BrainsWay Ltd. (BWAY) Q3 2026 Earnings Report, Transcript and Summary

Good morning, everyone. My name is Donna, and I will be your conference operator today. At this time, I would like to welcome everyone to BrainsWay's Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] With us today are BrainsWay Chief Executive Officer, Hadar Levy; and Chief Financial Officer, Ido Marom. The format of 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 the call for your questions. Earlier today, BrainsWay released its financial results for the 3 and 9 months ended September 30, 2026. A copy of the press release is available on the company's Investor Relations website, www.brainsway.com. Before I turn the call over to management, 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 certain risks and uncertainties, including shifting market conditions resulting from geopolitical, supply chain, and other risk factors as well as the use of non-IFRS financial information. Additional information regarding these and other risk factors is 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, operator, and welcome, everyone. I'm pleased to report another strong quarter for BrainsWay, reflecting continued execution of our growth strategy, expanding adoption of Deep TMS and further progress towards building a scalable and profitable business. Our ambition extends beyond selling medical devices. We are building a leading neurostimulation platform in mental health, supported by differentiated technology, expanding clinical indication, broader reimbursement, strategic partnership and increasingly predictable recurring revenue model. During the third quarter, we shipped 130 Deep TMS systems, representing 44% year-over-year growth. Our global installed base now exceeds 2,000 systems, further expanding patient access to Deep TMS while creating additional opportunities for commercial leverage across our existing customers. Our financial results reflect this momentum with revenue growing 34% year-over-year and remaining performance obligation reaching approximately $85 million, an increase of 31% compared with the prior year. We believe the continued growth in RPO demonstrates both strong market demand and the success of our recurring revenue model. Our multiyear agreements, high customer retention and growing enterprise relationship provide greater visibility into future revenue while allowing us to deliver comprehensive high-quality support to our customers. Importantly, we continue to demonstrate our ability to combine strong growth with operational discipline and profitability. Turning to clinical development. Deep TMS continued to build on one of the industry's most extensive bodies of peer-reviewed evidence supported by multiple FDA clearances. During the quarter, we announced a peer-reviewed secondary analysis of our randomized clinical trial comparing SWIFT with standard once-daily Deep TMS. Among 89 patients with major depressive disorder, the number experienced suicidal ideation declined from 20 at baseline to 6 after 6 weeks, representing a 70% relative reduction with improvements observed across both protocols. We also announced encouraging results from a pilot study involving 12 patients with depression and early-stage Alzheimer's disease, reporting an 83% response rate and 50% remission rate in depressive symptoms, while preliminary, the findings support further investigation. Deep TMS is not FDA cleared for suicidal ideation or to treat Alzheimer's disease. Regarding PTSD, among patients with coexisting depression, we continue to work through the regulatory review process. We believe a potential clearance would represent an important development, potentially allowing providers to address another significant unmet medical need using their existing Deep TMS system. Alongside this clinical advantage, we continue to make significant progress in reimbursement. Following the quarter, we announced that more than 70 million covered lives in the U.S. now have access to reimbursement policies covering our SWIFT accelerated protocol. We have also expanded the OCD reimbursement coverage to approximately 180 million lives, while our adolescent depression clearance creates another opportunity to broaden access. We believe SWIFT represents one of our most significant long-term growth opportunities. By reducing the acute phase of treatment from several weeks to just a few days, SWIFT has a potential to improve patient convenience, increase treatment capacity for providers and strengthen the overall economics of Deep TMS treatment. Together, these clinical and reimbursement advances reinforce our competitive position and support greater utilization across our expanding installed base. Turning to our commercial strategy. We are seeing growing interest from large behavioral health organizations seeking comprehensive technology partners to support expansion across multiple locations. Our differentiated clinical portfolio, accelerated treatment capabilities and high-touch customer support position BrainsWay as an attractive long-term partner. We believe this enterprise relationship represents an important opportunity to broaden access to Deep TMS, accelerate system deployment and ultimately expand recurring revenue. Our strategic minority investment program complement the strategy [Audio Gap] behavioral health providers. During the quarter, we invested $3 million in Radial Health's Series A financing, building on our existing relationship with other providers such as Hopemark Health. Radial Health is developing an integrated mental health services platform, and we believe this partnership creates meaningful opportunities for commercial and clinical collaboration. Following the quarter, we also announced a strategic commercial collaboration with Inland Psychiatric Medical Group, including a multisystem Deep TMS order and opportunities for future clinical and research initiatives. We continue to see a strong pipeline of enterprise partnership and potential investment while remaining disciplined in selecting opportunities that offer both strategic value and attractive financial returns. Beyond our core business, we continue to invest in next-generation Deep TMS technology and opportunities to expand access to neurostimulation. Through our strategic investment in Neurolief, we are also participating in the emerging home use-based neurostimulation market. While commercialization of its FDA-approved ProlivRx system remains at early stage, we believe this technology could complement our clinic-based platform over the longer term. Our broader vision is to connect advanced clinic-based treatments with innovative home use solution, creating a more comprehensive neurostimulation platform. As we look towards 2027, we believe BrainsWay is entering its next phase of growth. We see multiple complementary opportunities, expanding our installed base, increasing utilization through SWIFT and potential additional indication, scaling enterprise partnership and strengthening our international presence. Importantly, our growing recurring revenue base and scalable operating model provide a strong foundation for sustained growth and expanding profitability. In closing, I am pleased with our third quarter performance and even more encouraged by the opportunities ahead. We have built a differentiated technology platform, established a strong clinical foundation, expanded reimbursement and developed a business model designed for sustainable growth. Our ambition is not simply to participate in the growth of interventional psychiatry. Our ambition is to help shape its future. We remain focused on expanding patient access, improving outcomes and creating long-term value for our shareholders. With that, I will turn the call over to Ido for a detailed review of our third quarter financial results. Ido?

Thank you, Hadar. During the third quarter of 2026, we continued to execute on our growth strategy, leading to a 34% increase in revenue to $18.1 million compared with $13.5 million in the same period last year. For the first 9 months of 2026, revenue increased 35% to $50.8 million. Gross profit for the quarter increased 39% to $14.1 million compared with $10.2 million last year, while gross margin reached 78% compared with 75% both last year and in the second quarter of 2026. Turning to operating expenses. Sales and marketing expenses for the third quarter totaled $5.5 million compared with $4.7 million in the third quarter of 2025. Research and development expenses were $3.5 million compared with $2.4 million last year. General and administrative expenses were $2.5 million compared with $1.8 million last year. Total operating expenses were $11.5 million compared with $8.9 million during -- in the third quarter of 2025. Compared with the same period last year, operating expenses this quarter included approximately $1 million in additional onetime expenses related to share-based compensation and other nonrecurring payments. This increase reflects also the expanding scale of our business and continued investment in our commercial, clinical and product development plans. Revenue growth continued to outpace operating expenses growth, enabling us to support these initiatives while improving operating leverage. Operating income increased 107% to approximately $2.6 million compared with $1.3 million in the third quarter of 2025. Operating margin expanded to 14% of revenue from 9%. For the first 9 months of 2026, operating income increased to 190% to approximately $7 million, with operating margin reaching 14% compared with 6% last year. These results demonstrate our continued ability to translate growth into higher profits and stronger margins. Net income for the third quarter increased 42% to $2.2 million compared with $1.6 million in the same period of 2025. It's important to highlight that during the quarter, we incurred finance expenses related to the periodic valuation of our loans. These valuations reflect various market factors, including changes in adjusted interest rates. These accounting adjustments impacted our reported net income, but do not reflect the underlying performance of our core operations. Adjusted EBITDA was $3.9 million, an increase of 92% compared with $2 million in the third quarter of 2025. Adjusted EBITDA margin expanded to 21% from 15%. Adjusted EBITDA also increased 11% compared with the second quarter of 2026. Remaining performance obligations grew to approximately $85 million as of September 30, 2026, a 31% year-over-year increase. This growth supports our visibility into future revenue and reflects continued execution against our long-term strategy. Cash flow from operations was approximately $6.2 million in the third quarter compared with approximately $1.4 million in the prior year period. Collection more than doubled year-over-year, reflecting $21.3 million and increased approximately 8% compared with the second quarter, reflecting our continued focus on cash generation. Our cash balance increased $63.4 million as of September 30, 2026, while we continue to invest for future growth. Our strong capital position supports the continued development of our core business and the disciplined execution of our strategic investment program. Looking ahead, based on our strong performance and increased visibility into the remainder of the year, we now expect full year 2026 results to be at the upper end of our previously issued guidance range with the potential to modestly exceed those ranges. This concludes my prepared remarks, and I will now turn the call back to the operator to please open up the call for questions. Operator?

[Operator Instructions] Today's first question is coming from Jeff Cohen of Ladenburg Thalmann.

This is Destiny on for Jeff. I was just wondering if maybe we could start with the ProlivRx product. I'm curious if you guys have established any kind of specific adoption or revenue thresholds that would support moving forward? And then if there's anything else you can call out in terms of what you're seeing with initial commercialization.

Destiny, thank you for the question. With regard to Neurolief, just to remind everyone, we initiated a convertible loan in the amount of $11 million to Neurolief. It's a private company. So we're still not combining it into our financial results. But we do see a very good progress across the distribution and the commercial phase of Neurolief, either with the VA channels also with some of our clinic chain. They are working according to our expectations, and we're expecting them to push forward some of their commercial strategy going forward. For sure, the demand is definitely there. There is a real understanding and good demand for a complementary treatment with the home use after the clinical use and vice versa. So we do see this opportunity as one of our future growth factor in the upcoming years.

Okay. I appreciate that. And then I was just curious, do you have any sense of how many of the SWIFT protocol treatments have been done to date? And how do you see that picking up as you get more coverage?

Yes. I think you said it right. It's all -- it's based on coverage. Today, we announced that we have an approx -- even more than 70 million covered lives for the SWIFT protocol. It's much more than we expected to be at this time of the year, and that's what's really pushing the demand. I believe that close to 50% from all new demands coming from the customer demand and request for the SWIFT protocol. I do believe that once we're going to cross 50% of the total population in the United States, I think that will push even harder the demand for this very unique treatment modality because that's what really make a difference between us and the competition.

Right. Got it. That's very helpful. And then just one last one for me. Your margins were great this quarter. And I'm just wondering how we should think about those as we exit 2026 and move into 2027, understanding no formal guidance for 2027.

Yes. So we're already showing better gross margin percentages in Q3. And as we're expecting the year to end, we are planning to continue this momentum with the gross margin improvement. Same goes for the operating income, which we believe, as I mentioned before, will be in the upper end of our guidance.

We are very -- yes, Destiny, I just want to add one more thing. We are very happy with -- and we also just strength our guidance for the year that we're going to land on the -- on both revenue side, but most important, on the profitability. We do continue to see an increase -- our ability to increase margins also for the upcoming future. Obviously, we will provide guidance on our next financial statement, but it looks very good. Everything -- I think we have a very good, predictable business model with good visibility, both on the growth and profitability.

Our next question is coming from Sam Eiber of BTIG.

Maybe just following up on those last couple of comments there. Curious, obviously, a lot of healthy underlying demand. How should I think about the durability heading into next year? I know you're not giving guidance at this time, but is there any reason why this momentum shouldn't continue?

Yes. I believe that in terms of the revenue, since we switched the business model for more recurring business model, we do have a good visibility. And since we continue to see the book-to-bill remain around 1.3 -- 1.4x. We do have a good visibility on the growth months ahead into 2027. On the profitability, we are putting lots of discipline. We're trying to prioritize what is really important, what is less important. We do expect to continue and increase the margin. As you saw, we are able to increase the gross margin from 75% to 78%. It's due to twofold. One is an improvement in the BOM of material. It's based on a number of units that we are manufacturing. It's helping us to reduce some of the cost. We also were able to reduce some of the royalties payments that we needed to pay, and we don't need to continue and pay that. So only by that, we had some immediate win that will be sustainable also toward 2027. On top of it, again, like we don't really need to increase our OpEx dramatically for next year. I believe, again, like the OpEx will increase between 15% to 20% next year, while we continue to sustain the growth as well. So that will lead to the bottom line. And so with the hope that almost every dollar which is going to hit the top line revenue will go down to the EBITDA and even more into the net income.

Okay. Very helpful there. Maybe I can follow up on the OCD coils. I think I saw 17% growth there. Is there anything driving that? And then can you maybe remind me where coverage stands today for that indication?

Yes. I would say that what's really driving demand today for system deployment is twofold. One is the SWIFT protocol. The second one is OCD. It's not only 17% increase in new systems, but take a look on the overall installed base. I think we crossed the 1,000 OCD system deployed. It's a lot. I think that's a huge differentiation. Just to remind everyone, BrainsWay was the only company that has conducted the multicenter trial in the United States for an approval of OCD with great results. We know that it's one of the best treatment modality for severe OCD patients. And we do see a continuous demand for the OCD coil. The OCD coil is the H7. We also -- it's a good use also for depression. But I do foresee a continuous demand for this very, very important indication. Going forward, there is no other treatment modality like OCD treatment by Deep TMS.

[Operator Instructions] Our next question is coming from Ram Selvaraju of H.C. Wainwright.

Congratulations on all the progress this quarter. I was wondering if you could give us maybe some granularity, some indication of when you might be able to provide us with more details on the specific revenue contributions or impact to the overall growth of the installed base of the minority investments that you have been making and the strategic collaborations that you've established? And what kinds of metrics, if any, we should expect going forward on this aspect of your overall business strategy?

Yes. Ram, thank you for the question. We are very happy. I think that we've made close to 10 minority investment or following up investments or partnership similar to what we announced with Mindful Health Solutions or with Inland Psychiatry. The expectation from each one of those partnerships is to increase market awareness and expand access and grow with one of the most portfolio companies today in the United States. The expectation is that each one of those portfolios is going to open up between, I would say, 50, sometimes even more locations in the next 3 years. which means that, obviously, if they're going to expand and open up some new locations, they will order Deep TMS technology or additional treatment modalities like Neurolief or some other technologies options that we can offer them. So my expectation is to continue and grow with them. Just to remind everyone, the orders of the machines from all those partnerships, it's not linear. Usually, the first year is -- might take a little bit more time just to find a new location, do the necessary credentials with some of the hiring stuff. But I do intend to see much better demand and orders on the second year, which means for you, Ram, it's going to be 2027. So I do believe that in 2027, we're going to share much more information on the increase and the process of all those minority investment and partnership. I think in our last call or some of my presentation, I did present that in terms of utilization, we do see a significant growth with all our partners in those minority investments. We do see an increase of close to 50%, sometimes 100% in utilization in just a few months. In some aspects, we even see like 4x or 5x in increase in utilization using our system after 6 months. That's exactly what we want to see, which means that our customer, our partners love our technology. They implement this technology, train their team and increase market awareness with the patients.

And then with respect to the international business, maybe you can give us some sense of where you're seeing the principal growth drivers, if you're seeing any noteworthy operational disruption as you look at the ex U.S. markets and which ones you think are likely to be the most significant drivers of growth going forward? And if there is any additional information you can provide to us at this time regarding your development plans, specifically for Deep TMS in Alzheimer's disease, what the anticipated time line would be to the next inflection point and what the magnitude of capital investment you expect to make would be in that specific potential future aspect of Deep TMS growth?

Sure. So on the international expansion, we continue to see a geographic expansion in some new territories. Some of them relates to Latin America, including Mexico, Argentina, Uruguay, and we're also looking for some strong distributor in Brazil. The leading countries outside of the United States will continue to be Asia Pacific, specifically Korea, Taiwan, China and India. And on top of it, also Europe, we continue to see some very strong demand from some of the leading countries in Europe, including Italy, Spain, England, Germany and some of the Scandinavian countries. And also Israel. Israel is still a small country, but the demand in Israel continue to grow. I forgot to mention also Japan. Japan received also reimbursement in their country, and they're going to be one of the leading country to really push the -- some of the main driver for growth on the international market. But we do see a consistent growth with each one of those countries. We do see between 50% or even 100% growth in revenue on the international market. And it's no surprise, I believe that once reimbursement will fall in, in those countries, I believe we're going to see similar demand to what we're seeing in the United States. Technology is the same technology. So the same differentiation that we're enjoying today in the United States. It also remained outside of the United States. And the big advantage is in Europe, we have 12 cleared indication, okay, which some of them relates to neurology indications like pain management, stroke rehabilitation, PTSD and some other, which we believe that we can find the right partner that can really take and distribute this product going forward. For your second question on Alzheimer's, we are advancing some research that is relates to Alzheimer's and depression today with three medical centers. We do want to see if we can able to slow down the deterioration of Alzheimer's patients. We do have some very promising and preliminary results with that, but it's a very small number of patients, but we still need to prove it down the road. Once we complete this feasibility study, which I believe is going to be end of 2027, we are intend to, one, find a potential strategic partner that potentially together, we can probably go and start investing in multicenter clinical trial in the United States. If we are intend to do it by ourselves, similar to other clinical trial, each clinical trial, unlike pharma, it's not cost a lot of money. Usually, it's between $3 million to $4 million over 2.5 or 3 years. Most important for us is the indication. We do see some very, very promising results, which I believe could be something very promising and interesting for BrainsWay as a leading TMS company.

Ladies and gentlemen, this concludes today's question-and-answer session. I would now like to turn the floor back over to Mr. Levy for closing comments.

Yes. So thank you all. Just to highlight some things that we discussed during the call. Our commercial momentum is strong, supported by an expanding installed base, growing pipeline and strategic health care partnership. Second, profitability. We are providing -- we are proving that our business model can generate significant operating leverage as we scale. Third, opportunity. With SWIFT protocol, expanding clinical indication, international growth and next-generation technologies, we believe we are still in the early stage of our long-term opportunity. BrainsWay is no longer simply a Deep TMS technology company. We are evolving into a scalable, profitable global neurostimulation platform with multiple growth engines and a clear mission to transform mental health care. With that, I would like to thank you, all the investors, analysts and other participants for their interest in BrainsWay. With that, please enjoy the rest of your day. Thank you very much.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.