Q3 2021 Neuronetics Inc Earnings Call
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Good day and thank you for standing by welcome to the <unk> third quarter 2021 financial and operating results conference call.
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I'd now like to hand, the conference over to Mike Valley from Westlake.
Good morning, and thank you for joining us for neuro networks third quarter 2021 conference call.
Joining me on today's call, our neuro Nellix, President and Chief Executive Officer, Keith Sullivan, 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 could 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 neuro Nellix business I encourage you to review the Companys filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K, and 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 forecasts and strategic plans to benchmark our performance externally against competitors and for certain compensation decisions.
Conciliations 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 narrow networks, President and Chief Executive Officer, Keith Sullivan.
Good morning, and thank you for joining us I'll begin by providing an overview of the third quarter performance followed by an operational update.
Steve will then review our financial results and I'll conclude with our thoughts for the balance of 2021 before turning to Q&A.
Total revenue was $13 8 million.
Up 11% over the third quarter of 2020.
While we are continuing to see progress in many of the initiatives, we have put into place and believe underlying trends in the business are moving in the right direction.
Conversion of our strategic initiatives and the topline growth has been slowed.
Primarily due to COVID-19.
On the capital equipment side.
S Neurostar advanced therapy system revenue increased by 3% over the third quarter of 2020.
Our assumption at the time, we launched our commercial organization at the beginning of the year.
The team would begin to be productive in the second quarter and continue to progress through the balance of the year.
Although we have shown pipeline growth the expansion into new accounts was slower than expected as a result of a longer than anticipated sales cycle.
We experienced slower than anticipated expansion by national accounts in the quarter as our two largest providers. We're focused on fund raising this year to support expansion efforts.
As a reminder, we define national accounts as large Tms providers like Green Brook and success Tms.
Our teams continue to work closely with these national accounts and I believe we are in a good position to support their growth plans in 2022 and beyond.
Our U S treatment session revenue increased by 13% over the third quarter of 2020.
Despite the growth we believe performance was impacted by Covid headwinds delaying the new patient starts.
Now turning to operational highlights in recent months, we have announced multiple exclusive commercial partnerships with leaders in the Tms space in an effort to accelerate the adoption of Neurostar advanced therapy for mental health.
In September we announced a commercial agreement with Zion healing.
Leading franchisor of behavioral services in this agreement.
<unk> will be the exclusive supplier of Tms equipment to Zion healing and its franchisees.
October we announced a five year contract extension with success Tms one of the nation's leading Tms providers and one of our longest standing accounts.
As part of this agreement success Tms will exclusively utilized our neurostar advanced therapy for mental health systems to treat patients suffering from treatment resistant depression.
As part of the extension, we made a $10 million secured term loan to support their expansion plans over the coming year.
Also in October we signed a commercial agreement with River region Psychiatry.
Our leading Tms provider in the southeastern United States.
We're excited to have been chosen as the exclusive supplier for Tms systems.
We have our team prepared to assist river region and executing their expansion plans.
2022 and beyond.
Turning to an update on our marketing initiatives.
In September we hosted our second Neurostar summit event in Chicago the <unk>.
That was well attended.
With over 700 physicians in practice managers from over 50 accounts.
This was an opportunity to provide an in depth review of the partnership we offered to our customers, including the various practice support programs we offer.
We closed a number of capital sales at the event and several subsequently.
We have another event scheduled for November and we will continue to put these events on the calendar and expect them to expand growth opportunities.
In addition to the programs we launched earlier in the year are five stars and precision pulse programs. We recently piloted a new program designed to help our customers identify patients within their practices, who are candidates for neurostar therapy.
Utilizing our proprietary screening tool, we were able to identify over 500 patients in several practices, who are interested in a non drug treatment for their depression and meet the criteria to be in Neurostar patient.
Over time as these patients work their way through the Preauthorization process, we believe many will become neurostar patients.
The success of our new tool points.
Points to a significant opportunity within our existing customer base to help practices deliver better outcomes to more patients without any additional investment on their part.
Lastly, I want to provide an update on our clinical and regulatory progress recently.
Peer reviewed paper was published that showed patients had a significantly lower risk of seizure with neurostar advanced therapy for mental health than with Tms treatments that claim a deeper stimulation with an H coil technology.
The paper titled seizure risk with repetitive Tms survey results from over a half a million treatment sessions.
Was published in brain stimulation, which further supports the important work we are doing to solve patient's mental health struggles with what we believe is the safest and most effective system on the market.
We are encouraged with our recent dialog with the FDA regarding our potential label expansion and clearance for an additional indication.
While the exact timing of the Fda's decision is out of our control. We continue to have productive discussions with the agency and believe we are moving in the right direction.
In summary.
While our revenue performance this quarter was below our expectations.
We believe that we are continuing to make progress on our strategic initiatives to drive future growth.
We continue to optimize and expand our efforts to drive awareness.
Work with our existing customers to identify and educate patients.
And seek out ways to drive broader adoption of Neurostar advanced therapy for mental health.
I'd now like to turn the call over to Steve to provide financial overview.
Thank you Keith unless otherwise noted all results discussed will be related to the third quarter of 2021 compared to the third quarter of 2020.
Total revenue was $13 8 million, an increase of 11% over prior year revenue of $12 4 million.
Total U S revenue increased by 10% and international revenue increased by 24%.
The U S revenue growth was driven by an increase in U S treatment session revenue.
U S. Neurostar advanced therapy system revenue was $2 6 million up.
Up 3% compared to the prior year and the quarter. The company sold 40 systems up from 39 in the prior year.
Several of these systems are part of a new operating lease program.
The us treatment session revenue was $10 3 million and.
An increase of 13% over prior year revenue of $9 1 million.
Revenue per active site was approximately $11100.
<unk> to approximately $10200 in the prior year quarter.
Gross margin was 77, 2% compared to 78, 7% in the prior year.
The decrease was primarily a result of increased supply chain costs.
Operating expenses were $17 8 million, an increase of $5 $6 million compared to the prior year. The increase was primarily driven by cost associated with the rebuild of our commercial organization and the implementation of marketing initiatives.
During the quarter, we incurred approximately $1 9 million of noncash stock based compensation expenses.
Net loss was $8 2 million or <unk> 31 per share as compared to a net loss of $3 $4 million or <unk> 18 per share in 2020.
EBITDA was negative $6 $9 million as compared to negative $2 $2 million in 2020.
Moving to the balance sheet as of September 32021.
Cash and cash equivalents were $99 $4 million, which includes the investment in success Tms.
Now turning to guidance for the full year 2021.
Now expect revenue in the range of $53 $3 million to $54 $3 million.
One from our previous guidance of $59 million to $63 million.
Implying a fourth quarter range of 13 million to $14 million at <unk>.
In our guidance is a continued COVID-19 overhang.
As well as seasonality related headwinds impacting new patient starts during the holidays.
The company now projects total operating expenses for the full year 2021 to be in the range of $69 million to $71 million.
I would now like to turn the call back over to Keith.
Thank you Steve.
Before opening the line for questions I wanted to outline our key areas of focus during the fourth quarter as we worked to set ourselves up for long term growth.
As noted earlier, we have recently expanded our relationship with three leading national accounts.
We have partnered with success Tms for a number of years and are looking forward to continuing that partnership to help support their growth plans, which include significant site expansion across the U S. The other partnerships, we noted Zion and river region Psychiatry are in early stages and we will.
Work very closely with both organizations as they look to expand their respective footprints and treat more patients.
Beyond these agreements we continue to have a close relationship with our largest customer and the country's largest national account Green Brook Tms we are.
A significant footprint within their 150 locations and we will continue to support their expansion plans with new systems and work hand in hand with their own individual sites to facilitate the increased utilization of neurostar on a greater number of patients.
In addition to an emphasis on national accounts, we remain highly focused on the ongoing maturation of the sales force.
The pipeline of new prospects continues to grow and as we work through recent COVID-19 spikes and the holiday season, we expect an acceleration of conversions as we move into 2022.
In support of this we will be hosting a neurostar summit later this month.
And the demand has already exceeded our capacity.
In addition to focusing on new system sales, we will continue to work alongside existing customers to drive increased utilization to accelerate this we plan to grow the NPC sales team in the fourth quarter to focus on implementing practice support programs and help expand the utilization of neuro.
Star.
As many of you are aware October was national depression awareness month.
As part of our efforts to drive awareness among patients and psychiatrist we announced a partnership with Dr. Melissa Shepherd.
Sheppard is a board certified psychiatrist and psychotherapist, who is an active mental health advocate.
In addition to being a key opinion leader in the industry. She is a well known social media influencer with over 1 million followers.
In this partnership Dr. Sheppard, we'll be highlighting neurostar advanced therapy from her own social channels, which will be the cornerstone in awareness and education initiatives going forward.
As it relates to our regulatory strategy, we continue to be encouraged by the recent interaction with the FDA and are leveraging our real world data from track Star to support label expansion and new indications.
In summary, we are very optimistic about the future here at <unk>, the long term opportunity as significant as the number of patients needing non drug alternatives to treat their depression continues to rise.
While the inflection point in topline growth has come later than expected we have no doubt that we have the right strategy in place to deliver that growth in future quarters.
With that I'd like to open the line for questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone two.
To withdraw your question press the pound key.
Again that is star then one to ask a question.
Our first question comes from Margaret Kaczor with William Blair.
Hey, good morning, everyone. Thanks for taking my question.
I wanted to start maybe first from an underlying market perspective.
You referenced earlier on in the comments that some of the larger national accounts focus on fundraising I think some of those may be behind us. So maybe clarify that but how quickly can that translate to new clinic openings new patient starts.
Quarter and better or.
Longer than that.
Hi, Margaret.
<unk>.
We have.
Sure.
Comment we have a strong relationship with.
Major accounts success events include growth.
Well.
Sure.
Perfect.
Sure.
Our team has.
Met with them to discuss how we can help them and I think by using.
Ill.
Bird dog opportunities out in steel.
Sure.
Two two.
Help them open those sites quickly.
Okay.
Yeah.
And so if I can.
I'll share a little bit more on that if we if we think about kind of the.
Operational requirement.
Okay with that.
If you want to open up a clinic.
Okay and clinic today is that kind of the three.
Three months prospects six month process and then you've obviously got to build the referral network. So is that another quarter or two behind or can you do both of those.
In tandem.
We believe that.
It's about three months to get.
On a clinic up and running.
But green broke has their earnings call later today I think.
Bill can probably lay out a a more precise plan, but in our experience.
When we open a new physician to a neurostar into a neurostar clinic. It takes about three months to get them up and running.
Okay perfect.
And then if we think about the guidance that for the fourth quarter I wanted to maybe walk through some of the implied key metrics I know there is seasonality associated with it which adds an extra element, but Steve can you talk a little bit about what gets you to that higher or lower end of the range and what youre assuming for rep productivity.
And utilization ultimately really thinking about what is key for guidance mean, as a leading indicator for 'twenty two.
At least in the first quarter. Thanks, guys.
Thank you Mark.
Yes.
Okay.
Got it.
Alright.
Okay.
Okay.
As we indicated in the press release, we did rollout a new financing program.
So given that we're more focused on treatment sessions.
We're comfortable with the operating lease program that we laid out and because these systems will be generating and those treatment sessions going forward, but it does have.
A slight impact on our overall revenues and so.
That mix is factored in Q4.
From a treatment session perspective, we did see a decent recovery in October.
Looks to back back to school back to work vacations or are over.
But whereas we didn't see the.
Seasonality play out in 2020 because.
Folks had nowhere to go and we're pretty much locked down so they continued on their therapy.
Sort of off the table.
So the country is pretty much open and so we are anticipating similar.
Similar seasonality that we've seen in 2019 and.
2018, and so we are balancing that the COVID-19 overhang.
With the seasonality, but historically.
As the very strong quarter from a capital equipment perspective, and so.
Again, I think that's how we derive that.
13% to $14 million range.
Okay, and then just thoughts on what that could mean for Q1 does that mean that we kind of get some more traditional seasonality rates as we get it.
For 2000 excuse me.
That are more traditional seasonality range off of those Q4 numbers.
Or could it be better given some of the programs you are running.
Yes, we're still in the final stages of really nailing down 2022.
Again.
There is still much.
On Covid and the vaccine.
The new Pfizer pill could be a game changer, and so we'd rather not comment on 'twenty two at this point.
Okay fair enough thanks, guys.
Thank you.
Our next question comes from Matthew O'brien with Piper Sandler.
Good morning, Thanks for taking the question so.
Just a little bit finer point on the national account impact, how how meaningful could that be.
As we transition into 'twenty two 'twenty three I mean, what type of revenue contribution can we expect from these newer partnerships that you have outside of Greenbrier.
Yeah. Thanks, Matt This is Steve.
Part of our strategy.
Is to get long term contracts with these large national.
Providers and so we're very excited.
With the recent announcements.
I would say it will vary by.
By partnering.
<unk>.
But.
Looking at success in Greenberg, the largest and again bill will be speaking Tonight on his call.
I think their expansion plans are very robust.
And so.
The group make up about 25% of our overall revenue right now and we expect that to continue to grow into 'twenty two and beyond.
And so being exclusive providers to these partners as we think.
A big deal for both of Us.
So just again, a little bit finer point on top of the finer point, Steve So.
Yeah.
25% is call it 10 or $15 million of <unk>.
<unk> for three new providers, maybe somewhere in the.
$2 million to $4 million range per provider eventually.
So again, Matt I think it does vary they have different models they are in different geographies.
I would.
It's tough to say.
Two to four partner because I think some will be a lot higher than that and some may take a little bit longer to ramp.
It wouldn't surprise me if we did.
75 systems next year between the partners.
Okay. Okay, that's very helpful.
Two more quick ones for me hopefully the site growth commentary I thought was interesting I think you said just over 11000 here in Q3 versus maybe 10000 in Q3 of last year that includes the period, where you've got the COVID-19 headwind and grain broke out.
Raising capital so.
Just curious as far as maybe some of the.
Less affected areas, what kind of growth youre seeing in the productivity per site because that could help give us visibility into.
The business as we come out of some of these headwinds.
Yes, that's a good question to Matt and we have seen.
Hi standard deviations between different customers in different geographies.
We do have the ability to track specific sites.
Some of those growth rates are very impressive north of 25%, whereas others that were more impacted by COVID-19 are flat to slightly down.
So on average the increase was nice.
But they really are sub debt of our customer base that are doing much better than others.
Again with some of the vaccine progress that we've made and hopefully moving past the pandemic.
We do envision getting the the ones that were most impacted back to the growth levels that we're seeing and with the other customers.
Okay, and then last one probably for you as well Steve.
As we think about 'twenty two you've got some headwinds from some potential tailwind here on the on the provider side do you think sales for next year can get back up to 2019 levels.
Yeah.
I'm going to take that one.
Yes.
Believe that.
Our treatment session revenue, we are at 2019 levels.
So we're really focusing on expansion with the capital team and getting more systems placed out into the field.
I do believe that on both capital and.
And treatment sessions, we should be able to get there.
Great. Thank you.
Thanks, Matt Thanks, Matt.
Our next question comes from Bill <unk> with Canaccord.
Great. Thanks, Good morning, Thanks for taking my question.
It just.
Go back to the guidance what are you contemplating in Q4 relative to capital and disposables or treatment utilization.
How do we think about this I mean <unk> been tracking if I look at capital you did two four in Q2 to three in Q3.
Yes.
Well on the capital sales and yes.
Yeah.
By your commentary are you, saying just Q4, it will be a little up and then it's really 2022, and we see that rebound.
Yes.
Summary, that's that's exactly in Q4 has always been.
The high capital sale quarter.
Like most med device company. So we are anticipating an increase in capital revenue.
But it's really the COVID-19 overhang in the seasonality.
Tough to predict.
For the treatment sessions.
And so.
That's kind of the mix.
We still think it's going to be in that 80, 20 treatment session revenue versus capital revenue.
Okay.
And then.
Just.
As you look at the U S capital sales force. So I was just wondering what has been the turnover.
Of that capital sales force since the meeting.
Back in January February.
Bill This is Keith good morning.
I'll tell you and I'm going to give.
<unk>.
Estimates because I'm not really 100% sure our turnover in our field has not been.
Out of the ordinary I think on the capital side.
Added 22 reps.
That were at our National sales meeting, we may have turned over four.
And what I would say was out of those four.
One was one was a loss.
Out of on the NPC side.
I think any of the turnover that we had was mutually agreed upon.
I think when we are shifting this company from a.
System company to a treatment session.
We really changed the job of our Npcs and I think the majority of them have responded extraordinarily well, but we have now asked them to really balance their time from really being strictly trainers on how to get great clinical results with the Neurostar system.
Two to doing that but also helping the accounts generate patient awareness and.
Youre familiar with our five stars to success in that program a lot of it is associated with patient awareness and patient generation quite honestly some of our npcs.
We're very comfortable doing clinical work and did it really well, but we're not interested in doing.
I'll call it the sales or marketing side of the job, which is completely understandable. So.
I think it's a law.
Long answer to your short question, but it's.
We have not had.
Extraordinarily amount of turnover in the sales organization.
Thank you for that color and then I know.
Its been asked already but trying to get a handle on your signing all these partnerships with these customers.
And.
As I think about the economics I think one of the thing that surprised us earlier in the year as a component of your treatment session revenue was fixed regardless of the number of treatment sessions and as you move forward with these agreements are these similar types of agreements that they are they are more fixed in nature or are do they.
Go up as treatments increase.
If for me today. Thank you.
Yes.
So the.
Two new contracts that we signed with.
Zion and reverse funding psychiatrists are.
Our boats per click models and we have.
We are focusing our energy on helping them grow quickly.
Because as they grow we grow so they are we are not offering the.
The fixed price model any longer and we haven't done that all year.
Great. Thank you.
Our next question comes from Marie Thibault with BTG.
Hi, Good morning, Keith and Steve This is Sam <unk> from <unk>, Thanks for taking the questions.
Maybe just one for me here on the new opportunity here that helped identify some 500 patients with within existing customer practices, who are candidates here.
That sounds like a pretty significant opportunity right. These customers are are these patients I should say everybody in these customers hands.
I guess, what's it going to take for these customers to get.
These patients on the chair how much resistance.
Is there are there thanks.
Sam that's a great question I think.
What what really surprised us in the third quarter was the length of time it takes to get a patient from them raising their hands, saying theyre interested to going through the benefits investigation and then the prior authorization.
So as we said in the comments, we believe that those patients are going to work their way through the system over the next few months.
But what I will tell you.
My My reason for optimism is that.
It's only we're able to deploy this in.
In a handful of our accounts and handful is under under 100 so.
This is <unk>.
Good tool for us and I think it's.
Demonstrated too.
Many of our.
Providers that their patients that they think are under med management and doing fine are really not and so we've been.
Surprised and so have day with the effectiveness of this tool.
Great. That's all from me thank you.
Okay.
That concludes.
A question and answer session for today I'd now like to turn the call back to Keith Sullivan for closing remarks.
Thank you operator, and thank you all for joining us on the call today, we look forward to updating you on the progress next quarter I Hope you have a good holiday season. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Thank you.
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