Good day and welcome to the Neuronetics Fourth Quarter and Full-Year 2022 Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Instructions will be given at that time. As a reminder, this call is being recorded. I would like to hand the conference over to Mark Klausner. You may begin.

Good morning and thank you for joining us for the Neuronetics fourth quarter and full-year 2022 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 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, 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.

Thank you, Mark. Good morning and thank you for joining us. I'll begin by providing an overview of our recent performance followed by an operational update. Steve will then review our financial results and I'll conclude with some thoughts on 2023 before turning to Q&A. We are pleased with our performance throughout 2022, a year which included several record quarters and the achievements of key milestones. We shipped over 210 systems to customers, bringing total systems shipped all time to over 2,000. In addition, our efforts to drive increased treatment session utilization has continued to pay off. As of the end of the year, the number of all-time treatment sessions surpassed $5.3 million. Across roughly 145,000 patients. This all contributed to the total revenue growth of 18% for 2022. Proof that the investments made over the past two years in marketing, practice development, and patient education initiatives are working. I'm very proud of everything that we have accomplished in 2022, which we capped off by a strong fourth quarter. And I'd like to thank our employees, who delivered this high level of success by way of their hard work throughout the year. For the fourth quarter, total revenue was $18.2 million, up 21% over the fourth quarter of 2021. The strong performance was primarily driven by record treatment session revenue, as well as continued capital equipment sales growth. As we've seen our programs and initiatives take root. NeuroStar system revenue was $4.6 million, up 64% over the fourth quarter of 2021. The success is due to the ongoing hard work of our strong team of area sales managers. Who found their group in nurturing and converting a robust pipeline, which was strengthened by yet another sold out NeuroStar Summit. The U.S. treatment session revenue was an all-time record of $12.5…

Thank you, Keith. Total revenue for the fourth quarter was $18.2 million, an increase of 21% over fourth quarter 2021 revenue of $15 million. U.S. NeuroStar Advanced Therapy System revenue was $4.6 million, compared to the prior year revenue of $2.8 million it was up 64%. The company shipped 58 systems in Q4, up from 48 systems shipped in the fourth quarter of 2021. U.S. Treatment session revenue was $12.5 million, an increase of 11% over fourth quarter 2021 revenue of $11.2 million. The revenue growth was primarily driven by an increase in utilization, in particular among our local per click customer segment. In the fourth quarter of 2022 revenue per active site was approximately $11,500, compared to approximately $12,200 in the prior year quarter. Excluding Greenbrook and Success, revenue per active site was consistent year-over-year, despite having added approximately 100 new active sites during the year. Gross margins were 76% consistent with the fourth quarter of 2021. Operating expenses during the quarter were $21.5 million, an increase of $3.1 million, compared to the fourth quarter of 2021. The increase was primarily driven by our expanded sales force the opening of NSU, higher-than-expected sales commissions, incremental headcount and product development, investments in 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 fourth quarter of 2022 was $8.3 million or $0.31 per share, as compared to a net loss of $7.6 million or $0.29 per share during the fourth quarter of 2021. EBITDA for the fourth quarter of 2022 was negative $6.5 million, as compared to negative $6.3 million for the fourth quarter of 2021. As of December 31, 2022, cash and cash equivalents were $70.3 million. We continue to work with our lender SLR Capital Partners on an updated credit facility. We are on track to close on this new facility in March 2023. Now turning to guidance. For the full-year 2023, we expect revenue in the range of $66 million to $72 million. As Keith mentioned our guidance for 2023 assumes lower treatment session revenue from certain service providers, but continued strength from our local per click customers. For the first quarter of 2023, we expect revenue of $15 million to $16 million. We expect total operating expenses for the full-year 2023 to be in the range of $84 million to $88 million. For the full-year, we expect cash utilization from operations to decrease year-over-year. Cash utilization will be the highest during the first quarter as it includes our national sales meeting, as well as prior year bonus payments; sales commissions and retention costs. Our operating plan continues to show that we will achieve cash flow breakeven with cash on hand. Our path to profitability is still on track, thanks to our projections for top line growth, solid gross margin profile and the careful management of our operating expenses. I would now like to turn the call back over to Keith.

Thank you, Steve. 2022 was a critical year for Neuronetics as we continue to drive the accelerated adoption of NeuroStar. We have shown that the clinical results are superior. We have made significant investments in building the latest and most talented commercial team in the business. We have demonstrated unmatched ability to support our practices by assisting them with patient education and awareness campaigns to promote long-term success. To continue that success, we will focus on a number of key initiatives during 2023. One, increasing the number of customers, who participate in NeuroStar University. Two, working to incorporate a high percentage of customers into co-op marketing. Three, creating a network of accounts across the country that follow NeuroStar best practices. Beginning with increased customer participation in NeuroStar University, as the initial cohort of customers has gone through training at NSU, we have clearly seen the immediate positive benefits at these accounts, including better PHQ-10 uptake and increased treatment session utilization. Because of this, we are working to increase the number of existing and prospective customers attending NSU classes, which provide important education to the providers to allow them to deliver better patient outcomes. The classes are crucial as we continue to develop NeuroStar capabilities and features such as our expansion into OCD, as well as the introduction of D-Tect and the MT Cap. Going forward, we are offering up to two classes per month throughout the year and incorporating attendance costs into our co-op marketing program. Our second focus for 2023 is to incorporate a higher percentage of our customers into our co-op marketing program. There are over 60 customers, who are currently utilizing the benefits of our co-op marketing program on a regular basis. The co-op marketing program is one of a kind in the TMS industry. It provides…

[Operator Instructions] Our first question comes from Bill Plovanic with Canaccord. Your line is open.

Hey, great. Thanks. Good morning. So obviously, I think the biggest question is on guidance and Greenbrook. One, what do you contemplate at the low-end and high-end in term -- how does that reflected with Greenbrook, kind of, what percentage of your revenues are they today? And what do you expect out of that versus, kind of, the rest of your business? Thanks.

Hey, Bill, this is Steve. Obviously, with the press release yesterday, we did have to scramble and adjust guidance. At this point, all we know is they do anticipate closing 50 stores with a 10% impact on revenue, we don't know the mix, we don't know which stores are NeuroStar, we don't know which percentage of revenue is Spravato versus TMS. And so, we took the approach really based on their contributions in 2022 versus our expectations in 2023 for growth. I think we're in a wait and see mode at this point. So, you saw in our K -- there -- well, you haven't seen an K yet, but you will, they're a little bit north of 20% of our business. So, we believe the $66 million to $72 million range is appropriate at this time. You can also see we did expand the range in revenue from our typical $4 million for the year to $6 million. Again, we just need to see how this plays out through the month of March and into the early part of Q2. Greenbrook announces the end of March and maybe there'll be some more clarity into their plans and how it impacts us.

Steve asked another way, what do you expect out of your core business in 2023? You’ve historically, if I look back, you grew 18% in 2022 - 12% in ‘21 and not even to go out of the growth as we exited 2022 was out of the non-Greenbrook businesses. So, given that's 80% of your business, kind of, what was the contemplation of growth out of that core business as you think about 2023? Thanks.

Yes. I think it will be consistent with what we saw in the second-half of 2022, so in that 20% range. Again, if you look at our Q4 number 21% over prior year, that was negatively impacted by Greenbrook and Success's performance. So, the per click consumable segment and some of the other segments are performing quite well. So again, I think it will be in that 20% range.

And then last on this guidance question and then I'll jump back in. It's just how do we think about, kind of, the capital versus disposable especially getting our hands around like the assumptions probably given they're shutting down 50 centers they can move capital around how do we think about capital in 2023 versus disposable? Thanks for taking my questions.

Sure, Bill. Yes, capital is going to be consistent with 2022, so we've communicated between 45 and 50 systems a year. We did slightly more than that last year and we anticipate that consistent level in 2023. So, there won't be an impact from the Greenbrook integration efforts. We also expect international revenues to be flat, so all of the growth in ‘23 will be related to treatment sessions.

You mean 45 to 50 systems a quarter, not for the full-year, correct?

Yes, quarter, yes.

Thanks.

Thank you. Our next question comes from Adam Maeder with Piper Sandler. Your line is open.

Hi, Keith. Hi, Steve. Thanks for taking the questions here. Wanted to follow-up a little bit on the guidance line of question. And I guess I'll ask about kind of cadence. You obviously gave Q1 guidance maybe a hair lighter-than-expected, but just kind of help us think through, kind of, how you see your business, kind of, progressing over the year? Maybe we'll start there and then I have a follow-up or two. Thanks.

Thanks, Adam. Yes, if you look at our historical performance and I go back to 2018, so the year prior to IPO, our revenue cadence by quarter is Q1 is 21% to 225 of annual revenue. Q2 is about 24% to 25%, Q3 25% to 26% and then Q4 is always our strongest quarter at 28% to 29%. And so Q1, we always have the reset of deductibles, patients have to go through and get their benefits investigations redone. And so, the internal teams here have been processing about 400 or so BIs a week and that's continued into early March. So that's really the biggest pressure on Q1. But again, it's very typical for the past five years.

Okay. I appreciate that color, Steve. And I guess just one more on the guidance then I had a follow-up. But just kind of obviously a lot of focus on the Greenbrook announcement yesterday and, kind of, how that impacts you guys. But if we just kind of look back more broadly, it sounds like you are very confident in the business ex-Greenbrook. So, I guess one question I have just on the macro is how are you thinking about this year 2023 in a potential recessionary environment. Has anything factored into the guidance there? Are you allowing for some additional conservatism? Just kind of maybe walk through the philosophy on the outlook?

Yes. I mean, there is -- there are no recessionary impacts in our guidance, I'm sure you remember, Adam, at your conference in New York that I communicated we were comfortable with where the consensus was for the year and that was in that $73 million range. We were also anticipating mid to high-teen growth year-over-year. Again, the Greenbrook press release yesterday was a little bit surprising, and so I think we need just some time to work through the impact. Otherwise, you saw performance in Q3 and Q4. Even with, I would say, no to slow growth from them, we were still at that 20% level. And I think we're confident that we'll be able to maintain that in the other segments.

Okay.

Yes, Adam, this is Keith. From a marketing standpoint, we have been working closely over the past couple of months with the Greenbrook team. Putting together a plan on how they would attend NSU, how they would market within their practices, how we would help them get PHQ-10s in, so there was some hints of the closing of the stores. But I believe that we have put together a solid plan with Bill and his team to see if we can take the remaining stores and get them back up to their prior service levels.

Okay. Appreciate the color guys. And one last one if I may, just on some of the payer changes, expanded Medicare coverage and the United News from this week streamlining therapy, maybe just, kind of, how do you think about the impact from those developments? Is this something that can impact the business near-term? Or do you think we need several quarters to, kind of, see any tailwind ultimately materialize? Thanks again for taking the questions.

So, Adam, on the reimbursement side, I think with United Health Care dropping from four to two, it is a great sign. Many of the other payers follow what United Health Care does. As recently as last fall, Aetna went from two to four, because that's where UnitedHealthcare was. So, I -- we are hoping that the other payers drop their requirements to and follow United Health Care's lead. Quite honestly, there are plenty of patients out there that have failed four drugs, so we're not in a -- there's no shortage it does expand the market when we drop it down to two. And I think our hope now is that United and the other payers make it easier to go through the prior authorization process, so it does expand our market, it does help our patients now we need to help our accounts with simplifying prior authorization.

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

Hey, good morning. Thanks for taking the question.

Hey, Margaret.

I'm going to chime in with all my colleagues on the guidance side, so apologies for that. But I guess one more, it's kind of a simple one. I guess what gets you to the high and the low-end of the range, because it's obviously quite broad. So, and more specifically, I guess, do you need Greenbrook to improve to get to that high-end of the range? Or can the base do that? And then kind of a similar question on the low-end of that range?

No, I don't, Margaret, I think we need some contribution from Greenbrook and based on the release in their revenue haircut related to the 50 stores, we don't need any incremental growth from Greenbrook to get to either one of those figures. So that should really be the growth from the other segments and would represent that 20% target.

Okay. So sorry, yes, the 20% growth from the other figures, I mean, again, it's a wider range, so is 20%, kind of, the midpoint of the range. And then the two, kind of, high and low-end, you know, depending if the base is better or if we're in good or better or worse. Am I understanding that right?

Yes, I think it represents the midpoint.

Okay, perfect. And then I wanted to follow-up on the strategies, because you spent a lot of time both at the beginning and the end kind of walking through that in 2022 and kind of the goals for 2023, PHQ-10, then a fews, et cetera. Is 2023 a year where those efforts I guess can scale on a broader basis where you can get maybe 2 times or 3 times or 20% of the base through those? Or is it just kind of more of a continuation with some solid growth and engagement?

Thanks for the question, Margaret. I think if we look at the NSU, we have seen the accounts that come through NSU adopt almost all of our programs on a universal basis. And as a result, their business has gone up. So, I think that we -- our focus is to try and get more of our accounts through the NeuroStar University program. And I think that we have seen our number of accounts that are using the PHQ-10s just in the fourth quarter went from a little over $300 million to $450 million. So it is gaining traction, so I think 2023 is going to be a standout year for it. And I think that we can anticipate some that, that is going to be what's going to help us drive the growth.

Okay, great. Thank you, guys.

Thank you. Our next question comes from Daniel Stauder with JMP Securities. Your line is open.

Yes. Hi, thanks. Just touching back on the previous questions surrounding the coverage policy updates. You mentioned this creates a larger funnel of patients and runs the market, but do you feel that the coverage criteria has been a gating factor for adoption in the past?

I think what slows down our implementation within a practice is getting physicians credential and onto the insurance programs, so that's the number one factor. Number two is getting the reimbursement actually paid and the struggle that we have is that every single patient has to go through a prior authorization process with some of the payers it's simple with other payers. They rejected out of hand and then you’ll have to do an appeal. Typically, they approve the appeal if the patient has met all the criteria. So yes, it is a gating factor here. But quite honestly, I think with the moves in Medicare and now United Health Care leading the way, I think we're encouraged that they are finally recognizing that they need to make the access to care simpler.

Great. And then just one follow-up for me. You've called out higher utilization in your per click segment as a driver of treatment session revenues for a few quarters here, I think double digit for the last two quarters. But you’ve highlighted some of your initiatives that are driving this. But if you could point to one or two aspects that's really leaving the charge here, what would those be and then what could this look like in 2023? Thank you.

So, I think the couple of points that help drive that utilization. Number one is our practice development managers. We have invested heavily into a team of people right now we have 47 of them that are each account is assigned to one of our practice development managers and each one of those managers is responsible to generate awareness, education and help capture those patients within the practice and educate their staff from the front desk to the treater on exactly how to do that education. So I think our practice development managers are the tip of the spear for us and they're the ones that are deploying the PHQ-10s in the practice, who are doing the 5 Stars to Success, which is a pure education at various levels within the practice, including marketing. So, I think those are really our driving force. We rely heavily on our practice development managers and now NeuroStar University to help educate the accounts.

Great. Thanks a lot.

Thank you. Our next question is a follow-up Bill Plovanic with Canaccord. Your line is open.

Great, thanks. Just to ask the question again on the Greenbrook, I mean, as I reread the announcement, while they're shutting down a lot of centers, they say that it's only a little over 10% of the revenues. And if I do back the napkin math just based on some of the commentary, it sounds like at the low-end you're looking for Greenbrook down closer to 25% to 30%, if you're assuming at the midpoint the rest of your business is growing 20%. Is that the trends you're seeing in the business today at Greenbrook? Or given the newness of the information, you're kind of -- the low-end of the guidance is almost assuming a worst case scenario just because you don't have a lot of information upon which to make that decision today?

So, Bill, we monitor the utilization on all segments of our accounts every single week. And Greenbrook’s utilization has decreased over the past five months, which I think as we've said before and they have said, I think it's expected that there would be some disruption. But we saw a significant amount of decline in their growth in Q4 and we were able to grow in spite of it. I think that if we are able to deploy the trainings and the education that we are doing with the rest of our accounts into Greenbrook, which I think Bill is very, very supportive of us working closer together to get that done. I think we can help them get back on track. But we did see the decline in the third and the fourth quarter.

Okay. And then just clarity on the impact of the NGS starting on April 1, getting the nurse practitioners to order and treat. How important or significant is that?

It's a great question. So, we have been looking state-by-state, payer-by-payer at the opportunity that's out there with nurse practitioners. Some of the states have, say that nurse practitioners have full authority if they have been under the guidance of a psychiatrist for five years. During the pandemic, Virginia as an example lowered the requirement under a psychiatrist to two years. But they have since reversed that and gone back to five. So, there are areas of the country where nurse practitioners are allowed to diagnose the patient, to do the motor threshold and to treat. And we are beginning the process of identifying what areas that is and then how we're going to educate those nurse practitioners on the opportunity to help their patients.

Great. Thanks for taking my questions.

Thanks, Bill.

Thank you. There are no further questions at this time. I'd like to turn the call back over to Keith Sullivan for closing remarks.

Thank you again for joining us today. We look forward to updating you on our next quarterly call. Thank you all.

Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone, have a great day.