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Good day, and thank you for standing by. Welcome to the Neuronetics Third Quarter 2023 Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Mark Klausner. Please go ahead.

Good morning, and thank you for joining us for the Neuronetics third quarter 2023 conference call. Joining me on today's call are Neuronetics President and Chief Executive Officer, Keith Sullivan; and Chief Financial Officer, Steve Furlong. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our business strategy, financial and revenue guidance, the impact of COVID-19, and other operational issues and metrics. Actual results can differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. For a discussion of risks and uncertainties associated with Neuronetics' business, I encourage you to review the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K filed in March 2023 as well as the company's quarterly report on Form 10-Q, which will be filed later today. The company disclaims any obligation to update any forward-looking statements made during the course of this call except as required by law. During the call, we'll also discuss certain information on a non-GAAP basis, including EBITDA. Management believes that non-GAAP financial information taken in conjunction with U.S. GAAP financial measures provide useful information for both management and investors by excluding certain non-cash and other expenses that are not indicative of trends in our operating results. Management uses non-GAAP financial measures to compare our performance relative to forecast and strategic plans, to benchmark our performance externally against competitors, and for certain compensation decisions. Reconciliations between U.S. GAAP and non-GAAP results are presented in the tables accompanying our press release, which can be viewed on our website. With that, it's my pleasure to turn the call over to Neuronetics' President and Chief Executive Officer, Keith Sullivan.

Thank you, Mark. Good morning, and thank you all for joining us. I'll begin by providing an overview of the recent performance, followed by an operational update. Steve will then review our financial results. And I'll conclude with some thoughts on the rest of 2023, before turning to Q&A. In the third quarter, we maintained our momentum, executing effectively across the organization as our commercial and customer education initiatives gained traction, which resulted in record revenue. Total revenue was $17.9 million, an increase of 8% over the third quarter of 2022. NeuroStar system revenue was $3.6 million. During the quarter, we shipped 43 systems, slightly below our plan of 45 to 50. While financing for customers to acquire systems remains readily available, the process took slightly longer during the third quarter than in the past due to increased diligence from the leasing company. As a result, a few deals that we expected to close in Q3 were pushed into Q4, most of which have already closed. Our NeuroStar summits continue to play a pivotal role in our capital strategy, serving as a platform to educate customers about our transformative impact NeuroStar can have on patients' lives. The recent summit in Austin, Texas, which was at capacity, led to a substantial number of system sales during the event. U.S. Treatment Session revenue was $13.1 million, up 10% over the third quarter of 2022. This represents a new record for Treatment Session revenue and utilization in a single quarter. The growth was primarily driven by an 18% year-over-year rise in local consumable utilization. Additionally, the successful implementation of key initiatives like NeuroStar University, our 5-STARS Solution program, expanded use of the PHQ-10 tool, and co-op marketing positively impacted our performance, leading to our record revenue. During the quarter, we also observed positive utilization trends at Greenbrook sites as they continued to return their business to pre-merger levels. Notably, all of the Greenbrook systems that were offline earlier this year as a result of their store closures have been moved out of storage. Currently, all of these systems are located in clinics, with 42 of the 52 systems actively treating patients. We expect the remaining systems to be online over the near term. Although the historical Success TMS sites are making headway, they are still lagging behind Greenbrook sites. Overall, we remain very pleased with the rebound of Greenbrook's business and will continue to work in close partnership with them to drive our mutual success going forward through co-op marketing and our new Better Me Guarantee pilot program. Now let's shift our attention to our operational highlights. Last quarter, we discussed the introduction of a new customer-facing initiative we've named the Better Me Guarantee Provider program. This program is designed to establish a nationwide network of accounts that adhere to best practices that were developed in collaboration with expert TMS clinicians. The Better Me Guarantee Providers commit to follow specific standards of patient care and responsiveness to enter and remain in the program. It is open to all NeuroStar customers that agree to fulfill the five pivotal standards of the BMG program, which will allow practices to be confident in their ability to provide exceptional care. These standards include attending NeuroStar University, ensuring offices, answer the phones during business hours, advise patients of the benefits of treating through the full course of 36 sessions where medically appropriate, assigning a medical personnel to promptly respond to PHQ-10 assessments, and lastly, updating websites and social media platforms to align with our brand, aided by our co-op marketing program. Ultimately, we expect accounts who participate in the program to be better positioned to help more patients suffering from depression. Currently, in its pilot phase, the program and marketing campaign is being implemented in several Greenbrook offices, enabling us to measure outcomes and make necessary refinements before rolling out to a broader customer base. Our entire sales team has received training on the program and is engaging with customers to provide training to accounts so that they can meet the program standards. The response thus far has been overwhelmingly positive, and we have seen significant interest in becoming part of the program. We are planning a measured rollout across our customer base, and we will be adding our next customer cohorts on January 22, followed by another group on April 8 of 2024. Each program expansion will be capped in size to ensure a successful rollout. The first step of the Better Me Guarantee Providers is to participate in NeuroStar University, which further helps them understand the educational benefits of our 5-STARS Solution, PHQ-10s, and co-op marketing. We will execute marketing and social media campaigns over the next several months to build patient awareness about the program and the benefits of NeuroStar. Marketing will evolve and expand more broadly throughout 2024. NSU continues to be a tremendous program for the company as well as our customers and their patients. Year-to-date, we've conducted a total of 20 fully booked classes with over 420 participants. The program continues to see increased demand, due in part to NSU attendance being a requirement for customers to participate in the Better Me Guarantee Provider program. To accommodate this demand, we have increased the size of classes and added two extra classes in 2023 and 1 in early January. Turning our attention to the co-op marketing program. Since its relaunch in April, our co-op marketing has helped educate a broader group of people who are looking for an alternative for their depression. This structured approach to marketing has not only amplified awareness of NeuroStar, but it has also proven to be a powerful tool, both within and beyond practice settings. With the introduction of new marketing materials and enhanced training resources, we've witnessed an upswing in both customer participation and utilization rates as customers have learned to improve their marketing, thereby educating more patients about NeuroStar and helping to treat their depression. In Q3, co-op participation increased 10% over Q2. Turning to a regulatory update. As previously discussed, during the second quarter, we submitted a 510(k) to the FDA seeking to expand our patient population. The process has progressed as expected. We are working to respond to questions from the FDA on the submission and expect to receive a decision by the end of the year. As we've stated previously, one of the keys to helping more patients is expanding access to care with NeuroStar. We're very excited about an initiative we've recently launched, which is working with state and federal legislators to open up access to insurance reimbursement for TMS. The initial reception we've received on the federal and state levels has been really encouraging, and we will update you on the progress on the future calls. We are pleased with our performance in the third quarter and enthusiastic about how we're positioned for the future. With continued execution by our commercial organization and the positive response in the market from both customers and patients reinforces that what we are doing is resonating. I'm confident that we are focused on the right initiatives to execute on the growth strategy as we seek to expand upon our market leadership position and bring relief to more patients suffering from mental health disorders. With that, I'd like to turn the call over to Steve.

Thank you, Keith. Unless otherwise noted, all performance comparisons are being made for the third quarter of 2023 versus the third quarter of 2022. Total revenue was $17.9 million, an increase of 8% over prior year revenue of $16.5 million. U.S. NeuroStar Advanced Therapy System revenue was $3.6 million versus $3.9 million in the prior year as we shipped 43 systems in the quarter. U.S. Treatment Session revenue was a record for the company at $13.1 million, an increase of 10% over 2022 revenue of $11.9 million. The revenue growth was primarily driven by strong performance within our local consumable customer segment. In the third quarter of 2023, revenue per active site was approximately $11,900 compared to approximately $11,400 in the prior year quarter. This uptick is the result of the increased success of our ongoing strategic initiatives and was encouraging when considering the growth in active sites over the last 12 months. Gross margins were 65.8% compared to 78.4% in the prior year quarter as a result of an impairment charge for a last time purchase of a single board computer under prior management, which became obsolete when the NeuroStar product development lifecycle changed. We also incurred an additional $100,000 in non-recurring cost of goods sold expense related to our contract manufacturer transition. Excluding these one-time charges of $1.9 million, our pro-forma gross margin would have been 77.3%. Operating expenses during the quarter were $20.6 million, an increase of $200,000 compared to $20.4 million in the third quarter of 2022. We continue to see strong expense management in all departments. Our marketing expenses did grow as we gained further traction in our accounts with our co-op marketing and paid media expense. As you remember, expanding these efforts was one of our initiatives for the third quarter. Being able to deliver record quarterly revenue while holding operating expenses essentially flat year-over-year indicates that our strategy to drive leverage is working as we continue down our path to achieving cash flow breakeven. During the quarter, we incurred approximately $1.9 million of non-cash stock-based compensation expense. Net loss for the third quarter was $9.4 million, or $0.33 per share, as compared to a net loss of $7.6 million, or $0.28 per share, in the prior year quarter. EBITDA was negative $7.7 million as compared to negative $6.2 million in the prior year quarter. Adjusted EBITDA, which excludes the $1.9 million inventory impairment, was negative $5.8 million. As of September 30, 2023, cash and cash equivalents were $35.8 million. We drew down the available $22.5 million in capacity from our debt facility, which results in a pro-forma cash balance of $58 million on October 3, 2023. While we remain confident in reaching cash flow breakeven without raising additional equity capital, we felt it prudent to strengthen our balance sheet given the challenging equity and debt capital market environment. Now turning to guidance. For the full year, we now expect revenue in the range of $70 million to $72 million, tightened from our previously issued guidance of $69 million to $73 million. For the fourth quarter, we expect revenue of $19 million to $21 million. We now expect total operating expenses for the full year to be in the range of $82 million to $84 million, improved from prior guidance of $82 million to $86 million as a result of ongoing expense management initiatives. Our projected top line growth, a healthy gross margin profile, and careful operating expense management all contribute to the stability of our path to profitability. I would now like to turn the call back over to Keith.

Thank you, Steve. Our accomplishments in the third quarter are a testament to the dedication and hard work of our team. Looking forward to the rest of 2023, we're enthusiastic about the opportunities that lie before us. The positive response to initiatives like the Better Me Guarantee Provider program, NeuroStar University, and co-op marketing further reinforces our confidence in the impact we're making on patients suffering with mental health issues. With a solid foundation and a clear vision, we're well positioned for the continued growth and success. Before opening the line for questions, I'd like to thank our investors for trusting us with their capital. We continue to work diligently to execute on our strategy in order to create long-term value for our shareholders. I'd also like to thank our dedicated employees. They continue to execute at a high level with the goal to help as many people as possible who battle depression with our life-changing technology. With that, I'd like to open the line for questions.

[Operator Instructions] Our first question comes from Bill Plovanic of Canaccord. Bill, your line is open.

Hi Keith, and Steve, it's Sean on for Bill this morning. Thanks for taking our question. Maybe if we can start off on guidance. To start off on the guidance and the updates around there, as you think of Q4, with the system revenues that got pushed out of the financing, what's the components of the guidance for Q4 essentially? And more specifically, do you believe that this financing push-out, was that a one-time thing? Or do you think that your customers are going to have more difficulty with the process taking longer going forward as well?

John, it's Steve. Yes, we view the increased diligence on our lenders' behalf at the end of Q3. I think it's going to be sustained going forward just with the credit markets. But what we've done is we've enlisted a new lender that'll be more aggressive, and he'll be at the summit that we're having in December. We also pulled in our quarterly sales summit by a week to give our capital reps another week to close the deals. But again, I think it's important to note that our customers aren't having trouble getting financing. It was just a higher level of diligence that lengthened the sales cycle. And so as Keith mentioned in the script, we do expect the majority of those deals to close this quarter. So naturally, we will be north of that 50 system target in Q4. Again, historically, Q4 is always our strongest capital quarter anyway. So with that carryover, it'll remain so.

I appreciate that clarity. And then just as a follow-up to - mainly a point of clarity here. The Better Me Guarantee, is that exclusive right now only to those Greenbook sites until you add in the two other cohorts? And just as another point of clarity for that too, the co-op marketing, do you have to go through the Better Me Guarantee to get co-op marketing? Or is that a separate program now too? Thanks.

So the current marketing that's going around is tied around the Greenbrook centers right now to give us an opportunity to refine the messaging, to refine the approach, to refine our metrics. And on January 22nd, we will open up the next cohort of accounts and it'll be approximately 100 of those that will be added. We are asking our accounts to sign an agreement that they will follow the five standards that we outlined. And so far to date, we have 160 of those that have signed up in the last two weeks to commit to following the five standards that we outlined.

Great. Thank you.

Thank you One moment for our next question. Our next question comes from Margaret Kaczor of William Blair. Margaret, your line is open.

Hi. Good morning, everyone. Thanks for taking the question. I want to start on Greenbrook. It was great to hear that the Greenbrook systems, I guess, were redeployed or a lot of them were redeployed. Did this have a partial quarter impact as you think about treatment revenues? How should we think about those trends as they move towards the fourth quarter? And as we think about 2024, frankly, does this give you more confidence that Greenbrook as a category can maybe be a double digit or something on an annualized basis number?

Thanks Margaret. We - there were 52 systems that were put into storage due to the store closures of Greenbrook. We have deployed all of them now. And we - as we said in the script, 42 of them are actually treating patients, many of which started in the third quarter. So they will continue to pick up steam throughout the fourth quarter and next year. Our hold back on the whole Greenbrook side of the business is really the Success stores that have not picked up as quickly as the original Greenbrook stores. So we're working with Bill and the Greenbrook team to try and get those back online. But we feel that over the next - the fourth quarter and through 2024, they'll continue to gain ground.

Okay. So no commentary in terms of the treatment. So that's fine enough. On the utilization side as well, obviously, that was encouraging commentary. An 18%, I think, I heard for usage in the field. How strong of a leading indicator, I guess, is this going into 2024? And can we assume or think of kind of that treatment growth potentially being in that mid-teens or high-teens or better, especially with all these investments? Thank you, guys.

I think we're banking on the growth of our per-click, what we used to refer to as per-click business continuing to grow in the upper teens. And I think all of our programs are taking effect. And the BMG program actually pulls them all together and gives the account the reason for them implementing all of our programs within their practice. So our plan incorporates a upper teens growth for all of our per-click accounts.

Great. Thank you very much, guys.

Thank you very much. One moment for our next question. Our next question comes from the line of Adam Maeder of Piper Sandler. Your line is open.

Hi Keith and Steve. Good morning, and thank you for taking the questions here. I wanted to, I guess, try and follow up on some of the questions that were already asked. The first one just on Greenbrook, are you able to kind of - I heard positive utilization trends in the prepared remarks. Can you flesh that out for us a little bit and talk about how the Greenbrook centers kind of fared versus the non-Greenbrook centers? I guess that's the first question. Then a follow-up or two. Thanks.

Adam, it's Steve. Yes, if we look at the two entities separately, Greenbrook I think has recovered quicker than the Success side of the business. There were certainly some operating philosophy differences between the two companies when they were integrated. And I think pulling the two companies together - and I don't want to speak for Greenbrook since they are a publicly traded company. It did require some work and some education as to why the Greenbrook way was preferred. And so from a high-level perspective, Greenbrook is operating at pre-transaction levels, and I would say Success is making improvements and is gradually getting to those pre-transaction levels. So we're very bullish on the company and our go-forward partnership. Again, we're 100% aligned from a management philosophy, sales and marketing. Again, they're really fully taking advantage of co-op marketing and driving utilization. So we're very confident in our go-forward partnership.

Got it. Okay. That's helpful color, Steve. Thank you for that. And then maybe just to switch over to the capital side. I know we've had some discussion there. But 200 to 250 systems per year, I think that's kind of the framework you've given us in the past. Is that still a good framework for models in 2024?

I mean, we've been communicating between 45 and 50 systems a quarter. So I would say 250 would be a stretch for next year. So I would say a better target is somewhere between 200 and 225 at this point.

We want to make sure that we can train these accounts and get them up and running so that they don't have boxes that are just sitting in the corner. So the 200 to 220 is a good number for us.

Okay. Thank guys for the clarification there. And then just the one last one for me would be on gross margin trajectory as we think about Q4 and next year. We had some one-timers that weighed on gross margin in Q3. But if you adjust for those, your gross margin number is pretty good and better than what we modeled. And perhaps that's a reflection of revenue mix this quarter. But Steve, how do we think about gross margin going forward? And any color you can provide there would be great. Thank you.

Thanks Adam. Yes, we've been communicating that with the transition to our new contract manufacturer and the increased percentage of total revenue that Treatment Session will represent that margins will continue to improve as we head into next year. And so, we're definitely comfortable with that, I would say, mid to high 70 percentage. So we are starting to see improvements with our contract manufacturer in terms of efficiency and overall cost. And so, yes, I mean, ideally, we'd crack that 80% number, but that's probably late Q4 of next year and to some point in 2025.

Very helpful. Thank you.

Thank you very much. Our final question, please stand by. Our final question comes from Daniel Stauder of JMP Securities. Daniel, your line is open. If your line is muted, please unmute it. Daniel?

Yes. Can you hear me?

Yes, sir.

Yes.

Yes. Sorry about that. So, thanks for the questions. I just wanted to ask about revenue per active site. That metric was up nicely this quarter, back in that high $11,000, which I think is the highest it's been since late 2020. Could you just remind us how you think about that metric? Any broad expectations as you exit 2023 and enter 2024? And then do you have any near-term or mid-term targets? And what's the core level here as we think about our model? Thanks.

Danny, it's Steve. Yes, we view that as a very key metric. And so getting close to that $12,000 per site number is nice. But again, if we look at the consumable segment, even with the 18% increase in utilization, they're still not using the systems near capacity. And so we're going to continue to push that number. And really, the only headwind with that is the increase in overall sites. And so if we sell systems, second or third systems into a site, it definitely helps us more as opposed to just selling into a new customer. So there is a little bit of a balance, which shouldn't be viewed negatively. But we would expect to see that metric continue to increase and just keep going. Like you said, it's the highest since 2020, so that's a good sign, and we do expect it to continue.

Great. And then just one follow-up on cash usage. Could you give us any more color here on your cash burn rate as you exit 2023 and look to 2024? You have that additional cash infusion from your credit facility. You also noted some plans to expand marketing programs. Should we take this to mean that cash usage could modestly increase from here? Or what's a good way to think about it as we [technical difficulty].

Yes - no, that's a good question, Danny. And everybody saw we did draw down the capacity that we had with our debt facility. But there aren't plans to increase operating expenses at this time. We've been communicating since last year that our goal is to hold operating expenses consistent from 2022 through 2024, and that's really where we're targeting. I will say our cash burn was higher this year than we were forecasting. We did have the conversion of $6 million of Greenberg AR into a senior secured note, so that impacted cash. We also had the transition with the contract manufacturer. And contractually, we prepaid for about $3 million in inventory this year that we'll receive credits for as those units are delivered in 2024. So my expectation is our cash burn is going to be reduced I would say - significantly maybe a strong word, but nicely next year. So we will exit Q4 relatively flat from a cash flow breakeven perspective. But that's normal. Our highest burn quarter is Q1. Q2 and Q3, it normally flattens out a bit into the single digits. And then Q4 with our highest revenue quarter, depending upon timing and collections of orders in that last month, it is our lowest burn quarter of the year. So what we end this year hopefully is the high point. And then we'll continue to reduce it and get to that cash flow breakeven number by the end of next year.

That's very helpful. Thank you very much.

You’re welcome.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Keith Sullivan for closing remarks.

Thank you, operator, and thank you for your interest in Neuronetics. We look forward to updating you on our next quarterly call.