Q2 2022 Neuronetics Inc Earnings Call
Good day and thank you for standing by welcome Sidney Aeronautics reports second quarter, 2020 financial and operating results.
Conference call.
Time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask the question. During this session. Please press star one on your telephone please be advised that today's conference call.
I would now like to hand, the conference over to your speaker today Mark Klossner.
Yes.
Good morning, and thank you for joining us for neuro networks second quarter 2022 conference call.
Joining me on today's call, our neuro genetics, President and Chief Executive Officer, Keith Sullivan, and SVP, Chief Financial Officer, and Treasurer, Steve furlong.
Before we begin I would like to caution listeners that certain information discussed by management. During this conference call will include forward looking statements covered under the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995, including statements related to our business strategy financial and revenue guidance the impact of.
COVID-19, and other operational issues and metrics.
Actual results can differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the Companys business.
For a discussion of risks and uncertainties associated with narrow networks 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.
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 <unk>, President and Chief Executive Officer, Keith Sullivan.
Good morning, and thank you for joining us I'll begin by providing an overview of the second quarter performance followed by an operational update Steve will then review our financial results I'll conclude with our thoughts for the balance of 2022 before turning to Q&A.
Starting with the financial review for the second quarter total revenue was $16 3 million up 15% over the second quarter of 2021 of our strongest revenue performance since the fourth quarter of 2019, and our second straight quarter of mid teens growth.
The encouraging performance was primarily driven by a robust capital equipment sales.
Solid uptick in utilization and gaining momentum built on our marketing programs.
Despite broad macro and market disruption, we saw a marginal impact on our business, which we attribute to our team who has stayed ahead of the shifting environment.
U S. Neurostar system revenue was $4 4 million up 70% over the second quarter of 2021.
Representing 20% growth over the last quarter, and our fifth consecutive quarter of sequential growth.
This was fueled by the conversion of a strong pipeline created by our capital sales team.
Which led to the highest systems sales in three years.
This was made possible in part by our quarterly Neurostar assignments, which boost sales not only during and immediately following the event.
But also a six to nine months that follow.
U S treatment session revenue was $11 3 million up 5% over the second quarter of 2021.
Growth was the result of improving utilization rates attributed to the increasing traction of marketing programs, including the tap into new possibilities for depression digital campaign, which has garnered over 144 million impressions since its launch on March 3rd.
And our partnership with drew Robinson achieved hundreds of millions of new impressions and other initiatives, we have put into place over the last 24 months during the quarter overall utilization was up 7% year over year.
With per click utilization increasing 15%.
Offsetting the strong utilization trend with some softness related to the merger of our two largest customers, which seems to have disrupted their typical operations during the quarter.
Now turning to operational highlights throughout the first half of 2022, we are focused in four areas to drive the growth of the organization first increasing customer and patient awareness, our quarterly Neurostar summit withheld in Atlanta, which was once again completely sold out.
And included over 50 perspective customers we.
We will continue to host these events throughout the year with our next summit, taking place in Charlotte North Carolina during the third quarter.
One key driver of performance during the quarter and year to date was the continued advancement in optimization of our education and awareness programs.
The main focus of these programs is to build and grow a successful neurostar practice within our customer's existing operations.
How many potential neurostar patients exist within these practices today and.
And need to be educated about our technology and its benefits we are seeing real progress with both our awareness campaign.
And the ph SKU tend tool as our sales force has had more time to socialize and implement with our existing customers.
Our Phd tenant tool is gaining traction on a daily basis and continues to be a highly productive tool within the practices, where it has been rolled out we continue to push to have this tool introduced in an increasing number of practices to maximize its impact as an example.
Of the type of benefit that this tool can have we recently launched the PHP 10 within a single large customer.
In the southeast within just two hours the practice performed 27 assessments and the site generated over 12 potential patients looking for a non drug alternative for their depression.
We look forward to continuing to optimize the tool and bring it to a greater percentage of our customer base.
In the second quarter, we completed construction of Neurostar University, or Su, and Charlotte North Carolina.
This revolutionary training center will be used to teach new and existing customers become neurostar experts.
Next with other specialists in their field and grow their practices using clinical education, and advanced marketing and consultation techniques.
The NFU curriculum has been developed to deliver an immersive experience providing attendees with a deep understanding of our five star program.
As a result, we expect to see an improved patient experience and accelerating growth from customers who attend.
Our second focus area is the continued optimization of our commercial organization.
We have seen the positive impact from the addition of three regional practice managers last quarter.
Which brought the total to seven.
With smaller teams covering smaller geographies, we have been able to provide better service and more frequent coaching to our customers.
Going forward, we will hire new managers as needed.
Our third focus area is growing the number of exclusive commercial partnerships. We recently initiated a partnership with Alleviant health centers in Arkansas based network of full service mental health clinics under the agreement.
<unk> will be the exclusive supplier of new Tms equipment to Alleviant and its affiliates.
Alleviate who previously used competitive systems elected to switch to neuro star after attending our most recent summit.
I made the change because of our ongoing support training and marketing initiatives.
Their purchase of several systems will help expand their footprint across multiple states.
As many of you are aware, our two largest national accounts merged in July which speaks to the promise of the Tms market and solidifies neuro stars leadership position.
This new entity will give neurostar and even bigger footprint and be supported by shared operational expertise and patient marketing capabilities, which we believe will help drive growth across approximately 245, neurostar systems and over 200 sites.
Lastly, I want to provide an update on our clinical and regulatory progress in May we received FDA clearance for Neurostar as an adjunct treatment for adult patients suffering from obsessive compulsive disorder.
<unk> this new indication can.
Can be remotely enabled on our customer's existing neurostar systems at no charge.
Our two stage launch is currently underway during.
During the quarter, we identified 40 practices for the limited pilot and in early July started training at these sites and are in the process of optimizing the clinical and marketing and commercial aspects of OCD.
The next phase of our launch is on track and expected to begin in the fourth quarter of 2022.
We will then start to rollout this indication to all of our customers.
Subsequent to the end of the quarter. We also received clearance from the FDA for our new Neurostar indication to treat anxiety symptoms for adult patients who suffer from NPD also known as anxious depression.
Importantly.
This submission to the FDA leveraged real world data from track Star.
Our exclusive database of patient outcomes. This.
This database includes over 134000 patients who have completed more than $4 8 million treatment session.
With this new indication, we will be able to present data to physicians from over 200 patients across numerous studies, which consistently show that neurostar can improve anxiety symptoms and MDT patients.
This new indication does not require any additional clinical training and is covered under the current reimbursement codes and coverage policies.
Symptoms are seen in a sizable portion of MDI patients estimated to be more than 50% prevalence.
These anxious depression patients are more prone to experienced severe depression and suicidal thoughts.
In addition to these recently cleared new indications, we have just submitted a novel method to speed up and improve the effectiveness of our motor threshold process for both patients and healthcare professionals.
This new product is patent pending and upon FDA clearance, we will be compatible with the entire installed base of Neurostar systems.
We anticipate releasing additional information on this update later this year.
Over the last two years, we have significantly expanded our indications for use to include OCD and anxious depression.
Our ability to deliver this rapid expansion of indications is largely due to our ability to leverage the huge repository of real world data collected and track star to efficiently and effectively received clearances.
This validates the Fda's willingness to include real world data and clearance decision.
Because of this we continue to view track Star is an incredibly powerful tool, which our clinical and regulatory teams will continue to use to engage with the FDA to advance our regulatory strategy and potential new indications.
Before turning the call over to Steve I wanted to provide an update on the recent progress made regarding reimbursement.
As announced in mid July there is a series of health care policy updates announced the increased patient accessibility and neurostar.
These policy updates include first coast and Nova cost Medicare administrative contractors that are changing local coverage determination to reduce the number of prior medications failures for Tms eligibility from four down to one for patients.
Suffering from MPD first coast coverage area includes 2 million Medicare beneficiaries more than 74000 physicians and 247 hospitals that serve Medicare patients.
No. The test coverage includes over 8 million covered lives and over 10 States. There is also an additional proposed change that could remove the requirement for a previous psychotherapy trial.
We also have received a number of other positive policy decisions related to both <unk> and OCD, including high Mark Blue Cross Blue Shield publishing coverage for OCD affecting $6 9 million members select health publishing their first Tms policy for MD.
Which impacts 981000 members and Pacific source, removing the MTB preauthorization requirement for their Medicare advantage plan members.
Overall, I am very pleased with our performance throughout the first half of 2022.
Despite the macro changes that have impacted health care providers and their patients we have continued to execute.
The ongoing positive customer and patient reaction confirms that our commercial.
Clinical and regulatory strategies are working.
This is largely due to our hard working and committed employees, who have kept US ahead of the current complexity of the operating environment.
We look forward to continuing to help our customers.
Provide treatment to their patients suffering from mental health disorders with that I'd like to turn the call over to Steve.
Thank you Keith total revenue for the second quarter was $16 3 million, an increase of 15% over second quarter 2021 revenue of $14 2 million.
U S. Neurostar advanced therapy system revenue was $4 4 million.
<unk> to the prior year revenue of $2 $6 million it was up 70%.
The increase was primarily driven by a strong capital pipeline.
Maturing sales force and Neurostar summit.
In the quarter. The company sold 59 systems up from 36 systems in the second quarter of 2021.
U S treatment session revenue was $11 $3 million, an increase of 5% over second quarter 2021 revenue of $10 8 million driven by an increase in treatment session volumes relative to the prior year, specifically an uptick in per click customer utilization.
<unk>.
In the second quarter of 2022 revenue per active site was approximately $11300 compared to approximately $12000 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 was 75% compared to the second quarter 2021 gross margin of 81%.
The decline was due to the increase in North star capital mix year over year.
Operating expenses during the quarter were $22 $1 million an increase.
Kris a $4 1 million compared to the second quarter of 2021.
The increase was primarily driven by the implementation of new marketing initiatives costs related to our expanded sales force and increased costs from inflationary pressures.
During the quarter, we incurred approximately $2 2 million of non cash stock based compensation expense.
Net loss for the second quarter of 2022 was $10 $4 million or <unk> 39 per share as compared to a net loss of seven 5 million or 29 per share during the second quarter of 2021.
EBITDA for the second quarter of 2022 was negative $9 $1 million.
As compared to negative $6 3 million for the second quarter of 2021.
Moving now to the balance sheet.
As of June 32022, cash and cash equivalents were $78 $9 million.
Subsequent to the end of the quarter, we collected $10 $5 million and loan principal following the completed merger of Greenburgh and success Tms.
Now turning to guidance.
For the full year 2022, we now expect revenue in the range of $60 million to $62 million.
For the third quarter of 2022, we expect revenue of $14 5 million to $15 5 million.
We continue to expect to see year over year growth in each of the remaining quarters, along with a more normalized seasonal pattern with a slowdown in this third quarter before a strong fourth quarter.
Which is typically the largest of the year.
We now expect total operating expenses for the full year 2022 to be in the range of $86 million to $88 million as a result of cost justification initiatives.
I'd now like to turn the call back over to Keith.
Thank you Steve we are very optimistic about what the second half of 2022 will bring our focus will remain on increased customer and patient awareness. The continued optimization of our commercial organization.
Leveraging exclusive commercial partnerships and clinical and regulatory progress I'm extremely confident in our team's ability to take advantage of this opportunity that lies ahead to help treat the growing number of patients suffering with mental health disorders.
The reason we are the market leader in Tms therapies for mental health disorders is that we have been able to build a team made up of industry best and brightest.
And I would like to thank each and every one of them for their dedication and commitment to delivering innovative solutions for patients with that I'd like to open the line for questions.
Certainly as a reminder to ask a question you will need to press star one.
One one on your telephone please standby, while we compile the Q&A roster one moment.
And our first question comes from Adam Nadir of Piper Sandler Your line is open.
Hi, Good morning, Keith and Steve Thanks for taking the questions here and congrats on the progress.
Solid treatment number and utilization improvement in Q2.
I think you did note some softness around your two largest customers screen broke and success due to the pending merger.
Just wondering if youre able to give any more color on volumes there. It sounds like the treatment number could have been even better if not for this transient headwind and then how do you expect volumes at this newly created entity to trend in Q3, and Q4 and I had a follow up or two.
Well thanks Adam.
I think it's natural that when two companies are going through a merger that theyre going to experience some disruption.
I have full confidence that the combination.
<unk>.
Success, Tms and Green Brook, it's going to be a huge winter so I think that.
I see this blip as temporary and I think that.
They continue as they go through their integration for the next few months, but at the end of the day, it's going to be.
Winter for them for us and the whole industry. So I don't see it as a big deal.
Okay. That's helpful. I appreciate that and then maybe just to flip over to the.
The system side.
So really strong capital quarter.
Maybe just talk a little bit more about what drove the strength there it sounds like pretty good pipeline conversion and then as we look ahead, how do you think about the Capex environment, just given some of the macro landscape.
I think you've previously talked about 200 to 250 systems per year as being a good framework for model. So just wondering if that still holds.
So.
I think we started talking about it last year when we brought on the new team that they started with pretty much a zero pipeline and it would build over the quarters and it has we started out at 24 systems in Q1 of last year are built every quarter. Since then.
So I think we have a robust pipeline right now it continues to grow through the efforts of.
Our great marketing team and through the Neurostar summits that we have so.
I know that there's softness in the economy, but yes.
Currently we have a pretty strong pipeline with backups to it. So we're pretty confident that that $2 40 to $2 50 is still a good number for us.
Okay great.
Good to hear and maybe if I can just squeeze in one last one I'll ask about.
First coast and <unk> and the <unk>.
Posed policy updates.
Do we know exactly when we will get a final decision.
I E. If those will become kind of official policy and then would you expect other macs to follow Nova to US is in some ways kind of looked at it as a bellwether. So maybe just kind of level set us on the situation there and any potential impact to the business. Thanks again and congrats on the progress.
Thanks.
I really can't tell you whether the other macs are going to follow if we look at history.
They have so we're hoping that that it goes across the board.
When when all of these things become final and they have a review period and then they have a.
A question period, and then they make it final. So we're hoping that all of the changes become put into place hopefully by the end of the year.
Perfect I'll leave it there thank you.
Alright.
Thank you.
And our next question will come from Margaret K as the war of William Blair. Your line is open.
Hey, good morning, everyone. Thanks for taking the question.
Okay.
Maybe just a big picture one to start.
Right.
Quarter one margin.
Commercial regulatory payer.
Okay.
Can you give us some time.
One will start form factor.
A question on that.
So maybe just.
Some slides.
And I'm, just trying to get a sense kind of step one in terms of wallet share.
Sure.
All along.
Sure.
Margaret.
We couldnt hear you very well it was a little garbled. So are you able to repeat the question.
Sure.
Can you hear me any better.
A little.
Give it a shot.
Yes, we can.
Okay.
Okay I just wanted to kind of talk about what we did this quarter.
Alrighty.
Martin commercial.
So can you give us some time.
We're one.
Yes.
<unk>.
Yes.
Well.
The co location growth.
Our system growth.
That will occur.
You bet.
Sure.
In your view.
Good luck.
Yes.
That's a good question I think the.
The utilization growth in the revenue growth has really come out of our marketing efforts and our <unk>.
<unk> and our focus on.
Patients within the practice rather than patients coming out of the airwaves.
I think that.
With as we said in the prepared remarks.
There are plenty of patients that have failed two to four drugs within the practices.
And the physicians have not been very good at being able to speak to them and educate them and then convert them to a neurostar patients. So.
I would say that if I look at what makes the biggest impact for us.
Our marketing efforts within the practice, it's our marketing efforts surrounding the practice and our Phd tens and similar to the growth in our <unk>.
System revenue.
Anticipate that with each quarter. Our revenue has continued to grow on the treatment session side and quite honestly there is a little bit.
Buying patterns that we have to change within our practices. Some of them are used to buying on a on a per patient or even a partial patient basis and we are through our programs working too.
To really align.
They're purchasing with with the with our quarter and with our programs.
Okay.
That's helpful and maybe one quick follow up a little bit more on the.
The capital plan.
Great.
Yes.
Yes.
Okay.
Last this quarter.
We look forward.
Thanks.
Number there.
Maybe Bob.
Got it that's helpful.
Okay.
So we're still targeting the.
$2 40 to $2 50 systems for.
For the year I think we are on track to do that.
I said the last couple of quarters that if we're able to get 45 to 50 systems.
Every single quarter were good.
This quarter, we got higher than that and.
I do want to be cautious and that we have to be able to train them and make sure that we get them up and running and I think at the current levels.
Even at 59 for this quarter I think we can.
Focus our efforts and our our teams and make sure everybody gets the attention they need.
Okay. Thank you guys.
Sure.
And our next question will come from William <unk>.
Of Canaccord Genuity.
Thanks, Good morning, Thanks for taking my question.
Great. Thanks, Good morning, Thanks for taking my questions yet.
So a couple of questions here first just capital sales robust obviously, the pipeline's filling but also asp's lifting and was there anything onetime in the quarter I mean, your asps is getting close to $74 75000 <unk> system. It's just this.
Is this sustainable or is this the impact of that of all the marketing programs and everything you've done in terms of the value add versus discounting to sell systems.
So I think the the programs that we have been talking about now for almost two years.
Are gaining more and more traction and I think we see it through our Neurostar summit, we are right upfront with them talking about treatment sessions and but we then talk about every single thing that we do to help make them successful within their practice and outside of their practice. So I think that at the.
The end of the day.
The price of the system.
And if it's $5000 up a $5000 down it's negligible at a lease payment.
So it's really not the issue for us.
So our asps have been going up steadily and we're.
I don't see that changing at all.
Great and then thank you and then.
And the Phd tend tool I mean, this sounds like yes.
Ben almost revolutionary for Ya and I think your commentary was you are getting great traction in the sites that are utilizing it. So my question is how what percentage of your sites are utilizing the ph Q10 today.
It's about.
250 of our sites.
And how many total <unk> again.
1044.
<unk>.
So about a quarter of the sites.
Okay.
Excellent and then just.
Lastly in terms of the guide it seems like Youre, bringing in the quarter down it's not a big fourth quarter up from this quarter.
Is there something youre seeing or we should be thinking about or is this just given COVID-19 and all the other headwinds out there just kind of want to make sure you bake everything and that's my questions. Thank you.
Hey, Bill it's Steve here.
Historically, the third quarter is usually flat to slightly down compared to Q3 and so.
That was a component of our guide for the current quarter.
And for the year, yes, theres still lingering impacts.
With inflation and other factors, but.
We did pull up the low end of the range from 58% to 16, So we're pretty confident with that mid point right now.
Great. Thank you.
You're welcome.
No Matt.
And our next question will come from.
Primary cycle at <unk> Your line is open.
Hi, Keith Steve. Thank you for taking the questions I wanted to ask my first one here on the treatment session revenue per active side I understand it was down a little bit year over year, just because the installed base has been growing so quickly, but if you were to exclude some of the softness around the green broken and success merger and <unk>.
Sort of think forward to win.
Some of this starts to catch up with the SaaS expansion installed base. What do you think is kind of the right growth for treatment session revenue per active think given utilization I think it was around 7% this quarter.
Well I think our revenue growth should be matching our utilization growth, which this quarter on a per click basis was.
15% so.
I think it's harder for us to grow the.
The fixed price accounts.
A lot of our efforts are going onto the per click side of the business and I think we expect that to grow it at a 15% rate at least.
Okay very helpful.
And then you mentioned credit.
New initiatives things like Neurostar University, which sound exciting.
How do you expect to sort of control spend in the back half given some of these new efforts I think we're at about half of what youre expecting to spend and operating expenses for the year. So.
Maybe you can tell us about any.
Puts and takes on that metric.
Hey, Brian It's Steve Yes. So we just went through a pretty extensive forecasting exercise for the remainder of the year.
It was really.
Reconciliation, Eric justification of what was in the budget and what the expectation is now.
You saw we did take down the high end of Opex.
And reduce the range a little bit.
I would say.
We didn't have some of the impacts.
Inflation, and some higher costs related to Cogs and that number would have been even lower so.
I think we're very comfortable with where we're at the team is aligned with the new program spend and what we need to do from an R&D and clinical perspective.
We're pretty comfortable with that range right now and the couple of Neurostar University costs are all built into our budget that was planned.
Okay perfect. One last quick one if I can sneak it in here I don't think I heard you reiterate a target of EBIT breakeven in 2024 is that still a goal something youre still working toward.
Yes, yes.
Yes. It is.
Alright, that's it for me. Thank you so much.
Hey.
Thank you.
And our last question will come from the line of Dave carefully JMP. Your line is open.
Great Good morning.
Keith I know, you're not going to want to answer this but I'll try anyhow.
With the two new indications can you give us some thoughts in terms of.
Even if it's 2023 I don't know 2020 for like what percentage of your mix are you planning on I mean could this be 5% or 10% additional on top of what you can do an MD Dear how are you thinking about these these new launches and their impact.
So I think our discussion around OCD as band that we would expect a.
A few million dollars over the next few years, it's really an opportunity for our physicians to add.
Opportunities to treat patients that are within their patient base.
That are battling OCD. So I don't anticipate it is going to be a majority even 5% of our business.
But it'll be meaningful to the physicians that have patients that battle with OCD.
Our opportunity out there is really.
Patients with depression.
And we're seeing it we're seeing them raising their hands and asking for help.
And we are training our accounts on how to get to them.
Got it when you look at the protocol I just wanted to confirm this but I think it's the same or very similar.
I think you mentioned in the release that insurers are sort of paying.
I believe the same amount for these new indications or at least for some of them.
And I imagine you charge the same but just in terms of.
The actual positioning in the therapy are there differences or is this going to be pretty much just like MTT.
Yes.
Use the same codes and patients with depression, often suffer with anxiety also.
They use the same codes there is a different motor threshold tests for OCD.
And Thats, what we are educating our accounts on now but outside of that it's the exact same thing.
And then I guess lastly.
You mentioned or I guess your slide you mentioned that.
For OCD as some of the other competitors you need to buy something else does that.
Are they treating something differently are they targeting a different area in the brain or why why do they need that and is that a big advantage for you.
They need to.
Some of our competitors need a second coil to be able to treat and so the physicians have to buy that from them for us It's a software push.
We're able to enable it remotely.
But we are controlling that through the training as we train them, we enable it on their system at no charge.
Thank you.
I would now like to turn the conference back to Keith Sullivan for closing remarks.
Thank you operator, and thank you for joining us on the call today, we look forward to updating you on our progress in the next quarterly call.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
The conference will begin shortly.
Raise your hand during Q&A you can dial one one.
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