Good day and thank you for standing by. Welcome to the Neuronetics Report Third Quarter 2022 Financial and Operating Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Klausner from ICR Westwicke. Please go ahead.

Good morning and thank you for joining us for Neuronetics third quarter 2022 conference call. Joining me on today's call are Neuronetics President and Chief Executive Officer, Keith Sullivan; and the Senior Vice President, 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 third quarter performance, followed by an operational update. Steve will then review our financial results, and I'll conclude with our thoughts on the balance of 2022 before turning to Q&A. Starting with our financial review for the third quarter. Total revenue was $16.5 million, up 20% over the third quarter of 2021. This represents the third straight quarter of over 15% year-over-year growth and the second straight quarter during, which we delivered revenue of over $16 million, bringing us back to consistent levels of top line performance that the business has not seen since 2019. The strong performance was primarily driven by increased utilization in our per-click accounts and the continued capital equipment sales growth. It is clear that the investments made over the last two years in the various marketing programs, our practice, development team and the patient awareness tools are paying off. U.S. NeuroStar revenue was $3.9 million, up 51% over the third quarter of 2021. The performance comes as a result of the continued excellence from our commercial organization who hit their stride in cultivating and converting a strong pipeline, which was bolstered by yet another sold-out NeuroStar Summit. The U.S. treatment session revenue was an all-time record of $11.9 million, up 16% over the third quarter 2021. The record revenue was the result of improving utilization, due in large part to the local per-click customer utilization rates increasing 20% year-over-year. These positive trends come as a result of our investment in the Five Star training program, the expansion of our PHQ-10 tool into more offices and greater availability of practice management training. Now turning to operational highlights. Our first focus area is increasing customer and patient awareness. Similar to previous…

Thank you, Keith. Total revenue for the third quarter was $16.5 million, an increase of 20% over third quarter 2021 revenue of $13.8 million. U.S. NeuroStar Advanced Therapy system revenue was $3.9 million, representing a 51% increase as compared to the prior year revenue of $2.6 million. In the quarter, the company shipped 50 systems. Of these systems shipped, 49 were recognized as NeuroStar capital revenue and one system was recognized as an operating lease, up from 40 systems shipped in the third quarter of 2021. U.S. treatment session revenue was $11.9 million, an increase of 16% over third quarter 2021 revenue of $10.3 million. Of note in the quarter, local per-click customer utilization, which excludes service providers increased 20% year-over-year. In the third quarter of 2022, revenue per active site was approximately $11,400, compared to approximately $11,200 in the prior year quarter. Gross margins were 78%, compared to the third quarter 2021 gross margin of 77%. Operating expenses during the quarter were $20.4 million, an increase of $2.6 million, compared to the third quarter of 2021. The increase was primarily driven by our expanded sales force, the opening of NSU, some additional headcount and product development and clinical, as well as increased costs from inflationary pressures. During the quarter, we incurred approximately $2.1 million of non-cash stock-based compensation expense. Net loss for the third quarter of 2022 was $7.6 million or $0.28 per share, as compared to a net loss of $8.2 million or $0.31 per share during the third quarter of 2021. EBITDA for the third quarter of 2022 was negative $6.1 million, as compared to negative $6.9 million for the third quarter of 2021. Moving now to the balance sheet. As of September 30, 2022, cash and cash equivalents were $73.7 million. Now turning to guidance. For the full-year 2022, we now expect revenue in the range of $63 million to $64 million. For the fourth quarter of 2022, we expect revenue of $16 million to $17 million. We continue to expect total operating expenses for the full-year 2022 to be in the range of $86 million to $88 million. In line with our previously announced path to profitability, we remain confident in our ability to reach cash flow positive during 2024. Between our top line growth expectations, our strong gross margin profile and the prudent management of our operating expenses, our path to profitability remains on track. I would now like to turn the call back over to Keith.

Thank you, Steve. We are pleased to see the impact of the initiatives we've rolled out over the past two years taking hold with sustained results, and we are in great shape to round out the year. As you can see from our guidance, we expect to finish out 2022, demonstrating strong growth. We will continue to focus our efforts on increased customer and patient awareness, the continued optimization of our commercial organization, leveraging exclusive commercial partnerships and continuing to advance our clinical and regulatory programs. Our team has demonstrated significant progress, and I am confident in the team's ability to take advantage of this opportunity over the years to come. Before turning to Q&A, I wanted to highlight a significant achievement as part of our customer and patient awareness efforts. Yesterday, NeuroStar spokesperson Drew Robinson, was featured in a segment called Mind Matters with Carson Daly on the Today Show. His message of encouragement to people struggling with mental disorders was that help is always there, and it takes strength to reach out and ask for it. We are proud that NeuroStar is part of Drew's mental health recovery, and we look forward to a continued partnership with Drew as we collectively seek to bring relief to as many patients as possible who are suffering from treatment-resistant depression and other mental disorders. With that, I'd like to open the line for questions.

Thank you. At this time we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Adam Maeder of Piper. Your line is now open.

Great. Well, thank you for taking the questions here, Keith and Steve and congrats on the progress. Maybe just to start on Q4 and the implied -- well, I guess you provided Q4 guidance, I think that implies flattish sequential revenue at the midpoint quarter-over-quarter versus Q3. That seems maybe a bit conservative to us. As I think we typically see more of a sequential step-up quarter-over-quarter in Q4 looking at past years. So maybe just talk about the exit momentum that you had in the third quarter, what you're seeing thus far in Q4. Just any key assumptions in that outlook, maybe it's just a little bit of conservatism? Thank you.

Thanks, Adam. Yes, I would guess, classify the guidance as being responsible. We still are faced with three health issues out there with COVID, the flu and RSV. And so we certainly didn't want to get ahead of ourselves. We do agree that Q4 is traditionally our strongest quarter from both capital and treatment session perspectives. So calling me conservative, I guess, is flattering. And I think, like I said, I think it's just a responsible set up for another beaten raise as we end the year.

Okay. Understood, that's helpful, Steve. Thank you for that. And then we're at the time of the year when folks are starting to look ahead to ‘23 certainly recognize you're not at a point to give guidance at this juncture, but wondering if you're willing to give us some puts and takes around the setup for 2023. I show consensus, precall estimates at around $73 million. I think that's 19% growth year-over-year. Any reaction to that figure or just any broader puts and takes that you can provide, sessions growth versus systems would be much appreciated.

Yes, Adam, I think our recent performance really speaks to itself. At the beginning of the year, we still had some impacts from Omicron. We had a very slow January and really have rebounded very nicely since Q1. I would say if you look at our growth rates year-over-year for Q2, Q3 and even what's implied for Q4, I think you get a sense of where we're heading for 2023. We certainly don't anticipate any steps backwards. The headwind should continue to lessen. Again, I would be comfortable with our current year-over-year performance into 2030.

Very helpful. Thank you, Steve.

Thank you, Adam

Please standby for our next question. Our next question comes from the line of Margaret Kaczor of William Blair. Your line is open.

Hey, good morning, everyone. Thanks for taking my questions. Yes, I wanted to start with utilization because obviously, a really nice pickup series like on the consumables side. I'd imagine there's very minimal impact from NeuroStar University at least at this point. So I guess I'm just trying to figure out what's the primary driver? Is it the PDMs? Is it finally picking up traction. So that it's durable benefit that you continue to see going forward? Is it something that you saw maybe the larger TMS centers or something else? It's obviously nice numbers.

Yes. Thanks for the question, Margaret. So our utilization has been steadily ticking up. I think our practice development managers in the field have been doing a great job putting out our five stars to success, talking about the Precision Pulse program and really helping the accounts focus their education and marketing on to patients that can benefit from NeuroStar treatment. So our biggest growth this quarter was really in our per-click accounts, which is demonstrating to us that the programs that we have put forth are working.

Okay. And so I think part of the other piece of this is trying to understand the durability of that. And we've seen some stronger quarters in the next quarter, maybe a tick down in part, because of COVID and other things. So I'm just trying to see if you guys can you give us any color in terms of the durability of that, any leading indicators that support the forward look? I'll sneak in a third question on the side, just to follow-up on Adam. When you talk about kind of seeing the same growth as implied kind of year-to-date, is that kind of a mid-teens number? Am I doing that quick math the right way? Is that what you guys are looking forward for ‘23? Thanks and congrats.

Hey Margaret, Steve. Just regarding the 2023 expectation, I would wait the Q2, Q3 and Q4 performance more heavily than what we saw in Q1. And so, I think you're looking at the mid-teens, maybe slightly higher into next year.

I'll take the other part of your question, Margaret. I think on the durability of the utilization and the revenue, and we look at both. So we want to make sure that our sell-in is equal to the revenue and to the utilization. When we look at these accounts and using our PHQ-10, we're helping these accounts identify patients that has -- are not only candidates, because they failed the proper number of drugs, but are waving their hands saying, we want a non-drug alternative. We are still just scratching the surface on deploying those PHQ-10s into our accounts and getting the accounts educated on how to capture those patients. So from a durability standpoint, I think we will see our normal seasonality next year, but I believe that we will continue to grow on our per-click business.

Thank you, guys.

Please styandby for our next questions. Our next question comes from the line of Bill Plovanic of Canaccord. Your line is now open.

Great, thanks. Good morning. Just a couple of questions here, just on kind of operations and cash to start with. Your SG&A was down pretty significantly on a sequential basis with revenues that were slightly up. I was wondering if you could just help us understand kind of the moving parts there. Then it was nice to see the cash go up sequentially this quarter, and I think some of that was getting some cash back from one of your prior partner investments. But how should we think about just cash usage over the next 12 to 18 months and maybe major uses of cash?

Hey, Bill, Steve. Yes, you're correct with the Q3 cash positivity. We did receive repayment of the $10 million term loan from Success TMS as part of their transaction with Green Brook, so that did help us with a decent influx. Historically, Q3 and Q4 are lower cash burn quarters. We are forecasting a significantly lower burn in Q4 than we traditionally see. We've started the operating planning process for 2023. Our cash target is quite a bit lower than what it was for 2022. We've repeatedly stated that our OpEx was artificially high in 2022. A lot of one-time events surrounding the sales team and some marketing initiatives, those will not recur in 2023. So we're going to be able to leverage OpEx and bring that cash burn down. Obviously, it's a function of working capital and the revenue growth next year. So I don't want to be pinned down to a number, but it will be, I would say, significantly lower than ‘22 and really set us up for that cash flow break-even target in 2024.

Thanks. And then if I could just ask on the PHQ-10 tool. You bring that up a lot. I think we've had some discussions, but my understanding, and correct me if I'm wrong, is really the difference between PHQ-9 and 10 is one extra question that they're asking the patient. So it’s a pretty simple tool. Do I understand that right? Two, I think how penetrated or how many of the account base you have it into today? Is this something you think will be 100%? If so, when? Or kind of what's the final target of penetration for utilization of that tool in the existing accounts and new accounts. Thanks for taking my questions.

Yes. Bill, this is Keith. You have the PHQ-10 right. There are many pieces to it, though. So we do add that 10th question on to it, but it's the way that we also capture the information and bring it back to the account that helps them identify that patient and then educate them. So right now, we have PHQ-10s in just slightly less than 25% of our accounts, and we are growing that on a daily basis. So we have seen that it is the number one tool to help us drive awareness to these accounts. But we are deploying it in a way that we have to do education so that the accounts know how to then talk to the patient itself. It's a great tool, but it's not just something that we can put into an account and have them know how to use it, know how to talk to the patient.

Thanks for taking my question.

Please stand by for our final question. Our final question comes from the line of Marie Thibault of BTIG. Your line is now open.

Hi, good morning. Thank you for taking the questions and congrats on a strong quarter. I want to ask my first question here on the systems side. I noticed that ASPs seemed to step up meaningfully. I wondered if that was linked to the D-Tect motor threshold tool and what might have been driving some of those stronger ASPs? I noticed that you did talk about D-Tect revenue. So I wondered how that's being priced or what sort of contribution we might expect from that going forward?

Hi, Marie, this is Keith. I think your question on our system sales is one that we look at on a weekly basis. Our ASPs are going up, because honestly, the price of the system is not the impediment to them putting a system into their office. So most of our accounts lease them and the reps are able to sell at a higher level because of the value of the programs that we are bringing to the table. So ASPs are steadily creeping up and our accounts are continuing to pay it without a big issues. I missed your second question.

Yes, on D-Tect.

So D-Tect, we launched in the second week of September was when we were able to get our first systems out the door. It generated a little over $100,000 in revenue for us in the quarter. We sell the system for a little more than $2,100 and it is in the new system pricing as of October 1. We have raised the price of the system and are including D-Tect with it.

Okay. That's very helpful. And then I wanted to ask my second question here on treatment, treatment volumes, and I think you called out revenue, treatment revenue per active sites, 11,400. I think that's up about 2% year-over-year, maybe 1% sequentially. I want to get an understanding of just how high that could go or what maybe your best sites are doing in terms of revenue per active site at this point? Just to give us sort of a target to work towards long term.

Marie, Steve. Yes, I mean, that number kind of traditional for a click perspective, it's just under $45,000 annually in treatment session revenue. That represents 2.5 or so patients per day over the course of the year. We think we should be able to get that to 4 or 5, so essentially doubling where we are in getting patients or customers to that $75,000 to $90,000 annually in treatment session revenue. The per-click segment, which is about 20% of our overall sites, their utilization was up 20% quarter-over-quarter. The programs that our practice development managers are employing along with the PHQ-10 and some other tools are certainly paying dividends. I guess the most simplistic view of this, if we can get a customer to add one patient per day, there's no reason why they can't add two. The data certainly supports it. The program support it, the support that we give our customers support it. So we've been in that $45,000 range, I think, since I've been here. And now it really feels like we have the traction and really the support from the PDM. So I think we're going to see nice increases over the next few years.

At this time, I would like to turn it back to Neuronetics President and CEO, Keith Sullivan.

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

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