Neuronetics - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue was $32.0M, up 84% year over year and above S&P Global consensus ($29.1M); EPS was a larger loss than expected at $(0.21) vs consensus $(0.12), reflecting mix shift from Greenbrook clinics and lower-margin service revenue. Revenue beat; EPS miss.
• Gross margin fell to 49.2% (vs 75.1% in Q1 2024) due to consolidation of Greenbrook clinics; operating expenses rose 35% to $26.8M largely from Greenbrook G&A, driving net loss of $(12.7)M.
• Guidance raised at the midpoint: FY 2025 revenue to $149–$155M (prior $145–$155M); Q2 2025 revenue guided to $36–$38M; full-year gross margin ~55% and OpEx $90–$98M maintained.
• Integration progressing: SPRAVATO now in 75 of 95 clinics (buy‑and‑bill at 42), BMP network expansion (>385 active sites), and ~95% of ~$22.5M annual cost synergies realized; management reiterated target to be cash-flow positive in Q3 2025.
• Potential catalysts: sustained clinic utilization and SPRAVATO buy‑and‑bill ramp, adolescent coverage expansion (Evernorth/Cigna) increasing TAM, and margin cadence improving with scale per guidance commentary.

What Went Well and What Went Wrong

What Went Well

• Top-line momentum: $32.0M revenue (+84% y/y) with U.S. clinic revenue of $18.7M post‑Greenbrook and treatment sessions of $9.6M. “2025 is off to a great start…” (CEO).
• SPRAVATO rollout and buy‑and‑bill economics: offered in 75 clinics; buy‑and‑bill active in 42 clinics and generates ~3x revenue vs administer‑and‑observe model.
• Adolescent coverage expansion: Evernorth/Cigna joined Humana, Aetna and BCBS entities in covering adolescents 15+, bolstering long‑term growth drivers.

What Went Wrong

• Margin pressure and earnings: gross margin fell to 49.2% on clinic mix; EPS of $(0.21) missed consensus (mix plus higher Opex from integration).
• Core product softness y/y: U.S. NeuroStar system revenue decreased 14% to $2.8M (31 systems shipped), and treatment session revenue decreased 26% due to elimination of prior‑year Greenbrook purchases.
• Elevated cash burn in Q1: cash used in operations was $(17.0)M as STIM proactively settled legacy vendor plans and accelerated expenses; management expects Q2 operational cash usage < $5M and year‑end cash > $20M.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Neuronetics Reports First Quarter 2025 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mark Klausner. Please go ahead.

Mark Klausner (Head of Investor Relations)

Good morning, and thank you for joining us for the Neuronetics First Quarter 2025 Conference Call. Joining me on today's call are Neuronetics President and Chief Executive Officer Keith Sullivan and Chief Financial Officer Steve Furlong. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our business, strategy, financial, and revenue guidance, the Greenbrook acquisition, and other operational issues and metrics. Actual results can differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business.

For a discussion of risks and uncertainties associated with the Neuronetics business, I encourage you to review the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K, which was filed in March. The company disclaims any obligation to update any forward-looking statements made during the course of this call, except as required by law. During the call, we'll also discuss certain information on a non-GAAP basis, including EBITDA. Management believes that non-GAAP financial information taken in conjunction with US GAAP financial measures provides useful information for both management and investors by excluding certain non-cash and other expenses that are not indicative of trends in our operating results. Management uses non-GAAP financial measures to compare our performance relative to forecasts and strategic plans, to benchmark our performance externally against competitors, and for certain compensation decisions.

Reconciliations between US GAAP and non-GAAP results are presented in the tables accompanying our press release, which can be viewed on our website. With that, it's my pleasure to turn the call over to Neuronetics President and Chief Executive Officer Keith Sullivan.

Keith Sullivan (President and CEO)

Mark, thanks for the introduction. Good morning, everyone, and thank you for joining the call today. Let me start with our performance in the quarter, which represents our first full quarter inclusive of Greenbrook's financial results. Total revenue was $32 million, an increase of 84% over the first quarter of 2024. On a pro forma basis, total revenue increased 7% over pro forma revenue of $29.8 million for the first quarter of 2024. During the quarter, NeuroStar system revenue was $2.8 million, with 31 systems shipped.

US treatment session revenue was $9.6 million, and U.S. clinic revenue, which represents Greenbrook revenue, was $18.7 million, reflecting continued positive momentum following our transformative 2024. I'd like to give you an overview of our strategic priorities for 2025 and our progress on them in the first quarter. As we move through 2025, we are focused on two clear strategic priorities. Number one, executing our Greenbrook integration and growth strategy. Number two, continuing to scale our Better Me Provider or BMP program. Beginning with Greenbrook, we are focused on three key initiatives. First, the optimization of our regional account manager, or RAMs. Following their comprehensive training at NeuroStar University in November, our RAM team is successfully implementing the new automated patient transfer process.

The educational tools, QR codes, and coordinated intake team are allowing us to connect with patients more effectively while they are still at their referring physician's office, significantly improving conversion rates. Second, the rollout of SPRAVATO. SPRAVATO is now offered as a treatment option in 75 of our 95 Greenbrook clinics, up from 35 clinics at the beginning of the quarter. This represents 75% of the Greenbrook network, with implementation progressing on schedule. In 42 of these clinics, we have begun treating patients using the buy-and-bill model, which is already delivering the expected revenue improvements. Buy-and-bill treatments are generating approximately 3x the revenue compared with the administer and observe model. We remain on track to offer buy-and-bill SPRAVATO in all appropriate Greenbrook clinics by the end of 2025. Third is the standardization of operations across the Greenbrook network.

We have continued to execute well against this objective, with patient coordinators now placed in the majority of our clinics, enabling more effective in-person consultations. These coordinators are crucial in educating patients on the benefits of NeuroStar TMS and SPRAVATO treatments. Our training programs to ensure consistent patient experiences continue to show positive results. We have also made significant improvements to Greenbrook's revenue cycle management, including changes in leadership and transitioning to AdvancedMD Patient Record Billing platform, which is already enhancing our operational efficiency. Within our Greenbrook network, total clinic revenue was approximately $196,000 in Q1 of 2025, compared to approximately $139,000 in Q1 of 2024, a 41% increase. This increase was driven by optimization of our clinic footprint and strong NeuroStar TMS performance at the Greenbrook clinics in the quarter.

On the same clinic basis, NeuroStar TMS revenue increased 8% versus last year as a result of the actions described above. Our combined company cost synergy realization remains on track. As we integrated the Greenbrook operations, we have continued to identify and realize synergies. When we initially announced the transaction, we had identified $15 million of expected annualized synergies. After closing, by the end of 2024, we had identified approximately $22.5 million of annualized synergies. I'm pleased to report that 95% of these were realized by the end of 2024. As we continue to integrate operations, we are actively looking for additional synergy opportunities and currently believe that total realized synergies will exceed $23 million. These efficiencies, combined with our revenue growth initiatives, keep us on path towards achieving cash flow positivity in the third quarter of this year, as we have previously guided.

Our second strategic priority is the ongoing expansion of our BMP program across our customer base. As a reminder, BMP sites are those who agree to meet our patient responsiveness and educational standards. The program continues to gain momentum. We currently have over 385 active sites, with another 110 sites currently working to achieve the program standards. Our practice development manager team, or PDMs, are making significant progress in teaching these sites how to meet the remaining standards needed to qualify for the program. As a result, we expect a steady flow of new sites to enter the program over the coming enrollment periods this year. The performance metrics of BMP sites continue to validate the efficacy of the program, with these locations consistently helping more patients and delivering care faster.

Once practices are fully in the BMP program, they treat three times more patients per site per quarter than practices who are not in the program. On average, these BMP sites go from treating three patients per quarter to over 10 patients per quarter. In addition, customer sites that participate in the BMP program are addressing patient needs about two times faster when comparing results of Q1 2025 to Q1 2024. The outcomes demonstrated by BMP validate the lasting benefits of our model for teaching practices how to better serve their patients with NeuroStar. Accordingly, we continue to focus our efforts supporting these BMP practices based on their commitment to patient responsiveness and advanced training. Importantly, we have observed that treatment session utilization is outpacing purchases at these sites, indicating strong patient flow and utilization of existing equipment.

Based on Greenbrook's success in educating primary care physicians and non-interventional psychiatrists about our advanced treatment options, we have recently launched the NeuroStar Connection Network, through which our PDMs are building awareness of the NeuroStar TMS among 69% of patients with depression being treated within primary care. In these conversations, we give primary care physicians the option of working with our NeuroStar provider in their area, including our BMP sites. This is a critical development in our strategy to expand patient access to NeuroStar TMS treatment. It should be no surprise that primary care providers prefer BMP sites who are committed to our patient responsiveness and education standards. We have quickly seen BMP providers form the backbone of this program. The standard protocols and consistent patient experience at BMP sites give referring physicians confidence that their patients will receive high-quality care and remission rates that are unachievable with antidepressants.

Early data indicates that practices participating in the BMP program are seeing a meaningful increase in patients from local primary care networks, further validating the value of a comprehensive approach to patient care. Now for some updates on other marketing initiatives. Starting with our targeted TV marketing campaigns. In the fall of 2024, we ran a successful campaign in Tampa, Florida, that doubled awareness despite being interrupted by two hurricanes that hit the area during the campaign. Our mission to elevate consumer awareness of the NeuroStar brand continues to gain momentum through the targeted offline media programs, which include radio, TV, and billboards. In late March, we launched a six-week TV campaign in the Baltimore area, reaching over a million viewers and laying the groundwork for broader market impact.

Within the first two weeks of the campaign, preliminary results have been very encouraging, as we are seeing two and a half times more NeuroStar brand search impressions on Google and neurostar.com compared to the searches prior to the start of the campaign. Over 100 potential patients have requested consultations, and we expect this number to grow as the campaign reaches more viewers in the coming weeks. Additionally, our co-op marketing program continues to drive measurable results. Accounts who participated in co-op in the prior two consecutive quarters showed a 20% uplift in utilization and an 18% uplift in motor thresholds in Q1 of 2025 compared to Q1 of 2024. Another key growth driver continues to be the adolescent treatment capability.

Since receiving FDA clearance in March of 2024 as the first TMS treatment approved for depression in adolescents aged 15 to 21, we have seen meaningful traction in this segment. The number of adolescent patients receiving treatment has grown 38% in the first quarter of 2025 versus the first quarter of 2024, with the total number of adolescent patients aged 15 to 17 treated in Q1 of 2025 exceeding all the patients treated in the full year of 2023.

We are seeing encouraging adoption rates across our provider network, and insurance coverage for the adolescent NeuroStar TMS treatment continues to improve significantly, with Evernorth Health Services, a Cigna Group subsidiary, recently expanding NeuroStar TMS coverage to include adolescents 15 and older with MDD, joining our major insurers like Humana, Aetna, and several Blue Cross Blue Shield entities that have updated policies since our FDA clearance as the first first-line add-on treatment for adolescent MDD. In summary, our first quarter performance demonstrates that strategic initiatives we implemented through 2024 are driving tangible results. Our integrated business model, combining innovative technology with a robust care delivery network, positions us to expand access to effective mental health treatments while improving our growth trajectory and financial performance. I will now turn the call over to Steve to review our financial results.

Steve Furlong (CFO)

Thank you, Keith.

Unless otherwise noted, all performance comparisons are being made for the first quarter of 2025 versus the first quarter of 2024. Total revenue was $32 million, an increase of 84% compared to the revenue of $17.4 million in the first quarter of 2024, primarily driven by the Greenbrook acquisition. U.S. NeuroStar Advanced Therapy System revenue was $2.8 million, and we shipped 31 systems in the quarter. U.S. Treatment Session revenue was $9.6 million. We decreased to 26% year over year, primarily due to the elimination of Greenbrook revenue in our 2025 results. U.S. Clinic revenue, which represents revenue generated by treatment centers from the Greenbrook acquisition, was $18.7 million for the three months ended March 31, 2025. Gross margin was 49% compared to 75% in the prior year quarter.

This change in gross margin was primarily a result of the inclusion of Greenbrook's clinic business, which operates at a lower margin and the elimination of Greenbrook Treatment Session revenue. Operating expenses during the quarter were $26.8 million, an increase of $6.9 million or 35% compared to $19.9 million in the first quarter of 2024. The change was mainly attributable to the inclusion of Greenbrook's operating expenses of $9.5 million. During the quarter, we incurred approximately $1.4 million of non-cash stock-based compensation expense. Net loss for the quarter was -$12.7 million or -$0.21 per share, as compared to a net loss of -$7.9 million or -$0.27 per share in the prior year quarter. EBITDA was -$10.1 million as compared to -$6.3 million in the prior year quarter. As of March 31, 2025, cash and cash equivalents were $20.2 million.

This compares to cash and cash equivalents of $18.5 million as of December 31, 2024. Our capital position was strengthened by our successful public offering in February, which raised $18.9 million in net proceeds. This financing has provided us with enhanced flexibility to execute on our growth initiatives while maintaining our path to cash flow breakeven in the third quarter of 2025. As a result, in the increased strength of the balance sheet due to the follow-on offering, we proactively took steps to settle Greenbrook's legacy vendor payment plans and pull forward certain expenses in order to secure favorable vendor concessions by paying them early. While this increased our cash burn to levels above what would typically be seen in the first quarter, this decision will ultimately reduce our overall net spend with those vendors during 2025.

We also realized Greenbrook's bonus payout in merit cycles and experienced a temporary lag in Greenbrook collections as we integrated the new AdvancedMD software into our revenue cycle management. We are already seeing marked improvements in collections over the past two weeks as the new systems become fully operational. Due to these measures, cash used in operations for the first quarter was $17 million. We expect cash used in operations for the second quarter to be less than $5 million, and after the end of the year, we anticipate cash on the balance sheet to be greater than $20 million. Now, turning to guidance. For the second quarter, we expect revenue of $36 million-$38 million. We are narrowing our full year revenue guidance to be in the range of $149 million-$155 million compared to prior guidance of $145 million-$155 million.

For the full year 2025, we continue to expect gross margin to be approximately 55% as a result of the inclusion of the Greenbrook TMS clinic business and the elimination of Greenbrook TMS Treatment Session purchases. We continue to expect total operating expenses for the full year to be in the range of $90 million-$98 million. I am pleased to report that the current macro environment will have a negligible impact on the business. We anticipate a limited impact from tariffs as the majority of our sourcing is inside the U.S. and our manufacturing is based in San Diego. We do source some plastic components from outside the U.S. along with the NeuroStar Chair, but we estimate the net impact to be about $500 per NeuroStar system, which is very manageable within our overall cost structure.

From a treatment session standpoint, we source the treatment packs out of China and would estimate that the impact from the current tariffs of 145% would be less than $250,000 for the balance of the year. Moving through Q2, we continue to focus on execution of our expansion of our SPRAVATO rollout, the implementation of buy and bill, optimization of our revenue cycle processes, and remaining cost synergies. These efforts, along with our planned revenue growth, support our path to become cash flow positive in Q3. I would now like to turn the call back over to Keith.

Keith Sullivan (President and CEO)

Thank you, Steve. As we look ahead to the remainder of 2025, I am confident that we are well positioned to continue executing on our strategic initiatives and drive sustainable growth.

For Greenbrook TMS operations, we will continue the systematic rollout of SPRAVATO and the buy-and-bill model with an aim to complete implementation across all appropriate sites by the end of the year. We will continue to see a meaningful uplift in our NeuroStar TMS treatments and will continue to strive to increase our treatment sessions per system per day. In the coming quarters, we will continue advancing our operational improvement initiatives with plans to fully implement our revenue cycle management transition, finalize our patient coordinator initiative, and standardize our training programs across the entire clinic network. The early results we are seeing affirm the substantial revenue opportunity this represents. Our BMP program continues to show positive momentum. The connections between primary care physicians and BMP locations are helping to expand patient access to treatment.

As we progress through the year, this network is expected to grow its treatment session utilization and support controlled system sales. The performance data from BMP sites continues to reinforce the value of our approach to standardizing patient experience and practice operations. The adolescent opportunity continues to be a growth driver since our FDA clearance last year. Our recent NeuroStar Summit provided strong validation of this opportunity, with three quarters of the attending practices already implementing or developing adolescent programs within their practices. This enthusiastic adoption reflects both the clinical need in this underserved population and the expanded insurance coverage we have secured. We are seeing providers eager to offer this treatment option to younger patients who have limited alternatives. Most importantly, we remain committed to being cash flow positive in the third quarter, as previously guided.

Our successful February raise has strengthened our balance sheet, giving us the resources needed to execute on these strategic initiatives while maintaining our path to profitability. Before we conclude, I'd like to share some news regarding our leadership team. After serving as our Chief Financial Officer since 2019, Steve Furlong has announced his intention to retire on March 31, 2026. Steve continues his current position until his successor is hired and will remain as an advisor until the end of March to ensure a smooth transition. We have initiated a comprehensive search process to identify his successor. In closing, the first quarter results demonstrate that our integrated business model is working, creating value for patients, providers, and shareholders. We are excited about the remainder of 2025 and look forward to updating you on our progress in the quarters ahead. I'll now open the call for questions.

Operator (participant)

Thank you.

At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question is from Margaret Kaczor Andrew with William Blair. Your line is now open.

Margaret Kaczor Andrew (Analyst)

Hey, good morning, everyone. Thanks for taking the questions. Yeah, maybe just to start out with, maybe we can focus on the BMP sites on the Neuronetics side or the NeuroStar side, excuse me, more specifically. So the number of sites is growing. Funnels may be getting a little bit smaller, at least versus last quarter. Just wanted to see, is this a one-time dynamic? Should we assume that funnel increases again?

Are you reiterating that over 500 by end of year? What causes that?

Keith Sullivan (President and CEO)

We just had an influx of new accounts enter the program, Margaret. There is a natural dip as that happens. We will be building that pipeline back up. Right now, we have 113 sites that are working to get into the program. I expect that to grow with our next summit, which is actually this weekend.

Margaret Kaczor Andrew (Analyst)

Okay, that's helpful. As we look at that maybe in more detail, look at kind of the progress of these BMP sites both this year and then almost more importantly, as we go into 2026, the number of these sites continues to grow. What drives utilization, I guess, at those sites in that midterm outlook?

Anything that you guys can provide around utilization trends both at those sites versus maybe non-BMP sites over the last few quarters. Thank you. All right, I know that was a lot. I can repeat any of that.

Keith Sullivan (President and CEO)

Yeah, it's okay. I'll remember as much as I can. The BMP sites are our focus of our marketing efforts. I think Lisa Rosas has done a fabulous job of monitoring our BMP sites and being able to utilize digital marketing as well as traditional marketing, radio, TV, and billboards to be able to drive awareness and educate those patients. I think we are comfortable that we can continue to have utilization grow in those sites. In the script, we also talked about our network connection.

We have asked our PDMs to go to primary care, non-interventional psychiatrists, and GYN physicians that are taking care of patients battling depression who can't get help elsewhere, educate them on the benefits of the NeuroStar treatment, and have those physicians choose who they want to refer to. As we said in the script, most are referring to our BMP sites. I think that this new program that we have actually perfected on the Greenbrook side of the business will be a tremendous help in continuing to grow utilization in BMP sites.

Margaret Kaczor Andrew (Analyst)

Okay, great. Just last question, maybe on the guidance. As we're looking towards that, I guess, full year 2025, can you provide any breakdown between Greenbrook, maybe expectations for utilization at Greenbrook, and then same question on the NeuroStar side. Thank you. Appreciate it, guys.

Steve Furlong (CFO)

Welcome, Margaret. Steve.

Yeah, Greenbrook's performance in the first quarter was actually quite good relative to TMS improvements. Again, we're using our BMP account metrics as really measurement criteria for Greenbrook. They actually increased their utilization per NeuroStar Chair to just under five patients per day. Really up to a great start in 2025. Looking at guidance, again, the primary growth drivers are really going to be patient utilization in the Greenbrook chairs and also SPRAVATO. SPRAVATO did increase about 50% year over year. That's natural given the low starting point in 2024, but also the pretty impressive rollout across all clinics and also the conversion to buy-and-bill. I think as we go forward, every increase that we'll see going forward will be related to the Greenbrook side.

Margaret Kaczor Andrew (Analyst)

Thank you.

Operator (participant)

Thank you. Please stand by for our next question.

Our next question comes from William Plovanic with Canaccord Genuity. Your line is now open.

William Plovanic (Managing Director)

Great. Thanks. Good morning and congratulations on that solid top line. Just on the business itself, I think when you gave the 2025 guide, you had the legacy Neuronetics business at $65 million-$70 million and the Greenbrook at $80 million-$85 million. Any change in that? Just to dig into the Greenbrook outperformance, you mentioned SPRAVATO. If I kind of broke it up, how much was utilization versus how much of that year-over-year growth was SPRAVATO? On the core Neuronetics business, I mean, that was off a lot more than we were expecting. How much of that was Greenbrook versus how much of that was kind of the legacy Neuronetics?

Steve Furlong (CFO)

Yeah. Again, Bill, the Q1 performance we thought was extremely strong on both sides of the business.

Greenbrook's clinic TMS business was up 8% year over year that we mentioned in the script. SPRAVATO was 50%. Those figures are same store clinics. Last year in Q1, we had 130 operating clinics. Now we have 95. Those growth rates are apples to apples with the 95. From a Neuronetics perspective, really the biggest variance was the $2.6 million in Greenbrook treatment session sales that we had last year that obviously do not recur since we are now one company and they get eliminated. Aside from that, we were, I would say, pretty spot on from a Neuronetics perspective measuring Q1 actual performance to our plan. We thought we got off to a great start. The increased utilization at Greenbrook and TMS was great, as is the continued growth of SPRAVATO.

William Plovanic (Managing Director)

On the spend, it looks like your G&A was maybe $4 million higher than what we were looking for. I know you've had the merger and a lot of things going on. Was there any one-time costs in there? I'm trying to just titrate the model here, but what should we expect in kind of a Q2 G&A spend and how should that look going forward? I'm just trying to walk to the cash flow positive in Q3.

Steve Furlong (CFO)

You won't see increases in G&A as we work through the balance of 2025. We pulled in approximately $5 million in Q1 from a cash perspective. That was really just taking advantage of our $18.9 million follow-on.

What we did is we pulled in expenses that were budgeted from either an expense or a cash flow perspective to really improve our vendor relations with some key vendors that Greenbrook had. They were put on payment plans because in fairness to them, during 2023 and 2024, it's not like they were flushed with cash. They were managing expenses really to the detriment of relationships. We pulled in software payments. We synchronized payroll. Greenbrook's bonus and merit cycles, which were planned for later in the year, were pulled into the quarter. We did pull in some marketing spend into Q1 and Q2. We did have increased auditing fees just related to the combined company in February and March.

Again, I think from an expense perspective, with the increase, you'll notice that we did not change operating expense guidance for the year and still believe we'll be pretty much at that midpoint when we finish 2025.

William Plovanic (Managing Director)

Okay. But Steve, you did $27 million in OpEx in Q1. You're guiding $90 million-$98 million. You're annualizing at $104 million. What is the normalized OpEx spend as we go into Q2?

Steve Furlong (CFO)

It'll be in the $23 million-$24 million range.

William Plovanic (Managing Director)

Great. I'll circle back. Thanks.

Operator (participant)

One moment for our next question. Our next question comes from Adam Maeder with Piper Sandler. Your line is now open.

Adam Maeder (Managing Director)

Hey, guys. Good morning. Thank you for taking the questions. A couple from me. And kind of wanted to start with where Bill just left off around some of the puts and takes on the guidance front.

The standalone revenue guidance for the year, is that still $65 million-$70 million, or did that change? Yeah, I have a follow-up or two. Thanks.

Steve Furlong (CFO)

Yeah. I mean, the split we communicated at the beginning of the year, again, in that $65 million-$70 million range for Neuronetics and $80-$85 million for Greenbrook is still, I would say, the current targets for the combined companies.

Adam Maeder (Managing Director)

Okay. That's helpful, Steve. Good to hear that. Just around the Q1 performance for the Greenbrook clinics, good performance in the quarter. Are you able just to give us a little bit more insight around kind of the revenue mix between TMS, SPRAVATO, and other?

I heard some growth rates thrown out, but I think it'd be helpful just to kind of get a sense of the magnitude of revenue for each of those different products at Greenbrook as we think about that business kind of ramping throughout the remainder of the year.

Steve Furlong (CFO)

Sure. Adam, I think it's important to note that these ratios are going to change significantly as we continue to roll out SPRAVATO as well as buy and bill. For color, TMS performance was essentially double SPRAVATO, but that number will change pretty significantly as we work through Q2, 3, and 4. Maybe it's a nice starting point, but I'm not sure of the relevance when you're modeling for the remainder of 2025.

Adam Maeder (Managing Director)

Okay. Okay. That's helpful. Appreciate the incremental color. Maybe just one on the gross margin front.

It looks like the gross margin guidance for the year, 55% unchanged. Q1 did come in a little bit lighter than we were modeling, I think 49% or so. I'm assuming that's a function of mix, but would just love a little bit of detail there. As we think about kind of the cadence of gross margin in subsequent quarters, just any more color you can provide would be helpful. Thank you.

Steve Furlong (CFO)

Yes. Adam, once again, where we finished for the quarter was actually what we had planned. We were pleased with the margin profile in the first quarter. You will see a nice improvement in Q2 and Q3 really related to the revenue scale. We go from $32 million to a $37 million midpoint guide for Q2 and Q3.

We're going to get pretty close to that 55% number in the next couple of quarters. Additional improvement as we get to Q4. Q4 will have 28% of our annual revenue in that quarter. It's just a natural function of being able to leverage the clinical cost foundations. Really, the only variable costs within a clinic are doctor fees. If they go up, our revenue goes up. It's a good thing.

Adam Maeder (Managing Director)

Thanks for the color, Steve. Helpful.

Operator (participant)

Thank you. One moment for our final question. Our final question comes from Danny Stotter with Citizens JMP. Your line is now open.

Danny Stotter (Analyst)

Yeah. Great. Thanks. Just following up on some of the SPRAVATO questions specific to the buy and bill transition, we appreciate the color there.

It sounds like it's including your guidance, but could you comment on any capital outlay this requires as we look at a cash flow statement and contemplate your plans for free cash flow in 3Q to 2025? Are there any constraints to giving these conversions? Just because I know there's an upfront cash expense. Just any more color there would be great.

Steve Furlong (CFO)

Hey, Danny. It's Steve. Yeah. We did have higher SPRAVATO buy and bill expenses in the first quarter. Again, once we completed the follow-on, we chose to continue to invest in the business, again, with a pull-in in marketing, but also an acceleration of the conversion to buy and bill. I am in the process of increasing our credit line with an LOC to lessen the cash burn burden on the company.

Again, it's a balance between the level of the LOC, the inventory requirement, and just the overall impact on our cash flow. I will say our distributors are very good to work with. We do have 120-day payment terms. Once we get into a regular cadence of claim submission, collections, and then the ultimate payment, it should not be a cash flow issue for us. We should collect in 60 days, and I don't have to pay in until 120 days. We are working with different sources to secure that LOC, and we'll be balancing that impact on cash as we continue that rollout.

Danny Stotter (Analyst)

Great. That's it for me. Thank you.

Operator (participant)

I'm showing no further questions at this time. I would now like to turn it back to Keith Sullivan for closing remarks.

Keith Sullivan (President and CEO)

Thank you, Operator.

Thank you all for joining us today for our first quarter earnings call. We appreciate your support, and we look forward to updating you on the next quarterly call.

Operator (participant)

This does conclude today's conference. You may now disconnect.