Q2 2020 Neuronetics Inc Earnings Call
It's a jump someone thank you for standing by and welcome to the second quarter 2020 financial and operating results Conference call.
At this time all participants are in they listen only mode. After the speakers presentation. There will be a question and that's a Sasha.
Be advised that today's conference is being recorded.
I wonder what's the hand, the call first off what's your speaker today Mr. Mark Klossner. Thank you and please go ahead sorry.
Good morning, and thank you for joining us for Neurogenetic second quarter 2020 conference call.
This call will be available on our website for 30 days.
Joining me on todays call or Normedix, President and Chief Executive Officer, keep Sullivan, Chief Financial officer steep horrible.
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 Cobot 19.
And other operational issues and metrics.
Actual results could differ materially from those stated or implied by these forward looking statements due to risks uncertainties associated with the company's business.
For discussion of risks and uncertainties associated with Normedix business I encourage you to review the company's filings with the Securities Exchange Commission, including the Companys Annual report on form 10-K filed on March 30, 2020, and quarterly reports 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 the 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 are operating results.
Management uses non-GAAP financial measures to comparable performance relative to forecast and strategic plans the benchmark our performance externally against competitors and for certain compensation decisions.
Reconciliations between U.S. GAAP and non-GAAP results are presented didn't tables accompanying our press release, which can be viewed on our website.
That it's my pleasure to turn the call Libre genetics, Chief Financial Officer, Steve for a long good morning, everyone and thank you for joining US with me on todays call. It never kinetics newly appointed President and Chief Executive Officer T cell loving. After keep provides an introduction I will shift to a high level overview of our second quarter.
Performance and recent trends in the business.
After which I will review our second quarter results and then provide our thoughts on the balance of the year.
I will then turn the call back over to keep for his thoughts on near term initiatives before opening the line for questions with that I'd like to hand, the call over to Keith Keith 16, and thanks, everyone for joining us for our call today I want to begin by saying how excited I am could be joining our network.
I'm incredibly enthusiastic about the long term opportunity that exists for the company to improve the quality of life for patients suffering from psychiatric disorders.
Let me give you a brief overview of my background.
I've been in the medical device space for almost three decades before joining known that X. I spent over five years I felt peak in leadership roles within the commercial organization.
Ending my tenure as President and Chief commercial officer at the time that allergy and acquired the company in 2017.
Prior to sell T. I have held leadership roles at a variety of pharmaceutical and medical device companies, including Medicis Pharmaceuticals reliance technologies, Medtronic and coherent medical.
Before the neural networks opportunity arose I had independently spent a fair amount of time examining the P.M.S. industry as a whole as well as neurogenetic specifically in fact I was a consultant to the company on two occasions prior to and immediately after the commercial launch of nerve star wallet.
Professor at the Mason School of business at William and Mary I wrote and taught a case study on the Tms only provider business with a focus on Greenberg Tms Neil neural networks largest customer.
In addition, I have known Bruce Shaw for years as Youre aware.
Most recently rejoin neural networks as a board member after having co founded in led the company for a number of years that CEO.
Yeah.
I'd like to share with you what made me excited about the opportunity and why I think the company is such a bright future.
First we are the unquestioned market leader in a rapidly growing end demand therapeutic sector.
We have more systems installed and have treated and helped more patients than all other tms providers combined.
Second we have a tremendous technology supported by the highest quality clinical data in the industry.
Because of this our systems are proven reliable and clinically robot.
Third we have a well established commercial infrastructure that has been reorganized over the last few months and now has the potential to drive meaningful growth.
Our focus is to drive greater awareness of the benefits of Neurostar amongst patients as well as provide meaningful support to our psychiatry providers.
And lastly, we have a great team here no kinetics and I'm impressed with their knowledge motivation and dedication to our mission.
Having said that I believe that there are areas of the business that can be optimize.
The best take advantage of the opportunity that exists.
Only a few weeks on the job I am currently in the process of digging into every aspect of the business as well as talking to customers and patience to make sure that I fully understand the current needs of the market.
Using those insights we will put them into the place the optimal strategy to drive the highest quality therapy to the greatest number of people.
While it is too early to provide a detailed outline of our long term strategy. What I know at this point is that with the tremendous foundation that exist today, we can take this business to the next level and drive long term success, allowing us to help more patients suffering from psychiatric disorders with that.
I'd like to turn the call.
Back over to Steve to provide an update for the second quarter Steve.
Thanks, Keith total revenue for the second quarter was $9.7 million down 41% over the prior year, primarily as a result of covert 19, which persisted throughout the quarter, causing an impact to both our capital equipment sale and the utilization of systems in the field.
Given the challenges presented by Covanta, we're pleased with the performance of the business during the period.
On the capital equipment side after in April and Whats New system sales were effectively shut down.
We saw a strong sequential uptick in Maine him.
Another key metric of performance is per click treatment session volume.
While these volumes continue to slow down in May we have seen a reversal of that trend in town and we now believe that may will represent the low point for treatments aesynt volumes for the year.
At the end of the corner, we estimate that approximately 80% of our customers were back up and running up from 70% that we noted on Mays call.
Based on the 80% of customers who are on our cloud based track Star management tool, we have seen an approximate 70% increase in average daily treatment session volume from the low point in early may through the end of June.
We have seen similar trends and new patient starts as defined by patients doing a motor threshold test after hitting a trough in early may new patient starts at the end of June are approaching the volumes, we were seeing in January and February.
Capital purchases have begun to come back, but at a slower rate than the rebound in system utilization for much of the second quarter RPD Ams were frozen out of the market due to travel and social distancing restrictions.
Where are these restrictions have started to ease DDMS have begun to get back out into the field to prospect accounts, we do anticipate that capital sales will continue to rebound, albeit at a slower rate.
I would like to provide an update on some key topics related to the business.
As a result of the current environment. We are seeing an increased focus on mental health throughout the United States, which recent prescription data has reinforced.
And in April Express scripts report.
And it showed that the use of prescription drugs to treat mental health conditions increased by more than 20% between mid February and mid March with prescriptions for anti depressants, increasing by 18%.
And potently when looking at prescriptions filled during the week of March 15th 78% when new prescriptions. This indicates a significant increase in patients suffering from depression, who are seeking care.
Well this is a point in time estimate during a notably stressful period in American history.
We continue to believe that there'll be a significant uptick and depression patients many of whom will ultimately fail pharmaceutical treatment and will be seeking an alternative therapy.
As we announced in April we restructured our commercial organization as part of our corporate reorganization. This included a substantial reduction in headcount within our sales team.
At the end of the quarter that team consists of approximately 45 employees spread between the three key roles.
Isn't that develop it managers or BD and who are focused on capital sale.
Neurostar practice consultant for NPC, who are focused on operationalizing and driving the utilization of systems within practices and clinical training consultants or Ctcs, we're focused on training psychiatry and staff on proper use the just systems wants install.
At the end of the second quarter, we had approximately 16 BD EM.
17, and Pcs and seven Ctcs, while we added back if you and Pcs and Ctcs in July to service the improving system utilization, we may selectively increased the size of the team in the future.
We believe the size and structured the salesforce will allow us to generate topline growth.
Focusing on driving increased system utilization and buy more effectively deploying our BD EMS.
On our last call. We noted that with psychiatrist office is closed and patients being held under social distancing restrictions, we reduced spending on certain marketing initiatives to conserve cash.
We did however continue to actively investing in areas that we think will benefit the company, our customers and patience over the long run.
Initiatives like a call center pilot virtual training and digital marketing.
Our call Center pilot connects patients who visit our website to alive call Center, operator, who can then schedule an appointment directly with the psychiatrists in their area.
Early indications from this pilot are exceeding our expectations and we are in the process of planning for a broader launched later in 2020.
In response to the Kobin pandemic and the need to continue to support Neurostar practice, the staying open to treat Tms patients. We offered a series of Webinars and the second quarter over 900 individuals registered for these webinars on topics ranging from peace of mind for patients that provided video.
Yes, and how to prepare the office and treat patients with T. M. S. During cove, it to Tms coverage and reimbursement update that outlined several recent positive changes and coverage.
On the digital marketing front, we continue to leverage this cost effective method to educate patients in psychiatry Miss on the benefits of Neurostar advanced therapy.
We have also seen notable progress in our reimbursement landscape recently, our ft. A current indication is adult patients who have failed to achieve satisfactory improvement from one prior anti depressant medication.
However, many payers have taking a more conservative approach in terms of the number of fail drugs before they will reimburse for north star therapy.
As a company we have been working with payers to change that and make Neurostar advanced therapy more readily available for patients seeking to manage their depression.
During the quarter I.
We had several notable wins, including.
Cigna, which represents 16 million covered lives, we were able to reduce pharmacotherapy criteria from four failed drugs to fail drugs or intolerant to one medical trial.
That now which represents 22 million covered lives we were able to extend coverage to include patients between 18, and 21 years old where it previously had been exclusively for 21 years old and over.
Added that provision per week treatment approval based on 50% improvement.
And reduce pharmacotherapy criteria from four failed drugs to fail drugs.
And finally see ATSI Blue Cross Blue Shield, which represents 15 million covered lives, we were able to reduce pharmacotherapy criteria from four failed drugs to to fail drugs.
We view this as a meaningful progress towards making it easier for patients to get access to Neurostar advanced therapy and should lead to an increase in new patients dart volumes over the longer term.
We will continue to work to make the shift more broadly adopted among all payers.
Shifting gears to our financial performance.
Revenue for the second quarter up 2020 was 9.7 million dollar.
41% decrease compared to the second quarter 2019 revenue of $16.6 million.
This was primarily a result of the covert 19 pandemic related governmental responses and resulting economic turmoil.
U.S. Neurostar advanced therapy system revenue for the second quarter of 2020 was $2.3 million a decrease of 49% versus second quarter 2019 revenue of $4.6 million.
The decrease was primarily driven by a lower number of Neurostar systems sold in the quarter.
Lower blended Neurostar capital system, a espy's due to a higher mix of sales type leases during the quarter as well as lower other revenue related to fewer H.P. coil upgrade sold.
In the quarter. The company sold 35 systems down from 61 systems and the second quarter of 2019.
Result of the impact of covert 19.
During the quarter, we saw our installed base increased by 13% to 1122 systems, a net increase of 146 systems from the second quarter of 2019, and a net increase of three system since March 31st 20 Twond.
Turning to U.S. treatments session revenue U.S. treatment session revenue was $6.5 million for the second quarter up 2028 decreased to 40% over the prior year.
Average revenue per system was $5850 during the second quarter up 2020 compared to $11651 in the prior year quarter.
Both of these declines were driven by Cobra 19 related practice shutdowns.
Gross margin for the second quarter of 2020, with 76.2% compared to second quarter 2019 gross margin of 74.8%.
The increase was primarily a result of a change in the product mix of revenues versus the prior year.
Operating expenses during the second quarter of 2020 were $14.3 million decrease of $4.7 million compared to $19 million in the second quarter up 2019.
The year over year decrease was primarily due to reduced sales and marketing expenses, including trade shows an advertising travel expense and personnel costs.
On a sequential basis operating expenses decreased $4.7 million from $19 million. During the first quarter of 2020 as result of the implementation of our cost saving initiatives.
Net loss for the second quarter of 20 $27.8 million or 41 cents per share.
Compared to second quarter, 2019, net loss of $7.1 million or 39 cents per share.
EBITDA for the second quarter up 2020 was negative $6.2 million as compared to the second quarter of 2019 EBITDA of negative $5.9 million.
Moving to the balance sheet as noted earlier, we have put in a significant amount of effort aimed at ensuring that we have adequate capital resources and liquidity to support the business over both the near and long term.
As of June Thirtyth cash and cash equivalents were $54 million, we remain focused on conserving capital and earlier this year instituted a number of cost reduction initiatives.
We expect to realize the full impact of these cost reductions in the third and fourth quarter.
The company continues to project total operating expenses for the full year 2020 to begin the range of $58 million to $60 million.
Going forward, we continue to expect quarterly operating expenses to be in the range of $12 million to $14 million and at those levels. We believe that we are likely to achieve operating income breakeven that revenues between 18 million and $20 million per quarter.
Moving onto our outlook for the balance of the year, we believe that April and May will be the worst performing month of the year, causing the second quarter to be the worst performing quarter of the year.
Looking forward, we expect to see modest sequential recovery and both the third and fourth quarters.
I would now like to hand, the call back over to Keith Keith Thank Steve before opening the line for questioning [laughter] I'd like outline the areas of the business that we will be focused on in the near term.
First is to drive awareness of Tms as a very safe effective therapy for depression.
We plan to conduct market research to identify the proper target audience.
The messaging that resonates with them and the most efficient way to communicate with them. We currently have a significant number of Neurostar advanced Jeremy therapy systems in the field and we will be focused on working with our customers to make all of these systems successful.
The second area of focus is our commercial organization the leadership team as adjusted the field sales team to drive treatment session volume and revenue per system.
Once the market data is collected we can create the proper tools to armor and Pcs with what they need to help our accounts with educating depression suffers on the benefits of Tms to help convert them to patients.
This is a process that will take some time to deploy but we're confident that we can be a valuable partner with our accounts to make them successful and help their patients.
My prior experience in the aesthetic space. It was not too long ago, we would walk into a practice, where the physicians had little to no experience generating patient demand.
And we're not actively driving new patient volume, we were able to drastically change that through coaching and demand generation.
We believe that that same can be done with the psychiatric community.
With the power of social and digital marketing as a tool for both driving awareness and generating demand. We can partner with these practices to build a thriving business treating patients and supporting their growth.
When we achieved this growth it will be a catalyst to drive additional system sales.
Lastly, we are accelerating our indication expansion efforts and an effective and efficient manner.
We have long believed that the neurostar platform can and should have a much broader applicability within the treatment of psychiatric disorders.
As such we will be evaluating our go forward strategy can make sure that we can progress through the regulatory process more efficiently and bring new indications to the market sooner.
I'm very excited about what the future holds for Nurown that it throughout the pandemic, we have put into place a highly proactive strategic set of initiatives that put us in a position of strength that will set us up for success as the world continues to reopen.
Building on that foundation, we believe that by executing our marketing plan, coupled with our proven technological advantages.
Robust clinical evidence and future additional indications, we will continue to expand our leadership position in the field of Tms and have a greater number of patients achieve relief from debilitating mental illness over the near medium and long term with that I would like to open the line perks.
Question.
Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone. If your question has been answered what do you wish to remove yourself from the Q. Please press the pound Keith.
Your first question just from a line of Margaret Kayser with William Blair.
Hey, good morning, everyone. Thanks for taking my question.
If you for me just to start yeah, Covidien <unk> the corporate updates you guys gave her pretty.
Meaningful sounds like maybe the new patient starts are nearly back to normal so.
Yeah first can we say that it's fair to cool new starts between 90, and 100% a presale that level and then second how long does it take for those new patient starts at this rate as you get treatment revenue back to that Threeq.
So thanks for the question Margaret and yes. It is safe to say that the current new patient starts are at pre coven levels.
And so we are anticipating those favorable trends to continue throughout Q3 in Q4, assuming we don't get hit with the second stage.
Obviously wants the new patient starts you know traditionally 97% of those patients will continue through the approximately 36.
Treatment sessions for the therapy.
And so again, we are forecasting that.
I would say modest sequential growth to continue throughout 2020.
Okay and.
That sounds a little conservative, especially on the back of what what as you know the reimbursement decisions that you did talk about.
This quarter you know can you give us any background on those how long where are you working on them.
And how do you compare these relative to some of the prior reimbursement decisions that you guys have.
I pad.
Yes, we have an employee dedicated on working with our providers to ensure that the reimbursement does get too.
The levels that were indicated which is one failed drug treatment and so these are really ongoing efforts and not something that was more definitive I'm in terms of a timeline.
And I expressed this during our last call I mean, this is critically important really for the patients.
If the payers are requiring for failed drugs for reimbursement.
It could take a patient between 12 and 24 months have failed drugs.
Which a company multiple side effects potentially before they're able to get to Tms therapy.
So we view the the four failed drugs to two as being a huge step for these three payers.
Again, ultimately it would be great at we could get consistent reimbursement coverage for the indication of one failed drug but those efforts do continue on a daily basis, and we are extremely pleased with those decisions in the second quarter.
Okay, and then last month I could you Keith you sit around and while we've known you for a while so Pete how would you compare maybe your initial thought processes going into they'll take versus your kinetics and as you think about where you're going to send your time over the next 12 months.
Is that you know customer focus as a reimbursement decisions that you know and what would you define a success as a success you know a year from now.
Well good to hear your voice Margaret spent been awhile.
I think that as I mentioned in my my remarks, I think theres, an opportunity to build greater awareness within the patient community on on Tms and I think that to date that the company has done a good job, but I think we need to update the market research to find out who who.
As our target audience today, and then how to get to them. So I think we are doing the call center, we're doing digital and social marketing, but I think over the next 12 months, we'll be able to refine that and be able to do a better job it.
Targeting those those patients and building the awareness.
Secondly is is also helping the accounts themselves.
Be able to bring those patients in and then convert them. So.
It's similar to the the opportunity that was that sell teak theres always a little nuances with with each business, but I think that there is a chance a strong chance that we can take some of the learnings from that and apply them here.
Got it thanks appreciate it guys.
Thank you.
Your next question from that O'brien with Piper Sandler.
Hi, guys. This is through on for Matt.
You for taking the question.
I wanted the let's just a little bit on the Opex trends for somebody downstream customers. Obviously, good to hear on the new patient side I understand that patient throughput, maybe a little bit more challenging.
As there you know why the numerous requirements for bringing the patient Bakken office.
But I guess, just stepping back a little bit what brings the 20% of centers that you mentioned.
At or close back on line I mean is that primarily related to a regional outbreaks to call that.
Is there any concern that some of them could be permanent closures or something else.
Yeah, but were and what we're seeing drew is it's really.
Geographically.
Focused at this point so there are still.
Significant hotspot throughout the country and a lot of those states are actually where we have a lot of neurostar systems.
So.
I don't anticipate a lot of permanent shutdowns.
But some of these centers are obviously still impacted by local and governmental restriction. So it may take them longer.
Due to restart again, if you look at Illinois in Chicago that went in particular has been slower than most too to restart and we gain the traction.
But ultimately as we work through.
The pandemic you know we do believe that the majority of customers that are presently shutdown will come back online.
Okay. That's helpful.
And then I just was wondering if you kind of speaks to some of your priorities over here you made some adjustments on the expense side sounds like.
Capital environment, you, just a little bit more.
Challenging for little walls here are your customers receptive to the operating lease.
Hi model in this kind of environment, Bill and then I guess, either and plan to place a little more aggressively on the treatment session side. Some of your existing customers helped offset any weakness like need capital. Thank you.
Sure.
I mean, we don't offer operating lease financing.
What we have is is what we term sales type leases.
Which you know prior to 2019 could be considered operating leases.
But we only offer them to a handful of customers. It's really just targeted towards the Tms only service providers.
Again, our strategy would that subgroup of customers is to make sure. They preserve their capital. So they can continue to expand as opposed to tying up hundreds of thousands of dollars.
Endorse dark capital equipment sales, which could slow their expansion efforts. So it's a very strategic partnership with our largest customers.
Secondly regarding.
ASP is on treatment sessions.
No the we don't see discounting being necessary.
The reimbursement for our treatment sessions and again this varies by payer and also geography. So it's certainly not the same amount of reimbursement throughout the country, but it is a very favorable economic picture for psychiatrists and other customers again, even if you assume an average of two high.
<unk> dollars reimbursement purse per treatment sessions.
The payback in our machines is about a patient and a year or seven patients a year. So it is.
They are pretty quick to pay these machines off.
Thank you.
You're welcome.
Your next question Miss him the line of Cecilia for long with Canaccord Genuity.
Hey, good morning, Thanks for taking my questions and you said just wanted to start off with well you saw in Q2 in terms of rebound, but really focusing on that the Tms only centers and just their ability to rebound on a relative basis versus some of your smaller customers.
Sure.
I mean, obviously.
The Green books of the World and success Pms.
They're an extremely.
Large entities and better equipped to weather the covert 19 pandemic.
Obviously, they were impacted as we all where but the Tms only service providers have certainly recovered quicker.
Then some of the smaller facilities.
And that's really due to their their scale an expertise and.
Changing the way they treat patients and you know for example people don't wait or patients don't wait and waiting rooms anymore, it's a very continuous flow.
Through the facilities. So you don't have people and the same her potentially spreading diseases and so they were able to optimize their workflow and really get ahead of the recovery efforts.
Thank you and I guess just like it also ask I'm just on your on your high level thoughts on Opex Dion 2020, really R&D your focus there specifically and then the relative prosperity.
In the proceeded PTSD in insightful or depression indications and they.
Commented briefly in your prepared remarks, but just any further color you can get around and your thoughts around priorities is to Jeff. Thank you.
Yeah. So you know in in April when we saw the tip of this decline and.
Treatment session utilization as well as new patient starts you know, we took the swift and decisive decisive action to.
Reduce our expenses, we did communicate that that was for cash preservation and we would not restart investments.
Until we were comfortable that we were out of the Cove it environment.
The the recent trends certainly indicate we're heading in a in a favorable direction.
And even the July data was was pretty impressive, but we really don't want to get too far ahead of ourselves in terms of 2021. So this is something that Keith I and the rest of the senior team are looking at again planning for a restart but again not getting too too far ahead of ourselves.
You know we've had ongoing conversations with the FDA that had been very positive.
But until we get comfortable with their position in opinions on.
Clinical trial structure.
And things like that where we're not prepared to.
I really launch something you know that lengthy and that expensive.
Regarding our nexgen platform.
Again that was slowed but it still on the radar and these are the decisions that will work through during our planning process, which starts next month.
Thank you.
Your next question is from the line of Murray people will be T. G.
Hi, Good morning, Thank you for taking the questions and welcome Keith heavy here [laughter]. Thank you.
Ask a question on the capital sales this quarter, they were actually a bit better than we had feared and and so I wanted to get a little bit more granularity on those system sales the types of centers knows we're going into that and.
There was any additional detail you could give us along along those lines.
[noise], Yeah again, given given the environment of Q2, we were we were pretty impressed with the the ability of our BD EMS to transact that many systems. You would also expect to see I think a more.
Focused on the Tms only centers when we looked at the data the the percentage of Tms only versus I would say traditional facilities didnt vary from previous quarters.
So it was it was just our traditional mix.
Between you know regular psychiatrists and those Tms only centers.
We do think that there could be an increased focused on Tms only as we get into Q3 I'm just based on their ability to recover quicker than some of the other facilities, but we'll have to see how that plays out and in the quarter.
Okay, Great and then I guess I wanted to dig a little bit on your commentary about lot of systems in some of those hotspot state on do you have kind of a general breakout of how many more what proportion of systems, that's and you know the south and west some of those.
States that are being hardest hit right now.
So we actually we do have the ability to monitor everything on a state by state basis, and we actually do look at utilization trends everyday.
And so yes, and naturally our highest density States are Illinois, Chicago, Texas, California.
And you know essentially many of the states that are getting hit hard I again.
But again, you know our customers have figured out the optimal way to safely treat patients and also keep their staff safe.
And so we haven't seen at significant impact even in those states they've certainly recovered at a very impressive rate since the low point in may.
And again those trends have continued into the month of July.
That's really helpful. Thanks, so much.
You're welcome.
That concludes our question and answer session for today I wouldn't elects to turn the call back over to keep Sullivan for closing remarks.
Thank you. Thank you operator, thanks again for joining us today, while it's early in my tenure I'm very impressed with the team we have and our ability to move quickly and adapt for the balance of the year, we will be heads down focused on executing in a dynamic environment. While at the same time looking to the future and putting a long term stride.
Did you in place I look forward to updating you on our progress on our next quarterly call. Thanks for joining.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful day you may all disconnect.