Good day and welcome to BrainsWay Third Quarter 2023 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the conference over to Brian Ritchie. Please go ahead.

Thank you, all, and welcome to BrainsWay's Third Quarter 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 nine months ended September 30th, 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 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 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.

Thank you, Brian. Welcome, everyone, and thank you for joining us today. To begin, I would like to extend our gratitude to so many of you who have continued to reach out to us to express your concern regarding the health and safety of our employees, giving the horrible acts of violence taking place in and around Israel. While no one in Israel is unaffected by the events unfolding, we remain resilient and will emerge stronger. We have encouraged our team in Israel to prioritize their well-being, look after their physical and mental health and spend time with loved ones. As a company, we remain committed to the consistent availability and delivery of our products and services and the impact of our current events on our operation remains limited. We have taken steps to ensure that we have enough inventory in stock on hand to continue our supply of devices on an uninterrupted basis to meet our projections and have additional contingency plan in place should there be any need for alternative supplier channel in the future. Of course, we will provide further updates if and when material events so warrant. With that, I will now discuss the strong momentum that currently exists throughout our entire business. You will recall our goal of growing the company's 2023 top line over 2022 while targeting breakeven operating income and positive adjusted EBITDA in the fourth quarter. Our plan for the achievement of these objectives remain on track and in some areas, ahead of initial projections. We will discuss this further shortly, but we are very pleased to nearly reach breakeven operating income and to record positive adjusted EBITDA in the third quarter, one quarter sooner than anticipated. We continue to optimize our existing commercial process, including enhancing our emphasize on larger institutional…

Thank you, Hadar. Revenue for the third quarter of 2023 was $8.3 million, a 61% increase compared to the prior year period revenue of $5.2 million. On a sequential basis, revenue in the third quarter grew 6% as compared to the second quarter of 2023. We placed 56 Deep TMS systems in the third quarter. Our total installed base was 1,041 systems as of September 30th, 2023, compared to 851 systems at the same point in the prior year. Gross profit for the third quarter of 2023 was $6.2 million or 74% gross margin. This is compared to $3.8 million or 74% gross margin during the prior year period. Moving onto operating expenses. For the third quarter of 2023, sales and marketing expenses were $3.6 million compared to $4.8 million for the third quarter of 2022. Research and development expenses were $1.5 million compared to $2.2 million in the third quarter of 2022. General and administrative expenses for the third quarter of 2023 were $1.2 million compared to $1.7 million for the third quarter of 2022. Operating loss for the third quarter was $133,000 compared to an operating loss of $4.9 million for the same period in 2022. As Hadar previously mentioned, adjusted EBITDA was $337,000, representing the first time we achieved positive adjusted EBITDA compared to a loss of $4.1 million in the same period in 2022. We expect to achieve the second consecutive quarter of positive adjusted EBITDA in the fourth quarter. For the third quarter ended September 30th, 2023, we incurred a net loss of $230,000 compared to a net loss of $5 million in the same period of 2022. We ended the third quarter with cash, cash equivalents and short-term deposits of $44.2 million as compared to $47.9 million at December 31st, 2022. However, when compared to the cash balance of $43.4 million in the previous quarter, we achieved positive cash flow from operating activities in the third quarter. Based on a robust US pipeline and continued momentum internationally, we are confident in our positive outlook for the remainder of 2023 and into the next year. This concludes our prepared remarks. I will now ask the operator to please open up the call for questions. Operator?

Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question is from Jeff Cohen of Ladenburg Thalmann. Please go ahead. Our apologies. The next question is from Jayson Bedford of Raymond James. Please go ahead.

Hi. Good morning. My sympathies with what's occurring in your country right now. But congrats on the progress. You guys are doing a nice job of turning this business around here. Can I ask you if you could compare the selling environment in the US and the international right now? And just as a bit of a tag on to that question, the international US mix in the quarter much different than in past quarters?

Yeah. Hi, Jason. Thank you for the question. So there is definitely an improvement in the US market is slowly improving. And we have experienced large commercial wins recently, both in the US and internationally. We continue to see positive signs in the US marketplace of increasing demand for the Deep TMS therapy. And I'm expecting this momentum to continue. Outside the US also, we managed to sign with some very impressive agreement with distributors and the demand continues to grow. There is a very large market outside of the US. And just to remind you, we also have some other approved indication than the US. The demand for those indications also continues to grow. So I'm expecting both markets, US and international to continue to be -- deliver a strong momentum for us. In terms of your second question, the ratio between US and international continue to stay the same, I would say, like 70-30, US and international. That's the current ratio. In the previous quarter, I think it's similar to this quarter as well. I'm anticipating this ratio to also go into Q4.

Okay. Very helpful. And then in terms of new systems, are they largely going to existing users? Or are you opening up new accounts as well?

So traditionally, it goes 50-50 between new customers and current customers. Our practice development team is doing a phenomenal job with developing the current business to be much more successful to increase utilization, and they're ready to pull the trigger and expand their practice. The other 50 is with our capital sales team that continue to push and increase the market.

Okay. Great. I'll get back in queue. Thank you.

Thank you.

Thank you very much. Our next question is from Jeff Cohen of Ladenburg Thalmann. Please go ahead.

Good morning, Hadar and Ido. Can you hear us okay?

Yes. Hi, Jeff. Good morning.

Hi. Good morning.

Wonderful. Technical problems. So a few questions from our end. Could you give us a sense of the 56 placements from the quarter percent or numbers that were leased and/or purchased?

Yes. So actually, the 56 percent -- 56 system was the net amount and after a few returns like we always have when customers are ending their lease agreements, out of the net amount that we have shipped this quarter, 46 were for sales -- for purchasing deals and the rest were for leasing, again, net amount of leasing after a few returns.

Okay. Perfect. That's very helpful. Could you talk about the accelerated TMS treatment approach a little bit as far as number of visits that have been studied, minutes on the system as far as durations and then maybe hypothesize with us a little bit about payers and the costs and the reimbursements that may be the same or not?

So this is a very preliminary results on the accelerated TMS. It's a different treatment regime that is basically -- we are providing few treatments a day, five treatments a day in a course of six days. We intend to collect the data and potentially also to work with the FDA on submitting a protocol for a study with the FDA in this matter. It's too early for me to share the information, but based on the data that we collected so far, the data is very favorable. Very similar to the, I would say, to in terms of safety and efficacy to what we've seen on the acute phase protocol.

Okay. Got it. So the same energy delivery just over six-day period. Got it. Okay. And then lastly for us, any current updates on rotational fields at all, any studies or papers or presentations that are out there?

Yes. We are planning to launch the first multichannel system toward the end of the year. We intend to do some feasibility study with this new and impressive technology with -- to investigate few areas, some of them relates to neurology, like dementia and stroke rehabilitation. Some of them relates also to psychiatry but the current timing for launch the first system is toward the end of the year.

Perfect. You know those are for us. Thanks for taking the questions.

Thank you, Jeff.

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

Hi, everyone. Good morning. This is [Amir] (ph) on for Steve. And I just wanted to quickly ask, you've talked about positive developments at payers with regard to lowering hurdles for MDD coverage. Can you talk about whether this has started to change customer behavior? And as a follow-up, are you seeing overall more demand as a result? Thank you.

Yes. Thank you for the question. Absolutely. And this is not a trend that started yesterday. I would say, in the last 18 months, we see a release from [indiscernible] to treat with TMS. There is a release on the number of antidepressant failures before you can prescribe the TMS treatment. This is definitely something that is driving utilization. And I'm expecting that it will continue to grow that from this aspect. On the other hand also, I believe that on the OCD, the continuation and the increase on the OCD coverage is also -- could be a good driver for the adoption of the Deep TMS technology.

Great. Thank you. And just quickly also moving on to international. On your international expansion efforts, where do you see the biggest near-term opportunities? And can you guys update us on your outlook for international expansion in Asia and Europe? Thank you.

Yes. I think you said it right. I would say that the main big hubs internationally are Asia Pacific. It could be Japan, China and India. We're definitely going to grow in those markets, although we also have a great success with -- in the Taiwan market and also in South Korea, but this is on Asia Pacific. We have a very, very good footprint, and I'm anticipating that this important market will continue to grow. The other important market is obviously Europe. Europe, there is a really strong demand. This is an -- I would still say it's an undeveloped area for our technology. There is ample room for us to grow in those areas. We continue to look and find the right partnership and that's where we're going to focus in 2024.

Thank you. I'll hop back on the queue. Thank you, everyone.

Thank you.

Thank you very much. The next question is from Carl Byrnes of Northland Capital Markets. Please go ahead.

Thanks for the question and congratulations on the progress. Most of my questions have been answered, but I was wondering given the cash flow from operations, I think it was around $1.4 million generated in the quarter. Where do you see that progressing in '25 and '26 if you can? And then also, can you add a little more detail with respect to the prospects of a partnership relating to smoking cessation. Thanks.

Yes. Thank you for the question. So for your first question, we're not providing guidance. But what I can say is that as part of our vision is to build a healthy and growing company. Healthy mean that, yes, we still continue to focus on growing the company, but also looking very carefully on the profitability and the bottom line results. And for your second question, so we're having active dialogue with potentially interested parties on a consistent basis. We are looking for the right partner for the smoking addiction. I believe that there is plenty of room for us to grow in this market and finding the right partner can really help us to push this important indication forward.

Thanks and congratulations again.

Thank you so much.

Thank you very much. The next question is from Boobalan Pachaiyappan of H.C. Wainwright. Please go ahead.

Hi. Thanks for taking our questions and congrats on the progress. So the third quarter numbers came out very strong. So just curious, what are your expectations in terms of growth trends for the fourth quarter and maybe for early 2024? And what could be the underlying assumption behind these expectations?

So again, we're not providing guidance for 2024, but we do have a very strong confidence, very, very strong confidence about our outlook going forward. We definitely believe that we will be able to grow year-over-year and continue to build a healthy and strong profitability going forward.

Okay. Fair enough. Speaking of H4 coils, do you expect the sales to gain traction, particularly in light of the Clinical TMS Society recently published first coverage recommendation? Or do you think you might make additional data in order to gain traction?

So the H4 is treating today is cleared for the smoking addiction. We definitely believe that we see that the demand for this coil is growing. I believe it will grow even faster with finding the right partner. The right partner could be a partner that is mainly focused on -- in addiction centers, it can be cancer centers. We are collecting very important data on some other addiction symptoms with the H4 and potentially that could be used for some additional clinical trials, but it's too early for us to share this information.

All right. You briefly spoke about entering European markets. So I'm just curious whether the European strategy would be any different from, say, the other international markets such as India or Taiwan? Or will it be sort of hybrid between US and India and Taiwan market? Thank you.

So in Europe, we are going to work -- we're not going to work to sell directly. We are going to find a strong distributor that is familiar with the space. We can find more than one distributor. One distributor can be focused on the mental health and another one could be focused on some neurology. Just to remind everyone that in Europe, we have cleared for 10 indications, not only three like in the US So we are wide and open to sell for some other indication. And I anticipate that the demand in these important countries will continue to grow.

Thank you so much for taking our questions.

Sure. Thank you.

Thank you very much. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to the CEO, Hadar Levy for some closing remarks.

I would like to thank all of you, the investors, analysts and the other participants for their interest in BrainsWay. With that, please enjoy the rest of your day. Thank you.

Thank you very much, sir. Ladies and gentlemen that then concludes this event and you may now disconnect your lines.