Good afternoon. My name is Will Plovanic. I'm a senior medical device analyst here with Canaccord Genuity. Thank you for coming to our 44th annual conference. With us up next is Neuronetics, and we have Keith Sullivan, president and CEO, and Steve Furlong, CFO. The format's going to be about a 10-minute presentation, followed by a fireside chat for the rest of the time. With that, I'll hand it over to Keith.
Thank you, Will. For those of you who are not familiar with the story, I'd like to just start with a little background. Neuronetics is a company based in Malvern, Pennsylvania. We have an FDA clearance for the treatment of depression using transcranial magnetic stimulation. The product itself is about $100,000. It is sold primarily to psychiatrists, and to date, we have treated 6.6 million treatments on 182,000 patients.
The treatment itself, if you are a patient diagnosed with depression, is a course of treatments 19 minutes long that are five days a week for seven weeks, so 36 sessions. For each one of those sessions, we also charge a $65 fee to the physician. We have just under 1,200 centers around the country using our devices.
We have about 2,300 systems in the field, and we are a reimbursed procedure by all of the major payers. Prior to COVID, it was announced that there are 29 million people that are battling depression. During COVID, it was believed that the number of first-time scripts for antidepressants went up 6 ×.
If we just focus on the patients that have failed four drugs or more, we have a market that is 4.4 million patients strong, and I believe that with 182,000 having been treated, we have barely scratched the surface on our opportunity. Over the last four years since I've been with the company, we have focused on education and awareness. When I started, the awareness of TMS as a non-drug alternative for depression was under 9%.
Today, it's about 18, so although it's doubled, it's still not high enough. We have also focused on educating these patients inside the practice as well as outside the practice, and about a year ago, we kicked off a program called Better Me Provider, which is a program that we invite all of our physicians to join, where if they meet five standards that were established by a group of experts in the field, it is believed that they will provide better care to those patients that are looking for help.
The program has been wildly successful for us, that people in that program that attend our NeuroStar University increase their business by 61%, and the response time to patients that used to be weeks is now in less than 24 hours. So it is a home run for not only our practices, but our patients.
In April, we received FDA clearance for treatment of adolescents, 15- 21 year-olds. It was a major accomplishment for the company. We were able to use data that we collect through our system, called TrakStar, to be able to achieve this, in combination with studies that were done around the world.
For any of you that have gone for adolescent clearance, you know that that is a protected class to the FDA. The bar is higher. It's harder to get that clearance, b ut we were not only able to get cleared for 15- to 21-year-olds, we became a first-line treatment, comorbid with other therapies. So it's a huge home run for our physicians, our patients, and for us. Year- to- date, we've treated 425 adolescents with this treatment.
On Monday, we reported our earnings for the second quarter, and we projected that we would finish the third quarter somewhere between $18.5 million and $19.5 million, with full year guidance being somewhere between $78 million and $80 million. This is the third year in a row that we have increased revenue and dropped our OpEx. So our OpEx will also be somewhere between $78 million and $80 million.
On Monday, we also announced a purchase of our largest customer, Greenbrook TMS. They are the largest provider in the United States of NeuroStar treatments, so by combining the two of us, we have now gained some scale and capabilities to help treat more patients. Greenbrook has 120 centers across the United States, they use NeuroStar systems, but in addition to that, they also offer Spravato and med management.
The Spravato is offered in 70 of their 120 centers, and the med management is offered in about 40 of their centers. This is a huge opportunity from us, for us, right out of the gates to be able to accelerate those treatments to all of the centers that Greenbrook has. Greenbrook will bring about $74 million of revenue to a combined company.
So we have been asked, "Why? Why are you joining forces with Greenbrook TMS?" One of the reasons is to do what our goal was four years ago: create a broader awareness and brand awareness for NeuroStar. By creating 120 NeuroStar treatment centers, we are able to not only get a broader brand out there, but we are able to help our existing customers, who are also NeuroStar, by their name of their practice.
The second opportunity is, our training is really good, and I think we have perfected it over the last four years. We now have the opportunity to have a consistent training across the board throughout the whole network of 120 stores, which will ultimately give a franchise effect and have a greater opportunity to get more patients into care.
L astly, we offer an opportunity to our existing customers that they really have not had before and are their pain points. The first is when asked: "What is the largest problem in doing TMS in your practice?" It is dealing with the payers and getting reimbursed, and getting reimbursed at the right amount.
Today, Greenbrook has contracts on a local and regional basis, but with the scale of 120 stores, plus our Better Me providers, we have the opportunity to have 350 stores covering 49 states. For some reason, we're not in Vermont. But 49 states, and we can now be able to go to the payers who would rather deal with a network of treatment centers and be able to get better reimbursement.
The key here is to be able to offer that reimbursement to our providers and bring them under that umbrella of those contracts. In the physician practices that we have looked at, we can significantly improve their practice economics by getting them access to these contracts. The second is, through these contracts, Greenbrook has a quicker time to pay.
Most of our providers have to wait 90 days to get reimbursed from the insurance companies. Greenbrook is somewhere between 30 and 45 days. L astly, one of the biggest pain points within a physician's practice is their call center, is their person answering the phone. It's the lowest-paid person and the highest turnover within their practice.
We can offer the call center that Greenbrook has established and answer their phone as if it was their practice. So I believe through this merger, acquisition, we are actually able to alleviate some of the pain points that our practices are experiencing. So I'm excited about this opportunity. I think that I'm gonna ask Steve Furlong to come up and run over the financials with you.
Good afternoon. So from a financial perspective, we believe the timing was optimal for us to acquire Greenbrook TMS. Over the past two years, Greenbrook has really done a good job right-sizing their infrastructure. So they closed 53 stores that were all deemed to be underperforming, and so what's left is really a core of profitable businesses that we're gonna be able to scale.
Secondly, I'm sure you saw in Greenbrook's announcement and the merger agreement, as part of this, there was a settlement for the former CEO of Success TMS, where we're relinquishing 12 centers in New Jersey. They're also, I would say, underperforming. Nine of them are losing money, and the other three are just marginal.
So again, at the end of this, and when we close in November, we're gonna be in a very good spot. So they've taken out about $23 million of costs last year. Neuronetics has been able to grow revenue the past three years and actually reduce our operating expenses.
So we've been faced with that balance between growing revenue and getting the cash flow sustainability. Recently, we just closed a new debt facility with Perceptive Advisors, which we believe gives us that foundation of financial success with the initial tranche, and then two available tranches that we have the ability to draw on.
T hen finally, you know, working with Greenbrook's senior team over the past month prior to getting the definitive agreement signed, you know, we did identify a starting point of $15 million in cost synergies. So between the $23 million they've saved since 2023, on top of the $15 million that we're targeting, a nd it's a very specific set of line items, so it's not just a $15 million dollar target; it's function and vendor specific.
T hen finally, it was Greenbrook's lenders' willingness to convert their debt load a nd so at close, we're estimating that's gonna be a $140 million dollar debt conversion in a stock conversion transaction.
S o looking at a combined company of 2023 revenues of $143 million, with a $50 million dollar debt load, it's that, I would say, much more attractive cap structure that will allow us to execute and get us to cash flow breakeven in 2025. So again, we're very excited. We think the timing's right, and just the economics really aligned in the first half of this year. Thank you.
Great. I think we'll move to fireside chat. Have Keith and Steve join me. Thank you, and thanks for the audience for being here, and for those listening. Okay, lot of questions I received over the last couple of days. You put up an earnings quarter and a big M&A. So, I'm gonna clear a couple of the elephants in the room.
Okay. First on the quarter, you missed Q2. You lowered Q3 versus consensus but you kept the year. What gives you the confidence that you're going to be able to meet the low end of that guidance? Just even the low end. Those are pretty big... It was a pretty decent miss. You know, you brought down Q3 probably about $1 million. That's $3 million you've kind of taken off the table that you're saying is coming in Q4.
Yes, s nd so by our measurement, the Change Healthcare impact on Q2 and Q3, it actually is about $3 million, a nd so we saw the impact at the tail end of Q1, with, you know, a little bit of tightening on some of our capital equipment purchases, and also a slowdown in collections from our psychiatrists.
Basically, all their claims were being held up, and they weren't getting reimbursed, and being on the lowest rung of the reimbursement pecking chain, it goes pharmacy, hospital, large groups, and then the individual psychiatrist, they were impacted the longest. S o, you know, that continued through Q2, and what that did is it really inhibited their ordering patterns, and so they weren't able to place that fairly significant order to load up for Q3 patients that they already have in the queue.
S o we've seen internally a pretty remarkable increase in collection activity in July and early August, and that's why it gives us the confidence that w e didn't want to forecast the full recovery in Q3, but by year-end, we should be at that 78-80 range.
Are you changing the way you sell treatment packs to accommodate, or anything? 'Cause I would assume you say they load up, so they're gonna have a certain number of treatment clicks available for the system, I think you sell them in certain denominations. My guess is now they're running out and calling you like, "I'm out and they have to probably purchase with a credit card to get their next pack because they are out, out. As analysts like you , when I was on the corporate side, we used to call it net next order. That's when you get paid.
Practice development managers on a monthly basis have a business review with their accounts, targeting how many patients they have the opportunity to treat that are coming into their office and how many they would like to treat. S o our PDMs, as we call them, focus on getting those patients educated and into treatment.
Our physicians typically do that business review and then buy to that target. In Q2, we didn't have that. They couldn't afford to do it, b ut we believe that we see through our metrics and through TrakStar, we can see inventory levels. We know that they have to buy in Q3, and we believe that the effect of Change Healthcare is getting less and less, as seen by the collections increasing.
What have you seen in the underlying patient treatments be ause with TrakStar, you can actually see the clicks going? So what has that looked like across your whole customer base?
I think two years ago at this time, Will, we were measuring how many treatments a given patient was getting across the board, and even though the course of treatment is 36, the average patient was getting 19.
It was a freak out event for us when we realized that, but when we dug into it deeper and looked at their treatment scores, it wasn't because it was inconvenient or it hurt. It was because the patients were feeling better. Their PHQ-9 scores had dropped to a level where those patients had never felt that way before in years.
So the training that we now provide is how to keep that patient coming back and letting them know that at the 36th session, how much better they're going to feel. We know from our data, the last 10 treatments are the most important and have the most long-lasting, but best effect for those patients.
So I think we're comfortable that the Better Me Provider Program, we're getting those patients, when medically appropriate, the 36 sessions. It is working, and it is, it's getting more people, the full course of treatment.
T hen last question, and I'll move on to the deal, is just on motor threshold tests and new patient starts, did that grow year-over-year in Q2? Is that flat? Is that down? What does that monthly look like b ecause if I'm a doc and I'm out of cash I can't buy more treatments, I may not be starting more patients, 'cause I just can't. I'm in a bad spot, right?
Yep.
So what have you seen at the, you know, at that granularity level a nd how does that look even going into July, if you're willing to share that? I mean, given the stock's down so much and everybody's a little concerned.
Join the club. No, the underlying metrics on the company remain strong. We measure our customer segments four different ways and, you know, looking across that spectrum, utilization rates were up 18%-25% year-over-year, depending upon the customer segment.
MTs grew double-digit growth even with the, you know, the impact of Change. So it really wasn't a treatment issue, it was really a change in purchasing patterns that we believe was certainly a Q2 issue that may linger a bit in Q3, but should fully recover by the end of the year.
Okay, so that's giving you the confidence on the guidance? Yes, okay. Let's talk about the deal. Your stock is down, I think you're at a $50 million market cap. Your combined company's gonna be $150 million, with $50 million in debt.
You've gotten, I've gotten a lot of questions. You've gotten a lot of questions. What are people missing? What's the biggest top three things that people are concerned about, and you think, you know, you just need to be like, "No, no, this is, this is actually what's going on"?
Yeah, I mean, the biggest issue is we didn't have the definitive agreement signed until 6:00 A.M. Monday morning, and then had to go out with releases. I think it will be clearer once the proxy gets filed. There'll be a lot more information, financial information in that. I think what people are missing are, you know, really the, the revised cap structure. It's much better for both companies.
The, the revenue synergies aren't even in our projections, but Keith can talk to those, and they're significant. I mean, as a company, you know, we've really pivoted to being a therapy or a treatment session company. We don't have to sell another NeuroStar to get to double our business, and it's really just increasing the, the utilization and the throughput of our install base.
T hen finally, you know, from an operating expense perspective, we've shown our discipline. We've grown revenue, and, again, we're targeting only $79 million in spend this year a nd, you know, we did get to a comfort level with Greenbrook and, you know, doing as much diligence as we can on their numbers, as to, you know, what's one-time costs, what's non-recurring. I even spoke with their CFO today. I'm like, "Help me bridge this again." S o, you know, the economics, the OpEx discipline, and the revenue synergies have us all excited.
Well, I wanna start there on revenue synergies be cause I think that's one of the top things on the, you know, the questions I've been getting is wait a minute, post-deal it's gonna be 15% growth, there's gotta be revenue synergies baked into that. Whether mid-teens or 15, I forget what exactly the wording was, I don't wanna put words in your mouth, but to me, to get to that level of growth from where you've been and where they've been, there's gotta be some sort of revenue synergy. So t rying to understand, I'm trying to just, you know, close that gap.
Yeah, again, it really comes down. Well, it's two things. It's brand awareness, so you're gonna have these purple logos on all building fronts, really generating, you know, what's NeuroStar? Which will really raise the level for the 1,100 customers that aren't Greenbrook. Greenbrook, again, even though they're the biggest with 120 stores, there's still utilization increases that we're forecasting for them over the course of the next two years.
They're rolling out med management, and so they're gonna continue to get to the point where they're at 120 of their stores, and the same with Spravato. I think we were skeptical of, you know, the potential. We had a pretty good, I would say a very good education from their chief medical officer.
That gave us comfort that, you know, it's a real therapy, and it's not an antidepressant, and, you know, it comes with some advantages, and basically it's just the patient depression life cycle between TMS, Spravato, and med management. Again, a huge opportunity given their scale.
So I think our immediate opportunity on the Greenbrook side of things is, as Steve said, one, changing it all to NeuroStar, so we have one consistent branding message a nd I think we can reduce our OpEx on marketing from a combined $21 million down to $15 million without changing the economics on our customer side or on the Greenbrook side.
A s Steve said, being able to take Spravato and bring it into an additional 50 centers, being able to take med management from 40 and putting it into an additional 80 centers, and that med management patient ends up being a feeder system for the other two procedures.
T hen there are opportunities on the billing front from Spravato, changing it from administer and observe to being buy and bill, which increases the revenue opportunity there, and it's a little complicated to describe, currently, Greenbrook has it in eight of their stores. Being able to spread it to 120 would be a major opportunity.
On our customer front, as I mentioned in the opening remarks, being able to go to our customers and give them an opportunity to have access to these contracts is a big deal. In one of the accounts that I spoke to yesterday, I pulled up their numbers versus the Greenbrook contract in their area, and it increased their revenue by 50%, and they didn't have to treat another patient.
So it's a good opportunity for our accounts to get into those contracts, but then to be able to use the brand inside their practice that customers or patients are going to see outside their practice is great. We eliminate one whole point of brand confusion by doing this.
Okay, yeah. I think we put a preliminary model together in our last note, and we thought you could get to just an EBITDA breakeven, just preliminary just kind of merging them and taking the $15 million out.
It sounds like, one, you think there's revenue synergies that wouldn't be in that, and two, there's probably a lot more cost synergies than the $15 million if you already carved $6 million out of marketing, which I would assume would be Greenbrook does marketing, you reimbursement under co-op, so you're both booking it that way. So it's, it's just, literally, it's just money moving back and forth.
Moving around.
So yeah, it just comes off of the P&Ls and then whatever else you can do. I think we're out of time. I will see if there's anybody in the audience that has a question if there might be some shareholders in here. If not, I don't think so. Thank you very much.
Okay, thank you, Will.
Thanks, will.
No question. Thank you.