All right, we're going to get started here. My name is Adam Maeder. I'm one of the medtech analysts here at Piper Sandler. Very pleased to introduce the management team from Neuronetics. With us, we have Keith Sullivan, the President and CEO. We also have Steve Furlong, EVP, CFO, and Treasurer. Gentlemen, thanks so much for joining us.
Thanks.
Thank you.
I wanted to start with Greenbrook. Obviously, that's been very topical over the past, let's call it, 4-6 months. The fact that Neuronetics is acquiring Greenbrook. First question there is, deal close? How close are we? Are we tracking to before year-end 2024? Any update you want to give us?
Our plan was to close it in the fourth quarter. We've been working through the integration on both sides. We're very comfortable that we will be able to close by the end of the month.
Okay, fantastic. That's good to hear. I'm going to ask you about revenue and cost synergies, but before we get there, it is a fairly sizable acquisition. And so as we think about the integration process, any concerns around potential disruption, or do you expect it to go pretty seamlessly?
I think the question we get asked most frequently is, are our current Neuronetics customers happy about the deal or not? And what I can tell you is I have personally talked to at least 30 of them, and they start out nervous about the fact that we would compete with them when they actually realize that we won't and that Greenbrook is not competing with them today. And the opportunities that the purchase of Greenbrook would offer them, which would include the billing and getting onto the reimbursement programs and call centers, those things that we could offer to them, they're actually pretty excited about it. As we dig into the integration process with Greenbrook, we are more and more excited about the opportunities that are out there. I think the benefits that we can bring to them are some additional efficiencies to their current system.
So we're pleased with where we are today.
Okay, great. That's good to hear. Now let's talk about kind of the synergies. We'll start on the top line. So I think at one point you'd thrown out a mid-teens growth figure for the combined entity in 2025. Feels like maybe you didn't necessarily reaffirm that on the last earnings call. Did I interpret that correctly? Or any comments you want to make in terms of revenue synergies and combined entity growth next year?
So until we close, they have handcuffed me around what I can say about the revenues for 2025. What I can tell you is that as we get deeper and deeper into looking at Greenbrook and what the opportunities are, we do continue to find additional opportunities than what we had seen before. So I think our position on what the growth numbers would be for next year really hasn't changed.
Okay, perfect. That's good color. And then on the cost synergy side, I believe you took up the target on the last earnings call. So I think you're standing at $20 million cost synergy target for 2025. Maybe just talk about what's driving that and level of confidence?
Yeah, so we're actually over $22 million right now and communicated that's really the floor at this point. And so we continue to uncover inefficiencies really within both companies. And so it was publicized that we took action November 8th. Greenbrook took a similar action the week later. They just announced the closure of 23 underperforming stores. And so those synergies, when the deal closes, I would say 90% of them will be realized. The next 10% will be done the first of the year. And then we have two smaller phases in 2025. So it's not like there's a ramp to attain the $22 million. It's going to happen pretty much instantaneously. And that is reflected in all of our forecasts and cash flow communication.
That's great. One question I sometimes get from investors is just kind of with the acquisition itself, how do we think about headcount for the combined entity? And then just remind us how many kind of brick and mortar facilities we're going to be acquiring.
Yeah, so we're going to exit the year with 95 profitable centers going forward. And so as a reminder, in 2023 and into 2024, Greenbrook has either handed over 12 as part of a settlement to the former CEO, but they've basically shut down 88 stores. And so they're in a much different financial position. Post-close, we're also obviously converting $160 million of debt that they have into common stock. So financially, it's a much more attractive story. And so what was the second part of the question?
Number of people.
Number of people. It's in the 650 range.
Okay. Good color, Steve. And as we think about kind of the capital allocation strategy looking ahead, do you plan to open more stores, or is it really just maximizing utilization and driving that utilization at existing centers?
I'll look at it on two fronts. On the Neuronetics side of it, we have about 360 locations that are in our Better Me Provider Program, and we have another 125 that are trying to get into it. Our focus in 2024 will be to really get utilization up to as high a capacity as they can get to. And so we have fine-tuned our training, our practice development managers, and what we would like them to do in the field to help drive utilization there. On the Greenbrook side of it, there's another 95 stores that Steve referenced. So between the two groups, we've got 450 locations. Our goal is really to drive utilization in all of them. We've talked about the Greenbrook systems today are generating about four treatments per day per TMS system. I think our goal would be to get that up to six.
If we can do that, then it's a home run for everybody. The true utilization would be getting it all the way up to 10 per day. I don't think that that is our target at this point. A home run would be getting them up to 6.
Okay. Really helpful color, Keith. Thank you for that. One of the aspects of the deal that I think is pretty interesting is the opportunity to move a little bit, I'm going to call it a little bit downstream in the care continuum with Spravato and medical management. Maybe just help myself and the audience understand kind of how you're going to go after that opportunity, the access to those products, and then how do you cross-sell that kind of to the existing customer base?
Yeah, I think the opportunity within the Greenbrook locations is really a big one. And it's confusing, and I could eat up all 20 minutes here explaining buy and bill versus administer and observe. But shifting to a buy and bill strategy will absolutely increase our top-line growth, but also increase the profitability of each center. So today, they do buy and bill in seven of their locations, and there is a plan that we have put into place for them to roll it out to the balance of their stores. So that's a big initiative for us, but I think we can get that done in the first half of the year. I think in the Greenbrook locations today, they have not really focused on putting somebody into Spravato. And if they don't respond to it after the first course of treatment, putting them into TMS.
So that is an initiative that we're working with their chief medical officer and being able to start them in one modality and moving to the next. So that's a huge opportunity for us. And then to be able to educate our other customers on how to incorporate Spravato into it would be an added benefit that we could bring to our Better Me providers.
Yeah. Okay. Good color, and maybe bringing Steve back into the mix, just remind us, Steve, what you've said about cash burn for next year and just half the profitability under the combined entity.
Yeah, so at transaction close, we're going to have a pretty healthy cash balance. I mean, historically, Q1 has always been our highest cash burn quarter, and we do see that for 2025, but it will be significantly less than what we saw last year. Q2 will be lower, and then we have said that we will be cash flow positive in the third Q3 of this year or 2025.
Helpful. I'm going to kind of ask a question out of left field, but it's one that I've been really curious about. So I'm going to work it in in the interest of time right now. Alzheimer's disease. There's been some chatter that TMS may have an application there, and I know it's really early data. I think I saw a paper that was published recently. So the question really is, has the company ever looked at that? Have you considered an application for NeuroStar in that area of care?
Alzheimer's is near and dear to my heart. My father suffered with it and just recently passed away as a result of it. I can tell you that we have also, through TrakStar, seen success with Alzheimer's. It would be an initiative that we have not started yet. We have some data in TrakStar, but we haven't put into place any structure yet. I got to swallow this elephant first.
Yeah. Yeah. Okay. Interesting. Well, I'll make a note to circle back here after the deal closes and after you get integrated. Okay. Let's flash back to Q3, and I did want to ask, you're seeing a little bit of challenges on the treatment side of things right now. You did reduce the guidance for the full year 2024. I think the Q4 guide stands at $19 -20 million of sales. Maybe just talk about what's assumed in your Q4 outlook and just the level of confidence that you're going to be able to execute against it.
Yeah. We saw some recovery in the Q3 . Again, as a reminder, with the Change Healthcare breach, it basically stopped reimbursement to our physicians. And so they were really caught without any incoming cash and had to prioritize what went out. And they chose payroll, then rent, and then ultimately ordering and paying for our treatment sessions. Q3 was a strong collection quarter. So that tells me that they're getting reimbursed and things are returning to normal. Our assumption in Q4 is that recovery continues. And the nice part about the transaction with Greenbrook is we can monitor their collection times as well. And so they were impacted the same way our customers were. And they had fully expected to be recovered by the end of Q4, and they're not seeing that. And so they're seeing a modest recovery, but it's not fully baked at this point.
Yeah. That's helpful. And as we think about 2025 customer buying patterns, is it kind of a continued recovery? When do you think we kind of get back to, let's just call it normal?
Yeah, I think it'll be a continued recovery. There's a balance with our customers' cash flow, and so they are incented to place larger orders because their co-marketing reimbursement is higher, and so if they want to spend money on marketing, you really want to spend more money on treatment sessions. If you're pulling back on marketing, it probably makes sense to buy less and keep your inventory at a month level, so it's really going to be a customer preference type of issue, but we do expect some return to the historical patterns.
Okay. Fantastic. I have to ask about 2025 and street numbers, kind of just a prerequisite question. So I show treatment plus capital at just a little bit under $75 million for full- year 2025. That's about 8% growth. That's for standalone Neuronetics. Any reaction to that figure? Any puts and takes that you want to give the audience as it relates to kind of standalone Neuronetics?
Yeah, and you ask me this question every year, Adam, so.
You used to.
It's a reasonable starting point. I can say that.
Okay. Okay. Good. Let's switch over to the Better Me Provider Program. I think, Keith, you might have touched on it a little bit. Just remind us where you are today, how many accounts are part of the program. You have a target for 2025. And maybe just talk also about the ROI and the performance metrics that some of these accounts are seeing.
So the account total today is just a little over 360 sites. And remember, it has to be sites. I can't take an account that's got multiple sites. Each one of them has to qualify on their own to meet our compliance requirements. But we have about 360 today, and then we have about 125 that are trying to meet the standards to get into the program. So it's really grown nicely for us. And I think we've talked about the fact that we have to continually test them to keep them in the program. And the testing is great. We are seeing that the utilization by these Better Me Provider accounts is growing significantly for us. So we're pretty pleased with the whole program. It's done exactly what we wanted it to do.
I think we've talked about the fact that we did a TV test down in Tampa, Florida, with our Better Me providers down there. That was, quite honestly, until we had two hurricanes show up. It was really a home run for us and for them, so.
Okay. And 125, do you get through all of those in 2025, or is it too early to?
No, I think we would. I think there's always a handful that will drop out, and shockingly, the number one reason they drop out is because they don't want to answer the phone.
Okay. Interesting.
It's frustrating, honestly, but.
Maybe just for some context, the number of accounts that you're in today or sites that you're in today versus the Better Me program. I'm just trying to reconcile that 360 plus 125 versus how many total customers that you have.
Yeah, we're about 1,200 sites.
1,200 sites. Okay. Okay. Perfect. All right. So I wanted to switch over a little bit to the capital side. Placements, how do we think about those in 2025? Anything to call out from a macro standpoint that gives you pause or concern, or is it kind of just status quo on the macro side?
So what we've learned over the last 4 years is that we need to do a good job of selecting the accounts that are going to be purchasing the equipment. When they buy a NeuroStar system, if they don't have the infrastructure in their office or we're starting them from being a mom-and-pop shop to having to get them onto reimbursement, having to get them a front desk person, then a treater, it's a very heavy lift that takes a long time and in some cases is not productive. So we have shifted our strategy to really qualify these accounts upfront. So when accounts come to our summit, they are pretty well vetted. So our focus next year is to really go to accounts that are prepared. So as a result, I think that utilization is sort of our key focus for next year.
Selling to accounts that can accelerate quickly, that have the basic infrastructure in place would be the focus of where we're going to sell systems.
Okay. That's helpful. I'm trying to remember what my model looks like and the number that you're placing on an annual or quarterly basis, Steve, maybe just.
Historically, it's been about 200 systems a year.
Next year, does it?
150 or so.
150. Okay.
I mean, we're really going to focus on the customers that have figured this out. And so 35% of our system sales are to existing customers. Some are never going to figure it out. And it's hard to imagine that you spend $100,000 on a NeuroStar and don't use it. But we see that all the time.
Okay. Good. That's great color. Thank you for that. Wanted to ask about FDA approval that you guys recently got for adolescent patients because I think that is a pretty interesting and certainly a sizable opportunity. How is that launch going? How many of your centers are treating adolescent patients at this point? Do you have that level of visibility? And how big of a growth driver could this be, whether it's 2025, 2026, 2027? Just.
So today, we have about 145-150 sites that are treating children, that are treating 15-21-year-olds. So that is up 100% from April when we got our clearance. So we're seeing good growth, and we're seeing good numbers of adolescents being treated, and we're seeing great results as a result of it. So we're very optimistic on it. I had a call with a group of primary care physicians two days ago, and their primary focus was, how do we get to these children that are trying to get more help? So I think it's a good opportunity for us next year. Our marketing is going to be targeted towards their parents, and I think we expect good growth in that 145 number.
Okay. That's helpful. And if I heard you correctly, 145 accounts, and then Steve just mentioned you're in 1,200 accounts, so kind of 10%-15-ish of your accounts are treating adolescent patients.
Yeah.
I mean, how do you get buy-in from the other accounts, and how do you get the other accounts to treat adolescent patients, I guess, is the question?
So we have to make sure that they have an adolescent psychiatrist there because not all psychiatrists treat adolescents. So our marketing has been to specific adolescent psychiatrists. There's also an opportunity to speak to therapists, which we have never really done before, who will then refer them to the Greenbrook locations or our Better Me providers. So I think we are well positioned with the right messaging right now to be able to start broadcasting on a broader basis.
Okay. Good. Wanted to ask just a bigger picture question around reimbursement. And I know there's been some changes over the past couple of years, and most of them, I think, for the better, positive for TMS therapy. But maybe just talk a little bit about the progress you've made to reduce barriers to therapy and anything that's potentially on the come in 2025?
So fortunately, the reimbursement, as you said, has gotten easier. When I started four years ago, most of the major payers required a patient to fail four drugs. The majority of them now are down to two drugs. And some of them only require one, which is our FDA clearance. So I think we're moving in the right direction. There's always a fear that reimbursement is going to go down, but quite honestly, that has not been the case. In many cases, it has gone up. So I think we're in a good spot with reimbursement. With the acquisition of Greenbrook, we can now offer to our Better Me Provider accounts the opportunity for us to negotiate on their behalf.
So when we look at 95 Greenbrook locations, and then we look at 360 Better Me providers, having that footprint in 49 states, God only knows why we're not in Vermont, but we're not. But with that footprint, we're able to go to regional payers and some national payers and be able to offer consistent treatment across the board. I think we've talked in the past about the fact that when I compare one of our accounts down in Tampa, Florida, to the Greenbrook reimbursement rates, if she did not treat a single patient more, she would increase her revenue by 50% if she was able to access those rates. So I think reimbursement is a good opportunity for us to be able to lock in our accounts and actually help them make some additional revenue.
That's good color. I see the clock winding down here. So I think we'll probably have to wrap there. But want to say thanks again, Keith and Steve, for joining us, and appreciate the update.
Thank you.
Thank you, Adam. Take care.
Appreciate it.
Thanks.