Good day, and thank you for standing by. Welcome to the Neuronetics First Quarter 2022 Financial and Operating Results Conference Call. [Operator instructions] Please be advised that today’s conference may be recorded. 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’ first quarter 2022 conference call. Joining me on today’s call are Neuronetics’ President and Chief Executive Officer, Keith Sullivan; and SVP, Chief Financial Officer and Treasurer, 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 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 and Form-10-Q, 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 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.

Good morning, and thank you for joining us. I’ll begin by providing an overview of the first quarter performance followed by an operational update. Steve will then review our financial results and I’ll conclude with our thoughts for the balance of 2022, before turning to Q&A. Starting with the review of the first quarter. Total revenue was $14.2 million up 15% over the first quarter of 2021, primarily driven by strong capital equipment sales accelerating, new patient starts and solid utilization trends despite the COVID-related headwinds experienced early in the year. January was significantly impacted by the spike in Omicron cases in the U.S., but the utilization in February and March increased as the environment improved. We have continued to see positive trends across the business in the month of April. U.S. NeuroStar System revenue was $3.6 million up 108% over the first quarter of 2021 representing the strongest capital quarter since the beginning of the COVID-19 pandemic and the fourth consecutive quarter of sequential growth. This was driven by improving performance from our full sized mature capital sales team who have built a robust pipeline since the reorganization of our sales force. We are also seeing continued contribution to system sales from our quarterly NeuroStar summits. These programs offer potential customers hands on product demonstration and educational seminars to optimize their TMS practices. These educational events have proven to be very effective, allowing prospects to meet the NeuroStar team, see a demonstration of its system, and understand how our partnership will garner success in their practice. For the first time, we finished the quarter with over 1,000 active sites, due in large part to the positive impacts of the optimization of our sales force over the last five quarters, and the ongoing refinement of our marketing initiatives. U.S. treatment…

Thank you, Keith. Total revenue for the first quarter was $14.2 million, an increase of 15% over first quarter 2021 revenue of $12.3 million. Total U.S. revenue also increased by 15% and international revenue increased by 37% over the prior year quarter. The U.S., international revenue growth were each driven by an increase in NeuroStar Advanced Therapy System sales. U.S. NeuroStar Advanced Therapy System revenue was $3.6 million compared to the prior year revenue of $1.8 million it was up 108%. The increase was primarily driven by a robust and consistent capital pipeline due to our maturing sales force in NeuroStar summits. In the quarter, the company shipped 48 systems up from 23 systems in the first quarter of 2021 with a significant portion going into existing customers who based on patient growth needed additional NeuroStar systems. U.S. treatment session revenue was $9.5 million a decrease of 2% over first quarter 2021 revenue of $9.6 million. The decline was the effect of COVID-19 cases and restrictions primarily in January. In the first quarter of 2022 revenue per active site was approximately $9,870 compared to approximately $10,512 in the prior year quarter. As a reminder, we calculate this metric by dividing total U.S. treatment session revenue by the beginning of quarter active sites. Gross margin for the first quarter of 2022 was 75.4% compared to the first quarter 2021 gross margin of 81.9%. The decrease was primarily due to the mix of higher capital in international sales. Operating expenses during the quarter were $20.8 million an increase of $3.8 million compared to the first quarter of 2021. The increase was primarily driven by the implementation of new marketing initiatives and personnel costs related to our expanded sales force. During the quarter we incurred approximately $2.2 million of noncash stock-based compensation expenses.…

Thank you, Steve. As we look to the balance of 2022, I am extremely confident in our ability to deliver accelerated adoption through the continued execution of our strategic plan. We will remain focused on driving increased awareness among customers and patients, optimizing our commercial organization, leveraging our exclusive partnerships, and executing on our clinical and regulatory strategy. The global pandemic has caused a sharp rise in certain mental health disorders, in particular depression. With the World Health Organization estimating a 25% increase in prevalence, significantly increasing the size of what was already a massively underserved patient population. With the industry’s best TMS platform, superior clinical outcomes, unparalleled practice support, and a supportive balance sheet. We are uniquely positioned to deliver our on our mission. To bring relief to millions of patients suffering from mental health disorders. With that, I’d like to open the line for questions.

Thank you. [Operator Instructions] Our first question comes from Adam Maeder with Piper Sandler. Your line is open.

Hi, good morning. Thanks for taking the questions and congrats on the nice start to the year. A couple from me guys, maybe just to start, wanted to ask about the OCD label expansion and potential impact there to your business. How helpful is that with the customer base now to be able to kind of market for this condition? And I think I heard limited launch in Q2, full launch in Q3. So maybe just talk through how we should be thinking about potential treatment sessions and revenue associated with OCD as that ramp’s going forward? Thanks.

Thanks, Adam. This is Keith. We are excited about the OCD opportunity. I think we have over the past several months done a market analysis and looked at the opportunity and how we would approach the market. From a treatment standpoint, we are going to prudently roll this out to as we said in our press release 40 accounts, and then deploy it to the rest of the customers in the beginning of the third and throughout the third quarter. So, we think that there is an opportunity there. We have to drive awareness. I think there’s less awareness for a treatment for OCD than there is for depression. So, we have some work in the field to do before it’s a meaningful part of our business, but we think in 2023 and 2024, it will contribute to our top line growth.

Got it. Okay. That’s very helpful color, Keith. Appreciate that. And then for the next one, just on capital very nice quarter, strongest since Q4 2019, from what we can tell, maybe just talk a little bit more about kind of what drove the capital strength in Q1? What are we seeing more broadly in terms of capital environment or appetite for customers? I mean, it seems healthy. And then if we just kind of run rate Q1 capital going forward, we get a number that’s kind of well above what we are modeling for the full year. So maybe just kind of, help frame up expectations on the capital front going forward. And then I had one quick follow-up. Thanks.

Okay. So, we’re excited about our progress with capital. I think at this time last year, we said that we would that our team had entered into the field with a pipeline that didn’t exist and they would have to build it over time and that they would finish the year with strong numbers, which they did in Q4 and followed up in Q1. So, I think our, we have a robust pipeline right now that is continuing to be filled with our NeuroStar summits. So those summits are highly popular. We’re the one in Atlanta that we are going to do in a few weeks is about three quarters the way full, and we expect it to be completely sold out also. So, I think that our target is to continue to hit somewhere around 50 units, a quarter. It doesn’t do us any good to put a system in the field, if we’re not able to get it active and being used and make that physician successful with it. So, through our marketing efforts, through our practice development team and now with NeuroStar University, we feel that somewhere between 200 systems and 250 systems a year is a good cadence for us to be able to focus our teams on.

Very helpful color. Thanks. And if I can just squeeze in one last one, it’s on the, the federal lawsuit against the competition one of your competitors. I know you’re limited in terms of what you can say here, but maybe I’ll just try and ask a couple background procedural questions. So, first as it relates to timing, why now, why is now kind of the right time to litigate? And then how do we think about potential timelines and path forward here? Thanks so much.

Well, as far as timing it, when the information surfaced several weeks ago, we had to do our research to make sure that our beliefs were accurate. And I think the timing of it is, we have determined that they mischaracterized our data. We have to defend the information that we have put out into the field, and we are going to protect our data and defend anybody who tries to mischaracterize it. So, I really can’t say any more than that. The timing is because we came to the decision a week or so ago that we were in a good position to put the lawsuit out there.

Okay. Keith, and sorry, just any thoughts on kind of how this plays out from a timeline perspective going forward? Or is that, is it too early to kind of have a good handle on timelines? Thanks.

No, I think it’s too early to comment on that.

Okay. Understood. Thanks again guys.

Thanks Adam.

Thank you. Our next question comes from Bill Plovanic with Canaccord. Your line is open.

Great. Thanks. Good morning. Couple questions for me. First of all, I’d just like to, as we think about the guidance you provided and maybe the momentum in the business, I mean crossing that 5,000 patient threshold, given that January was fairly low, kind of, just trying to triangulate seems like the math on the guidance might be a little conservative. Just what are the puts and takes that you’re thinking of as you think about Q2 and then maybe the full year? And then I have a couple of follow ups.

Thanks, Bill. It’s Steve. Yes, I’m not sure where the 5,000 came from, but regarding puts and takes, we still are a little bit impacted by the pandemic. Firsthand experience, my daughter had a junior prom, which was deemed to be a superspreader event where 200 students at a 225 caught Omicron. Now it is much milder than in the past, but it still does have an effect on our practices and patients, Q1 came in on budget and higher than guidance. So, we’re very comfortable with where we’re – where we ended Q1 and where we’re currently at with Q2, again Q3 is a seasonally flat quarter relative to Q2, and then we really pick things up at the end of the year. So, I don’t view it as conservative. I view it as really consistent with what we put out in March and really there’s the variables. And our thoughts haven’t changed since a few months ago.

Great. Thank you. And then just, I think you mentioned on the first on the call, just cash usage seemed a little higher than normal in the first quarter. Is there anything, you’d like to call out or we should think of. So, I think if I look at the year ago, it was about, I think about $5 million less in cash usage. And I don’t know if it was an inventory buildup or, anything specific there.

Yes. I mean, there were three primary drivers for that increase in cash burn. One is, the P&L loss of $10.8 million. We had to fund that. And then we did have a $1.5 million increase in inventory. And so with our product development team and manufacturers, we released version 3.6 in October, and we’ll have version 3.7 coming out in the summer. It does put strains on inventory. We have to purchase some parts at risk. And then we’re continually working around some obsolescent issues. But we think the inventory will be relatively flat to where we ended in Q1. And then also you saw, we did have a slight increase in AR primarily driven by some of our larger customers just managing their own cash. But we work closely with them and we’re confident that we’ll be able to bring that down by the end of Q2.

Okay. And then finally, just I mean, May is depression month. Just what are your plans? Do you have any special projects, any major events or pro or marketing programs for the month?

Yes. Bill, this is Keith. Thanks for asking. Yes, it’s an exciting time for us. I think we have talked about our new campaign that we rolled out in the first quarter, which has tapped into a new possibility for depression that has now been launched over all of our marketing channels including digital and paid search and all the resources that have been also put into our practices. We recently rolled out what we have told our practices is the purple box and the within the purple box is all the materials that they would need to market and educate their patients within their practice. And so far the reception to that within our customer base has been phenomenal. They can’t wait for the box to show up. And lastly on March 2nd, we launched our partnership with Drew Robinson. Drew Robinson is a mental health advocate, but was also a former major league baseball player who, even though he was able to rise to the top of his game in major league baseball, he still suffered with depression from the time he was a small child, ultimately ending in a suicide attempt when the COVID-19 pandemic started in April of 2020. Fortunately he survived and he is now a huge mental health advocate. He has agreed to be a spokesperson for us, and we will be utilizing Drew across all of our marketing channels. So, we’re excited to have him as part of our team.

Good. Thanks for taking my question.

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

Hi everyone. This is Brandon on for Margaret. Thanks for taking the question. I wanted to focus first on utilization. I know there was an impact of COVID in January. It might be helpful if you guys could give a little bit more color, maybe if you’re willing on a monthly basis. So what we’re really just trying to understand is, you have a lot of commercial investments going on. They’re starting to mature. So as the end market started to normalize in February and March, were you starting to see some year-over-year growth in terms of disposables there, and then because we’re frankly also just trying to understand what that trend should be through the rest of the year from here on the disposable side.

Yes. Hi Brandon. I hope Margaret’s doing well. It’s a really good question. The difference between previous quarters and January was that our offices didn’t shut down. Their patient population slowed down. So their utilization and their motor thresholds were slower than we had expected, but the offices remained open. And as a result, we were able to sell systems into them and still do training and education for their staff. So that was a huge bonus for us. What, we look at our utilization on a weekly basis, across all of our customer base from the fixed price to our national accounts to our per click customers. Starting in the second week of February, all of the numbers on utilization started to tick up. And then we look at our motor thresholds, the same way and all of those ticked up. So, we are currently at one of the highest points on a weekly basis for our motor thresholds across the board. So that’s what gives us the level of excitement that we have right now.

Got it. That’s helpful. And as you place, the commentary around the system placements was really encouraging and well ahead of kind of what we were expecting in terms of productivity this year. Curious if you could talk a little bit about, since you’re kind of have strong leads when you’re placing these systems, are they maybe ramping in terms of utilization quicker than historically? Or do – should we think about there’s a big bolus of systems that might be coming in. They might be a little bit of dilutive to utilization in the ramp in six months to 12 months. I’m not sure if that’s an accurate timeline, but correct me if I’m wrong. So just thoughts on ramping of these new big numbers of systems. Thank you.

So, when we place a system into a new customer, somebody that has not done TMS before, the biggest challenge and the longest lead time is getting them credentialed and up and running on getting the payers to give them reimbursement. And right now we’re seeing that timeline to be at about 90 days from the time that we deliver the system into their office. So we are able at, during that 90-day period to do all the training of the staff that we need to do to, educate – start educating their patients and start their marketing programs. But that’s the longest lead time that we have.

Thank you.

Thank you. And we have a question from Marie Thibault with BTIG. Your line is open.

Hi, good morning. Thank you for taking the questions. I wanted to try to get a better feel for how some of your commercial initiatives are working and in particular, the 5 Stars to success. Could you give us an update on how some of those earliest centers who are involved with that program early on are doing now in terms of volume, in terms of utilization, in terms of engagement with the treatment?

Yes. Hi Marie, how are you? It’s, so as I, we said in the past, everybody is involved in the 5 Stars to success. It’s just how far they’ve progressed. And just as a reminder, the first star is getting them up and running, getting their system going and getting them up on reimbursement. The second star is getting their front desk trained, their treater trained, and then the physician trained and pretty much in that order. And then, the third is getting their office set up, so that they can start to receive patients and do start their marketing efforts. So, I think we have the majority of our customers through star three and going into start four. Our, our fourth star is really internal practice marketing. And that has been our focus when over the last six months. We have, we believe that we have broadened the awareness out there from under 9% to about 15%. We have a target to get it higher this year, closer to 20%. And I think we’re on track to do that, but we are driving that awareness so that when a patient goes into a physician’s office and sees the material and has talked to the – by the physician about a NeuroStar. The first thing that they’re going to do is go home and Google it. And we want to make sure that the, that there is information out there and that our website corresponds to that. And then that the physician that they’re seeing has the same look and feel that we do. So, we’re pretty far along in deploying the 5 Stars to all of those customers. And then the second program is our Precision Pulse, which I think the biggest attraction to that program is our co-op marketing and that continues to grow every single quarter. So we’re very pleased with the level of participation of our accounts in both of those programs.

Okay. Thank you for that color. A follow up here on the OCD indication certainly congrats on getting that clearance. Can you remind me what the reimbursement environment looks like here in the U.S. for NeuroStar and OCD?

So there are a few of the payers and a few of the max that are paying for OCD. They’re paying at the same level that they do for depression, and they’re using the same codes. We just need to work to broaden that to all of the major payers across the country. And we have brought on board a woman who sole responsibility is to help us in the reimbursement arena and get that, get broader acceptance by the payers.

Okay, great. And one very quick follow-up, probably for Steve. Could you give me the exact number of active sites? I heard you say over 1000; we’d just like to have it for our models, if you can offer it. Thank you.

This is Keith again. It’s 1008.

Perfect. Thank you.

Thank you. That concludes our question-and-answer session for today. I will now turn the call back to Keith Sullivan for closing remarks.

Thank you, operator, and thank you again for joining us on the call today. We look forward to updating you on our progress on our next quarterly call. Thank you.

This concludes today’s conference call. Thank you for participating. You may now disconnect.