8-K: Neuronetics Reports Record Third Quarter Results and Greenbrook TMS Acquisition Approved

Neuronetics announced record third quarter 2024 financial results, highlighted by a 4% revenue increase and the approval of the Greenbrook TMS acquisition.

Summary

• Neuronetics reported a 4% increase in revenue for the third quarter of 2024, reaching $18.5 million, compared to $17.9 million in the same period of 2023.
• U.S. revenue increased by 4%, driven by a 14% rise in NeuroStar Advanced Therapy system sales to $4.1 million and a 2% increase in treatment session revenue to $13.3 million.
• International revenue saw a marginal decrease of 10% compared to the third quarter of 2023.
• The company achieved a gross margin of 75.6%, a significant increase from 65.8% in the third quarter of 2023, due to changes in product mix and reduced manufacturing costs.
• Operating expenses increased by 5% to $21.7 million, and the net loss was $(13.3) million, or $(0.44) per share, compared to $(9.4) million, or $(0.33) per share, in the third quarter of 2023.
• EBITDA for the quarter was $(11.6) million, compared to $(7.7) million in the third quarter of 2023.
• Cash and cash equivalents stood at $20.9 million as of September 30, 2024, down from $59.7 million at the end of 2023.
• Neuronetics stockholders approved the acquisition of Greenbrook TMS on November 8, 2024, which is expected to close after a final court hearing on November 15, 2024.
• The company expects total worldwide revenue between $19.0 million and $20.0 million for the fourth quarter of 2024 and between $71.0 million and $72.0 million for the full year 2024.
• Operating expenses for the full year 2024 are expected to be between $81.0 million and $82.0 million, excluding pre-closing transaction costs of approximately $2.0 million.
• The company anticipates achieving cash flow breakeven by the second quarter of 2025.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the revenue growth, improved gross margin, and the approval of the Greenbrook acquisition. However, the increased net loss and negative EBITDA temper the overall positive outlook.

Positives

• Revenue increased by 4% year-over-year, reaching $18.5 million in Q3 2024.
• U.S. NeuroStar Advanced Therapy system sales increased by 14% to $4.1 million.
• Gross margin improved significantly to 75.6%, indicating better cost management.
• The acquisition of Greenbrook TMS was approved by stockholders, which is expected to create a larger, more integrated mental health provider.
• Clinical data presented at AACAP 2024 showed strong efficacy of NeuroStar in treating adolescent depression.
• The company is projecting cash flow breakeven by the second quarter of 2025.
• The company has a large number of patients treated with 6.9 million treatment sessions.

Negatives

• Net loss for the third quarter of 2024 was $(13.3) million, an increase from $(9.4) million in the same period of 2023.
• EBITDA for the quarter was $(11.6) million, compared to $(7.7) million in the third quarter of 2023.
• Cash and cash equivalents decreased significantly from $59.7 million at the end of 2023 to $20.9 million as of September 30, 2024.
• International revenue decreased by 10% compared to the third quarter of 2023.
• U.S. treatment session revenue per active site decreased to $11,390 from $11,917 in the third quarter of 2023.

Risks

• The company faces risks associated with the integration of Greenbrook TMS, including potential delays and unexpected costs.
• There is uncertainty regarding the combined company's ability to achieve the expected benefits from the acquisition.
• The company's ability to maintain its Nasdaq listing is a risk.
• The company's future performance is subject to general economic conditions and regulatory approvals.
• The company is reliant on the sale and use of its NeuroStar Advanced Therapy system to generate revenues.
• The company has a history of losses and may not achieve or sustain profitable operations.
• The company faces competition from other technologies and therapies.
• The company's ability to obtain and maintain intellectual property protection is a risk.
• The company's ability to achieve cash flow break-even in the second quarter of 2025 is not guaranteed.

Future Outlook

The company expects total worldwide revenue between $19.0 million and $20.0 million for the fourth quarter of 2024 and between $71.0 million and $72.0 million for the full year 2024. They also expect to achieve cash flow breakeven by the second quarter of 2025.

Management Comments

• Keith J. Sullivan, President and Chief Executive Officer of Neuronetics, stated that the acquisition of Greenbrook TMS positions Neuronetics to be one of the largest and most innovative providers of mental health care in the United States.
• Keith J. Sullivan also mentioned that the strategic combination will enhance the company's ability to expand access to mental health solutions and accelerate the rollout of additional services like SPRAVATO.
• Management expressed confidence in their ability to create meaningful value for patients, providers, and stockholders while advancing mental health treatment.

Industry Context

This announcement comes at a time when there is increasing focus on mental health solutions and a growing demand for non-drug treatments like TMS. The acquisition of Greenbrook TMS is a strategic move to consolidate market share and expand access to mental health services, which aligns with broader industry trends towards integrated care models.

Comparison to Industry Standards

• Neuronetics' revenue growth of 4% is moderate compared to some high-growth medical technology companies, but it is a positive sign given the current economic climate.
• The improvement in gross margin to 75.6% is a strong indicator of operational efficiency and is competitive with industry benchmarks for medical device companies.
• The net loss and negative EBITDA highlight the challenges of achieving profitability in the medical technology sector, particularly for companies investing in growth and acquisitions.
• The company's focus on adolescent depression treatment with NeuroStar is a unique offering, as it is the only FDA-cleared TMS device for first-line adjunct treatment of MDD in patients aged 15-21, giving it a competitive advantage.
• The acquisition of Greenbrook TMS is a significant move towards vertical integration, similar to other healthcare providers seeking to control more of the patient care pathway.

Stakeholder Impact

• Shareholders will be impacted by the acquisition of Greenbrook TMS, which is expected to increase revenue scale and create cost synergies.
• Employees may experience changes due to the integration of the two companies.
• Customers will benefit from increased access to mental health solutions and a more consistent delivery of best practices.
• Suppliers may see changes in their relationships with the combined company.
• Creditors will be impacted by the combined company's financial performance and debt structure.

Next Steps

• Finalizing the acquisition of Greenbrook TMS, with a court hearing scheduled for November 15, 2024.
• Merging Neuronetics' sales team with Greenbrook's regional area managers.
• Implementing the Better Me Provider Program best practices across all Greenbrook sites.
• Accelerating the rollout of SPRAVATO treatment across the combined network.
• Achieving cash flow breakeven by the second quarter of 2025.

Key Dates

Keywords

Neuronetics, Greenbrook TMS, TMS, NeuroStar, Mental Health, Acquisition, Depression, Adolescent Treatment, Financial Results, EBITDA, Revenue, Gross Margin, Treatment Sessions