Neuronetics, Inc.

Good day and thank you for standing by. Welcome to the Neuronetics first quarter 2026 financial and operating results 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. You will then hear an automated message advising 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 first speaker today.

Good morning, and thank you for joining us for the Neuronetics first quarter 2026 conference call. Joining me on today's call is Neuronetics President and Chief Executive Officer Dan Revers. 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, 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 was filed in March, and the company's quarterly report on Form 10-Q for the quarter ended March 31st, 2026. 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 and adjusted EBITDA. Management believes that non-GAAP financial information taken in conjunction with U.S. GAAP financial measures provides 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. Reconciliations between US 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, Dan Revers.

Thanks, Mark, and welcome everyone to our first quarter 2026 earnings call. I'll begin by sharing some perspectives on my background and why I joined the company, discuss some early observations, and then I'll walk through the key drivers of our performance in the quarter. Then I'll walk through our quarterly financial results in greater detail, and I'll conclude with my perspective on the rest of 2026 before opening the line for questions. This is my first earnings call as CEO of Neuronetics, and I'm pleased to be here. I've spent about 35 years in the med tech industry, and most of my career has been in businesses where patient impact, execution, and operational rigor drive the outcome. Most recently, I served as CEO of Tactile Medical, where we grew revenue from $187 million to approximately $300 million. During that time, we expanded patient reach, grew gross margins, delivered record earnings, and cash flow generation. Before that, I spent 12 years with Integra Life Science, where I led the $1 billion Codman Neurosurgery Division. And earlier in my career, I held leadership roles at several other med tech companies. There were a couple things that drew me to this role. First, our mission to renew lives by restoring hope for patients and their families is one that I'm passionate about. It's amazing how many people have reached out to me since taking the role, sharing their stories of how they or someone they knew have either suffered from depression or better yet, benefited from one of our therapies. Second, I think my background gives me a great perspective on how to move this business forward. My experience in the device space will allow me to come up to speed on the Neurostar business quickly, and it's notable that Tactile was vertically integrated, meaning we designed, manufactured, and sold our therapy solutions, but also directly billed third-party payers, an experience I expect to draw on as we continue to improve efficiency within our Greenbrook clinics. Since stepping into the role, I've spent the bulk of the last month on a listening tour, I've been on the road with our field team inside our clinics and meeting with customers. I've also engaged with shareholders, analysts, and others, helping me shape my understanding of the business. My approach has been deliberate and comprehensive, intended to allow me to fully understand this business before making decisions about where to lean in, where to adjust, and how we maximize the value of what we have. With that said, what I've seen in my first few weeks has reinforced my conviction in the underlying opportunity that exists for us. First, on the Neurostar side, I see a clear opportunity to broaden how we go to market and reach customer segments where we've not historically been positioned to compete. I'll talk more about that in a moment. Second, with the Greenbrook clinics, workflows are key to optimizing profitability in our clinics. not only ensuring that patients have an efficient path to initiate their treatment and gain relief, but also to minimize operational handoffs. Revenue cycle management is also an area where I've spent time in my previous role. And what I've seen inside our clinic operations tells me there is more opportunity ahead. Lastly, we have a talented team that's focused and executing. And I've been genuinely impressed with the quality of the people and the conviction toward our mission across the organization. Before I walk through the quarter, I'd like to briefly address two items. First, on our recently announced CFO transition, Steve Fanstiel departed earlier this month to pursue an opportunity outside Neuronetics. We've initiated a comprehensive search to identify his successor. We appreciate Steve's contributions during his time at Neuronetics, and we'll provide updates as the search progresses. Ultimately, this allows me to select a partner that I'm confident can help me lead our next chapter. Second, I want to share some perspective on the comments made by certain shareholders about our business. While we believe that the integrated Neurostar and Greenbrook businesses provide us with a strong foundation to grow from, we respect some shareholders' views that the separation of the business could potentially unlock shareholder value. The board and I are aligned on operating this business with discipline, and on making decisions that create long-term value for our shareholders. I assure you that I'm evaluating this business with an open mind, and I appreciate everyone's patience as I work through my process. With that context, let me share a bit more about our performance in the quarter. Our Q1 results were largely in line with expectations, and we're making progress on the commercial and operational priorities already in motion. Starting with the Neurostar business, During the quarter, we shipped 34 systems, up 10% year over year. We continued to support our installed base with the most comprehensive training and clinical resources in the category. We're also modernizing how we deliver that support with more virtual, on-demand, and real-time engagement tools that provide customers with choices on how they want to be supported. We're piloting an expanded set of commercial models for Neurostar. Customers exist with a range of needs. And while we have a history of providing unparalleled ongoing support to our customers, we also know that not all customers' needs are the same. So expanding our go-to-market menu is a priority. I'm convinced that we can compete on a broader horizon by listening to customers and responding in kind. Early feedback's been positive And I'll have more to share in August. Now a few comments on Greenbrook. Clinic revenue grew 15% in the quarter. Growth in the quarter was driven by continued strength in Spravato with treatment growth year over year and expansion of buy and bill. On the TMS side, within our clinics, volumes were modestly below prior year levels in the quarter, which we attribute in part to weather disruption across portions of our footprint during the first two months of the quarter. We saw patient flow normalized as the quarter progressed, and we expect a return to more typical volume trends as we move into the second quarter. Within our clinic operations more broadly, the focus remains on workflow and revenue cycle management. The teams made real progress on collections and operational efficiency, and we see continued runway. We've also leveled our marketing investment across the year rather than front loading it, which we believe is the right cadence for the business. We acted during the quarter to better align our cost structure. These steps are expected to deliver annualized savings of approximately two and a half to $3 million with net savings beginning in the third quarter. Profitability and cash are top priorities and will be a focus of mine going forward. Taken together, the quarter reflects a business that's executing on the priorities already in motion while we lay the groundwork for our next phase of growth. With that, I'll walk through the financial results in greater detail. Unless otherwise noted, all performance comparisons are being made to the first quarter of 2026 versus the first quarter of 2025. Total revenue in the first quarter was $34.5 million, an increase of 8% compared to revenue of $32 million in the first quarter of 2025. The increase in revenue was primarily driven by higher U.S. clinic revenue. Total revenue from our NeuroStar business, inclusive of our system revenue, as well as treatment session revenue, was $12.9 million in the first quarter of 2026. This represents a decrease of 3% versus the prior year. U.S. Neurostar system revenue was $3.2 million, an increase of 13% on a year-over-year basis. And we shipped 34 systems in the quarter, an increase of approximately 10% versus the prior year. U.S. treatment session revenue was $9.1 million, a decrease of 5%. While system treatment utilization increased 3.5%, This was offset primarily by a reduction in customer inventory levels. U.S. clinic revenue was $21.5 million, a 15% increase year over year. The results were driven by continued strong Spravato growth and overall pricing improvement. Gross margin was 46.9% in the first quarter of 2026 compared to 49.2% in the prior year quarter. The decrease in gross margin is a result of revenue mix with clinic revenues representing a higher portion of our overall revenues. We also saw some negative impact from the increase in Spravato buy-in bill from Q1 of last year when we were still launching that offering. Operating expenses during the quarter were $25.1 million, a decrease of $1.6 million, or approximately 6%. compared to $26.8 million in the first quarter of 2025. The decrease is primarily attributable to savings and SG&A expenses, where we have driven and will continue to drive efficiencies. Net loss for the quarter was $10.8 million, or 16 cents per share, as compared to a net loss of $12.7 million, or 21 cents per share, in the prior year. First quarter 2026 adjusted EBITDA was negative $6.6 million as compared to negative $8.6 million in the prior year, an improvement of $2 million. Moving to the balance sheet and cash flow, as of March 31st, total cash was $19 million, consisting of cash and cash equivalents and restricted cash, as compared to $34.1 million as of December 31st. Cash used by operations in the first quarter was $9.4 million. This compares to an operating cash use of $17 million in Q1 of 2025, an improvement of $7.6 million versus the prior Q1. As previously disclosed, in March 2026, we amended our debt agreement with Perceptive Advisors, which reduces our outstanding debt obligation in interest expense. Under the amendment, we made a one-time principal payment of $5 million to perceptive advisors, along with adjustments to the existing debt covenants. Now, turning to guidance, which remains unchanged, we continue to expect total revenue between $160 and $166 million, gross margins to be between 47 and 49%, operating expenses in the range of $100 to $105 million, inclusive of approximately $8.5 million of non-cash stock-based compensation. Cash flow from operations between negative 13 and negative $17 million. As a reminder, our operating cash flow is projected to improve beginning in the second quarter and then sequentially through the remainder of the year, with operating cash flow being flat to positive during the second half of the year. And in the second quarter, we expect to see mid-single-digit growth. As we look ahead to the remainder of 2026, our priorities are clear. We're focused on disciplined execution, sharpening how we go to market, and continuing to drive the business towards being cash flow positive. The pilots we have underway in the Neurostar side of the business are designed to expand our reach, and within our clinic operations, we'll continue to focus on workflow collections and operational efficiency. We expect these benefits to continue building throughout the year. Looking further out, I want to briefly touch on Compass Pathways pending psilocybin therapy. The regulatory process is Compass's to navigate, but the Trump administration's recent executive order prioritizing such submissions is certainly encouraging. If approved, we believe GreenBrook is among a very small number of providers genuinely equipped to deliver it. The protocol requires certified settings, trained clinical staff, and a proven back office infrastructure for benefits investigation and prior authorization, all of which we already have in place through our Spravato operations. While we will be prepared to execute if the product is approved, Similar to Spravato, we'd expect the revenue ramp to be measured in the first year of launch, but the narrow pool of providers capable of delivering this therapy represents a durable advantage for our business. As I mentioned earlier, my approach in these first few weeks has been deliberate. I'm committed to making decisions that balance the interests of our patients, physicians, colleagues, and shareholders. And I expect to be able to share an even more grounded view of where we're headed when we report next quarter. I want to thank the Neuronetics team for the work they've put in this quarter and for the welcome they've given me. I look forward to updating you all on our progress in August. And with that, I'll open the call for questions.