Good morning, ladies and gentlemen, and welcome to the BrainsWay Second Quarter 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, August ninth of 2023. I would now like to turn the conference over to Brian Ritchie with LifeSci. Please go ahead, sir.
Thank you. Welcome to BrainsWay's second 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. We will open up the call for your questions. Earlier today, BrainsWay released financial results for the three and six months ended June 30th, 2023. 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 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 pleased to report that our efforts towards implementing key initiatives aimed at growing the company's top line over 2022, while targeting break-even operating income and positive adjusted EBITDA in the fourth quarter, are progressing extremely well. We remain focused on optimizing our existing commercial process, including enhancing our emphasis on larger institutionals 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. The recent order of 30 new Deep TMS systems by a large growing TMS networks of clinics is indicative of our execution of this strategy. Moreover, our international business continued to perform well.
Most recently in India, following a serious successive multisystem order, Asha Neuromodulation Clinics and its affiliates will own 25 Deep TMS system. As the world's most populous country, India represent a key international market for BrainsWay. Importantly, the resume momentum we saw in our business during the first quarter continued in the second quarter, and our outlook for the second half of this year is positive as well. On the top line, our second quarter revenues increased 18% sequentially as compared to the first quarter of 2023, and we shipped a net total of 53 systems during the second quarter. Moreover, demand for OCD treatment indication continues to grow as we shipped 34 OCD coils as add-on elements to certain new and existing systems. Nearly 50% of our total install base now includes OCD treatment capability.
Our second quarter bottom line included some of the benefits of the cost optimization measures we executed on earlier this year, as we achieved significant improvement in operating and adjusted EBITDA results. We expect this improvement will become even more apparent in the second half of this year. In addition, we continue to be supported by an extremely strong balance sheet, having ended the first half of the year with $43.4 million in cash and with no debt. As our second quarter results indicate, we are confident that our business is trending in the right direction, and we look forward to further progress in the second half of this year. Moving on to R&D.
You will recall that we launched an investigator-initiated study program earlier this year that 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 investigators interested in advancing current knowledge about Deep TMS. We received over 30 applications through the July 3rd deadline, and our research committee is currently evaluating each one. We intend to accept 10 candidates to further advance this original research and will update you on the area selected for additional work in the coming months.
On the reimbursement front, Aetna now allows TMS treatment to be ordered and administered under the supervision of behavioral health nurse practitioners for patients with MDD, and has removed the previously required 4-month psychotherapy trial before a patient become eligible to receive an initial course of treatment with TMS.
These policy changes impact nationwide commercial plans covering 16.8 million covered lives. Additionally, Blue Cross Blue Shield of Michigan recently issued a healthcare policy update, reducing the number of antidepressant medication attempts from four down to two prior to TMS treatment eligibility. We also continue to build clinical evidence in support of Deep TMS. Most recently, we had three papers published highlighting Deep TMS in multiple leading peer-reviewed medical journals. Two of the papers, one published in Brain Stimulation and the other in The Journal of Clinical Psychiatry, underscore the favorable safety profile of Deep TMS. The third paper, published in Brain Sciences, is comprehensive review of existing evidence of the use of TMS in addressing multiple addictions, including our existing indication of smoking addiction, as well as other potential areas requiring more research, such as alcohol use disorder.
Finally, I would like to welcome Ido Marom to BrainsWay. Ido recently joined as CFO and significantly strength- strengthened our management team. He is an experienced senior financial leader in global industries, including medical technology. We look forward to his significant contribution as we continue to grow our business as a global leader in TMS industry. Before we review our financial results, I would like to reiterate our confidence in BrainsWay's outlook for full year 2023. As a reminder, we continue to expect to demonstrate revenue growth over 2022 and are targeting breakeven operating income and positive adjusted EBITDA in the fourth quarter. The market dynamic 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.
With that, I will now turn the call over to Ido for his review of our second quarter of 2023 financial results. Ido?
Thank you very much for the warm welcome, Hadar. I'm thrilled to be here at such an exciting time for BrainsWay and look forward to interacting with our investors and analysts very soon. With that, I will review our financial results. Revenue for the second quarter of 2023 was $7.8 million, a 2% decrease compared to the prior year period revenue of $8 million. On a sequential basis, revenue in the second quarter grew over 18% compared to the first quarter of 2023. As expected, total revenue in the second quarter was impacted by the inability to recognize approximately $1 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 revenues throughout 2023.
However, the momentum previously discussed in both the U.S. and internationally, was not impacted by this customer. We placed 53 Deep TMS systems in the second quarter, with particularly strong performance in the U.S. Our total installed base was 985 systems as of June 30th, 2023, compared to 829 systems at June 30th, 2022. Gross profit for the second quarter of 2023 was $5.7 million, or a 73% gross margin. This is compared to $5.8 million or 73% gross margin during the prior year period. Moving on to operating expenses. For the second quarter of 2023, sales and marketing expenses were $4 million, compared to $4.6 million for the second quarter of 2022.
Research and development expenses were $1.9 million, compared to $1.7 million in the second quarter of 2022. General and administrative expenses for the second quarter of 2023 were $1.2 million, compared to $1.5 million for the second quarter of 2022. With respect to expenses for the second half of 2023, we expect costs to continue to decrease as compared to 2022. As Hadar previously mentioned, we are strategically reprioritizing our investment in our commercial and research activities. Operating loss for the second quarter was $1.3 million, compared to an operating loss of $2 million for the same period in 2022.
Adjusted EBITDA for the second quarter of 2023 improved to a loss of only $0.6 million, compared to a loss of $1.2 million for the second quarter of 2022. For the second quarter ended June 30, 2023, we incurred a net loss of $1.7 million, compared to a net loss of $2.5 million in the same period of 2022. Moving to the balance sheet, we ended the second quarter with cash, cash equivalents, and short-term deposits of $43.4 million, as compared to $47.9 million at December 31, 2022.
In addition, we see an improvement in our cash burn rate in Q2 compared to the previous quarter, with only $0.9 million cash burn in Q2 versus $3.5 million in the previous quarter.
Based on our robust U.S. pipeline and continued momentum internationally, we are confident in our positive outlook for the remainder of 2023. This concludes our prepared remarks. I will now ask the operator to please open up the call for questions. Operator?
Thank you. Ladies and gentlemen, we'll now conduct a question-and-answer session. If you have a question, please press star, followed by the one on your touch-tone phone. You will hear a tone prompt acknowledging your request. If you would like to cancel your request, please press the star two. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. Once again, to ask the question, please press star one on your phone at this time. The first question in the queue comes from Jeffrey Cohen with Ladenburg Thalmann. Your line is open. Please proceed.
Hi, Hadar and Ido, how are you?
Very good, Jeff. Good to hear you.
Hi, Jeff. Nice to meet you. Thank you.
Thanks again, Hadar, for hosting me at your facility last month. Much appreciated. A few questions from our side. Firstly, you talked about a U.S. account with, I think it was 30-plus placements. Could you give us a sense of where the account is geographically and what might be the timing of installs and training?
Yeah. First, first of all, that was a big, a big win for the company, that is showing great confidence in the value of the Deep TMS technology. This is a very large TMS network with nearly 20 clinics across six states in the Western and Central U.S. As for your second question, they placed an order for 30 Deep TMS system that has been delivered and will get installed in the upcoming months.
Got it. Okay. Could you jump over to India for a moment as far as the order there? What's in India today, and when might this order also be placed and trained as far as timing?
Yeah, sure. Sure. India is, again, this is another great example, for our very nice progress on the international market, and India represent a huge market opportunity for us. This specific hospital, Asha Neuromodulation Clinic, and its affiliate, purchased from us 25 systems in a few lump sum. Some of them are already placed, and some of them will be placed toward the end of this year. Overall, the total placed system placed in India is currently 35 system, and this market is continuing to grow.
Okay, got it. Then, Ido, on the financial side, could you just give us a sense? You talked about a reduction of some of the costs in the back half of the year off of Q2, which was already reduced from Q1 and most of last year. Is the sense that you're able to do as much and continue to grow as swiftly with the current level of spend?
Yes. As you can see, if you compare the second quarter to the first, we managed to reduce significantly our operating costs from $8.5 million- $7 million, and on the other hand, we actually increased our revenue from $6.6 million- $7.8 million. We actually, as far as I see that, are not right now in the right structure for the company, and we still also are aiming to improve even better. The reduction in cost didn't impact our revenue, actually the opposite. We managed to increase the revenue, and we are now in a much better operating structure than we had before.
Okay, got it. Lastly for us, Hadar, any discussion or any recent news about multi-channel studies as far as studies, ongoing publications, or any data that we'll see for the balance of 2023?
Yeah, we are in the process of assembling the multi-channel system. Our plan is to launch some feasibility studies toward the end of the year. It's too soon now to share the specific information, but once we're gonna have some more interesting about what clinical evidence are we trying to develop here, so we're gonna share with all the all the investors. The plan is to launch the multi-center, the the the multi-channel system toward the end of the year.
Got it. Okay, that does it for us. Thanks for taking our questions.
Thank you, Jeff.
Thank you.
Thank you. The next question in the queue comes from Jayson Bedford with Raymond James. Please proceed.
Good morning. Just, congrats on the progress here. Just a few questions. I guess maybe just following up on the last one. You mentioned that the large orders, the 30 systems in the West Central U.S., 25 in India, how many of those were recognized in 2Q?
Roughly around 30 systems have been recognized in Q2.
Okay. When you look at Deep TMS systems in the U.S., I'm just wondering, what % roughly are new systems sold to new adopters versus existing users? Are you seeing I'm just wondering if this is changing in any way. Are you seeing new folks come on and adopt the therapy?
Yeah, yeah, absolutely. I would say that, you know, I think, I think we're still keeping some good momentum with both current customers, again, that we're putting lots of focus and efforts to increase our partnership with our existing customers. The recent growth that we announced, both in the U.S. and in international, were current customers. That means that our strategy on focusing on these strategic customers is really benefiting us. We're also focusing on new customers. There is ample of room for us to grow. I would say the balance is roughly around 50/50 between these two. We are also focusing on new customers, but mainly focusing on large and current customers that are working with us very closely.
Okay. Just looking at kind of the ratio of Deep TMS systems shipped versus OCD coils, a bit bigger delta this quarter between the two. Is that just reflective of more international, where, where international may be less likely to adopt OCD? I'm just, just kind of wondering the, the mix of Deep TMS versus OCD in the quarter.
Yeah, yeah, yeah. I mean, you know, I think most of the adoption for the for the OCD coil is mainly due to the favorable reimbursement in the U.S. We do see, and I'm expecting to to continue to have some very nice and positive demand for the OCD coil. As I said, I think that the mix between international and, and the U.S. always I think that most, most of the US customers will demand the the OCD coil.
Okay. It appears that this is the case, but I just want to confirm that the pricing seems pretty stable out there. Is that a fair, a fair assumption?
Yep. Yeah. I believe that customers are really valued our value proposition, our differentiation in the market, and the pricing is still staying very steady state, same as the gross margin.
Okay, thank you.
Thank you, Jayson.
Thank you. The next question in the queue comes from Steve Lichtman with Oppenheimer. Your line is open. Please proceed.
Thank you. Hi, Hadar, congratulations, Ido. Wanted to ask on international. You obviously had success in the placement in India. Can you talk more broadly about, you know, the opportunity ahead for you guys internationally, where you're focused, and what % of the business was international, you know, as you look back in the second quarter?
Yeah. Thank you. Thank you for the question, Steve. On the international, the international market is growing. I believe that I do intend to grow, specifically in Asia, in multiple countries, but also in Europe. That's going to be our main focus. The international business is growing, and I do anticipate in terms of the number of shipment to the international, I believe the ratio will be around 80%- 20% between domestic and international.
Okay, got it. Then I guess, sort of in connection with that, how should we be thinking about, you know, the gross margin outlook, you know, as we, you know, into the back half of the year and look into to 2024? Do, do you see a stability there, or should we be thinking about a little bit of a tempering, you know, with some increasing international sales?
I'm not sure what you are trying to ask. Our gross margin right now is we see it very stabilized, like towards the end of the year. With our expected pipeline and revenue, we are aiming to keep the same gross margin numbers until the end of the year. Now, of course, that increasing the volume of the revenue can help us by increasing the gross margin. On the other end, the margin, of course, that we have internationally is a little bit lower than what we see in the U.S. market.
Overall, Steve, the gross margin is, is, is impact from 2 main factors. One is the ratio between international and domestic, and the other one, is, is, is about direct purchase versus lease. You know, I believe that we have the right mix. Based on our projection, I do believe that the gross margin will, will stay pretty stabilized to where is it today.
So off- you know, all some offsetting factors and keep it stable. That's, that's helpful. And then just on the sales force in the U.S., I think you talked last quarter about some sales changes. Is there, you know, anything else sort of underway there? Is there some, you know, stability now after those changes on, on the U.S. sales force?
Oh, yeah, definitely. I think that we have the right team in place, extremely focused and motivated, selling this product. I see it on a daily basis. I think the overall pipeline is growing. We're gaining some very good, very good momentum. If we're gonna see this continue to happen, we even open to increase the number of sales rep. Definitely there is a very good momentum in the market, very good demand, very stable and promising pipeline, I'm very optimistic.
Great, thanks so much.
Yeah.
Ladies and gentlemen, as a reminder, should you have a question, please press star 1 on your touchtone phone. The next question in the queue comes from Boobalan Pachaiyappan with H.C. Wainwright. Please proceed.
Hi, good morning, team, thanks for taking our questions. A few from us. Firstly, as you compare the adverse event profiles of 3 coils, the paper that you just published recently. I was wondering if you gleaned any new information that might give Deep TMS a competitive edge over standard TMS involving figure-of-eight coils.
No, I, I believe, I believe you know, the forefront of TMS manufacturers, there, there are many, many publications, and from, from data that we are collecting. I think those were specifically around the safety. We believe and we know that this treatment is very, very safe, and we are very proud on this publication. But no, there is no really a big, a big news as to as, as compared to the traditional TMS.
I was hoping to get additional clarity about the customer who purchased 30 Deep TMS systems. Maybe on a high level, can you provide maybe some clarity on the customer's familiarity with Deep TMS, and then the volume of the business, and the preference for H1 versus H7 during routine practice?
Yeah, this customer is, you know, he opened his gate in the early 2000, and it's a mental health facility that is focusing, their main focus is on TMS and ketamine. This is working very closely with BrainsWay along the years. His main focus is in psychiatric disorder, both MDD, anxiety, PTSD, and also OCD. He has definitely a huge interest in our H7 coil for OCD as well as the H1 for MDD.
All right. Thanks a lot. That's it from us.
Yeah, thank you.
There are no further questions in the queue at this time. I'll turn the call back over to Hadar for any closing remarks.
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 your day. Thank you.
Thank you, ladies and gentlemen. This concludes your teleconference. Please disconnect your lines.