcare has updated their Medicare Advantage policy in states covered by national government services Medicare to allow nonphysician practitioners like nurse practitioners to order and administer TMS therapy to their patients with MDD in states where they have scope of practice to do so. This policy changes increase access for patients to our Deep TMS system.

We also continue to build clinical evidence in support of Deep TMS for use in multiple indications. Most recently, an expansive post-marketing data analysis demonstrating high response and remission rates for depression and anxious depression patients undergoing Deep TMS treatment was published in Psychiatry Research. The data show substantial benefit of Deep TMS treatment for depression with patients who had received 30 or more treatments achieving an 82% response rate and a 65% remission rate.

Importantly, the average patient in this data analysis had already failed more than 7 medication trials in their lifetime. Until this study, it was only anecdotally known just how effective Deep TMS really is in real-world settings for depression patients that have had limited success with other treatment options. In addition, we had a significant presence earlier this month at the Annual Meeting of Clinical TMS Society.

Multiple posters related to Deep TMS technology were presented at the meeting, including one by Dr. Aron Tendler, BrainsWay's Chief Medical Officer, the detailed quality of life improvement following Deep TMS for treatment-resistant depression. The poster highlighted the results of a secondary analysis on data from a multi-site clinical trial for treatment-resistant depression, which showed that 20 session of Deep TMS significantly improved quality of life as well as the primary depressive symptoms.

Also presented at this meeting was a poster focused on individual trajectories for responses to Deep TMS in major depression, a step toward potentially improving capabilities to predict and personalize Deep TMS outcome in patients. Later this month, we will also present multiple posters at the Annual Meeting of the American Psychiatric Association.

Before I turn the call over to Scott, I would like to reiterate our confidence in our outlook for 2023. We continue to expect to demonstrate revenue growth over 2022 and are targeting breakeven operating income in the fourth quarter of 2023. The market dynamics continue to show that TMS is a large market with strong momentum, and there is ample room for BrainsWay to capture meaningful market share both in the U.S. and internationally.

Finally, as always, we would like to thank our valued partners and providers who battle the mental health crisis each and every day as well as to the entire BrainsWay team for elevating their commitment to excellence in delivering on our mission of advancing neuroscience to improve health and transform lives.

With that, I will now pass the call to Scott for his review of our first quarter 2023 financial results. Scott?

Thank you, Hadar, and good morning, everyone. Revenue for the first quarter of 2023 was $6.6 million, a 17% decrease compared to the prior-year period revenue of $8 million. However, on a sequential basis, revenue in the first quarter grew nearly 10% as compared to the fourth quarter of 2022.

As expected, total revenue in the first quarter was impacted by the inability to recognize approximately $0.9 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. However, the momentum detailed by Hadar in direct sales in both the U.S. and internationally was not impacted by this customer.

We placed 48 Deep TMS systems in the first quarter and continued to experience strong international performance, a sustainable trend for us as well as a return to solid contributions from the U.S. Our total installed base was 932 systems as of March 31, 2023, compared to 884 systems at March 31, 2022, or 18% growth.

Gross profit for the first quarter of 2023 was $4.8 million or a 73% gross margin, compared to $6.1 million or a 77% gross margin during the prior-year period. The decrease in gross margin was largely attributable to revenue mix.

Moving on to operating expenses. For the first quarter of 2023, sales and marketing expenses were $4.9 million, compared to $4.1 million for the first quarter of 2022. Research and development expenses were $1.8 million, compared to $1.6 million in the first quarter of 2022. General and administrative expenses for the first quarter of 2023 were $1.8 million, compared to $1.9 million for the first quarter of 2022.

Included in total operating expenses in the first quarter of 2023 were approximately $0.5 million in onetime severance costs. With respect to expenses for full year '23, as we said on our last call, we expect costs to moderately decrease as compared to 2022. As Hadar noted, we are more strategically and prudently investing in our commercial and research activities.

Operating loss for the first quarter was $3.7 million, compared to an operating loss of $1.5 million for the same period in 2022. For the first quarter ended March 31, 2023, we incurred a net loss of $2.4 million, compared to a net loss of $2 million in the same period of 2022.

Moving on to the balance sheet. We ended the first quarter with cash, cash equivalents and short-term deposits of $44.3 million as compared to $47.9 million at December 31, 2022. Based on our robust U.S. pipeline, continued momentum internationally, we are confident in our positive outlook for 2023. To reiterate what Hadar said, we anticipate annual growth over last year and to demonstrate improvements in cost containment over 2022.

This concludes our prepared remarks. I will now ask the operator to please open up the call for questions. Operator?

(Operator Instructions) Our first question comes from the line of Steve Lichtman with Oppenheimer.

I guess, first question on the pickup in placements that you saw sequentially here, you mentioned improving momentum. Can you talk about how international performed specifically? And in the U.S., where are you seeing some of that sequential improvement?

Yes. So I'll start with the U.S. market. So I definitely see the U.S. market is slowly improving, and we are experienced some very large commercial wins in this market, both for new customers but also on current customers. The pipeline continues to grow and that's what keeps us very, very positive with the outcome.

On the international market, it's definitely growing. I think one of our investment in working with distributors outside of the U.S., we see some good proof of concept, and we see some good demand. Some of it relates to the Far East, but also in Europe. And I anticipate this international market to continue to grow.

Okay. Great. And I was wondering if you could update us on the smoking cessation indication. How is the limited launch progressing there? And what's your outlook?

So we're still collecting the data from this soft launch. As you know, we have seen some pretty good results on the multicenter trial. We do -- we continue to see such results also on the soft launch, but it's too early for me just to share some additional information. We are actively looking for some other profile of potential customers that may use this indication.

Okay. Got it. And then just maybe lastly for me. On the cost savings, you mentioned being more targeted in R&D. As you think about some of the savings there and the reduction in digital, obviously, knowing your operating income goals, but how are you balancing that versus maybe some reinvestment on the sales and marketing side? I mean how should we think about that balance looking ahead?

Yes, that's a great question. So on the R&D side, we just need to reprioritize some of our objectives and to push more investment toward the sales and marketing in order to reach our objectives. On the sales and marketing, again, it's all about optimization and the ROI for each investment that we are making on marketing. So we are measuring it very carefully, at least on the digital campaign.

If we don't see some good ROI, we're probably going to reduce some of the spending. But we definitely continue to push toward more boots on the ground and more aggressively to build our pipeline, and it's improving, I just see it. The pipeline is growing, and that's why we remain very optimistic about the outlook for 2023.

Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann.

So I guess, firstly on MDD, could you talk a little bit about some of the trends out there from the payers on the reimbursement front and the number of drug failures that are being required? Any movement there over the past number of months to talk about?

Yes, sure. There are always, always, always a positive progress with the payers. We saw some relief from 4 failures in some of the big payers from 4 failures into 2 failures of medications. So there is always an improvement, but we just shared some additional information with -- in Mississippi. We can also see some also expansion outside of psychiatry, also to nurse practitioner that allowed us to provide this treatment in some specific states. So there is always an improvement for this very important treatment for patients.

Okay. Got it. And for the quarter, any trends to note on leasing versus selling units?

Yes, sure, Jeff. So as I mentioned in the prepared remarks, our leasing revenue was impacted by about $900,000. So I continue to expect to see that through the rest of the year. So that's going to just slightly change our lease to direct sales ratio here in terms of revenue, but not necessarily in terms of system placements going forward as we still continue to have strong momentum in placing systems -- placing leased and direct sales on a go-forward basis.

Okay. Got it. And then lastly for us, anything to speak of on the multichannel development out there from Hadar, Dr. Tendler or anyone else?

Yes, sure. We are extremely excited about this new innovation. We are planning to launch the first multichannel system this year and to start a beta site with it in some specific centers. More to come around this subject, but it's definitely a very important milestone for BrainsWay.

Okay. Perfect. And Hadar, what's the approval pathway to start testing the system?

So we will start collecting some data with a few centers. And obviously, based on this data of safety, we will be able to submit it to FDA to get the FDA clearance.

Okay. And will you be pursuing more than 1 indication for the system itself?

I believe so. But when the time comes, we will share a bit more information about that.

Our next question comes from the line of Jayson Bedford with Raymond James.

This is Glenn Shell on for Jayson Bedford. And I just have 1 quick question. In 1Q, you saw a nice jump in OCD adoption. Do you expect this momentum to continue? And are you seeing an uptake of OCD internationally?

Yes, for sure. We believe the OCD is one of the key driver for our growth and also for the differentiation. BrainsWay was the only company that conducted a multicenter trial around the OCD, and we truly do believe in this indication. And we see some very, very good results on the OCD and, therefore, we are seeing very strong adoption.

I believe most of our new sales are coming with not only the MDD coil, but also the OCD coil, the H7 Coil. I see same -- almost the same momentum also for -- on the international market. There is a good demand for this H7 Coil that can be used, by the way, internationally, mainly for OCD, but sometimes for other indications. But definitely, there is a good demand and good feedback on this coil.

Our next question comes from the line of Carl Byrnes with Northland Capital Markets.

Congratulations on the results. I noticed that the interest expense came in at about $1.4 million, which was up pretty significantly sequentially. Was there anything of a onetime nature on that? And should we be looking at that as consistent number for the second, third, fourth, et cetera, going forward?

So reminder, that was in the first quarter of 2023, that was actually finance income, not expense. And it was a onetime expense, and it has to do with the reversal of how we calculate the value of our Innovation Authority loan with Israel. And I could get into the math, it's a little complicated, but just -- it is a onetime expense -- a onetime pickup in income, and I expect our expense to resume back to normal levels similar to what we had in '22 after that.

(Operator Instructions) Our next question comes from the line of Boobalan Pachaiyappan with H.C. Wainwright.

So just 1 from us. I was hoping you could talk about the recent post-marketing study data on how it stacks up against the RCT results that was published previously. I see that there is superior treatment response and remission. So is this primarily due to the longer nature of the treatment or are there other factors at play?

We're always expecting to see some improvement and better results on the post-marketing data than the clinical trials. But it's always a combination of also durability and a number of additional treatments, so the more treatments or maintenance treatment that you provide, the better the results. So we are not surprised. We know that the treatment is very safe and effective. And yes, the results are extremely good, and we're very proud of these results.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Levy for any final comments.

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 our day. Thank you.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.