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Operator: Good day and thank you for standing by. Welcome to the Neuronetics Third Quarter 2024 Financial and Operating Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Mark Klausner. Please go ahead.

Mark Klausner: Good morning, and thank you for joining us for the Neuronetics third 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-Q, which was filed earlier 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 noncash 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.

Keith Sullivan: Mark thanks for the introduction. Good morning, everyone, and thank you for joining us today. I’ll begin by providing an overview of our recent performance, then discuss the status of the Greenbrook acquisition. Steve will then review our financial results and I’ll conclude with some thoughts on the balance of 2024 before turning to Q&A. Let me start with our performance in the quarter. Total revenue was $18.5 million, an increase of 4% over the third quarter of 2023. NeuroStar system revenue was $4.1 million. During the quarter, we shipped 49 systems. U.S. treatment session revenue was $13.3 million, which represents a 2% increase compared to the third quarter of 2023. I’d like to turn to our acquisition of Greenbrook TMS.

Last week, our shareholders approved the transaction, which we expect to close during the fourth quarter. We are incredibly excited about what this means for our organization, the employees of the combined company, our patients and customers as well as our shareholders. Today, we are laser-focused on driving the long-term success of the combined company. As we work together to integrate and optimize the new Neuronetics, we have a comprehensive proactive approach that focuses on 3 key areas to increase shareholder value: operating expense reduction; operational efficiencies; and profitable revenue growth. Starting with OpEx control. When we announced the transaction, we estimated synergies to be approximately $15 million. As we’ve dug deeper into both our and Greenbrook’s operation, we have identified an incremental $5 million, bringing the new cost synergy target to approximately $20 million.

We have taken definitive action to take costs out that will benefit both businesses. On November 8, we implemented a strategic reorganization of Neuronetics, streamlining departments to support our combined business model and reducing costs of programs that no longer align with our go-forward strategy. This reorganization alone will generate approximately $3.5 million in annualized expense reduction with the remaining $16.5 million in annualized synergies to be realized throughout 2024 and 2025. These synergies include a $6 million reduction in combined marketing spend, along with additional savings from consolidating back-office functions. Turning to the operational efficiencies. Our operational efficiency initiatives are centered on optimizing our commercial organization, including our commercial team structure, the way we target customers and patients and how we train our employees.

We are beginning with a reinvigorated focus on driving improved productivity across both Greenbrook sites and our existing customers. To support this, we are in the process of introducing a more efficient data-driven approach to help increase patient flow into Greenbrook and our other NeuroStar sites. We have done an analysis of physician prescription trends in our key markets, which has allowed us to identify psychiatrists and other providers who are currently treating patients for depression or other mental health disorders within a 10-mile radius of a Greenbrook or a NeuroStar site. Using this information, field personnel will be able for the first time to actively target providers who have patients who qualify for TMS or SPRAVATO and will then be able to help institute a process for rapidly directing those patients who are seeking an alternative to antidepressants into a Greenbrook or a NeuroStar site.

We expect that this will allow us to be significantly more efficient at driving patient volume versus traditional broad-based marketing efforts. Another benefit of this data is that it allows us to more effectively allocate resources to territories and to enhance our efforts to reach the greatest number of patients and rationalize coverage areas. However, simply identifying potential patient referrals isn’t enough to improve site productivity. We need to put best practices in place to allow our field personnel to educate providers on connecting patients with a Greenbrook or other NeuroStar site. What we know from our study of patient experience is there is a significant drop-off in patients continuing into TMS therapy if they are not contacted almost immediately after expressing interest in the treatment.

We are in the process of developing a comprehensive training program for our field personnel which ensures that providers who are looking for an alternative to traditional pharmaceutical options for their patients are fully educated on our offerings and how they fit with a patient’s care continuum. Under this new process, patients who qualify for one of those services will be immediately contacted by one of our providers to begin the process of exploring the next step in their treatment paradigm. To complement this, we are also developing a training protocol for our field personnel related to managing the patient care continuum. This ensures that Greenbrook sites as well as our other NeuroStar customers are well-versed on how to help patients move on to the next step in their treatment.

This includes the progression from traditional medical therapy to the most appropriate next therapy, whether it’s TMS or SPRAVATO and if they do not achieve the desired result, continuing on to the therapy they have not yet tried. While we have been working with Greenbrook over the last few quarters to operationalize key tenets of our Better Me Provider Program, we are scheduling comprehensive training in November at NeuroStar University to ensure consistent implementation of our new commercial structure and priorities. This includes establishing a patient review process to ensure optimal treatment outcomes across our network. Beyond cost and operational efficiencies, we are also focused on driving revenue growth. We are aggressively optimizing and expanding the ability to offer SPRAVATO into all appropriate Greenbrook clinics and implementing the buy-and-build program across all sites that offer SPRAVATO treatment.

There are currently 83 Greenbrook sites utilizing SPRAVATO and we are planning to expand to all facilities in 2025. To maximize the revenue potential of our SPRAVATO program, we are implementing a buy-and-bill model across all treatment sites. Under this model, Greenbrook directly purchases and maintains drug inventory at each practice location. Greenbrook then bills the patient insurance provider for both the drug itself as well as the administration and observation services. While this requires managing medication inventory, it results in a higher overall reimbursement compared to billing for administration services. This enhanced reimbursement structure creates an additional revenue stream alongside our TMS treatments. As previously outlined, one of the key benefits of this transaction is that our scale allows us to provide broader service offerings to all of our customers.

First, we can leverage our combined network of approximately 400 customer sites across Greenbrook and BMP customers to negotiate favorable regional and national payer contracts. Negotiating a block of contracts at once offers efficiencies to the payer while potentially leading to better reimbursement rates and improved TMS economics, ultimately increasing practice profitability for our customers. These benefits also extend to medical management and SPRAVATO services, making it easier for customers to expand their practice offerings. Secondly, we will also be able to offer more robust support in navigating the complex landscape of insurance reimbursement by providing billing services to our customers, which could speed up payment processing and reduce denied claims.

Finally, we are also working to provide NeuroStar customer access to Greenbrook’s existing call center. By leveraging this centralized call center operation, we can help manage patient calls and education more efficiently, potentially increasing conversion rates and reducing the administrative burden required to meet the demand for TMS. As we move forward, we are focused on 2 main goals: advancing mental health treatment; and increasing shareholder value. Through disciplined execution of our cost controls, operational improvements and revenue growth initiatives, we have a clear path to profitability while expanding access to critical mental health treatments. The Greenbrook combination represents a transformative step in this journey. And based on what we have learned since announcing the transaction, we now believe that the combined organization will achieve cash flow breakeven by the third quarter of 2025.

And we’re confident in our ability to deliver meaningful care for our patients and true value to our shareholders. With that, I’d like to turn the call over to Steve.

Steve Furlong: Thank you, Keith. Unless otherwise noted, all performance comparisons are being made for the third quarter of 2024 versus the third quarter of 2023. Total revenue was $18.5 million, an increase of 4% over prior year revenue of $17.9 million, primarily driven by increased capital sales in the quarter. U.S. NeuroStar Advanced Therapy System revenue was $4.1 million and we shipped 49 systems in the quarter. U.S. treatment session revenue was $13.3 million, an increase of 2% year-over-year. Revenue per active site was approximately $11,400 in the quarter compared to approximately $11,900 in the prior year quarter. Gross margin was 75.6% compared to 65.8% in the prior year quarter, up 980 basis points from the prior year.

The increase in gross margin was a result of the change in product mix, the absence of a onetime manufacturing cost related to our new contract manufacturer and an inventory impairment charge in 2023. Operating expenses during the quarter were $21.7 million, an increase of $1. million or 5% compared to $20.6 million in the third quarter of 2023. The increase was primarily due to transaction expenses, which were incurred prior to the transaction closing. During the quarter, we incurred approximately $1.4 million of noncash stock-based compensation expense. Net loss for the third quarter was $13.3 million or $0.44 per share as compared to a net loss of $9.4 million or $0.33 per share in the prior year quarter. As of September 30, 2024, cash and cash equivalents were $20.9 million.

Now turning to guidance. For the fourth quarter, we expect stand-alone revenue of $19 million to $20 million. We now expect full year stand-alone revenue in the range of $71 million to $72 million. We expect total stand-alone operating expenses for the full year to be in the range of $81 million to $82 million, which excludes approximately $2 million of pre-close transaction expenses. I would now like to turn the call back over to Keith.

Keith Sullivan: Thank you, Steve. Let me leave you with some key thoughts on our path forward. Integration is at the center of everything we’re focused on right now. The combination of our organizations presents immediate opportunities from unified commercial teams to streamlined operations, but more importantly, it creates a platform for sustainable long-term growth. Our progress in the first phase of integration planning has exceeded our initial expectations, particularly in identifying and capturing initial synergies. Looking ahead to 2025, we have a clear line of sight to cash flow breakeven by the third quarter. This milestone reflects both our integration execution and our ability to drive meaningful growth through our expanded capabilities and footprint.

I’m particularly encouraged by how our teams have worked together since the acquisition announcement. The collaborative spirit and shared commitment to our mission are evident in the early wins we’re seeing across the organization. We look forward to updating you on our milestones and overall progress in the coming quarters as we work to transform both our business and patient care. With that, I’d like to open the line for questions.

Operator: [Operator Instructions] Our first question comes from Adam Maeder from Piper Sandler. Please go ahead.

Unidentified Analyst: This is Kyle on for Adam. Thanks for taking the question. I guess, first, 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?

Steve Furlong: Hey, Kyle. This is Steve. Yes. So we really based Q4 guidance on the trends that we continue to see in Q3. The – essentially, there’s been a change in purchasing patterns from our customers due to the reimbursement and cash flow issues they experienced in Q1. We have seen some recovery with Q3 being our largest collection quarter in about 1.5 years, but their cash flows were slowed. And so it did change the way they were historically purchasing treatment sessions. Right now what we’re seeing in our TrakStar databases is our inventory levels are at historic lows actually in approaching the pre-COVID levels. So whereas customers used to purchase almost a quarter’s worth of inventory to be able to treat their next quarter’s worth of patients, they really cut back and they’re probably holding or they are holding between 1 and 2 months inventory.

And so we have seen some stabilization and improvement. But again, it’s – it wouldn’t be responsible to forecast a full recovery in Q4, which impacted the treatment session forecast for Q4. I will say that our system utilizations remain very strong. And in our business, if we have a strong October, it bodes well for the rest of the quarter. And again, we had a very strong October from a utilization perspective. So no, we are disappointed the impact that the reimbursement had, but we are seeing stabilization and some improvement as we close out the year. It is important to note, though, that, as Keith mentioned in the script, we are focusing more on profitability and some of the restructuring that we did last week did impact the commercial team.

So that is forecast to have some impact on revenues in Q4.

Unidentified Analyst: Okay. Thanks. Yes, that’s super helpful. I guess as a second question then 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? Thanks.

Steve Furlong: Yes. And so I realize we did state that in the proxy and that is one of our internal goals. But it’s – there are a lot of moving parts with the transaction at this point. And so again, our primary focus is not top line growth. It is profitability. And our goal is to get to cash flow breakeven in Q3 and it may come at the expense of losing some top line revenue to improve profitability. And so that’s really our focus. And I think as we work through – and a reminder, we obviously haven’t closed yet, we will be providing updates as to where the top line number will be in 2025.

Unidentified Analyst: That’s helpful color. Thanks.

Steve Furlong: Thank you.

Operator: [Operator Instructions] Our next question comes from William Plovanic from Canaccord Genuity. Please go ahead.

William Plovanic: Hey, great. Thanks. Good morning. Just can you just give us – in quarters past, we’ve talked about kind of the business and separated out between Greenbrook and non-Greenbrook. I was wondering if you’d just give us a little granularity on kind of how those separate businesses are trending today and then even including the threshold testing, which is a predictive for kind of future treatments?

Keith Sullivan: Yes. This is Keith, Will. I’m hesitant to comment on Greenbrook’s progress since we haven’t closed the deal yet, but our business with Greenbrook is still very strong. One of the things in our Q4 guidance was the intercompany revenue had been removed also, so that was taken out of it. But I think we are looking at our local consumable business. And as Steve mentioned, that business is up significantly and continues to be strong. So, on the Greenbrook side, their business on both – well, on TMS is very strong. And they will report on their business on both sides, SPRAVATO and TMS shortly.

William Plovanic: Okay. And then just, Steve, could you help us understand in terms of that guidance, I mean it’s a pretty big cut down to $19 million, $20 million, Street sitting at $25 million, how much of that was just removal of the intercompany revenue?

Steve Furlong: To clarify, the guidance that we had, it is standalone, so it does include projected Greenbrook purchases. And so I would say the bulk of the shortfall to the Street of $25 million is due to the restructuring. And so it did impact the commercial team across the board. And again, internally, we have made the decision to really focus on profitability and getting to cash flow breakeven. And that did come at the expense of some commercial team members and it will have an impact on our Q4 revenues.

William Plovanic: Okay. And then just last question for me, just as you talk about the commercial restructuring, just help us understand exactly strategically what you are doing differently. I mean, is it – was it a change in capital rep, so you sell less capital, was it a change in field force? It sounds like you are tightening up the territories when you talked about the 10-mile radius in the physicians. Just help us understand how we should think about this? Was this a 20% lift to the commercial or a 10% lift? Just anything you can help us give us – provide us to help us understand a little better and thanks for taking my questions.

Steve Furlong: Sure. So, Bill, the change in commercial strategy is really just a shift. One of the aspects, one of the business models that Greenbrook has is utilization of what they refer to as RAMs, their regional area managers. The RAM’s responsibility is to work with local providers around their Greenbrook centers to talk to those providers about SPRAVATO and TMS and the benefits that they can bring to patients that have failed multiple drugs. These are providers that currently don’t offer TMS or don’t plan to offer TMS or SPRAVATO. So, that model has worked very well for Greenbrook and that team has been an excellent driver of revenue to Greenbrook locations. So, we are using the data that we have to help make that group more efficient.

The – and we are also going to be doing the same training with our practice development managers so that they can also work with our BMP accounts with local providers around their locations and drive patients more efficiently into those practices. So, that’s really the major shift in the business model. With that would come a true focus on these accounts on the treatment session side of the business, and as a result, we will be driving more capital systems as second system sales into those existing accounts.

Operator: Thank you. [Operator Instructions] Our next question comes from James Beers from William Blair. Please go ahead.

James Beers: Hey guys. It’s Jimmy on for Margaret. Thanks for taking the question. I just want to clarify one thing in terms of your guidance reduction. Is this primarily coming from treatment sessions, I guess as I am looking at it? 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? And then as we look to ‘25, I guess do you start seeing those initiatives begin to bear fruit, or is it – are expectations pushed further along?

Steve Furlong: Yes. Hi Jimmy. I would say the majority of the Q4 weakness is related to treatment sessions. We have seen a stabilization of the credit and lending environment. So, we may be a little short from historic Q4 capital levels. But again, with the change of focus on really getting our existing customers as well as Greenbrook’s current systems to capacity, it will take a little bit of time. And so I would say the shortfall is more related to the treatment session side. And regarding adolescents, it remains extremely strong. It’s a big opportunity with Greenbrook as well. And so if we look at the adolescents treated and we look at both patients and providers, it’s significantly up through the end of Q3 as to where it was in March when we received approval.

James Beers: Okay. That’s helpful. And then maybe just one on international and this is something we talked about last time. But in terms of Japan, I believe there was an over-the-air update opportunity and that would drive some sort of upgrade cycle. So, maybe can you just talk to what you are seeing there and if that’s still the implication for Q4?

Keith Sullivan: So, our business in Japan is growing, also in Korea. So, our focus over there is really to take advantage of the hospital systems that are now providing – are now broadening it throughout their entire system. It’s quite honestly though – and we have said it before, our focus is to sustain our business in – on the international markets. Our focus is in the United States. And as Steve indicated, we have a great opportunity with the Greenbrook team. You mentioned adolescents. The focus in the Greenbrook location has not been on the adolescent front, but we have an opportunity now through the trainings that we are going to provide the RAMs, which starts tomorrow and it goes for a few days to really educate them on the benefits for adolescents and continue that growth. Our number of centers that has – is now treating adolescent patients has grown significantly.

James Beers: Okay. That’s helpful. And just maybe one last clarifying question. I believe you said reaching cash flow breakeven by the third quarter, I might be reading this wrong, but I believe the press release says the second quarter. So, if you could just clarify what the timing is there.

Steve Furlong: It’s the third quarter.

James Beers: Okay. Great. Thanks guys.

Operator: Thank you. [Operator Instructions] Our last question comes from the line of Danny Stauder at JMP. Please go ahead.

Danny Stauder: Yes. Great. Thanks for the question. Just on synergies, you updated that number to $20 million. Where is that other $5 million coming from? Is it primarily the strategic re-orgs you called out? 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?

Steve Furlong: Hey Danny. Yes, the newest increment came from the restructuring within Neuronetics. So, that really wasn’t anticipated during the summer as we were working through the definitive agreement. I do not think the $20 million is the ceiling. Again, a lot of these activities have been at the higher level and have not included all of the parties within specific departments. So, I think you will see that number inch up as we work more closely with more involvement post-close.

Danny Stauder: Great. And then just one follow-up on the cash flow breakeven timing, how should we think about cash usage in 4Q into the first half of 2025, just given that new timing? And then how comfortable are you with the cash position here? And do you anticipate drawing down that second tranche of debt? Thanks.

Steve Furlong: Yes. I mean we are comfortable with our cash position right now and also with the burn that’s forecast by both companies in Q4. There are significant deal expenses that we will incur on close. So, again, we think we are exiting with a healthy balance and are forecasting a reduced burn in Q1 of ‘25. We are in conversations with our lender, Perceptive Advisors. And so I think it’s a little early to say if we are going to draw down or not. Again, from a company perspective, we would always like a little bit of cash cushion. But again, our forecasts and models do predict a decent cash balance as we work through the initial months of the transaction close.

Danny Stauder: Great. Thanks very much.

Operator: Thank you. The question-and-answer session is now closed. I will now turn it back to Keith Sullivan for closing remarks.

Keith Sullivan: Thank you for your interest in Neuronetics. And we look forward to updating you on the next quarterly call.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.