Neuronetics, Inc.

Good day, and thank you for standing by. Welcome to the Neuronetics Report Second Quarter 2022 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1-1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Klausner. Please begin.

Good morning, and thank you for joining us for Neuronetics' second quarter 2022 conference call. Joining me on today's call are Neuronetics President and Chief Executive Officer Keith Sullivan and SVP Chief Financial Officer and Treasurer 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 company's business. For 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 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 forecast and strategic plans to benchmark our performance externally against competitors and for certain compensation decisions. Reconciliations between U.S. GAAP and non-GAAP results are presented in the tables accompanying our press release, which can be viewed on our website. With that, it's my pleasure to turn the call over to 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 second quarter performance, followed by an operational update. Steve will then review our financial results. I'll conclude with our thoughts for the balance of 2022 before turning to Q&A. Starting with a financial review for the second quarter, total revenue was $16.3 million, up 15% over the second quarter of 2021. Our strongest revenue performance since the fourth quarter of 2019 and our second straight quarter of mid-teens growth. The encouraging performance was primarily driven by a robust capital equipment sales, a solid uptick in utilization, and gaining momentum built on our marketing programs. Despite broad macro and market disruption, we saw a marginal impact on our business, which we attribute to our team, who has stayed ahead of the shifting environment. U.S. Neurostar system revenue was $4.4 million, up 70% over the second quarter of 2021, representing 20% growth over the last quarter and our fifth consecutive quarter of sequential growth. This was fueled by the conversion of a strong pipeline created by our capital sales team, which led to the highest systems sales in three years. This was made possible in part by our quarterly Neurostar summits, which boost sales not only during and immediately following the event, but also six to nine months that follow. U.S. treatment session revenue was $11.3 million of 5% over the second quarter of 2021. Growth was a result of improving utilization rate attributed to the increasing traction of marketing programs, including the Tap into New Possibilities for Depression digital campaign, which has garnered over 144 million impressions since its launch on March 3rd. And our partnership with Drew Robinson achieved hundreds of millions of new impressions and other initiatives we have put into place over the last 24 months. During the quarter, Overall utilization was up 7% year over year, with per click utilization increasing 15%. Offsetting the strong utilization trend was some softness related to the merger of our two largest customers, which seems to have disrupted their typical operations during the quarter. Now turning to operational highlights. Throughout the first half of 2022, We have focused in four areas to drive the growth of the organization. First, increasing customer and patient awareness. Our quarterly Neurostar Summit was held in Atlanta, which was once again completely sold out and included over 50 prospective customers. We will continue to host these events throughout the year with our next summit taking place in Charlotte, North Carolina during the third quarter. One key driver of performance during the quarter and year to date was the continued advancement and optimization of our education and awareness programs. The main focus of these programs is to build and grow a successful Neurostar practice within our customers' existing operations. We know many potential Neurostar patients exist within these practices today. and need to be educated about our technology and its benefits. We are seeing real progress with both our awareness campaign and the PHQ-10 tool, as our sales force has had more time to socialize and implement with our existing customers. Our PHQ-10 tool is gaining traction on a daily basis and continues to be a highly productive tool within the practices where it has been rolled out. We continue to push to have this tool introduced in an increasing number of practices to maximize its impact. As an example of the type of benefit that this tool can have, we recently launched the PHQ-10 within a single large customer in the southeast. Within just two hours, the practice performed 27 assessments, and the site generated over 12 potential patients looking for a non-drug alternative for their depression. We look forward to continuing to optimize the tool and bring it to a greater percentage of our customer base. In the second quarter, we completed construction of Neurostar University, or NSU, in Charlotte, North Carolina. This revolutionary training center will be used to teach new and existing customers how to become Neurostar experts. connect with other specialists in their field, and grow their practices using clinical education and advanced marketing and consultation techniques. The NSU curriculum has been developed to deliver an immersive experience, providing attendees with a deep understanding of our five-star program. As a result, we expect to see an improved patient experience and accelerating growth from customers who attend. Our second focus area is the continued optimization of our commercial organization. We have seen the positive impact from the addition of three regional practice managers last quarter, which brought the total to seven. With smaller teams covering smaller geographies, we have been able to provide better service and more frequent coaching to our customers. Going forward, we will hire new managers as needed. Our third focus area is growing the number of exclusive commercial partnerships. We recently initiated a partnership with Alleviant Health Centers, an Arkansas-based network of full-service mental health clinics. Under the agreement, Neuronetics will be the exclusive supplier of new TMS equipment to Alleviant and its affiliates. Alleviant, who previously used competitive systems, elected to switch to Neurostar after attending our most recent summit. They made the change because of our ongoing support, training, and marketing initiatives. Their purchase of several systems will help expand their footprint across multiple states. As many of you are aware, our two largest national accounts merged in July. which speaks to the promise of the TMS market and solidifies Neurostar's leadership position. This new entity will give Neurostar an even bigger footprint and be supported by shared operational expertise and patient marketing capabilities, which we believe will help drive growth across approximately 245 Neurostar systems in over 200 sites. Lastly, I want to provide an update on our clinical and regulatory progress. In May, we received FDA clearance for NeuroStar as an adjunct treatment for adult patients suffering from obsessive-compulsive disorder. Importantly, this new indication can be remotely enabled on our customers' existing NeuroStar systems at no charge. Our two-stage launch is currently underway. During the quarter, we identified 40 practices for the limited pilot and in early July started training at these sites and are in the process of optimizing the clinical and marketing and commercial aspects of OCD. The next phase of our launch is on track and expected to begin in the fourth quarter of 2022. We will then start to roll out this indication to all of our customers. Subsequent to the end of the quarter, we also received clearance from the FDA for a new Neurostar indication to treat anxiety symptoms for adult patients who suffer from MDD, also known as anxious depression. Importantly, this submission to the FDA leveraged real-world data from TrackStar, our exclusive database of patient outcomes. This database includes over 134,000 patients who have completed more than 4.8 million treatment sessions. With this new indication, we will be able to present data to physicians from over 1,200 patients across numerous studies, which consistently show that NeuroStar can improve anxiety symptoms in MDD patients. This new indication does not require any additional clinical training, and it's covered under the current reimbursement codes and coverage policies. Anxiety symptoms are seen in a sizable portion of MDD patients, estimated to be more than 50% prevalence. These anxious depression patients are more prone to experience severe depression and suicidal thoughts. In addition to these recently cleared new indications, we have just submitted a novel method to speed up and improve the effectiveness of our motor threshold process. for both patients and healthcare professionals. This new product is patent pending, and upon FDA clearance, will be compatible with the entire installed base of NeuroStar systems. We anticipate releasing additional information on this update later this year. Over the last two years, we have significantly expanded our indications for use to include OCD and anxious depression. Our ability to deliver this rapid expansion of indications is largely due to our ability to leverage the huge repository of real-world data collected in TrackStar to efficiently and effectively receive clearances. This validates the FDA's willingness to include real-world data in clearance decisions. Because of this, we continue to view TrackStar as an incredibly powerful tool which our clinical and regulatory teams will continue to use to engage with the FDA to advance our regulatory strategy on potential new indications. Before turning the call over to Steve, I wanted to provide an update on the recent progress made regarding reimbursement. As announced in mid-July, there is a series of healthcare policy updates announced that increase patient accessibility to NeuroStar. These policy updates include First Coast and Novitas Medicare administrative contractors that are changing local coverage determination to reduce the number of prior medication failures for TMS eligibility from four down to one for patients suffering from MDD. First Coast coverage area includes 2 million Medicare beneficiaries, more than 74,000 physicians, and 247 hospitals that serve Medicare patients. Novitas coverage includes over 8 million covered lives in over 10 states. There is also an additional proposed change that could remove the requirement for a previous psychotherapy trial. We also have received a number of other positive policy decisions related to both NDD and OCD, including Highmark Blue Cross Blue Shield publishing coverage for OCD affecting 6.9 million members. Select Health publishing their first TMS policy for MDD, which impacts 981,000 members. And Pacific Source removing the MDD preauthorization requirement for their Medicare Advantage plan members. Overall, I am very pleased with our performance throughout the first half of 2022. Despite the macro changes that have impacted healthcare providers and their patients, we have continued to execute. The ongoing positive customer and patient reaction confirms that our commercial, clinical, and regulatory strategies are working. This is largely due to our hardworking and committed employees who have kept us ahead of the current complexities of the operating environment. We look forward to continuing to help our customers provide treatment to their patients suffering from mental health disorders. With that, I'd like to turn the call over to Steve.