Q3 2022 Neuronetics Inc Earnings Call
Good day, and thank you for standing by.
Welcome.
Euro net ex report third quarter 2022 financial and operating results conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone and you will then hear and all.
Automated message advising your hand is right.
Be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your speaker today, Mark Klausner from ICR Westwick.
Please go ahead.
Yeah.
Good morning, and thank you for joining us for neuro networks third quarter 2022 conference call joining.
Joining me on today's call are <unk>, President and Chief Executive Officer, Keith Sullivan, and senior Vice President and 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 1095, 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 company's business.
For a discussion of risks and uncertainties associated with <unk> 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.
<unk> 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 us 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 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 on the balance of 2022 before turning to Q&A.
Starting with our financial review for the third quarter total revenue was $16 5 million up 20% over the third quarter of 2021.
This represents the third straight quarter of over 15% year over year growth in the second straight quarter during which we delivered revenue of over $16 million.
US back to consistent levels of topline performance that the business has not seen since 2019.
This strong performance was primarily driven by increased utilization in our per click accounts and the continued capital equipment sales growth.
Is clear that the investments made over the last two years in the various marketing programs, our practice development team and the patient awareness tools are paying off.
U S. Neurostar revenue was $3 9 million.
51% over the third quarter of 2021.
Performance comes as a result of the continued excellence from our commercial organization, who hit their stride and cultivating and converting our strong pipeline, which was altered by yet another sold out Neurostar summit.
The U S treatment session revenue with an all time record of $11 9 million up 16.
8% over the third quarter early 'twenty one.
The record revenue was the result of improving utilization due in large part to the local per click customer utilization rates, increasing 20% year over year.
These positive trends come as a result of our investment in the five star training program. The expansion of our Phd tended tool into more offices and greater availability of practice management training.
Now turning to operational highlights.
Our first focus area is increasing customer and patient awareness similar.
Similar to previous quarters, we hosted another completely sold out Neurostar summit held in Charlotte North Carolina at our recently opened Neurostar University.
This event included over 60 attendees, representing 42 practices.
Feedback from this event with phenomenal and resulted in the conversion of a number of highly qualified prospective customers as well as the highest number of systems sold in a single day.
Our newly launched patient marketing campaign has delivered tremendous value.
Both in terms of increasing our overall patient awareness of neurostar and in providing patient better access to information.
For example, our recently launched tap into new possibilities campaign aimed at driving awareness among patients and their caregivers drove over 30 million impressions in Q3.
150% increase as compared to campaigns running in the prior year.
Resulting in thousands of new patients beginning their search for Neurostar treatment.
Our relationships with Neurostar partners, including drew Robinson, our former major League baseball player and Dr. Melissa Shepherd has steadily gained traction.
Drew continues to share his depression journey and the role Neurostar had in giving him a new possibility and are hopeful future.
He continued to post social media content in September on World suicide Prevention day and in July to draw attention to the need for increased focus on mental health and the athletic community. These partnerships drove nearly 2000 potential patients directly to.
Our website to learn more and helped drive significant increases in neurostar related web searches both sequentially and year over year.
The implementation of the proprietary THQ tend tool a digital patient assessment tool, which allows our neurostar practices to easily identify patients within their practice, who are candidates for and expressed interest in our neurostar treatment had been extremely fruitful.
<unk>.
To increase the tools impact, we will keep expanding it to more and more practices to.
To support this rollout we released a number of tracks are upgrades.
Which helps streamline the patient journey by bridging our Phd tend tool.
With our HIPAA compliant track Star patient data management system, making it even easier to identify new patients and those needing re treatment.
In September we hosted a ribbon cutting ceremony to celebrate the Grand opening of Neurostar University in Charlotte North Carolina.
Where we were joined by 75 attendees, including local government officials neurostar patients and providers and leaders in the mental health industry.
The event was highly successful underscoring the need for an interest in advanced mental health treatment.
It also garnered attention from local media sources with segments on both NBC and Fox evening news, which generated over $20 million combined impressions.
And as you will teach new and existing customers had become neurostar experts.
<unk> with other specialists in their field.
And grow their practices using clinical education enhanced patient awareness and consultation techniques.
To date, we have hosted four sold out customer classes and the two additional classes scheduled during the remainder of the year both of which are already at capacity.
One attendee, who has been utilizing neurostar for over 12 years said and I quote.
Thought I knew everything there was to know about neuro star and connecting with patients until I attended an issue.
This was a wonderful testimonial from one of our best customers.
As we continue to evolve the capabilities of the platform as well as the support services that we offer our customers. These classes will continue to be highly beneficial for both new and existing customers as they seek to leverage the power of neuro star to help more patients suffering from <unk>.
It'll disorders.
Our second focus area is the continued optimization of our commercial organization.
In the quarter, we implemented new Salesforce reporting tools to help our <unk> better understand our customers their patient base and utilization trends.
These tools allow the pbms to help our accounts set goals and measure their progress towards achieving them.
In particular, the Neurostar business review gives accounts, a new way to look at and innovate their practices in ways they were not able to before.
Allowing them to more efficiently and more effectively tap into their existing patient base and help those who would benefit from a non drug alternatives to manage their depression and anxiety.
Additionally, due to the new account growth over the course of the year, we will follow the plan. We previously outlined by adding four additional pbms early next year.
These additions will support the growth in our installed base and ensure we provide our customers with the highest level of service and support.
Our third focus area is growing the number of exclusive commercial partnerships.
We will continue to be excited by the strong relationships, we have built with our service provider customers.
Now that the word is out about our excellent ongoing support training and marketing initiatives.
<unk> providers with Neurostar and competitive systems have reached out to benefit from the support we provide.
Most recently Alleviant health centers in Arkansas based network of full service mental health clinics signed a four year agreement and switched from a competitive system to neurostar, primarily due to the level of support we provide to help them achieve their growth targets.
We have seen good traction from the partnerships and expect a more material impact on the business throughout the rest of the year and in 2023.
Lastly, I wanted to provide an update on our clinical and regulatory progress in.
In May we received FDA clearance for Neurostar as an adjunct treatment for adult patients suffering from obsessive compulsive disorder.
Our two stage launch has been going smoothly and we have heard good feedback from our position.
The first stage started in early July with the training at 40 pilot sites. The major finding with the motor threshold training has been easier than anticipated.
The next phase of our launch has begun.
Where we plan to rollout this indication to all of our customers over the next several months.
In August we received five 10-K clearance for detect a motor threshold accessory.
<unk> simplifies the motor threshold determination for physician bye.
By visually reporting the magnitude of the finger movement during the motor threshold test.
As a result of this automated determination.
Now only requires one person to do this testing versus two on all other system.
Deepak is compatible with all new and existing Neurostar system and was rolled out nationally in mid September .
The initial demand for <unk> is high with over 100 sold in the quarter, we have now integrated it into our training programs and at Aerostar University.
Now for a quick update on the expanded Medicare coverage.
Two Macs recently published and proposed Medicare coverage updates, which would increase Tms eligibility by nearly 8 million covered lives.
The number of prior medications failures for Tms eligibility for individuals with major depressive disorder has been reduced from four two to under a new coverage policy published by CGS.
Which will take effect on December four 2022.
The same reduction from 4% to prior medication failures is being considered by the Ngls.
Who is also considering gms coverage for OCD.
The narrow networks health policy and reimbursement team was crucial in working with Neurostar providers to address payer policy limitation.
Which has been a major factor in these favorable coverage decision.
We are encouraged to see the payers adopting policies that reflect Tms as a standard of non drug treatment for mental health.
We are delighted by the performance in the quarter.
As we are seeing the benefits from our revamped sales force marketing programs and physician and patient education initiatives.
These successes further support neuro networks longstanding market leadership position in the Tms space underlined by Neurostar, having been used to deliver over $5 million treatment session on more than 141000 patients to date.
With that I'd like to turn the call over to Steve.
Thank you Keith and total revenue for the third quarter was $16 5 million, an increase of 20% over third quarter 2021 revenue of $13 $8 million.
U S. Neurostar advanced therapy system revenue was $3 9 million.
Representing a 51% increase as compared to the prior year revenue of $2 6 million.
In the quarter the company shipped 50 systems.
Of these systems shipped 49 were recognized as Neurostar capital revenue in one system was recognized as an operating lease upfront 40 systems shipped in the third quarter of 2021.
U S treatment session revenue was $11 9 million and.
An increase of 16% over third quarter 2021 revenue of $10 3 million.
Of note in the quarter local per click customer utilization, which excludes service providers increased 20% year over year.
In the third quarter of 2022 revenue per active site with approximately $11400 compared to approximately $11200 in the prior year quarter.
Gross margins were 78% compared to the third quarter 2021 gross margin of 77%.
Operating expenses during the quarter were $24 million.
An increase of $2 6 million compared to the third quarter of 2021.
The increase was primarily driven by our banded salesforce the opening I bet and Su.
Some additional head count in product development, and clinical as well as increased costs from inflationary pressures.
During the quarter, we incurred approximately $2 1 million of noncash stock based compensation expense.
Net loss for the third quarter of 2022 was $7 6 million or 28 per share.
As compared to a net loss of $8 2 million or <unk> 31 per share during the third quarter of 2021.
EBITDA for the third quarter of 2022 was negative $6 1 million as compared to negative $6 9 million.
For the third quarter of 2021.
Moving now to the balance sheet.
As of September 32022, cash and cash equivalents were $73 7 million.
Now turning to guidance for the full year 2022, we now expect revenue in the range of $63 million to $64 million.
For the fourth quarter of 2022, we expect revenue of 16 million to $17 million.
We continue to expect total operating expenses for the full year 2022 to be in the range of $86 million to $88 million.
In line with our previously announced path to profitability, we remain confident in our ability to reach cash flow positive during 2024.
Between our top line growth expectations, our strong gross margin profile and the prudent management of our operating expenses.
Our path to profitability remains on track.
I would now like to turn the call back over to Keith.
Thank you Steve we are pleased to see the impact of the initiatives, we have rolled out over the past two years, taking hold with sustained results and we are in great shape to round out the year.
As you can see from our guidance, we expect to finish out 2022, demonstrating strong growth.
We will continue to focus our efforts on increased customer and patient awareness.
Continued optimization of our commercial organization Levered.
Leveraging exclusive commercial partnerships and continuing to advance our clinical and regulatory program.
Our team has demonstrated significant progress and I am confident in the team's ability to take advantage of this opportunity over the years to come.
Before turning to Q&A I wanted to highlight a significant achievement as part of our customer and patient awareness efforts yes.
Yesterday Neurostar spokesperson drew Robinson was featured in a segment called mind matters with Carson Daly on the today show.
Its message of encouragement to people struggling with mental disorders was that help is always there and it takes strength to reach out and ask for it.
We are proud that Neurostar is part of drews mental health recovery and we look forward to our continued partnership with drew as we collectively seek to bring relief to as many patients as possible who are suffering from treatment resistant depression and other mental disorders.
With that I'd like to open the line for questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Adam <unk> of Piper. Your line is now open.
Great well, thank you for taking the questions here, Keith and Steve and congrats on the progress.
Maybe just to start on Q4 and the implied I guess you provided Q4 guidance.
That implies flattish sequential revenue at the mid point quarter over quarter versus Q3 that seems maybe a bit conservative to us.
I think we typically see more of a sequential step up quarter over quarter in Q4 looking at past year. So maybe just talk about the exit momentum that you had in the third quarter, what youre seeing thus far in Q4.
Just any key assumptions in that outlook, maybe it's just a little bit of conservatism. Thank you.
Thanks, Adam.
I would classify.
Classify the guidance as being responsible.
We still are faced.
With me health issues out there with Covid, the flu and RSV.
And so we certainly didn't want to get ahead of ourselves.
Do agree that Q4 is traditionally our strongest quarter from both capital and treatment session perspectives.
So calling me conservative I guess is it.
Flattering.
And.
I think like I said I think it's just a responsible.
Set up for another beat and raise as we end the year.
Okay understood. That's helpful. Steve. Thank you for that and then we're.
We're at that time of the year when folks are starting to look ahead to 2003, and certainly recognize youre not at a point to give guidance at this juncture, but.
Wondering if youre willing to give us some puts and takes around the setup for 2023 I show consensus pre call estimates at around $73 million I think thats, 19% growth year.
Every year, just any reaction to that figure.
Or just any broader puts and takes that you can provide sessions growth first is.
Versus systems would be much appreciated thank you.
Yeah, Adam I think our recent performance really speaks to itself.
The beginning of the year, we still had some impact from <unk>, we had a very slow January and really have rebounded very nicely.
Q1.
I would say if you look at our growth rates year over year for Q2 Q3.
And even what's implied for Q4, I think you get a sense of where we're heading for 2023.
Certainly don't anticipate.
Any steps backward.
The headwinds should continue to lessen and again I would be comfortable with.
Current year year over year performance and to 'twenty three.
Very helpful. Thank you Steve.
Thank you Adam.
<unk>.
Please standby for our next question.
Okay.
Our next question comes from the line migrate CAGR of William Blair. Your line is now open.
Hey, good morning, everyone. Thanks for taking the questions.
I wanted to start with utilization does that mean.
Really nice pickups.
On the consumable side.
Management is very minimal impact from Neurostar University at least at this point so.
I guess I'm, just trying to figure out what's the primary driver or is it the pbms and finally picking up traction and so that's a durable benefit that you continue to see going forward is that something that you thought maybe the large tms centers or something else.
It's pretty nice numbers.
Yes, thanks for the question Margaret.
So our utilization has been steadily picking up I think our practice development managers in the field have been doing a great job.
Putting out our five stars to success talking about the precision pulse program.
And really helping the accounts focus their education and marketing onto patients that can benefit from neurostar treatment. So our biggest growth. This quarter was really in our per click accounts, which is demonstrating to us that the.
Programs that we've put forth are working.
Okay.
And so I think part of the other piece of this is trying to understand the durability of that yes, we've seen some stronger quarters.
Quarter maybe.
Tick down in part because of Covid and other things. So I'm just trying to see if you guys can can you give us any color in terms of the durability of that any leading indicators.
Port.
Yes.
The forward look.
Third question on the side just to follow up on Adam when you talk about kind of staying the same growth that's implied kind of year to date is that kind of a mid teens number am I doing that.
Quick math, the right way and then is that what you guys are.
Perfect.
Thanks and congrats.
Hey, Margaret Steve just regarding the.
2023 expectation I would wait the Q2 Q3, and Q4 performance more heavily than what we saw in Q1.
And so I think youre looking at the mid mid teens, maybe slightly higher into next year.
And I'll take the other part of your question Margaret I think on the durability of the utilization and the revenue and we look at both so we're we want to make sure that our sell in is equal to.
To the revenue and to the utilization.
When we look at these accounts.
Using our PHP 10, we're helping these accounts identify patients that.
Our not only candidates because they failed the proper number of drugs, but are waving their hands, saying, we want a non drug alternative.
We are still just scratching the surface on deploying those THQ turns into our accounts and getting the accounts educated on how to capture those patients. So from a durability standpoint, I think we will see our normal seasonality next year.
But I believe that we will continue to grow on our per click business.
Okay.
Thank you guys.
Please standby for our next question.
Our next question comes from the line of Bill organic of Canaccord. Your line is now open.
Great. Thanks, good morning.
Just a couple of questions here, just on kind of operations and cash to start with your SG&A was down pretty significantly on a sequential basis with revenues that were slightly up I was wondering if you could just help us understand kind of the moving parts there and then.
It was nice to see the cash go up sequentially.
This quarter and I think some of that was getting some cash back from one of your prior partner investments, but how.
How should we think about just cash usage over the next 12 months to 18 months and maybe major uses of cash.
Hey, Bill, Steve, Yes, Youre correct with the Q3 cash positivity we.
We did receive repayment of the $10 million term loan from success Tms as part of their transaction with Green Brook.
So that did help us with.
A decent influx.
Historically, Q3, and Q4 are lower cash burn quarters.
We are forecasting a significantly lower burn in Q4 than.
And then we traditionally see.
We have started the <unk>.
Operating planning process for 2023.
Our cash target is quite a bit lower than what it was for 2022.
We've repeatedly stated that.
Our Opex was artificially high in 2022, a lot of one time events surrounding the sales team and marketing initiatives those will not recur in 2023, so we're going to be able to leverage opex and bringing that cash burn down obviously.
As a function of working capital and the revenue growth next year. So.
I don't want to be pinned down to a number but it will be I would say significantly lower than 2002, and really set us up for that cash flow breakeven target in 2024.
Thanks, and then if I could just ask on the ph Q tend tool.
You bring that up a lot and I think we've had some discussions but.
My understanding and correct me if I'm wrong is really the difference between <unk> nine and 10 as is one extra question that theyre asking the patients so it's pretty simple tool.
One do I understand that right to I think how penetrated are how many the account base do you have at <unk> today and is this something do you think will be 100% and if so when or kind of what's the final target of penetration.
Our utilization of that tool in the existing accounts and new accounts. Thanks for taking my questions.
Yes, Hi, Bill this is Keith.
You have the PHP 10, right. There are many pieces to it though so we do add that 10th question on do it but it's the way that we also capture the information and bring it back to the account that helps them identify that patient and then educate them. So right now we have.
<unk> Phd in cans.
And just slightly less than 25% of our accounts and we are growing that on a daily basis. So we have seen that it is the number one tool to help us drive awareness to these to.
To these accounts.
But we are deploying it in a way that we have to do education. So that they the accounts know how to then talk to the patient itself. So.
It's a great tool, but it's not just something that we can put into an account and have them know how to use it know how to talk to them to the patient.
Thanks for taking my questions.
Please standby for our final question.
Yes.
Our final question comes from the line of Marie <unk>. Your line is now open.
Hi, Good morning, Thank you for taking the questions and congrats on a strong quarter.
I wanted to ask my first question here on the system side I noticed that asps seemed to step up meaningfully I wondered if that was linked to the attack.
Your threshold tool.
And what might have been driving some of the stronger Asps I noticed that you did talk about detect revenue. So I wondered how that's being priced or what sort of contribution we might expect from that going forward.
Hi, Larry this is Keith.
I think to your question on our system sales is is.
Is one that we look at on a weekly basis, our asps are going up because.
Honestly the price of the system is not the impediment to them, putting our system into their office. So most of our accounts lease them.
And the reps are able to sell at a higher level because of the value of the programs that we are bringing to the table.
<unk>.
Asps are steadily creeping up and our accounts are continuing to pay it without without a big issue.
So I missed your second question.
Yes on detect uh-huh.
So detect we launched.
In the second week of September was was when we were able to get our first systems out the door.
Generated a little over 100000.
And revenue for us in the quarter we are.
We sell the system for a little more than $2100 and it is in the new system pricing as of October one.
It has we have raised the price of the system at our including detect with it.
Okay. That's very helpful. And then I wanted to ask my second question here on <unk>.
Treatment treatment volumes and I think you called out revenue treatment revenue per active sites 11400, I think that's up about 2% year over year, maybe 1% sequentially I wanted to get an understanding of just how high that could go or what maybe your best sites are doing in terms of revenue per active side at this point just.
Give us sort of a target to work towards our long term and thanks for taking the question.
Hi, Mary Steve.
Yes, I mean that number kind of.
Traditional click perspective is just under $45000.
Annually and treatment session revenue.
That represents two five or so patients per day.
Over the course of the year.
We think we should be able to get that to four or five.
So essentially doubling where where are and getting patients.
Customers to that 75 to $90000 annually in treatment session revenue.
The <unk> segment, which is about 20% of our overall sites.
Their utilization was up 20% quarter over quarter or yes.
Quarter over quarter so.
The programs that our practice development managers are employing along with the page Q10, and some other tools are certainly paying dividends and.
Yes, the most simplistic view of this if we can get a customer to add one patient per day.
No reason why they can't add to.
The data certainly supports that the program supported the support that we give our customers support that so.
We've been in that $45000 range I think since I've been here and now it really feels like we have the traction.
And really the support from the <unk>. So I think we're going to see nice increases over the next few years.
Okay.
At this time I would like to turn it back to narrow networks, President and CEO Keith Sullivan.
Thank you operator, thank you again for joining us on the call today, and we look forward to updating you on the next quarterly call.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Yes.
[music].
[music].
[music].