Neuronetics(STIM) - 2021 Q3 - Quarterly Report

markdown [PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the company's unaudited interim financial information, including statements and notes [Item 1. Financial Statements.](index=3&type=section&id=Item%201.%20Financial%20Statements.) Neuronetics, Inc.'s unaudited interim financial statements, including Balance Sheets, Statements of Operations, Equity, Cash Flows, and notes [Balance Sheets](index=3&type=section&id=Balance%20Sheets) This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity Balance Sheet Summary (in thousands) | Metric | September 30, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :-------------------------------- | :--------------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $99,434 | $48,957 | $50,477 | 103.1% | | Total current assets | $119,447 | $65,012 | $54,435 | 83.7% | | Total Assets | $143,068 | $78,657 | $64,411 | 81.9% | | Total current liabilities | $47,809 | $13,682 | $34,127 | 249.4% | | Total Liabilities | $51,992 | $53,164 | $(1,172) | -2.2% | | Total Stockholders' Equity | $91,076 | $25,493 | $65,583 | 257.3% | - The significant increase in current liabilities is primarily due to the reclassification of the **$35,000 thousand** outstanding debt under the Solar Facility as a current liability as of September 30, 2021, due to subjective acceleration clauses and the probability of not meeting a minimum revenue covenant[12](index=12&type=chunk)[82](index=82&type=chunk) [Statements of Operations](index=4&type=section&id=Statements%20of%20Operations) This section details the company's financial performance over specific periods, including revenues, expenses, and net loss Statements of Operations Summary (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change (3M) | % Change (3M) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change (9M) | % Change (9M) | | :-------------------- | :------------------------------ | :------------------------------ | :------------ | :-------------- | :----------------------------- | :----------------------------- | :------------ | :-------------- | | Revenues | $13,799 | $12,448 | $1,351 | 10.9% | $40,290 | $33,665 | $6,625 | 19.7% | | Gross Profit | $10,655 | $9,791 | $864 | 8.8% | $32,175 | $25,874 | $6,301 | 24.4% | | Total operating expenses | $17,837 | $12,215 | $5,622 | 46.0% | $52,830 | $45,523 | $7,307 | 16.1% | | Loss from Operations | $(7,182) | $(2,424) | $(4,758) | -196.3% | $(20,655) | $(19,649) | $(1,006) | -5.1% | | Net Loss | $(8,151) | $(3,418) | $(4,733) | -138.5% | $(23,557) | $(23,796) | $239 | 1.0% | | Net loss per share (basic & diluted) | $(0.31) | $(0.18) | $(0.13) | -72.2% | $(0.94) | $(1.27) | $0.33 | 26.0% | [Statements of Changes in Stockholders' Equity](index=5&type=section&id=Statements%20of%20Changes%20in%20Stockholders'%20Equity) This section outlines changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit Stockholders' Equity Summary (in thousands) | Metric (in thousands) | Balance at Dec 31, 2020 | Balance at Sep 30, 2021 | Change | | :-------------------- | :---------------------- | :---------------------- | :----- | | Common Stock (Amount) | $191 | $263 | $72 | | Additional Paid-in Capital | $302,842 | $391,910 | $89,068| | Accumulated Deficit | $(277,540) | $(301,097) | $(23,557)| | Total Stockholders' Equity | $25,493 | $91,076 | $65,583| - The significant increase in Total Stockholders' Equity is primarily driven by the issuance of common stock, net of issuance costs, which contributed **$80.6 million**, and share-based compensation expense of **$6.2 million** for the nine months ended September 30, 2021[16](index=16&type=chunk)[87](index=87&type=chunk)[94](index=94&type=chunk) [Statements of Cash Flows](index=6&type=section&id=Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :----- | | Net Cash Used in Operating Activities | $(23,557) | $(26,687) | $3,128 |\ | Net Cash Used in Investing Activities | $(9,038) | $(615) | $(8,423)| | Net Cash Provided by Financing Activities | $82,974 | $2,313 | $80,661| | Net Increase (Decrease) in Cash and Cash Equivalents | $50,477 | $(24,989) | $75,466| - Net cash provided by financing activities significantly increased due to proceeds from a common stock offering (**$80.972 million**) and stock option exercises (**$2.403 million**) in 2021[18](index=18&type=chunk)[175](index=175&type=chunk) - Net cash used in investing activities increased substantially in 2021 primarily due to the issuance of a **$7.486 million** promissory note[18](index=18&type=chunk)[174](index=174&type=chunk) [Notes to Interim Financial Statements](index=7&type=section&id=Notes%20to%20Interim%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the interim financial statements [1. DESCRIPTION OF BUSINESS](index=7&type=section&id=1.%20DESCRIPTION%20OF%20BUSINESS) This note describes Neuronetics, Inc.'s core business, primary product, and the impact of the COVID-19 pandemic - Neuronetics, Inc. is a commercial-stage medical technology company focused on products for psychiatric disorders, with its primary product being the NeuroStar Advanced Therapy System for Major Depressive Disorder (MDD)[20](index=20&type=chunk) - The NeuroStar system is FDA-cleared for MDD patients who have not responded to prior antidepressant medication and is also available in international markets like Japan[20](index=20&type=chunk) - The company is monitoring the ongoing impact of the COVID-19 pandemic on its business, including customers, supply chain, and financial condition, acknowledging significant disruptions[21](index=21&type=chunk) - As of September 30, 2021, the company had **$99.4 million** in cash and cash equivalents and an accumulated deficit of **$301.1 million**, with management believing current liquidity is sufficient for the next **12 months**[23](index=23&type=chunk) [2. BASIS OF PRESENTATION](index=7&type=section&id=2.%20BASIS%20OF%20PRESENTATION) This note explains the accounting principles and assumptions used in preparing the interim financial statements - The interim financial statements are prepared in accordance with GAAP and SEC Rule 10-01 of Regulation S-X, with all necessary normal recurring adjustments made for fair presentation[27](index=27&type=chunk) - The preparation of financial statements involves estimates and assumptions, which are subject to risks and uncertainties, including those related to the COVID-19 pandemic, and actual results may differ materially[28](index=28&type=chunk) [3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=3.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note summarizes the key accounting policies applied in the financial statements - The company accounts for its note receivable at amortized cost basis, recognizing interest income within other income, net[29](index=29&type=chunk) - A complete summary of significant accounting policies is available in the company's Form 10-K filed on March 2, 2021[30](index=30&type=chunk) [4. RECENT ACCOUNTING PRONOUNCEMENTS](index=9&type=section&id=4.%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This note details the company's adoption plans for recent accounting standards and their anticipated impact - The company, as a smaller reporting company, will adopt ASU 2016-13 (Topic 326) on credit losses for fiscal years beginning after December 15, 2022, but does not anticipate a significant impact on its financial statements[31](index=31&type=chunk)[35](index=35&type=chunk) [5. FAIR VALUE MEASUREMENT AND FINANCIAL INSTRUMENTS](index=11&type=section&id=5.%20FAIR%20VALUE%20MEASUREMENT%20AND%20FINANCIAL%20INSTRUMENTS) This note provides information on the fair value of financial instruments and their measurement hierarchy - The carrying values of cash equivalents, accounts receivable, prepaids, accounts payable, credit facility, and note receivable approximated their fair values due to their short-term nature or variable interest rates[37](index=37&type=chunk) Fair Value Measurement of Financial Instruments (in thousands) | Asset (in thousands) | Carrying Amount (Sep 30, 2021) | Fair Value (Sep 30, 2021) | Level 1 (Sep 30, 2021) | | :------------------- | :----------------------------- | :------------------------ | :--------------------- | | Money market funds | $96,231 | $96,231 | $96,231 | | Asset (in thousands) | Carrying Amount (Dec 31, 2020) | Fair Value (Dec 31, 2020) | Level 1 (Dec 31, 2020) | | :------------------- | :----------------------------- | :------------------------ | :--------------------- | | Money market funds | $47,117 | $47,117 | $47,117 | [6. ACCOUNTS RECEIVABLE](index=12&type=section&id=6.%20ACCOUNTS%20RECEIVABLE) This note details the composition of accounts receivable, including gross amounts and allowances for doubtful accounts Accounts Receivable Details (in thousands) | Metric (in thousands) | September 30, 2021 | December 31, 2020 | | :-------------------- | :----------------- | :---------------- | | Gross accounts receivable - trade | $8,907 | $8,178 | | Less: Allowances for doubtful accounts | $(1,158) | $(1,012) | | Accounts receivable, net | $7,749 | $7,166 | [7. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE](index=12&type=section&id=7.%20PROPERTY%20AND%20EQUIPMENT%20AND%20CAPITALIZED%20SOFTWARE) This note outlines the company's property, equipment, and capitalized software, including depreciation and amortization Property and Equipment and Capitalized Software (in thousands) | Metric (in thousands) | September 30, 2021 | December 31, 2020 | | :-------------------- | :----------------- | :---------------- | | Property and equipment, gross | $3,432 | $3,134 | | Less: Accumulated depreciation | $(2,512) | $(2,404) | | Property and equipment, net | $920 | $730 | - Capitalized software costs, net, increased from **$1.2 million** at December 31, 2020, to **$2.0 million** at September 30, 2021[43](index=43&type=chunk) - Depreciation and amortization expense for the nine months ended September 30, 2021, was **$0.8 million**, up from **$0.7 million** in the prior year period[45](index=45&type=chunk) [8. NOTE RECEIVABLE](index=13&type=section&id=8.%20NOTE%20RECEIVABLE) This note describes a significant promissory note agreement entered into by the company - On September 29, 2021, Neuronetics entered into a five-year master sales agreement with Success TMS, including a **$10.0 million** secured promissory note bearing interest at prime rate plus **6.00%** per annum[46](index=46&type=chunk) - The note includes an interest-only period through October 1, 2022 (extendable to October 1, 2023) and is secured by a first priority security interest in substantially all of Success TMS's assets[46](index=46&type=chunk)[47](index=47&type=chunk) [9. LEASES](index=13&type=section&id=9.%20LEASES) This note provides details on the company's operating and sales-type leases, including terms and expenses - The company has operating leases for its corporate headquarters and office equipment, with a weighted-average remaining lease term of **6.4 years** and a discount rate of **6.5%** as of September 30, 2021[49](index=49&type=chunk)[50](index=50&type=chunk) Table Summary (in thousands) | Lease Type | Nine Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2020 (in thousands) | | :----------- | :-------------------------------------------- | :-------------------------------------------- | | Operating lease rent expense | $0.4 | $0.5 | | Operating cash flows from operating leases | $526 | $575 | - Sales-type lease profit recognized at commencement was **$0.262 million** for the three months ended September 30, 2021, and **$0.543 million** for the nine months ended September 30, 2021[54](index=54&type=chunk) - Operating lease income for the three months ended September 30, 2021, was **$0.03 million**, and for the nine months ended September 30, 2021, was **$0.2 million**[56](index=56&type=chunk) [10. PREPAID COMMISSION EXPENSE](index=15&type=section&id=10.%20PREPAID%20COMMISSION%20EXPENSE) This note explains the capitalization and amortization of commission expenses related to product sales - The company capitalizes commission expense associated with NeuroStar Advanced Therapy System sales that is incremental to anticipated future Treatment Session orders, amortizing it over a **seven-year** average customer term[58](index=58&type=chunk)[59](index=59&type=chunk) Prepaid Commission Amortization Expense (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Amortization expense | $0.3 | $0.2 | $0.9 | $0.6 | [11. ACCRUED EXPENSES](index=16&type=section&id=11.%20ACCURRED%20EXPENSES) This note itemizes the company's accrued liabilities by category, such as compensation and professional fees Accrued Expenses Breakdown (in thousands) | Accrued Expense Category (in thousands) | September 30, 2021 | December 31, 2020 | | :-------------------------------------- | :----------------- | :---------------- | | Compensation and related benefits | $4,035 | $5,023 | | Consulting and professional fees | $779 | $292 | | Research and development expenses | $362 | $138 | | Sales and marketing expenses | $312 | $73 | | Warranty | $300 | $536 | | Sales and other taxes payable | $616 | $726 | | Other | $509 | $531 | | Total Accrued expenses | $6,913 | $7,319 | [12. DEFERRED REVENUE](index=16&type=section&id=12.%20DEFERRED%20REVENUE) This note explains the nature of deferred revenue and its expected recognition schedule - Deferred revenue primarily arises from customer advances and deposits for multi-year agreements, with revenue recognized annually over the coverage period[63](index=63&type=chunk) Deferred Revenue Recognition Schedule | Year of Recognition | Percentage of Deferred Revenue | | :------------------ | :----------------------------- | | Remainder of 2021 | **22 %** | | 2022 | **32 %** | | 2023 | **20 %** | | 2024 | **20 %** | | 2025 | **6 %** | | Thereafter | — % | - Revenue recognized from the contract liability balance at the beginning of the year was **$0.3 million** for the three months and **$1.8 million** for the nine months ended September 30, 2021[64](index=64&type=chunk) [13. DEBT](index=17&type=section&id=13.%20DEBT) This note details the company's outstanding debt, including terms, covenants, and current classification Debt Summary (in thousands) | Debt Metric (in thousands) | September 30, 2021 | December 31, 2020 | | :------------------------- | :----------------- | :---------------- | | Outstanding principal | $35,000 | $35,000 | | Accrued final payment fees | $1,925 | $1,925 | | Less debt discounts | $(1,821) | $(2,305) | | Total debt, net | $35,104 | $34,620 | | Less current portion | $(35,104) | $0 | | Long-term debt, net | $0 | $34,620 | - The entire **$35,000 thousand** outstanding principal under the Solar Credit Facility is classified as a current liability as of September 30, 2021, due to subjective acceleration clauses and the probability of not meeting a minimum revenue covenant by December 31, 2021[82](index=82&type=chunk) - The Solar Facility, entered into in March 2020, allows borrowing up to **$50.0 million** in two tranches, with **$35.0 million** drawn under Term A Loan maturing on February 28, 2025, and an interest-only period extendable to February 2023[70](index=70&type=chunk)[72](index=72&type=chunk) - The company is in compliance with all covenants in the Solar Facility as of September 30, 2021, but anticipates not achieving the minimum trailing net revenue covenant for the remainder of 2021 and is discussing waivers/amendments with lenders[81](index=81&type=chunk)[82](index=82&type=chunk) [14. COMMON STOCK](index=21&type=section&id=14.%20COMMON%20STOCK) This note provides information on common stock issuances, shares outstanding, and warrants - On February 2, 2021, Neuronetics closed a public offering, issuing **5,566,000 shares** of common stock at **$15.50 per share**, generating net proceeds of **$80.6 million**[87](index=87&type=chunk) Common Stock Details (in thousands) | Metric (in thousands) | September 30, 2021 | December 31, 2020 | | :-------------------- | :----------------- | :---------------- | | Shares of common stock issued | 26,335 | 19,114 | | Total shares of common stock issued and reserved for issuance | 32,919 | 25,582 | Warrants Outstanding (in thousands) | Warrants Outstanding (in thousands) | Exercise Price | Expiration Date | | :---------------------------------- | :------------- | :-------------- | | 14 | $19.55 | Dec-2022 | | 20 | $9.73 | Aug-2023 | | 20 | $9.73 | Mar-2024 | | 21 | $9.73 | Dec-2024 | | **Total: 75** | | | [15. LOSS PER SHARE](index=22&type=section&id=15.%20LOSS%20PER%20SHARE) This note explains the calculation of basic and diluted loss per share and potentially dilutive securities - Basic loss per common share is calculated by dividing net loss by weighted-average common stock outstanding; diluted loss per share is the same as basic when the company is in a net loss position[91](index=91&type=chunk)[92](index=92&type=chunk) Potentially Dilutive Securities (in thousands) | Potentially Dilutive Securities (in thousands) | September 30, 2021 | September 30, 2020 | | :--------------------------------------------- | :----------------- | :----------------- | | Stock options | 1,567 | 2,594 | | Non-vested performance restricted stock units | 395 | 500 | | Non-vested restricted stock units | 1,647 | 1,850 | | Common stock warrants | 75 | 105 | [16. SHARE-BASED COMPENSATION](index=22&type=section&id=16.%20SHARE-BASED%20COMPENSATION) This note details the share-based compensation expense and unrecognized compensation costs Share-Based Compensation Expense (in thousands) | Expense Category (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of revenues | $23 | $17 | $56 | $48 | | Sales and marketing | $515 | $370 | $1,608 | $1,036 | | General and administrative | $1,368 | $572 | $4,368 | $1,440 | | Research and development | $55 | $87 | $134 | $364 | | **Total** | **$1,961** | **$1,046** | **$6,166** | **$2,888** | - Total share-based compensation expense for the nine months ended September 30, 2021, more than doubled to **$6.166 million** from **$2.888 million** in the prior year, primarily driven by increases in general and administrative and sales and marketing categories[94](index=94&type=chunk) - As of September 30, 2021, there was **$1.5 million** of unrecognized compensation cost for stock options and **$10.5 million** for restricted stock units and performance restricted stock units, expected to be recognized over approximately **2.2 years**[98](index=98&type=chunk)[101](index=101&type=chunk) [17. COMMITMENTS AND CONTINGENCIES](index=24&type=section&id=17.%20COMMITMENTS%20AND%20CONTINGENCIES) This note addresses potential future obligations and legal matters facing the company - The company is subject to various claims and legal actions in the ordinary course of business but believes none are expected to have a material adverse effect on its financial condition or results of operations[103](index=103&type=chunk) [18. GEOGRAPHICAL SEGMENT INFORMATION](index=24&type=section&id=18.%20GEOGRAPHICAL%20SEGMENT%20INFORMATION) This note provides revenue breakdown by geographical region and product category - Neuronetics operates as a single business segment, managed by a single management team[104](index=104&type=chunk) Revenue by Geography (in thousands) | Revenue by Geography (in thousands) | Three Months Ended Sep 30, 2021 | % of Total (3M) | Three Months Ended Sep 30, 2020 | % of Total (3M) | | :---------------------------------- | :------------------------------ | :-------------- | :------------------------------ | :-------------- | | United States | $13,280 | **96 %** | $12,029 | **97 %** | | International | $519 | **4 %** | $419 | **3 %** | | **Total revenues** | **$13,799** | **100 %** | **$12,448** | **100 %** | | Revenue by Geography (in thousands) | Nine Months Ended Sep 30, 2021 | % of Total (9M) | Nine Months Ended Sep 30, 2020 | % of Total (9M) | | :---------------------------------- | :----------------------------- | :-------------- | :----------------------------- | :-------------- | | United States | $38,891 | **97 %** | $32,473 | **96 %** | | International | $1,399 | **3 %** | $1,192 | **4 %** | | **Total revenues** | **$40,290** | **100 %** | **$33,665** | **100 %** | U.S. Revenue by Product Category (in thousands) | U.S. Revenue by Product Category (in thousands) | Three Months Ended Sep 30, 2021 | % of U.S. (3M) | Three Months Ended Sep 30, 2020 | % of U.S. (3M) | | :---------------------------------------------- | :------------------------------ | :------------- | :------------------------------ | :------------- | | NeuroStar Advanced Therapy System | $2,612 | **20 %** | $2,541 | **21 %** | | Treatment sessions | $10,259 | **77 %** | $9,083 | **76 %** | | Other | $409 | **3 %** | $405 | **3 %** | | **Total U.S. revenues** | **$13,280** | **100 %** | **$12,029** | **100 %** | | U.S. Revenue by Product Category (in thousands) | Nine Months Ended Sep 30, 2021 | % of U.S. (9M) | Nine Months Ended Sep 30, 2020 | % of U.S. (9M) | | :---------------------------------------------- | :----------------------------- | :------------- | :----------------------------- | :------------- | | NeuroStar Advanced Therapy System | $6,945 | **18 %** | $7,474 | **23 %** | | Treatment sessions | $30,688 | **79 %** | $23,823 | **73 %** | | Other | $1,258 | **3 %** | $1,176 | **4 %** | | **Total U.S. revenues** | **$38,891** | **100 %** | **$32,473** | **100 %** | [19. SEVERANCE](index=26&type=section&id=19.%20SEVERANCE) This note details charges related to employee separations and workforce reductions - In April 2020, the company implemented a reduction in force, terminating **95 employees** and recording a **$2.1 million** separation-related charge[108](index=108&type=chunk) - For the nine months ended September 30, 2021, the company recorded **$0.5 million** in charges for salary, payroll tax, and bonus expenses related to executive and management separations, with **$0.3 million** remaining in accrued liabilities[109](index=109&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management's discussion and analysis of financial condition, operations, COVID-19 impact, and future outlook [Overview](index=28&type=section&id=Overview) This section provides a high-level summary of the company's business, products, and financial highlights - Neuronetics is a commercial-stage medical technology company specializing in the NeuroStar Advanced Therapy System for Major Depressive Disorder (MDD), cleared by the FDA[113](index=113&type=chunk) - The company is a market leader in TMS therapy, having treated over **115,935 global patients** with over **4.0 million** treatment sessions[113](index=113&type=chunk) Revenue Overview (in millions) | Metric (in millions) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues | $13.8 | $12.4 | $40.3 | $33.7 | - The majority of revenues are derived from recurring Treatment Sessions, which represented **77%** of U.S. revenues for the three months ended September 30, 2021[114](index=114&type=chunk) - International revenues, primarily from Japan through a distribution agreement with Teijin Pharma Limited, represented **4%** and **3%** of total revenues for the three months ended September 30, 2021 and 2020, respectively[116](index=116&type=chunk) - Research and development efforts focus on hardware/software enhancements and clinical development for additional indications like bipolar depression and post-traumatic stress disorder[117](index=117&type=chunk) [COVID-19](index=30&type=section&id=COVID-19) This section discusses the ongoing impact of the COVID-19 pandemic on the company's operations and financial performance - The COVID-19 pandemic has materially impacted revenue, particularly U.S. treatment session revenues, with customers deferring capital purchases and new patient treatment starts, and system utilization declining[121](index=121&type=chunk) - The company continues to monitor the pandemic's impact on its business, supply chain, employees, and financial condition, acknowledging numerous uncertainties regarding its scope, severity, and duration[122](index=122&type=chunk) [Components of Our Results of Operations](index=30&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section explains the key revenue and cost drivers influencing the company's financial results - Revenues are primarily generated from capital sales/rentals of the NeuroStar Advanced Therapy System and recurring sales of treatment sessions in the United States[124](index=124&type=chunk) - Cost of revenues includes components from third-party manufacturers, treatment packs, personnel, royalties, warranty, and shipping, expected to increase with revenue growth[127](index=127&type=chunk) - Gross margin is influenced by product sales mix (system sales have lower margins than treatment sessions), pricing, and manufacturing costs[128](index=128&type=chunk) - Sales and marketing expenses are expected to increase due to growth initiatives and business expansion[130](index=130&type=chunk) - Research and development expenses are expected to remain similar to fiscal year 2020 as the company continues development for new indications and hardware/software projects[134](index=134&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance over specific periods, detailing revenue, expenses, and net loss [Comparison of the three months ended September 30, 2021 and 2020](index=33&type=section&id=Comparison%20of%20the%20three%20months%20ended%20September%2030,%202021%20and%202020) This section compares the company's financial performance for the three-month periods ended September 30, 2021 and 2020 Statements of Operations Summary (Three Months) (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change | % Change | | :-------------------- | :------------------------------ | :------------------------------ | :----- | :------- | | Revenues | $13,799 | $12,448 | $1,351 | **11 %** | | Cost of revenues | $3,144 | $2,657 | $487 | **18 %** | | Gross Profit | $10,655 | $9,791 | $864 | **9 %** | | Gross Margin | **77.2 %** | **78.7 %** | -1.5 % | | | Sales and marketing | $9,827 | $6,053 | $3,774 | **62 %** | | General and administrative | $6,435 | $4,210 | $2,225 | **53 %** | | Research and development | $1,575 | $1,952 | $(377) | (**19**)% | | Loss from Operations | $(7,182) | $(2,424) | $(4,758)| (**196**)% | | Net Loss | $(8,151) | $(3,418) | $(4,733)| (**138**)% | - Total revenue increased by **11%** to **$13.8 million**, driven by a **13%** increase in U.S. treatment session revenue and a **24%** increase in international revenue[139](index=139&type=chunk)[141](index=141&type=chunk) - Gross margin decreased from **78.7%** to **77.2%** primarily due to increased supply chain costs[142](index=142&type=chunk)[144](index=144&type=chunk) - Sales and marketing expenses surged by **62%** due to increased marketing, digital media, travel, and trade show costs[145](index=145&type=chunk) - General and administrative expenses rose by **53%** due to higher personnel expenses (salary, share-based compensation), IT consulting, and insurance premiums[146](index=146&type=chunk) - Research and development expenses decreased by **19%** due to reduced clinical and product development personnel expenses, partially offset by increased regulatory costs[147](index=147&type=chunk) [Comparison of the nine months ended September 30, 2021 and 2020](index=37&type=section&id=Comparison%20of%20the%20nine%20months%20ended%20September%2030,%202021%20and%202020) This section compares the company's financial performance for the nine-month periods ended September 30, 2021 and 2020 Statements of Operations Summary (Nine Months) (in thousands) | Metric (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change | % Change | | :-------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Revenues | $40,290 | $33,665 | $6,625 | **20 %** | | Cost of revenues | $8,115 | $7,791 | $324 | **4 %** | | Gross Profit | $32,175 | $25,874 | $6,301 | **24 %** | | Gross Margin | **79.9 %** | **76.9 %** | 3.0 % | | | Sales and marketing | $27,431 | $24,926 | $2,505 | **10 %** | | General and administrative | $19,220 | $13,508 | $5,712 | **42 %** | | Research and development | $6,179 | $7,089 | $(910) | (**13**)% | | Loss from Operations | $(20,655) | $(19,649) | $(1,006)| (**5**)% | | Net Loss | $(23,557) | $(23,796) | $239 | **1 %** | - Total revenue increased by **20%** to **$40.3 million**, driven by a **29%** increase in U.S. treatment session revenue, despite a **7%** decrease in U.S. NeuroStar Advanced Therapy System revenue[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - Gross margin improved from **76.9%** to **79.9%** primarily due to a favorable change in the product mix of revenues[159](index=159&type=chunk) - General and administrative expenses increased by **42%** due to higher personnel expenses, including bonus, salary, and share-based compensation[161](index=161&type=chunk) - Interest expense decreased by **16%** due to the loss on extinguishment of debt charge recognized in Q1 2020 related to the Oxford debt facility[163](index=163&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to generate and manage cash, including funding sources and debt obligations [Overview](index=40&type=section&id=Overview) This section provides an overview of the company's financial resources, cash position, and funding strategy - The company raised **$80.6 million** in net proceeds from a public offering of common stock on February 2, 2021[165](index=165&type=chunk) - As of September 30, 2021, cash and cash equivalents were **$99.4 million**, with an accumulated deficit of **$301.1 million**[166](index=166&type=chunk) - The company incurred negative cash flows from operating activities of **$23.5 million** for the nine months ended September 30, 2021, and anticipates continued operating losses in the near term[166](index=166&type=chunk) - Management believes current cash and anticipated revenues are sufficient to fund operations for at least the next **12 months**, but may seek additional financing if needed, which could dilute stockholders or impose restrictive covenants[166](index=166&type=chunk)[167](index=167&type=chunk) [Cash Flows](index=42&type=section&id=Cash%20Flows) This section analyzes the company's cash movements from operating, investing, and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Used in Operating Activities | $(23,459) | $(26,687) | | Net Cash Used in Investing Activities | $(9,038) | $(615) | | Net Cash Provided by Financing Activities | $82,974 | $2,313 | | Net Increase (Decrease) in Cash and Cash Equivalents | $50,477 | $(24,989) | - Net cash used in operating activities decreased by **$3.2 million**, primarily due to a lower net loss and non-cash charges partially offsetting an increase in net operating assets[171](index=171&type=chunk)[173](index=173&type=chunk) - Net cash used in investing activities increased significantly to **$9.0 million**, mainly due to the issuance of a promissory note and purchases of property and equipment[174](index=174&type=chunk) - Net cash provided by financing activities increased substantially to **$83.0 million**, driven by proceeds from the common stock offering and stock option exercises[175](index=175&type=chunk) [Indebtedness](index=44&type=section&id=Indebtedness) This section details the company's debt obligations, including terms, covenants, and classification - The company has a **$35.0 million** Term A Loan under the Solar Facility, maturing February 28, 2025, with an interest-only period extendable to February 2023[177](index=177&type=chunk)[178](index=178&type=chunk) - The Solar Facility includes potential Term B Loan tranches totaling **$15.0 million**, contingent on achieving specific net product revenue targets[177](index=177&type=chunk)[181](index=181&type=chunk) - The company is required to pay a final payment fee (**5.50%** of principal) and potential prepayment fees (**1-3%**) and exit fees (**2.25-4.50%**) under the Solar Facility[179](index=179&type=chunk)[180](index=180&type=chunk) - As of September 30, 2021, the entire outstanding principal of **$35.0 million** is classified as a current liability due to subjective acceleration clauses and the probability of not meeting a minimum trailing net revenue covenant[187](index=187&type=chunk) [Cash and Non-Cash Interest Expense](index=46&type=section&id=Cash%20and%20Non-Cash%20Interest%20Expense) This section breaks down the company's interest expense into cash and non-cash components Interest Expense Breakdown (in thousands) | Interest Expense (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------ | :----------------------------- | :----------------------------- | | Total Interest Expense | $3,000 | $3,500 | | Cash Interest | $2,500 | $3,100 | | Non-Cash Interest | $500 | $400 | - The decrease in total interest expense was primarily due to the loss on extinguishment of debt charge recognized in Q1 2020 related to the Oxford debt facility[163](index=163&type=chunk) [Common Stock Offering](index=46&type=section&id=Common%20Stock%20Offering) This section describes the details and proceeds from the company's recent public offering of common stock - On February 2, 2021, the company completed a public offering, selling **5,566,000 shares** of common stock at **$15.50 per share**, resulting in net proceeds of **$80.6 million**[189](index=189&type=chunk) [Off-Balance Sheet Arrangements](index=46&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any material off-balance sheet arrangements - The company does not maintain any off-balance sheet arrangements, partnerships, or relationships with unconsolidated entities[190](index=190&type=chunk)[192](index=192&type=chunk) [Commitments and Contractual Obligations](index=48&type=section&id=Commitments%20and%20Contractual%20Obligations) This section outlines the company's significant contractual obligations and commitments - As of September 30, 2021, there were no significant changes to the company's commitments and future minimum contractual obligations compared to those reported in its Form 10-K filed on March 2, 2021[193](index=193&type=chunk) [JOBS Act Accounting Election](index=48&type=section&id=JOBS%20Act%20Accounting%20Election) This section explains the company's election to use the extended transition period under the JOBS Act - As an 'emerging growth company' under the JOBS Act, Neuronetics has elected to use the extended transition period for complying with new or revised accounting standards, meaning it will not be subject to the same standards as other public companies[194](index=194&type=chunk) - The company will remain an emerging growth company until it meets certain criteria, such as reaching **$1.07 billion** in annual gross revenue, the fifth anniversary of its offering, issuing over **$1.0 billion** in nonconvertible debt, or becoming a large accelerated filer[195](index=195&type=chunk) [Recent Accounting Pronouncements](index=48&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to detailed notes on recent accounting standards and their impact - Refer to 'Note 3. Summary of Significant Accounting Policies' and 'Note 4. Recent Accounting Pronouncements' in the financial statements for details on recent accounting pronouncements[196](index=196&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=48&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 detailed market risk disclosures - There have been no material changes to the company's market risk disclosures since the Annual Report on Form 10-K filed on March 2, 2021[197](index=197&type=chunk) [Item 4. Controls and Procedures.](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures.) This section details the evaluation of disclosure controls and internal control over financial reporting - Management, including the Principal Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2021[199](index=199&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[200](index=200&type=chunk) [PART II – OTHER INFORMATION](index=51&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, and other disclosures [Item 1. Legal Proceedings.](index=51&type=section&id=Item%201.%20Legal%20Proceedings.) This section addresses legal matters, stating no material adverse effects are expected from claims - The company is subject to various claims and legal actions in the ordinary course of business, but management believes none are expected to have a material adverse effect on its results of operations, financial condition, or cash flows[203](index=203&type=chunk) [Item 1A. Risk Factors.](index=51&type=section&id=Item%201A.%20Risk%20Factors.) This section refers readers to the 'Risk Factors' section of the company's Annual Report on Form 10-K - There have been no material changes to the risk factors described in the company's Annual Report on Form 10-K filed on March 2, 2021[204](index=204&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=51&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) This section reports that there were no unregistered sales of equity securities during the period - There were no recent issuances of unregistered securities[205](index=205&type=chunk) [Item 3. Defaults Upon Senior Securities.](index=51&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) This section states that there were no defaults upon senior securities - Not applicable, indicating no defaults upon senior securities[206](index=206&type=chunk) [Item 4. Mine Safety Disclosures.](index=51&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This section indicates that mine safety disclosures are not applicable to the company - Not applicable, indicating no mine safety disclosures[207](index=207&type=chunk) [Item 5. Other Information.](index=51&type=section&id=Item%205.%20Other%20Information.) This section states that there is no other information to report - Not applicable, indicating no other information to report[208](index=208&type=chunk) [Item 6. Exhibits.](index=52&type=section&id=Item%206.%20Exhibits.) This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q - The exhibits include a Secured Promissory Note Agreement, Amended and Restated Bylaws, Section 302 and 906 certifications, and Inline XBRL documents[211](index=211&type=chunk) [SIGNATURES](index=53&type=section&id=SIGNATURES) This section contains the required signatures for the Quarterly Report on Form 10-Q [SIGNATURES](index=53&type=section&id=SIGNATURES) This section contains the required signatures for the Quarterly Report on Form 10-Q - The report was signed on November 9, 2021, by Keith J. Sullivan, President and Chief Executive Officer, and Stephen Furlong, SVP, Chief Financial Officer and Treasurer[214](index=214&type=chunk)