Good day and thank you for standing by. Welcome to the Neuronetics' Fourth Quarter 2021 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator instructions] Please be advised today's conference maybe. [Operator Instructions] I would now like to hand the conference over to your host today, Mark Klausner. Please go ahead.

Good morning and thank you for joining us for Neuronetics' fourth quarter 2021 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 impact of COVID-19, and other operational issues 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 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 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 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 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.

Thank you, Mark. Good morning and thank you for joining us. I'll begin by providing an overview of the fourth quarter and full year performance followed by an operational update. Steve will then review our financial results and I'll conclude with some thoughts on 2022 before turning to Q&A. I'd like to begin by thanking our employees for their hard work and commitment, as they have seamlessly navigated the complexities of the ongoing pandemic to allow us to successfully execute on our initiatives as we seek to bring relief to patients suffering from depression. I'm very proud of everything that we accomplished in 2021, which was capped off by a strong fourth quarter. Despite the ongoing macro headwinds that existed during the year, we successfully overhauled our commercial organization and fundamentally rebuilt our approach to educating patients and customers driving awareness of NeuroStar and helping patients get relief from their depression. These strategies have helped drive the momentum we generated during the fourth quarter, which was continued into 2022. Total revenue in the fourth quarter was $15 million, in line with the top end of the revenue range provided in early January and above the guidance issued within our last quarterly earnings release. On the capital equipment side, U.S. NeuroStar Advanced Therapy revenue was $2.8 million, driven by solid demand for new systems as demonstrated by our sequential growth of 8% over the third quarter of 2021. U.S. treatment session revenue was $11.2 million, a 2% increase over fourth quarter of 2020 and a 10% increase over the third quarter of 2021 and represents the highest U.S. treatment session revenue quarter in the history of the company. The increase was a result of growth in treatment session volume across our entire customer base. Turning to an operational update, during the…

Thank you, Keith. Unless otherwise noted, all results discussed will be related to the fourth quarter of 2021 compared to the fourth quarter of 2020. Total revenue was $15 million compared to prior year revenue of $15.6 million. U.S. NeuroStar Advanced Therapy System revenue was $2.8 million. As anticipated, we increase the number of systems shipped each quarter on a sequential basis. In the fourth quarter, we shipped 48 systems, up from 23, 36, and 40 systems during the first three quarters of the year. U.S. treatment session revenue was $11.2 million, an increase of 2% over prior year revenue. Revenue per active site was approximately $12,200 compared to approximately $12,100 in the prior year quarter. Gross margin was 76.4% compared to 75.8% in the prior year. The increase was primarily a result of higher system average selling prices, as well as a higher mix of treatment session revenues during the fourth quarter. Operating expenses were $18.4 million, an increase of $3.9 million compared to the prior year. The increase was primarily driven by the implementation of new marketing initiatives, personnel costs related to our sales force, and additional stock-based compensation expense compared to the prior year quarter. During the quarter, we incurred approximately $1.7 million of non-cash stock-based compensation expense. Net loss was $7.6 million or $0.29 per share, as compared to a net loss of $3.7 million or $0.19 per share in 2020. EBITDA was negative $6.3 million as compared to negative $2.4 million in 2020. Moving to the balance sheet, as of December 31st, 2021, cash and cash equivalents were $94.1 million. Now, turning to guidance. For the full year 2022, we expect revenue in the range of $58 million to $62 million. For the first quarter 2022, we expect revenue in the range of $13 million to $14 million. In January, our business was impacted by Omicron with trends improving during February. For the balance of the year, we expect to see year-over-year growth in each of the remaining quarters and a return to a more normal seasonal pattern with a sequential increase in revenue during the second quarter, followed by a slowdown in the third quarter before a strong fourth quarter, which is typically the largest of the year. In 2022, we are accelerating our investment into sales and marketing, as well as research and development initiatives to support our continued long-term growth, which we are uniquely able to do because of the strength of our balance sheet and our market leadership position. We expect total operating expenses for the full year 2022 to be in the range of $86 million to $90 million. As a result of accelerated top line growth as we execute our commercial strategy and the plan moderation of operating expense growth in future years, we expect to be EBIT breakeven in 2024. I would now like to turn the call back over to Keith.

Thank you, Steve. 2021 was a critical year for Neuronetics and we believe the strategic pieces are now in place to drive the accelerated adoption of NeuroStar. We have demonstrated the superiority of the clinical outcomes. We have a proven, unparalleled ability to support our practices by helping them educate patients and raise awareness to drive long-term success. And we have invested heavily in developing the industry's largest and most talented commercial organization. While we face challenges in late 2021 from Omicron, which continued into the first quarter of this year, our physician offices remained open, which allowed us to continue training customers and deploying marketing efforts. Because of this, we believe we are well-positioned to execute through the remainder of the year. To that end, we have several key initiatives in place to help capitalize on the solid foundation built last year and support growth in 2022 and beyond. This year, our key focus areas to drive growth are as follows; one, drive increased awareness among customers and patients; two, the continued optimization of the commercial organization; three, leveraging exclusive partnerships; and four, executing on the clinical and regulatory strategy. Beginning with driving increase awareness among customers and patients. In 2021, we hosted several successful NeuroStar Summits. These summits focused on providing prospective customers an in depth understanding of our technology and the different customer programs we offer. As a result of the success of prior events, we will host four summits during 2022. We recently hosted our first summit of the year in San Diego, which was completely sold out and included over 85 prospective customers, making it our largest event to-date. Events like these are just one of the areas we are investing in to increase awareness and better educate physicians. We are also expanding our efforts…

Thank you. [Operator Instructions] And our first question comes from a line of Adam Maeder with Piper Sandler. Your line is open, please go ahead.

Great. Hi, Keith, hi, Steve. Congrats on the Q4 progress and thanks for taking the questions here. Wanted to start with one on the guidance front. So, topline guidance $58 million to $62 million for 2022. Can you just maybe flesh that out for us a little bit more talk about how you're thinking about the mix of capital and treatment sessions, anything contemplated from either a COVID-19 standpoint or associated challenges relating to capacity constraints or staffing, et cetera. Just any additional color on kind of the key inputs there would be helpful and then add a follow-up. Thanks.

Thanks Adam. I mean you mentioned some of the key variables that we did build into our guidance for 2022. On a positive note, we don't have any constraints or staffing issues that would impact revenue in 2022. From a supply chain perspective, the team has done a great job getting ahead of those issues and secured all of the materials that are necessary to support the build plan this year. Omicron, it's still, I would say, impacting business. We did have a slower January, which is typical. But we did see a nice rebound in February. The -- I think one of the most important considerations into the guidance was just not to get ahead of ourselves. We have a brand new marketing program being rolled out new branding, many new programs that were built upon some of the foundational programs that we put in place in 2021. And we wanted to make sure to give the team some time to digest and then implement those programs. So, again, what we've seen in February and early March, those trends are very positive. And going from the $55.3 million to the $62 million number, we thought that was a respectable growth rate to start the year with.

Okay, that's helpful, Steve. And I guess there's any more flavor, kind of, between treatment session revenue and the capital piece, and then I'd have follow-up. Thanks.

Yes, I mean, we're going to see continued leverage on the treatment session revenues, more targeting in that 70% to low 70% range. We do anticipate a nice increase on the system side. A number of our new national providers didn't have significant purchases in 2021. A lot of the agreements were signed late in the third quarter, early fourth quarter. So, we are anticipating a nice bump from them. And so from a percentage basis, there may be a higher percentage in capital revenue year-over-year, but the programs are focused on following the patient, building awareness, and increasing utilization in our existing accounts. So, I think there'll be very significant increases in the treatment session revenue as well.

Got it. That's helpful color. Appreciate that. And then just for the follow-up wanted to ask about the pipeline, I think Keith, in the prepared remarks said an update on indication expansion. It sounds like one, FDA approval is expected, potentially in the Q2 timeframe, the others may be a couple of quarters behind that. Just wondering if there's more color you can share there. I think you previously talked about pursuing PTSD and bipolar. Can you remind us which one is likely to come first? And then how do we think about any potential impacts on the business? Thanks, again, for taking the questions.

Hi, Adam, this is Keith. The indication that we're expecting in the short-term is OCD and we've had good interaction with the FDA on that. As I've said a couple times, we are really on their timeline, not ours. So, all indications are positive, but we're -- the ball is sort of in their court at the moment.

Okay, that's helpful. Any flavor for kind of the other pipeline opportunity that you're pursuing -- indication opportunity you're pursuing down the road?

I'd rather not get into those that at this time, but I think, we have one that is projected in a closer timeframe and one that would probably come at the beginning of next year.

Okay, understood. Thanks so much Keith. Appreciate it.

Thank you. And our next question comes from the line of Margaret Kaczor with William Blair. Your line is open, please go ahead.

Hi, this is Brandon on for Margaret this morning. I just wanted to start kind of focus at a high level, there's been a lot of commercial strategy, I guess I'd call them tweaks or improvements over the past couple months, if not a couple quarters. So, just curious, Keith, if you could talk a little bit about what are some of the -- even if they're anecdotal and early here, what are some of the proof points you're seeing out in the field that are making you comfortable that these are the right changes and that these will start to kind of deliver some growth benefits as we move through 2022?

Yes, hi, Brandon, how are you? I hope Margaret's doing well. Let's see there. There are a couple indicators for us. One is our attendance of the number of people, physicians and their staff members at the summits that we've been holding. Even in the middle of COVID, we were able to get 70 to 80 people to fly to various cities. And last weekend, we had 86, that went all the way to San Diego, and these were accounts from all across the country. So, I think there is absolute interest in adding NeuroStar into the practices, and helping more patients with it. On the treatment session front, we monitor a number of metrics; one of which is our motor threshold starts, which as I said in the remarks is the first test that a patient has before they start their treatment. By that point, in their patient journey, they have been identified, their questions are answered, they've had a benefits investigation, and they have a prior authorization completed. So these people are pretty committed. So, if they get a motor threshold test done, there's -- we're in the high 90s as a percent that will continue. And our motor thresholds have been increasing. We monitor on a weekly basis. It's -- they've been increasing since the beginning of February. They were strong in January, but as Steve indicated, I think there was not only with the benefits, resetting for the patients, and their payer programs, but I think Omicron had a little bit of impact on us. But in February and the early indications in March is they're coming back strong.

Got it. Thanks. And then on P&L, the in terms of the OpEx guide, it was -- it's pretty healthy growth, which is encouraging. There's clearly some good inverse investments you guys can make on the commercial side. Just curious if you give us a little detail on -- you've talked about some of these commercial investments, but when do you expect to see some of the ROI on this, it's a pretty healthy increase in OpEx, is that something you expect already in 2022 or is that something as we kind of exit the year and into next year? Thanks.

Yes, Brandon, from an ROI perspective, I think you really see the benefits towards the end of 2022 and into 2023. I mean, we're essentially doubling the spend in R&D and clinical year-over-year, we also have healthy increases in sales related to the additional PDMs that we brought on Board, and also the annualization of hires that we made in 2021. Marketing as well is up year-over-year, again, new branding and a lot of new initiatives, as well as continued spend to drive awareness. And also from a stock comp perspective, with the increasing employee base, the -- I would say, a modest increase in that non-cash stock comp based expense. And so if you look at it year-over-year, it does look like a pretty significant increase, but considering that product development, really the company didn't invest in it substantially in the past three or four years, it's really time to develop that pipeline and really set ourselves up for the future growth in the next few years.

Got it. Thank you.

You're welcome.

Thank you. And our next question comes from the line of Bill Plovanic with Canaccord. Your line is open, please go ahead.

Great, thanks. Good morning. A couple of questions for you here. First, just, you're mentioning the different programs or you changed some of the programs as you move into 2022 versus from 2021. Just give us a flavor for what are the changes you've made and why? And then just a capital question with these partnerships, we've seen more leasing, kind of flow in, is that something we should expect continue? Or will it kind of transition more back to capital sales with the exclusive partnerships?

I'll take the first part, then I'll give it over to Steve. How you doing Bill? So, the change in the marketing for this year was brought about when we brought in Claire Sears. Claire is our Vice President of Marketing and through the market research that we did when she joined, we decided to go broader. We were -- in 2021, we were targeting patients with depression and now we believe that there's an opportunity to not only target that group, but target the people that are around them, that are affected by their depression, whether that's family members or whether that's caregivers or whether it's friends. And if we can educate a broader audience about it, maybe more people will seek out help. So, I think the changes in our programs, in our marketing, and our look and feel, are all targeted around that and our market research shows that the changing to the Tap into Possibilities for your depression resonated with that larger audience that we're trying to get to.

And Bill regarding the move to operating leases in 2021, those weren't really related to the new partnerships. By and large, they were in support of the rolled out Star Boost program. I would say it was very successful program in 2021, although we did have to make some accommodations, with internally holding some of these transactions. Based on that success, we are moving away from internally financing some of those transactions. So, that will diminish in 2022 and again, it's not -- the program stands on its own merits at this point. So, we really don't have to offer those types of financings any longer.

Okay, and then just on the new deck facility you're putting in place, can you -- I think you're extending out the interest only, are you increasing the capital available? And then what kind of impact will this have on the P&L?

So, what we ended up doing with our partner Solar Capital is really reset the revenue covenants, which enabled us to extend the interest-only period on the facility through March of 2023. And what we did actually was reduced some of the availability from the $50 million in total to the $35 million we have outstanding. We did not envision any near-term needs for accessing the original deck capacity and there is a cost in carrying that. So, we decided just to limit it to the $35 million. Again, Solar is great to work with, very accommodating and understanding and so, I think it was a win-win for both parties.

And then if I could ask one last question is just, it's -- I think, Keith, you've been on board for two years now, Steve -- maybe two and a half, three years, something like that. I mean, the last two, a couple of years have been challenging to say the least. But you've given guidance, you've done all these different things, but as you've transitioned the company, how should we think about going forward? I mean I have a perspective, it looks like you've kind of get everything in place and now it's going to be rubber meeting the road, but just love to hear kind of how you think this will play out over the next 12, 24, 36 months? Thank you.

I mean, personally, I'm extremely optimistic. I think the strategy that we've rolled out and modified during Keith's 10 years is spot on, extremely excited about the marketing initiatives, and what Claire has been rolling out. The influencers -- Dr. Shepard, and then spending time with Drew Robinson, it really does validate the mission of the company. Executing in the midst of a pandemic certainly wasn't easy and, again, truthfully, we're not excited about the last couple of years' performance, but we do believe we're set up nicely to execute as Omicron wains, and people get back to normal. You can see our investments in R&D and clinical, I mean, hiring Cory Anderson last March was, was great and he's forged a very strong relationship with the FDA that the company didn't have since I joined. So, again -- and I know we've said this before, it's all about execution. But I sincerely believe that we have the blocks in place to execute and really turn things around this year and then be able to accelerate growth in 2023 and beyond.

And I'll add to that Bill, there are a couple indicators that we're on the right track. I think having 86 people fly across the country to learn about NeuroStar and how to implement it into their practice. Every one of those people know that there are opportunities -- other companies out there that they could buy from, and yet they chose to give up three days of their personal and professional time to come out and learn about it. And the level of excitement at those events are really remarkable. As we indicated, I think we look at metric on a on a weekly basis for our existing accounts, the metrics of our sales organization, and the activities that they're doing in the field. And everything points to the fact that we are getting to those patients. And we are helping these practices be successful and we're helping more patients get treatment. I think our focus right now is to go where the patients are not necessarily where the physicians are and I think we are identifying those strong opportunities for -- to get to more patients.

Thank you for taking my questions.

Thank you. [Operator Instructions] And our final question comes from a line of Marie Thibault with BTIG. Your line is open, please go ahead.

Hi, thank you for taking the questions this morning. I did want to ask one here on the investments you're making in OpEx next. And perhaps I could get Steve to talk a little bit about the longer term perspective. Certainly, as we get into 2023 and 2024, you've talked about getting to EBIT breakeven, what needs to happen in those two years to get you there given that OpEx will be stepping up quite a bit, but you've talked about a little bit of a slowdown in that spend in the out year. So, how do you envision getting there? Are we talking about getting back to 20%-plus growth? What needs to happen in those out years?

Hi Marie. Yes, it's going to be a combination of expense control and also an acceleration of topline growth. And we went through a pretty extensive three-year plan exercise most recently presented to our Board last week and it does show a moderation of operating expenses in 2023 and 2024. As a reminder, we significantly scaled back the company's OpEx in 2020 in the midst of the pandemic, and have been gradually adding back resources to support the revenues that we attained in 2021. We are, again, investing significantly in sales and marketing -- the sales headcount adding the additional practice consultants, as well as other spend related to those positions, that's a healthy year-over-year increase. R&D, again, there's been a big push, in the past year or so and we believe, we're almost at steady state, once we fill some of the openings and get through some of the pipeline developments that the team is working on. But then foundationally, in headquarters, we have the team in place to scale. So, we don't need to add to G&A or any of the other supportive functions to get us to $80 million or $100 million. So, there will be operating expense leverage over the next couple of years. And then on the topline, again, when I joined, the average per click customer was only treating about a patient and a half per day. And through the pandemic and those pressures, that really hasn't increased. And so in our minds, for every patient -- incremental patient per day that's treated across our installed base, it adds between $15 million and $18 million of incremental treatment session revenue. And with our focus being on the patient and driving awareness, our goal is to get that to two and a half, three and a half or four patients per day across the install base. And that's really where you'll see the acceleration and that treatment session revenue. Also from a NeuroStar system perspective, this year, we saw nice sequential increases in the midst of the pandemic, but again, the contributions from some of our larger service providers and then the new partners that we signed up, I think we're going to see nice increases in 2022 and also in 2023 and beyond. And so I think the preliminary driver to get to cash flow breakeven is going to be that topline acceleration.

Makes sense. Okay. Thank you for that, Steve. Very helpful. And if I could ask my follow-up here on the new potential indication for OCD, can you remind us where the market is in terms of reimbursement coverage for OCD? And do you have any sales factored into your 2022 guidance for that potential clearance? Thanks.

So, from a reimbursement perspective, BrainsWay and MagVenture, and they do have the indication, and they have been able to secure some reimbursement. But it's by no means universal at this point. The market compared to MDD is very modest. And so while we do think our technology will benefit those patients suffering from OCD, we're not anticipating a large contribution in revenue this year. In fact, it's -- I would say it's not even worth mentioning. We do have it included in 2023 and 2024, but it is really dependent upon the reimbursement and how the various companies are successful in securing that reimbursement from the providers.

All right, thank you so much.

You're welcome.

Thank you. And I'm showing no further questions, and I would like to turn the conference back over to Keith Sullivan for any further remarks.

Thank you, operator and thanks again for joining us this morning. We're incredibly excited about the future here at Neuronetics and we look forward to updating you on the progress on our next quarterly call.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.