Good day, and thank you for standing by. Welcome to the Neuronetics second quarter 2024 financial and operating results conference call. [Operator Instructions]. Please be advised that today's conference call is being recorded. I would like now to hand the conference over to Mark Klausner. Please go ahead.

Good morning, and thank you for joining us for the Neuronetics second quarter 2024 conference call. Joining me on today's call are Neuronetics President and Chief Executive Officer, Keith Sullivan, and Chief Financial Officer, Steve Furlong. Today's call features a live webcast, which includes a slide presentation. There's a short delay between the audio over the phone and the slides being shown on the webcast. If you are listening over the phone, we would recommend downloading the slide presentation from our website and following along independently. 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 the proposed transaction with Greenbrook TMS, our business strategy, financial, and revenue guidance, 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 Form 10-Q which will be filed later today, August 12. 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.

Mark, thanks for the introduction. Good morning and thank you all for joining us today. I'll begin by providing an overview of recent performance, followed by an operational update. Steve will then review our financial results, and I'll conclude with the discussion of our merger with Greenbrook TMS. I'd like to start by saying that our financial performance during the quarter was below our expectations, with revenue of $16.5 million, which was down 7% year-over-year. The impact of Change Healthcare cybersecurity breach still lingers. Our utilization in our local consumable segment was up 18%, and would've been higher had there not been the related bottlenecks impacting prior authorization caused by Change Healthcare. Despite the positive underlying utilization trends, Treatment Session revenue was down 5%, as our customers were forced to allocate cash to support their operations, rather than purchasing new Treatment Sessions in line with historical patterns. This redevelopment of cash is a result of continued delays in payments from Change Healthcare. We believe that the negative headwinds from Change Healthcare are transient, and our revenue patterns will return to normal over the balance of the year. Based on the trends we are seeing in Motor Threshold determinations and Treatment Session utilization, we continue to see strong utilizing underlying demand, and through the continued execution of our commercial strategy, we will drive sustainable long-term growth once we move past these macro challenges. On the capital side of the business, as noted last quarter, our customers experienced challenging securing financing for capital equipment purchases. The process now takes weeks instead of days. We've addressed these headwinds head on by adjusting our NeuroStar summer timing, and engaging the financing companies earlier in the process. As a result of our actions, despite the continuation of high interest rates and increased diligence requirements, we…

Thank you, Keith. Unless otherwise, noted, all performance comparisons are being made for the second quarter of 2024 versus the second quarter of 2023. Total revenue was $16.5 million, a decrease of 7%, primarily impacted by lower Treatment Session revenue in the quarter. US NeuroStar Advanced Therapy System revenue was $4 million. In the quarter, we recognized revenue on 50 systems, in line with our expectations. US Treatment Session revenue was $11.7 million, a decrease of 5% year-over-year. Revenue per active site was approximately $10,000 in the quarter, compared to approximately $11,400 in the prior year quarter, due to the unfavorable impacts on Treatment Session ordering patterns that Keith discussed. Gross margin was 74%, an increase of approximately 150 basis points from the second quarter of 2023 gross margin of 72.5%, due in part to the positive impacts of our shift to a new contract manufacturer. Operating expenses were $20.7 million, an increase of $600,000, or 3%, compared to $20.1 million in the second quarter of 2023. The slight increase was primarily due to expenses related to the expanded utilization of NeuroStar University. During the quarter, we incurred approximately $1.6 million of non-cash stock-based compensation expense. Net loss for the quarter was $9.8 million, or $0.33 per share, as compared to a net loss of $4.9 million or $0.17 per share in the prior year quarter. During the second quarter of 2023, we benefited from a $3.6 million employee retention credit, which did not recur in 2024. EBITDA for the second quarter of 2024 was negative $8 million, as compared to the second quarter of 2023 EBITDA of negative $3.3 million, which similarly benefited from the ERC credit in 2023. Turning to the balance sheet, as of June 30, 2024, cash and cash equivalents were $42.6 million. In late July,…

Thanks, Steve. As mentioned in our press release earlier today, we are excited to announce that we have signed a definitive agreement to acquire Greenbrook TMS. If you have followed Neuronetics in the past, you'll be aware that Greenbrook is the nation's largest TMS provider and the largest user of NeuroStar System. This acquisition brings together two of the leaders in the mental health industry, creating a unique vertically-integrated company with a significant footprint to bring the benefits of cutting-edge mental health therapies to as many patients as possible. Before diving into the transaction, we wanted to review the significant opportunities that exist for innovative solutions for the treatment of mental health conditions within the US. There are currently over 29 million patients, including adults and adolescents, who suffer from depression, anxious depression, and OCD. Within that massive patient population, more than 4.4 million people are being treated with medication and are poorly served as they are not finding the relief they desperately seek. This represents a large opportunity for businesses like Neuronetics and Greenbrook, as just a fraction of patients who qualify for TMS are currently being treated with non-drug alternatives. Let me walk you through some key points of the transaction. Prior to the merger, all of Greenbrook's existing long-term debt will be converted to Greenbrook TMS common shares. On a pro forma basis, Neuronetics shareholders will own approximately 57% of the combined entity, with Greenbrook owning the remaining 43%. Each share of Greenbrook is expected to convert into 0.01149 shares of Neuronetics common stock subject to adjustment prior to closing. Our existing Neuronetics management team will remain in their leadership roles, and key members of Greenbrook TMS management team, including Bill Leonard, Greenbrook's President and Chief Executive Officer, Peter Willett, Greenbrook’s Chief Financial Officer, and Dr. Geoffrey…

[Operator Instructions]. Our first question will come from the line of Margaret Andrew with William Blair.

Hey, good morning, everyone. Thanks for taking the questions. Maybe two for me, one on the acquisition and one on the Change Healthcare dynamics. Maybe I'll start with Change Healthcare. I guess, can you provide us any additional metrics to support that this is in fact an isolated event, and that other centers maybe that weren't impacted by Change are continuing to grow? And then as we think about Q3 going forward, when is that turn expected to happen as it's lingering maybe a little bit longer than certainly we expected and maybe you as well?

Thanks, Margaret. This is Keith. So, as you know, we look at metrics each week in my staff call, and we can see the utilization as it continues to grow. We also can look at the inventory that each of our customers have. And so, we are seeing positive trends in both of those and feel comfortable that Q3 will hit the guidance that we have laid out. So, I think the information that we get on Change Healthcare is that they focus first on the pharmacy, then the hospitals, then large groups, and then private physicians, and our information is that they are working their way to the private physicians. And so, we anticipate over the next few months, by the end of the year, it'll be back to normal.

Okay. And then as we think about the merger, I guess, why is this the right time versus waiting another year or so? And then as we think about capital allocation opportunities between the two companies, well, you continue to spend equally kind of on the core Neuronetics franchise, especially with kind of the move towards the adolescent opportunity. Are you going to keep building out or acquiring new clinics? I’m just trying to get a sense of what we expect from both a growth profile from the two franchises, and then like I said, capital allocation. Thank you.

So, I'll take the Neuronetics side first. We will continue to sell capital equipment and expand our customer base. I believe that through the Neuronetics-Greenbrook TMS combination, we can now solve some of the problems that our customers have had all along. We're able to teach them how to answer the phone, how to patient consult, how to do billing, how to get better reimbursement. But those teachings are ongoing and constantly being done over and over and over through our reimbursement policy team, as well as our PDMs. With the combination of Neuronetics and Greenbrook, we can actually help our accounts further by actually doing some of these things, doing billing for them, helping them answer their phones by offering the call center service. And it would be transparent to them, answering the phone as though we're their own office. So, I think we have evolved the business to the point where we have identified all the pain points in the industry that our customers experience on a daily basis. And now we have - can not only teach them how to solve those problems, but for those who want further help, we can do it for them.

Okay. And the capital allocation part on behalf of Greenbrook.

Hi, Margaret, it’s Steve. I think the critical answer to why do it now was really Greenbrook's lenders’ willingness to convert their roughly $140 million in debt to common shares. Obviously, with our debt load of just $50 million now supporting the combined companies, it's really a financial game-changer for us. And so, obviously the debt to revenue ratio is much stronger. And with Perceptive, we do have the ability for additional tranches, if necessary. But again, from my perspective, it was really that variable which turned the tables and really changed our minds to do this now, as opposed to waiting another year or another two.

So, Margaret, our initial focus with Greenbrook, and this has been the discussion with Bill Leonard and his team, is to expand utilization in each one of their existing centers. So, at, at this point, there isn't a plan to build additional brick-and-mortar or to buy other sites. It's really to be able to take them from where they are today and get their current stores and systems up to full utilization.

Okay. I'll leave it there for now. Thanks, guys.

Our next question will come from the line of Adam Maeder with Piper Sandler.

Hi Keith, and Steve. Thanks for taking the questions and congrats on the Greenbrook merger. Just one quick one for me, I guess to start would be, are you able to quantify the impact in the quarter from the Change Healthcare cybersecurity issue?

I mean, yes, it was pretty much all of the mess, so we would say in that $2 million range. Adam, what we saw is during the quarter, our utilization across all of our customer segments was up nicely high double-digit teams to low 20% year-over-year. What we found is with the cashflow issues our customers had where they would traditionally place a medium to large size order at quarter end to support the next quarter's patient flow is, there was a purchasing pattern change where they held off and really just worked through some of the inventory that they had on the TrakStar, and really I would say depleted what would be their normal operate inventory levels. And so, that really impacted revenue. But to my earlier point, the utilization is still up significantly year-over-year. And so, that's why we left the year-end guidance alone. The patients are still there. They may have been slowed down a little bit with the prior auth, but from what we're hearing from our customers, the queue is full, and ultimately the historic purchasing patterns will come back into play.

That's helpful, Steve, and good kind of segue into the next question, which is just wanted to ask a little bit more about the guidance and the back half outlook. And I guess if I heard Keith's comments earlier to Margaret's question, as it relates to the Q3 guidance, it sounds like you're pretty comfortable with the $18.5 million to $19.5 million outlook that you provided, and that's informed on kind of what you've seen thus far, six weeks into the quarter. Just wanted to, I guess ensure that I'm thinking about that correctly. And then as it relates to Q4, the implied guide there is a pretty steep ramp. It's a sizable number. So, I'm just - even with normalized trends. So, just wondering if there's anything that's contemplated there for adolescents, residual revenue contribution from Greenbrook. Just help us get a little bit more comfortable with the outlook for Q3 and Q4, and then I have one follow-up.

Yes, I would say, Adam, that we're very comfortable with Q3. And there is a balance between the Q3 expectation and what's implied for Q4. We did want to get ahead of ourselves with the Q3 number. But again, I would say we’re very comfortable with that. One key data point for us is collections, and we did see a pretty good rebound the last couple of weeks of June. My collection team was able to bring in an impressive amount of money. And then July was our highest collection month since 2023 in the fourth quarter. And so, that gives us some confidence that our customers are getting their claims reimbursed and they do have cash coming into their business. So, would I have liked to have thrown up a $20 million Q3 and then a little less on Q4? Yes, but given that there's still time left in the quarter, I think where we set it makes sense, and again, our comfort level is pretty strong.

Thanks for the color there. And if I could squeeze in just one more, guys, just on Greenbrook. The deal obviously makes sense strategically, but was hoping you could maybe speak a little bit more about some of the deal synergies that you referenced, both the mid-teens revenue growth that you expect for the combined entity in 2025 and 2026. That's an acceleration versus standalone Neuronetics. Would love to hear a little bit more about that, and then just anything on the cost energies that you'd like to touch on as well. Thanks for taking the questions.

Thanks, Adam. Yes, this was a key point with our board of directors. It’s no surprise that both companies were losing money. But the $15 million that we stated is really the initial take on the synergies between the two companies. We have the obvious ones, the G&A vendor spend systems. /there'll be some synergies in marketing spend. We’ll become much more efficient under one leader. And so, as we work through the integration the next couple of months, we'll have that ability. And then many of us have been through these integrations before. So, it's very important that on day one, you have your plan in place and you take swift action to ensure that those synergies are realized as quickly as possible. So, we're confident in the early assessment that the teams have completed, that we'll be able to get there. And again, the conversion of debt is one thing. That was a great load off the combined entity, but really you have to take costs out, and if you don't, it's usually the death of putting companies together. So, our board made it very clear what they're looking for as we exit 2024 into 2025, and the management teams understand our goal is not $15 million. That's probably closer to the 2025 target. But again, we’re about three weeks past our LOI. So, we'll have some time in Q3 and Q4, and then hit the ground running upon close of the transaction.

Our next question will come from the line of Bill Plovanic with Canaccord.

Hi guys. It's John on for Bill this morning. Thanks for taking to our question. Just first on the guidance here, I'll touch there then move to the merger. But starting on the guidance, two. First, are you extending receivables for customers? And also are you expecting a bolus, given the expected wind-down inventory, Steve, that you were just mentioning? And is that bolus more reflected in the Q4 implied guidance, or are you just expecting just a return to normal seasonal reordering patterns and just customers will carry a lower level of inventory going forward?

So, we track inventory by site, and we were comfortable with the inventory levels prior to the Change Healthcare breach. And so, we do think customers will ultimately revert back to that level. Again, they really do stock up in advance of the next quarter. And so, we do see that happening. As far as receivables, again, it's all of our customers that were impacted. So, it's not like underperforming customers are having trouble paying us. Customers weren't getting reimbursed. And so, you can only push so hard. We have great relationship with all of our customers, so we're never threatening in nature. You have to be respectful and work with them, and we totally understand the predicament they're in. And so, we are at their mercy. And again, having such a strong collection month in July, I think indicates there's always a willingness to pay for what they purchased. But if you don't have any money in, there's not a whole lot either one of us can do. And so, again, like I told Adam, we are expecting a good rebound in Q3 and then, yes, hopefully a return to those normal inventories in the fourth quarter, which is why we kept the full-year guidance where it was at.

Great. Thanks. And maybe for Keith, two. I know this question's been asked a couple of different ways already, but maybe just another way to ask it, just it's nice to see both the revenue and the cost synergy that are being assumed in the pro forma forecast here, but any additional color on that revenue growth that we should expect the mid-teens you're growing to. And maybe just any color on what does a start (endpoint) at the end of 2024 look like for the combined companies? Thanks again.

So, John, the combined company for 2025, well, I'm not sure we would - we want to give out guidance for that yet, but we are anticipating a 15 - mid-teens, but 15% growth between the two companies for next year. That growth is going to come from opening up additional opportunities for Spravato and the balance of the Greenbrook accounts, and by having marketing synergies that would be more efficient and generate more patients under one brand name instead of two. So, I think that we're pretty comfortable that we’re going to get - be able to drive greater business within the Greenbrook stores. And we also mentioned that we would provide uniform training across all of those stores so that they get a uniform experience.

Great. Thank you again.

Our last question will come from the line of Danny Stauder with Citizens JMP.

Yes. Great, thanks. So, just first on Greenbrook, you gave some great color on the benefits there, including marketing payer contracts, as well as those to the financials. But I guess just more on a high level, could you give us some broad strokes on what we should be thinking about as far as a roadmap here? What's the immediate focus? What does phase one look like? What does phase two look like? Any sense of a pecking order would - as you begin your integration would be great. Thanks.

Yes. Hey Danny, it's Steve. Again, the teams I guess in total really haven't had a lot of time to converse about the integration plan and what the priorities will be. It was done at a high level between the leadership teams of both companies. Our first priority is getting to that $15 million synergy number. Again, we want to be cashflow positive in 2025, and we also want to hit the ground running as soon as the deal closes. After that, it's really increasing the efficiency in utilization in the 120 or so Greenbrook stores. We've seen the impact of our NeuroStar University training and education efforts on the Greenbrook stores that were part of the BMP pilot program back earlier in the year. And so, we know that our trainings, when applied across the board to all the stores, will have a pretty significant impact on utilization and revenue. And again, with the revised capital structure of the companies, it will enable for Greenbrook to continue with their Spravato rollout, which to date has been very impressive. So, cost synergies will be the top priority. Second will be the revenue synergies. And then again, it's going to be the continued expansion of the BMP program. We still only - well, not only, but we have 300 sites in the program now, and the goal continues to be to roll that out and make sure the customers that aren't in it realize the benefits behind being part of the program. Our partners in the BMP are just wildly successful and have really increased their utilization and overall business performance. And so, I think it's those three priorities that will really create a successful company post integration or post close

Danny, on the commercial front, I mentioned that the expansion of Spravato into the balance of the stores at Greenbrook is a key priority, but there are also some good learnings that we have on both sales organizations. Greenbrook has done an excellent job of generating awareness within primary care and physicians’ offices that treat patients with depression, but aren't willing or aren't interested in getting into the TMS treatment themselves. And they've been able to educate those offices and the patients and then have them sent to the Greenbrook sites. We have that opportunity for our current customers also. So, we will have learnings from the Greenbrook team on how we can educate our PDMs into doing the same thing for our existing customers. And it turns out to be not only a great source of patients that are looking for help, but they are also the patients that have the highest conversion rate within the Greenbrook system. So, I think from a commercial standpoint, with Bill and with Sarah Grubbs and her team, this is a huge opportunity for us to drive greater growth.

No, that was great. I appreciate all that extra color and commentary. Just one follow-up for me, just in terms of average revenue per active site, stepped down a little bit in the quarter, but obviously that's due to some of that Change Healthcare disruption. Could you just remind us on what you feel is your sustainable long-term level here? Excluding some of these headwinds, what's the level that you think about as far as just a normalized level here per site? Thank you.

I mean, our goal is to get all of our customers NeuroStar to capacity. So, that would be roughly seven to eight patients per day. And so, from a CFO perspective, I would like to see revenue per site 15,000 to 17,000 a quarter. Again, we’re seeing those types of levels with our BMP partners. So, am I 100% confident we'll get there? No, but I do think there's a lot of runway going from 10 to even 15. That is very possible. And again, that's going to be our focus in 2025 is to help our BMP customers and also the 120 Greenbrook stores really increase their yield utilization.

Great. Thank you very much.

That concludes today's question-and-answer session. I'd like to turn the call back to Keith Sullivan for closing remarks.

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

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