Q3 2023 Neuronetics Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to the Northern next third quarter 2023 conference call.
This time, all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
To ask a question during the session you will need to press star one on your telephone you will then hear an automated message advising that your hand is raised to withdraw. Your question. Please press star. One again, please be advised that today's conference call is being recorded.
And I'd like to hand, the conference over to your first speaker today Mark Klausner. Please go ahead.
Good morning, and thank you for joining us for the neuro networks third quarter 2023 conference call joining.
Joining me on today's call are <unk>, 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 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 <unk> 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.
<unk>, 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.
Thank you Mark good morning, and thank you all for joining us I'll begin by providing an overview of the 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.
In the third quarter, we maintained our momentum executing effectively across the organization as our commercial and customer education initiatives gain traction.
Which resulted in record revenue.
Total revenue was $17 9 million, an increase of 8% over the third quarter of 2022.
Neurostar system revenue with $3 6 million.
During the quarter, we shipped 43 sisters slightly below our plan of 45 to 50.
While financing for customers to acquire systems remains readily available the process took slightly longer during the third quarter than in the past due to increased diligence from the leasing company.
As a result, a few deals that we expected to close in Q3 were pushed into Q4.
Most of which have already closed.
Our Neurostar summit continue to play a pivotal role in our capital strategy, serving as a platform to educate customers about our transformative impact neurostar can have on patients' lives.
The recent summit in Austin, Texas, which was that capacity led to a substantial number of system sales during the event.
U S treatment session revenue was $13 1 million up 10% over the third quarter of 2022.
This represents a new record for treatment session revenue and utilization in a single quarter.
The growth was primarily driven by an 18% year over year rise in local consumable utilization.
Additionally, the successful implementation of key initiatives like Neurostar University are five star solution program expanded use of the ph Q tend tool and co op marketing positively impacted our performance leading to our record revenue.
During the quarter. We also observed positive utilization trends at Green Brook sites as they continue to return their business to pre merger levels, notably all of the Green Brook systems that were offline earlier. This year as a result of their store closures had been moved out of <unk>.
Storage currently all of these systems are located in clinics with 42 of the 52 systems actively treating patients.
We expect the remaining systems to be online over the near term.
Although the historical success Tms sites are making headway, they're still lagging behind Greenberg sites. Overall, we remain very pleased with the rebound of Green Brooks' business and we'll continue to work in close partnership with them to drive our mutual success going forward.
Word through co op marketing and our new better me guarantee pilot program.
Now, let's shift our attention to our operational highlights.
Last quarter, we discussed the introduction of a new customer facing initiatives, we've named the better meet guarantee provider program.
This program is designed to establish a nationwide network of accounts that adhere to best practices that were developed in collaboration with expert Tms clinicians that.
The better me guarantee providers commit to follow specific standards of patient care and responsiveness.
To enter and remain in the program.
It is open to all Neurostar customers that agreed to fulfill the five pivotal standards of the BMG program.
Which will allow practices to be confident in their ability to provide exceptional care.
These standards include attending Neurostar University and.
Ensuring offices answer the phones during business hours.
Advised patients of the benefits of treating through the full course of 36 sessions were medically appropriate.
Assigning a medical personnel to promptly respond to PHP 10 assessments, and lastly, updating websites and social media platforms to align with our brand aided by our co op marketing program.
Ultimately, we expect accounts, who participate in the program to be better positioned to help more patients suffering from depression.
Currently in its pilot phase the program and marketing campaign is being implemented in several green Brook offices, enabling us to measure outcomes and make necessary refinements before rolling out to a broader customer base are.
Our entire sales team has received training on the program and is engaging with customers to provide training to accounts. So that they can meet the program standards.
The response, thus far has been overwhelmingly positive and we are seeing significant interest in becoming part of the program.
We are planning a measured rollout across our customer base.
And we will be adding our next customer cohorts on January 22nd.
Followed by another group on April eight of 2024.
Each program expansion will be capped in size to ensure a successful rollout.
The first step of the better me guarantee providers is to participate in Neurostar University, which.
Which further helps them understand the educational benefits of our five star solution.
HQ tens and co op marketing.
We will execute marketing and social media campaigns over the next several months to build patient awareness about the program and the benefits of Neuro Star <unk>.
Marketing will evolve and expand more broadly throughout 2024.
<unk> continues to be a tremendous program for the company as well as our customers and their patients year to date, we've conducted a total of 20 fully booked classes with over 420 participants.
The program continues to see increased demand due in part to NSE, you attendance being a requirement for customers to participate in the better me guarantee provider program.
To accommodate this demand we have increased the size of classes.
<unk> added two extra classes in 2023 and one in early January.
Turning our attention to the co op marketing program.
Since its relaunch in April.
Our co op marketing has helped educate a broader group of people who are looking for an alternative for their depression. This structured approach to marketing has not only amplified awareness of neurostar, but it has also proven to be a powerful tool both within and beyond practice settings.
With the introduction of new marketing materials, and enhanced training resources, we've witnessed an upswing in both customer participation and utilization rates as customers have learned to improve their marketing, thereby educating more patients about neurostar and.
Helping to treat their depression.
In Q3 co op participation increased 10% over Q2.
Turning to our regulatory update.
As previously discussed during the second quarter, we submitted a 500 10-K to the FDA seeking to expand our patient population.
The process has progressed as expected we are working to respond to questions from the FDA on our submission and expect to receive a decision by the end of the year.
As we stated previously one of the keys to helping more patients is expanding access to care with neurostar.
We're very excited about an initiative, we've recently launched which is working with state and federal legislators to open up access to insurance reimbursement for Tms the.
The initial reception we've received on the federal and state levels has been really encouraging and we will update you on the progress on the future calls.
We are pleased with our performance in the third quarter and enthusiastic about how we're positioned for the future.
With continued execution by our commercial organization and the positive response in the market from both customers and patients reinforces that what we're doing is resonating.
Im confident that we are focused on the right initiatives to execute on the growth strategy as we seek to expand upon our market leadership position and bring relief to more patients suffering from mental health disorders.
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 third quarter of 2023.
The third quarter of 2022.
Total revenue was $17 9 million, an increase of 8% over prior year revenue of $16 $5 million.
U S. Neurostar advanced therapy system revenue was $3 6 million.
Versus $3 $9 million in the prior year as we shipped 43 systems in the quarter.
U S treatment session revenue was a record for the company at $13 1 million.
An increase of 10% over 2022 revenue of $11 9 million.
Revenue growth was primarily driven by strong performance within our local consumable customer segment.
In the third quarter of 2023 revenue per active site was approximately $11900.
Compared to approximately $11400 in the prior year quarter.
This uptick as a result of the increased success of our ongoing strategic initiatives and whether the encouraging when considering the growth in active sites over the last 12 months.
Gross margins were 65, 8% compared to 78, 4% in the prior year quarter as a result of an impairment charge for a last time purchase of a single board computer under prior management, which became obsolete when the narrow star product developed.
<unk> lifecycle changed.
Also incurred an additional $100000 in nonrecurring cost of goods sold expense related to our contract manufacturer transition.
Excluding these onetime charges of $1 $9 million, our pro forma gross margin would have been 77, 3%.
Operating expenses during the quarter were $26 million, an increase of $200000 compared to $24 million in the third quarter of 2022.
We continue to see strong expense management in all departments.
Our marketing expenses did grow as we gain further traction in our accounts with our co op marketing and paid media expense.
As you remember expanding these efforts was one of our initiatives for the third quarter being.
Being able to deliver record quarterly revenue, while holding operating expenses essentially flat year over year indicates that our strategy to drive leverages working as we continue down our path to achieving cash flow breakeven.
During the quarter, we incurred approximately $1 9 million of noncash stock based compensation expense.
Net loss for the third quarter was 9.4.
$4 million or <unk> 33 per share as compared to a net loss of $7 $6 million or 28 per share in the prior year quarter.
EBITDA was negative $7 $7 million as compared to negative $6 $2 million in the prior year quarter.
Adjusted EBITDA, which excludes the $1 9 million inventory impairment was negative $5 8 million.
As of September 32023, cash and cash equivalents were $35 $8 million.
We drew down the available $22 $5 million in capacity from our debt facility, which results in a pro forma cash balance of $58 million on October 3rd 2023.
While we remain confident in reaching cash flow breakeven without raising additional equity capital we felt it prudent to strengthen our balance sheet, given the challenging equity and debt capital market environment.
Now turning to guidance for the full year, we now expect revenue in the range of $70 million to $72 million.
<unk> tightened from our previously issued guidance of $69 million to $73 million.
For the fourth quarter, we expect revenue of $19 million to $21 million.
We now expect total operating expenses for the full year to be in the range of $82 million to $84 million improved from prior guidance of $82 million to $86 million as a result of ongoing expense management initiatives.
Our projected top line growth a healthy gross margin profile and careful operating expense management, all contribute to the stability of our path to profitability.
I would now like to turn the call back over to Keith.
Thank you Steve our accomplishments in the third quarter are a testament to the dedication and hard work of our team.
Looking forward to the rest of 2023, we're enthusiastic about the opportunities that lie before us.
The positive response to initiatives like the better me guarantee provider program Neurostar University and co op marketing further reinforces our confidence in the impact we're making on patients suffering with mental health issues.
With a solid foundation and a clear vision, we're well positioned for the continued growth and success.
Before opening the line for questions I'd like to thank our investors for trusting us with their capital we continue to work diligently to execute on our strategy in order to create long term value for our shareholders. I would also like to thank our dedicated employees. They continue to execute at a high <unk>.
Level with the goal to help as many people as possible, who battled depression with our life changing technology.
With that I'd like to open the line for questions.
At this time, we will conduct a question and answer session. As a reminder to ask a question you need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Our first question comes from Bill Slavonic of Concordia.
Your line is open.
Hey, Steve This is Sean on for Bill. This morning, Thanks for taking our question, maybe just some smart guy and good morning morning.
Let's start on the guidance and any updates around there or do you think of Q4.
Was the system revenue.
Push out the financing.
What's the component of that.
The guidance for Q4, essentially and more specifically do you believe that this financing pushout was that a one time thing or do you think that your customers don't have more difficulty, but the process taking longer going forward as well. Thanks.
Hey, John it's Steve.
Yes, we view the increased diligent on our lender's behalf at the end of Q3.
Yeah.
I think it's going to be sustained going forward, just with the credit markets, but what we've done is we've enlisted a new lender and that'll be more aggressive and he'll be at the summit that we're having in December we also pulled in our quarterly sales summit by a week.
To give our capital reps another week to close the deals, but again I think it's important to note that.
Our customers aren't having trouble getting financing it was just.
A higher level of diligence that lengthen the sales cycle.
And so as Keith mentioned in the script, we do expect the majority of those deals to close this quarter. So naturally we will be north of that 50 system target in Q4.
Again, historically Q4 is always our strongest capital quarter anyway.
So with that carryover it will remain so.
I appreciate that clarity and then just as a follow up to it.
Our planned clarity here that it's a better me guarantee is that exclusive right now lines does Greenberg space until you add to it the cohorts and just added another.
I'm sorry for that Q the co op marketing do you have to go through the better meet guaranteed that co op marketing or is that a separate program now too. Thanks.
So the.
The current marketing that's going around.
As is tight around the Greenberg centers right now to give us an opportunity to refine the messaging to refine the approach to refine our metrics.
On January 22nd we will open up the next cohort of accounts and it will be approximately 100 of those that will be added.
We are asking our accounts to sign an agreement that.
That they will follow the <unk> standards that we outlined and so far to date, we have 160 of those.
<unk> have signed up in the last two weeks to commit to following the <unk> standards that we outlined.
Okay. Thank you.
One moment for our next question.
Our next question comes from Margaret Kayser of William Blair Margaret Your line is open.
Hey, good morning, everyone. Thanks for taking the question.
I wanted to start on Green correct.
Good to hear that the Green box systems, I guess, we've redeployed a lot of them are redeployed.
Did this have a partial quarter impact as you think about treatment revenues, how should we think about those trends.
Move towards the fourth quarter.
Yes.
Think about 2020 core frankly does this give you more confidence say green brick as a category can maybe be.
Double digit or something on a annualized basis number okay.
Thanks Margaret.
We.
There were 52 systems that were put into storage due to the store closures of Green Brook we.
We have deployed all of them now and we as we said in the script 42 of them are actually treating patients many of which started in the in the third quarter. So they will continue to pick up steam throughout the fourth quarter and next year.
Our hold back on the whole green brick side of the business is really the success stores that.
Have not picked up as quickly as as.
The original Green book stores, So we're working with.
Bill on the Greenberg team to try and get those back online, but we feel that.
Over the next the fourth quarter and through 2020 forward they'll continue to gain ground.
Okay.
So similar commentary.
So thats why Im planning up.
On the utilization side as well, obviously that was encouraging commentary on 18% I think I heard.
For usage in the field.
How strong of a leading indicator I guess is this going into 2024 and can we assume or think of kind of that treatment growth potentially being made.
Mid teens or high teens or better.
Especially with all these investments.
Thank you.
I think we're banking on the growth of our per click what we used to refer to as per click.
Business continuing to grow in the upper teens.
And I think all of our programs and are taking effect and the BMG program actually pulls them altogether and.
Gibbs the account the reason for them implementing all of our programs within their practice so.
Our plan incorporates a.
Upper teens growth.
For all of our per click accounts.
Great. Thank you very much Curt.
Thank you very much one moment for our next question.
Our next question comes from the line of Adam <unk> of Piper Sandler Adam Your line is open.
Hi, Steve.
Good morning, and thank you for taking the questions here.
Wanted to I guess try them.
A follow up on some of the questions that were already asked the first one just on on Green Brook.
Are you able to kind of I heard positive utilization trends in the prepared remarks can you flesh that out for us a little bit.
Talk about how the Green Brook centers kind of fared versus the non Greenberg centers I guess, that's the first question.
Follow up or two thanks.
Hey, Adam it's Steve.
Yes, if we look at the.
The two entities separately and green brick.
I think has recovered.
Quicker than the success side of the business.
There were certainly some operating philosophy differences between the two companies when they were integrated.
And I think pulling the two companies together and I don't want to speak for Greenberg since they are publicly traded company.
<unk>.
It did require some work and some education as to why the green brick way was preferred and so.
From a high level perspective.
Green brick is operating at.
Pre transaction levels and I would say success is making improvements.
Is gradually getting to those pre transaction levels. So.
Yeah.
We're very bullish on the company and our go forward partnership.
We're 100% aligned from a man.
Management philosophy sales and marketing.
Again, they are really fully taking co op marketing and driving utilization so.
We're very confident in our go forward partnership.
Got it okay. That's that's helpful color, Steve Thank you for that.
And then maybe just to switch over to the capital side.
I know we've had some discussion there but.
200 to 250 systems per year, I think thats kind of the framework.
You've given us in the past.
Is that still a good framework for models in 2024.
I mean, we've been communicating between 45 and 50 systems a quarter.
So I would say $2 50 would be a stretch for.
For next year.
So I would say a better target of somewhere between.
200, and 225 at this point.
We want to make sure that we can train these accounts and getting them up and running.
So that they don't have boxes that are just sitting in the corner. So.
No.
The 200 to 220 is a good number for us.
Okay. Thanks, guys for the clarification there.
And then just one last one for me would be on gross margin trajectory as we think about.
Q4 and next year.
We had some one timers that weighed on gross margin Q3, but if you adjust for those.
Gross margin number is pretty good.
And better than what we modeled cell.
And perhaps that's a reflection of revenue mix this quarter, but.
Steve how do we think about gross margin going forward.
And any color you can provide there would be great. Thank you.
Thanks, Adam Yeah, we've been communicating.
<unk>.
With the transition to our new contract manufacturer and the increased percentage of total revenue that treatment sessions will represent that margins will continue to improve.
As we head into next year.
So we're definitely comfortable with that.
I would say mid to high 70 percentage.
So we are starting to see improvements.
With our contract manufacturer in terms of efficiency and overall cost.
And so.
Yes, I mean, ideally we crack that 80 number but that's probably late Q4 of next year and to some point in 2025.
Very helpful. Thank you.
Thank you very much our final question. Please standby.
Our final question comes from Daniel <unk> of JMP Securities. Daniel Your line is open.
If your line is muted please on mute.
Yeah.
Daniel.
Yes, Hi can you hear me, yes, Sir yes.
Yes, sorry about that so yes.
Yes. Thanks for the question just wanted to ask about <unk>.
Revenue per active site that metric was up nicely this quarter back into that high 11, thousands, which I think is the highest it's been since late 2020 could you just remind us how you think about that metric any broad expectations. As you exit 'twenty 2023, and entered 2024 and then do you have any near term or midterm.
<unk> and what's the core level here as we think about our model.
Thanks.
Hey, Danny its Steve Yes.
Yes, we view that as a very key metric.
And so getting close to that 12000.
Per site number is is nice but again.
If we look at the consumable segment, even with the 18% increase in utilization.
They are still not using the systems near capacity and so we're going to continue to push that number.
And really the the.
The only headwind with that is the increase in overall sites.
So if we sell systems.
Second or third systems into a site that definitely helps us more.
As opposed to just selling into a new customer. So there is a little bit of a balance which shouldnt be viewed negatively.
But we would expect to see.
That metric continue to increase.
Just keep.
Keep going like you said, it's the highest since 2000 twenty's. So that's a good sign and we do expect it to continue.
Great and then just one follow up on cash usage.
Could you give us any more color here on.
Your cash burn rate as you exit 2023 and look to 2024.
Have that additional cash infusion from your credit facility. We also noted some plans to expand marketing programs.
Should we take this to mean that cash cash you should usage could modestly increase from here.
A good way to think about it as well.
Yes, no thats a good question Danny and.
So we did draw down the capacity that we have with our debt facility.
But there arent plans to increase operating expenses at this time.
Been communicating since last year that our goal is to hold operating expenses consistent from 2022 through 2024, and that's really where we're targeting.
We'll say our cash burn was.
Higher this year than we were forecasting.
We did have the conversion of $6 million of Greenberg.
Senior secured note so that impacted cash.
We also had the transition with the contract manufacturer.
And contractually we prepaid for.
$3 million in inventory.
This year that will receive credits for as those units are delivered in 2024. So my expectation is our cash burn is going to be reduced.
I would say.
Significantly may be a strong word but nicely.
Next year.
So.
We'll exit.
Q4.
Relatively flat from a cash flow breakeven perspective.
But that's normal.
Higher burn quarter as Q1.
Q2, and Q3, it normally flattens out a bit into the single digits, and then Q4 with our highest revenue quarter depending.
Depending upon timing and collections of orders in that last month.
It is our lowest burn quarter of the year. So.
What what we end this year.
Hopefully as the high point.
Then we will continue to reduce it and get to that cash flow breakeven number by the end of next year.
That's very helpful. Thank you very much.
Thank you. This concludes the question and answer session I would now like to turn it back to Keith Sullivan for closing remarks.
Thank you operator, and thank you for your interest in narrow networks, we look forward to updating you on our next quarterly call.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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