Neuronetics(STIM) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section covers Neuronetics, Inc.'s interim financial statements, management's financial analysis, market risks, and internal controls Item 1. Financial Statements. 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 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] - 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] Statements of Operations 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] - 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] - 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] Statements of Changes in Stockholders' Equity 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] - 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] Statements of Cash Flows 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] - 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] - Financing activities provided $0.44 million in 2023, a significant change from using $0.04 million in 2022, driven by additional debt proceeds[20] Notes to Interim Financial Statements This section provides detailed explanations of the company's business, accounting policies, financial instruments, and specific account compositions 1. DESCRIPTION OF BUSINESS 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] - 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] - 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] 2. BASIS OF PRESENTATION 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][25] - The preparation of financial statements involves estimates and assumptions, which may differ from actual results due to business risks and evolving market conditions[27] 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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] 4. RECENT ACCOUNTING PRONOUNCEMENTS 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][30][31] 5. FAIR VALUE MEASUREMENT AND FINANCIAL INSTRUMENTS 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] 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 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] 7. INVENTORY 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] 8. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE 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] - 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] 9. NOTES RECEIVABLE 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][45] - 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][50] 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 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] - 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] 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 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][61] - 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] 12. ACCRUED EXPENSES 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] 13. DEFERRED REVENUE 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][66] - One customer accounted for 15% of total revenue for the three months and 17% for the nine months ended September 30, 2023[67] 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 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][73] - 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][77] - 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] - The Company was in compliance with all covenants of the Solar Facility as of September 30, 2023[83] 15. COMMON STOCK 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 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] 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 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] - 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][98] 18. COMMITMENTS AND CONTINGENCIES 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] 19. SEGMENT INFORMATION 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] 20. GOVERNMENT ASSISTANCE 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 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 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] 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] - 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 $370.7 million as of September 30, 2023[110] Components of Our Results of Operations Revenues are primarily from NeuroStar system sales and recurring treatment sessions, with gross margin influenced by product mix and manufacturing costs, while operating expenses are managed through strategic investments and cost reductions - Revenues are primarily generated from capital sales/rentals of NeuroStar Advanced Therapy Systems, recurring treatment sessions (access codes/SenStar links), and other services like repair and extended warranty contracts[112][113][114][115] - Cost of revenues includes components, manufacturing, personnel, warranty, and shipping, and is expected to increase with revenue growth; gross margin is influenced by product sales mix (systems vs. sessions) and manufacturing costs[115][116] - Sales and marketing expenses are anticipated to decrease in 2023 due to the termination of a 2022 sales equity match incentive, while general and administrative expenses are expected to remain flat[119][121] - Research and development expenses are projected to increase in 2023 as the Company continues to invest in new indications and hardware/software development[123] - Other income, net, includes the Employee Retention Credit (ERC) and interest income from money market accounts and notes receivable[125] Results of Operations This section analyzes the company's financial performance, comparing revenues, costs, and net loss for the three and nine months ended September 30, 2023, against the prior year Comparison of the three months ended September 30, 2023 and 2022 Revenue increased by 8% driven by U.S. treatment sessions and international growth, but gross margin declined due to inventory impairment and higher operational costs, leading to a 23% increase in net loss Key Financials (Three Months Ended September 30, in thousands, except percentages) | Metric | 2023 | 2022 | Change ($) | 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] - Gross margin decreased from 78.4% to 65.8% due to a $1.9 million inventory impairment, higher operational costs from a new manufacturing partner, and software amortization[132] - Sales and marketing expenses increased by 4% due to increased co-op marketing, while R&D expenses decreased by 8% due to higher software capitalization[133][135] Comparison of the nine months ended September 30, 2023 and 2022 Revenue increased by 9% driven by U.S. treatment sessions and international growth, but gross margin declined due to inventory impairment and higher costs, while net loss decreased by 14% due to reduced sales and marketing expenses and increased other income Key Financials (Nine Months Ended September 30, in thousands, except percentages) | Metric | 2023 | 2022 | Change ($) | 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] - 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][146] - Sales and marketing expenses decreased by 6% due to reduced brand development spending and the discontinuation of a sales personnel retention program[147] - Research and development expenses increased by 18% due to higher clinical research and personnel expenses aimed at increasing NeuroStar system usability[149] - 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] Liquidity and Capital Resources 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] - 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][158] - 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] - Future funding requirements depend on revenue growth, operating margins, compliance with credit facility covenants, expansion costs, and R&D activities[154][159] - 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][162] Item 3. Quantitative and Qualitative Disclosures About Market Risk. 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] - 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][169] Item 4. Controls and Procedures. 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] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[171] PART II – OTHER INFORMATION This section addresses legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings. 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] Item 1A. Risk Factors. 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 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] Item 3. Defaults Upon Senior Securities. 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] Item 4. Mine Safety Disclosures. 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] Item 5. Other Information. 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] - 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] Item 6. Exhibits. 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][183] SIGNATURES 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][186]