DEFA14A: Neuronetics to Acquire Greenbrook TMS in Landmark Mental Health Deal

Neuronetics announces the acquisition of Greenbrook TMS, aiming to create a vertically integrated leader in mental health therapies.

Summary

• Neuronetics reported Q2 2024 revenue of $16.5 million, a 7% decrease year-over-year.
• The decrease was primarily due to lower treatment session revenue, impacted by the Change Healthcare cybersecurity breach.
• Despite revenue challenges, utilization in the local consumables segment increased by 18%.
• Neuronetics recognized revenue on 50 NeuroStar systems, at the high end of their guidance.
• The company launched the NeuroStar TMS therapy for adolescents and has seen positive adoption rates.
• Major providers have updated their policies to include adolescents as young as 15, covering over 27.4 million lives.
• Gross margin was 74%, an increase of approximately 150 basis points from the second quarter of 2023.
• Operating expenses were $20.7 million, a 3% increase compared to the second quarter of 2023.
• Net loss for the quarter was $9.8 million, or $0.33 per share.
• EBITDA for the second quarter of 2024 was negative $8.0 million.
• As of June 30, 2024, cash and cash equivalents were $42.6 million.
• Neuronetics entered into a new debt facility of up to $90 million with Perceptive Advisors.
• The company expects to be cash flow positive in the fourth quarter of 2024.
• Third quarter revenue is expected to be $18.5 million to $19.5 million.
• Full year revenue is expected to be in the range of $78 million to $80 million.
• Neuronetics has signed a definitive agreement to acquire Greenbrook TMS.
• Neuronetics shareholders will own approximately 57% of the combined entity, with Greenbrook owning the remaining 43%.
• The acquisition is expected to close in the fourth quarter of 2024.
• The combined company expects mid-teen year-over-year revenue growth in fiscal years 2025 and 2026.
• The combined company expects to realize at least $15 million of annual cost savings, the majority of which will come in fiscal year 2025.
• The combined company anticipates being both adjusted EBITDA positive and cash flow positive for full fiscal year 2025.

Sentiment

Score: 7

Explanation: The document presents a mix of positive and negative information. While Q2 results were below expectations, the acquisition of Greenbrook TMS and the potential for future growth and profitability contribute to a moderately positive outlook.

Positives

• Acquisition of Greenbrook TMS creates a larger, vertically integrated company.
• Launch of NeuroStar TMS therapy for adolescents expands the market.
• Increased insurance coverage for adolescents, covering over 27.4 million lives.
• Gross margin increased to 74%.
• New debt facility provides financial flexibility.
• Expected cost synergies of at least $15 million annually from the merger.
• Anticipated adjusted EBITDA and cash flow positivity for the combined company in fiscal year 2025.
• Utilization in the local consumables segment increased by 18%.

Negatives

• Q2 revenue decreased by 7% year-over-year.
• Lower treatment session revenue due to the Change Healthcare cybersecurity breach.
• Net loss for the quarter was $9.8 million.
• EBITDA for the second quarter of 2024 was negative $8.0 million.

Risks

• The Change Healthcare cybersecurity breach impacted treatment session revenue.
• Securing financing for capital equipment purchases has become more challenging.
• The merger with Greenbrook TMS is subject to customary closing conditions, including shareholder approval.
• Integration of Greenbrook TMS may present challenges.
• Failure to achieve expected cost synergies and revenue growth from the merger.
• Competition in the mental health treatment market.
• Reliance on the sale and usage of the NeuroStar Advanced Therapy System to generate revenues.
• Availability of coverage and reimbursement from third-party payors for treatments using the products.

Future Outlook

Neuronetics expects to be cash flow positive in the fourth quarter of 2024. The combined company expects mid-teen year-over-year revenue growth in fiscal years 2025 and 2026 and anticipates being both adjusted EBITDA positive and cash flow positive for full fiscal year 2025.

Management Comments

• '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.'
• 'We continue to be bullish on the future of Neuronetics based on the results we are seeing from our Better Me program.'
• 'This acquisition brings together 2 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.'

Industry Context

The announcement reflects a growing trend towards consolidation in the mental health industry, with companies seeking to expand their service offerings and geographic reach. The merger aims to address the significant unmet need for effective treatments for mental health conditions, particularly depression, anxious depression, and OCD.

Comparison to Industry Standards

• The merger of Neuronetics and Greenbrook TMS creates a larger entity that can compete more effectively with other players in the mental health space.
• Greenbrook's extensive network of treatment centers across 18 states positions the combined company as a leader in TMS therapy.
• The combined company's focus on cost synergies and revenue growth aligns with industry trends towards efficiency and profitability.
• The expansion of SPRAVATO treatment and medication management services complements the NeuroStar TMS therapy, providing a more comprehensive approach to mental health care.

Management Changes

Stakeholder Impact

• Shareholders: Potential for increased value through synergies and growth.
• Employees: Integration of teams and potential for new opportunities.
• Customers: Expanded service offerings and improved business operations.
• Patients: Increased access to mental health therapies.

Next Steps

• Obtain shareholder approval for the merger.
• Close the acquisition of Greenbrook TMS in the fourth quarter of 2024.
• Integrate Greenbrook TMS into Neuronetics.
• Realize cost synergies of at least $15 million annually.
• Expand SPRAVATO treatment and medication management services.
• Continue to roll out the Better Me Provider Program.
• Increase utilization in Greenbrook's treatment centers.

Key Dates

Keywords

Neuronetics, Greenbrook TMS, TMS, Mental Health, Acquisition, NeuroStar, Revenue, Financial Results, Adolescent Treatment, Merger