Neuronetics, Inc.

Good day, and thank you for standing by. Welcome to the Neuronetics Report Third Quarter 2022 Financial and Operating Results Conference Call. At this time, all participants 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 will need to press star-1-1 on your telephone, and you will then hear an automated message advising your hand is raised. 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 from ICR Westwick. Please go ahead.

Good morning and thank you for joining us for Neuronetics third quarter 2022 conference call. Joining me on today's call are Neuronetics President and Chief Executive Officer Keith Sullivan and the Senior Vice President, 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 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 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 third quarter performance, followed by an operational update. Steve will then review our financial results. And I'll conclude with our thoughts on the balance of 2022 before turning to Q&A. Starting with our financial review for the third quarter, total revenue was $16.5 million, up 20% over the third quarter of 2021. This represents the third straight quarter of over 15% year-over-year growth, and the second straight quarter during which we delivered revenue of over $16 million. bringing us back to consistent levels of top line performance that the business has not seen since 2019. The strong performance was primarily driven by increased utilization in our per click accounts and the continued capital equipment sales growth. It is clear that the investments made over the last two years in the various marketing programs, our practice development team, and the patient awareness tools are paying off. U.S. Neurostar revenue was $3.9 million, up 51% over the third quarter of 2021. The performance comes as a result of the continued excellence from our commercial organization, who hit their stride in cultivating and converting a strong pipeline, which was bolstered by yet another sold-out Neurostar summit. The U.S. treatment session revenue was an all-time record of $11.9 million, up 16% over the third quarter of 2021. The reckoned revenue was the result of improving utilization due in large part to the local per-click customer utilization rates increasing 20% year over year. These positive trends come as a result of our investment in the five-star training program, the expansion of our PHQ-10 tool into more offices, and greater availability of practice management training. Now turning to operational highlights. Our first focus area is increasing customer and patient awareness. Similar to previous quarters, we hosted another completely sold-out Neurostar Summit. held in Charlotte, North Carolina at our recently opened Neurostar University. This event included over 60 attendees representing 42 practices. Feedback from this event was phenomenal and resulted in the conversion of a number of highly qualified prospective customers, as well as the highest number of systems sold in a single day. Our newly launched patient marketing campaigns have delivered tremendous value, both in terms of increasing our overall patient awareness of NeuroStar and in providing patients better access to information. For example, our recently launched Tap into New Possibilities campaign aimed at driving awareness among patients and their caregivers drove over 30 million impressions in Q3. a 150% increase as compared to campaigns run in a prior year, resulting in thousands of new patients beginning their search for a NeuroStar treatment. Our relationships with NeuroStar partners, including Drew Robinson, a former Major League Baseball player, and Dr. Melissa Shepherd, have steadily gained traction. Drew continues to share his depression journey and the role Neurostar had in giving him a new possibility and a hopeful future. He continued to post social media content in September on World Suicide Prevention Day, and in July to draw attention to the need for increased focus on mental health in the athletic community. These partnerships drove nearly 2,000 potential patients directly to our website. to learn more and help drive significant increases in NeuroStar-related web searches, both sequentially and year-over-year. The implementation of the proprietary PHQ-10 tool, a digital patient assessment tool which allows our NeuroStar practices to easily identify patients within their practice who are candidates for and expressed interest in a NeuroStar treatment have been extremely fruitful. To increase the tool's impact, we will keep expanding it to more and more practices. To support this rollout, we released a number of TrackStar upgrades, which helped streamline the patient journey by bridging our PHQ-10 tool with our HIPAA-compliant TrackStar patient data management system. making it even easier to identify new patients and those needing retreatment. In September, we hosted a ribbon-cutting ceremony to celebrate the grand opening of Neurostar University in Charlotte, North Carolina, where we were joined by 75 attendees, including local government officials, Neurostar patients and providers, and leaders in the mental health industry. The event was highly successful, underscoring the need for an interest in advanced mental health treatments. It also garnered attention from local media sources, with segments on both NBC and Fox Evening News, which generated over 20 million combined impressions. NSU will teach new and existing customers how to become NeuroStar experts, connect with other specialists in their field, and grow their practices using clinical education, enhanced patient awareness, and consultation techniques. To date, we have hosted four sold-out customer classes, and the two additional classes scheduled during the remainder of the year, both of which are already at capacity. One attendee who has been utilizing NeuroStar for over 12 years said, and I quote, I thought I knew everything there was to know about Neurostar and connecting with patients until I attended NSU. This was a wonderful testimonial from one of our best customers. As we continue to evolve the capabilities of the platform, as well as the support services that we offer our customers, These classes will continue to be highly beneficial for both new and existing customers as they seek to leverage the power of NeuroStar to help more patients suffering from mental disorders. Our second focus area is the continued optimization of our commercial organization. In the quarter, we implemented new Salesforce reporting tools to help our PDMs better understand our customers. their patient base, and utilization trends. These tools allow the PDMs to help our accounts set goals and measure their progress towards achieving them. In particular, the NeuroStar Business Review gives accounts a new way to look at and innovate their practices in ways they were not able to before, allowing them to more efficiently and more effectively tap into their existing patient base. and help those who would benefit from a non-drug alternative to manage their depression and anxiety. Additionally, due to the new account growth over the course of the year, we will follow the plan we previously outlined by adding four additional PDMs early next year. These additions will support the growth in our install base and ensure we provide our customers with the highest level of service and support. Our third focus area is growing the number of exclusive commercial partnerships. We will continue to be excited by the strong relationships we have built with our service provider customers. Now that the word is out about our excellent ongoing support, training, and marketing initiative, Several providers with NeuroStar and competitive systems have reached out to benefit from the support we provide. Most recently, Alleviant Health Centers, an Arkansas-based network of full-service mental health clinics, signed a four-year agreement and switched from a competitive system to NeuroStar, primarily due to the level of support we provide to help them achieve their growth target. We have seen good traction from the partnerships and expect a more material impact on the business throughout the rest of the year and in 2023. 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 the adult patients suffering from obsessive compulsive disorder. Our two-stage launch has been going smoothly, and we have heard good feedback from our physicians. The first stage started in early July with the training at 40 pilot sites. The major finding was the motor threshold training has been easier than anticipated. The next phase of our launch has begun, where we plan to roll out this indication to all of our customers over the next several months. In August, we received 510 clearance for Detect, a motor threshold accessory. Detect simplifies the motor threshold determination for physicians by visually reporting the magnitude of the finger movement during the motor threshold test. As a result of this automated determination, it now only requires one person to do this testing versus two on all other systems. DTECH is compatible with all new and existing Neurostar systems and was rolled out nationally in mid-September. The initial demand for DTECH was high, with over 100 sold in the quarter. We have now integrated it into our training programs and at Neurostar University. Now for a quick update on the expanded Medicare coverage. Two Macs recently published and proposed Medicare coverage updates which would increase TMS eligibility by nearly 8 million covered lives. The number of prior medication failures for TMS eligibility for individuals with major depressive disorder has been reduced from four to two under a new coverage policy published by CGS, which will take effect on December 4th, 2022. The same reduction from four to two prior medication failures is being considered by the NGS, who is also considering TMS coverage for OCD. The Neuronetics Health Policy and Reimbursement Team was crucial in working with Neurostar providers to address payer policy limitations, which has been a major factor in these favorable covered decisions. We are encouraged to see the payers adopting policies that reflect TMS as a standard of non-drug treatment for mental health. We are delighted by the performance in the quarter, as we are seeing the benefits from our revamped Salesforce, marketing programs, and physician and patient education initiatives. These successes further support Neuronetics' longstanding market leadership position in the TMS space, underlined by Neurostar having been used to deliver over 5 million treatment sessions on more than 141,000 patients to date. With that, I'd like to turn the call over to Steve.