Neuronetics, Inc.

Good day and thank you for standing by. Welcome to the Neuronetics Third Quarter 2021 Financial and Operating Results Conference Call. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star then 1 on your telephone. Please be advised today's conference may be recorded. If you require operator assistance during the call, please press star then 0. I'd now like to hand the conference over to Mike Valley from Westwick.

Good morning, and thank you for joining us for Neuronetics third quarter 2021 conference call. Joining me on today's call are Neuronetics 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 could 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 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-K and the 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 non-cash 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 forecasts 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 tables accompanying our press release, which 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.

Good morning, and thank you for joining us. I'll begin by providing an overview of the third quarter performance, followed by an operational update. Steve will then review our financial results, and I'll conclude with our thoughts for the balance of 2021 before turning to Q&A. Total revenue was $13.8 million, up 11 percent over the third quarter of 2020. While we are continuing to see progress in many of the initiatives we have put into place and believe underlying trends in the business are moving in the right direction, the conversion of our strategic initiatives into top-line growth has been slowed, primarily due to COVID. On the capital equipment side, Eurostar Advanced Therapy System revenue increased by 3% over the third quarter of 2020. Our assumption at the time we launched our commercial organization at the beginning of the year was that the team would begin to be productive in the second quarter and continue to progress through the balance of the year. Although we have shown pipeline growth, the expansion into new accounts was slower than expected as a result of a longer than anticipated sales cycle. We experienced slower than anticipated expansion by national accounts in the quarter as our two largest providers were focused on fundraising this year to support expansion efforts. As a reminder, we define national accounts as large TMS providers like Greenbrook and Success TMS. Our teams continue to work closely with these national accounts, and I believe we are in a good position to support their growth plans in 2022 and beyond. Our U.S. treatment session revenue increased by 13 percent over the third quarter of 2020. Despite the growth, we believe performance was impacted by COVID headwinds, delaying the new patient starts. Now, turning to operational highlights. In recent months, we have announced multiple exclusive commercial partnerships with leaders in the TMS space in an effort to accelerate the adoption of Neurostar Advanced Therapy for Mental Health. In September, we announced a commercial agreement with Zion Healing, a leading franchisor of behavioral services. In this agreement, Neuronetics will be the exclusive supplier of TMS equipment to Zion Healing and its franchisees. In October, we announced a five-year contract extension with Success TMS. one of the nation's leading TMS providers, and one of our longest standing accounts. As part of this agreement, Success TMS will exclusively utilize our NeuroStar advanced therapy for mental health systems to treat patients suffering from treatment-resistant depression. As part of the extension, we made a $10 million secured term loan to support their expansion plans over the coming year. Also in October, we signed a commercial agreement with River Region Psychiatry, a leading TMS provider in the southeastern United States. We are excited to have been chosen as their exclusive supplier for TMS systems. We have our team prepared to assist River Region in executing their expansion plans in 2022 and beyond. Turning to an update on our marketing initiatives. In September, we hosted our second Neurostar Summit event in Chicago. The event was well attended, with over seven physicians and practice managers from over 50 accounts. This was an opportunity to provide an in-depth review of the partnership we offer to our customers, including the various practice support programs we offer. We closed a number of capital sales at the event, and several subsequently. We have another event scheduled for November and will continue to put these events on the calendar and expect them to expand growth opportunities. In addition to the programs we launched earlier in the year, our Five Stars and Precision Pulse programs, we recently piloted a new program designed to help our customers identify patients within their practices who are candidates for Neurostar therapy. Utilizing a proprietary screening tool, we were able to identify over 500 patients in several practices who are interested in a non-drug treatment for their depression and meet the criteria to be a Neurostar patient. Over time, as these patients work their way through the preauthorization process, we believe many will become Neurostar patients. The success of our new tool points to a significant opportunity within our existing customer base to help practices deliver better outcomes to more patients without any additional investment on their part. Lastly, I want to provide an update on our clinical and regulatory progress. Recently, a peer reviewed paper was published that showed patients had a significantly lower risk of seizure with NeuroStar Advanced Therapy for Mental Health than with TMS treatments that claim a deeper stimulation with an H-coil technology. The paper, titled Seizure Risk with Repetitive TMS, survey results from over a half a million treatment sessions, was published in Brain Stimulation, which further supports the important work we are doing to solve patients' mental health struggles with what we believe is the safest and most effective system on the market. We are encouraged with our recent dialogue with the FDA regarding our potential label expansion and clearance for an additional indication. While the exact timing of the FDA's decision is out of our control, we continue to have productive discussions with the agency and believe we are moving in the right direction. In summary, While our revenue performance this quarter was below our expectations, we believe that we are continuing to make progress on our strategic initiatives to drive future growth. We continue to optimize and expand our efforts to drive awareness, work with our existing customers to identify and educate patients, and seek out ways to drive the broader adoption of NeuroStar Advanced Therapy for mental health. I'd now like to turn the call over to Steve to provide financial overview.

Thank you, Keith. Unless otherwise noted, all results discussed will be related to the third quarter of 2021 compared to the third quarter of 2020. Total revenue was $13.8 million, an increase of 11% over prior year revenue of $12.4 million. Total U.S. revenue increased by 10%, and international revenue increased by 24%. The U.S. revenue growth was driven by an increase in U.S. treatment session revenue. U.S. Neurostar advanced therapy system revenue was $2.6 million, up 3% compared to the prior year. In the quarter, the company sold 40 systems, up from 39 in the prior year. Several of these systems were a part of a new operating lease program. U.S. treatment session revenue was $10.3 million, an increase of 13% over prior year revenue of $9.1 million. Revenue per active site was approximately $11,100 compared to approximately $10,200 in the prior year quarter. Gross margin was 77.2% compared to 78.7% in the prior year. The decrease was primarily a result of increased supply chain costs. Operating expenses were $17.8 million, an increase of $5.6 million compared to the prior year. The increase was primarily driven by costs associated with the rebuild of our commercial organization and the implementation of marketing initiatives. During the quarter, we incurred approximately $1.9 million of non-cash, stock-based compensation expenses. Net loss was $8.2 million, or 31 cents per share, as compared to a net loss of $3.4 million, or 18 cents per share, in 2020. EBITDA was negative $6.9 million, as compared to negative $2.2 million in 2020. Moving to the balance sheet, as of September 30th, 2021, cash and cash equivalents were $99.4 million, which includes the investment in success TMS. Now turning to guidance. For the full year 2021, we now expect revenue in the range of $53.3 million to $54.3 million. down from our previous guidance of $59 million to $63 million, implying a fourth quarter range of $13 million to $14 million. Assumed in our guidance is a continued COVID overhang, as well as seasonality-related headwinds impacting new patient starts during the holidays. The company now projects total operating expenses for the full year 2021 to be in the range of $69 million to $71 million. I would now like to turn the call back over to Keith.

Thank you, Steve. Before opening the line for questions, I wanted to outline our key areas of focus during the fourth quarter as we work to set ourselves up for long-term growth. As noted earlier, we have recently expanded our relationship with three leading national accounts. We have partnered with Success TMS for a number of years and are looking forward to continuing that partnership to help support their growth plans, which includes significant site expansion across the U.S. The other partnerships we noted, Zion and River Region Psychiatry, are in early stages, and we will work very closely with both organizations as they look to expand their respective footprints and treat more patients. Beyond these agreements, we continue to have a close relationship with our largest customer and the country's largest national account, Greenbrook TMS. We have a significant footprint within their 150 locations, and we will continue to support their expansion plans with new systems and work hand-in-hand with their individual sites to facilitate the increased utilization of Neurostar on a greater number of patients. In addition to an emphasis on national accounts, we remain highly focused on the ongoing maturation of the sales force. The pipeline of new prospects continues to grow, and as we work through recent COVID spikes and the holiday season, we expect an acceleration of conversions as we move into 2022. In support of this, we will be hosting a Neurostar Summit later this month and the demand has already exceeded our capacity. In addition to focusing on new system sales, we will continue to work alongside existing customers to drive increased utilization. To accelerate this, we plan to grow the NPC sales team in the fourth quarter to focus on implementing practice support programs and help expand the utilization of Neurostar. As many of you are aware, October was National Depression Awareness Month. As part of our efforts to drive awareness among patients and psychiatrists, we announced a partnership with Dr. Melissa Shepherd. Dr. Shepherd is a board-certified psychiatrist and psychotherapist who is an active mental health advocate. In addition to being a key opinion leader in the industry, She is a well-known social media influencer with over one million followers. In this partnership, Dr. Shepherd will be highlighting NeuroStar Advanced Therapy from her own social channels, which will be the cornerstone in awareness and education initiatives going forward. As it relates to our regulatory strategy, we continue to be encouraged by the recent interaction with the FDA and are leveraging our real-world data from TRACKSTAR to support label expansion and new indications. In summary, we are very optimistic about the future here at Neuronetics. The long-term opportunity is significant as the number of patients needing non-drug alternatives to treat their depression continues to rise. While the inflection point in top-line growth has come later than expected, we have no doubt that we have the right strategy in place to deliver that growth in future quarters. With that, I'd like to open the line for questions.

If you'd like to ask a question at this time, please press the star, then the number one key on your touchtone telephone. To withdraw your question, press the pound key. Again, that is star, then one to ask a question. Our first question comes from Margaret Ketcher with William Blair.

Hey, good morning, everyone. Thanks for taking the questions. I wanted to start maybe first from an underlying market perspective. And you referenced earlier on in the comments that some of the larger national accounts focused on fundraising. I think some of those may be behind us, so maybe clarify that. But how quickly can that translate to new clinic openings, new patient starts? Is it a several-quarter endeavor or longer than that?

Hi, Margaret. We have a, as I said in the comments, we have a strong relationship with our major accounts, AccessDMS and Greenbrook. For specific areas of our team has met with them to discuss how we can help them. And I think by using them to help opportunities out in the field, I think we're positioned to help them open those sites quickly.

Okay. And so, you know, if I push you a little bit more on that, if we think about kind of the operational requirements associated with that, you know, if you want to open a clinic you know, start opening a clinic today? Is that kind of a three-month process, six-month process, and then you've obviously got to build the referral network. So, you know, is that another quarter or two behind, or can you do both of those in tandem?

We believe that it's about three months to get a clinic up and running. But Greenbrook has their earnings call later today. I think Bill can probably lay out a more precise plan. But in our experience, when we open a new physician to a NeuroStar, into a NeuroStar clinic, it takes about three months to get them up and running.

Okay, perfect. And then if we think about the guidance for the fourth quarter, you know, I wanted to maybe walk through some of the implied key metrics. I know there's seasonality associated with it, which adds an extra element. But, Steve, can you talk a little bit about what gets you to that higher or lower end of the range and what you're assuming for rep productivity and utilization, ultimately really thinking about, you know, what does key four guidance mean as a leading indicator for 22, at least in the first quarter? Thanks, guys.

Thank you, Margaret.

As we indicated in the Presby lease, we did roll out a new financing program. And so given that we're more focused on treatment sessions, we're comfortable with the operating lease program that we laid out. because these systems will be generating those treatment sessions going forward, but it does have a slight impact on our overall revenues, and so that mix is factored in Q4. From a treatment session perspective, you know, we did see a decent recovery in October. You know, folks are back to school, back to work. Vacations are over. But whereas we didn't see the... seasonality played out in 2020 because folks had nowhere to go and were pretty much locked down. So they continued on their therapy. That's sort of off the table. And so the country is pretty much open. And so we are anticipating, you know, similar seasonality that we've seen in 2019 and 2018. And so we are balancing that, you know, the COVID overhang, with the seasonality, but historically Q4 is a very strong quarter from a capital equipment perspective. And so, you know, again, I think that's how we derive that $13 to $14 million range.

Okay, and just thoughts on, you know, what that could mean for Q1. Does that mean that we kind of get to a more traditional seasonality range as we get it for 22, excuse me? Is that a more traditional seasonality range off of those Q4 numbers, or could it be better, you know, given some of the programs you're running?

Yeah, we're still in the final stages of really nailing down 2022. And again, you know, there's so much dependencies on COVID and the vaccine, you know, the new Pfizer pill could be a game changer. And so we'd rather not comment on 22 at this point.

Okay, fair enough. Thanks, guys.

Thank you.

Our next question comes from Matthew O'Brien with Piper Sandler.

Good morning. Thanks for taking the question. So, you know, just a little bit finer point on the national account impact. How meaningful could that be as we, you know, transition into 22 and 23? I mean, what type of revenue contribution can we expect from these three newer partnerships that you have outside of Green Book?

Yeah, thanks, Matt. This is Steve. You know, part of our strategy is to get long-term contracts with these large national providers, and so we're very excited with the recent announcements. You know, I would say it will vary by partner, but, you know, looking at success in Greenberg the largest and again Bill will be speaking tonight on his call you know I think their expansion plans are very robust and so you know the group make up about 25 percent of our overall revenue right now and we expect that to continue to grow into 22 and beyond and so you know being exclusive providers to these partners is We think it's a big deal for both of us.

So just, again, a little bit finer point on top of the finer point, Steve. So, you know, if that's, you know, 25% is, you know, call it 10 or 15 million of sales, you know, for three new providers, maybe somewhere in the $2 million to $4 million range per provider eventually.

Again, Matt, I think it does vary. They have different models. They're in different geographies. It's tough to say two to four by partner because I think some will be a lot higher than that and some may take a little bit longer to rent. It wouldn't surprise me if we did 75 systems next year between the partners. Okay.

Okay. That's really helpful. Two more quick ones for me, hopefully. The site growth commentary I thought was interesting. I think you said just over 11,000 here in Q3 versus maybe 10,000 in Q3 of last year. That includes a period where, you know, you've got the COVID headwind and green broke out raising capital. So I'm just curious as far as maybe some of the less affected areas, what kind of growth were you seeing in the productivity per site? Does that help give us visibility into the business as we come out of some of these headwinds?

Yeah, that's a good question too, Matt. And we have seen high standard deviations between different customers and different geographies. you know, we do have the ability to track specific sites and, you know, some of those growth rates are very impressive, north of 25%, whereas others that were more impacted by COVID are flat to slightly down. And so, you know, on average, the increase was nice, but there really are subsets of our customer base that are doing much better than others. Again, with some of the vaccine progress that we've made and hopefully

moving past the pandemic we do envision getting the the ones that were most impacted back to the growth levels that we're seeing with the other customers okay and then last one probably for you as well steve um you know as we think about 22 you know you've got some headwinds some some potential tailwinds here on the on the provider side do you think sales for next year can get back up to 2019 levels

I'm going to take that one. I believe that on our treatment session revenue, we are at 2019 levels. So we're really focusing on expansion with the capital team and getting more systems placed out into the field. So I do believe that on both capital and treatment sessions, we should be able to get there.

Great. Thank you. Thanks, Matt. Thanks, Matt.

Our next question comes from Bill Plavonik with Canaccord.

Great. Thanks. Good morning. Thanks for taking my question. Just go back to the guidance. What are you contemplating in Q4 relative to capital and disposables or, you know, treatment utilization? How do we think about this? I mean, you've been tracking, if I look at capital, you did 2.4 in Q2, 2.3 in Q3, you know, on the capital sales. And, you know, I mean, by your commentary, are you saying just, you know, Q4 will be a little up and then it's really 2022 when we see that rebound?

Yeah, Bill, in summary, that's exactly it. You know, Q4 has always been a high capital sale quarter, like most med device companies. So we are anticipating an increase in capital revenue. But it's really, you know, the COVID overhang and the seasonality that's tough to predict for the treatment sessions. And so that's kind of the mix. You know, we still think it's going to be in that 80-20 treatment session revenue versus capital revenue. Okay.

And then just, you know, as you look at the U.S. capital sales force, I was just wondering what has been the turnover of that capital sales force since the meeting back in January, February?

Okay. Bill, this is Keith. Good morning. What I'll tell you, and I'm going to give you estimates because I'm not really 100% sure. Our turnover in our field has not been out of the ordinary. I think on the capital side, out of 22 reps that were at our national sales meeting, we may have turned over four. And what I would say was out of those four, one was a loss. On the NPC side, I think any of the turnover that we had was mutually agreed upon. So I think when we are shifting this company from a system company to a treatment session, We really changed the job of our NPCs, and I think the majority of them have responded extraordinarily well. But we have now asked them to really balance their time from really being strictly trainers on how to get great clinical results with the NeuroStar system to doing that, but also helping the accounts generate patient awareness. You're familiar with our five stars to success, and in that program, a lot of it is associated with patient awareness and patient generation. Quite honestly, some of our NPCs were very comfortable doing clinical work and did it really well, but were not interested in doing the, I'll call it the sales or marketing side of the job, which is completely understandable. Again, I think it's a long answer to your short question, but we have not had an extraordinary amount of turnover in the sales organization.

Thank you for that, Collar. I know it's been asked already, but trying to get a handle on, you're signing all these partnerships with these customers, and You know, as I think about the economics, I think, you know, one of the things that surprised us earlier in the year is that a component of your treatment session revenue was fixed, regardless of the number of treatment sessions. And as you move forward with these agreements, are these similar types of agreements that they're more fixed in nature, or are, you know, do they go up as treatments increase? And that's it for me today. Thank you.

So the two new contracts that we signed with Zion and River Psychiatry are both per click models and we have, we are focusing our energy on helping them grow quickly because as they grow, we grow. So they are, we are not offering the fixed price model any longer. We haven't done that all year.

Great. Thank you.

Our next question comes from Marie Tabult with BTIG.

Hi. Good morning, Keith and Steve. This is Sam Miber on for Marie. Thanks for taking the questions. Maybe just one for me here on the new opportunity here that helped identify some 500 patients within existing customer practices who are candidates here. That sounds like a pretty significant opportunity, right? These customers are or these patients, I should say, are right in these customers' hands. You know, I guess what's it going to take for these customers to get these patients on the chair? How much resistance is there there? Thanks.

Sam, that's a great question. You know, I think what really surprised us in the third quarter was the length of time it takes to get a patient from them raising their hand saying they're interested to going through the benefits investigation and then the prior authorization. So as we said in the comments, we believe that those patients are going to work their way through the system over the next few months. But what I will tell you, my reason for optimism is that we Only we're able to deploy this in a handful of our accounts, and handful is under 100. So, you know, this is a good tool for us, and I think it's demonstrated to many of our providers that their patients that they think are under med management and doing fine are really not. And so we've been, you know, surprised and so have they with the effectiveness of this tool.

Great. That's all from me. Thank you.

That concludes our question and answer session for today. I'd now like to turn the call back to Keith Sullivan for closing remarks.

Keith Sullivan Thank you, operator, and thank you all for joining us on the call today. We look forward to updating you on the progress next quarter I hope you have a good holiday season. Thank you.

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

Thank you. Thank you. Thank you.

Thank you. Bye. Thank you. you

Good day and thank you for standing by. Welcome to the Neuronetics third quarter 2021 financial and operating results conference call. At this time, all participant lines are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star then one on your telephone. Please be advised today's conference may be recorded. If you require operator assistance during the call, please press star then zero. I'd now like to hand the conference over to Mike Valley from Westwick.

Good morning, and thank you for joining us for Neuronetics' third quarter 2021 conference call. Joining me on today's call are Neuronetics 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 could 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 Neuronetic's 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 and the 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 any certain non-cash 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 forecasts 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 tables accompanying our press release, which 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.

Good morning, and thank you for joining us. I'll begin by providing an overview of the third quarter performance, followed by an operational update. Steve will then review our financial results, and I'll conclude with our thoughts for the balance of 2021 before turning to Q&A. Total revenue was $13.8 million. up 11% over the third quarter of 2020. While we are continuing to see progress in many of the initiatives we have put into place and believe underlying trends in the business are moving in the right direction, the conversion of our strategic initiatives into top-line growth has been slowed, primarily due to COVID. On the capital equipment side, EUROS Neurostar advanced therapy system revenue increased by 3% over the third quarter of 2020. Our assumption at the time we launched our commercial organization at the beginning of the year was that the team would begin to be productive in the second quarter and continue to progress through the balance of the year. Although we have shown pipeline growth, the expansion into new accounts was slower than expected as a result of a longer-than-anticipated sales cycle. We experienced slower-than-anticipated expansion by national accounts in the quarter, as our two largest providers were focused on fundraising this year to support expansion efforts. As a reminder, we define national accounts as large TMS providers like Greenbrook and Success TMS. Our teams continue to work closely with these national accounts. And I believe we are in a good position to support their growth plans in 2022 and beyond. Our U.S. treatment session revenue increased by 13% over the third quarter of 2020. Despite the growth, we believe performance was impacted by COVID headwinds, delaying the new patient starts. Now turning to operational highlights. In recent months, we have announced multiple exclusive commercial partnerships with leaders in the TMS space in an effort to accelerate the adoption of NeuroStar Advanced Therapy for mental health. In September, we announced a commercial agreement with Zion Healing, a leading franchisor of behavioral services. In this agreement, NeuroNetics will be the exclusive supplier of TMS equipment to Zion Healing and its franchisees. In October, we announced a five-year contract extension with Success TMS, one of the nation's leading TMS providers and one of our longest standing accounts. As part of this agreement, Success TMS will exclusively utilize our NeuroStar advanced therapy for mental health systems to treat patients suffering from treatment-resistant depression. As part of the extension, we made a $10 million secured term loan to support their expansion plans over the coming year. Also in October, we signed a commercial agreement with River Region Psychiatry, a leading TMS provider in the southeastern United States. We are excited to have been chosen as their exclusive supplier for TMS systems. We have our team prepared to assist River Region in executing their expansion plans in 2022 and beyond. Turning to an update on our marketing initiatives. In September, we hosted our second Neurostar Summit event in Chicago. The event was well attended, with over seven physicians and practice managers from over 50 accounts. This was an opportunity to provide an in-depth review of the partnership we offer to our customers, including the various practice support programs we offer. We closed a number of capital sales at the event and several subsequently. We have another event scheduled for November, and we'll continue to put these events on the calendar and expect them to expand growth opportunities. In addition to the programs we launched earlier in the year, our Five Stars and Precision Pulse programs, we recently piloted a new program designed to help our customers identify patients within their practices who are candidates for NeuroStar therapy. Utilizing a proprietary screening tool, we were able to identify over 500 patients in several practices who are interested in a non-drug treatment for their depression and meet the criteria to be a NeuroStar patient. Over time, as these patients work their way through the pre-authorization process, we believe many will become NeuroStar patients. The success of our new tool points to a significant opportunity within our existing customer base to help practices deliver better outcomes to more patients without any additional investment on their part. Lastly, I want to provide an update on our clinical and regulatory progress. Recently, a peer-reviewed paper was published that showed patients had a significantly lower risk of seizure with NeuroStar Advanced Therapy for Mental Health than with TMS treatments that claim a deeper stimulation with an H-Coil technology. titled Seizure Risk with Repetitive TMS, survey results from over a half a million treatment sessions, was published in Brain Stimulation, which further supports the important work we are doing to solve patients' mental health struggles with what we believe is the safest and most effective system on the market. We are encouraged with our recent dialogue with the FDA regarding our potential label expansion and clearance for an additional indication. While the exact timing of the FDA's decision is out of our control, we continue to have productive discussions with the agency and believe we are moving in the right direction. In summary, while our revenue performance this quarter was below our expectations, we believe that we are continuing to make progress on our strategic initiatives to drive future growth. We continue to optimize and expand our efforts to drive awareness, work with our existing customers to identify and educate patients, and seek out ways to drive the broader adoption of NeuroStar Advanced Therapy for mental health. I'd now like to turn the call over to Steve to provide financial overview.

Thank you, Keith. Unless otherwise noted, All results discussed will be related to the third quarter of 2021 compared to the third quarter of 2020. Total revenue was $13.8 million, an increase of 11% over prior year revenue of $12.4 million. Total U.S. revenue increased by 10%, and international revenue increased by 24%. The U.S. revenue growth was driven by an increase in U.S. treatment session revenue. U.S. Neurostar advanced therapy system revenue was $2.6 million, up 3% compared to the prior year. In the quarter, the company sold 40 systems, up from 39 in the prior year. Several of these systems were a part of a new operating lease program. U.S. treatment session revenue was $10.3 million, an increase of 13% over prior year revenue of $9.1 million. Revenue per active site was approximately $11,100 compared to approximately $10,200 in the prior year quarter. Gross margin was 77.2 percent compared to 78.7 percent in the prior year. The decrease was primarily a result of increased supply chain costs. Operating expenses were $17.8 million. an increase of $5.6 million compared to the prior year. The increase was primarily driven by costs associated with the rebuild of our commercial organization and the implementation of marketing initiatives. During the quarter, we incurred approximately $1.9 million of non-cash, stock-based compensation expenses. Net loss was $8.2 million, or 31 cents per share, as compared to a net loss of $3.4 million, or 18 cents per share, in 2020. EBITDA was negative $6.9 million, as compared to negative $2.2 million in 2020. Moving to the balance sheet, as of September 30th, 2021, cash and cash equivalents were $99.4 million, which includes the investment in Success TMS. Now turning to guidance, for the full year 2021, we now expect revenue in the range of $53.3 million to $54.3 million, down from our previous guidance of $59 million to $63 million, implying a fourth quarter range of $13 million to $14 million. Assumed in our guidance is a continued COVID overhang as well as seasonality-related headwinds impacting new patient starts during the holidays. The company now projects total operating expenses for the full year 2021 to be in the range of $69 million to $71 million. I would now like to turn the call back over to Keith.

Thank you, Steve. Before opening the line for questions, I wanted to outline our key areas of focus during the fourth quarter as we work to set ourselves up for long-term growth. As noted earlier, we have recently expanded our relationship with three leading national accounts. We have partnered with Success TMS for a number of years and are looking forward to continuing that partnership to help support their growth plans, which includes significant site expansion across the U.S. The other partnerships we noted, Zion and River Region Psychiatry, are in early stages, and we will work very closely with both organizations as they look to expand their respective footprints and treat more patients. Beyond these agreements, we continue to have a close relationship with our largest customer and the country's largest national account, Greenbrook TMS. We have a significant footprint within their 150 locations, and we will continue to support their expansion plans with new systems and work hand-in-hand with their individual sites to facilitate the increased utilization of NeuroStar on a greater number of patients. In addition to an emphasis on national accounts, we remain highly focused on the ongoing maturation of the sales force. the pipeline of new prospects continues to grow. And as we work through recent COVID spikes and the holiday season, we expect an acceleration of conversions as we move into 2022. In support of this, we will be hosting a Neurostar Summit later this month, and the demand has already exceeded our capacity. In addition to focusing on new system sales, we will continue to work alongside existing customers to drive increased utilization. To accelerate this, we plan to grow the NPC sales team in the fourth quarter to focus on implementing practice support programs and help expand the utilization of NeuroStar. As many of you are aware, October was National Depression Awareness Month. As part of our efforts to drive awareness among patients and psychiatrists, we announced a partnership with Dr. Melissa Shepherd Dr. Shepard is a board-certified psychiatrist and psychotherapist who is an active mental health advocate. In addition to being a key opinion leader in the industry, she is a well-known social media influencer with over 1 million followers. In this partnership, Dr. Shepard will be highlighting Neurostar Advanced Therapy from her own social channels. which will be the cornerstone in awareness and education initiatives going forward. As it relates to our regulatory strategy, we continue to be encouraged by the recent interaction with the FDA and are leveraging our real-world data from TrackStar to support label expansion and new indications. In summary, we are very optimistic about the future here at Neuronetics. The long-term opportunity is significant as the number of patients needing non-drug alternatives to treat their depression continues to rise. While the inflection point in top-line growth has come later than expected, we have no doubt that we have the right strategy in place to deliver that growth in future quarters. With that, I'd like to open the line for questions.

If you'd like to ask a question at this time, please press the star, then the number 1 key on your touch-tone telephone. To withdraw your question, press the pound key. Again, that is star, then 1 to ask a question. Our first question comes from Margaret Ketcher with William Blair.

Hey, good morning, everyone. Thanks for taking the questions. I wanted to start maybe first from an underlying market perspective. And you referenced earlier on in the comments that some of the larger national accounts focused on fundraising. I think some of those may be behind us, so maybe clarify that. But how quickly can that translate to new clinic openings, new patient starts? Is it a several quarter endeavor or longer than that?

Hi, Margaret.

This is Keith.

We have a, as I said in the comments, we have a strong relationship with our major accounts, AccessiMS and Greenbrook. For specific areas of our team has met with them to discuss how we can help them. And I think by using them to help opportunities out in the field, I think we're positioned to help them open those sites quickly.

Okay. And so, you know, if I push you a little bit more on that, if we think about kind of the operational requirements associated with that, you know, if you want to open a clinic you know, start opening a clinic today, is that kind of a three-month process, six-month process, and then you've obviously got to build the referral network. So, you know, is that another quarter or two behind, or can you do both of those in tandem?

We believe that it's about three months to get a clinic up and running. But Greenbrook has their earnings call later today. I think Bill can probably lay out a more precise plan. But in our experience, when we open a new physician to a NeuroStar, into a NeuroStar clinic, it takes about three months to get them up and running.

Okay, perfect. And then if we think about the guidance for the fourth quarter, you know, I wanted to maybe walk through some of the implied key metrics. I know there's seasonality associated with it, which adds an extra element. But Steve, can you talk a little bit about what gets you to that higher or lower end of the range and what you're assuming for rep productivity and utilization, ultimately really thinking about, you know, what does key four guidance mean as the leading indicator for 22, at least in the first quarter? Thanks, guys.

Thank you, Margaret.

As we indicated in the press release, we did roll out a new financing program. And so given that we're more focused on treatment sessions, we're comfortable with the operating lease program that we laid out. because these systems will be generating those treatment sessions going forward, but it does have a slight impact on our overall revenues, and so that mix is factored in Q4. From a treatment session perspective, you know, we did see a decent recovery in October. You know, folks are back to school, back to work. Vacations are over. But whereas we didn't see the... seasonality played out in 2020 because folks had nowhere to go and were pretty much locked down. So they continued on their therapy. That's sort of off the table. And so the country is pretty much open. And so we are anticipating, you know, similar seasonality that we've seen in 2019 and 2018. And so we are balancing that, you know, the COVID overhang, with the seasonality, but historically Q4 is a very strong quarter from a capital equipment perspective. And so, you know, again, I think that's how we derive that $13 to $14 million range.

Okay, and just thoughts on, you know, what that could mean for Q1. Does that mean that we kind of get to a more traditional seasonality range as we get it for 22, excuse me? Is that a more traditional seasonality range off of those Q4 numbers, or could it be better, you know, given some of the programs you're running?

Yeah, we're still in the final stages of really nailing down 2022. And again, you know, there's so much on COVID and the vaccine, you know, the new Pfizer pill could be a game changer. And so we'd rather not comment on 22 at this point.

Okay, fair enough. Thanks, guys.

Thank you.

Our next question comes from Matthew O'Brien with Piper Sandler.

Good morning. Thanks for taking the question. So, you know, just a little bit finer point on the national account impact. How meaningful could that be as we, you know, transition into 22 and 23? I mean, what type of revenue contribution can we expect from these three newer partnerships that you have outside of Green Brunch?

Yeah, thanks, Matt. This is Steve. You know, part of our strategy is to get long-term contracts with these large national providers, and so we're very excited with the recent announcements. You know, I would say it will vary by partner, but, you know, looking at success in Greenbrook the largest, and again, Bill will be speaking tonight on his call, you know, I think their expansion plans are very robust. And so, you know, the group make up about 25% of our overall revenue right now, and we expect that to continue to grow into 22 and beyond. And so, you know, being exclusive providers to these partners is We think it's a big deal for both of us.

So just, again, a little bit finer point on top of the finer point, Steve. So, you know, if that's, you know, 25% is, you know, call it 10 or 15 million of sales, you know, for three new providers, maybe somewhere in the $2 million to $4 million range per provider eventually.

Again, Matt, I think it does vary. They have different models. They're in different geographies. It's tough to say two to four by partner because I think some will be a lot higher than that and some may take a little bit longer to rent. It wouldn't surprise me if we did 75 systems next year between the partners.

Okay. Okay. That's really helpful. Two more quick ones for me, hopefully. The site growth commentary I thought was interesting. I think you said just over 11,000 here in Q3 versus maybe 10,000 in Q3 of last year. That includes a period where, you know, you've got the COVID headwind and green broke out raising capital. So, I'm just curious as far as maybe some of the less affected areas. What kind of growth were you seeing in the productivity per site? Does that help give us visibility into the business as we come out of some of these headwinds?

Yeah, that's a good question too, Matt. And we have seen high standard deviations between different customers and different geographies. you know, we do have the ability to track specific sites and, you know, some of those growth rates are very impressive, north of 25%, whereas others that were more impacted by COVID are flat to slightly down. And so, you know, on average, the increase was nice, but there really are subsets of our customer base that are doing much better than others. Again, with some of the vaccine progress that we've made and hopefully moving past the pandemic, we do envision getting the ones that were most impacted back to the growth levels that we're seeing with the other customers.

Okay, and then last one probably for you as well, Steve. You know, as we think about 22, you know, you've got some headwinds, some potential tailwinds here on the provider side. Do you think sales for next year can get back up to 2019 levels?

I'm going to take that one. I believe that on our treatment session revenue, we are at 2019 levels. So we're really focusing on expansion with the capital team and getting more systems placed down into the field. So I do believe that on both capital and treatment sessions, we should be able to get there.

Great. Thank you. Thanks, Matt. Thanks, Matt.

Our next question comes from Bill Plavonik with Canaccord.

Great. Thanks. Good morning. Thanks for taking my question. Just go back to the guidance. What are you contemplating in Q4 relative to capital and disposables or, you know, treatment utilization? How do we think about this? I mean, you've been tracking, if I look at capital, you did 2.4 in Q2, 2.3 in Q3, you know, on the capital sales. And, you know, I mean, by your commentary, are you saying just, you know, Q4 will be a little up and then it's really 2022 when we see that rebound?

Yeah, Bill, in summary, that's exactly it. You know, Q4 has always been a high capital sale quarter, like most med device companies. So we are anticipating an increase in capital revenue. But it's really, you know, the COVID overhang and the seasonality that's tough to predict for the treatment sessions. And so that's kind of the mix. You know, we still think it's going to be in that 80-20 treatment session revenue versus capital revenue. Okay.

And then just, you know, as you look at the U.S. capital sales force, I was just wondering what has been the turnover of that capital sales force since the meeting back in January, February?

Yeah. Bill, this is Keith. Good morning. What I'll tell you, and I'm going to give you estimates because I'm not really 100% sure. Our turnover in our field has not been out of the ordinary. I think on the capital side, out of 22 reps that were at our national sales meeting, we may have turned over four. And what I would say was out of those four, one was a loss. On the NPC side, I think any of the turnover that we had was mutually agreed upon. So I think when we are shifting this company from a system company to a treatment session, We really changed the job of our NPCs, and I think the majority of them have responded extraordinarily well. But we have now asked them to really balance their time from really being strictly trainers on how to get great clinical results with the NeuroStar system to doing that, but also helping the accounts generate patient awareness. You're familiar with our Five Stars to Success, and in that program, a lot of it is associated with patient awareness and patient generation. Quite honestly, some of our NPCs were very comfortable doing clinical work and did it really well, but were not interested in doing the, I'll call it the sales or marketing side of the job, which is completely understandable. Again, I think it's a long answer to your short question, but we have not had an extraordinary amount of turnover in the sales organization.

Thank you for that caller. And then, I know it's been asked already, but trying to get a handle on, you're signing all these partnerships with these customers, and As I think about the economics, I think one of the things that surprised us earlier in the year is that a component of your treatment session revenue was fixed, regardless of the number of treatment sessions. And as you move forward with these agreements, are these similar types of agreements, that they're more fixed in nature, or do they go up as treatments increase? And that's it for me today, thank you.

So the two new contracts that we signed with Zion and River Psychiatry are both per click models. And we are focusing our energy on helping them grow quickly because as they grow, we grow. So we are not offering the fixed price model any longer. We haven't done that all year.

Great. Thank you.

Our next question comes from Marie Tavolt with BTIG.

Hi. Good morning, Keith and Steve. This is Sam Miber on for Marie. Thanks for taking the questions. Maybe just one for me here on the new opportunity here that helped identify some 500 patients within existing customer practices who are candidates here. You know, that sounds like a pretty significant opportunity, right? You know, these customers are or these patients, I should say, are right in these customers' hands. You know, I guess what's it going to take for these customers to get these patients on the chair? How much resistance is there there? Thanks.

Sam, that's a great question. You know, I think what really surprised us in the third quarter was the length of time it takes to get a patient from them raising their hand saying they're interested to going through the benefits investigation and then the prior authorization. So as we said in the comments, we believe that those patients are going to work their way through the system over the next few months. But what I will tell you, my reason for optimism is that we Only we're able to deploy this in a handful of our accounts and handful is under 100. So, you know, this is a good tool for us and I think it's demonstrated to many of our providers that their patients that they think are under med management and doing fine are really not. And so we've been, you know, surprised and so have they with the effectiveness of this tool.

Great. That's all from me. Thank you.

That concludes our question and answer session for today. I'd now like to turn the call back to Keith Sullivan for closing remarks.

Keith Sullivan Thank you, operator, and thank you all for joining us on the call today. We look forward to updating you on the progress next quarter I hope you have a good holiday season. Thank you.

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