Neuronetics Inc. Q1 2023 Earnings Call
Okay.
Thank you for standing by and welcome to the Neuro networks first quarter 2023 financial and operating results. At this time all participants are in a 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.
If your question has been answered and you'd like to remove yourself from the queue simply press Star One one again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program. Mr. Mark Klausner. Please go ahead Sir.
Good morning, and thank you for joining us for the neuro networks first quarter 2023 conference call.
Joining me on today's call, our neuro genetics, President and Chief Executive Officer, Keith Sullivan, and 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.
With 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 narrow networks business I encourage you to review the company's filings with the Securities and Exchange Commission.
<unk> the Companys annual report on Form 10-K filed in March 2023, as well as the company's quarterly report on Form 10-Q, which will be filed on may 15th the company disclaims.
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.
Conciliations 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.
Thank you Mark good morning, and thank you for joining us I'll begin by providing an overview of our recent performance followed by an operational update Steve will then review our financial results and I'll conclude with some thoughts on the rest of 2023 before turning to Q&A.
The first quarter was solid as we continued to cleanly execute across the organization deliver.
Delivering results that were in line with our expectations notwithstanding some industry headwinds.
As Steve will detail in his remarks based on our first quarter results and increasing confidence in treatment session revenue growth in the past three quarters of the year, we have raised our annual guidance.
Total revenue was $15 5 million up 10% over the first quarter of 2022, primarily driven by strong treatment session performance combined with an unplanned neurostar system expansion.
Neurostar system revenue was $3 $9 million.
As previously noted our plan was to ship 45 to 50 systems per quarter, which we believe is the optimal range to allow our teams to devote the appropriate amount of time and resources to set our customers up for long term success using a neurostar.
In line with that plan, we ended the quarter with 49 systems shipped.
This success and steady system expansion is due to the ongoing hard work of our strong team of area sales managers, who are firing on all cylinders and our strengthened by yet another sold out Neurostar summit in Charlotte North Carolina, which was attended by 54.
Participants from 31 different practices.
These neurostar summit's continue to be the cornerstone of our strategy to educate customers about the impact neurostar can have on patients' lives.
Orders coming directly as a result of customers attending a summit contributed meaningfully to the capital sales in the quarter.
The U S treatment session revenue was $10 6 million up 12% over the first quarter of 2022.
This was the result of highly encouraging year over year growth at our local per click sites.
Stemming from our investment in Neurostar University are five star training program and the expanded use of THQ tend tool and the greater availability of practice management training.
Importantly, we did see the service provider segment returned to growth in the quarter, albeit at a slower rate than our local per click customers.
Now turning to our operational highlights.
Our first focus for 2023 is increasing the number of customers who participate in Neurostar University.
And as you continues to receive excellent reviews from our customers buy.
By quarter end, we had hosted 11 full capacity classes with 200 attendees representing 97 accounts.
Demand continues to be high.
We currently have courses booked out until July .
With April May and June classes at capacity we.
We're continuing to see our customers experience advantages directly related to the NSC trading sessions for instance, and Su attendees used the <unk> 10, more frequently to identify patients in need within their practices and as a result see improved monthly utilization.
As compared to customers, who have not yet attended.
Our second focus for 2023 is to incorporate a higher percentage of our customers into our co op marketing program as.
As compared to the first quarter of 2022 co op participation has increased over 60%.
Not only have we seen an increase in the number of accounts participating but once in the program. They are leveraging its benefits more.
In the first quarter alone, we saw more than 25% increase in marketing spend amongst participants, indicating that they are seeing value in the program.
To make things even easier for our customers on April one we launched a new simplified program featuring a prescriptive roadmap of effective marketing tactics to market inside and outside the practice.
These tools include new marketing and training collateral.
In a revamping of my Neurostar dot com to digitize the execution of the program.
Our third and final focus area for 2023 is creating a network of accounts across the country that follow Neurostar best practices and we are making good progress on this initiative.
We have invested significantly in developing effective marketing strategies for our customers and we are now taking these proven practices to a broad network of accounts.
By setting certain standards, such as consistently high levels of service and increasing patient marketing within the practices, we expect to see progress reflected in our customers who fully utilize the uniqueness of the neurostar offering and our approach to the market.
Turning to other recent highlights.
In January we hosted our national sales meeting in Nashville, Tennessee.
Theme of our sales team continues to be simplification.
Making working with neuro index as seamless as possible for our customers from.
From clinical training through marketing support.
We also emphasized our three key pillars, which are patient identification within the practice.
<unk> patients complete their full treatment of 36 sessions and following patients post treatment to identify when they need re treatment.
Shifting gears to an update on the clinical and regulatory efforts. The FDA has recently given us approval to enable connectivity between track Star and Neurostar systems via Wi Fi or cellular instead of hard wired Internet connection.
This will allow us to connect all of our accounts into track star overtime.
It provides us three key benefits first we can collect additional data from the accounts that can be used to support FDA submissions.
Second we can push technology updates remotely rather than needing to install them manually via service engineer.
And lastly, we can monitor the account systems in order to prevent service issues.
Moving to reimbursement.
Recently Blue Cross Blue Shield of Mississippi updated its health care policy to allow non physician practitioners, including nurse practitioners to prescribe our neurostar advanced therapy for mental health.
This is a significant milestone for <unk> as it increases access for patients suffering from major depressive disorder to receive neurostar treatment.
As the largest payer in the state with over 850000 covered lives Blue Cross Blue Shield of Mississippi's policy change is a positive development that aligns with the growing momentum for health payers to expand the coverage for Tms therapy.
They also require only to fail medications prior to Tms treatment down from four.
This change will help patients receive Tms treatment earlier in their treatment journey potentially leading to improved outcomes for those suffering from drug resistant depression.
As the only Tms company in the industry with a dedicated health policy team, we have been actively partnering with providers to advocate for health policy changes that broadened access to Neurostar Tms therapy.
Lastly, I want to provide an update on greenborough.
We continue to see disruption, resulting from the merger of Greenburgh and success Tms and the subsequent integration of the two businesses.
We met with their leadership teams, both on our field and an executive level over the past few months and have developed a strategy to deliver mutual success.
This includes strategies to drive greater awareness and help more patients access care and how best to redeploy systems from the recently closed stores and make them productive.
To that point, we have recently seen a number of systems move from closed stores into active stores, where they're replacing competitive systems. As a result of our combined efforts. We have recently seen their business pick up month over month.
But the current rate of the recovery is in line with the assumptions made as part of our annual guidance.
We look forward to continuing our strong partnership with Green Brook, as we continued to advance the adoption of Tms therapy.
For mental illness to ensure that Green Brook is as successful as possible and growing the utilization of their fleet of Neurostar systems. We have scheduled a number of their leadership team members to attend Su.
And have additional team members scheduled over the coming months.
We are encouraged by our performance in the first quarter.
We continue to deliver solid treatment session growth and execute on the measured capital expansion strategy.
Our commercial teams efforts were supported by best in class marketing initiatives training programs and practice support to enable our customers' success I.
I would like to thank our entire organization for their dedication to our mission and the savvy. They have displayed as we continue to build our leadership position in the industry.
With that I'd like to turn the call over to Steve.
Thank you Keith unless otherwise noted our performance comparisons are being made for the first quarter of 2023 versus the first quarter of 2022.
Total revenue was $15 $5 million, an increase of 10% over prior year revenue of $14 2 million.
U S. Neurostar advanced therapy system revenue was $3 9 million versus $3 $6 million in the prior year.
We shipped 49 systems up from 48 in 2022.
As Keith noted our current strategy is to ship between 45 and 50 systems per quarter.
U S treatment session revenue was $10 $6 million, an increase of 12% over 2022 revenue of $9 $5 million.
The revenue growth was primarily driven by strong performance within our local park customer segments.
In the first quarter of 2023 revenue per active site was approximately $9700 compared to approximately $9900 in the prior year quarter.
The decline was primarily a result of the material increase in active sites compared to the prior year over the last year.
As a reminder, treatment session revenues are typically lowest during the first quarter of the year due to seasonality.
Gross margins were 73, 3%.
<unk> to 75, 4% in the prior year quarter.
The decline in gross margin was primarily driven by revenue mix as well as an increase in capitalized software and the corresponding amortization expense associated with the latest product release.
Beginning on January 1st 2023, we instituted a new accounting policy, which slightly impacted our gross margin in the first quarter.
As our Neurostar products are developed we continuously make software improvements to each new version and capitalized software expenses.
Upon completion of the software upgrade we begin amortizing the capitalized software over a period of two years.
Beginning this year, we are recording this amortization expense as part as cost of goods sold rather than an R&D, where it had previously been recorded.
Our required to record this amortization expense to cost of goods sold on a like for like basis, reflecting the accounting change margins would have been 74% this year.
Operating expenses during the quarter or $21 3 million, an increase of just $500000 compared to the first quarter of 2022.
As part of our strategy to drive towards profitability, we have been prudently managing our operating expenses and as a result are beginning to drive operating leverage in the business.
During the quarter, we incurred approximately $1 8 million of noncash stock based compensation expense.
Net loss for the first quarter was $10 $5 million or <unk> 38 per share.
As compared to a net loss of $10 8 million or <unk> 41 per share in the prior year quarter.
EBITDA was negative $8 $8 million as compared to negative $9 $5 million in the prior year quarter.
As of March 31, 2023, cash and cash equivalents were $55 4 million.
In early April we announced that we have secured an amended credit facility with <unk> capital partners.
We will provide us with up to $60 million in borrowings the maturity date of the credit facility as of March 29.
2028, and the annual interest rate will be based on Esso fr plus 565%.
The term loan facility provides for at least 36 months of interest only payments.
The amended credit facility represents a significant milestone for our company as it provides us with additional capital to strengthen our balance sheet and support the continued commercial adoption of Neurostar.
We remain focused on our goal of achieving cash flow breakeven in 2024, and this financing will further support our efforts as we progress towards this goal.
We would like to express our appreciation to SLR for their ongoing support and we look forward to continuing our long term relationship.
Additionally, we also announced that we converted approximately $5 $9 million of Greenberg's outstanding accounts payable balance and transaction expenses and to a $6 million senior secured promissory note.
This will provide green brick with additional cash buffer to support their growth strategy moving forward.
The notes will bear interest and matures on March 31 2027.
Now turning to guidance for the full year, we now expect revenue in the range of $68 million to $73 million.
Our updated guidance for 2023 assumes a modest recovery in treatment session revenue from certain service providers and continued strength from our local park click customers during the remaining three quarters of the year.
For the second quarter, we expect revenue of 17 million to $18 million.
We continue to expect total operating expenses for the full year to be in the range of $84 million to $88 million.
For the full year of 2023, we continue to expect a year over year reduction in cash burn with the highest being the first quarter.
Primarily due to our national sales meeting and payments for bonuses and sales commissions.
And our retention costs.
Our operating plan remains on track and we anticipate reaching cash flow breakeven with the cash we have on hand due.
Due to our projections for top line growth.
Gross margin expansion and operating expense management.
I would now like to turn the call back over to Keith.
Looking to the balance of 2023 I'm excited about the opportunities that lie ahead and about our ability to continue to execute.
We remain focused on increasing the number of customers who participate in Neurostar University.
Working to incorporate a higher percentage of customers into the co op marketing programs and creating a network of accounts across the country that followed Neurostar best practices.
To help execute on these initiatives I am pleased to announce that Lisa Roses has joined our senior leadership team as senior Vice President and Chief Marketing Officer effective May one 2023.
With over 20 years of experience in marketing Lisa brings a wealth of knowledge and expertise to our team having previously held leadership roles at sea intra <unk> therapeutics, <unk> <unk> and Allergan I can personally attest to her extensive experience in driving Pratt.
<unk> success building.
Building awareness and increasing market share capabilities, which are highly beneficial at neuro networks. We are excited to have Lisa onboard and look forward to strengthening our position as the leader in Tms for mental disorders.
With that I'd like to open the line for questions.
Certainly and ladies and gentlemen, as a reminder, if you do have a question at this time. Please press star one on your telephone one moment for our first question.
Our first question comes from the line of William <unk> from Canaccord. Your question. Please.
Great. Thanks, Good morning, and thanks for taking my questions.
First off just I.
I was wondering if.
What gives you the conviction to raise guidance given the Q1 was in line in Q2 is actually guide is in line with your original guidance or with consensus there.
<unk>.
Considering it's an in line quarter, a solid quarter, but in line why raise guidance at this point.
Bill This is Steve.
So basically we saw positive signs from Green Brook during the quarter.
Even though their store closures didn't really commence until late March early April the the metrics that we track being utilization and also purchases were stronger than we thought.
They were partially offset by some weakness in our fixed price accounts, which is actually a good thing.
Things considered so just looking at how they're doing and how they're doing through the early part of Q2 gave us that conviction that we're comfortable increasing the low end by $2 million on the high end by $1 million.
Okay, Great and then.
Grant's on bringing Lisa onboard you've got a great VP of marketing there.
Just.
The new co op program that you talked about with internal external that youre kicking off just wondering if you could give us a little more color on that on what exactly you're changing.
Specifically thanks.
Bill This is Keith on the co op marketing program as you know that's a key piece to our program.
We have tried to smooth it out to make it easier for our accounts to sign up to participate to submit there.
Their ads and then get reimbursed for it so.
I think when we first rolled it out our accounts felt as though it was.
It had too many rules and regulations and now we are just smoothing it out to make it simpler for them.
Does that answer your question.
Yes, thanks for thank you.
Thank you one moment for our next question.
Yeah.
Thank you. Our next question comes from the line of Margaret case here from William Blair. Your question. Please.
Hey, good morning, guys. Thanks for taking the questions.
I wanted to maybe get a little bit deeper into into guidance follow up on Bill's question.
And maybe start a little bit with Q2, what is the Q2 guide I guess implied for utilization or revenue per active site.
Both with Greenbrier and without a crane Brock and kind of normalizing for that and then I think go on throughout the year.
We kind of look at Q3, and Q4 growth rates for a total company basis, having slightly we can back out the first half of the year, but.
It doesn't imply a little bit of.
Slowdown so I just wanted to walk through those dynamics, how you how you all are thinking about that.
What gets you to that high end point.
Hi, Margaret Steve.
Yes, so I guess dissecting our guidance Q2 in particular as usually our second strongest quarter for the year.
It's consistent in Q3, and then historically Q4 is our strongest quarter.
Analyzing some of the metrics that you mentioned revenue per site.
Difficult to pinpoint that right now because a lot of the Greenberg sites are still in flux.
We know they are closed.
<unk> so far.
Relocated a number of our systems that are actually up and running already.
So we are anticipating that momentum to continue through Q2.
Do you expect revenue per active site to increase in Q2.
Again remains somewhat steady in Q3, an increase in Q4.
That was the last question I'm not sure if I answered it totally.
Okay.
That was helpful and part of it is again as we go towards the back half of the year with that exit rate looks like and what it could imply for 'twenty four.
Yes, so we.
Utilization continues to be strong at our local consumable segment.
And that's really the target that we're after.
Assuming the Greenberg transition continues positively the way it is.
Start contributing more to the.
Two our treatment session revenues towards the second half of the year. So the co marketing programs are working Neurostar University is working immensely.
So exiting 2023, we will have the momentum going into 2024 that will help us get to that cash flow breakeven target.
Okay.
That's helpful and then as we look at some of the reimbursement policy changes, obviously has been encouraging to see that this year and the constant press releases, but maybe you guys can show us up on a year over year basis.
And again on a net basis.
What's been the change in terms of better coverage policies.
May be policies that would decrease and take down the number of drugs fail the floor covering.
Yes.
So Margaret we have a reimbursement team that has focused on policy changes and as each one of the payers comes up for review, we are actively working with physicians to.
Suggest changes going from four drugs to two drugs and even adding.
One physician practitioners to the list so.
It's an ongoing.
<unk> for us.
Honestly there are enough patients out there that have failed for drugs to keep all of the companies that provide Tms active.
But I think our focus is trying to get greater access to care for these patients that are suffering with depression. So.
If we can do that then we have.
Our solid pipeline of patients.
But.
Quite honestly there are plenty that have failed for so.
Okay.
Sorry, I'm going to squeeze one last one and then I'll hop back into queue, but just as a follow up to that.
Is there have you been able to see any kind of change in momentum or utilization in those regional geographies, maybe where you do see some of those payer coverage.
Changes make a positive impact on your own.
Yes.
Yes, one of the challenges that we have is as an example, with the Medicare change, allowing nurse practitioners is then we know we have to go out and educate the nurse practitioners on the benefits of Tms in the neuro start treatment. So we have begun that process.
The newest one was up in new England, and we are seeing.
A lot of attention from the nurse practitioners in that in that region. So.
We are trying to expand the practitioners on a wider basis and then it's an education process.
Thank you Arne.
Next question one moment for our next question.
Our next question comes from the line of Adam meter from Piper Sandler Your question. Please.
Hi, Steve Good morning, Congrats on the solid start and thanks for taking the questions.
Maybe just a couple of follow ups too.
Bill in Margaret's question, So I guess first just on.
The momentum in the business and kind of as we think about the guidance raised here coming out of Q1.
Just curious if you are willing to provide a little bit more color on how the business kind of progressed over the course of Q1 and the exit velocity that you saw kind of exiting March.
And into April on the treatment side, just any more color you can provide there would be helpful. And then I had a follow up or two thanks.
Okay.
Thanks, Adam one of the key metrics that we look at specifically in the first quarter.
Are the benefits investigations.
Historically, we see a peak.
Around the third week in January of around 375 to 400 benefits investigations, which is really a key metric because if a doctor is requesting.
Their patients that's usually a good indication that theyre going to be treated.
With Neurostar.
That peak is still peaking towards the end of April and into early may and the team is still doing around 350 <unk>.
This month, so that is a key indicator that.
There is no slowdown in sight, which really goes in line with the historical performance of Q2, and Q3 and so once the deductibles and the programs are reset.
At the beginning of the year. There is a lot of administrative paper work that has to occur by our physicians, but once that's behind them the treatment session.
Again, historically really start to accelerate and that's what we've seen this quarter and into Q2.
Again, the other metrics, we look at utilization.
Another strong quarter really in every segment. The only segment that was down was the fixed price.
Those customers are historically the older ones.
So.
We're really targeting helping them, but also really focusing on that local consumable segment.
That's helpful color, Steve Thank you for that.
I guess my next question would be on on Green Brook.
Just wanted to make sure I had some of the specifics there.
In terms of.
Number of systems that had been pulled from the field number of systems that have been already placed at different centers and then how many are currently on the sidelines and how do you think about those kind of going back into the field and I had one more follow up.
So green brick has announced that theyre going to close 50 stores. They are in the 40% at the moment not all of those stores have completely shut down.
They're still working their way through the patience that.
That were in treatment.
We have we have moved several systems from.
Stores that have completely shut down too active stores.
And we're continuing to do that we're able to monitor that because we are the ones that.
Senate service engineer pack it up and then reinstall it in the new stores.
Okay.
That's helpful.
Keith Thanks for the color and then maybe just one last one on.
On reimbursement changes and specifically non physician practitioners are npp's, just wanted to I guess get a little bit more of a level setting our baseline.
What percentage of covered lives have this type of policy today.
How do you think about that kind of trending over time.
Is this something that impacts the business near term or do you think we need a little bit of time for this to kind of.
Ultimately lift access.
Well I think as we're able to provide education to the non physician practitioners.
I think we see a pickup.
Pickup in.
And those practice nurse practitioners in particular, we have seen an increased number of nurse practitioners attend our neurostar summit's.
To be educated on on Neurostar in the.
How they would incorporate it into their practices so as far as covered lives, it's actually increasing as.
I think as you know when the Medicare Max adopt new policy than the B.
Commercial payers over time will adopt similar policy, so and that's just starting so I think we're encouraged by it I think it opens up a whole new market for us, but we're at the infancy of educating this group of practitioners.
Thanks for taking the questions.
Thank you one moment for our next question.
And our next question comes from the line of Daniel <unk> from JMP Securities. Your question. Please.
Yes, great. Thanks, So just.
Just first off.
Incremental sites you introduced into your installed base, assuming thats on a year over year basis, but just first off could you give us an idea of how many of those were per click sites and then secondly could you just remind us on the timing as far as how long it typically takes.
New or newer site ramped up to a more typical treatment session run rate. Thanks.
Okay.
Good morning, how are you doing.
So Daniel.
Introduce those 100 sites all of them are per click we don't.
We don't offer the fixed price anymore. So the the accounts that were fixed price are grandfathered in but any new.
Accounts that we open up our all per click.
And right now from the time.
They place the order to when they get on.
On a regular run rate is somewhere around 90 to 180 days it takes them to get to full strength. So.
There's a there's a ramp up period in many cases, we have to help them get.
Their credentials and get onto the inch.
Payors.
No.
It takes a little bit of time to get them ramped up.
Great. Thank you very much and then just one quick one.
You touched on a little bit before but gross margin you've hit on some of the impacts as well as some of the <unk>.
Counting changes, but just how should we think about <unk>.
Levels of gross margin as we look out for the rest of the year.
Any cadence or <unk>.
Additional commentary there would be much appreciate it thank you.
Sure, Yes, the reclassification of the amortization expense were forecasting almost.
At two point hit to gross margins.
<unk>.
We do see tailwind with respect to margins as we work through the year. So as treatment sessions continue to accelerate and become a larger part of our revenue base margins will increase we also have some cost reduction strategies that we're working on that will lower the cost of goods on the system.
And then.
I would say our operating expenses within cost of goods sold.
<unk> throughout the year, so as revenues increase our margins will also increase so.
We continue to expect mid to high seventies, as we exit the year for gross margins and then.
Continue to expand upon that into 2024.
Great. Thanks, a lot.
Well.
Thank you.
It does conclude the question and answer session of today's program I'd like to hand, the program back to keep Selman for any further remarks.
Thank you operator, thank you again for joining US today, we look forward to updating you on our next quarterly call.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Yes.
Okay.
[music].
Okay.
Good.
Yes.