Q2 2021 Neuronetics Inc Earnings Call
Good day, and thank you for standing by and welcome to day, a narrow net it because the second quarter 2021 financial and operating results conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your Speaker today Mark Klausner. Please go ahead.
Good morning, and thank you for joining us for neuro networks second quarter 2021 conference call.
Joining me on today's call are neuro net ex President and Chief Executive Officer, Keith Sullivan, and Chief Financial Officer, Steve for a long.
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.
<unk> and other operational issues and metrics.
Actual results could differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the Companys business.
For a discussion of risks and uncertainties associated with Aeronautics 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, and the 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 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 tables accompanying our press release, which can be viewed on our website with that it's my pleasure to turn the call over to neuro net ex President and Chief Executive Officer keeps all of them.
Good morning, and thank you for joining us I'll begin by providing an overview of our second quarter performance.
Followed by an operational update Steve will then review our financial results and I will conclude with our thoughts for the balance of 2021 before turning to Q&A.
Starting with the review of the second quarter total revenue was $14.2 million up 46% from the second quarter of 2020, driven by strong year over year growth in treatment session revenue.
Our U S treatment session revenue was up 65%.
Over the second quarter of 2020 as a result of 3 things 1 day increased impact from the work of our N. P. CS are doing in the field to train our existing accounts to our.
Patient education programs and 3 the continued growth in our installed base as a result of these initiatives during the second quarter. The number of treatment sessions utilized has increased 62% over the quarter of 2020.
As previously noted our goal for 2021 is debt treatment session revenue approach 2019 levels by year end I'm happy to report that we have already exceeded this goal through the first half of the year.
In the middle of May we experienced a dip in the average daily treatment sessions as you know we monitor this metric weekly.
The start of this movement coincided with the CDC announcement, we're moving masks and social distancing requirements for those vaccinated.
Many of our larger customers saw the same trend as people opted to travel for the first time in 18 months rather than begin treatment. We believe that this was transitory as we have seen the daily average rebound back to 3000 treatment sessions per day level, we mentioned on our last call unless.
This new strain of Covid causes more disruption, we believe our utilization will continue to grow as our accounts grow their participation in the precision pulse program.
On the capital equipment side U S. Neurostar advanced therapy system revenue increased by 10% over the second quarter of 2020 and grew by 47% sequentially over the first quarter of 2021.
The year over year and sequential growth is a positive indicator of the return of a more normalized capital environment bolstered by strong customer demand for new systems.
We had mentioned in our last call that we expected our capital team to gain traction in the second quarter as expected our BD EMS were able to close several of their leads from the first quarter and continued to generate high quality opportunities.
We expect them to be increasingly more productive through the balance of the year.
During the quarter, we hosted a unique business development event, the Neurostar summit with a large group of potential customers and several existing ones. The event was held in Austin, Texas and over 80 physicians in practice managers from over 50 different accounts were present.
Attendees were highly engaged throughout the event, which focused on providing prospective customers and in depth understanding of the 5 stars to success program, which is our.
For scripted program that educates our customers on the value of the Neurostar team brings to that.
As a reminder, star 1 is our clinical protocol.
Start to is reimbursement and office support needs start 3 is training staff on how to best educate patients start for his marketing within the practice and star 5 as marketing outside the practice. The immediate results were very encouraging as we closed a number of capital.
Sales at the event and several subsequent to it.
To date the results of the event had been extremely favorable and we believe several additional systems will close in the coming months.
Given these positive results we are planning on hosting other similar events in the third and fourth quarter, where we expect strong turnouts.
Like these are just 1 of the areas, we are investing in to increase awareness and better educate physicians.
The second quarter represented continued progress towards the commercial transition we initiated in early 2021, we remain focused on executing on the initiatives to build awareness and motivate patients with depression to request Neuro Star. We are accomplishing this by training our customers on.
The best practices to educate patients who are searching for an alternative to drugs by showing the benefits of neurostar.
Beginning with our marketing campaigns, we continue to successfully leverage our digital and social media channels to educate patients and connect them with physicians in their area.
During the quarter, we generated over 41 million AD impressions and our ongoing emphasis on these campaigns have driven a 34% increase in year to date website visits.
Not only are we engaging with patients in the right channels, but our refined messaging is resonating with these patients the number of people who have requested an appointment with neurostar provider through our website is up over 100% year to date our.
A significant percentage of these patients requesting appointments with neurostar are being routed through our concierge call Center.
The call Center has ramped quickly since its launch and we saw more than a 30% increase in the number of accounts who are qualified to receive leads over the first quarter of 2021, we.
We continue to be excited by the strong response rates from our campaigns, which not only validate our approach and our messaging, but highlight the strong demand for an alternative treatment to drugs.
This influx of interest is a great opportunity for us to work with our customers to help as many of these patients as possible beat their depression with the Neurostar advanced therapy for mental health.
If you recall our initial market research results demonstrated aided awareness of Neurostar as a non drug alternative in patients with depression was under 9% after 6% 6 months of our DTC marketing. Our most recent research reflects an aided awareness.
Of Neurostar at 15% we are encouraged by this trend.
Turning to an update on the 5 stars and the precision pulse program, which are designed to make sure that our customers are able to assist as many patients as possible.
The adoption of the <unk> program continues to be extremely high as our npcs continue to educate existing customers on its benefit.
At the end of the second quarter, nearly 100% of our customers were.
<unk> in the program and progressing through the various levels.
We also continued to see strong interest in the precision pulse program the.
The number of participating accounts grew by 40% during the quarter and currently 42% of accounts have joined the program since we rolled it out this February we.
We expect to see more customers participate as we progress through the year Encouragingly accounts in the precision pulse program on average increased treatment session utilization by 17% in the second quarter compared to the first quarter. Overall these programs are garnering.
High levels of participation and are leading to increased awareness and high levels of treatment session being delivered.
Lastly, I wanted to provide an update on our clinical and regulatory strategy.
At this year's political Tms Society meeting in June we had a major presence, which included sponsored presentations poster presentations and a strong presence on the podium.
The energy at the event around the company and our technology was high and the event served as a great opportunity to Reengage with many of the society members physicians key opinion leaders and customers, who we had not interacted with in person for over 18 months.
Importantly, some key pieces of new data were presented during the conference Dr. Harold Sakai, a thought leader in Tms presented an analysis based on data from our industry, leading patient outcome registry.
This analysis found that in patients completing a course of therapy. The results in routine clinical practice, we're more effective than in the original sham controlled trials in Doctor stock items analysis. He found neurostar delivered an 83% response rate and a 62 per.
<unk> remission rate. This is a large improvement from the early clinical trial, which produced a 58% response rate and a 37% per admission rate and continues to be a massive improvement over the results achieved by medication.
Dr Stock items data demonstrated that neuro star has the highest published response and remission rate in the industry.
As it relates to our regulatory strategy, we continue to have a productive dialogue with the FDA to explore pathways to label expansion and clearances for additional indications. Our previously scheduled meeting with the FDA has been rescheduled a few times due to internal conflicts within the age.
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While we are disappointed with the delay we are working with the staff to get a meeting scheduled as soon as possible.
In advance of this meeting we recently received a letter from the FDA acknowledging our prior submission and suggesting they would consider use of our real world data to support a clearance for a label expansion <unk>.
<unk> had a number of questions that we will discuss with the FDA. Once we are able to meet but overall we view. The communication is positive we look forward to continuing our dialogue with the FDA to help clarify our path forward.
Overall I am pleased with our performance during the first half of the year. The continued early execution by our commercial organization and the positive response in the market from both customers and patients reinforces that we what we're doing is resonating I am confident that we are focused on the right Ines.
<unk> to execute on our growth strategy as we seek to expand.
Upon our market leadership position and being and bring relief to more patients suffering from mental health disorders, I'd now like to turn the call over to Steve to provide a financial overview.
Thank you Keith total revenue for the second quarter was $14.2 million, an increase of 46% over second quarter 2020 revenue of $9.7 million.
During the quarter total U S revenue increased by 49% over the prior year quarter.
The U S revenue growth was primarily driven by an increase in U S treatment session revenue.
U S. Neurostar advanced therapy system revenue was $2.6 million compared to the prior year revenue of $2.3 million. It was up 10% and compared to the first quarter of 2021 was up 47%. The increase was primarily driven by our <unk>.
<unk> gaining traction in the new territories, resulting in an increase in the number of Neurostar systems sold relative to the prior year quarter.
The company sold 36 systems up from 35 in the second quarter of 2020 and up significantly from 23 systems sold in the first quarter of 2021.
U S treatment session revenue was $10.8 million, an increase of 65% over second quarter 2020 revenue of $6.5 million, primarily driven by a significant increase in treatment session volumes relative to the prior year.
On a sequential basis U S treatment session revenue increased by 12% over the first quarter of 2021.
Revenue per active site was approximately $12000 compared to approximately $7400 in the prior year quarter.
As a reminder, we calculate this metric by dividing total U S treatment session revenue by the beginning of quarter active sites.
Gross margin for the second quarter of 2021 was 86% compared to the second quarter 2020 gross margin of 76, 2%.
Primary driver of the increase was a favorable product mix of treatment sessions versus capital sales.
Operating expenses during the quarter were $18 million, an increase of $3.7 million compared to the second quarter of 2020, primarily driven by higher marketing expense and stock based compensation expenses.
During the quarter, we incurred approximately $1.9 million of noncash stock based compensation expense.
Net loss for the second quarter of 2021 was $7.5 million or 29 per share as compared to a net loss of $7.8 million for 41 per share during the second quarter of 2020.
EBITDA for the second quarter of 2021 was negative $6.3 million as compared to negative $6.5 million for the second quarter of 2020.
Moving to the balance sheet as of June 32021, cash and cash equivalents were $115.8 million.
Now turning to guidance for.
For the full year 2021, we continue to expect revenue in the range of $59 million to $63 million consistent with our previously issued guidance.
Our guidance assumes there are no major COVID-19 resurgence is that impact our customers for patients. In addition, we expect that our BD EMS and Mpc's contributions will increase during the second half of the year as they continue to gain experience and progress towards full productivity.
For the third quarter of 2021, we expect revenue in the range of $15 million for $16 million.
As we communicated early in 2021, when we raise capital we would be evaluating our spending based on trends we were seeing in the business.
As a result of the early success from our marketing and customer education and training efforts, we have decided to increase our investment in these areas of the business as well as in research and development and clinical to drive our future growth. The company now projects total operating expenses for the full year 2020.
1 to be in the range of $68 million to $72 million.
I'd now like to turn the call back over to Keith.
Thanks, Steve.
Turning to our expectations for the remainder of 2021, we will continue to be focused on building awareness of Neurostar among depression patients and training our customers on the best practices to educate them who are searching for an alternative to drugs on the benefits of Neurostar, specifically we will.
Work to optimize our digital and social media campaigns expand our concierge call Center efforts launched new customer programs and continue to put the pieces in place to execute on our clinical and regulatory strategy as we progress through the year, we continue to be encouraged by the success of our new.
New commercial strategy as our BD, EMS and MPC spend more time with customers and as we fully implement and refine our 5 stars to success and precision pulse programs within a greater population of our customer base. We expect to continue to see a positive impact of these initiatives throughout the back.
Half of 2021 and into 2022.
I'd now like to open the line for questions.
Thank you and as a reminder to ask a question simply press star 1 on your telephone.
We draw your question press, the pound or hash key.
Please standby, while we compile the Q&A roster.
First question comes from Margaret Kaczor with William Blair.
Hey, good morning, everyone. Thanks for taking my question.
I wanted to follow up a little bit first.
From the early comments he talked about in terms of assessing treatment Ah metrics in mid May you did talk about maybe seeing that rebound back to 3000 treatments for Bob So.
I guess did you guys hear that this was more of a delay in patient starts or is it patients delaying showing up for that initial doctor visit.
And then could you see a bolus of patients as they come back later on throughout the year.
So good to talk to you Margaret.
The initial blip that we saw was was in treatment sessions patients putting off the start of their treatment and then we saw it rebound back a few weeks later.
So Margaret another metric that we surveyed some of our large customers and the no show rate actually went up significantly and so many of our customers continue to contact new patients to make sure. They show up for that initial empty and what they saw in may and early.
June was that level of people that didn't show up Roes to close to 15% and so we think it's just a delay relative to the revised CDC guidelines.
Okay.
That's helpful and part of the reason for.
For the App is we've got low single digit to low double digit utilization growth over the next 2 quarters sequentially.
What we're trying to figure out is how durable is that with the tops from kind of growing that means mid teens or a little better.
And is that whats assumed in your guidance as well.
Yes.
We're a little.
I'd say concerned with the Delta variant right now and the impact it could have on our customers and patients.
Again, we are forecasting an increase in utilization and treatment session volumes going forward.
Again, it's just we're still in that environment of.
Somewhat unknown.
But yes, I mean, we are forecasting a continued.
Continued momentum.
In Q3 and Q4, obviously, if you look at our year to date performance.
Compared to 2019 is strong from a treatment session perspective.
And so again, it's a it's a very backend loaded.
Planned for the year, but we did.
Reaffirm guidance and we are pushing towards getting to where we said we would.
Okay, and just if I could squeeze 1 more in because you referenced I'll tell a little bit but are you seeing any of that.
And your business right now because you didn't include it in guidance and it seems like maybe you are not yet other than just the channel worried like for.
Yeah, we're not seeing we're not seeing anything in our.
Our accounts are geared up to be able to handle COVID-19 patients. So we're not seeing any closed down or any reaction like that.
Alright, thanks, guys.
Our next question comes from Matthew O'brien with Piper Sandler.
Hey, guys, it's Adam on for Matt Thanks for taking the questions.
I wanted to start with a question on the guidance kind of following up on Margaret's line of questioning so the guide implies a nice ramp in the back half of the year. So maybe just talk about your level of confidence in.
In that guidance range and then as you.
Talking about kind of rebounding to that average 3000 sessions per day exiting Q2, we pulled at Florida extrapolate for the back half.
And in price it implies some pretty nice upside so how sustainable is net net run rate how.
How do we reconcile that with the guide.
Are you expecting seasonality with vacations in Q3, and then I had a follow up thanks.
Okay.
From a confidence perspective.
Again, the metrics that we continue to track remain extremely favorable.
It's important to note that our.
Our capital team is essentially 100%, new and didn't get out in the field until February 1st.
Between February and the end of June not only were they closing transactions, but also rebuilding their sales funnels.
And Thats, what really gives us the confidence for the second half of the year.
The sales funnels are much more robust than they were at the start of the year and now it's just a matter of again continuing that pushed on the capital side from a treatment session perspective.
Again, we track utilization and purchases daily and we can see real time, the impact of the marketing programs.
The uptake in the precision pulse has been extremely positive and those benefits are really incurred by system purchases and ultimately utilizations.
And so we have real good insight into how those are progressing and the level of utilization and purchases that those customers in the precision pulse.
Our transacting.
We learned some lessons with the 5 star we've made some modifications and again the progress to date has been extremely positive and we believe with some of the adjustments that we've made it will be even more positive for the second half of the year.
Again looking at year to day treatment sessions.
Compared to 2020, it's not a fair comp because of Covid last year, but compared to 2019 year to date, we are above those levels through the end of June which is a really positive indicator since the impact of these programs is just starting to impact us.
That's helpful color I appreciate that and then just on the follow up maybe to dig into a little bit more on the capital side of things.
How would you assess the current status of the capital environment. The capital came in a little bit light of our forecast, but it does sound like theres good appetite from customers.
At the recent sales events and Youre going to continue that initiative into the back half of the year. So is the expectation to see kind of a meaningful build in the back half and anything that you guys are seeing from a competitive standpoint, that's impacting.
System placements or is it really.
Just timing and kind of change in priority towards treatment sessions. Thanks, so much for taking the questions.
Certainly so we were we were very encouraged.
Our Neurostar summit, the fact that we could.
Get 80 physicians and office managers to give up at least a day of their practice and at least a day of there for.
Family time was impressive, especially coming on the heels of Covid. So.
That they would travel down to Austin, Texas to learn about this product was impressive to all of us.
I think we were very encouraged by it and the.
The level of response by those those attendees was.
Was high and they.
We sold a number of systems out of that as we said in the remarks, we expect to sell a number more.
As other physicians are building out offices in preparing their staffs to to get into.
Eurostar Tms so.
Think the the capital environment is rebounding I think there is great.
Greater awareness out there.
From the TMS Society meeting there was a lot of discussion about increasing.
Volumes of <unk>.
Tms offerings within their practice.
So.
I see this rebounding the way.
Normal capital equipment sales are and I think to be successful in that.
I've always been taught that if you have 5 systems in your pipeline that you were going to close youre going to get 1 and so we just need to give our team time to be able to build up that pipeline and they're doing so so theyre getting at those levels.
And they are building quarter over quarter as we had expected they would on the competitive side.
I would say in the first quarter, we saw a significant presence from our competitors.
This quarter, we have not seen as much so.
We are we are moving through our 5 star program and our precision pulse program as.
Second to our great results that we offer and our customers and potential customers are buying into all of that.
I appreciate the fulsome response, thank you.
Our next question comes from Bill for blending with Canaccord.
Great. Thanks, Good morning I'd.
I'd like to dig into the <unk> a bit more if I could Steve so.
Could you give us some color on.
Where you are in terms of the number of Bds today as you go into Q exited Q2 and go into Q3, what type of turnover you've seen in that and kind of what you mentioned that the funnel is stronger any more granularity on kind of the funnel metrics would be helpful as well. Thanks.
So.
Good morning, Bill So we have to.
<unk> 2 territories outlined and currently we have 21 of those filled.
We had a.
<unk>.
I'll call it a company sponsored departure.
Earlier in the second quarter.
But it.
Outside of that we haven't had any turnover in that team and I think as far as there.
There are opportunities.
I think we mentioned that they had over approaching 400 opportunities in sales force in the first quarter.
I think we have.
Not quite double that but we have a significant number that were developed in the second quarter. So their pipeline is is quickly growing and events like the Neurostar summit certainly helped that.
Yeah.
Yeah.
Thank you and then.
On the.
As you talked about the 5 star program.
Just like to get a feeling for how many accounts are on that how many have reached 5 stars how long do you think that will take.
And what type of performance once they hit all 5 stars is that a.
Just like the precision plus is at a 15% 20% improvement is at a 50% improvement kind of just help us understand the benefits as you drive these accounts through and kind of how many you have kind of gone through that funnel today.
So we have so as I mentioned, our first star is as our clinical protocol and the second is reimbursement and other office needs.
So with those first 2 stars almost all of our accounts are now listening to what the clinical.
Protocol would be they're all welcome.
Our help on the reimbursement front doing benefits investigations and helping them identify what insurance companies.
They should be offering in their practices. So I think in our remarks, we said close to 100% of our accounts are involved and I think that's with those 2 stars.
Debt that gets us to that number so its the its star 3.4 and 5 debt that we are really focusing on and start 3 is training the.
The person who answers the phone and the reception desk to to be able to talk to these patients and then the.
Second part of that is training the counsellor on how to talk to patients within their practice and patients outside their practice so.
I think today, we have.
Under 20 accounts that are at <unk> 5.
But our marketing outside of their practice on a on a regular basis.
And I am excluding our service providers from that number.
But individual accounts that are.
At our at our Star 5 level are generating on average $360000 in practice revenue.
A year. So there is a lot of upside on that even at 360000, that's only treating.
About for patients a month.
Okay and then last thank you that's very helpful. Thank you last question for me is just how many patients starts were there in the second quarter.
Thanks for taking my questions.
Well, we'll have to get back to you on that exact number.
Okay. Thanks.
Thank you and as a reminder, if you have a question. Please press star 1 on your telephone.
We have a question from the line of Mark.
Marie Thibault with <unk>.
Hi, Yes. Good morning. Thank you for taking the questions I wanted to try to dig into the utilization a little bit more by my math it looks like the average utilization for the quarter get below 3000 per day by quite a bit and I just wanted to try to get an understanding of just how substantial that mid may dip was and if you could give us sort of the youth.
<unk> rate that you exited Q2 and that would be very helpful.
Hi, Marie this is Steve yes.
The dip in mid May was about 8.
8% to 10% from a utilization perspective.
And that lasted a few weeks.
Again surveying some of our top customers.
That duration did fluctuate and Soc, some customers suffered from that dip a little bit longer while others recovered and.
In early June it was primarily right around.
Memorial Day is when I think the peak happened.
But we did we side internally that we did get back to that 3000 level in June and we did exit the quarter at that level once again.
So we are confident.
We will be able to get to the rates that we do have built into our guidance.
Again, as a reminder, Q3 <unk>.
Seasonally it's usually flat to Q2.
Just because of the vacations I think thats going to be exacerbated this year since nobody took vacations last year.
But again that will be offset by the success of our programs and the training education and co marketing efforts our practice consultants are pushing forward with.
Okay. So your Q3 guidance does contemplate pronounced summer seasonality that's good to hear.
And then I guess I just wanted to ask about communication because.
April we heard this 3000 treatment sessions per day metric and then in June you were at a sell side conference and discuss that another encouraging treatment metric.
Given that you have real time track Star data why is this the first that we're hearing about the midnight debt.
I don't think we had an opportunity or a forum to discuss it at the point.
I mean this is this is really the venue to talk about what happened in the quarter after the quarter.
Okay.
And then I guess for just a housekeeping 1 for you Steve where are we at for active sites at the end of Q2.
Active sites we were.
About $9.50.
Okay very helpful. Thanks for taking the questions.
Thanks Mary.
Thank you and this concludes our Q&A session I would like to turn the call back to Mr. Keith Sullivan for his closing remarks.
Thank you operator, and thank you again for joining us on the call today, we look forward to updating you on the progress next quarter.
Thank you.
And with that we thank you for your participation in today's conference and you may now disconnect.
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