Greetings and welcome to the BrainsWay Fourth Quarter and Full-Year 2022 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 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 fourth quarter and full-year 2022 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 three and twelve months ended December 31, 2022. 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 [Technical Difficulty] 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.

Thank you, Brian. Welcome, everyone, and thank you for joining us today. I'm thrilled to be leading my first earning conference call as BrainsWay’s CEO. As I have previously served as the company's Senior Vice President and Chief Operating Officer and Chief Financial Officer and GM of North America before that, I've had the opportunity to interact with many of you over the years. However, for those of you who do not know me, please allow me to briefly introduce myself. I've been a member of BrainsWay’s Senior Leadership team since 2014 and during this time, I've been deeply involved in the sales, financial and operational aspects of our business. I look forward to leveraging my broad expertise and extensive experience to capture the significant growth opportunities that lay ahead for this great company. And I'm excited to work closely with our Board of Directors, outstanding Executive Leadership team and all of our dedicated employees to strategically grow our business and position BrainsWay as a global leader in the TMS industry. I would also like to take this opportunity to welcome Ami Boehm who was recently appointed Chairman of the Board and succeeds Dr. David Zacut, Co-Founder of BrainsWay, who will now serve as a Director on the Board. Ami is an experienced and well respected leader in capital market and advising in multiple global industries. I'm also pleased to continue working with David, whose strategic insight has supported BrainsWay’s evolution from an R&D startup to a world-class commercial company, offering the industry's leading TMS technology and solution. Moving on, I will let Scott provide you with the key details of our financial performance in the fourth quarter and full-year 2022, while I will share with you some of the strategic vision that we have developed to grow our business,…

Thank you, Hadar, and good morning, everyone. Revenue for the fourth quarter of 2022 was $6 million, a 29% decrease, compared to the prior year period revenue of $8.5 million. Total revenue in the fourth quarter was impacted by the inability to recognize approximately $1 million of lease revenue, due to the deteriorating financial condition of one of our customers. We expect that their condition may impact our 2023 recurring revenue as well. However, the momentum in direct sales in both the U.S. and internationally was not impacted by this customer. We placed 33 Deep TMS systems in the fourth quarter and continued to experience strong international momentum, a sustainable trend for us. Our total installed base is now 884 systems as of December 31, 2022, compared to 754 systems or 17% growth as compared to December 31, 2021. For the full 12 months of 2022, revenues were $27.2 million minimally lower as compared to full-year revenue of $29.7 million in 2021. Gross profit for the fourth quarter of 2022 was $5.2 million or a 75% gross margin, compared to $6.6 million or a 78% gross margin during the prior year period. The decrease in gross margin was largely attributable to revenue mix, as well as expenses related to inventory obsolescence charge and increased shipping and inventory costs versus the prior year. Gross profit for the full 12 months of 2022 was approximately $20.9 million or 75% gross margin, compared to $23.1 million or a 78% gross margin during the prior year period. Moving on to operating expenses for the fourth quarter of 2022, research and development expenses were $4.8 million, compared to $4.5 million in the fourth quarter of 2021. Sales and marketing expenses for the fourth quarter of 2022 were $2.2 million, compared to $2 million for the fourth quarter of 2021. Moving on to G&A. Expenses for fourth quarter of 2022 were $1.7 million, compared to $1.5 million for the fourth quarter of 2021. With respect to expenses in 2023, we expect costs to moderately decrease as compared to 2022. As Hadar noted, we are most strategically and prudently investing in our commercial and research activities. Operating loss for the fourth quarter was $3.4 million, compared to an operating loss of $1.5 million for the same period in 2021. For the fourth quarter ended December 31, 2022, we incurred a net loss of $3 million, compared to a net loss of $1.1 million in the same period of 2021. Moving to the balance sheet. We ended the fourth quarter with cash, cash equivalents and short-term deposits of $47.9 million, as compared to $57.3 million at December 31, 2021. Based on our robust U.S. pipeline and continued momentum internationally, we are confident in our positive outlook for 2023. To reiterate what Hadar said, we anticipate annual revenue growth over last year and to show improvements in cost containment over 2022. This concludes our prepared remarks. I will now ask the operator to open the call for questions. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Steve Lichtman with Oppenheimer. Please proceed with your question.

Thank you. Good morning, guys.

Hi, Steve.

Hadar, hi, I know it's only been a little bit since you've been in the CEO role. You alluded to some things during your prepared remarks, but I wonder if you could talk a little bit more about some of the changes perhaps under your leadership as CEO that you would look to institute?

Hi, Steve. Good morning. Thank you for the question. As I said earlier, we are taking some action those fall in order to reduce some of our cost and I believe the main goal for us for this year is to continue to grow year-over-year and we are targeting breakeven operating income in the fourth quarter of 2023. So I think that the market is big enough, is massive, and I think that with the necessary changes and reduction that we already performed, we'll see some pretty good results by the end of the year.

And relative to your focus on some of the larger customers, the enterprise customers, I know this is something you all talked about on the last earnings call. Can you give us an update there in terms of progress in that opportunity and how big the opportunity you think is that's, sort of, left untapped?

Yes, sure. So I believe that we do anticipate a growth coming from existing customers and some of them are new customers and specifically some of those network. I think the Russia today is around 50-50, which demonstrate the strength and the balance of our business. However, what we've learned is that we know how to grow some of our networks with our practice development team and we see them growing. There is continued to demand for more and more Deep TMS technology. We are helping them to grow from all the purposes, starting from patient flow, it can be also providing them the right training, how to build a successful clinic. So we are highly going to continue and focus on building a successful practice with our customers -- current customers and new customers.

Got it. Okay, and then maybe lastly for me and I'll jump back in. On the one customer you mentioned that impacted lease revenue. I guess a few questions, one, was that an issue in 3Q? Because if not, it looks like the sequential, if you ex that out was a little bit better. But then two, can you talk a little bit more about this customer, it sounds like it was the large customer given the percent of total revenue and any assistance that can be provided to the customer such that it would -- the impact would be mitigated as you go through this year?

Yes. Hi, Steve. So the impacts to our revenue was really contained in the fourth quarter for the deteriorating financial condition that occurred recently. It is one of our largest customers on a recurring revenue basis. We've taken steps in our plan to mitigate the impact of potential financial condition in 2023, so we've already sort of built that into our plan knowing that, that may be a risk.

Okay…

That answered your question?

Yes. And so the $1 million was that sort of a cumulative effect that…

That was just for the quarter.

Okay, okay, understood. I'll let others jump in. Thanks.

Thank you. Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Hello? Hi, Hadar and Scott. How are you?

Hi, Jeff.

Hi, Jeff. Good morning.

So a few questions from our end. Looks like Q4 you placed more systems than we were modeling. So should we assume that the vast majority of Q4 was lease arrangements versus purchases or other structures?

So -- go ahead, Scott.

Go ahead. Yes so, no revenue in the fourth quarter was primarily direct sales or what we call capital sales. As I mentioned, we actually had a reduction in lease revenue, because of the financial condition of one of our customers. So, but it also has to do with revenue mix, because we've been selling internationally as well and we're starting to see some momentum there.

And if I can add on this, Jeff, we see the pipeline growing. Yes, we had a very, very nice large of demand of our system for -- of our technology. I think that, you know, BrainsWay will remain flexible in their pricing model. So we are aiming to put this technology out there for every patient that needs it or every customer that needs it. So we'll continue to see and we continue to see this pipeline growing, specifically also toward 2023. And I believe that the main change that you see right now in Q4 was mainly, because of the reduction of revenue for this specific customer.

Okay, got it. Could you talk a little bit about any charges from Q4 related to leadership changes, whether specific charges in the fourth quarter or we should anticipate seeing those in Q1?

So -- all of those changes will be accumulated in Q1.

Okay, got it. And Hadar, maybe could you talk a little bit about the payer environment on the OCD side over the past quarter?

So, you know, there is always improvement on the [peers] (ph), on the OCD side. We continue to see more and more peers adopting this very essential treatment. And we remain very positive that this number of peers will continue to grow. We are now covering 90 million people in the U.S. and we're sticking with most, if not all, the peers, and I do anticipate some additional growth on the -- with a couple of peers that are going to cover the OCD.

Okay, got it. And then lastly for us as far as structural changes anticipated for 2023, it’s sounding like you're expecting those most predominantly within the commercial organization. Is that accurate? And could you expand upon that please?

So I think we know, I think we are pretty familiar with some of the barriers and I think that we have the right mitigation for that. Again, I remain very, very optimistic about the market potential, about our ability to grow. We are hiring the right salespeople that's going to help us to execute our plans. No dramatic change on the forefront of our sales team. We just need to be much more focused, target the right audience and come up with the right messaging. And we know, listen, we have a superior science and we have a superior product. So, I don't see any reason why we won't continue to grow with the current sales team. And we're just getting I believe that we have the right sales team in place right now. And again, I'm really, really optimistic about this year.

Perfect, okay. Hadar, Scott, thanks for taking our questions.

Thank you, Jeff.

Thanks, Jeff.

Thank you. [Operator Instructions] Our next question comes from the line of Boobalan Pachaiyappan with H. C. Wainwright. Please proceed with your question.

Hi, Hadar and Scott. This is Boobalan. Can you hear me?

Yes, very, very well.

Yes. Hi, Boobalan.

All right, great. A few questions from us. So Scott, maybe firstly, can you comment on your cash runway?

Sure. I mean, we have 40 what did I say, sorry $48 million -- almost $48 million of cash. I think as Hadar mentioned, we're targeting to get to breakeven operating income by the end of the fourth quarter. So I think we're taking steps to mitigate and slow down our cash burn and I believe we certainly have plenty of runway here.

Okay. Thank you for that. And then I want to get your thoughts on health care policy update from National Government Services. So essentially, we should non-physician practice -- practitioners to honor and provide TMS treatment to patients with major depressive disorder. So can you clarify whether this update is applicable to Deep TMS users as well?

So can you repeat that question? I'm not sure I followed you.

Okay. So there is this health care policy update from National Government Services, which essentially will allow non-physician practitioners, like nurse practitioners to order and provide…

Yes, listen, as I said, we see lots of tailwinds to approve this treatment outside of the psychiatry field. We see more and more peers that are approving this treatment also for nurse practitioners. And I believe this momentum will continue, that's part of our tailwind, our strong belief on the market potential. It's definitely one momentum just to grow and continue to increase, first of all, not just the pipeline and the target market for us, but also increase the top line revenue growth based on that.

Okay. And one final question from me. Speaking of targeting breakeven operating income in the fourth quarter of 2023, so what are your assumptions and key risks associated with this?

So we were taking very, you know, I believe that we're going to probably slow down some of our projects on our R&D. This is something that we can -- we know how to do in pretty good way. We are also going to be much more focused on our marketing initiatives. Like most companies, we look at the ROI of our various marketing efforts and we're trying to optimize for the ones that yield them the best return for us. So I believe that we can do some better job and we will do a better job about reducing some of those costs, but without really damaging our potential growth in 2023. So again, I believe that and I said it before, we already took those necessary measures in order to reduce this cost and you are expecting to see the outcome in the second-half of 2023.

All right. Thanks for taking our questions.

Yes. Thank you.

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

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

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