Neuronetics, Inc. 2022 Form 10-K Summary
Business context and reporting period
Neuronetics is a commercial-stage medical technology company that develops and markets the NeuroStar Advanced Therapy System, a non-invasive transcranial magnetic stimulation therapy cleared in the United States for major depressive disorder, obsessive-compulsive disorder and anxiety symptoms associated with major depressive disorder. The filing covers the fiscal year ended December 31, 2022; it is an annual filing rather than a standalone fourth-quarter report.
As of December 31, 2022, the company reported 1,101 active U.S. customer sites, approximately 147,431 global patients treated and more than 5.3 million treatment sessions. The company had approximately 194 full-time employees and generated most revenue in the United States.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $65.2 million | $55.3 million | 18% increase |
| Gross profit | $49.7 million | $43.7 million | 14% increase |
| Gross margin | 76.3% | 78.9% | 260 basis-point decline |
| Operating loss | $35.1 million | $27.6 million | 27% larger loss |
| Net loss | $37.2 million | $31.2 million | 19% larger loss |
| Basic and diluted loss per share | $1.38 | $1.22 | Higher loss per share |
| Cash flow from operations | $(30.7) million | $(28.0) million | Higher cash usage |
- U.S. revenue was $63.4 million, or 97% of total revenue, compared with $53.4 million in 2021. International revenue was $1.8 million, or 3% of total revenue, down slightly from $1.9 million.
- U.S. treatment-session revenue increased 7% to $45.1 million, while treatment sessions sold increased from 521,979 to 572,587.
- U.S. NeuroStar system revenue increased 70% to $16.6 million. Systems sold increased from 129 to 213.
- Sales and marketing expense increased 32% to $50.0 million, including higher personnel costs, a $3.7 million one-time commission retention benefit, marketing campaign costs and costs associated with the Charlotte training facility.
- Research and development expense increased 18% to $9.3 million. General and administrative expense was essentially unchanged at $25.5 million.
- Interest expense was $4.3 million, while other income increased to $2.2 million, primarily from interest income, including income related to repayment of the Success TMS note.
Liquidity, cash flow and debt
- Cash and cash equivalents were $70.3 million at December 31, 2022, down from $94.1 million at December 31, 2021.
- Total assets were $116.9 million and stockholders’ equity was $57.1 million at year-end. Accumulated deficit was $345.9 million.
- Operating cash usage was $30.7 million. Investing activities provided $6.7 million, primarily because of repayment of a $10.0 million promissory note. Financing activities provided $0.2 million.
- Outstanding principal under the SLR Investment Corp. credit facility was $35.0 million, with a final maturity in February 2025. Required principal payments were $13.1 million in 2023, $17.5 million in 2024 and $4.4 million in 2025.
- The facility carries variable-rate interest and is secured by substantially all company assets, including intellectual property. The company reported compliance with all covenants at December 31, 2022.
- Management stated that cash, cash equivalents and anticipated product revenue are expected to fund operations for at least 12 months from issuance of the financial statements, but the company expects continued operating losses and may require additional financing.
Material changes versus the prior comparable period
- Revenue growth accelerated through higher system placements and increased treatment-session volume, supported by growth in active customer sites from 959 to 1,101.
- Revenue mix shifted toward system sales: system revenue represented 26% of U.S. revenue versus 18% in 2021, while treatment sessions declined to 71% from 78%. This mix shift contributed to the lower gross margin.
- Operating expenses grew faster than revenue, particularly sales and marketing, resulting in a larger operating and net loss despite higher gross profit.
- Cash declined by $23.8 million during 2022, compared with a $45.2 million increase in 2021 that was primarily driven by the $80.6 million net proceeds from the 2021 common-stock offering.
- The company met its 2022 net product revenue covenant after receiving waivers for covenant breaches in 2020 and 2021.
- Success TMS repaid its $10.0 million secured note in July 2022, including interest and a prepayment premium.
Guidance, outlook, commentary and risks
- Management expects continued revenue growth from expanding U.S. customer sites, increasing utilization, enlarging the direct sales and customer-support organization, and expanding in Japan and other international markets.
- Management expects 2023 sales and marketing expense to decrease in part because the one-time 2022 sales equity-match incentive will not recur. General and administrative expense is expected to remain materially consistent, while research and development expense is expected to increase.
- The filing does not provide formal revenue, earnings or cash-flow guidance.
- COVID-19 materially disrupted the business in the first quarter of 2022 and prior periods. Management states that conditions were largely less affected during the remainder of 2022 but that future effects remain uncertain.
- Key risks include ongoing losses and cash burn, possible need for additional capital, debt covenant and refinancing risk, variable-rate interest expense, reliance on reimbursement and insurance coverage, customer concentration, competition, regulatory requirements, product liability and recalls, cybersecurity and health-data privacy, reliance on single-source suppliers and contract manufacturing, international distributor execution, and intellectual-property expirations beginning in 2024 for certain core U.S. patents.
- One customer accounted for 17% of 2022 revenue, and the company disclosed that its largest customer acquired its second-largest customer. The combined organization represented more than 17% of 2022 revenue; the company entered into a new long-term exclusive agreement with that customer in January 2023.
- The company reported no legal proceedings expected to have a material adverse effect and concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022. The independent auditor was not required to attest to internal control effectiveness because of the company’s emerging-growth-company and smaller-reporting-company status.
Important facts for investors to verify
- Whether system placements and the expanding installed base translate into sustained treatment-session growth and improved operating leverage.
- Cash burn, cash runway and the company’s ability to refinance or repay the $35.0 million credit facility before its February 2025 maturity.
- Compliance with monthly revenue covenants and the terms of any refinancing or additional capital raise.
- Future gross margin as system sales become a larger portion of revenue.
- Customer concentration and the performance and renewal terms of the January 2023 agreement with the combined largest customer.
- Reimbursement stability in the United States and progress toward broader utilization and reimbursement in Japan.
- Regulatory, product-safety, supply-chain, cybersecurity and intellectual-property developments, including core U.S. patent expirations beginning in 2024.