Neuronetics(STIM) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements 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 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 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 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 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] - 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] - 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] - 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][75] - The company recognized a $2.9 million Employee Retention Credit (ERC) during the quarter ended June 30, 2023, recorded as 'other income, net'[98][100] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - 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] Results of Operations 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] - 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] - 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] Liquidity and Capital Resources 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] - 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][155] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] Controls and Procedures 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] - 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] PART II – OTHER INFORMATION Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable for the current reporting period - Not applicable[172] Other Information 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] Exhibits 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] - 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]