Executive Summary / Key Takeaways

• Leasing Model Transformation: BrainsWay's strategic pivot to multi-year lease agreements—now representing 70% of customer engagements—has created a predictable, high-margin revenue stream with superior retention, fundamentally altering the company's capital efficiency and growth trajectory.

• Technology Moat in Deep Brain Stimulation: The company's proprietary H-coil Deep TMS technology, delivering deeper and broader brain stimulation than competitors, combined with multiple first-in-class FDA clearances (OCD, anxious depression, elderly MDD), establishes durable differentiation and pricing power in a fragmented market.

• Profitability Breakthrough: After years of losses, BrainsWay achieved positive operating income of $1.3 million in Q3 2025 (versus $0.3 million prior year) and Adjusted EBITDA of $2 million, demonstrating clear operating leverage as the business scales, with gross margins holding steady at 75%.

• Strategic Capital Allocation: The $20 million Valor Equity Partners investment and subsequent minority stakes in mental health providers (Stella MSO, Axis) and neuromodulation technology (Neurolief) represent a novel ecosystem approach that expands market access while avoiding operational distraction.

• Competitive Positioning: Against primary competitor Neuronetics , BrainsWay trades lower top-line growth for superior profitability and indication diversity, while maintaining technology leadership that has driven a 1.3x book-to-bill ratio and $65 million in remaining performance obligations.

Setting the Scene: The Deep TMS Opportunity

BrainsWay operates at the intersection of two powerful trends: the growing mental health crisis and the shift toward non-invasive, non-pharmacological treatments. The company's Deep Transcranial Magnetic Stimulation (TMS) technology uses proprietary H-coils to stimulate deeper and broader brain regions than conventional TMS systems, targeting treatment-resistant depression, obsessive-compulsive disorder, smoking addiction, and emerging indications like PTSD and alcohol use disorder.

The business model transformation began around Q3 2023, when management made a decisive strategic shift away from one-time equipment sales toward multi-year lease agreements with large enterprise customers. This wasn't merely a financing tactic—it restructured the entire revenue profile. Lease agreements now constitute approximately 70% of recent customer engagements, creating a recurring revenue foundation that provides both growth visibility and gross margin stability. The company complements this with pay-per-use models in select territories like Israel, where systems are provided with no upfront fee and charges are based on procedures.

In the competitive landscape, BrainsWay faces Neuronetics (STIM) as its most direct publicly-traded rival, with the NeuroStar system holding a larger U.S. installed base for standard depression treatment. However, Neuronetics' figure-8 coil technology is more superficial and primarily MDD-focused, while BrainsWay's H-coil penetrates deeper brain networks. Broader neurostimulation competitors include ElectroCore (ECOR) with its portable vagus nerve stimulation for headaches, and Helius Medical (HSDT) with neuromodulation for neurological conditions—both addressing adjacent markets but lacking BrainsWay's psychiatric focus and regulatory depth.

The industry structure favors companies that can demonstrate both clinical efficacy and economic value to healthcare systems. Insurance reimbursement expansion, including Medicare coverage for OCD and the Israeli Ministry of Defense's PTSD reimbursement approval, is removing adoption barriers. Meanwhile, the post-pandemic mental health awareness surge is accelerating provider willingness to invest in capital equipment—particularly when structured as leases that minimize upfront risk.

Technology, Products, and Strategic Differentiation

BrainsWay's core technological advantage resides in its H-coil design, which enables significantly deeper and broader brain stimulation compared to standard figure-8 coils. This isn't incremental improvement—it fundamentally changes the addressable patient population by reaching subgenual cingulate and other deep brain regions implicated in treatment-resistant conditions. The clinical implication is material: patients who fail multiple antidepressant trials can achieve response rates exceeding 50% with Deep TMS, expanding the treatable market beyond what superficial TMS can capture.

The regulatory moat is equally compelling. BrainsWay was first to market with FDA clearance for OCD treatment, first for anxious depression, and remains the only TMS device approved for elderly MDD patients up to age 86 after the FDA raised the age limit in June 2024. These aren't just labels—they create exclusive market access in large, underserved populations. For elderly MDD, where polypharmacy risks are high, a non-invasive alternative represents a breakthrough therapeutic option with limited competition.

The Deep TMS 360 system represents the next evolution, designed for more comprehensive and uniform stimulation across targeted brain regions. Launching in Q3 2025 alongside an NIH-funded alcohol use disorder (AUD) trial at Stanford, the 360 system targets addiction and neurology indications where broader field coverage may improve efficacy. Management believes this could enable shorter treatment durations with better outcomes, directly addressing the convenience barrier that limits TMS adoption. The accelerated MDD protocol, which compresses the acute treatment phase from four weeks to several days, exemplifies this convenience-driven innovation—potentially making Deep TMS substantially more appealing to prospective patients and improving clinic throughput by 5x.

Strategically, the minority investment initiative announced in late 2024 represents a capital-light expansion strategy. By investing in mental health providers like Stella MSO and technology developers like Neurolief, BrainsWay gains distribution access, real-world data, and R&D optionality without taking on operational complexity. The Neurolief investment is particularly noteworthy: a milestone-based convertible loan of up to $11 million for a wearable home-use neuromodulation platform, with an option to acquire. This positions BrainsWay at the forefront of the inevitable shift toward home-based mental health treatment, while the milestone structure limits downside risk.

Financial Performance & Segment Dynamics

The financial results provide compelling evidence that the leasing pivot is working. Q3 2025 revenue of $13.5 million grew 29% year-over-year, consistent with 26-27% growth rates maintained throughout 2025. More telling is the system shipment acceleration: 90 units in Q3 (43% growth) brought the installed base above 1,600 systems globally. This combination—revenue growth driven by both unit volume and recurring lease streams—demonstrates a scalable model where each new system adds not just a one-time sale but a multi-year revenue annuity.

Gross profit of $10.2 million at 75% margin held steady versus 74% prior year, proving that the lease model maintains pricing power while providing customers with financing flexibility. This margin stability is crucial—it shows the business isn't sacrificing profitability for growth. Operating profit surged to $1.3 million from $0.3 million, a fourfold increase that delivered 9.6% operating margin, while Adjusted EBITDA reached $2 million (14.8% margin). The operating leverage is stark: revenue grew 29% but operating profit grew 333%, indicating that incremental revenue flows through at extremely high margins once fixed costs are covered.

Cash generation reinforces the story's durability. BrainsWay generated positive cash flow from operations for six consecutive quarters, ending Q3 with $70.7 million in cash despite deploying $7.3 million for minority investments during the quarter.

The debt-free balance sheet provides strategic flexibility for additional investments or R&D acceleration without dilution risk. Remaining performance obligations of $65 million, up 37% year-over-year, offer revenue visibility that few medical device companies of this size can match.

The book-to-bill ratio of 1.3x in Q3 signals that demand is accelerating faster than revenue recognition, creating a growth tailwind. Management noted that roughly 80% of new sales come from greenfield opportunities (new customers) while 20% represent competitive conversions, indicating both market expansion and share gains. The high customer retention rate and expansion of existing agreements underscore that once providers adopt Deep TMS, they tend to increase utilization rather than churn—a critical characteristic for a capital equipment business transitioning to a recurring model.

Outlook, Management Guidance, and Execution Risk

Management's guidance trajectory reveals increasing confidence. Full-year 2025 revenue guidance has been raised twice, from $49-51 million to $51-52 million, implying 24-27% growth. More significantly, operating profit guidance increased from 3-4% to 6-7% of revenue, while Adjusted EBITDA guidance rose from 11-12% to 13-14%. These upward revisions reflect both strong performance and improved visibility into the scalability of the leasing model.

The accelerated MDD protocol is emerging as a key demand driver. Management reports that demand "looks pretty good" and is actively driving growth by improving patient convenience and clinic capacity. With data from the follow-up period expected in Q3 2025, positive results could unlock further adoption and support premium pricing. The Deep TMS 360 launch for AUD, planned for Q3 2025, represents a $1+ billion addressable market where no TMS device currently holds FDA clearance—creating a first-mover opportunity if trials succeed.

International expansion provides another growth vector. The company is strengthening distribution across Asia Pacific (Japan, China, South Korea, Taiwan, Thailand, India) and Europe (Germany, France, Spain, Italy), with the Israeli market showing particular strength. Management sees potential for faster expansion as additional indications like addiction and neurology gain clearance in these regions, potentially doubling the addressable market beyond U.S. psychiatry.

The minority investment strategy carries execution risk. While utilization at Stella and Axis clinics is up over 50% since inception, these investments consume cash without contributing to top-line revenue. The goal of signing at least five contracts by end of 2025 and 15 by end of 2026 requires disciplined capital deployment. However, the structure—minority stakes with options to increase ownership—limits operational distraction while providing valuable market intelligence and distribution channels.

Risks and Asymmetries

The most material risk to the thesis is FDA regulatory delay, particularly for the Neurolief home-use device. Management acknowledged that "things might look a little bit slow due to the current situation with the FDA administration," creating uncertainty around the timeline for clearance expected by year-end 2025. Any significant delay would push back the home-use revenue opportunity and could impair the $11 million convertible loan's conversion value.

Competitive pressure from Neuronetics remains a constant threat. While BrainsWay leads in indication diversity and profitability, Neuronetics' 101% revenue growth in Q3 2025 (to $37.3 million) reflects aggressive market share capture in core MDD treatment. Neuronetics' established U.S. clinic network and pay-per-session model appeal to cost-sensitive providers, potentially capping BrainsWay's penetration in price-competitive segments. If Neuronetics accelerates its own indication expansion or matches BrainsWay's leasing terms, growth could decelerate.

The minority investment strategy, while strategically sound, consumes capital that could otherwise fund R&D or share repurchases. With $7.3 million deployed in Q3 alone, the pace of investment must be balanced against cash generation. If these investments fail to produce meaningful clinical data or distribution gains, the strategy will be viewed as a value-destroying distraction rather than a value-creating ecosystem play.

Geopolitical risk as an Israeli company adds another layer of uncertainty. While management monitors potential trade policy changes and doesn't expect material margin impact, any escalation in regional conflict could disrupt operations or create customer hesitancy. Additionally, dependence on large enterprise customers means that losing a major account could create a noticeable revenue gap, though the diversified installed base of over 1,600 systems mitigates this concentration risk.

Valuation Context

At a stock price of approximately $8.50 per share, BrainsWay trades at 50 times trailing earnings and 5.08 times enterprise value to revenue. These multiples reflect a premium for a newly profitable medical device company growing at 25-30% with expanding margins. The EV/EBITDA ratio of 58.68 appears elevated but must be viewed in context: EBITDA margins are rapidly expanding (13-14% guided for 2025), and the company is in the early innings of profitability inflection.

Comparing against peers highlights BrainsWay's unique positioning. Neuronetics (STIM) trades at 1.19 times EV/Revenue but remains deeply unprofitable with -19.6% operating margins and -34.3% net margins—reflecting a growth-at-all-costs strategy that BrainsWay has avoided. ElectroCore (ECOR) trades at 1.27 times EV/Revenue with superior 86% gross margins but -33.2% operating margins, showing the challenge of scaling portable neurostimulation. Helius (HSDT) trades at 50.8 times EV/Revenue with negligible revenue and -704% operating margins, representing a failed commercialization story.

BrainsWay's balance sheet strength justifies its premium. With $70.7 million in cash, no debt, and positive free cash flow generation, the company has 5+ years of runway at current burn rates even if profitability stalls. The 75% gross margins and 12.7% net margins demonstrate that the business model works at scale—unlike most peers still searching for profitability. The 10.95% return on equity, while modest, is positive and growing, contrasting sharply with negative ROE at all three peer companies.

The valuation multiple compresses meaningfully when considering forward estimates. If BrainsWay achieves the midpoint of 2025 guidance ($51.5 million revenue, 6.5% operating margin, 13.5% EBITDA margin), the forward EV/EBITDA drops to approximately 35x—still premium but reasonable for a company with technology leadership, regulatory moats, and a recurring revenue model in a $1.5+ billion addressable market growing at 12% annually.

Conclusion

BrainsWay has engineered a rare combination in the medical device sector: profitable growth driven by a capital-efficient business model transformation, protected by genuine technology differentiation and regulatory exclusivity. The pivot to leasing has converted a lumpy capital equipment business into a predictable recurring revenue platform, while the Deep TMS technology's ability to reach deeper brain networks creates a clinical moat that competitors' superficial coils cannot easily replicate.

The central thesis hinges on two variables: the adoption velocity of accelerated treatment protocols and the execution of the minority investment ecosystem strategy. If the accelerated MDD protocol drives the 1.3x book-to-bill ratio higher and the Deep TMS 360 captures first-mover advantage in AUD, BrainsWay could sustain 25-30% growth while expanding margins toward 20% EBITDA. Conversely, if FDA delays slow new indication approvals or minority investments prove dilutive, the valuation premium could compress rapidly.

For investors, the story is no longer about potential—it's about scaling a proven model. The company has demonstrated five consecutive quarters of net profitability, six quarters of positive cash flow, and a clear path to double-digit operating margins. In a neurostimulation market where most competitors remain unprofitable, BrainsWay's combination of technology leadership, regulatory exclusivity, and business model innovation positions it to capture disproportionate value as mental health treatment shifts toward non-invasive, technology-enabled solutions. The key monitoring points are Q3 2025 accelerated protocol data and the pace of minority investment deployments—two variables that will determine whether this profitability inflection represents a temporary spike or the beginning of a durable compounding story.