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Ladies and gentlemen, thank you for standing by. Welcome to the Neuronetics Report Fourth Quarter 2023 Financial and Operating Results. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference call is being recorded. I would like now to turn the conference over to Mark Klausner. Please go ahead.

Good morning, and thank you for joining us for the Neuronetics fourth 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 which will be filed on or before March 14. 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.

Mark, thanks for the introduction. Good morning, everyone, and thank you for joining us today. I'll begin by providing an overview of our recent performance, followed by an operational update. Steve will then review our financial results, and I'll conclude with some thoughts on 2024 before turning to Q&A. Before we jump in, I want to start by acknowledging the hard work and dedication of our team. Their efforts have been instrumental in driving our success in 2023, and I'm truly grateful for all that they do. We are pleased with our performance throughout 2023, a year which included several record quarters and the achievement of key milestones. Our efforts to drive increased Treatment Session utilization, particularly our focused education and training initiatives have continued to pay off. We wrapped up the year with a solid fourth quarter, during which we delivered over 20% year-over-year growth in utilization within the local consumable customers, as well as continued positive trends at Greenbrook sites. Total revenue was $20.3 million, an increase of 12% over the fourth quarter of 2022. These results are encouraging and reflect the collective effort of the team to deliver value to our customers and their patients. NeuroStar system revenue was $4.5 million, reflecting steady demand for new systems. During the quarter, we shipped 59 systems, above our plan of 45 to 50 systems per quarter. Our NeuroStar Summit continued to serve as a highly effective platform to educate customers on the transformative benefits of NeuroStar for patients, and play a pivotal role in our system sales strategy. The fourth quarter summit held in San Antonio, was another outstanding event that resulted in a number of new system sales on site. One encouraging trend we've observed in recent quarters, directly attributable to our Summit, is the increasing number of new customers purchasing more than one system to launch their NeuroStar TMS within their practice. This speaks to the value, both to the practice and to the patient, that NeuroStar delivers. With the continued success of our summit, as well as our ongoing efforts to drive awareness of the benefits of NeuroStar, we are optimistic about the sustainability and predictability of our capital sales moving forward. U.S. Treatment Session revenue was $14.9 million, which is a new record for a single-quarter Treatment Session revenue, and represents a 20% increase compared to the fourth quarter of 2022. This growth was mainly fueled by a more than 33% year-over-year increase in local consumable revenue. Furthermore, the successful execution of initiatives such as NeuroStar University, the 5-STARS Solution Program, broader utilization of our PHQ-10 tool, and co-op marketing efforts contributed to our record-setting performance. Now let's shift our focus to operational updates. In late January of 2024, we officially launched the second phase of our Better Me Guarantee Provider Pilot Program. This second phase includes more than 100 accounts, encompassing both the initial Greenbrook sites, who were part of our pilot program in late 2023, and additional sites that met the qualification standards prior to January 22nd. As a reminder, the Better Me Guarantee Provider Program aims to establish a nationwide network of accounts following patient care and responsiveness standards developed in collaboration with expert TMS clinicians aimed at delivering timely and consistent care to those who need it most. Moving forward, the pilot phase will be open to all NeuroStar customers who agree to meet the five key standards of the program. We continue to take a measured approach to the broader rollout of the program to ensure we effectively balance demand while upholding the standards. We are currently preparing to enroll another group of approximately 100 accounts in Phase 3 of the pilot in early April. Pulling from the over 160 additional signed commitment forms from accounts striving for acceptance in this cohort, we plan to launch another group of 100 accounts in June. While still early days, we have seen a number of highly encouraging results. One of the keys to success within the pilot program is generating patient awareness, which is done primarily through targeted digital media advertising. Better Me Guarantee Provider practices are seeing five to six times more potential patient requests compared to the pre-pilot levels as a result of these efforts. In addition to the program driving increase in patient awareness, we have observed performance improvements among participating practices, including higher responsiveness and more timely follow-up with potential patients. One trend we have seen coming out of the early BMG pilot participants is a significant increase in patient follow-up once they have completed a PHQ-10 assessment. For those providers not in the program, the percentage of patients who received a follow-up from the provider within 24 hours was only 7%. That same metric for providers in the program rose to over 75% or an 11x improvement. We will continue to closely monitor the positive impact of the pilot program as we expand to a greater number of customers throughout the year. Turning our attention to NSU, this program continues to enhance our customer understanding of the benefits offered by our 5-STARS Solution and co-op marketing initiatives. Over the past year, NeuroStar University has become a cornerstone of our marketing and educational efforts. Throughout the year, we conducted a total of 16 fully-booked classes, welcoming over 360 participants. In the fourth quarter alone, over 15 NeuroStar systems were sold into existing customer sites coming out of a training class. This highlights the fact that the more we are able to educate customers on the best practices and the benefits of partnering with Neuronetics, the more utility they will derive. Moving forward, we will continue to lever NSU's success to drive increased adoption and utilization. Throughout 2023, we significantly expanded our co-op marketing program, helping to make our patients aware of NeuroStar. In Q4, we had more qualified accounts participate in co-op marketing than ever before, and the average utilization of co-op marketing opportunities by participating accounts has been steadily increasing since 2022. In the fourth quarter, average co-op opportunity utilization was 16% higher than the prior year quarter. We look at accounts who participate in co-op marketing during both Q3 and Q4 of 2023. These accounts saw a 20% uplift in their motor threshold test, as well as a 30% uplift in utilization in Q4, 2023, compared to the same quarter in 2022. We introduced significant improvements to the program in 2024 based on feedback from our customers, making it even easier for our practices to use our streamlined and turnkey marketing approach, which should ultimately lead to greater patient awareness of NeuroStar. These various educational and awareness programs have been very successful at bringing NeuroStar to a greater number of patients suffering from mental health disorders across all of our customer segments. In 2023, we made a concerted effort with the team at Greenbrook to ensure that they are fully participating in these programs, including having 26 Greenbrook sites in the initial pilot group of Better Me Guarantee providers. We are very pleased to report that we have seen, as a result of their participation in our program, continued improving performance at Greenbrook sites, to the point where they are, on average, at or above pre-merger levels. Turning to regulatory and clinical updates, we continue to see positive momentum from expanded TMS therapy coverage from the major health plan. Between November 2023 and February 2024, Magellan, BlueCross BlueShield of Kansas City, Dean Health Plan, and Lucet Health updated their criteria to improve patient access to NeuroStar. These policy changes reduced the required number of antidepressant medication attempts from four to two before TMS eligibility, granting patients earlier access to effective mental health treatment. Additionally, Dean Health Plan has eliminated the need for a prior trial of psychotherapy. These changes represent a significant step forward in improving mental health coverage. By eliminating barriers and facilitating earlier access to treatments like NeuroStar, payers are contributing to addressing the mental health crisis. In February 2024, we announced advancements to TrakStar, our proprietary HIPAA-Compliant Patient Management and Outcome Reporting System. These updates streamline practice operations by simplifying patient tracking and documentation. Practice can save time on administrative tasks and focus more on patient care. The enhanced benefits investigation report provides estimated patient financial responsibilities up front, ensuring the clarity for patients regarding insurance coverage. These improvements reflect our commitment to supporting healthcare providers and enhancing patient outcomes. On the regulatory front, our NeuroSite Coil Placement Accessory received clearance from the FDA in December. In response to our customers' request to make the motor threshold assessment easier and faster, this tool simplifies measurement and coil positioning during NeuroStar treatment. NeuroSite integrates both legacy and new systems. By leveraging patient-unique anatomical features, NeuroSite ensures precise and reproducible coil placement, reducing patient setup steps and improving efficacy for providers’ offices, while maintaining accuracy. Lastly, we continue to work to expand the utility of our unique therapy. As previously noted, we have a 510-K application with the FDA to broaden NeuroStar's label. While we can't share specific details of the filing for competitive reasons, we anticipate hearing back from the FDA in the near term. We look forward to keeping you updated on that progress. We've covered a lot of ground in 2023, marked by continued improvements in utilization trends and several record-breaking revenue quarters. Our commitment to enhancing patient care and provider efficiency remains strong, and we believe the introduction of initiatives like the Better Me Guarantee Provider Program expand upon this success. 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 fourth quarter of ‘23 versus the fourth quarter of 2022. Total revenue was $20.3 million, an increase of 12% over prior year revenue of $18.2 million, primarily driven by increased Treatment Session sales. U.S. NeuroStar advanced therapy system revenue was $4.5 million and we shipped 59 systems in the quarter. U.S. Treatment Session revenue was a record for the company at $14.9 million, an increase of 20% year-over-year. The revenue growth was primarily driven by strong performance within our local consumable customer segment. Revenue per active site was approximately $13,200 in the quarter, compared to approximately $11,500 in the prior year quarter. This increase reflects the growing success of our strategic initiatives, which is encouraging given the growth in active sites over the past year. Gross margins were 77.6%, compared to 75.9% in the prior year quarter, up 170 basis points from the prior year, driven by favorable mix, as Treatment Session revenues continue to be a larger percentage of total revenues. Operating expenses during the quarter were $20.2 million, a decrease of $1.3 million or 6.2% compared to $21.5 million in the fourth quarter of 2022. Achieving record quarterly revenue while reducing operating expenses, demonstrates our ability to drive leverage. During the quarter we incurred approximately $1.6 million of non-cash stock-based compensation expense. Net loss for the fourth quarter was $5.4 million or $0.19 per share, as compared to a net loss of $8.3 million or $0.30 per share, in the prior year quarter. EBITDA was negative $3 million as compared to negative $6.5 million in the prior year quarter. This significant reduction in EBITDA loss reflects our success in proactively creating operational leverage through a combination of strong top-line growth and prudent expense management. As of December 31, 2023, cash and cash equivalents were $59.7 million. In the fourth quarter, we achieved a significant milestone by generating positive cash flow for the first time in company history. We generated $1.5 million in cash, which we achieved earlier than previously expected, as we continue to reap the benefits of strong revenue growth, combined with improving margins and expense management efforts. Because of this, we maintain confidence in our path to profitability in 2024. We again expect to be cash flow positive in the fourth quarter. Now, turning to guidance. For the full year, we expect revenue in the range of $78 million to $80 million. For the first quarter, we expect revenue of $16.7 million to $17.7 million. We expect total operating expenses for the full year to be in the range of $80 million to $84 million. Our 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.

Thanks Steve. In summary, as we reflect on 2023 and look forward to 2024, it's clear that our strategic initiatives are driving growth and positioning us for continued success. The Better Me Guarantee Provider Program will be a focal point for us this year, as it aims to elevate patient care standards across our network. Participating in this program will not only advance our other initiatives like NSU and co-op marketing, but also ensure that our customers are better equipped to provide high quality care. We are also continuing to work with the FDA to explore expanding the labeling for NeuroStar. We're optimistic about the future and excited to continue our journey of expanding access to transformative mental health treatments. Thank you all for your continued support and commitment of Neuronetics. With that, I'd like to open the line for questions.

Thank you. [Operator Instructions]. The first question comes from Adam Maeder with Piper. Your line is now open.

Hi Keith. Hi Steve. Hopefully you guys can hear me okay. Congratulations on the progress and nice finish to the year. Maybe a place to start would just be on the guidance construction. Just want to make sure I'm thinking about that properly. The 45 to 50 systems that you've kind of been run rating at per quarter, is that the right assumption to use for 2024? Should we assume the majority of the growth is obviously coming from the consumables business? And then what are you assuming for Greenbrook in 2024?

Hi Adam. It's Steve. So yes, we're still targeting 45 to 50. We may nudge that up a little bit as the year progresses, but the majority of the growth will be in Treatment Session revenue. We did include a new slide in our corporate presentation that could be found on our website, and it really highlights the growth driver of the company and where it's been in the last three years. So, I think that'll be helpful to kind of set the stage for 2024's expectations. Greenbrook, again throughout 2023, they have accelerated their growth in the legacy Greenbrook stores, and I would say across the board, their performance has been very strong. We expect that to continue this year. And in ‘23, although they were stable, they were a drag on our overall growth rate, but we do not expect them to be a drag in 2024. So our partnership in support of Greenbrook will continue for the foreseeable future.

That's perfect. Good color there, Steve. And then for the follow-up, I wanted to ask about the Better Me Guaranteed Program. It certainly sounds like you are seeing some encouraging signs out of the gate there with patient requests, better awareness, follow-up, etc. Wondering if there's any more kind of information you can give us in terms of metrics. Things like, treatment session figures that you can share at this point in time. Maybe that's a little bit premature, but figured I'd ask anyways. Thank you.

Adam, this is Keith. The Better Me Guaranteed Provider Program has really done exactly what we were hoping. It created excitement in both our accounts and the field. The marketing for it started on February 1, so it is a little early to be giving metrics. What I can tell you is, if we look at the standards that have to be met to qualify to be in the program, the PHQ-10 follow-up, the lead follow-up that has to be done within 24 hours, answering the phone during business hours has all had the desired effect. The accounts are doing these things. We are monitoring them, and as a result, their business is already accelerating. So our marketing effort is just on top of that.

That's helpful, Keith. Thank you.

Please stand by for the next question. The next question comes from Margaret Kaczor with William Blair. Your line is open.

Hey, good morning guys. Thanks for taking the question. I maybe wanted to approach that in a different way, in part because of the Better Me Guaranteed Program, as well as kind of all the utilization trends you are seeing around that and so on. Are you assuming any ROI, I guess, as folks participate in that within the guidance range? It doesn't seem like it, but just kind of curious about that.

Hi, Margaret. Its Steve. I would say not at this point. And so, again, we are in the second pilot phase with Phase 3 starting in April. And so it just seems to be a bit premature to include that in our 2024 guidance. So I would expect any significant acceleration in these accounts to be upsized.

Okay. And then as we think about Better Me Guaranteed participant utilization trends, maybe it's too early to share kind of on the very short term. But I guess what would you like to see happen over a one year, two year, five year, whatever timeline that you'd look for as a trend around utilization rates within that program? Thanks.

We would hope – Margaret, this is Keith. We would hope that we would see a consistent 20% growth in those accounts. So, I think that's our target metric right now. I do want to be clear though on the marketing spend. The marketing spend has been consistent for the last three years. The Better Me Guarantee just makes that spend more efficient. So by putting the leads that we receive through marketing, through the Better Me Guarantee providers, it is the same spend. It's just going to somebody who is answering the phone and responding to those patients in a timely fashion.

Okay. So, if I may, I'll just kind of wrap this up in one last question around cash flow, since you sort of just referenced it. To the extent that there is upside to revenues, and we do see those 20% growth metrics at some point in the future, you are going to let those kind of fall through on the bottom line, and hopefully this is a key measure to get you to reach that profitability metric. Thank you.

Yes, that's correct, Margaret.

Sounds good. Appreciate it, guys.

Please stand by for the next question. The next question comes from William Plovanic from Canaccord. Your line is open.

Great. Good morning, and thanks for taking my question. Steve, can you help us understand, as we look at your treatment revenues, 20% is a strong number. Obviously we're seeing an acceleration, but there's some drags on that. Can you help us understand the mix of kind of the fixed component, and then maybe the Greenbrook component, and then kind of the other customers? Because it seems like that 20% is masking or at least is masked by some of the other pieces of the business that don't grow, and maybe it helps us understand kind of what the business can do. And then just secondly, on the capital, I think you answered the question, but would you plan to expand the number of capital reps to sell more systems, and the teams that kind of go in and train these accounts? Or help us understand why you would go to expand that now, and what type of investment that will require. Thanks.

Hi Bill. Very timely questions. And so, as I indicated during Adam's question, we did include a revenue trending slide in our supplemental financial information on our website. And to your point, there are significant segments of our business that are not growing either primarily by design. So we've stated the past few years that our intention is to sell roughly 200 NeuroStars a year. So that's around $16 million that doesn't grow. Our international business in the Far East has been very steady between $1.8 million and $2 million over the past three years. So again, not a significant growth driver. And then the company still supports our fixed price customers, and that number has been fairly steady, about $7 million a year, but again, also doesn't grow. And so, when we look at that in comparison to our Treatment Session growth driver, it really is a drag on the overall consolidated growth rate. Again, our primary focus is on the local consumable customers, which represents about 70% of our installed base, and is really the segment that we can impact the most with BMGP and other marketing programs. Greenbrook again, they were consistent in 2023 with their contribution to revenue in 2022. But again, being flat and our largest customer, again, it was an overall drag on our growth rate. Again, we do expect a contribution and a nice rebound from them in 2024, so that'll help us. Regarding the increase in NeuroStar, it would be modest. It would not be like we're going from 200 to 250 in a year. We did 205 systems in 2023. We may approach 215 or 220 this year. And no, we do not plan on adding any additional ASMs to support that growth.

Okay, great. And then on the Better Me Guarantee, is it rolled out to all Greenbrook sites at this point? Was that the Phase 1 or are there still other sites that need to be rolled out under their umbrella?

Bill, this is Keith. We rolled it out in Q4 to 26 of the Greenbrook sites. Our plan is to incorporate the balance of them, over 100 sites into the program throughout the year. Like our other customers, they all have to qualify. So we have metrics that we have to measure each Greenbrook store by, as we do with all of our customers. So, our plan is to get the Greenbrook stores, both the Legacy Success and the Greenbrook into the program as quickly as possible. And I think, we are opening up the next 100 on April 8th, and then we'll open up another 100 on June 3rd. So, we're excited to have them in the program and as well as our other customers.

And then last question if I could. Just on the cash flow positive in the fourth quarter of ‘24, would you expect to be cash flow positive every quarter of ‘25, or kind of bouncing back and forth through ‘25? And then if not, when would you expect consistent cash flow positive? Thanks for taking my questions.

Thanks Bill. I mean Q1 historically is a significant cash burn quarter for us. We do have the payout of year-end commissions, the corporate bonus plans, and so I do not expect Q1 of ‘25 to be cash flow positive. I would say it's more likely, I'd say worst case, 2027, possibly 2026, dependent upon the top-end growth rate, but I think there'll still be some bouncing around in 2025 on a quarterly basis.

One moment for the next question. The next question comes from Danny Stauder with Citizens JMP. Your line is open.

Great, thanks. First question on capital sales. Congrats on the strong quarter, but I was just curious if you'd be willing to comment on how this broke out between new customer ads versus existing users adding another system, given the improvement in utilization. And is it fair to say that there has been more of the latter in quarters past? And just any color there would be helpful. Thanks.

Hi Danny. It's Steve. I don't think there was a significant shift one way or another into new customer sales versus same-store sales customers. I think this quarter it was about a 50-50 split. And so again, historically, I think it was more of a 60-40. So a slight shift, but nothing significant. And then what was the other part of the question Danny?

No, I guess it was just historically, it sounds like it hasn't changed too much, but just in the past, this trend has gone one way or the other.

So, Q4 from a capital sales perspective, it's when the account managers are really pushing hard across all segments, maximizing in their incentives, and so we do see a slight difference in historical trends in that fourth quarter.

Great. And then just one more for me. Some Treatment Sessions, really solid quarter revenues per active site, $13,000 plus was great to see. But how should we think about this in 2024? It sounds like we should assume some existing customer utilization will continue to improve, but any puts and takes as we look out to 2024 in this number. Thank you.

Yeah, I would expect that metric to continue to improve. Again, during 2023, at least the early part, our customers across the install base were still only averaging about 2.6 or 2.7 treatments per day. We've seen the early returns of the BMGP participants, as well as those who have signed the commitment form, but haven't necessarily met all five standards. Their patient per day metric is increasing at a very nice rate. And so, Keith mentioned that 20%. So that would get us over three patients per day this year, close to four next year. Again, we're going to keep pushing until every NeuroStar that's installed is at its system capacity, which would necessitate additional systems being purchased by our customers. So I do think that 13,200 should continue to grow, at least by that 20% rate, with a slight dilution based on the number of new installed sites.

Great. Thank you. Congrats on the quarter.

Thank you, Danny.

Thanks Danny.

I show no further questions at this time. I would now like to turn the call back to Keith Sullivan for closing remarks.

Thank you, operator. And thank you all for joining us today. We appreciate your investment in Neuronetics and we look forward to updating you on the progress in the next quarterly call.