Neuronetics, Inc. Q3 FY2024 earnings call

Overview of Recent Performance

• Total revenue increased 4% to $18.5 million in Q3 2024 compared to Q3 2023.
• NeuroStar system revenue was $4.1 million with 49 systems shipped; U.S. treatment session revenue was $13.3 million, up 2% year-over-year.

Greenbrook Acquisition Status

• Shareholders approved the Greenbrook acquisition, expected to close in the fourth quarter.
• Focus on integrating and optimizing the combined company, with key areas to increase shareholder value: operating expense reduction, operational efficiencies, and profitable revenue growth.

OpEx Control

• Synergies initially estimated at $15 million, now increased to approximately $20 million with an incremental $5 million identified. A strategic reorganization of Neuronetics implemented on November 8 generated ~$3.5 million in annualized expense reduction, with remaining $16.5 million in annualized synergies to be realized in 2024-2025, including $6 million reduction in combined marketing spend and back-office function consolidation.

Operational Efficiencies

• Reinvigorated focus on optimizing the commercial organization, including a data-driven approach to target providers within 10-mile radii of sites, developing training programs for field personnel to educate providers and manage patient care continuum, and scheduling comprehensive training at NeuroStar University in November.

Revenue Growth

• Aggressively optimizing and expanding SPRAVATO offerings into Greenbrook clinics, planning to expand to all facilities in 2025. Implementing a buy-and-bill model for SPRAVATO to increase reimbursement. Leveraging combined network to negotiate payer contracts, provide billing services, and access Greenbrook’s call center to improve patient conversion and reduce administrative burden.

Total revenue for the third quarter was $18.5 million, an increase of 4% over the third quarter of 2023. NeuroStar system revenue was $4.1 million, with 49 systems shipped during the quarter. U.S. treatment session revenue was $13.3 million, representing a 2% increase compared to the third quarter of 2023. NeuroStar system revenue contributed approximately 22.16% to total revenue ($4.1M / $18.5M), and U.S. treatment session revenue contributed approximately 71.89% ($13.3M / $18.5M).

Fourth Quarter Guidance

• Expect stand-alone revenue of $19 million to $20 million.

Full Year Guidance

• Full year stand-alone revenue expected in the range of $71 million to $72 million.
• Total stand-alone operating expenses for the full year expected in the range of $81 million to $82 million, excluding approximately $2 million of pre-close transaction expenses.
• Combined organization expected to achieve cash flow breakeven by the third quarter of 2025.

Risks

• Risks associated with forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including risks related to business, strategy, financial and revenue guidance, the Greenbrook acquisition, and other operational issues. Actual results may differ materially due to risks and uncertainties discussed in the company’s filings with the Securities and Exchange Commission, such as those related to reimbursement issues impacting customers' purchasing patterns.

Q: As we just look at the guidance reduction for full year 2024, can you just help us understand a bit what changed in terms of your expectations? And then how that should help us think about 2025 looking forward?

A: Steve Furlong mentioned that guidance reduction was based on changes in purchasing patterns from customers due to reimbursement and cash flow issues in Q1, with inventory levels at historic lows, and the impact of commercial team restructuring. Focus on profitability and cash flow breakeven by Q3 2025.

Q: With regards to Greenbrook and congrats on the progress there. Are you still committed to mid-teens growth for the combined entity as we look into ‘25 and ‘26? And if so can you remind us of what is kind of driving that growth acceleration?

A: Steve Furlong stated that primary focus is on profitability and cash flow breakeven, with top line growth not the immediate focus, and updates on top line numbers for 2025 to be provided as the transaction closes.

Q: In terms of your guidance reduction, how much of that was just removal of the intercompany revenue?

A: Steve Furlong clarified that guidance is standalone and bulk of the shortfall to Street estimates is due to commercial restructuring and focus on profitability, impacting Q4 revenues.

Q: Just to clarify one thing in terms of your guidance reduction. Is this primarily coming from treatment sessions? And then just maybe talk to why or maybe just give us an update on adolescent adoption. And then you have also opened up BNP to all accounts. So, maybe just talk to why that isn’t offsetting or contributing? And then are you assuming any contribution in Q4?

A: Steve Furlong said majority of Q4 weakness is related to treatment sessions, stabilization of credit/lending environment, but shortfall more on treatment session side. Adolescent adoption remains extremely strong, but shortfall not offset by BNP initiatives yet, with expectations of initiatives bearing fruit in 2025 but timing to be seen.

Q: On synergies, you updated that number to $20 million. Where is that other $5 million coming from? And just as you sit here today, having had more time to digest what this combined entity will look like, are there any other areas where there could be some additional opportunities for synergies, or do you feel that $20 million is more of the ceiling at this point?

A: Steve Furlong said the newest increment came from the restructuring within Neuronetics, and $20 million is not the ceiling, with potential for more synergies as work continues post-close