Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2020 Financial and Operating Results Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Mark Klausner. Thank you. And please go ahead sir.

Thank you, operator. Good morning and thank you for joining us for Neuronetics First Quarter 2020 Conference Call. A replay of this call will be available on our website for 30 days. Joining me on today's call are Neuronetics' Chief Financial Officer Steve Furlong and Andy Macan, Senior Vice President and General Counsel. Steve and Andy are also members of the Company's Office of the President. 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 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 filed on March 3, 2020 and quarterly report on 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 provides 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 Chief Financial Officer, Steve Furlong.

Good morning everyone and thank you for joining us. On today's call, I'll provide an update on recent events that have occurred within the Company along with an overview of how the COVID-19 pandemic and resulting economic turmoil are impacting our business. I'll then provide an overview of our first quarter financial results, provide our thoughts on the remainder of the year and then open the call up for your questions. Beginning with the management transition, in early March, the company announced the transition and senior management. The Board of Directors established an interim Office of the President, made up of myself and Andy Macan, Senior Vice President and General Counsel to lead the business while the company recruits a new CEO. Additionally, Brian Farley, the Company's Chairman of the Board was appointed as the Board's liaison to the Office of the President. The Board of Directors has appointed an Executive Search Committee and has engaged a recruiting firm who is performing a formal search for a permanent CEO. In the meantime, we continue to drive the company's tactical and strategic initiatives with the goal of maintaining and expanding our market leading position. Shifting gears, I would like to provide an update on our response to the impact of COVID-19 as well as an update on our business more generally. As previously announced, we have experienced a material impact on our business from COVID-19. As a result, we have taken numerous proactive steps aimed at keeping our employees and customers safe, continuing to support our customers and their patients during the crisis and managing our capital resources with a view towards both near and long-term business continuity. Depression is a debilitating condition that millions of patients suffer from worldwide and for those undergoing or in need of TMS treatment for…

[Operator Instructions] Your first question comes from the line of Malgorzata Kaczor from William Blair.

Maybe, first, to start out, we can dive into the sales and marketing spend and the changes you guys are making there. So first, can you give us details in terms of how many BDM, do you have as well as on NPC CTCs and whether you're keeping that structure or not?

We are maintaining that structure. I would say, the most significant change we have made to the sales organization was integrating those three functions vertically. Prior to early March, we had a different management structure now we feel going more vertical with BDMs, NPCs and CTCs under the same manager was the more efficient approach and extremely timely, given the environment we're operating in. The specific numbers, I don't think of that relevant at this point, but we will be maintaining that same type of structure and support to our customers.

Okay. Yes, so part of it is the impact of what that means for kind of two types of accounts that you guys have, so you referenced focusing primarily on those TMS only accounts. But on the same token, we've seen a little bit of pressure on the legacy accounts over the last few quarters. So maybe you can give us a sense of how you're strategically changing the focus on that as well as the percentage of sales that those accounts could represent, will be represented?

Sure. Yes, in 2019, we did see a significant shift in sales to the TMS only service partners and we are forecasting that to continue into 2020 and 2021. These entities are very self-sufficient and don't need the level of support that stand-alone practices or psychiatrists require. So we are able to redirect some of our BDM time to our traditional customer base. From an MPC and CTC perspective, it's pretty much the same type of model. Again, those service providers are again self sufficient and have a great business models and are able to conduct their business without a lot of our support. Obviously, we do offer training and other types of support to those partners. But they are less reliant on the Neuronetics' offerings.

Okay. I think the question for me is more focused on the legacy accounts. So those would be the accounts that I assume maybe were closed a little bit more or maybe aren't giving as much TMS treatment during this environment. So, between that and maybe less support potentially coming to them, does that mean that that segment can grow or is it going to decline for a bit while you guys refocus back on those TMS-only company?

Yes. During our last conference call, Malgorzata, we did indicate that we had a program in place to address those legacy accounts, we highlighted the top 150 and our MPCs have been working with each of those legacy accounts. Again, a lot of these operational issues that led to some of those volume declines were, I would say, easily addressed by our MPC team and hopefully they can get those legacy accounts back to the volumes where they were prior to that drop-off that we saw in Q3 and Q4 of '19.

Your next question comes from the line of Marie Thibault from BTIG.

Hi, just a follow-up on Margaret question, I'm curious what you saw in the first 2 months of the quarter when things were a little bit normal in terms of the success of efforts to increase utilization of the legacy accounts. Any color you can give us there?

Not specifically, but again as we communicated on the call, the expectations as late as March 13, where we were going to achieve the guidance that we had previously offered at $13.5 million to $14 million, a lot of the inputs from the field, both from BDMs and MPCs where that at least until that point, the impact on from COVID-19 wasn't really material and then all of a sudden, that last 2.5 weeks of March volume declines were extremely material. I will say that the program that we put in place was still relatively early in Q1. So it would be difficult to forecast those results but we did have a well formalized program to again get those volumes back to where we saw them in the early part of 2019.

Okay. Sure. And then with a couple of states or some states opening last week, are you seeing any customers in those geographies? I guess any early color you can tell us about centers reopening or treatment session volumes? And interested by the idea of an uptick and more patients coming out of this quarantine and needing the mental health help, are you positioning for any new marketing efforts around that with your customers, anything you can tell us about that would be helpful.

So regarding the states that are starting to ease the restrictions, yes, our customers that are seeing those easing are starting to restart the business, speaking with our TMS only providers they really haven't skipped a beat, they've really been pushing to maintain their treatment session volume. I think the one area being hardest hit still is the Chicago area that showing a little bit of progress there. But all in all, I think you're seeing a general low reopening of those centers, the 33% that had ceased treatment. One of the key indicators that we look at, so we track sales, utilization, but also the MT-motor threshold start and we did see a nice uptick towards the end of April, that would indicate to us that it's not a 100% correlated. But it is correlated to the new patient starts, which you would think would lead to a bit of a recovery as we head into May and June. And so we are seeing some signs that we are gradually starting that uptick.

And then anything on marketing for new patients?

Yes, So we have started some, I would say more strategic focused marketing efforts. Again, we don't want to get too far ahead of ourselves again trying to preserve cash and being unsure of the length and the magnitude of COVID-19 but we did see in April the incidence of depression scripts spiked up significantly and 75% of those scripts were for new patients. So, following the treatment protocol of TMS been indicated for one failed drug, you can envision a potential increase in TMS treatments towards the latter half of 2020.

Your next question comes from Matthew O'Brien from Piper Sandler. Matthew O’Brien: Good morning, thanks for taking the questions. I guess just to start with your various customers out there, you've got the TMS only providers the chains, you've got the independent providers as well. Can you just talk about their ability to ramp back up from a capital perspective to get back going. I know in the past you've had some--one of your chain providers actually give you system back, is that a potential headwind we could see if some people decide that they just can't make a go of it in this environment that we could see over the next several quarters. So just how the things go out here from a patient treatment perspective as been to Q3 and then capital perspective, is it more expecting very little capital sales Q2, Q3, maybe a little bit more in Q4 just that general ecosystem, how do we think about things progressing there?

Yes, I think our existing customers will be in the best position to restart since they already have the capital in place. Again, depending upon the duration of some of the social distancing and stay-at-home orders some of the lower volume, customers could be impacted more than others. I think one of the fallout of this pandemic could be some consolidation depending upon the customer's both economic and just overall willingness to continue with TMS, I just think it's too early to tell. We do have a number of third-party financing partners that are still willing to lend to our customers. And so, at least from that financing perspective, that hasn't dried up at this point and I know our sales team is still out there, pushing for transactions and selling as many NeuroStars as they can. So, I do think the environment will likely change. Again, it really depends on how long this last and what the economic impact is to our customers. Matthew O’Brien: I'm sorry.

I was going to say the TMS only partners, they probably are and the larger facilities are in the best shape to come out of this even stronger. Matthew O’Brien: Okay. So I know you're in cash preservation mode, but you're much better capitalized than many of your other competitors in this space. And so I'm curious, you've got flexible financing plans available for customers. So is there an opportunity with some maybe wounded competitors to get some of that share away from them in this environment, maybe near term and maybe that being a little bit of a backstop for our system placements goal?

I mean that possibility exist. And so Matt, making these difficult decisions and reducing our workforce, it certainly wasn't easy Andy and I as soon as we saw some of the indicators in mid-March really started decline knowing that two of our more valuable assets were our commercial team and our strong balance sheet, we really wanted to make sure that we were in a great position to come out of this, whenever the end of the pandemic comes. And so yes, part of that strategy, could be maybe being a bit more aggressive on the sales side, using that strong balance sheet to our advantage when it comes to sales and understanding that customers are making their purchasing decisions, not only on our best-in-class technology, but also on the longevity of the company, and who is likely to survive and thrive once this is all behind us. So, yes, that is certainly a possibility. Matthew O’Brien: Okay and then just one more from me if you don't mind, just the reductions across the organization, we're a little bit steeper and I was expecting, again I know you guys are trying to preserve cash, the smart move but again, little steeper than I expected. So as we come out of this, what kind of grower is Neuronetics? And how do you support your customers because a big part of the store really is your customer support and everything else like that so what happens to the organization from here and what kind of grow do you look like?

I really think part of that will be dictated by the level of economic recovery. Similar to a lot of industries, It's just a lot of unknown as to what the fallout will be, but the one thing we did do was in share our financial ability to weather this storm and I agree we were, I would say, extremely aggressive with what we did in late March and early April. And it really was to preserve the company, it's assuming things got back to normal or close to what normal was pre COVID, I think the company again with would be growing along the lines of what we previously communicated. And again with the increase in depression prescriptions during March and April, it is reasonable to think that some of that increase will eventually head towards TMS Therapy.

Your next question comes from Cecilia Furlong from Canaccord Genuity.

Hi. Good morning and thank you for taking our questions. I just wanted to ask again just about your sales force specifically from the territory perspective and from the BDM perspective, kind of what you're seeing now after the reductions, but then more so longer term, what you see is kind of coverage at scale level, especially given your new kind of focus within just HVT?

So the territory realignment is still a work in process at this point. We still view the territory alignment based on opportunities, density, the amount of coverage that BDM can appropriately cover, as well as a bit of productivity in the back of our minds, we do think that once those territories are fully aligned that the BDMs will have the opportunity to both make money and also service the accounts that they're assigned. So at this time and again --with the increase in TMS only providers, some of that opportunity within those territories really is the selected to those partners. And so again, we think with the vertical management integration and that support structure our BDMs will be able to be more efficient and also more productive and we do reserve the right or ability to add back resources as the economic environment unfolds. This really was, I would say, a very aggressive action to secure our balance sheet, but we will not jeopardize the service offerings that we have in place for our customers. And so if we see strains or pressures within the commercial organizations, we do reserve the rights to add those resources to assist our customers.

Great, thank you. And if I could also ask just within the reduced spending this year, just how you're thinking about R&D, specifically the NextGen system and your pipeline initiatives bipolar being the primary one but just how kind of these reductions may play out on timelines in that perspective. Yes. From an R&D perspective, the projects that we had in place at the beginning of the year are still in place. I will say we did slow some of the spending and R&D again and late March in April, it's the duration and the severity of COVID that we didn't fully understand. So we didn't think it was prudent to go out and kind of execute on original plan that was in place what we had our original 2020 plan in place. But that's still exists and is an ongoing project. Regarding the other indications, again, we've communicated in the past and we continue with discussions with the FDA. Obviously the pandemic has redirected some of the FDA resources, honestly, they have a lot more on their plate with COVID-19 than worrying about how we're going to structure our clinical trial with bipolar, but those discussions do continue, and we are hopeful and optimistic that we can come up with a collaborative resolution and see where that heads in the future.

Thank you, this concludes today's question-and-answer session. I will now turn the call back to Mr. Furlong for any closing remarks.

Thank you all for joining the call today. We look forward to updating you on our progress on our next quarterly earnings call. Please stay healthy and have a great day. Thank you.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, you may now disconnect.