Neuronetics, Inc.

are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Klossner. Please go ahead.

Good morning, and thank you for joining us for the Neuronetics fourth quarter 2024 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 Greenbrook acquisition, 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 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 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 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. 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&A. Let me start with our performance in the quarter, which includes nearly one month of Greenbrook operations. Total revenue was $22.5 million, an increase of 11% over the fourth quarter of 2023. During the quarter, NeuroStar system revenue was $3.8 million, with 46 systems shipped. U.S. treatment session revenue was $12.9 million, and U.S. clinic revenue, which represents Greenbrook revenue, was $4.4 million. Reflecting a solid quarter for the company, and continued positive momentum. 2024 was truly a transformative year for Neuronetics, marked by a number of significant achievements, which include number one, transforming our business to become a vertically integrated mental health care provider through the acquisition of Greenbrook TMS. Second, significantly expanding our Better Me provider program 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 flexibility and strength to our balance sheet. And fifth, although a 2025 event, we further strengthened our balance sheet to support our growth trajectory with our recent 18.9 million 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 expert TMS clinicians. aimed at delivering timely and consistent care to those who need it most. The program was piloted within a select group of customer sites in 2023 and the first half of 2024. Based on the success of the pilot, we began the process of a nationwide rollout in July of 2024, expanding participation to over 350 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 classes through Neurostar University and enforced 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 BMP 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 BMP 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 TMS. 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 Greenbrook 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 2024, we captured over 90% of the identified $22 million 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 2025. Further strengthening our market position in March of 2024 NeuroStar received FDA clearance as the first and only TMS treatment approved as a first-line therapy for depression in adolescents age 15 to 21. Real-world data showed 78% 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 adolescent insurance coverage, making it easier for adolescents to qualify for treatment. Treatment sessions volume ramped up throughout 2024, yielding 10% growth in new patient starts versus 2023. Since clearance, we have seen an 18% 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. 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 2024 versus the fourth quarter of 2023. Total revenue was $22.5 million, an increase of 11% over prior year revenue of $20.3 million. U.S. NeuroStar advanced therapy system revenue was $3.8 million, and we shipped 46 systems in the quarter. U.S. treatment session revenue was $12.9 million, a decrease of 14% year over year. primarily due to the removal of Greenbrook treatment session revenues from this revenue line subsequent to the acquisition's close. U.S. clinic revenue at $4.4 million representing Greenbrook's revenues subsequent to the acquisition. Gross margin was 66.2% compared to 77.6% in the prior year quarter, down 1,140 basis points from the prior year. The decrease in gross margin was primarily a result of the inclusion of the Greenbrook Clinic business. Operating expenses during the quarter were $25.8 million, an increase of $5.6 million, or 28%, compared to $20.2 million in the fourth quarter of 2023. The increase was mainly attributable to professional fees incurred on acquisition and the inclusion of Greenberg's expenses subsequent to the acquisition. During the quarter, we incurred approximately $1.3 million of non-cash stock-based compensation expense. Net loss for the fourth quarter was $12.1 million, or 33 cents per share, as compared to a net loss of $5.4 million, or 19 cents per share in the prior year quarter. EBITDA was negative $10.5 million as compared to negative $3 million in the prior year quarter. EBITDA in the fourth quarter includes approximately $10.6 million in non-recurring expenses. Most of these expenses were associated with the close of the Greenbrook acquisition. Excluding these expenses, EBITDA would have been positive $.1 million for the quarter. As of December 31st, 2024, cash and cash equivalents were $18.5 million. This compares to cash and cash equivalents of $59.7 million as of December 31st, 2023. In July, we secured a debt facility of up to $90 million with perceptive advisors, 50 million of which we accessed in July to fully repay our SLR capital partners term loan, and $10 million of which we accessed in December to further support our combined enterprises operations. After the end of the year, we successfully completed a public offering, raising $18.9 million 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 force bravado, 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 break even in the third quarter of 2025. Now, turning to guidance. For the first quarter, we expect revenue of $28 million to $30 million. We expect full year revenue in the range of $145 million to $155 million. This compares to pro forma combined revenue of $129.8 million 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 million to $98 million. 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 provider program across our customer base. 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 and Greenbrook sites, 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 BMP accounts. We currently have 350 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, or 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 physicians on the benefits Greenbrook can offer their patients who 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 Spravato 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 observe method of billing. We will offer buy and bill Spravato in most Greenbrook clinics by the end of 2025. 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 experience across all Greenbrook locations. With our combined 550-plus clinics across 49 states by year end, which is comprised of 95 Greenbrook clinics and our anticipated over 500 BMP 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.

Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. And our first question is going to come from the line of William Polnovik with Canaccord Genuity. Your line is open. Please go ahead.

Great. Thanks. Good morning, and thanks for taking my questions. I just want to start out with just on Greenbrook. You know, it's been about 80 days now, I think, since the merger. You know, 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 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, for the rams. We've also had several trainings for the technicians that are in the clinics and we have done, Dr. Grammer has done education of the providers. We see the changes as continuing on throughout the year, and as we identify opportunities to improve the efficiencies, we will continue to conduct these trainings. They've all been virtual with the exception of the RAMS, so it's really an easy system for us to implement.

Okay, and then for Steve, you know, in terms of the guidance, first on revenue, you know, the 145 to 155, just, you know, 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, you know, is there upside if this is done earlier or better than expected? And then on the OpEx side, just if I use the 6.6 million in one-time charges in the fourth quarter on the OpEx you had, that gets me to 19 and change or maybe an 80 million run rate versus the guy to 90 to 98. Just wondering where the investments are going there, that incremental amount. Thanks.

Hi, Bill. Steve, I think the best way to look at the The guidance range of 145 to 155 is 65 to 70 million is earmarked from standalone neuro-netics with 80 to 85 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, you know, do need to continue to work. So, you know, we are forecasting growth on the neuronetic side, primarily driven by the continued success of our BMP program. And on the Greenberg side, you know, it's really the three growth drivers that we discussed. It's improving utilization in the Neurostar chairs within the Greenberg 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 Spravato. And then the conversion from administer and observe to buy and bill. And so we do have plans for all four of those initiatives throughout 2025, and they are all considered as part of our guidance. In terms of OpEx, You know, the one-time charges in Q4 were actually closer to 10 million. We did have a $4 million software capitalization impairment charge. You know, if I look at our OpEx, normalized, it was close to 75 or so million. But then when I factor in Greenberg's operating expenses, which are primarily their corporate expenses to support the individual clinics, You know, I do come up really with a starting point around 108 million entering into 2025, and that is without the synergies that we have identified. If you look at the 90 to 98 million guidance, it's a midpoint of 94, so that would imply, you know, somewhere between 13 and 15 million dollars of cost synergies. on the operating expense side, which is what we're forecasting. And as a reminder, you know, 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 point.

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 Krzyzewski. William Blair, your line is open. Please go ahead.

Hey, good morning, guys. It's Maxon from Margaret. I 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. Can you guys just speak to any levers 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, you know, again, consolidated Neuronetics margins were about 77%. You know, our operating and manufacturing teams have been able to take out costs out of the Neurostar for the past couple years, 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, the clinic margins during 2024 for Greenbrook were in the 27% and 28% 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 were the elimination of 35 clinics during 2024. 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 through 25.

That's helpful. Thanks. And then just on Green Brook, would it be fair to say that, you know, the 95 accounts you guys are in now are your most productive accounts? And, you know, if not, you know, 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 Spravato currently in? That's it for me. Thanks for taking the questions.

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

Thank you. And one moment as we move on to the next question. And our next question comes in the line of Adam Meter with Piper Sandler. Your line is open. Please go ahead.

Hi, good morning, Keith and Steve. Thanks for taking the questions and congrats on the deal. Maybe one to start on the guidance. I just want to better understand quarterly sequencing of revenue on the top line. You know, I think the Q1 guide is 28 to 30 million. That's a pretty healthy ramp throughout the year that's kind of, you know, embedded there and certainly realize part of that's, you know, seasonality. But just wanted to double click on the Q1 framework and, you know, how you see the rest of the year playing out and just the level of confidence in achieving that full year outlook and then a follow-up. Thanks.

Thanks, Adam. Greenberg experiences the same type of seasonality that Neuronetics has. Again, primarily driven by the reset 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 19% and 20%. 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'll be approximately 30% of annual revenue. Again, as a reminder, we've been working collaboratively with Greenbrook at all levels since we signed the definitive agreement in August. And 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 and 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 the medical management opportunity for the Greenbrook Centers. So I guess the first question is, of the $80 to $85 million for your Greenbrook revenue assumption for 2025, hopefully I have that right, what is attributed to Spravato and medical management? You know, where can that go in the future? And, you know, we'd just love to hear a little bit more about the buy and bill model. Thank you for taking the questions.

Yeah, Adam, so there's very little med management built into that guidance figure. Again, Greenbrook 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 Greenbrook facility. They would get treated for the seven weeks, and then the patient would go back to their psychiatrist. And that really hasn't changed. And so, 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 maybe 80 or 85 clinics, and then moving into the buy and build type of operation. And again, Keith mentioned it's at 35. If we could get that to 50 or so during the year, it would be great. 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 and to start submitting the claims and then collecting. But again, the lion's share of the growth for Green Brook is targeted on Spravato.

helpful thank you thank you in one moment our final question is going to come from the line of Danny's daughter with citizens JMP your line is open please go ahead yeah great thanks for the questions just one follow up on some of this bravado fine 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 and any capacity constraints that this could have as you contemplate your plans for the cash flow in 3Q25? Thanks.

Hey, Danny. It's Steve. Yeah, from a CapEx perspective, supporting this provider rollout, it's really not that significant. So, from an infrastructure perspective, you know, we do need rooms, the majority of our clinics already have. And then it's a video or camera system and beds 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 it's not crazy at all. It's really on the inventory side that we're working with our distribution partners And 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 million. We are working on getting lines of credit. And now with the capital raise of nearly $19 million, 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 leverage our distribution partners. And right now, Janssen does make their distributors offer 120-day terms. And so if we submit our claims and get them paid, the normal turnaround time is about 60 days. And so, again, once we get that cadence and work through some of the usual early bugs in the claim system, you know, we'll think that 120-day term will be sufficient to make sure the cash flow doesn't strain my balance sheet.

Great. I appreciate that. And then just one follow-up on productivity. You know, you've talked about driving and improving productivity across both Greenbrook sites and existing customers, but Can you just remind us what that looks like today? I think in the past you've given us a figure of four treatments per day per system. Is that still the case and where do you expect that to go in 2025 and where's the more steady state range or metric that you're comfortable with? Thank you.

Yeah, I mean, the comparison that we're using now for Green Brook 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 Greenbrook increasing from four to five to six to get to the levels of our BMP partners. And so 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 million in annualized revenue. And so I'm not implying that we're gonna be able to get them to five by May, But, you know, as we work towards training and education, we're confident that we could exit 2025, you know, at or close to that level.

Appreciate it. I'll try to squeeze one more in here. Just on BMP, the 125 additional sites, for the April 2025 data, is it your intention to take all of those if they meet the criteria, or is there a max number of ads you're keeping in mind? Thanks.

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

Great. Appreciate the questions. Thanks, Danny. 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.