Neuronetics, Inc. Price & Performance (STIM)

Joining me on today's call are Neuronetics' President and Chief Executive Officer Keith Sullivan 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 GreenBrook acquisition and other operational issues Neuronetics. Actual results can differ materially from those stated or implied by these forward statements due to risks and uncertainties associated with the company's business. For a discussion of risks and uncertainties associated with Neuronetics' 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 ks which will be filed later this month. 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 excluding certain non cash and other expenses Management uses non GAAP financial measures to 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 or accompanying our press release can be viewed on our website. With that, it's my pleasure to turn the call over to Neuronetics' President and Chief Executive Officer, Keith Sullivan, Thanks for the introduction, Mark.

Good morning, everyone, and thank you for joining us today. I'll begin by providing an overview of our recent performance and key accomplishments in 2024. Steve will review our financial results, and I'll conclude with some thoughts on 2025, before turning to Q and A. Let me start with our performance in the quarter. Which includes nearly one month of Greenbrook operations. Total revenue was 22,500,000.0 an increase of 11% over the fourth quarter of twenty twenty three. During the quarter NeuroStar system revenue was 3,800,000.0 with 46 systems shipped. U. S. Treatment session revenue was 12,900,000.0 and U. S. Clinic revenue which represents GreenBrook revenue, was $4,400,000 Reflecting a solid quarter for the company and continued positive momentum, 2024 was truly a transformative year for Neuronetics Neuronetics. Marked by a number of significant achievements which include: Number one, transforming our business to become a vertically integrated mental healthcare provider through the acquisition of GreenBrook TMS.

Second, [indiscernible] based on its tremendous success third, securing an FDA clearance for the NeuroStar system to treat adolescent patients making NeuroStar the first and only TMS option available to treat this underserved patient population. Fourth, refinancing our debt facility to provide more financial And fifth, although a 2025 event, we further strengthened our balance sheet to support our growth trajectory with our recent $18,900,000 capital raise. Steve and I will be discussing each of these achievements during our prepared remarks today. I'd like to begin by reviewing the success of the BMP program. This program is establishing a nationwide network of accounts. That follow patient care and responsiveness standards that were developed in collaboration with [indiscernible] TMS clinicians. Aimed at delivering timely and consistent care to those who need it most. The program was piloted within the select group of customer sites in 2023 and the first half of twenty twenty four. Based on the success of the pilot, we began the process of a nationwide rollout in July of twenty twenty four expanding participation to over three fifty sites. Demand to participate in the BMP program remains strong. There are currently more than 125 additional sites committed to the program that are actively working to achieve the five standards.

Prior to the next enrollment date of April 15, 2025. Through a combination of an increased number of training class through NeuroStar University, [indiscernible] forced adherence to our best practices this program has been a massive success. When practices begin to implement the program standards, their patient volume on average increases by 36%. Simply by providing a timely response to patients by a staff member that have the knowledge to educate patients about the benefits of the NeuroStar therapy. Once practices are fully in the BNP program, they are treating three times more patients per site per quarter than practices who are not in the program. On average, these sites went from treating three patients per quarter to over 10 patients per quarter. In addition, customer sites who participate in the BNP program are addressing patients in need materially faster. Roughly 2.2 times faster when comparing results of 2024 versus 2023. The outcomes demonstrated by BMP validate the benefits of our model for teaching practices how to better serve their patients with NeuroStar. Another milestone achieved during 2024 was our acquisition of GreenBrook PMS, As our largest customer for many years, we intimately understood their business and saw a unique opportunity to combine two leading TMS companies, creating an organization with the scale and expertise to revolutionize mental health care in The U. S. This combination makes Neuronetics a leading TMS supplier and provider in The United States, By combining our innovative technology platform proven training process and the BMP program with Greenbrook's established treatment center network, we are positioned to expand patient access to lifesaving mental health treatments while improving our growth and financial position.

Our integrated network now serves a broader patient population while maintaining exceptional care standards across markets. An exciting acquisition benefit is our ability to implement BMP lessons across the entire Green Brook network. We have a clear roadmap to enhance operational efficiency and patient care by implementing BMP's comprehensive standards and workflows at Greenbrook's existing sites. We view these implementations along with a number of other GreenBrook commercial initiatives as key growth drivers for 2025. Beyond growth opportunities, we have identified significant cost synergies across both organizations. By the end of twenty twenty four, we captured over 90% of the identified $22,000,000 in annualized cost synergies, surpassing initial targets. Combined with ongoing cost structure optimization these synergies will create a more efficient organization and give us confidence in becoming cash flow positive in the third quarter of twenty twenty five. Further strengthening our market position in March of twenty twenty four, NeuroStar received FDA clearance as the first and only TMS treatment approved as a first line therapy for depression in adolescents aged 15 to 21, Real world data showed seventy eight percent of adolescent patients achieved clinically meaningful improvement. This milestone expands our total addressable market for major depressive disorder.

We have quickly gained traction with wins in making it easier for adolescents to qualify for treatment. Treatment sessions volume ramped up throughout 2024, yielding ten percent growth in new patient starts versus 2023. Since clearance, we have seen an eighteen percent increase in customer sites treating adolescent patients. Which now includes more than half of our customer base, The increase in insurance coverage positions us for continued growth in this segment through 2025. 2024 was about building a stronger, more integrated Neuronetics Neuronetics. Through our successful Better Me Provider program, expanding our market opportunity with the adolescent clearance and the strategic GreenBrook acquisition, we have created multiple growth drivers that work in tandem while at the same time strengthening our balance sheet.

These factors position us for accelerated, sustainable and profitable expansion in 2025. I'll now turn the call over to Steve to review the financial results. Thank you, Keith. Unless otherwise noted, all performance comparisons are being made for the fourth quarter of twenty twenty four versus the fourth quarter of twenty twenty three. Total revenue was $22,500,000 an increase of 11% over prior year revenue of $20,300,000 U. S. NeuroStar Advanced Therapy System revenue was $3,800,000 and we shipped 46 systems in the quarter. U. S. Treatment session revenue was $12,900,000 a decrease of 14% year over year.

Primarily due to the removal of Greenbrook Treatment Session Revenues From This Revenue Line Subsequent To The Acquisitions Close. U. S. Clinic revenue at $4,400,000 representing Greenberg's revenues subsequent to the acquisition. Gross margin was 66.2%. Compared to 77.6% in the prior year quarter. Down eleven forty basis points from the prior year. The decrease in gross margin was primarily a result of the inclusion Operating expenses during the quarter were $25,800,000 an increase of $5,600,000 or 28% compared to $20,200,000 in the fourth quarter of twenty twenty three. The increase was mainly attributable to professional fees incurred on acquisition and the inclusion of Greenbrook's expenses subsequent During the quarter, we incurred a of non cash stock based compensation expense Net loss for the fourth quarter was $12,100,000 or $0.33 per share as compared to a net loss of $5,400,000 or $0.19 per share in the prior year quarter. EBITDA was negative $10,500,000 as compared to negative $3,000,000 in the prior year quarter. EBITDA in the fourth quarter includes approximately $10,600,000 in non recurring expenses. Most of these expenses were associated with close of the GreenBrook acquisition.

Excluding these expenses, EBITDA would have been positive $100,000 for the quarter. As of 12/31/2024, cash and cash equivalents were $18,500,000 This compares to cash and cash equivalents of $59,700,000 as of 12/31/2023. In July, we secured a debt facility of up to $90,000,000 with Perceptive Advisors. $50,000,000 of which we accessed in July to fully repay our SLR Capital Partners term loan, and $10,000,000 of which we [indiscernible] in December to further support our combined enterprises operations. After the end of the year, we successfully completed a public offering raising $8,900,000 in net proceeds. Strengthening our balance sheet and providing additional flexibility to execute on our growth strategy. This financing gives us incremental flexibility allowing us to potentially accelerate high return initiatives like our buy and build program for SPRAVATO, expand our better me provider program implementation and enhance our market analytics capabilities. This additional capital positions us to pursue these value creating programs while maintaining both a strong balance sheet and cash flow breakeven in the third quarter, of 2025. Now turning to guidance.

For the first quarter, we expect revenue of $28,000,000 to $30,000,000 We expect full year revenue in the range of $145,000,000 to $155,000,000 This compares to pro form a combined revenue of $129,800,000 in 2024. For the full year 2025, We expect gross margin to be approximately 55%. As a result of the inclusion of the Greenbrook Clinic business. We expect total operating expenses for the full year to be in the range of $90,000,000 to $98,000,000 Regarding Change Healthcare, the disruptions experienced throughout 2024 are largely behind us. We have successfully implemented alternative processing solutions and restored normal operations. While this created some headwinds in 2024, we do not anticipate any material impact on our revenue in 2025 positioning us well for efficient processing going forward. I would now like to turn the call back over to Keith. Thanks, Steve. Let me leave you with some key thoughts on our path forward. As we enter 2025, we have two clear strategic priorities that will drive our growth. First, we are focused on rapidly scaling our Better Me The program's proven success in driving patient throughput represents a significant opportunity for all our qualifying customers.

We plan to implement these comprehensive practice standards and accountability measures across both our existing customers [indiscernible] Aiming for similar performance improvements throughout our entire network.

We have two action items for 2025 for the BMP program. First, we have directed our practice development manager team towards increasing the number of BNP accounts.

We currently have three fifty sites in the program. Another 127 locations are working to enter it. On an average, each of these new sites needs to meet an additional two standards to qualify.

By year end, we expect to have over 500 sites in the program, nearly half of our customer base. We will focus training and marketing on these sites to help patients searching for non drug alternative for their depression find our providers. Second, our capital team will focus on selling additional systems to our BMP sites As those sites grow, and need more capacity, In addition to our BMP program, we are executing our GreenBrook Growth strategy with a focus on revenue capture.

We have identified several opportunities to drive growth. Over the next several years. I'll focus on three. First, we are optimizing our regional account manager team.

In mid November, we held a training session for this team at NeuroStar University where we rolled out new messaging to educate potential referring physician On the benefits GreenBrook can offer their patients, have failed multiple antidepressants.

We have created an automated patient transfer process combining educational tools QR codes, our intake team and TMS and SPRAVATO coordinators, This allows us to connect with patients while they are still at their physician's office. Rather than requiring a follow-up contact.

It is now a seamless and simple process. Second, we are nearly 40% through the Spervato buy and bill rollout of our clinics. From just seven locations in December, we now have over 35 clinics utilizing this billing method, which provides access to more payers and improves revenue threefold over the administer and observed [indiscernible] We will offer buy and bill SPRAVATO in most Greenbrook clinics, by the end of twenty twenty five.

Finally, we are standardizing operations at GreenBrook across all 95 clinics. We have placed patient coordinators who educate the patients on the benefits of TMS and SPRAVATO back in most clinics for in person consultations.

Knowing patients feel more comfortable when they can see and experience our centers. We will continue to train to provide a consistent patient [indiscernible] across all GreenBrook locations.

With our combined five fifty plus clinics, across 49 states by year end, which is comprised of 95 GreenBrook clinics practices we will have a network of clinics that will provide exceptional care with a wide geographic coverage.

The broad geographic coverage in-depth market analytics, and combined QR code deployment have already improved patient referral process reducing referral to treatment time by approximately 40% From a profitability perspective, we have a clear path to being cash flow positive in the third quarter of this year. Our enhanced scale proven practice optimization program and strengthened balance sheet gives us confidence that we will build sustainable long term value for our shareholders.

We look forward to updating you on the progress in the coming quarters as we work to transform our business and patient care. With that, I'd like to open the line for questions.

And our first question is going to come from the line of William Pulmick with Canaccord Genuity. Your line is open. Please go ahead.

Great. Thanks. Good morning and thanks for taking my questions. Just want to start out with just on Greenbrook. It's been about eighty days now, I think since the merger. You talk about implementing the BMP and standardizing Where are you and you say by year end, but you're already three months into this. Number one, how much longer before at least all the basics are in place and implemented And then number two, kind of what have you seen in terms of standardization in those in those sites and kind of the return on that in terms of patient flow and what have you. Good morning, Bill. This is Keith. We have conducted training on as we've mentioned in the script on the for the Rams. We've also had several trainings for the technicians that are in the clinics. And we have done Doctor. Grammer has done education of the providers. So we are we've see the changes as continuing on throughout the year. And as we identify opportunities to improve the efficiency these trainings. They've all been virtual with the exception of the Rams. So it's really an easy system for us to implement. [indiscernible] okay. And then for Steve, in terms of the guidance, first on revenue, the $145,000,000 to $155,000,000 just what kind of how are you looking at it?

How much of this needs to work to hit those numbers? Like what's the spread between the low end and the high end and kind of what works or what yields you need to see off a lot of these programs to get there? And is there upside if this is done earlier or better than expected? And then on the OpEx side, just if I use the $6,600,000 in one time charges in the fourth quarter on the OpEx that gets me to 2019 and change or maybe an $80,000,000 run rate versus That incremental amount. Thanks.

Hi, Bill. This is Steve. I think the best way to look at the guidance range of $145,000,000 to $15,565,000,000 dollars to 70,000,000 is earmarked from standalone neuroendetics with eighty to eighty five being earmarked from Greenberg TMS In terms of variables within those numbers, I would say we don't have to be heroic to hit those numbers. But the programs that we're putting in place do need to continue to work. So So we are forecasting growth on the Neuronetics side primarily driven by the continued success of our BNP program And on the Greenberg side, it's really the three growth drivers that we discussed. It's improving utilization in the NeuroStar shares within the Greenbrook clinics. It's the continued rollout of SPRAVATO to as many clinics as it makes sense. Obviously, some clinics don't have the population to support sprouto. And then the conversion from administer and observe to buy and bill And so so we do have plans for all four of those initiatives throughout 2025. And they all they are all considered as part of our guidance In terms of OpEx, the one time charges in Q4 were actually closer to $10,000,000 We did have $4,000,000 software capitalization Impairment charge, If I look at our OpEx normalized, it was close to $75,000,000 or so.

But then when I factor in Greenbrook's operating expenses, which are primarily their corporate expenses to support the individual clinics I do come up really with a starting point around $108,000,000 entering into 2025, and that is without the synergies that we have If you look at the $90,000,000 to $98,000,000 guidance, it's a midpoint of 90 or So that would imply somewhere between $13,000,000 and $15,000,000 of cost synergies on the operating expense side. Which is what we're forecasting. And as a reminder, greater than 90% of those cost savings have already been realized as we enter 2025. So there's no risk in that number at this Thanks for taking my questions.

Thanks, Bill. Thank you. And one moment as we move on to our next question. Our next question comes from the line of Max Krasinski William Blair. Your line is open. Please go ahead. Hey, good morning guys. It's Max on for Margaret.

Was just hoping you guys could touch on the margin profile of the Green Book a little bit? Core NeuroStar gross margin floated around 75% in the past and now with the guide down to 55% in 2025, guys just speak to any leverage you can pull whether it be in 2025 or beyond to maybe help improve the margin profile a bit? Thanks. Good question, Max. Yes. So there's definitely opportunities for improvement And so when we look at margins, again, consolidated NeuroNetics margins were about 77% Our operating and manufacturing teams have been able to take out costs out of the NeuroStar for the past [indiscernible] and the margins on NeuroStar are actually approaching about 60%. On the treatment session side, again, it's really just a computer code, but there are some ancillary items that accompany the treatment sessions. And so their net margin is about 97.5%. To your point, clinic margins during 2024 for Green Brook, we're in the 2728% range. The implied guidance for 2025 is actually to have those margins improve to the mid-30s So 35% And the primary driver of that [indiscernible] the elimination of 35 clinics during 2020 and they were the most underperforming clinics which were dragging down the margins.

And so if I look at my 77% and their 35% margins, That's how we get to the 55% consolidated. And we will continue to work on both sides to improve our NeuroStar margins as well as the clinic margins as we work 25 That's helpful. Thanks. And then just on Greenbrook, would it be fair to say that the 95 accounts you guys are in now are your most productive accounts and if not, what percentage of these accounts would you say are the most productive? And do you have any plans to bring this number down further? And then just a quick follow-up to that is how many of those accounts is Sprvano currently in? That's it for me. Thanks for taking the questions.

Currently, we are at 95 clinics. And our plan is to stay there. They are the most profitable clinics that, Green Brook had. And we have looked at each one of those to see if we can make an impact on them and and grow them this year. So we're we're very comfortable at 95 clinics. And we don't have a plan to expand. We're going to focus on the ones that we currently have And in for SPRAVATO, we have 63 of our clinics that are offering Spermato. And today, we have 35 of those that are capable of offering buy and fill.

And our next question comes from the line of Adam Meeder with Piper Sandler. Your line is open. Please go ahead. [indiscernible] Hi, good morning, Keith and Steve. Thanks for taking the questions and congrats on the deal. Maybe you want to start on the guidance. Just want to better understand quarterly sequencing of revenue on the top line.

I think the Q1 guide is $20,000,000 to $30,000,000 That's a pretty healthy ramp throughout the year that's embedded there.

And certainly realized part of that seasonality. But just wanted to double click on the Q1 framework and how you see the rest of your playing out and just the level of confidence in achieving that full year outlook? And then I had a follow-up.

Thanks. Thanks, Adam. Green Brook experiences the same type of seasonality that Neuronetics has again, primarily driven by the and of the insurance plans and also the reset of patient deductibles. And so if we go back the six years that I've been here, our Q1 revenue as a percentage of the total year is somewhere between 1920%. And then it ramps. It's a nice rebound in Q2. When a lot of the deductible issues are already behind patients. So Q2 and Q3 revenues are about 25% each per quarter. And then again, our strongest quarter has always been Q4 and that will be approximately 30% of annual revenue. Again, as a reminder, we've been working Collaborative Green Brook at all levels since we signed the definitive agreement in August. So we've got six months of effort behind us and we're already seeing dividends across the board. And so we have a high level of confidence exiting Q1 that we're going to have a lot of the process improvements improved efficiencies, And just some changes in learnings between the two companies fully in place as we enter Q2. And so again, we're very comfortable with the Q1 guide. And the remainder of 2025.

That's good color, Steve. Thank you for all that. And for the follow-up, I wanted to circle back to Spravato and [indiscernible] Opportunity for the Greenbrook centers, So I guess the first question is of the $80,000,000 to $85,000,000 for your Greenbrook revenue assumption for 2025. Hopefully, I have that right. What is attributed to SPRAVATO and Medical Management where can that go in the future? And would just love to hear a little bit more about the buy and build model. You for taking the questions.

Yes, Adam. So there's very little med management built into that guidance figure Again, Green Brook was founded on TMS and essentially their service was to offer patients TMS when the providing psychiatrist didn't offer it, And so they would refer the patient to a Greenbulk facility. They would get [indiscernible] for the seven weeks and then the patient would go back to their psychiatrist. And that really hasn't changed. Again, the two growth drivers are increased chair utilization and also SPRAVATO. And so I would say 75% of the growth is about SPRAVATO. So both improving the 63 clinics that currently offer it to to maybe 80 or 85 clinics. And then moving into the buy and bill type of [indiscernible] And again, Keith mentioned it's at 35 If we could get that to 50 or so during the year, And as a reminder, it's not like we're just flipping a switch. Moving to buy and build. There are a lot of behind the scenes activities working with the payers and getting the contracts and negotiating the price, And so it does take a little time even though we've already identified our ability to convert to buy and build.

It does take months to get everything in place at the start submitting the claims and then collecting But again, the lion's share of the growth for Green Brook is targeted on Sprabado.

Helpful.

Thank you.

Our final question is going to come from the line of Danny Stodder with Citizens JMP, your line is open. Please go ahead.

Yes, great. Thanks for the questions. Just one follow-up on some of the Stravato buy and bill transition questions that we've heard already.

Appreciate the color there.

And it sounds like this is already included in the OpEx guidance, but could you comment on the capital outlay this requires any capacity constraints that this could have as you contemplate your plans for cash flow in 3Q twenty twenty five?

Thanks.

Hey, Danny, it's Steve. Yes, from a CapEx perspective, supporting this provider rollout, it's really not that significant. So from an infrastructure perspective, we do need rooms, which the majority of our clinics already have. And then as a video or camera system embeds, that the patients relax on after the treatment and then are administered or observed by the attending psychiatrist So that's $10,000 a clinic. So not crazy at all. It's really on the inventory side. That we're working with our distribution partners on so having to purchase a dose of SPRAVATO is approximately $800 You need to keep a week's worth of inventory on hand. And as we roll that out, that inventory commitment could easily approach $5,000,000 We are working on getting lines of credit [indiscernible] the capital raise of nearly $19,000,000 we do have a little bit of leverage if we had to use our own cash to get that flow going. But it's our intention to to leverage our distribution partners and right now, Janssen does [indiscernible] distributors offer one hundred and twenty day terms. And so if we submit our claims and get them paid normal turnaround time is about sixty days. So again, once we get that cadence and work through some of the the usual early bugs, in the claim system.

We'll think that hundred and twenty day term will be sufficient to make sure the cash flow doesn't strain my balance sheet. And then just one follow-up on productivity. You've talked about driving and improving productivity across sites and existing customers, but could you just remind us what that looks like today think in the past you've given us a figure of four treatments per day per system.

That still the case? And where you expect that to go in 2025 and where is the more steady state range or metric that you're comfortable with? Thank you.

Yes. I mean, the comparison that we're using now for Greenbrook is with our Better Me program partners. And we've seen for those sites that are in that program and have really embraced the five requirements They're averaging between six and eight patients per day per NeuroStar. You are correct that Green Brook is currently averaging about four patients per day. And as we work through efficiencies in 2025 and 2026, We do plan on seeing or we do expect to see Green Brook increasing from four to five to six to get to the levels of our BNP partners if I look at their installed systems, active systems, If we increase that four patients per day to five patients per day, that's an approximate $10,000,000 in annualized revenue. And so I'm not implying that we're going to be able to get them to five by May. But as we work towards training and education, we're confident that we could exit 2025 at or close to that level.

Appreciate it. I'll try to squeeze one more in here.

Just on BNP, the 125 additional sites For the April 2025 date, is it your intention to take all of those? They meet the criteria? Or is there a max number of adds keeping in mind Thanks.

Our goal is if they all make it that we would add them all into the program. They have to meet all five standards. And so as they as we get closer to April 15, if we could get 30 to 50 of those sites in the program, it would be a it would be a home run for us. Great.

Appreciate the questions. Thanks, Katy. Thank you, Danny.

Thank you. And I would now like to hand the conference back over to Keith Sullivan for his closing remarks. Thank you all for your interest in Neuronetics.

We'll look forward to updating you on our next quarterly call. Have a great day.

This concludes today's conference call. Thank you for participating and you may now disconnect.