BrainsWay Ltd. (BWAY) Q2 2025 Earnings Report, Transcript and Summary

Good day, and welcome to the BrainsWay Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Garth Russell with Investor Relations from LifeSci Advisors. Please go ahead.

Thank you all, and welcome to BrainsWay's Second Quarter 2025 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 3 months ended June 30, 2025. A copy of this 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 shifts in the market conditions resulting from geopolitical, supply chain and other factors as well as the use of non-GAAP financial measures. Additional information regarding these and other risk factors 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 like to turn the call over to Hadar.

Thank you, Garth. Welcome, everyone, and thank you for joining us today. We are excited to announce record quarterly revenue of $12.6 million reported for the second quarter of 2025. This represents a 26% increase compared to the same period last year. In addition, we shipped a total of 88 Deep TMS systems during the quarter, representing a 35% increase compared to the same period last year. This brings our total installed base to 1,522 systems. A key part of our success, which has allowed us to report steady growth and strong gross margin is our focus on generating recurring revenue streams through multiyear lease agreements. These agreements now make up approximately 70% of our recent customer engagement. In addition to signing new agreements, we have had a high rate of customer retention with many customers deciding to extend and even expand their agreement out several years. Currently, we have a backlog of signed agreement with remaining performance obligation totaling approximately $62 million. This backlog provides us with a clear visibility into the future and a foundation from which to grow. We believe the stability and visibility in our business driven by the growing share of customer engagement tied to multiyear leasing agreement over the past several quarters clearly demonstrate our evolution from a pioneer of breakthrough technology into a scalable growth platform. With the wind at our backs, we have been able to further establish our leadership position in the noninvasive neuromodulation space. I am proud of how efficient our team is at executing our business model, which is designed to innovate, repeat, expand and compound. Thus far, under this model, we are focused on 3 key pillars to drive long-term growth, including further elevating market awareness of Deep TMS and its clinical impact, advancing our R&D road map to unlock new and expanded treatment indication and broadening patient access through global expansion and health system integration. At the core of these 3 initiatives is our regulatory approvals and clinical data, which continue to set Deep TMS apart, elevating our platform in the market. As a reminder, Deep TMS is the only TMS modality cleared by the FDA and with peer-reviewed published clinical evidence for a broad range of indications, including depression, anxious depression, late-life depression, OCD and smoking addiction. Recently, we announced BrainsWay would provide independent educational grant to fund 2 new continuing medical education or CME courses designed to expand clinician knowledge and confidence in the use of Deep TMS. These activities aim to deepen understanding of our robust clinical evidence supporting TMS, clarify distinction between Deep TMS and first-generation figure-8 coil TMS and provide practical guidance for integrating TMS into clinical practice. The courses are led by key opinion leaders in the field of psychiatry and brain stimulation, and we are proud to be able to support this effort. Over the past 2 years, we are focused on strengthening our engagement with large enterprise customers and building valuable partnership to drive sales. This approach has benefited us to our customers as they receive higher-end engagement and support from our team. Most recently, we achieved an extensive order of systems with a multiphase delivery plan through the end of the year by a fast- growing U.S. mental health network in the Western and Southern U.S. As an update on our clinical initiative, we recently submitted data to the U.S. FDA from our randomized multicenter U.S. clinical trial, which evaluated an accelerated treatment protocol for the Deep TMS system for major depressive disorder treatment as compared to the current standard of care Deep TMS protocol. As a reminder, the traditional Deep TMS protocol involves a 4-week acute treatment phase with one session on each day of treatment. This is now being compared to an accelerated protocol, which involves a significantly shorter acute phase taking place over several treatment days. We believe this accelerated protocol has the potential to improve convenience and thereby make Deep TMS substantially more appealing to prospective patients. We are also continuing to progress with Israel Ministry of Defense Rehabilitation Department in qualifying patients with post-traumatic stress disorder or PTSD for Deep TMS, and we'll keep you posted of any changes. Moving on to our investment initiatives. As previously announced, in late 2024, we identified a new opportunity to generate shareholder value by making minority interest investment in mental health providers as well as other enterprises that we believe are complementary to our business. This strategy allows us to tap into a market we know well, building additional market awareness, R&D road map, data analysis capability and extending access to Deep TMS while avoiding stepping into an operational role outside of our core focus as a deep TMS technology company. To support us in this initiative, we engaged Valor Equity Partners, which made a $20 million strategic equity investment in our company. This investment provided us with the capital needed to quickly move ahead with this strategy on a broader and more meaningful scale. We are pleased with the rollout of this initiative and recently made an initial investment at the end of the second quarter. Under this agreement, we completed a $5 million financing transaction with Stella MSO, a management services organization servicing more than 20 mental health clinics across U.S. that have treated over 30,000 patients to date. This is just the first of what we expect to be many investments under this strategy. We are actively engaged with several other mental health clinics enterprises for similar engagement. We look forward to keeping you updated on this initiative. We believe that these activities are critical as we work to further cement our role in shaping the future of mental health treatment. With that, I will now turn the call over to Ido for his review of our second quarter 2025 financial results. Ido?

Thank you, Hadar. As Hadar noted, Q2 2025 was another record quarter for BrainsWay with revenue of $12.6 million, representing a 26% increase compared to $10 million in the same period last year. During the quarter, we placed 88 Deep TMS systems, bringing our total installed base to 1,522 systems as of June 30, 2025, compared to 1,215 systems a year ago. Gross profit for the quarter was $9.5 million, up $2 million from $7.5 million in the prior year period, while maintaining a strong gross margin of 75% in both periods. This stability continues to reflect the strength of our recurring revenue model and disciplined cost management. Turning to operating expenses. Sales and marketing totaled $4.9 million compared to $3.8 million in Q2 2024, an increase of $1.1 million, driven by targeted investment in commercial expansions and marketing programs. Research and development expenses were $2.3 million compared to $1.7 million last year, an increase of $0.6 million, primarily from our ongoing clinical trials and development activities. General and administrative expenses were $1.6 million compared to $1.4 million in the prior year period, an increase of $0.2 million, mainly due to additional legal fees and due diligence costs related to the Stella investment and other initiatives as reflected in our adjusted EBITDA reconciliation table, including in our press release issued earlier today. Operating profit was approximately $600,000, in line with the same period last year. Adjusted EBITDA increased to $1.5 million from $1.3 million in the prior year period. Net profit for the quarter was $2 million compared to $0.6 million in the same period of 2024. From a balance sheet perspective, we ended the quarter with $78.3 million in cash, cash equivalents, restricted cash and short-term deposits, up $8.7 million from the end of 2024 and up $30.2 million from the same point last year. This increase was driven primarily by very strong collections during the quarter and was offset by our deployment of $5 million for the minority equity investment in Stella MSO as part of our strategic initiatives. Our strong cash position also reflects the equity financing completed in Q4 2024, which provided the resources to fund these growth investments while maintaining significant liquidity. In addition, deferred revenue also increased meaningfully, largely due to advanced collection from a significant multiyear agreement with growing mental health network. As a result, remaining performance obligation grew to $62 million, a 25% year-over-year increase, providing strong visibility into future revenues. Cash flow from operations in the quarter was positive further reinforcing the strength of our [recovery] model and eye collection efficiency. Our capital structures remain debt-free, giving us significant flexibility to pursue strategic growth initiatives, including the investment program Hadar outlined earlier. Based on our strong first half results, healthy backlog and continued momentum in both U.S. and international markets, we are raising our full year 2025 revenue guidance to a range of $50 million to $52 million, representing 22% to 27% growth over 2024 revenue. We now expect operating profit in the range of 4% to 5% of revenue and adjusted EBITDA in the range of 12% to 13% for the year. This concludes my remarks, and I will now turn the call back to the operator to please open the call for questions. Operator?

[Operator Instructions] Our first question comes from Jeffrey Cohen with Ladenburg Thalmann.

I guess, firstly, Hadar, could you talk about the accelerated protocol in the sense of if or when that comes to market as far as treatment days and potential pricing and payer flow, at least domestically, please?

Yes. So as I said, as part of my earlier call, we already submitted the data to the FDA, and we also published the initial results from the study that looks very, very positive. In terms of timing, we're expecting to receive an answer from the FDA on the fourth quarter of this year with the hope to potentially even get clearance before the end of the year. In terms of the commercialization part of this, we believe that's going to be a game changer. We believe that make -- shorten the daily visit at the clinic for only a few days. We're talking about 6 days instead of 4 weeks acute phase plus additional 2 weeks of maintenance treatment, overall 6 weeks. So you compare 6 weeks to 6 days, that we're really going to make much easier and much more comfortable for patients to come and do this meaningful and important treatment at the clinic. In terms of reimbursement, so the current reimbursement is currently allowing up to 2 treatments per day. So we are actively working with -- on that to try and improve it to match our new protocol for the accelerated in order to continue and expand this new indication in 2026.

Okay. Got it. That's helpful. And then as a follow-up, secondly, could you talk about the FTEs and the size of the commercial organization and talk about the size over the past year and how they may look into the future?

The FTE, are you calling to...

The full-time inflation in the sales organization?

Yes. Okay. So the current sales team is around 16 direct sales folks spreaded out in the U.S. However, we do have an additional 10 FTE practice development folks that are responsible for the utilization and supporting all our current customers and new customers with training and installation. So overall, we're speaking about 26 people that are supporting the sales activity.

Got it. And then lastly, I didn't hear any commentary regarding TMS 360 and the pilot study. Any updates there?

Yes. So the 360, our plan is to launch the 360 with the alcohol use disorder trial, which we plan to launch it in the third quarter, let's say, by the end of September. So that will be the first use of the 360 machine. However, we also do some feasibility studies with this machine around cognitive behavior and Parkinson's, so in some qualitative centers in the United States and maybe also in Europe before the end of the year. So I believe this next-gen, the 360 machine will be used one for feasibility studies on some neurology indication, but also it's going to be the main system for the alcohol use disorder that we are planning to launch during this year.

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

Congratulations on your results. With respect to the backlog, I would imagine that the super majority of that is from enterprise customers. But if you could elaborate, that would be great. And then also, what was the OCD placements during the quarter, if you can reference that number as well?

Yes. So as you mentioned, we continue to focus on a multiyear lease agreements, but most of them are coming from enterprise accounts. We'll continue to focus on enterprise accounts that are generating a substantial lease agreements for us, and that's helped us to continue and increase our backlog, the remaining performance obligation and most important, the visibility for the next -- at least for the next year or so. And I'm expecting this momentum to continue and stay very positive. In terms of the OCD, so we shipped 30 OCD systems in the second quarter.

Our next question comes from Raghuram Selvaraju from H.C. Wainwright.

This is Dan on for Raghu. Congratulations on the earnings. So we were curious how many -- about how many more of these strategic financing arrangements are you planning this year if you have a planned number? What's likely to be the capital outlay for investment? Do you have a max cap for investment? Or is it going to be a flat rate moving forward?

Yes. So thank you for this question. And we are -- that's going to be a very strategic initiative for the company. We believe that there is a very high interest for this collaboration with growing and profitable mental health networks. The goal -- my personal goal and the company goal is to sign at least 5 contracts before the end of the year, similar to what we announced with Stella MSO and for 2026 is to have 10 contracts. So overall, we're speaking about potential 15 contracts by the end of 2026. The size of this minority investment could range between $2 million up to $5 million, depends on the size of the mental health network and the profitability and our plan to expand. So overall, we are -- as I said, we are actively speaking with a few players today in the market and my hope is to hit the target that we set to ourselves to sign 5 new agreements before the end of the year.

Awesome. That's really exciting. Could you also just qualitatively talk about how the Stella financing arrangement has been working out so far?

That's -- from our perspective, that's a great example of collaboration. So when we launched this collaboration with Stella, we do what we are used to do. So besides bringing the best technology into their centers is putting lots of emphasis on educating the centers, training the centers of what is working and what is broking in the process and how can they yield more patients into this treatment modality. And we're seeing some dramatic increase in the utilization. I think we are seeing over 50% increase in the utilization for TMS patients at Stella MSO Clinic. And that's fantastic. And I really believe on the experience and the playbook that my team already administered with Stella, and that's our plan to do the same thing with all the future collaboration with other mental health networks.

[Operator Instructions] we have no further questions at this time. I would like to turn the conference back over to Hadar Levy for any closing remarks.

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

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.