8-K: Neuronetics Announces Merger with Greenbrook TMS and Reports Second Quarter 2024 Results

Neuronetics will acquire Greenbrook TMS in an all-stock transaction, creating a leading mental health provider, while also reporting a 7% decrease in revenue for the second quarter of 2024.

Summary

• Neuronetics reported a 7% decrease in total revenue for the second quarter of 2024, reaching $16.5 million, compared to $17.6 million in the same period last year.
• U.S. NeuroStar Advanced Therapy system revenue was $4 million, representing 50 systems, a decrease of 11% compared to the second quarter of 2023.
• U.S. treatment session revenue decreased by 5% to $11.7 million, primarily due to customer cash flow issues related to the Change Health cyberattack.
• The company's gross margin increased to 74%, up from 72.5% in the second quarter of 2023.
• Operating expenses increased by 3% to $20.7 million.
• Net loss for the quarter was $(9.8) million, or $(0.33) per share, compared to $(4.9) million, or $(0.17) per share, in the second quarter of 2023.
• EBITDA for the second quarter of 2024 was $(8.0) million, compared to $(3.3) million in the same period last year.
• Neuronetics has entered into a definitive agreement to acquire Greenbrook TMS in an all-stock transaction.
• The combined company's pro forma revenue for 2023 would have been approximately $145 million.
• The merger is expected to create at least $15 million in annualized cost savings, primarily in 2025.
• The combined company anticipates being Adjusted EBITDA positive and cash flow positive for the full fiscal year 2025, excluding one-time transaction costs.
• Major insurers have expanded TMS therapy coverage for adolescents, following FDA clearance of NeuroStar TMS for this age group.
• Neuronetics launched its Better Me Provider program nationwide, showing improved patient care and accessibility.
• The company secured a debt facility of up to $90 million with Perceptive Advisors, reducing net debt by $10 million.
• Neuronetics expects total worldwide revenue between $18.5 million and $19.5 million for the third quarter of 2024.
• For the full year 2024, the company expects total worldwide revenue to be between $78.0 million and $80.0 million, with operating expenses also between $78.0 million and $80.0 million.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While the merger with Greenbrook TMS and expanded insurance coverage are positive developments, the financial results for the quarter were worse than the previous year, with a significant increase in net loss and a decrease in revenue. The company is also burning through cash. The future outlook is positive, but the current results are concerning.

Positives

• Gross margin increased by 150 basis points to 74%.
• Major insurers expanded TMS coverage for adolescents, increasing the potential patient base.
• The Better Me Provider program has shown strong results in improving patient care and accessibility.
• The new debt facility provides financial flexibility and reduces net debt.
• The merger with Greenbrook TMS is expected to create a larger, more efficient company with significant cost synergies and an accelerated path to profitability.
• The combined company expects mid-teens year over year revenue growth in fiscal years 2025 and 2026.

Negatives

• Total revenue decreased by 7% compared to the second quarter of 2023.
• U.S. NeuroStar Advanced Therapy system revenue decreased by 11%.
• U.S. treatment session revenue decreased by 5%.
• Net loss increased to $(9.8) million, or $(0.33) per share, compared to $(4.9) million, or $(0.17) per share, in the second quarter of 2023.
• EBITDA was $(8.0) million, compared to $(3.3) million in the same period last year.
• Cash and cash equivalents decreased from $59.7 million at the end of 2023 to $42.6 million as of June 30, 2024.

Risks

• The company has a history of losses and may not achieve or sustain profitable operations.
• The company relies heavily on the sale and usage of its NeuroStar system.
• The company's revenue is concentrated among a small number of customers.
• The company faces risks related to competition, product defects, and intellectual property protection.
• The merger with Greenbrook TMS is subject to various risks and uncertainties, including shareholder approval and integration challenges.
• The company's ability to achieve cash flow break-even in the fourth quarter of 2024 and on a full-year basis in 2025 is not guaranteed.
• The company's stock price may decline significantly if the merger is not completed.

Future Outlook

Neuronetics expects total worldwide revenue between $18.5 million and $19.5 million for the third quarter of 2024 and between $78.0 million and $80.0 million for the full year 2024, with operating expenses also between $78.0 million and $80.0 million. The combined company anticipates being Adjusted EBITDA positive and cash flow positive for the full fiscal year 2025, excluding one-time transaction costs.

Management Comments

• Keith J. Sullivan, President and CEO, stated that the company is pleased with the continued momentum and positive impacts of their training and education initiatives, particularly the Better Me Provider program.
• Keith J. Sullivan also expressed enthusiasm about the merger with Greenbrook TMS, highlighting the potential to provide access to innovative care and drive increased awareness of NeuroStar.
• Bill Leonard, President and Chief Executive Officer of Greenbrook, believes the combined company can improve care at Greenbrook's existing sites and at any practice looking to bring the benefits of NeuroStar to their patients.

Industry Context

The merger between Neuronetics and Greenbrook TMS reflects a trend towards consolidation in the mental health sector, aiming to create larger, more efficient organizations capable of providing comprehensive care. The expansion of insurance coverage for TMS therapy, particularly for adolescents, indicates a growing acceptance and adoption of this treatment modality.

Comparison to Industry Standards

• Neuronetics' revenue decline of 7% in Q2 2024 contrasts with some medical technology companies that have shown growth, but is not uncommon in the current economic climate.
• The increase in gross margin to 74% is a positive sign, indicating improved efficiency in production and sales, and is comparable to other medical device companies.
• The net loss of $(9.8) million is a concern, and is worse than the previous year, but is not uncommon for companies in the growth phase, especially those making significant investments in R&D and sales.
• The merger with Greenbrook TMS is a strategic move to increase scale and market share, similar to other consolidations in the healthcare industry.
• The expansion of insurance coverage for TMS therapy is a positive development, aligning with the industry's push for greater access to mental health treatments.
• The Better Me Provider program is an innovative approach to improving patient care and accessibility, which is a key focus for many healthcare providers.

Stakeholder Impact

• Shareholders of both Neuronetics and Greenbrook will be impacted by the merger, with Greenbrook shareholders receiving Neuronetics stock.
• Employees of both companies may experience changes due to the integration of operations.
• Customers of both companies will benefit from the combined entity's increased scale and resources.
• Patients will benefit from increased access to TMS therapy and improved care through the Better Me Provider program.
• Creditors will be impacted by the new debt facility and the conversion of Greenbrook's debt into equity.

Next Steps

• Neuronetics and Greenbrook will file preliminary and definitive joint proxy statements with the SEC and on SEDAR+.
• Shareholder meetings will be held to approve the merger.
• The merger is expected to close in the fourth quarter of 2024.
• The combined company will focus on integrating operations and realizing cost synergies.
• Neuronetics will continue to roll out the Better Me Provider program.
• Neuronetics will continue to invest in commercial initiatives and clinical indication expansion.

Key Dates

Keywords

Neuronetics, Greenbrook TMS, TMS Therapy, Mental Health, Merger, Acquisition, NeuroStar, Revenue, EBITDA, Financial Results, Debt Facility, Adolescent Depression, Treatment Sessions, Cost Synergies