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    Neuronetics (STIM)

    Q1 2024 Earnings Summary

    Reported on Mar 21, 2025 (Before Market Open)
    Pre-Earnings Price$3.75Last close (May 6, 2024)
    Post-Earnings Price$3.59Open (May 7, 2024)
    Price Change
    $-0.16(-4.27%)

    What went well

    • The Better Me Guarantee Provider (BMGP) Program is significantly boosting patient volume at participating sites, with sites fully meeting program standards treating 10.7 patients per quarter compared to 3 patients at non-participating sites, indicating sustainable and accelerating growth in treatment sessions.
    • Despite temporary headwinds from the Change Healthcare cyber breach affecting capital equipment sales, the company expects a recovery and reaffirms full-year guidance, demonstrating confidence in achieving approximately 200 system sales in 2024 and continued strong treatment session revenue growth.
    • The recent FDA clearance for NeuroStar as a first-line adjunct treatment for adolescents aged 15 to 21 expands the total addressable market by approximately 35%, with significant impact expected in 2025 and 2026, representing a substantial long-term growth opportunity.

    What went wrong

    • Financing delays and increased lending scrutiny are causing significant delays in capital equipment sales and collections, impacting the company's balance sheet and potential revenue recognition. As Stephen Furlong stated, "It's taking longer to get our transactions funded... it used to be that we could get financing done in 10 business days. And now we're looking at several weeks."
    • The Change Healthcare cybersecurity incident is causing uncertainty and headwinds for Neuronetics, impacting system sales, cash collections, and prior authorizations, which may negatively affect near-term revenues. Stephen Furlong mentioned, "We estimate that we were probably short paid about $3 million... it did have an impact on our balance sheet" due to the cyber breach. The company is cautious about increasing guidance because of "the uncertainty due to the cyber breach."
    • Despite the new FDA clearance for adolescent patients, the positive impact on business will be more material in 2025, indicating that the benefits may not be realized in the near term. Stephen Furlong stated, "The impact on adolescents this year is still unknown... we think the most significant impact of that is going to be in 25 and 26 million."

    Q&A Summary

    1. Guidance Amid Cyber Breach
      Q: Why keep guidance flat despite strong Q1 and adolescent tailwinds?
      A: Management is keeping guidance flat due to uncertainty from a cyber breach that impacted system sales in Q1, though they expect a rebound in Q2 and Q3. Increasing guidance now would be premature. The impact of adolescent approvals is still unknown and expected to be more significant in 2025 and 2026.

    2. Q1 Cybersecurity Impact
      Q: Can you detail the Q1 impact from the cyber breach and expected Q2 headwinds?
      A: The Q1 impact was approximately $500,000, primarily affecting capital equipment sales. Collections were also impacted, with an estimated shortfall of $3 million due to delayed payments. Management anticipates recovery as the issue is resolved but expects modest impacts in Q2.

    3. Better Me Guarantee Program Growth
      Q: How is the Better Me Guarantee Program contributing to growth?
      A: The program is exceeding expectations, with 204 sites participating. Sites in the program treat an average of 10.7 patients per quarter, compared to 3 patients for non-participants. Plans are to add 50 new sites on May 15th and 50 more on June 3rd, aiming for 300-450 sites by year-end.

    4. Adolescent Market Strategy
      Q: What is the strategy to capitalize on the adolescent approval?
      A: The company has prepared a comprehensive marketing plan targeting adolescent psychiatrists, nurse practitioners, and parents. A press event is scheduled for May 15th in New York City to launch the initiative. Interest is significant, with 15 physicians already engaged who were previously unaware of TMS for adolescents.

    5. Q2 Guidance Outlook
      Q: Why is Q2 guidance below expectations despite strong metrics?
      A: Q2 guidance is set at $18 million to $19 million, reflecting ongoing impacts from the cyber breach and reimbursement delays affecting single-site offices' cash flow. Management believes this is a responsible approach and reaffirms confidence in the full-year outlook.

    6. Average Revenue per Active Site
      Q: What's driving trends in average revenue per active site?
      A: The metric faced some seasonality and variability in site count during Q1. Management forecasts improvement and expects double-digit growth throughout the rest of the year due to increased treatment session revenue and utilization.

    7. Marketing Spend Allocation
      Q: Will marketing spend increase with the adolescent market focus?
      A: Marketing spend will remain consistent with the past three years. The company is enhancing efficiency through the Better Me Guarantee Program and has no plans to increase the budget.

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