Financial Data and Key Metrics Changes - Total revenue for Q1 2024 was $17.4 million, a 12% increase from $15.5 million in Q1 2023, primarily driven by increased treatment session sales [6][91] - U.S. Treatment Session revenue reached a record $13 million, reflecting a 22% year-over-year increase, attributed to strong performance in the local consumable customer segment [7][100] - Gross margin improved to 75.1% from 73.3% in the prior year, an increase of 180 basis points, driven by a higher mix of treatment session revenue [9] - Operating expenses decreased by 7% to $20 million compared to $21.3 million in Q1 2023, due to prudent cost management [10] - Net loss for Q1 2024 was $7.9 million, or $0.27 per share, an improvement from a net loss of $10.5 million, or $0.38 per share, in the prior year [11] Business Line Data and Key Metrics Changes - U.S. NeuroStar Advanced Therapy System revenue was $3.3 million with 41 systems shipped during the quarter, slightly below the target of 45 to 50 systems [6][92] - Revenue per active site increased to approximately $11,300 from $9,700 in the prior year, reflecting ongoing success in commercial initiatives [7][8] Market Data and Key Metrics Changes - The total addressable market for Major Depressive Disorder (MDD) has increased by approximately 35% due to the recent adolescent indication approval [3] - The adolescent patient population is estimated to impact around 4.3 million patients in the U.S., with increasing prevalence since the COVID-19 pandemic [2] Company Strategy and Development Direction - The company is focused on expanding its commercial partnerships and increasing access to NeuroStar therapy, particularly targeting the adolescent market [4][98] - The Better Me Guarantee Provider Program aims to enhance patient care and responsiveness, with plans to expand participation to over 300 sites [15][102] - The company anticipates significant media coverage and interest from the adolescent psychiatric community, expecting material impact in 2025 [23][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in returning to profitability and cash flow positivity by Q4 2024, despite current challenges from the Change Healthcare cybersecurity incident [12][13] - The company expects Q2 revenues to be between $18 million and $19 million, with a rebound anticipated once the cybersecurity issues are resolved [14][30] Other Important Information - The company has received its eighth FDA 510(k) clearance for NeuroStar as a first-line adjunct treatment for adolescents aged 15 to 21 suffering from MDD [79] - The Better Me Guarantee Provider sites are seeing significant improvements in patient follow-up and treatment initiation times, indicating the program's effectiveness [75][76] Q&A Session Summary Question: Why maintain flat guidance despite strong treatment revenues? - Management cited uncertainty due to the cyber breach impacting system sales, leading to cautious guidance [28][30] Question: Anticipated headwinds in Q2? - Management estimated a $3 million shortfall in collections due to the cybersecurity issue, impacting cash flow [35] Question: Impact of adolescent approval on marketing spend? - Marketing spend will remain consistent, with more efficient allocation towards the Better Me Guarantee Program [64][65] Question: Trends in treatment sales growth? - Management noted strong growth in treatment sessions, with the Better Me Guarantee Program contributing positively [52][56] Question: Will the statistics for participants in the programs improve over time? - Yes, participants in the Better Me Guarantee Program continue to show improved metrics over time [57][59]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File Number: 001-38546 NEURONETICS, INC. (Exact name of registrant as specified in its charter) incorporation ...

Exhibit 99.1 Neuronetics Reports Record First Quarter 2024 Financial and Operating Results MALVERN, PA., May 7, 2024 – Neuronetics, Inc. (NASDAQ: STIM) (the "Company" or "Neuronetics") a commercial stage medical technology company with a strategic vision of transforming the lives of patients whenever and wherever they need help, with the best neurohealth therapies in the world, today announced its financial and operating results for the first quarter of 2024. First Quarter 2024 Highlights "Neuronetics had a ...

Part I [Item 1. Business](index=7&type=section&id=Item%201.%20Business.) Neuronetics markets the NeuroStar TMS system for neurohealth disorders, focusing on sales expansion, system utilization, and international growth [Overview](index=7&type=section&id=Item%201.%20Business.%20-%20Overview) Neuronetics markets the NeuroStar TMS system for depression and OCD, generating $71.3 million in 2023 revenue from a large addressable market - The NeuroStar Advanced Therapy System is FDA-cleared for adult patients with MDD who have failed at least one prior antidepressant, as an adjunct for adults with OCD, and to decrease anxiety symptoms in adults with MDD[17](index=17&type=chunk) - The company estimates its total annual addressable market opportunity for treatment sessions in the United States is approximately **$8.9 billion**[19](index=19&type=chunk) Key Operational and Financial Metrics (as of Dec 31, 2023) | Metric | Value | | :--- | :--- | | Global Patients Treated | ~169,068 | | Total Treatment Sessions Delivered | >6.1 million | | FY 2023 Revenue | $71.3 million | | Active U.S. Sites | 1,145 | [Our Strategy](index=11&type=section&id=Item%201.%20Business.%20-%20Our%20Strategy) The company's strategy focuses on expanding its sales force, increasing system utilization, growing in Japan, and pursuing R&D for new indications - Expand the direct sales organization to target approximately **53,000 psychiatrists** at 26,000 practices in the U.S[30](index=30&type=chunk) - Increase utilization at the **1,145 active U.S. customer sites** by expanding the NeuroStar practice development manager (PDM) team and investing in marketing resources and direct-to-consumer advertising[30](index=30&type=chunk) - Focus international commercial efforts on Japan through an exclusive distribution agreement with Teijin Pharma Limited, while opportunistically evaluating other markets[30](index=30&type=chunk)[32](index=32&type=chunk) - Continue R&D to enhance the NeuroStar system's hardware and software for MDD and other potential neurohealth disorders[32](index=32&type=chunk) [Sales, Marketing and Customer Support](index=13&type=section&id=Item%201.%20Business.%20-%20Sales%2C%20Marketing%20and%20Customer%20Support) The company's sales efforts rely on a 91-person team, targeting psychiatrists and managing key customer concentrations and international distributors - The sales and customer support team consisted of **91 employees** as of year-end 2023, with plans for expansion in 2024[34](index=34&type=chunk) - The company is dependent on a small number of customers, with a single combined entity accounting for **15% of revenue in 2023**, under a new long-term exclusive agreement[35](index=35&type=chunk) - International sales are conducted through independent distributors, with an exclusive agreement with Teijin for the Japanese market expiring March 31, 2027[42](index=42&type=chunk) - The company's NeuroStar University program trained **369 customers in 2023** on best practices to improve patient experience and business operations[40](index=40&type=chunk) [Competition](index=14&type=section&id=Item%201.%20Business.%20-%20Competition) The company competes with other TMS therapy providers like Brainsway and Magstim, as well as pharmaceutical treatments for neurohealth disorders - Direct competitors in the TMS therapy market include **Brainsway, Apollo TMS, Magstim, MagVenture, CloudTMS, and Nexstim**[43](index=43&type=chunk) - The company also faces competition from pharmaceutical companies that produce antidepressant medications and other treatments for neurohealth disorders[43](index=43&type=chunk) [Intellectual Property](index=14&type=section&id=Item%201.%20Business.%20-%20Intellectual%20Property) The company protects its technology with a portfolio of over 98 patents, with key patents set to expire between 2024 and 2035 Patent Portfolio (as of Dec 31, 2023) | Region | Issued/Allowed Patents | Pending Applications | | :--- | :--- | :--- | | Worldwide | >98 | 18 | | United States | 38 | 10 | | Outside U.S. | 60 | 8 (incl. 1 PCT) | - U.S. and non-U.S. patents are expected to expire between 2024 and 2035; in 2024, **five U.S. patents and 14 non-U.S. patents are set to expire**[46](index=46&type=chunk) [Government Regulation](index=16&type=section&id=Item%201.%20Business.%20-%20Government%20Regulation) The company's Class II medical device is subject to extensive FDA and international regulations, including QSR, post-market surveillance, and fraud laws - The NeuroStar Advanced Therapy System is regulated as a **Class II medical device** in the U.S. and was initially authorized through the de novo classification process[57](index=57&type=chunk)[64](index=64&type=chunk) - The company is subject to numerous post-market regulations, including **QSR, medical device reporting, and recall regulations**[70](index=70&type=chunk)[73](index=73&type=chunk) - Operations are subject to federal and state fraud and abuse laws, including the **Anti-Kickback Statute, the False Claims Act (FCA), and HIPAA**[76](index=76&type=chunk)[78](index=78&type=chunk)[80](index=80&type=chunk) - The company has received **CE certification** under the EU Medical Device Regulation (MDR) and regulatory approval in Japan, where medical devices are regulated by the PMDA and MHLW[91](index=91&type=chunk)[93](index=93&type=chunk) [Human Capital](index=37&type=section&id=Item%201.%20Business.%20-%20Human%20Capital) The company employed 203 full-time staff as of year-end 2023, focusing on talent retention through competitive compensation and development programs - The company had **203 full-time employees** as of December 31, 2023[102](index=102&type=chunk) - Compensation includes competitive pay, share-based awards, and comprehensive benefits; the company is committed to fair and equitable pay[106](index=106&type=chunk) - The company fosters diversity and inclusion and provides leadership development programs for managers and directors[104](index=104&type=chunk)[105](index=105&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.Risk%20Factors.) The company faces risks from its history of net losses, reliance on the NeuroStar system, supplier dependencies, and extensive government regulation [Risks Related to Business and Industry](index=41&type=section&id=Item%201A.Risk%20Factors.%20-%20Risks%20Related%20to%20Our%20Business%20and%20Industry) The company's history of net losses, customer concentration, and reliance on a single product line and single-source suppliers pose significant business risks - The company has a history of net losses, reporting **$30.2 million in 2023** and $37.2 million in 2022, with an accumulated deficit of **$376.1 million** as of December 31, 2023[112](index=112&type=chunk) - A significant portion of revenue comes from a small number of customers, making the company vulnerable if these relationships are lost or deteriorate[129](index=129&type=chunk) - The business relies on **single-source suppliers** for some components and a single manufacturer for system assembly, creating potential supply chain vulnerabilities[151](index=151&type=chunk) - Success is dependent on adequate insurance coverage and reimbursement from third-party payors; unfavorable changes could deter psychiatrists from using the products[119](index=119&type=chunk) [Risks Related to Intellectual Property](index=72&type=section&id=Item%201A.Risk%20Factors.%20-%20Risks%20Related%20to%20Intellectual%20Property) The company's success depends on protecting its intellectual property, which faces risks from patent invalidation, limited patent lifespan, and potential litigation - The company may not be able to obtain and enforce sufficient patent protection, and existing patents may be challenged, invalidated, or circumvented[205](index=205&type=chunk)[207](index=207&type=chunk) - Patents have a limited lifespan; patents for core technology will begin to **expire in the U.S. in 2024**, potentially opening the company to competition[214](index=214&type=chunk)[215](index=215&type=chunk) - The company faces the risk of costly intellectual property infringement litigation from third parties, which could prevent the sale of its products or require expensive licensing or redesign efforts[219](index=219&type=chunk)[226](index=226&type=chunk) - Protecting intellectual property rights in foreign countries is difficult and may be inadequate due to differences in legal systems[232](index=232&type=chunk)[234](index=234&type=chunk) [Risks Related to Government Regulation](index=88&type=section&id=Item%201A.Risk%20Factors.%20-%20Risks%20Related%20to%20Government%20Regulation) The company operates in a highly regulated environment, with risks related to obtaining regulatory clearances, product modifications, and compliance with fraud laws - Products and operations are subject to extensive and stringent government regulation in the U.S. and abroad; failure to comply could result in fines, recalls, or prohibitions on sales[246](index=246&type=chunk)[247](index=247&type=chunk) - Modifications to products may require new 510(k) clearances or more burdensome PMAs, potentially causing marketing delays, recalls, or fines if the FDA disagrees with the company's determination[259](index=259&type=chunk)[264](index=264&type=chunk) - The company is subject to federal, state, and foreign fraud and abuse laws (including **Anti-Kickback and False Claims statutes**), which could lead to substantial penalties if violated[280](index=280&type=chunk)[282](index=282&type=chunk) - Discovery of serious safety issues or product defects could lead to mandatory or voluntary recalls, harming reputation and financial results[272](index=272&type=chunk)[274](index=274&type=chunk) [Risks Related to Capital Structure](index=107&type=section&id=Item%201A.Risk%20Factors.%20-%20Risks%20Related%20to%20Our%20Capital%20Structure) The company faces risks from its potential need for additional capital, restrictive debt covenants, and limitations on the use of its NOL carryforwards - The company may need to raise additional capital, which could result in **dilution to stockholders** or restrictive debt covenants[293](index=293&type=chunk)[296](index=296&type=chunk) - The credit facility contains a net product revenue covenant that the company **failed to meet in certain months of 2023 and 2021**, requiring waivers from the lender; a future default could lead to acceleration of the debt[297](index=297&type=chunk)[301](index=301&type=chunk) - As of December 31, 2023, the company had significant federal (**$338.0 million**) and state (**$217.1 million**) net operating loss carryforwards, but their future use may be limited by ownership change rules under Section 382[303](index=303&type=chunk) [Risks Related to Ownership of Common Stock](index=111&type=section&id=Item%201A.Risk%20Factors.%20-%20Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Ownership of the company's common stock involves risks from price volatility, concentrated ownership, anti-takeover provisions, and a no-dividend policy - The trading price of the common stock has been and may continue to be **highly volatile**[304](index=304&type=chunk) - As of February 29, 2024, officers, directors, and 5%+ stockholders beneficially owned approximately **10% of outstanding common stock**, giving them material influence over stockholder matters[312](index=312&type=chunk) - **Anti-takeover provisions** in the company's charter and Delaware law could delay or prevent a change in control, potentially limiting the price investors are willing to pay[313](index=313&type=chunk)[314](index=314&type=chunk) - The company has **never paid cash dividends** and does not intend to in the foreseeable future[318](index=318&type=chunk) [Item 1B. Unresolved Staff Comments](index=120&type=section&id=Item%201B.Unresolved%20Staff%20Comments.) The company reports that it has no unresolved staff comments - None[331](index=331&type=chunk) [Item 1C. Cybersecurity](index=120&type=section&id=Item%201C.%20Cybersecurity) The company manages cybersecurity risks through an integrated program overseen by the Audit Committee, which has not materially impacted the business to date - Cybersecurity risk management is integrated into the overall risk management program, overseen by the **Audit Committee** of the board of directors[332](index=332&type=chunk)[335](index=335&type=chunk) - The company uses a risk-based approach, employing security tools for detection and prevention, user training, and collaboration with third-party experts for assessments[332](index=332&type=chunk)[333](index=333&type=chunk) - The company states that cybersecurity threats have **not materially affected** its business strategy, results of operations, or financial condition to date[334](index=334&type=chunk) [Item 2. Properties](index=122&type=section&id=Item%202.%20Properties.) The company leases a headquarters in Pennsylvania and a training facility in North Carolina, which are considered adequate for its current needs - Leases a **42,500 sq. ft. facility** in Malvern, PA for its corporate headquarters, with the lease ending in February 2028[339](index=339&type=chunk) - Leases a **9,600 sq. ft. training facility** in Charlotte, NC, with the lease ending in 2027[339](index=339&type=chunk) [Item 3. Legal Proceedings](index=122&type=section&id=Item%203.%20Legal%20Proceedings.) The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial condition or operations - Management believes there are currently **no claims or legal actions** that would reasonably be expected to have a material adverse effect on the Company[340](index=340&type=chunk) [Item 4. Mine Safety Disclosures](index=122&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the company - Not applicable[341](index=341&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=123&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) The company's common stock trades on Nasdaq as "STIM", with details provided on equity compensation plans and no reported issuer stock purchases - Common stock is traded on the Nasdaq Global Market under the symbol **"STIM"**; as of February 29, 2024, there were approximately 54 holders of record[344](index=344&type=chunk)[345](index=345&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be Issued Upon Exercise (thousands) | Weighted-Average Exercise Price | Securities Remaining for Future Issuance (thousands) | | :--- | :--- | :--- | :--- | | Approved by security holders | 1,270 | $3.90 | 2,028 | | Not approved by security holders | — | — | 285 | | **Total** | **1,270** | **$3.90** | **2,313** | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=124&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Revenue grew 9% to $71.3 million in 2023, though the company remains unprofitable with a net loss of $30.2 million and faces liquidity risks [Results of Operations](index=128&type=section&id=Item%207.%20-%20Results%20of%20Operations) Revenue increased 9% to $71.3 million in 2023, while net loss improved to $30.2 million, aided by lower operating expenses and higher other income Financial Performance Summary (FY 2023 vs. FY 2022) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $71.3M | $65.2M | +9% | | Gross Profit | $51.7M | $49.7M | +4% | | Gross Margin | 72.5% | 76.3% | -3.8 p.p. | | Total Operating Expenses | $82.3M | $84.8M | -3% | | Loss from Operations | ($30.6M) | ($35.1M) | +13% | | Net Loss | ($30.2M) | ($37.2M) | +19% | - U.S. revenue grew 9% to $69.3 million, driven by a **13% increase in treatment session revenue** to $50.9 million, attributed to growth in active customer sites and higher utilization[376](index=376&type=chunk)[377](index=377&type=chunk)[378](index=378&type=chunk) - Gross margin decreased to **72.5% from 76.3%** primarily due to a $1.9 million inventory impairment, $1.3 million in software amortization, and $0.7 million in one-time costs for transitioning to a new contract manufacturer[381](index=381&type=chunk) - Other income increased significantly to $5.8 million from $2.2 million, mainly due to a **$2.9 million Employee Retention Credit (ERC)**[385](index=385&type=chunk) [Liquidity and Capital Resources](index=133&type=section&id=Item%207.%20-%20Liquidity%20and%20Capital%20Resources) The company holds $59.7 million in cash and $60.0 million in debt, believing current resources are sufficient to fund operations for the next 12 months Key Liquidity Metrics (as of Dec 31, 2023) | Metric | Value | | :--- | :--- | | Cash and Cash Equivalents | $59.7 million | | Accumulated Deficit | $376.1 million | | Debt Outstanding | $60.0 million | Cash Flow Summary (FY 2023) | Cash Flow Activity | Amount (in millions) | | :--- | :--- | | Net Cash Used in Operating Activities | $(32.0) | | Net Cash Used in Investing Activities | $(1.3) | | Net Cash Provided by Financing Activities | $22.7 | - Management believes current cash and anticipated revenues are **sufficient to fund operations for at least the next 12 months**[388](index=388&type=chunk) - On March 7, 2024, the company entered into a sixth amendment to its loan agreement to **waive non-compliance with its revenue covenant** and amend future financial covenants[395](index=395&type=chunk)[396](index=396&type=chunk) [Critical Accounting Policies and Use of Estimates](index=137&type=section&id=Item%207.%20-%20Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) Revenue recognition under ASC 606 is a critical accounting policy, requiring significant judgment in allocating transaction prices among performance obligations - **Revenue recognition under ASC 606** is a critical policy, requiring management to identify performance obligations, determine transaction prices, and allocate prices to obligations[410](index=410&type=chunk) - Key performance obligations include the NeuroStar System, consumable Treatment Sessions, extended warranties, and clinical training[507](index=507&type=chunk) - The company uses its best estimate of standalone selling price to allocate the transaction price, maximizing observable inputs like historical pricing while adjusting for customer type, volume, and margins[514](index=514&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=138&type=section&id=Item%207A.Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company is primarily exposed to interest rate risk from its variable-rate debt, as well as credit risk and potential inflation impacts - The company's credit facility bears a variable interest rate tied to SOFR; a hypothetical **1% increase in interest rates would increase annual interest expense by approximately $0.6 million**[419](index=419&type=chunk) - Credit risk is managed by holding cash at a large financial institution and investing in highly-rated money market funds[417](index=417&type=chunk)[418](index=418&type=chunk) - The company does not currently have exposure to foreign currency fluctuations and does not engage in hedging[421](index=421&type=chunk) [Item 9A. Controls and Procedures](index=140&type=section&id=Item%209A.Controls%20and%20Procedures.) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management, including the CEO and CFO, concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2023[424](index=424&type=chunk) - Management concluded that the **internal control over financial reporting was effective** as of December 31, 2023, based on the COSO 2013 framework[427](index=427&type=chunk) - The company is a smaller reporting company and is therefore not required to include an auditor's attestation report on internal control over financial reporting[428](index=428&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=143&type=section&id=Item%2010.Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance.) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the 2024 Proxy Statement[433](index=433&type=chunk) [Item 11. Executive Compensation](index=143&type=section&id=Item%2011.%20Executive%20Compensation.) Information regarding executive compensation is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the 2024 Proxy Statement[434](index=434&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=143&type=section&id=Item%2012.Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters.) Information regarding security ownership is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the 2024 Proxy Statement[435](index=435&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=143&type=section&id=Item%2013.Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) Information regarding related party transactions and director independence is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the 2024 Proxy Statement[436](index=436&type=chunk) [Item 14. Principal Accounting Fees and Services](index=143&type=section&id=Item%2014.Principal%20Accounting%20Fees%20and%20Services.) Information regarding principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the 2024 Proxy Statement[437](index=437&type=chunk) Part IV [Item 15. Exhibits, Financial Statement Schedules](index=143&type=section&id=Item%2015.Exhibits%2C%20Financial%20Statement%20Schedules.) This section lists the financial statements and exhibits filed with the report, while noting that financial statement schedules have been omitted - The financial statements are filed as part of the report, while all financial statement schedules have been omitted[439](index=439&type=chunk)[440](index=440&type=chunk) - An index of exhibits filed with the report is provided, including charter documents, material contracts, and certifications[441](index=441&type=chunk)[442](index=442&type=chunk) Financial Statements and Supplementary Data [Report of Independent Registered Public Accounting Firm](index=152&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP issued an unqualified opinion on the financial statements and identified the audit of revenue as a critical audit matter - KPMG LLP provided an **unqualified audit opinion** on the financial statements for the three years ended December 31, 2023[453](index=453&type=chunk) - The audit identified the **"Sufficiency of audit evidence obtained over revenue" as a critical audit matter**, citing the subjective judgment needed to assess the multiple revenue streams[457](index=457&type=chunk)[461](index=461&type=chunk) [Financial Statements](index=155&type=section&id=Financial%20Statements) The financial statements show a 2023 net loss of $30.2 million, a decrease in cash to $59.7 million, and an increase in total liabilities to $81.6 million Balance Sheet Summary (in thousands) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $59,677 | $70,340 | | Total current assets | $93,793 | $98,769 | | **Total assets** | **$115,831** | **$116,884** | | **Liabilities & Equity** | | | | Total current liabilities | $19,812 | $33,199 | | Long-term debt, net | $59,283 | $22,829 | | **Total liabilities** | **$81,641** | **$59,824** | | **Total Stockholders' equity** | **$34,190** | **$57,060** | Statement of Operations Summary (in thousands) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenues | $71,348 | $65,206 | $55,312 | | Gross profit | $51,705 | $49,723 | $43,659 | | Loss from operations | $(30,554) | $(35,111) | $(27,564) | | **Net loss** | **$(30,189)** | **$(37,159)** | **$(31,193)** | | Net loss per share | $(1.05) | $(1.38) | $(1.22) | Statement of Cash Flows Summary (in thousands) | | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash used in Operating activities | $(32,038) | $(30,739) | | Net Cash (used in) provided by Investing activities | $(1,322) | $6,731 | | Net Cash provided by Financing activities | $22,697 | $207 | | **Net (decrease) in Cash** | **$(10,663)** | **$(23,801)** | [Notes to Financial Statements](index=159&type=section&id=Notes%20to%20Financial%20Statements) The notes detail key accounting policies, customer concentration, debt covenants, and the company's significant net operating loss carryforwards - A single customer accounted for **15% of revenue in 2023**, 17% in 2022, and 20% in 2021[517](index=517&type=chunk) - As of Dec 31, 2023, the company had **$60.0 million of borrowings outstanding** under its Solar Facility; the company was not in compliance with its minimum net product revenue covenant at year-end but subsequently received a waiver in March 2024[553](index=553&type=chunk)[566](index=566&type=chunk)[601](index=601&type=chunk) - The company has federal net operating loss carryforwards of **$338.0 million** and state NOLs of $217.1 million, but maintains a full valuation allowance of $94.5 million against its deferred tax assets[587](index=587&type=chunk) - Share-based compensation expense was **$7.3 million in 2023**, down from $8.7 million in 2022[575](index=575&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q4 2023 was $20.3 million, a 12% increase from $18.2 million in Q4 2022, primarily driven by increased Treatment Session sales [12][36] - U.S. Treatment Session revenue reached a record $14.9 million, representing a 20% year-over-year increase [15][36] - Gross margins improved to 77.6%, up from 75.9% in the prior year, reflecting a favorable revenue mix [38] - Net loss for Q4 2023 was $5.4 million, or $0.19 per share, compared to a net loss of $8.3 million, or $0.30 per share, in the prior year [39] - EBITDA loss decreased to negative $3 million from negative $6.5 million in the prior year [40] - Cash and cash equivalents as of December 31, 2023, were $59.7 million, with positive cash flow of $1.5 million generated for the first time in company history [41] Business Line Data and Key Metrics Changes - NeuroStar system revenue was $4.5 million, with 59 systems shipped, exceeding the plan of 45 to 50 systems per quarter [12][36] - Revenue per active site increased to approximately $13,200, compared to $11,500 in the prior year quarter [37] - Local consumable revenue saw a more than 33% year-over-year increase, contributing significantly to Treatment Session revenue growth [15] Market Data and Key Metrics Changes - The company observed a 20% increase in Treatment Session revenue, driven by strong performance in local consumable customer segments [15][36] - The Better Me Guarantee Provider Program has shown promising early results, with participating practices seeing five to six times more potential patient requests compared to pre-pilot levels [19][20] Company Strategy and Development Direction - The Better Me Guarantee Provider Program aims to establish a nationwide network of accounts to enhance patient care and responsiveness [17] - The company plans to continue expanding the Better Me Guarantee program, with additional phases launching in April and June 2024 [18][76] - The focus remains on increasing Treatment Session utilization and expanding educational initiatives like NeuroStar University [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the sustainability and predictability of capital sales moving forward, supported by successful educational initiatives [14] - The company anticipates revenue for the full year 2024 to be in the range of $78 million to $80 million, with Q1 2024 expected revenue between $16.7 million and $17.7 million [42][43] - Management is confident in achieving cash flow positivity again in Q4 2024 and maintaining a path to profitability [41][46] Other Important Information - The company received FDA clearance for the NeuroSite Coil Placement Accessory, aimed at improving treatment efficacy [31] - Regulatory changes have improved patient access to NeuroStar, reducing the required number of antidepressant medication attempts for TMS eligibility [28][29] Q&A Session Summary Question: Guidance construction and growth assumptions - Management confirmed targeting 45 to 50 systems per quarter, with the majority of growth expected from Treatment Session revenue [49][50] Question: Better Me Guaranteed Program metrics - Management indicated it is early to provide specific metrics but noted positive early signs from the program [55][56] Question: ROI assumptions for Better Me Guaranteed Program - Management stated that it is premature to include ROI in the 2024 guidance [58][59] Question: Treatment revenue mix and growth drivers - Management explained that local consumable customers represent about 70% of the installed base and are the primary focus for growth [72][73] Question: Cash flow expectations for 2025 - Management indicated that Q1 2025 is not expected to be cash flow positive, with consistent cash flow positivity anticipated by 2026 or 2027 [78] Question: Capital sales breakdown between new and existing customers - Management noted a roughly 50-50 split between new customer ads and existing users adding systems in Q4 [80][81]

[PART I – FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section covers Neuronetics, Inc.'s interim financial statements, management's financial analysis, market risks, and internal controls [Item 1. Financial Statements.](index=3&type=section&id=Item%201.%20Financial%20Statements.) This section presents Neuronetics, Inc.'s unaudited interim financial statements, including the Balance Sheets, Statements of Operations, Statements of Changes in Stockholders' Equity, and Statements of Cash Flows, along with detailed notes explaining the company's business, accounting policies, financial instruments, and specific account compositions for the periods ended September 30, 2023, and December 31, 2022 [Balance Sheets](index=3&type=section&id=Balance%20Sheets%20as%20of%20September%2030%2C%202023%20and%20December%2031%2C%202022) Balance sheet highlights show a decrease in total assets and stockholders' equity, alongside a significant reduction in cash and cash equivalents Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Total Current Assets | $71,011 | $98,769 | | Total Assets | $92,988 | $116,884 | | Total Current Liabilities | $15,336 | $33,199 | | Total Liabilities | $55,047 | $59,824 | | Total Stockholders' Equity | $37,941 | $57,060 | - Cash and cash equivalents decreased significantly from **$70.34 million** at December 31, 2022, to **$35.85 million** at September 30, 2023[13](index=13&type=chunk) - Current portion of long-term debt decreased from **$13.125 million** to **$0**, while long-term debt, net increased from **$22.829 million** to **$36.851 million**[13](index=13&type=chunk) [Statements of Operations](index=4&type=section&id=Statements%20of%20Operations%20for%20the%20Three%20and%20Nine%20Months%20ended%20September%2030%2C%202023%20and%202022) The company experienced revenue growth for both three and nine-month periods, but gross profit decreased in the three-month period due to higher cost of revenues Statements of Operations Highlights (in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $17,884 | $16,498 | $51,034 | $47,008 | | Cost of revenues | $6,120 | $3,570 | $15,100 | $11,093 | | Gross Profit | $11,764 | $12,928 | $35,934 | $35,915 | | Loss from operations | $(8,871) | $(7,454) | $(26,127) | $(27,384) | | Net Loss | $(9,391) | $(7,609) | $(24,812) | $(28,869) | | Net loss per share (basic & diluted) | $(0.33) | $(0.28) | $(0.87) | $(1.08) | - Revenues increased by **8%** for the three months ended September 30, 2023, and by **9%** for the nine months ended September 30, 2023, compared to the respective prior-year periods[15](index=15&type=chunk) - Gross profit decreased by **9%** for the three months ended September 30, 2023, but remained flat for the nine months ended September 30, 2023, primarily due to a significant increase in cost of revenues[15](index=15&type=chunk) - Net loss increased by **23%** for the three months ended September 30, 2023, but decreased by **14%** for the nine months ended September 30, 2023, year-over-year[15](index=15&type=chunk) [Statements of Changes in Stockholders' Equity](index=5&type=section&id=Statements%20of%20Changes%20in%20Stockholders'%20Equity%20for%20the%20Three%20and%20Nine%20Months%20ended%20September%2030%2C%202023%20and%202022) Total stockholders' equity declined due to net losses, partially offset by share-based compensation contributions to additional paid-in capital Stockholders' Equity Changes (in thousands) | Metric | Balance at Dec 31, 2022 | Balance at Sep 30, 2023 | | :-------------------------- | :---------------------- | :---------------------- | | Common Stock (Amount) | $273 | $289 | | Additional Paid-in Capital | $402,679 | $408,356 | | Accumulated Deficit | $(345,892) | $(370,704) | | Total Stockholders' Equity | $57,060 | $37,941 | - Total Stockholders' Equity decreased from **$57.06 million** at December 31, 2022, to **$37.94 million** at September 30, 2023, primarily due to net losses incurred[18](index=18&type=chunk) - Share-based compensation expense contributed **$1.855 million** for the three months and **$5.693 million** for the nine months ended September 30, 2023, to additional paid-in capital[18](index=18&type=chunk) [Statements of Cash Flows](index=6&type=section&id=Statements%20of%20Cash%20Flows%20for%20the%20Nine%20Months%20ended%20September%2030%2C%202023%20and%202022) Operating cash outflows increased, while investing activities shifted from cash generation to usage, and financing activities provided cash due to additional debt Cash Flow Summary (Nine Months Ended September 30, in thousands) | Cash Flow Activity | 2023 | 2022 | | :----------------- | :---------- | :---------- | | Operating Activities | $(34,171) | $(27,639) | | Investing Activities | $(759) | $7,234 | | Financing Activities | $437 | $(38) | | Net Decrease in Cash | $(34,493) | $(20,443) | | Cash & Equivalents, End of Period | $35,847 | $73,698 | - Net cash used in operating activities increased to **$34.17 million** in 2023 from **$27.64 million** in 2022[20](index=20&type=chunk) - Investing activities shifted from providing **$7.23 million** in cash in 2022 to using **$0.76 million** in 2023, primarily due to changes in notes receivable repayments[20](index=20&type=chunk) - Financing activities provided **$0.44 million** in 2023, a significant change from using **$0.04 million** in 2022, driven by additional debt proceeds[20](index=20&type=chunk) [Notes to Interim Financial Statements](index=7&type=section&id=Notes%20to%20Interim%20Financial%20Statements) This section provides detailed explanations of the company's business, accounting policies, financial instruments, and specific account compositions [1. DESCRIPTION OF BUSINESS](index=7&type=section&id=1.%20DESCRIPTION%20OF%20BUSINESS) Neuronetics, Inc. is a medical technology company focused on neurohealth disorders, with its primary product being the NeuroStar Advanced Therapy System for Major Depressive Disorder - Neuronetics, Inc. is a commercial stage medical technology company focused on products for neurohealth disorders, with its primary product being the NeuroStar Advanced Therapy System for Major Depressive Disorder (MDD)[22](index=22&type=chunk) - The company had **$35.8 million** in cash and cash equivalents and an accumulated deficit of **$370.7 million** as of September 30, 2023, with negative cash flows from operating activities of **$34.2 million** for the nine months ended September 30, 2023[23](index=23&type=chunk) - Management believes current cash and anticipated revenues are sufficient to fund operations for at least the next 12 months, following an additional **$22.5 million** drawdown on its credit facility post-September 30, 2023[23](index=23&type=chunk) [2. BASIS OF PRESENTATION](index=7&type=section&id=2.%20BASIS%20OF%20PRESENTATION) Interim financial statements are prepared under U.S. GAAP and SEC Rule 10-01, relying on estimates and assumptions that may differ from actual results - The interim financial statements are prepared in accordance with U.S. GAAP and SEC Rule 10-01 of Regulation S-X, allowing for reduced disclosures[24](index=24&type=chunk)[25](index=25&type=chunk) - The preparation of financial statements involves estimates and assumptions, which may differ from actual results due to business risks and evolving market conditions[27](index=27&type=chunk) [3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=3.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) A comprehensive summary of significant accounting policies is available in the Company's Form 10-K filed on March 7, 2023 - A complete summary of significant accounting policies is available in the Company's Form 10-K filed on March 7, 2023[28](index=28&type=chunk) [4. RECENT ACCOUNTING PRONOUNCEMENTS](index=9&type=section&id=4.%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) The Company adopted Topic 326, Financial Instruments - Credit Losses, on January 1, 2023, with no material effect on its financial statements - The Company adopted Topic 326, Financial Instruments - Credit Losses, on January 1, 2023, using the modified retrospective approach, which did not have a material effect on its financial statements[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) [5. FAIR VALUE MEASUREMENT AND FINANCIAL INSTRUMENTS](index=10&type=section&id=5.%20FAIR%20VALUE%20MEASUREMENT%20AND%20FINANCIAL%20INSTRUMENTS) The carrying values of most financial instruments approximate their fair values due to their short-term or variable interest rate nature - The carrying values of cash equivalents, accounts receivable, prepaids, accounts payable, credit facility, and notes receivable approximated their fair values due to their short-term or variable interest rate nature[34](index=34&type=chunk) Fair Value Measurement of Money Market Funds (in thousands) | Asset | Sep 30, 2023 Carrying Amount | Sep 30, 2023 Fair Value (Level 1) | Dec 31, 2022 Carrying Amount | Dec 31, 2022 Fair Value (Level 1) | | :-------------------------- | :----------------------------- | :------------------------------ | :----------------------------- | :------------------------------ | | Money market funds (cash equivalents) | $27,163 | $27,163 | $68,002 | $68,002 | [6. ACCOUNTS RECEIVABLE](index=11&type=section&id=6.%20ACCOUNTS%20RECEIVABLE) Net accounts receivable increased from December 31, 2022, to September 30, 2023, while allowances for credit losses decreased Accounts Receivable, Net (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Gross accounts receivable - trade | $16,155 | $15,239 | | Less: Allowances for credit losses | $(1,131) | $(1,648) | | Accounts receivable, net | $15,024 | $13,591 | - Net accounts receivable increased by **$1.433 million** from December 31, 2022, to September 30, 2023, while allowances for credit losses decreased[39](index=39&type=chunk) [7. INVENTORY](index=11&type=section&id=7.%20INVENTORY) The Company recorded a $1.9 million inventory impairment for specialized component parts of discontinued NeuroStar Advanced Therapy Systems - The Company recorded a **$1.9 million** inventory impairment during the three months ended September 30, 2023, for specialized component parts of discontinued NeuroStar Advanced Therapy Systems[40](index=40&type=chunk) [8. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE](index=11&type=section&id=8.%20PROPERTY%20AND%20EQUIPMENT%20AND%20CAPITALIZED%20SOFTWARE) Net property and equipment increased slightly, capitalized software costs rose, and depreciation and amortization expenses increased year-over-year Property and Equipment, Net (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Property and equipment, gross | $5,611 | $5,048 | | Less: Accumulated depreciation | $(3,545) | $(3,057) | | Property and equipment, net | $2,066 | $1,991 | - Capitalized software costs, net, increased from **$3.6 million** at December 31, 2022, to **$3.9 million** at September 30, 2023[41](index=41&type=chunk) - Depreciation and amortization expense for the nine months ended September 30, 2023, was **$1.5 million**, up from **$1.0 million** in the prior year[42](index=42&type=chunk) [9. NOTES RECEIVABLE](index=12&type=section&id=9.%20NOTES%20RECEIVABLE) The Company entered into a new $6.0 million secured promissory note, leading to an increase in net notes receivable despite a decrease in interest income - On March 31, 2023, the Company entered into a Secured Promissory Note with TMS Neurohealth Centers Inc. and Greenbrook TMS Inc. for **$6.0 million**, bearing interest at SOFR plus **7.65%**[44](index=44&type=chunk)[45](index=45&type=chunk) - Interest income from notes receivable decreased from **$0.5 million** to **$0.2 million** for the three months ended September 30, 2023, and from **$1.0 million** to **$0.4 million** for the nine months ended September 30, 2023, year-over-year[49](index=49&type=chunk)[50](index=50&type=chunk) Notes Receivable, Net (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Current portion of notes receivable | $1,890 | $230 | | Long-term notes receivable | $4,299 | $362 | | Less: Allowances for credit losses | $(148) | $0 | | Notes receivable, net | $6,041 | $592 | [10. LEASES](index=13&type=section&id=10.%20LEASES) Operating lease rent expense remained stable, while profit recognized on sales-type leases significantly decreased year-over-year - Operating lease rent expense remained consistent at **$0.2 million** for the three months and **$0.6 million** for the nine months ended September 30, 2023 and 2022[54](index=54&type=chunk) - Profit recognized on sales-type leases decreased significantly from **$122 thousand** to **$13 thousand** for the three months and from **$543 thousand** to **$60 thousand** for the nine months ended September 30, 2023, year-over-year[55](index=55&type=chunk) Maturity Analysis of Undiscounted Sales-Type Lease Receivables (in thousands) | Year | September 30, 2023 | | :-------------------------- | :------------------- | | Remainder of 2023 | $298 | | 2024 | $876 | | 2025 | $390 | | 2026 | $76 | | 2027 | $28 | | Total sales-type lease receivables | $1,668 | [11. PREPAID COMMISSION EXPENSE](index=14&type=section&id=11.%20PREPAID%20COMMISSION%20EXPENSE) The Company capitalizes commission expense for NeuroStar system sales, amortizing it over a seven-year customer term, with amortization expense increasing year-over-year - The Company capitalizes commission expense for NeuroStar Advanced Therapy System sales, amortizing it over a seven-year average customer term[60](index=60&type=chunk)[61](index=61&type=chunk) - Amortization expense increased to **$0.6 million** for the three months and **$1.7 million** for the nine months ended September 30, 2023, from **$0.5 million** and **$1.3 million** respectively in the prior year[62](index=62&type=chunk) [12. ACCRUED EXPENSES](index=15&type=section&id=12.%20ACCRUED%20EXPENSES) Total accrued expenses decreased primarily due to a reduction in compensation and related benefits Accrued Expenses (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Compensation and related benefits | $6,342 | $11,201 | | Consulting and professional fees | $713 | $761 | | Research and development expenses | $278 | $678 | | Sales and marketing expenses | $1,012 | $410 | | Warranty | $198 | $328 | | Sales and other taxes payable | $641 | $659 | | Other | $853 | $800 | | Accrued expenses | $10,037 | $14,837 | - Total accrued expenses decreased from **$14.837 million** at December 31, 2022, to **$10.037 million** at September 30, 2023, primarily due to a reduction in compensation and related benefits[64](index=64&type=chunk) [13. DEFERRED REVENUE](index=15&type=section&id=13.%20DEFERRED%20REVENUE) Deferred revenue from multi-year agreements is largely expected to be recognized in the remainder of 2023 and 2024, with one customer contributing significantly to total revenue - Deferred revenue is primarily recognized from multi-year agreements, with **29%** expected in the remainder of 2023 and **59%** in 2024[65](index=65&type=chunk)[66](index=66&type=chunk) - One customer accounted for **15%** of total revenue for the three months and **17%** for the nine months ended September 30, 2023[67](index=67&type=chunk) Revenue by Geography and Product Category (Three Months Ended September 30, in thousands) | Category | 2023 Amount | 2023 % of Revenues | 2022 Amount | 2022 % of Revenues | | :-------------------------- | :---------- | :----------------- | :---------- | :----------------- | | **Total Revenues** | $17,884 | 100% | $16,498 | 100% | | U.S. Revenues | $17,211 | 96% | $16,244 | 98% | | International Revenues | $673 | 4% | $254 | 2% | | **U.S. Product Category** | | | | | | NeuroStar Advanced Therapy System | $3,597 | 21% | $3,934 | 24% | | Treatment sessions | $13,060 | 76% | $11,864 | 73% | | Other | $554 | 3% | $446 | 3% | | **International Product Category** | | | | | | NeuroStar Advanced Therapy System | $258 | 38% | $96 | 38% | | Treatment sessions | $280 | 42% | $31 | 12% | | Other | $135 | 20% | $127 | 50% | Revenue by Geography and Product Category (Nine Months Ended September 30, in thousands) | Category | 2023 Amount | 2023 % of Revenues | 2022 Amount | 2022 % of Revenues | | :-------------------------- | :---------- | :----------------- | :---------- | :----------------- | | **Total Revenues** | $51,034 | 100% | $47,008 | 100% | | U.S. Revenues | $49,464 | 97% | $45,893 | 98% | | International Revenues | $1,570 | 3% | $1,115 | 2% | | **U.S. Product Category** | | | | | | NeuroStar Advanced Therapy System | $11,936 | 24% | $11,959 | 26% | | Treatment sessions | $36,018 | 73% | $32,627 | 71% | | Other | $1,510 | 3% | $1,307 | 3% | | **International Product Category** | | | | | | NeuroStar Advanced Therapy System | $573 | 36% | $460 | 41% | | Treatment sessions | $589 | 38% | $214 | 19% | | Other | $408 | 26% | $441 | 40% | [14. DEBT](index=17&type=section&id=14.%20DEBT) The Company's debt increased due to additional borrowings and higher interest rates, with an extended maturity date and compliance with all covenants Debt Composition (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Outstanding principal | $37,500 | $35,000 | | Accrued final payment fees | $1,856 | $1,925 | | Less debt discounts | $(2,505) | $(971) | | Total debt, net | $36,851 | $35,954 | | Less current portion | $0 | $(13,125) | | Long-term debt, net | $36,851 | $22,829 | - Interest expense increased to **$1.2 million** for the three months and **$3.6 million** for the nine months ended September 30, 2023, due to higher interest rates and debt balances[72](index=72&type=chunk)[73](index=73&type=chunk) - The Company amended its Solar Facility, borrowing an additional **$2.5 million** under Term B Loan in March 2023 and **$22.5 million** under Term C Facility in October 2023, extending the maturity to March 29, 2028[76](index=76&type=chunk)[77](index=77&type=chunk) - The Solar Facility accrues interest at a floating rate (greater of **5.65%** plus **3.95%** or daily simple SOFR for one month) with interest-only payments until March 1, 2026[78](index=78&type=chunk) - The Company was in compliance with all covenants of the Solar Facility as of September 30, 2023[83](index=83&type=chunk) [15. COMMON STOCK](index=19&type=section&id=15.%20COMMON%20STOCK) The number of common shares issued increased, while shares reserved for issuance and outstanding warrants decreased Common Stock Issued and Reserved for Issuance (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Shares of common stock issued | 28,902 | 27,268 | | Shares reserved for issuance | 6,303 | 6,365 | | Total shares issued and reserved | 36,076 | 34,734 | Outstanding Common Stock Warrants (in thousands) | Date | Warrants Outstanding | Exercise Price | | :-------------------------- | :------------------- | :------------- | | Sep 30, 2023 | 41 | $9.73 | | Dec 31, 2022 | 61 | $9.73 | [16. LOSS PER SHARE](index=19&type=section&id=16.%20LOSS%20PER%20SHARE) Basic and diluted loss per common share are identical when the Company is in a net loss position, with various securities excluded from diluted EPS calculations - Basic and diluted loss per common share are the same when the Company is in a net loss position[88](index=88&type=chunk) Potentially Dilutive Securities Excluded from Diluted Loss Per Share (in thousands) | Security | Sep 30, 2023 | Sep 30, 2022 | | :-------------------------- | :----------- | :----------- | | Stock options | 1,271 | 1,424 | | Non-vested PRSUs | 395 | 395 | | Non-vested restricted stock units | 3,239 | 3,665 | | Common stock warrants | 41 | 75 | [17. SHARE-BASED COMPENSATION](index=20&type=section&id=17.%20SHARE-BASED%20COMPENSATION) Total share-based compensation expense decreased, primarily in sales and marketing, with significant unrecognized compensation costs remaining for stock options and restricted stock units Share-Based Compensation Expense (in thousands) | Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of revenues | $38 | $35 | $109 | $94 | | Sales and marketing | $590 | $1,074 | $1,946 | $3,258 | | General and administrative | $1,052 | $939 | $3,134 | $2,950 | | Research and development | $175 | $130 | $504 | $331 | | Total | $1,855 | $2,178 | $5,693 | $6,633 | - Total share-based compensation expense decreased for both the three-month and nine-month periods ended September 30, 2023, primarily in sales and marketing[90](index=90&type=chunk) - As of September 30, 2023, there was **$0.2 million** of unrecognized compensation cost for stock options (expected over **0.8 years**) and **$10.0 million** for restricted stock units and PRSUs (expected over **1.8 years**)[94](index=94&type=chunk)[98](index=98&type=chunk) [18. COMMITMENTS AND CONTINGENCIES](index=23&type=section&id=18.%20COMMITMENTS%20AND%20CONTINGENCIES) Management believes no current claims or legal actions will materially adversely affect the Company's financial condition, results of operations, or cash flows - Management believes there are no current claims or legal actions that would reasonably be expected to have a material adverse effect on the Company's results of operations, financial condition, or cash flows[100](index=100&type=chunk) [19. SEGMENT INFORMATION](index=23&type=section&id=19.%20SEGMENT%20INFORMATION) The Company operates as a single business segment, managed and operated by a unified management team - The Company operates in one business segment, managed and operated as a single entity by a unified management team[101](index=101&type=chunk) [20. GOVERNMENT ASSISTANCE](index=23&type=section&id=20.%20GOVERNMENT%20ASSISTANCE) The Company recognized a $2.9 million Employee Retention Credit receivable, reported within prepaid expenses and other current assets, and included in other income, net - The Company recognized a **$2.9 million** Employee Retention Credit (ERC) receivable as of September 30, 2023, reported within prepaid expenses and other current assets, and included in other income, net[102](index=102&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides an overview of Neuronetics, Inc.'s business, a detailed analysis of its financial performance for the three and nine months ended September 30, 2023, compared to 2022, and a discussion of its liquidity and capital resources [Overview](index=24&type=section&id=Overview) Neuronetics, a medical technology company, specializes in the NeuroStar Advanced Therapy System for MDD, with revenues primarily from recurring treatment sessions, while expecting continued losses due to ongoing investments - Neuronetics is a commercial stage medical technology company specializing in the NeuroStar Advanced Therapy System for MDD, with over **162,575** global patients treated and **5.9 million** treatment sessions through September 30, 2023[105](index=105&type=chunk) Revenue Overview (in millions) | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $17.9 | $16.5 | $51.0 | $47.0 | - The majority of revenues are derived from recurring treatment sessions (**76%** of U.S. revenues for Q3 2023, **73%** for 9M 2023), with NeuroStar Advanced Therapy System sales accounting for **21%** and **24%** respectively[106](index=106&type=chunk) - The Company expects to continue incurring losses in the near term due to investments in its commercial organization and pipeline indications, with an accumulated deficit of **$370.7 million** as of September 30, 2023[110](index=110&type=chunk) [Components of Our Results of Operations](index=28&type=section&id=Components%20of%20Our%20Results%20of%20Operations) Revenues are primarily from NeuroStar system sales and recurring treatment sessions, with gross margin influenced by product mix and manufacturing costs, while operating expenses are managed through strategic investments and cost reductions - Revenues are primarily generated from capital sales/rentals of NeuroStar Advanced Therapy Systems, recurring treatment sessions (access codes/SenStar links), and other services like repair and extended warranty contracts[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - Cost of revenues includes components, manufacturing, personnel, warranty, and shipping, and is expected to increase with revenue growth; gross margin is influenced by product sales mix (systems vs. sessions) and manufacturing costs[115](index=115&type=chunk)[116](index=116&type=chunk) - Sales and marketing expenses are anticipated to decrease in 2023 due to the termination of a 2022 sales equity match incentive, while general and administrative expenses are expected to remain flat[119](index=119&type=chunk)[121](index=121&type=chunk) - Research and development expenses are projected to increase in 2023 as the Company continues to invest in new indications and hardware/software development[123](index=123&type=chunk) - Other income, net, includes the Employee Retention Credit (ERC) and interest income from money market accounts and notes receivable[125](index=125&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, comparing revenues, costs, and net loss for the three and nine months ended September 30, 2023, against the prior year [Comparison of the three months ended September 30, 2023 and 2022](index=31&type=section&id=Comparison%20of%20the%20three%20months%20ended%20September%2030%2C%202023%20and%202022) Revenue increased by 8% driven by U.S. treatment sessions and international growth, but gross margin declined due to inventory impairment and higher operational costs, leading to a 23% increase in net loss Key Financials (Three Months Ended September 30, in thousands, except percentages) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :---------- | :---------- | :--------- | :--------- | | Revenues | $17,884 | $16,498 | $1,386 | 8% | | Cost of revenues | $6,120 | $3,570 | $2,550 | 71% | | Gross Profit | $11,764 | $12,928 | $(1,164) | (9)% | | Gross Margin | 65.8% | 78.4% | | | | Sales and marketing | $12,141 | $11,643 | $498 | 4% | | Research and development | $2,155 | $2,348 | $(193) | (8)% | | Net Loss | $(9,391) | $(7,609) | $(1,782) | (23)% | - Total revenue increased by **8%** to **$17.9 million**, driven by a **6%** increase in U.S. revenue (primarily treatment sessions) and a **165%** increase in international revenue (systems and treatment sessions)[128](index=128&type=chunk) - Gross margin decreased from **78.4%** to **65.8%** due to a **$1.9 million** inventory impairment, higher operational costs from a new manufacturing partner, and software amortization[132](index=132&type=chunk) - Sales and marketing expenses increased by **4%** due to increased co-op marketing, while R&D expenses decreased by **8%** due to higher software capitalization[133](index=133&type=chunk)[135](index=135&type=chunk) [Comparison of the nine months ended September 30, 2023 and 2022](index=34&type=section&id=Comparison%20of%20the%20nine%20months%20ended%20September%2030%2C%202023%20and%202022) Revenue increased by 9% driven by U.S. treatment sessions and international growth, but gross margin declined due to inventory impairment and higher costs, while net loss decreased by 14% due to reduced sales and marketing expenses and increased other income Key Financials (Nine Months Ended September 30, in thousands, except percentages) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :---------- | :---------- | :--------- | :--------- | | Revenues | $51,034 | $47,008 | $4,026 | 9% | | Cost of revenues | $15,100 | $11,093 | $4,007 | 36% | | Gross Profit | $35,934 | $35,915 | $19 | 0% | | Gross Margin | 70.4% | 76.4% | | | | Sales and marketing | $35,602 | $37,977 | $(2,375) | (6)% | | Research and development | $7,308 | $6,197 | $1,111 | 18% | | Net Loss | $(24,812) | $(28,869) | $4,057 | 14% | - Total revenue increased by **9%** to **$51.0 million**, with U.S. revenue up **8%** (driven by treatment sessions) and international revenue up **41%** (systems and treatment sessions)[142](index=142&type=chunk) - Gross margin decreased from **76.4%** to **70.4%** due to the **$1.9 million** inventory impairment, increased capitalized software amortization, and higher Senstar costs[145](index=145&type=chunk)[146](index=146&type=chunk) - Sales and marketing expenses decreased by **6%** due to reduced brand development spending and the discontinuation of a sales personnel retention program[147](index=147&type=chunk) - Research and development expenses increased by **18%** due to higher clinical research and personnel expenses aimed at increasing NeuroStar system usability[149](index=149&type=chunk) - Other income, net, increased significantly by **$3.3 million**, primarily due to a **$2.9 million** Employee Retention Credit and increased interest income from money market accounts[151](index=151&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents decreased significantly, with increased operating cash outflows, but management believes current cash and anticipated revenues, supplemented by additional debt, are sufficient for the next 12 months - As of September 30, 2023, cash and cash equivalents were **$35.8 million**, down from **$70.4 million** at December 31, 2022, with an accumulated deficit of **$370.7 million**[152](index=152&type=chunk) - Net cash used in operating activities increased to **$34.2 million** for the nine months ended September 30, 2023, from **$27.6 million** in the prior year[152](index=152&type=chunk)[158](index=158&type=chunk) - The Company drew an additional **$22.5 million** from its amended credit facility after September 30, 2023, and believes its current cash and anticipated revenues are sufficient for at least the next 12 months[152](index=152&type=chunk) - Future funding requirements depend on revenue growth, operating margins, compliance with credit facility covenants, expansion costs, and R&D activities[154](index=154&type=chunk)[159](index=159&type=chunk) - Net cash used in investing activities was **$0.8 million** in 2023, primarily for property and equipment, while net cash provided by financing activities was **$0.4 million**, mainly from additional debt[160](index=160&type=chunk)[162](index=162&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section refers to the Company's Annual Report on Form 10-K for a comprehensive discussion of market risks, noting no material changes, and highlights the ongoing monitoring of macroeconomic factors like inflation - No material changes to market risks were reported since the Annual Report on Form 10-K filed on March 7, 2023[167](index=167&type=chunk) - The Company monitors inflationary factors, which have not had a material impact to date, but could adversely affect gross margins and operating expenses if product selling prices do not increase sufficiently[168](index=168&type=chunk)[169](index=169&type=chunk) [Item 4. Controls and Procedures.](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management evaluated the effectiveness of disclosure controls and procedures as of September 30, 2023, concluding they were effective, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of September 30, 2023[170](index=170&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[171](index=171&type=chunk) [PART II – OTHER INFORMATION](index=42&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section addresses legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings.](index=42&type=section&id=Item%201.%20Legal%20Proceedings.) The Company is subject to various claims and legal actions in the ordinary course of business, but management does not expect any to have a material adverse effect on its financial condition, results of operations, or cash flows - No current claims or legal actions are expected to have a material adverse effect on the Company's financial condition, results of operations, or cash flows[174](index=174&type=chunk) [Item 1A. Risk Factors.](index=42&type=section&id=Item%201A.%20Risk%20Factors.) This section directs readers to the 'Risk Factors' section of the Company's Annual Report on Form 10-K filed on March 7, 2023, stating that there have been no material changes to the described risk factors - No material changes to the risk factors described in the Company's Annual Report on Form 10-K have occurred[175](index=175&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) This item is marked as 'Not applicable,' indicating no unregistered sales of equity securities or use of proceeds to report for the period - This item is not applicable for the reporting period[176](index=176&type=chunk) [Item 3. Defaults Upon Senior Securities.](index=42&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) This item is marked as 'Not applicable,' indicating no defaults upon senior securities to report for the period - This item is not applicable for the reporting period[177](index=177&type=chunk) [Item 4. Mine Safety Disclosures.](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is marked as 'Not applicable,' indicating no mine safety disclosures to report for the period - This item is not applicable for the reporting period[178](index=178&type=chunk) [Item 5. Other Information.](index=42&type=section&id=Item%205.%20Other%20Information.) This section details a Rule 10b5-1 trading plan adopted by an executive officer and modifications to the CEO's severance-related employment agreement, including an extension of severance benefits duration under certain conditions and an update to his annual base salary - W. Andrew Macan, EVP, General Counsel, Chief Compliance Officer, and Corporate Secretary, adopted a Rule 10b5-1 trading arrangement on August 28, 2023, for the sale of up to **34,991** shares of common stock[179](index=179&type=chunk) - The Company's board of directors directed amendments to CEO Keith J. Sullivan's employment agreement to extend severance benefits duration from **18** to **24 months** under specific change-in-control scenarios and to reflect his current annual base salary[181](index=181&type=chunk) [Item 6. Exhibits.](index=43&type=section&id=Item%206.%20Exhibits.) This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including the Fifth Amendment to Loan and Security Agreement, certifications from the Principal Executive Officer and Principal Financial Officer, and various Inline XBRL documents - Key exhibits include the Fifth Amendment to Loan and Security Agreement (Exhibit 10.1), certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act (Exhibits 31.1, 31.2, 32.1, 32.2), and Inline XBRL documents[182](index=182&type=chunk)[183](index=183&type=chunk) SIGNATURES [SIGNATURES](index=44&type=section&id=SIGNATURES) This section contains the official signatures of Neuronetics, Inc.'s President and Chief Executive Officer, Keith J. Sullivan, and EVP, Chief Financial Officer and Treasurer, Stephen Furlong, certifying the due authorization and filing of the Quarterly Report on Form 10-Q as of November 7, 2023 - The report is signed by Keith J. Sullivan, President and Chief Executive Officer, and Stephen Furlong, EVP, Chief Financial Officer and Treasurer, on November 7, 2023[185](index=185&type=chunk)[186](index=186&type=chunk)

Neuronetics, Inc. (NASDAQ:STIM) Q3 2023 Earnings Conference Call November 7, 2023 8:30 AM ET Company Participants Mark Klausner - ICR Westwicke Keith Sullivan - President and CEO Steve Furlong - CFO Conference Call Participants Margaret Kaczor - William Blair Adam Maeder - Piper Sandler Daniel Stauder - JMP Securities Operator Good day, and thank you for standing by. Welcome to the Neuronetics Third Quarter 2023 Conference Call. [Operator Instructions] Please be advised that today's conference call is being ...

Market Opportunity & Prevalence - The company addresses a significant market with 21 million US adults suffering from Major Depressive Disorder (MDD) and 4 million with Obsessive-Compulsive Disorder (OCD)[10] - Approximately 64 million US adults are poorly served by current antidepressant medications [13] - Market research indicates that 67% of patients with MDD are unhappy with their current treatment and willing to ask their physician about NeuroStar[38] Clinical Efficacy & Differentiation - NeuroStar demonstrates clinical efficacy with 83% response and 62% remission rates validated by a large outcomes registry [16] - A real-world study showed 62% of patients experienced significant relief in depression symptoms [30] - NeuroStar has patented contact sensing technology that ensures consistent TMS dose delivery, addressing a potential 40% loss of TMS dose with even 1 mm movement away from the head [34, 51] - NeuroStar has increased brand awareness by 33% in 2022 [22] Financial Performance - Q3 2023 revenue reached $179 million, an 8% increase from Q3 2022 [104] - The company estimates that treating approximately 12 patients can recoup the capital investment for physicians [65] - The company estimates that one patient per month can equal $100000 in practice revenue [87] - The company estimates to cover 95% of total private payor covered lives in the US for MDD and Anxious Depression [63]

PART I – FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements.) The company's Q2 2023 financial statements reflect total assets decreased to $100.4 million, revenues increased to $17.6 million, and net loss narrowed to $4.9 million [Balance Sheets](index=3&type=section&id=Balance%20Sheets) As of June 30, 2023, total assets decreased to $100.4 million, driven by a drop in cash to $45.9 million, while total liabilities and stockholders' equity also declined Balance Sheet Summary (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $45,905 | $70,340 | | Total current assets | $77,676 | $98,769 | | Total Assets | $100,392 | $116,884 | | **Liabilities & Equity** | | | | Total current liabilities | $15,026 | $33,199 | | Long-term debt, net | $36,713 | $22,829 | | Total Liabilities | $54,915 | $59,824 | | Total Stockholders' Equity | $45,477 | $57,060 | [Statements of Operations](index=4&type=section&id=Statements%20of%20Operations) Q2 2023 revenues increased to $17.6 million, loss from operations narrowed to $7.3 million, and net loss significantly improved to $4.9 million, aided by other income Quarterly Operating Results (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Revenues | $17,610 | $16,329 | | Gross Profit | $12,774 | $12,290 | | Loss from operations | $(7,349) | $(9,796) | | Net Loss | $(4,901) | $(10,422) | | Net loss per share | $(0.17) | $(0.39) | Six-Month Operating Results (in thousands, except per share data) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Revenues | $33,150 | $30,510 | | Gross Profit | $24,170 | $22,986 | | Loss from operations | $(17,257) | $(19,931) | | Net Loss | $(15,421) | $(21,260) | | Net loss per share | $(0.54) | $(0.80) | [Statements of Cash Flows](index=6&type=section&id=Statements%20of%20Cash%20Flows) For the six months ended June 30, 2023, net cash used in operating activities increased to $24.0 million, leading to a $24.4 million decrease in cash and equivalents, ending at $45.9 million Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(24,047) | $(21,132) | | Net Cash Used in Investing Activities | $(825) | $(2,040) | | Net Cash Provided by (Used in) Financing Activities | $437 | $(38) | | **Net Decrease in Cash** | **$(24,435)** | **$(23,210)** | | Cash and Cash Equivalents, End of Period | $45,905 | $70,931 | [Notes to Interim Financial Statements](index=7&type=section&id=Notes%20to%20Interim%20Financial%20Statements) Notes detail the NeuroStar product, liquidity with $45.9 million cash and $361.3 million accumulated deficit, debt facilities, and a $2.9 million Employee Retention Credit - The company's primary product is the NeuroStar Advanced Therapy System, a non-invasive treatment for Major Depressive Disorder (MDD)[23](index=23&type=chunk) - As of June 30, 2023, the company had **$45.9 million** in cash and cash equivalents and an accumulated deficit of **$361.3 million**; management believes current cash and anticipated revenues are sufficient to fund operations for at least the next 12 months[24](index=24&type=chunk) - In Q2 2023, one customer accounted for **14%** of total revenue, with accounts receivable from this customer at **$2.0 million** as of June 30, 2023[68](index=68&type=chunk) - On March 29, 2023, the company amended its loan agreement with SLR Investment Corp., borrowing an additional **$2.5 million** and extending the maturity date to March 2028[74](index=74&type=chunk)[75](index=75&type=chunk) - The company recognized a **$2.9 million** Employee Retention Credit (ERC) during the quarter ended June 30, 2023, recorded as 'other income, net'[98](index=98&type=chunk)[100](index=100&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses Q2 2023 revenue growth, gross margin decline, reduced operating expenses, and a significantly improved net loss of $4.9 million due to an Employee Retention Credit [Overview](index=24&type=section&id=Overview) Neuronetics, a medical technology company, focuses on the NeuroStar Advanced Therapy System for MDD, generating revenue from system sales and recurring treatment sessions - The company is a market leader in TMS therapy, having treated over **156,235 patients** with over **5.6 million** treatment sessions globally through June 30, 2023[103](index=103&type=chunk) - Revenue is primarily derived from initial capital sales of NeuroStar systems and recurring treatment sessions; for Q2 2023, treatment sessions accounted for **71%** of U.S. revenues[104](index=104&type=chunk) - The company's sales force targets an estimated **50,000 psychiatrists** in the U.S., and as of June 30, 2023, the company had **209 employees**[105](index=105&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Q2 2023 total revenue increased 8% to $17.6 million, gross margin declined to 72.5%, operating expenses decreased, and net loss improved to $4.9 million Q2 2023 vs Q2 2022 Performance (in thousands) | Metric | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $17,610 | $16,329 | 8% | | Gross Profit | $12,774 | $12,290 | 4% | | Gross Margin | 72.5% | 75.3% | (2.8 p.p.) | | Sales and marketing | $11,559 | $13,685 | (16)% | | Research and development | $2,364 | $2,045 | 16% | | Loss from Operations | $(7,349) | $(9,796) | 25% | | Net Loss | $(4,901) | $(10,422) | 53% | - The decline in Q2 gross margin was driven by higher operational costs from a contract manufacturer transition and software amortization expense from a new product release[129](index=129&type=chunk) - The decrease in Q2 sales and marketing expense was primarily due to reduced spending on brand development and the non-continuation of a 2022 sales retention program[130](index=130&type=chunk) - The significant increase in 'Other income, net' for Q2 was primarily due to the recognition of a **$2.9 million** Employee Retention Credit (ERC)[134](index=134&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2023, the company held **$45.9 million** in cash, experienced **$24.0 million** negative operating cash flow, and believes it has sufficient liquidity for the next 12 months - The company had cash and cash equivalents of **$45.9 million** and an accumulated deficit of **$361.3 million** as of June 30, 2023[148](index=148&type=chunk) - Net cash used in operating activities was **$24.0 million** for the six months ended June 30, 2023, primarily due to a net loss of **$15.4 million** and an increase in net operating assets[154](index=154&type=chunk)[155](index=155&type=chunk) - Management believes existing cash and future revenues will be sufficient to fund operations for at least the next 12 months from the financial statement issuance date[148](index=148&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) No material changes to market risks were reported, though future high inflation could adversely affect gross margin and operating expenses - There have been no material changes to the market risks previously disclosed in the Form 10-K filed on March 7, 2023[163](index=163&type=chunk) - While inflation has not had a material impact to date, the company acknowledges that a high rate of inflation in the future could adversely affect its gross margin and operating expenses[164](index=164&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the Principal Executive Officer and Principal Financial and Accounting Officer concluded that the company's disclosure controls and procedures were effective[166](index=166&type=chunk) - No changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, these controls[167](index=167&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings.) The company is subject to ordinary course legal actions but expects no material adverse effect on its financial condition or operations - The company reports no current legal proceedings that are reasonably expected to have a material adverse effect on its business, financial condition, or cash flows[170](index=170&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors.) No material changes have been reported to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes have been made to the risk factors as described in the Form 10-K filed on March 7, 2023[171](index=171&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) This section is not applicable for the current reporting period - Not applicable[172](index=172&type=chunk) [Other Information](index=41&type=section&id=Item%205.%20Other%20Information.) No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the second quarter of 2023[175](index=175&type=chunk) [Exhibits](index=42&type=section&id=Item%206.%20Exhibits.) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including loan agreement amendments, a promissory note, and officer certifications - Exhibits filed include the Fourth Amendment to the Loan and Security Agreement with SLR Investment Corp. and the Secured Promissory Note with Greenbrook TMS Inc.[178](index=178&type=chunk) - Certifications by the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits[178](index=178&type=chunk)

Neuronetics, Inc. (NASDAQ:STIM) Q2 2023 Earnings Conference Call August 8, 2023 8:30 PM ET Company Participants Mark Klausner - ICR Westwicke Keith Sullivan - President and Chief Executive Officer Steve Furlong - Chief Financial Officer Conference Call Participants Margaret Kaczor - William Blair Zachary Day - Canaccord Simran Kaur - Piper Sandler Daniel Stauder - JMP Securities Operator Thank you for standing by, welcome to the Neuronetics Second Quarter 2023 Financial and Operating Results Conference Call ...