Q2 2023 Neuronetics Inc Earnings Call
Thank you for standing by and welcome to the Neuro <unk> third quarter 2023 financial and operating results conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one.
One on your telephone you will then hear an automated message advising you. Your hand, just raised to withdraw your question. Please press star one again.
As a reminder, today's program is being recorded.
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 second quarter 2023 conference call Joy.
Joining me on today's call are narrow networks, 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 up 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 company's business.
For a discussion of risks and uncertainties associated with new robotics business I encourage you to review the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K filed in March 2023, as well as the company's quarterly report on Form 10-Q, which will be filed later today.
The company disclaims any obligation to update any forward looking statements made during the course of this call except as required by law.
During the call, we'll also discuss certain information on a non-GAAP basis, including EBITDA.
Management believes that non-GAAP financial information taken in conjunction with U S. GAAP financial measures provide useful information for both management and investors by excluding certain noncash and other expenses that are not indicative of trends in our operating results.
Management uses non-GAAP financial measures to compare our performance relative to forecast and strategic plans to benchmark our performance externally against competitors and for certain compensation decisions reconciliations between U S. GAAP and non-GAAP results are presented in 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.
Okay. Thanks, 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. He will then review our financial results and I'll conclude with some thoughts on the rest of 2023 before turning to Q&A.
We delivered a solid performance during the second quarter as our commercial and customer education initiatives have continued to gain traction U.
U S capital sales remained consistent and despite some of the ongoing headwinds associated with the integration of our two largest customers are treatment session revenues continued to increase.
Total revenue was $17 6 million up 8% over the second quarter of 2022.
Primarily driven by strong treatment session growth combined with an unplanned neurostar system expansion.
Neurostar system revenue was $4 5 million as previously mentioned our objective is to ship 45 to 50 systems per quarter.
We believe this range enabled our team to dedicate sufficient time and resources to ensure the long term success of our customers with Neurostar.
Consistent with this plan we concluded the quarter by shipping a total of 54 systems.
Importantly, nearly half of the Neurostar shift during the quarter were to customers buying their second systems.
Which points to the value we are delivering to these practices by helping them educate and treat more patients in need.
The sustained strength of our capital equipment sales can be attributed to the continued execution by our experienced capital sales team.
As well as the positive impacts of our Neurostar sites are most recent summit held in Scottsdale, Arizona with again sold out and ultimately resulted in approximately 20 system sales during the event.
These neurostar summit's remain a crucial element of our strategy, providing a platform to educate customers about the impact neurostar can have on improving patient lives.
The U S treatment session revenue was $12 3 million.
Up 9% over the second quarter of 2022. This strong performance was primarily driven by the 19% year over year increase in local consumable utilization along with the improving performance among our national accounts.
Across the board. These results were driven by the positive impact of our key initiatives such as neuro starting University. Our comprehensive five star's training program. The expanded utilization of our Phd tend tool and the increased as taxability of the practice management.
Training.
Along these lines, we wanted to provide an update on the progress made at our largest customer Greenberg Tms during the quarter, we continued to see improving performance across active green brick site.
Treatment session volumes and related revenues remained somewhat depressed as a result of their office closures.
We are actively working with the green brick team to address the ongoing challenges stemming from the merger with success Tms and the integration process.
We have collaborated closely with their leadership team at various levels to implement a mutually beneficial strategy moving forward.
This included implementing initiatives to enhance awareness expand patient access to care and effectively redeploy system from the recently closed stores in.
In total approximately 50 systems were taken out of service due to store closures and to date over 35 of these systems have been relocated into existing stores, where they have replaced competitive system.
We expect the remaining systems to have been relocated by the end of the third quarter.
Additionally, in support of Green Brooks growth all of the Green Brook Regional Vice President have attended a Neurostar University class and we are scheduling their trainers and traders to attend upcoming classes to provide them with a proven playbook for practice success. So they can better.
Are there patients.
As we continue to support the green brick team. We are encouraged by the positive impact of tactics learned at NFU have had as they deploy them in their clinic.
While legacy success stores are currently lagging behind green brick stores in terms of performance. We are confident that through education and training efforts. We can help get that portion of the business back on track.
We look forward to continuing our strong partnership with Greenbrier as we work together to advance the adoption of Pms as the therapy for mental illness.
Now turning to our operational highlights.
Our first focus of 2023 is increasing the number of customers who participate in su.
Eurostar University continues to receive excellent reviews from our customers by quarter end, we had hosted 13 fully booked classes with over 260 attendee.
We are experiencing sustained high demand with all of our courses fully booked out.
Three month rolling basis.
In August we will celebrate the one year anniversary of the program, which we have updated twice to streamline our customers' experience and as you can make it as impactful as possible.
Our customers continue to derive significant benefits directly from the <unk> training session for.
For example for sites that became active before January one of 2022.
Neurostar University attendees have experienced a 68% increase in utilization.
Whereas non attendees from that same period only experienced an 8% increase.
Additionally, attendees have increasingly leveraged our other program such as the five stars and co op marketing, which has over time lead to increase overall performance.
This highlights the positive impact of our techniques when properly deployed empowering practices to better serve their patients.
We remain committed to providing the support and training to our customers ensuring that they can fully leverage their potential.
Our second focus for 2023 was to incorporate a higher percent of our customers into the co op marketing program to continue to build awareness of Neurostar.
We are seeing the positive impacts of our new co op marketing program, which launched on April one the.
The program features a prescriptive roadmap of effective marketing tactics to market inside and outside of the practice.
New marketing and training collateral were created and we revamped minor ISR dot com to digitize the execution of the program.
Since its implementation we've observed increased use of the co op program.
Especially by NFU attendee.
Existing co op accounts are also demonstrating increased engagement with the program with a 27% increase in activity quarter over quarter.
This reflects their deeper adoption of and partnership with our platform.
Additionally, participating co op accounts saw a notable increase in utilization sequentially.
This enhanced program is driving growth and increasing patient access to neurostar therapy.
Our third and final focus area for 2023 is creating a network of accounts across the country that followed Neurostar best practices. This program will provide the opportunity for our customers to be part of our Premier group that.
That demonstrate their commitment to providing the best patient experience and care with neuro star.
After soliciting feedback from our Neurostar patient advocate and 800 people who have been diagnosed with depression. We are ramping this program to better meet guarantee and.
And intend to launch it in the third quarter of this year.
Establishing specific benchmarks, such as delivering consistently high levels of service and expanding patient marketing efforts within and outside the practice.
We anticipate observing tangible advancement among customers, who fully leveraged that distinctive benefit of being a better meet guaranteed provider.
We will expand on the specifics of this program on our third quarter earnings call.
Shifting gears to an update on the clinical and regulatory efforts.
In June we announced a five 10-K clearance for.
For the OCD MP cap technology for Neurostar. This unique innovation streamlines the treatment process by simplifying coil placement and reducing steps involved in determining a patient motor threshold.
The OCD cap compliments neurostar its existing capability positioning.
Positioning as the only Tms system.
Okay.
Factors that both POC and.
And a major depressive disorder.
This advancement signifies our commitment to delivering the latest technology to optimize treatment efficiency.
And provide effective care for individuals struggling with OCD.
We are continuing to work to expand the use for our unique therapy.
We have recently filed a 500 10-K submission with the FDA seeking to expand our potential patient population.
While we don't want to comment on the specifics of the filing for competitive.
Purposes, we do expect to hear back from the FDA on the filing by the end of the year and look forward to sharing progress as it occurs.
Moving to reimbursement.
We are pleased to announce Blue Cross Blue Shield of Michigan has expanded eligibility for depression patients to receive Tms treatment.
This policy update reduces the requirement of attempted.
The anti depressant medications from four to two prior to Tms treatment eligibility.
By prioritizing early access to relief Blue Cross Blue Shield of Michigan is enabling millions of people do benefit from our therapy.
This policy change reflects the growing recognition by commercial and government payers of the need for enhanced mental health coverage, particularly in light of the nationwide shortage of mental health care providers.
Additionally, Aetna one of the largest health care plans in the country covering over $16 8 million lives has implemented changes that will make our treatment more accessible aetna.
Aetna now allows Tms treatment to be ordered and conducted under the supervision of behavioral health nurse practitioners also.
<unk> has removed the four months psychotherapy trial requirement before a patient can receive their initial tms treatment, making it easier for individuals to start their treatment sooner.
The latest update from Aetna opening up access to care through nurse practitioners and reducing eligibility requirements is a step forward and builds on the momentum we have seen with other commercial and government payers expanding coverage for Tms therapy.
We are pleased with the achievements made in the second quarter. Our commercial team received strong support through effective marketing initiatives comprehensive training program and dedicated practice assistance, which all contributed to our success I appreciate the ongoing dedication of our entire.
<unk> organization and their efforts in strengthening 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 second quarter of 2023 versus the second quarter of 2022.
Total revenue was $17 6 million, an increase of 8% over prior year revenue of $16 $3 million.
U S Neurostar advanced therapy system revenue was $4 $5 million.
$4 4 million in the prior year.
We shipped 54 systems down from 58.
In 2022.
As Keith noted our current strategy is to ship between 45 and 50 systems per quarter.
U S treatment session revenue was $12 3 million.
An increase of 9% over 2022 revenue of $11 3 million.
The revenue growth was primarily driven by strong performance within our consumable customer segments.
In the second quarter of 2023 revenue per active site was approximately $11390.
Compared to approximately $11280 in the prior year quarter.
We are highly encouraged by the fact that despite a material increase in active site.
Compared to this time last year, we were able to maintain revenue per site.
We see this as evidence that our programs and initiatives are working.
Gross margins were 72, 5%.
Care to 75, 3% in the prior year quarter.
The decline in gross margin was driven by an increase in amortization expense associated with the latest product release.
We also incurred one time expenses related to our transition to a new contract manufacturer.
Without these expenses gross margins would have been 75, 6%.
Operating expenses during the quarter were $28 1 million.
A decrease of $2 million or 9%.
<unk> to $22 1 million in the second quarter of 2022.
In May our ERP met to review and justify 2023 operating expenses.
Insistent with the results achieved by the similar exercise in 2022, the team identified over $4 $5 million in expense savings in the balance of 2023.
<unk>, which will be offset by increased co marketing expenses related to green bricks.
As a result, we have achieved a net reduction of $2 $2 million and expenses.
Demonstrating our commitment to prudent financial management.
During the quarter, we incurred approximately $2 million of noncash stock based compensation expense.
Net loss for the quarter was $4 9 million or <unk> 17 per share.
As compared to a net loss of $10 $4 million or <unk> 39 per share in the prior year quarter.
EBITDA was negative $3.3 million as compared to negative $9 1 million in the prior year quarter.
In the quarter, our EBITDA loss was reduced by $2 $9 million related to the recognition of the employee retention credit.
As of June 32023, cash and cash equivalents were $45 $9 million.
We incurred significant expenses related to our contract manufacturing transition and also recognized significant capital revenue in June which increased our accounts receivable balance at quarter end.
As a reminder, we converted $6 million of Green Brooks accounts receivable into a senior secured loan on which green brick has started making principal and interest payments.
Now turning to guidance for the <unk>.
Full year, we now expect revenue in the range of $69 million.
$73 million.
Increasing the bottom end of the range by $1 million.
For the quarter, we expect revenue of $17 million.
<unk> hundred $18 million.
We now expect total operating expenses for the year to be in the range of $82 million to $86 million.
Improved from prior guidance of $84 million.
$88 million.
We remain confident in our operating plan, which indicates that we will reach cash flow breakeven with our current cash on hand.
Our path to profitability remained steady.
By our projections for topline growth.
Strong gross margin profile and diligent management of operating expenses.
I would now like to turn the call back over to Keith.
Thank you Steve we've made significant progress in the first half of the year. The list of achievements as long and it reflects our team's dedication and hard work towards achieving our goals.
Some of our accomplishments include focusing on maximizing revenue growth, while efficiently reducing expenses.
Passing our targets on capital placements heightened attention on Green Brook, aiming to bring their utilization back up to previous high levels and receiving excellent reviews and fully booking all at Su classes, which has increased attendee utilization compared to non <unk>.
Additionally, our clinical data supports the efficacy of Neurostar for adult patients with anxious depression, and we've achieved positive policy decisions, reducing prior medications failures for Tms eligibility.
And enabling non physician practitioners to order and administered Tms therapy.
We've also made notable product product developments enhanced internet connectivity capabilities and software for track Star.
On the regulatory front, we obtained five 10-K clearance for the OCD MP cap and.
And recently submitted for a new label expansion.
Furthermore, we.
$60 million in new debt financing and successfully improved gross margins by switching contract manufacturers as.
As we move into the second half we are eager to build upon the momentum our proven track record of execution gives us confidence in our ability to continue to deliver solid results. We remain focused on growing the number of customers who take part in Neurostar University working to incorporate.
A higher percentage of customers into co op marketing programs and create a network of accounts across the country that following neurostar best practices.
With a well defined strategy in place we aim to accelerate the adoption of Neurostar and provide relief to more patients suffering from mental health disorders with that I'd like to open the line for questions.
Thank you as a reminder, if you would like to ask a question at this time. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile our Q&A roster.
Our first question is going to come from the line of Margaret Taser with William Blair. Your line is open. Please go ahead.
Hey, good morning, everyone. Thanks for taking the question.
Hey, Mark I wanted us.
To start okay.
Yes.
Talk about the accounts that purchased the second system.
Half of the placements this quarter coming from that is really seemed like a meaningful increase.
Is this are these national.
National accounts.
Our group practices and then how should we think about their productivity ramp relative to more traditional new site.
How're you doing Margaret this is Keith.
The accounts that purchased second systems for mostly.
Private offices.
National accounts have not purchased any systems in the last couple of quarters. So.
These are our.
Physicians that have gotten to the level where.
They're doing six or seven treatments per day.
On their device and at that level, they're starting to run into scheduling conflicts with patients and they need a second system to support that demand.
Okay.
The productivity ramp and increase seems like maybe that should be a little faster than normal given they're already familiar with the system is that fair.
Yes, it is and I think.
They've already most of these accounts have already been to NFU, they understand exactly how to speak to their patients and get them into the chair.
So these are the accounts that have.
It really accelerated I think we've said in the past that tip.
Typically it takes six months for.
<unk> accounts to get their system and get it up and running and we have worked hard over the past.
Several quarters to reduce that so we're now in the 90 to 120 days range to get new accounts up and running.
Okay.
Its helpful and what Im trying to pair in theory, you referenced the 68% increase in utilization for attendees from end of Q2.
Pretty meaningful increase.
Yes, you are referencing those sites are the ones that are coming back I guess, the second system purchases.
So as we think about both the next several quarters in 2024 is.
Is this something that can continue to pick up traction where more of the accounts and then as you add.
And then I have one more follow up.
<unk>.
The simple answer is yes, we're putting a emphasis and were using the staff that you just mentioned the 68% increase.
To get more accounts there.
Honestly, we've held 15 classes now and they have.
We are getting repeat customers coming back so.
We are using this data to get.
Our legacy accounts and all the new accounts to come to an issue as soon as possible.
Okay.
So just last question for me just because of the steps you seem pretty meaningful can you give us a sense of.
I guess, what the revenue per account would have been this quarter or this year, excluding green broker excluding the national accounts.
Now as we kind of lap the green both headwinds, obviously that will maybe be a better signal of what that underlying business can do thank you.
Hi, Margaret this is Steve.
We haven't done that math yet.
But we did have.
In a $50 or so green Brook office closures so.
The revenue per site.
Obviously be a bit lower.
But.
To go back and quantify that for you and get back to you.
Okay. Thank you guys.
Thank you and one moment for our next question.
Our.
Next question is going to come from the line of Bill <unk> with <unk>. Your line is open. Please go ahead.
Hi, Ed decorate day on for Bill today. Thank you for taking the question.
So you've talked a lot about easier payer was with Blue Cross Blue Shield and the Aetna improvements can you, possibly quantify that importance and think about when it comes to other commercial payers beyond that.
What percent of them do you think we'll get a similar.
Policy update and how can that drive.
Revenue and other financial metrics. Thank you.
Well good morning.
We are very encouraged by the.
The changes in the policies.
The biggest one that we had was back in March when the United Healthcare went from four drugs to two and I think most of the other payers are going to follow suit with it.
I think we've said in the past that there are plenty of patients out there that have failed for drugs and we are making a.
A concerted effort to drive awareness to those patients what the reduction in failed drugs means to those patients as they can get into the chair sooner. So we have a large patient population for us to treat.
The payers are just making it easier for them to get it. So I think our job and physician's job is to help drive that awareness.
Great. Thank you very much.
Thank you.
And our next question comes from the line of Adam <unk> with Piper Sandler. Your line is open. Please go ahead.
Hey, Keith Hey, Steve This is <unk> on for Adam. Thank you for taking the question.
I guess I'll start off on.
Yes.
<unk> business can you provide a bit more color on what you saw from <unk>.
Statements sessions volumes, and how that progressed over Q2 and into it.
July and August so far.
And I'd be curious to know what your expectation for this part of the business look like.
Once you kind of have the rest of the for Enphase systems relocate it.
Sort of ramping back up.
Good morning, this is Keith.
The CIS.
The systems that had been moved for Green Brook.
As I said over 35 of them have been shipped to new locations not all of them have been trained yet and so we are working through getting all of the systems placed and we have prioritized getting training to those sites that have been using competitive systems. So that we can get them up and running.
In the past Green Brook was able to generate in the neighborhood of 4% to six patients per day per system, and we want to get them back to that level and we're working with bill Leonard and his team to help get them to that.
That level.
For our other accounts that are growing and utilization the one set.
Click accounts at the 19% growth.
Those accounts are the ones that are.
Following our roadmap to success.
Which includes going to at Su, which includes.
Following through on the THQ tens and <unk>.
<unk>.
Alright.
Using our co op marketing to be able to.
To make sure that their website is in shape make sure that their social media platform follows ours and they are buying the proper Google Adwords too.
Drive greater awareness.
Okay perfect.
Paul.
And for my follow up.
The guidance kind of implies a sequential step up.
16% from Q3 to Q4 at the midpoint.
Perhaps a bit steeper than what we've seen in past years I guess.
What kind of inform the level of confidence then can you walk us through.
Euro assumption baked in for the fourth quarter.
Hi, This is Steve Yes, if I go back and look at 2022 for example.
The third quarter was slightly higher than the second quarter and Thats. What we are anticipating this year and then Q4 was up just under $2 million from Q3 to Q4.
That's a similar assumption and seasonality we are expecting in 2023.
Q4 is always our strongest capital a quarter.
And we do have a significant number of treatment session programs that accompany the capital sales and so it's really just the normal cadence.
For the final six months.
We do see Green Brook their performance to be consistent.
Compared to the first half of this year.
As Keith alluded to.
The transition from.
Moving neurostar is from storage and to active units.
The little time consuming.
We do have to have our field service engineers to install an install many of these accounts that the systems are going into were formerly brain's way.
So there is a significant training effort that goes into these and so.
There could be upside depending upon the speed.
And training activities.
But again, we really don't think the lift in Q4 is significant.
Now as a reminder, we've been growing almost double digits and thats again reflective in that in Q.
Q4 performance forecast.
Okay.
Okay. Thank you and if I could just squeeze one last one on gross margin really quickly.
Yes.
Some of the impact.
With.
The onetime expenses related to the new contract manufacturer, but.
How should we think about the levels of gross margin as we look out over the second half of the year and into 2024.
Yes, and we will see I would say gradual improvements in Q3 and Q4 of this year.
And then once our new contract manufacturer is really up and running.
<unk> 2024.
Again, we're going to see gross margins.
Entering up to that 80% range.
And so we have a number of cost reduction efforts underway.
That transition as well as <unk>.
An increasing treatment session revenue versus capital revenue product mix, which also helps margin. So we are confident we're going to get up to that 80% range in 2024.
Thank you.
Youre welcome.
Yes.
Thank you and one moment for our next question.
Our next question is going to come from the line of Daniel <unk> with JMP Securities. Your line is open. Please go ahead.
Great. Thanks.
Just real quick revenue per active site you talked about it's up modestly this quarter back into that mid 11 thousands.
But I guess could you just remind us how you think about this metric any expectations for this year or as you exit to exit 2023.
Any.
Broader near to midterm targets for for these levels whats the comfortable courts here that you expect to reach over time.
Yes.
Hey, Danny its Steve.
This is one of the key metrics.
It really does highlight the performance of an individual site I.
I would say with a lot of the.
Activities and initiatives, we have that number will continue to increase.
It is a bit variable depending upon.
The <unk>.
Systems sold into existing sites.
And also the different customer segment. So the local consumable segment continues to shine for us and Thats really the focus of many of our initiatives and so.
We would expect that to get.
Maybe 20% higher as we work through next year.
That's great.
So I was going to say, Dan if you look at.
The average treatment sessions done on our system.
Still the.
Upside getting to that six or seven persistent which is pretty much capacity. There is significant runway in that number compared to where we are right now and obviously that will translate into a much higher revenue per site calculation.
Great. Thank you for that and then just one more on cash usage.
You had some one time items here in the first half of the year, but just any more color you could give us on cash burn rate in the back half of this year as well as.
Youre right exiting 2023 would be very helpful. Thanks.
Sure.
So we actually had a very good push and AR collections this quarter.
But it was masked by.
I would say.
Healthy June and so you can see in our zero to 30 day receivable balance it's up significantly which is reflective of the number of systems to be shipped in the final months, we do expect leverage with AAR and also inventory as we work towards Q4.
Sure.
You also saw in the press release that we did.
Submit for our employee retention credit with the IRS. So that was prepared by KPMG. So, yes, we're pretty confident well.
Half of that.
And hand, either late Q4 early Q1.
So that will help and so we're expecting a modest burn in Q3.
Pretty much a function of shipment timing and also collections.
Activity in June .
It's usually a lower.
Brian for US anyway, and then Q4 should be pretty close to cash burn neutral again, we're going to have historically, the strongest quarter of the year and it will be somewhat subjected to timing.
Revenue mix that goes out the door in December .
We're going to end the year low to mid forties and cash.
Again as we've been communicating the plan is to hold operating expenses flat in 2024, and then continue to grow the top line.
And so if we can get.
For example, Green Brook and some other accounts.
Back to their normal cadence and we think our top line can get to where the top line growth can get to where we were expecting this year in that mid teen range.
Great. Thank you very much.
Thank you and I'm showing no further questions and I would now like turn the conference back over to Keith.
Southern <unk>.
Sullivan for any closing remarks.
Thank you very much operator, thank you all for your interest in neuro networks, we look forward to updating you on our next quarterly call.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
Okay.
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