Good day and thank you for standing by. Welcome to the Neuronetics Third Quarter 2024 Financial and Operating Results Conference Call. [Operator Instructions] Please be advised that today’s conference 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 2024 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 Greenbrook acquisition 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-Q, which was filed earlier 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 noncash 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..

advancing mental health treatment; and increasing shareholder value. Through disciplined execution of our cost controls, operational improvements and revenue growth initiatives, we have a clear path to profitability while expanding access to critical mental health treatments. The Greenbrook combination represents a transformative step in this journey.

And based on what we have learned since announcing the transaction, we now believe that the combined organization will achieve cash flow breakeven by the third quarter of 2025. And we’re confident in our ability to deliver meaningful care for our patients and true value to our shareholders. 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 2024 versus the third quarter of 2023. Total revenue was $18.5 million, an increase of 4% over prior year revenue of $17.9 million, primarily driven by increased capital sales in the quarter. U.S.

NeuroStar Advanced Therapy System revenue was $4.1 million and we shipped 49 systems in the quarter. U.S. treatment session revenue was $13.3 million, an increase of 2% year-over-year. Revenue per active site was approximately $11,400 in the quarter compared to approximately $11,900 in the prior year quarter.

Gross margin was 75.6% compared to 65.8% in the prior year quarter, up 980 basis points from the prior year. The increase in gross margin was a result of the change in product mix, the absence of a onetime manufacturing cost related to our new contract manufacturer and an inventory impairment charge in 2023.

Operating expenses during the quarter were $21.7 million, an increase of $1. million or 5% compared to $20.6 million in the third quarter of 2023. The increase was primarily due to transaction expenses, which were incurred prior to the transaction closing.

During the quarter, we incurred approximately $1.4 million of noncash stock-based compensation expense. Net loss for the third quarter was $13.3 million or $0.44 per share as compared to a net loss of $9.4 million or $0.33 per share in the prior year quarter. As of September 30, 2024, cash and cash equivalents were $20.9 million.

Now turning to guidance. For the fourth quarter, we expect stand-alone revenue of $19 million to $20 million. We now expect full year stand-alone revenue in the range of $71 million to $72 million.

We expect total stand-alone operating expenses for the full year to be in the range of $81 million to $82 million, which excludes approximately $2 million of pre-close transaction expenses. I would now like to turn the call back over to Keith..

Thank you, Steve. Let me leave you with some key thoughts on our path forward. Integration is at the center of everything we’re focused on right now. The combination of our organizations presents immediate opportunities from unified commercial teams to streamlined operations, but more importantly, it creates a platform for sustainable long-term growth.

Our progress in the first phase of integration planning has exceeded our initial expectations, particularly in identifying and capturing initial synergies. Looking ahead to 2025, we have a clear line of sight to cash flow breakeven by the third quarter.

This milestone reflects both our integration execution and our ability to drive meaningful growth through our expanded capabilities and footprint. I’m particularly encouraged by how our teams have worked together since the acquisition announcement.

The collaborative spirit and shared commitment to our mission are evident in the early wins we’re seeing across the organization. We look forward to updating you on our milestones and overall progress in the coming quarters as we work to transform both our business and patient care. With that, I’d like to open the line for questions..

[Operator Instructions] Our first question comes from Adam Maeder from Piper Sandler. Please go ahead..

This is Kyle on for Adam. Thanks for taking the question.

I guess, first, as we just look at the guidance reduction for full year 2024, can you just help us understand a bit what changed in terms of your expectations? And then how that should help us think about 2025 looking forward?.

Hey, Kyle. This is Steve. Yes. So we really based Q4 guidance on the trends that we continue to see in Q3. The – essentially, there’s been a change in purchasing patterns from our customers due to the reimbursement and cash flow issues they experienced in Q1.

We have seen some recovery with Q3 being our largest collection quarter in about 1.5 years, but their cash flows were slowed. And so it did change the way they were historically purchasing treatment sessions. Right now what we’re seeing in our TrakStar databases is our inventory levels are at historic lows actually in approaching the pre-COVID levels.

So whereas customers used to purchase almost a quarter’s worth of inventory to be able to treat their next quarter’s worth of patients, they really cut back and they’re probably holding or they are holding between 1 and 2 months inventory. And so we have seen some stabilization and improvement.

But again, it’s – it wouldn’t be responsible to forecast a full recovery in Q4, which impacted the treatment session forecast for Q4. I will say that our system utilizations remain very strong. And in our business, if we have a strong October, it bodes well for the rest of the quarter.

And again, we had a very strong October from a utilization perspective. So no, we are disappointed the impact that the reimbursement had, but we are seeing stabilization and some improvement as we close out the year.

It is important to note, though, that, as Keith mentioned in the script, we are focusing more on profitability and some of the restructuring that we did last week did impact the commercial team. So that is forecast to have some impact on revenues in Q4..

Okay. Thanks. Yes, that’s super helpful. I guess as a second question then with regards to Greenbrook and congrats on the progress there. Are you still committed to mid-teens growth for the combined entity as we look into ‘25 and ‘26? And if so can you remind us of what is kind of driving that growth acceleration? Thanks..

Yes. And so I realize we did state that in the proxy and that is one of our internal goals. But it’s – there are a lot of moving parts with the transaction at this point. And so again, our primary focus is not top line growth. It is profitability.

And our goal is to get to cash flow breakeven in Q3 and it may come at the expense of losing some top line revenue to improve profitability. And so that’s really our focus. And I think as we work through – and a reminder, we obviously haven’t closed yet, we will be providing updates as to where the top line number will be in 2025..

That’s helpful color. Thanks..

Thank you..

[Operator Instructions] Our next question comes from William Plovanic from Canaccord Genuity. Please go ahead..

Hey, great. Thanks. Good morning. Just can you just give us – in quarters past, we’ve talked about kind of the business and separated out between Greenbrook and non-Greenbrook.

I was wondering if you’d just give us a little granularity on kind of how those separate businesses are trending today and then even including the threshold testing, which is a predictive for kind of future treatments?.

Yes. This is Keith, Will. I’m hesitant to comment on Greenbrook’s progress since we haven’t closed the deal yet, but our business with Greenbrook is still very strong. One of the things in our Q4 guidance was the intercompany revenue had been removed also, so that was taken out of it. But I think we are looking at our local consumable business.

And as Steve mentioned, that business is up significantly and continues to be strong. So, on the Greenbrook side, their business on both – well, on TMS is very strong. And they will report on their business on both sides, SPRAVATO and TMS shortly..

Okay.

And then just, Steve, could you help us understand in terms of that guidance, I mean it’s a pretty big cut down to $19 million, $20 million, Street sitting at $25 million, how much of that was just removal of the intercompany revenue?.

To clarify, the guidance that we had, it is standalone, so it does include projected Greenbrook purchases. And so I would say the bulk of the shortfall to the Street of $25 million is due to the restructuring. And so it did impact the commercial team across the board.

And again, internally, we have made the decision to really focus on profitability and getting to cash flow breakeven. And that did come at the expense of some commercial team members and it will have an impact on our Q4 revenues..

Okay. And then just last question for me, just as you talk about the commercial restructuring, just help us understand exactly strategically what you are doing differently.

I mean, is it – was it a change in capital rep, so you sell less capital, was it a change in field force? It sounds like you are tightening up the territories when you talked about the 10-mile radius in the physicians.

Just help us understand how we should think about this? Was this a 20% lift to the commercial or a 10% lift? Just anything you can help us give us – provide us to help us understand a little better and thanks for taking my questions..

Sure. So, Bill, the change in commercial strategy is really just a shift. One of the aspects, one of the business models that Greenbrook has is utilization of what they refer to as RAMs, their regional area managers.

The RAM’s responsibility is to work with local providers around their Greenbrook centers to talk to those providers about SPRAVATO and TMS and the benefits that they can bring to patients that have failed multiple drugs. These are providers that currently don’t offer TMS or don’t plan to offer TMS or SPRAVATO.

So, that model has worked very well for Greenbrook and that team has been an excellent driver of revenue to Greenbrook locations. So, we are using the data that we have to help make that group more efficient.

The – and we are also going to be doing the same training with our practice development managers so that they can also work with our BMP accounts with local providers around their locations and drive patients more efficiently into those practices. So, that’s really the major shift in the business model.

With that would come a true focus on these accounts on the treatment session side of the business, and as a result, we will be driving more capital systems as second system sales into those existing accounts..

Thank you. [Operator Instructions] Our next question comes from James Beers from William Blair. Please go ahead..

Hey guys. It’s Jimmy on for Margaret. Thanks for taking the question. I just want to clarify one thing in terms of your guidance reduction. Is this primarily coming from treatment sessions, I guess as I am looking at it? And then just maybe talk to why or maybe just give us an update on adolescent adoption.

And then you have also opened up BNP to all accounts.

So, maybe just talk to why that isn’t offsetting or contributing? And then are you assuming any contribution in Q4? And then as we look to ‘25, I guess do you start seeing those initiatives begin to bear fruit, or is it – are expectations pushed further along?.

Yes. Hi Jimmy. I would say the majority of the Q4 weakness is related to treatment sessions. We have seen a stabilization of the credit and lending environment. So, we may be a little short from historic Q4 capital levels.

But again, with the change of focus on really getting our existing customers as well as Greenbrook’s current systems to capacity, it will take a little bit of time. And so I would say the shortfall is more related to the treatment session side. And regarding adolescents, it remains extremely strong. It’s a big opportunity with Greenbrook as well.

And so if we look at the adolescents treated and we look at both patients and providers, it’s significantly up through the end of Q3 as to where it was in March when we received approval..

Okay. That’s helpful. And then maybe just one on international and this is something we talked about last time. But in terms of Japan, I believe there was an over-the-air update opportunity and that would drive some sort of upgrade cycle.

So, maybe can you just talk to what you are seeing there and if that’s still the implication for Q4?.

So, our business in Japan is growing, also in Korea. So, our focus over there is really to take advantage of the hospital systems that are now providing – are now broadening it throughout their entire system. It’s quite honestly though – and we have said it before, our focus is to sustain our business in – on the international markets.

Our focus is in the United States. And as Steve indicated, we have a great opportunity with the Greenbrook team. You mentioned adolescents.

The focus in the Greenbrook location has not been on the adolescent front, but we have an opportunity now through the trainings that we are going to provide the RAMs, which starts tomorrow and it goes for a few days to really educate them on the benefits for adolescents and continue that growth.

Our number of centers that has – is now treating adolescent patients has grown significantly..

Okay. That’s helpful. And just maybe one last clarifying question. I believe you said reaching cash flow breakeven by the third quarter, I might be reading this wrong, but I believe the press release says the second quarter. So, if you could just clarify what the timing is there..

It’s the third quarter..

Okay. Great. Thanks guys..

Thank you. [Operator Instructions] Our last question comes from the line of Danny Stauder at JMP. Please go ahead..

Yes. Great. Thanks for the question. Just on synergies, you updated that number to $20 million.

Where is that other $5 million coming from? Is it primarily the strategic re-orgs you called out? And just as you sit here today, having had more time to digest what this combined entity will look like, are there any other areas where there could be some additional opportunities for synergies, or do you feel that $20 million is more of the ceiling at this point?.

Hey Danny. Yes, the newest increment came from the restructuring within Neuronetics. So, that really wasn’t anticipated during the summer as we were working through the definitive agreement. I do not think the $20 million is the ceiling.

Again, a lot of these activities have been at the higher level and have not included all of the parties within specific departments. So, I think you will see that number inch up as we work more closely with more involvement post-close..

Great. And then just one follow-up on the cash flow breakeven timing, how should we think about cash usage in 4Q into the first half of 2025, just given that new timing? And then how comfortable are you with the cash position here? And do you anticipate drawing down that second tranche of debt? Thanks..

Yes. I mean we are comfortable with our cash position right now and also with the burn that’s forecast by both companies in Q4. There are significant deal expenses that we will incur on close. So, again, we think we are exiting with a healthy balance and are forecasting a reduced burn in Q1 of ‘25.

We are in conversations with our lender, Perceptive Advisors. And so I think it’s a little early to say if we are going to draw down or not. Again, from a company perspective, we would always like a little bit of cash cushion.

But again, our forecasts and models do predict a decent cash balance as we work through the initial months of the transaction close..

Great. Thanks very much..

Thank you. The question-and-answer session is now closed. I will now turn it back to Keith Sullivan for closing remarks..

Thank you for your interest in Neuronetics. And we look forward to updating you on the next quarterly call..

Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect..