Good morning, ladies and gentlemen, and welcome to the Neuronetics Third Quarter 2018 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder this call is being recorded. I would now like to turn the conference over to Mark Klausner from Westwicke Partners. Sir, you may begin.

Good morning, and thank you for joining us for Neuronetics Third Quarter 2018 Conference Call. A replay of this call will be available on our website for 30 days. Joining me on today's call are here Neuronetics' Chief Executive Officer, Chris stature and its Chief Financial Officer, Peter Donato. 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 relating to our business strategy, financial and revenue guidance and other operational items and metrics. Actual results could 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 final prospectus relating to its initial public offering and the company's quarterly report on Form 10-Q that will be filed 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 will also present certain financial information on a non-GAAP basis including EBITDA. Management believes that non-GAAP financial measures taken in conjunction with US GAAP financial measures provide useful information for both management and investors by excluding certain non-cash and other expenses that are not indicative of our core operating results. Management uses non-GAAP measures to compare our performance relative to forecasts and strategic plans, to benchmark our performance externally against competitors and for certain compensation decisions. Reconciliations between US GAAP and non-GAAP results are presented in tables accompanying our earnings release. Reconciliations of the non-GAAP financial measures to the approximate GAAP measures is provided in the company's press release for the quarter which can be viewed on our website. With that, it's my pleasure to turn the call over to Neuronetics' Chief Executive Officer, Chris Thatcher.

Good morning, everyone, and thank you for joining us on today's call. I'll start by providing an update on our performance during the third quarter, followed by an update on the progress we've made towards our key priorities. I will then hand the call over to Peter to walk through our financial performance and guidance after which we will open the line up to take your questions. The third quarter was very strong with worldwide revenue growing by 31% over the prior year and US revenue growing by 30%. Our performance continues to validate the commercial strategy that we have developed and put into place, our ability to execute in a competitive market and most importantly, the promise of NeuroStar Advanced Therapy's clinical outcomes for patients which offers a viable alternative for psychiatrists serving their patients with treatment resistant depression. As we mentioned on our first call as a public company in August we have three strategic priorities as we seek to drive growth in our business. As a reminder, the first one is to continue to drive the adoption of NeuroStar Advanced Therapy in the US through the expansion of our sales force and the implementation of marketing initiatives. Second, increasing recurrent treatment session revenue by improving active system utilization by penetrating high volume single group practices. And third, make progress towards obtaining reimbursement approval and expanding commercialization in Japan. I would now like to provide an update on the progress we made on each of these priorities. During the third quarter we continued to expand our sales force. Our goal for 2018 was to add an incremental 15 BDM territories adding to 29 BDM we had at the start of the year. As a reminder the BDMs are Business Development Managers that are focused on capital sales. During…

Thanks, Chris. Total revenue for the quarter was $13.7 million, a 31% increase over the prior year quarter. US revenue was $13.5 million, an increase of 30% over the third quarter of 2017. OUS revenue was approximately 220,000, an increase of 135% versus the prior year period. The increase in OUS revenue was primarily a function of milestone payments as well as a small number of treatment session sales to our Japanese distributer. You should be aware that the milestone payments in Japan of $2.75 million collected to-date are being amortized over the life of the contract US NeuroStar Advanced Therapy system revenue was $3.9 million during the third quarter, a 38% increase over the prior year. As a reminder, NeuroStar Advanced Therapy system revenue primarily consists of revenue from capital sales but also includes revenue from coils, rentals and upgrades. Capital revenue grew 58% driven by higher volume during the period as a result of our ongoing sales force expansion and marketing initiatives. In addition, we saw 1% increase in average selling price as compared to the prior year period. These positive trends were partially offset by lower upgrade, rentals and other related revenue in the quarter. During the quarter we saw our active install base increase to 858 units, a net increase of 42 units from June 30, 2018, an increase of 133 units from September 30, 2017. Keep in mind, we define active unit as a NeuroStar unit that was either purchased or rented during the quarter or one which has ordered NeuroStar treatment sessions during the last 12 months. US treatment session revenue was $9.2 million for the third quarter of 2018, an increase of 28% over the prior-year quarter. The increase was primarily due to an approximate 31% increase in treatment sessions purchased, plus a…

Thank you, Peter. We had a very strong third quarter. We were able to grow revenue by 31% as we continue to sell more NeuroStar Advanced Therapy systems while at the same time driving greater pull-through within these placements. This exceptional growth has come in as a result of focused efforts on the long term commercial strategy that we put in place in combination with the development of our industry leading TMS technology for the treatment of drug resistant depression. We're very excited about the future of Neuronetics. Looking at the remainder of 2018 and 2019, we will continue work diligently to bring NeuroStar Advanced Therapy to an even greater number of psychiatrists and their patients. With that, I'd like to open the line for questions.

Thank you. [Operator Instructions] Our first question comes from Matthew O'Brien with Piper Jaffray. Your line is open.

Good morning. Thanks very much for taking my questions. Either Chris or Peter just looking at the guidance for the year, obviously really good performance during Q3, guidance coming up a little bit for Q4 here - for the full year, sorry. Q4 not changing much and easier comp you just saw here in Q3, here in Q4, so just wanted make sure there's not anything that we're missing from a system placement perspective, a bigger bulk purchase in Q3 or anything along those lines that you are trying to signal here in Q4 that may weigh a little bit on the top line even though it's still really good expect the top line growth.

Yes, thanks, Matt. This is Peter. I will let Chris answer with some color commentary, so just to put closure to first part of your question, there is nothing unusual or any bulks or nuances that would influence that guidance one way or the other. So I will let Chris add some more commentary around Q4.

Yes, Matt, thanks for asking that question. If you look at Q4, Q4 is one of our lowest quarterly growth rates year-over-year for treatment sessions. Typically what happens in Q4 is NeuroStar system sales are at the highest of the year. And we're expecting a terrific NeuroStar system sales in Q4. Although we increased our CPCs, increasing Q4 system sales provides a headwind to a pull through effort due to the higher number of installs and trainings required. They're out there, we're going to have to - with the number systems expected in Q4, this will outstrip the CTC team and the CPC team will be involved in installs. This happened again last year as well. So there's a - and there is also a couple of points of growth here. In Q4 of 2017, we benefited from the launch of the upgraded coil and that's not going to occur this year, but that's a couple of points of growth there are as well.

Okay. And then obviously the capital number was really strong this quarter. Can you just deconstruct a little bit the performance among some of your more established reps versus some of the newer ones because when I look at the numbers (inaudible) I think there's an opportunity for the entire group to go up pretty meaningfully from a productivity per quarter perspective? They're not trending very well right now but is that a fair assessment or just again can you just kind of deconstruct the older reps versus the ones you've recently got aboard.

Yeah, good question. So our model the way we think about it is as we add reps and as they mature, they become more productive. That typically occurs somewhere between 12 and 18 months they hit their stride and their performance is higher. And so when you look at our hiring we did a fair bit of hiring in the fourth quarter of last year and then we paced the early part of this year. On a weighted average, Matt, we actually have slightly less experienced reps in Q4 of this year than we actually did in Q4 of last year. And then there's generally not a clipping or a binary event that takes place, it's gradual over time. So the productivity on a quarter-over-quarter basis is actually lower but full time equivalents are up almost 80 plus percent versus this time last year.

Got it. And last one for me. And I know it's really early but I'm just a little bit curious about the impact of the CPC. Under CPC anything you can provide just a little bit of color again? I get it's early as far as the impact that that those folks are having on your treatment session business?

Yeah, so it's difficult, Matt. I mean, the way to solve for that empirically is that we don't do any other activities in the field like EDM expansion, marketing and stuff targeting high value target just to track kind of what happens with those CTCs. That's a difficult exercise and not in the best interest of the business. I think more intuitively this time last year the CPCs were doing all of the training. This year we have 11 full time bodies doing all of the training. And as I mentioned in the last call, that gave us really good leverage in Q1, Q2, and Q3 but that leverage starts to wane over the quarters and as we move into Q4 there's a big step up here in system sales. We have this 44 man army - men and women army out there who are really maturing and we're expecting big things from them in Q4. So I think they will outstrip that leverage fortunately or unfortunately in Q4 and it will look to add more CTCs and CPCs here and in the future.

Very helpful. Thank you so much.

Thank you. Our next question comes from Margaret Kaczor with William Blair. Your line is open.

Hey, Good morning, guys. Thanks for taking the question. So first off is, wondering if you could talk to us a little bit more on the utilization practice system which for us by our math might even approach double digit growth which is quite strong. So first can you comment on whether it reach double digit growth and then second, maybe walk us through what could drive that as we go forward into Q4 and into 2019 especially since it sounds like you're in a little bit more DTC spending come Q4?

So we're really excited about the total NeuroStar treatment session revenue growth. I mean this was a big step up and we managed to improve quarter-over-quarter on that. And then the other thing is we're selling a lot more systems, so - and those systems when we sell those systems, they don't really attribute to utilization very much in the first couple of quarters. So when you think about our NeuroStar treatment session utilization growing just north of 8% year-over-year with a 20% increase in the number of systems over prior year, I mean that typically is dilutive to system utilization, the fact that we can post high single digit growth on a per unit basis, we're pretty proud of that right now.

Okay. So maybe just to key in further on the various reasons for that, kind of the spending on the DTC. So if you go on Google Trends and you start to see all the hits coming up on NeuroStar or on iSpot TV, you can see the amount of ads that are going out on you guys whether it's you or whether it's some of the local ads that are going around out there to your depression tour, but can you walk us through kind of the revenue return per dollar spent? How quickly we should see a return on that spending and then whether or not you guys can target your reps better now that you have little bit more experience with it as well?

Yeah, thanks Margaret. So we qualify the first DTC campaign as the beta and we learned a fair bit. We learned a couple of things as it relates to the channels in which we were going to extend through meaning actually the TV channels. And so we've actually modified this campaign based on those learnings. We're actually going to fewer shows that are more closely targeted actually to depression audience. We can get some research - we have some research now where people with depression tend to watch. The second thing is operationally what we're doing this time is we found out that if a provider doesn't call back through our website they can request an appointment or schedule an appointment or click a call and if they don't call back that patient immediately, they lose that patient. So we've actually worked with our providers leading into this round of DTC to tighten up that feedback loop. So those are things that we're doing differently. I would call this a beta plus program, and we're still experimenting. We do know that we are breaking all of our records already right now in web sessions, physician locator searches and booking appointments at this stage of the campaign versus last year. And the challenge there is being able to track those patients, getting to the practice and then once they get to the practice turn them into treatment sections. So we're tightening that feedback loop on this next round and we'll be able to understand going forward a little better what that return on investment is, but I think we've qualified and quantified this before. This is not millions of dollars of spends. We're learning as it relates to what the return on investment is here. But clearly it did help us. I mean, the types of numbers that we're seeing here in the third quarter and the back half of the second quarter are up and this is just one reason why.

As we go to the next phase of spend, it sounds like you could get utilization growth bit up. And then just kind of last question on Japan. I think you guys have a number of NeuroStar systems already in Japan. I think you referenced 150 physicians that are showing up from the training sessions. So are those folks that already have a system and then once you do get reimbursement, should we assume pretty quick ramp given the installed base that is already out there. Thanks.

Yeah, thanks. So really there are no active commercial units in Japan currently. And the only thing that's in our revenue line right now is an amortized milestone payment for the upfront milestone that we got from Teijin when we signed the contract. So what's going on is the JSPN has an annual meeting two meetings a year where they train on the basic science of TMS and in June they held their meeting and in 72 hours of notice of the meeting, the meeting was full. And they announced a couple of weeks ago that they're doing a course again in January and within two days the meeting was full. So these are people that don't have systems that are really interested in learning more about the science and then what happens is our partner Teijin then takes about 20 of those providers every month and brings them to their facility and goes through the NeuroStar Advanced Therapy system in detail with them, so they're familiar with the technology. And then, what they're also working on right now is capital equipment budgets in 2019. So they're setting the stage with these providers roughly somewhere between 200 and 300 before capital equipment budgets are due. They will have to talk to and discuss the opportunity to put a NeuroStar Advanced Therapy system into their facility.

Great. Thank you, guys.

Thank you. And our next question comes from Jason Mills with Canaccord Genuity. Your line is open.

Good morning, everybody. Congratulations on a good quarter and happy Election Day. I was going to start somewhere else Chris but the Japan discussion wanted to pull on that thread a little bit more. It sounds interesting. So could you frame the Japanese opportunity for us again relative to the US opportunity? Just as you look at the geographical makeup of Japan, the patient makeup of Japan relative to the US just as using the US as the guide and just sort of give us some sort of a qualitative assessment of how Japan may play out next year? You sound like many of this have much in the way of revenue and the stock probably doesn't - trade on Japan next year but if you're doing well in the US and you get a kicker in Japan it certainly will make a difference, so maybe level set us with Japan and how that rolls out in the first year.

Sure, Jason. Yeah, thanks for the question. So when we think about the market opportunity we think about the market opportunity in the serviceable addressable market to be about one-third of what it is in the US. The serviceable addressable market in the US is about 3 billion. The serviceable addressable market in Japan is about 1 billion. The difference in Japan is they actually have a much higher concentration of psychiatric-only hospitals, local community based hospitals and a lot of their moderate to severe NTD patients are actually admitted to inpatient facilities and then they are treated on an outpatient basis. So it's a little bit slightly different model. That's why we pick our partner Teijin Pharma because they have really good relationships within the inpatient hospitals throughout Japan and these psychiatric hospitals throughout Japan. So that's why we picked that partner. We have not given any guidance as it relates to revenues for Japan. We will provide that during our first quarter call next year. B that time we will better understand not just if we got reimbursement, what that reimbursement rate is because that will certainly have some impact on the first year and following year revenues. The other thing, the only other thing I'd say is that the awareness in Japan is TMS is actually much higher than where the company started when the company got their approval in 2009. And there's quite a bit good understanding of our success here in the States. And so I view that adoption curve to potentially be better sooner or faster steeper in Japan early versus the adoption trend that we had when we first rolled out the product here. Remember, the other thing is that we'll have national reimbursement. So everyone will be covered come March 1. If everything goes through this year everyone would be covered March 1. So we don't have to worry about converting the max and 95 of the private payers. We won't have that barrier of entry in our way.

Got it. That's helpful. And just to follow up on this, one for the US. Maybe give us a sense for the competitive landscape in Japan as you see it over the next couple of years. You're doing fine here and there's a few smaller competitors that we get questions on, but clearly in the United States you're doing just fine and Japan what's that look like?

Yeah. So Japan we know that one of our competitors have applied several years ago for approval and our understanding was that they didn't accept their clinical data, but that was many years ago. We understand that at least one of our competitors has applied for approval and it remains to be seen what MHLW require as it relates to clinical data. That said, we feel like we've got a head start for sure. I mean, we're going to be the only approved product in Japan to start and then others will have to get their product approved on MHLW process. So the landscape you are playing will be a little bit less competitive than it is here in the US.

Okay. And then just lastly for me in the United States. Chris, can you give us a sense for, you placed more NeuroStar systems than we are now in this quarter which is good and I am just curious the makeup of those new system placements specifically into which they are going. Maybe talk a little about the number of brand new customers that you've brought onboard this quarter, how that's trending. Folks that are adding a second or third system and what that might mean to you. Just any context you can give with respect to the complexion of customers in the quarter? Thank you very much.

Sure, Jason. So we've seen over the last couple of quarters more multisystem initial purchases from first time customers. And most of our most of our purchases in any given quarter are from first time customers. So - and then we are seeing the number of systems per location increase slightly from where we were at the beginning of the year. So we are seeing some follow on in our existing customer base, and we are seeing more multisystem purchases upfront.

Thank you.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Chris Thatcher for any further remarks.

Thanks again for joining us today and we look forward to updating you on our progress on our next call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.