Neuronetics, Inc. — FY2021 Form 10-K Summary
Business context and reporting period
Neuronetics is a commercial-stage medical technology company focused on the NeuroStar Advanced Therapy System, an FDA-cleared, non-invasive transcranial magnetic stimulation treatment for adults with major depressive disorder. The filing covers the fiscal year ended December 31, 2021; it is an annual report rather than a quarterly filing. The company reported approximately 121,960 global patients treated, more than 4.3 million treatment sessions, 959 active U.S. sites, and 175 employees at year-end.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $55.3 million | $49.2 million | Up 12% |
| Gross profit | $43.7 million | $37.7 million | Up 16% |
| Gross margin | 78.9% | 76.5% | Up 2.4 percentage points |
| Operating loss | $27.6 million | $22.3 million | Loss increased 24% |
| Net loss | $31.2 million | $27.5 million | Loss increased 14% |
| Net loss per share | $1.22 | $1.46 | Improved due primarily to higher share count |
| Operating cash flow | $(28.0) million | $(28.4) million | Slightly improved |
| Cash and cash equivalents | $94.1 million | $49.0 million | Up $45.2 million |
| Debt outstanding | $35.0 million principal | $35.0 million principal | Unchanged |
- U.S. revenue was $53.4 million, or 97% of total revenue; international revenue was $1.9 million, or 3%.
- U.S. treatment-session revenue increased 20% to $41.9 million and represented 78% of U.S. revenue, compared with 73% in 2020.
- U.S. system revenue declined 12% to $9.8 million; system units sold fell from 166 to 129.
- Treatment sessions sold increased from 439,936 to 521,979, while active U.S. sites increased from 909 to 959.
- Sales and marketing expense increased 16% to $37.7 million, and general and administrative expense increased 40% to $25.6 million. Research and development expense declined 14% to $7.9 million.
- Share-based compensation increased to $7.9 million from $4.4 million.
Liquidity, cash flow, debt and other financial matters
- Net cash used in operating activities was $28.0 million. Investing cash use was $9.8 million, including $7.5 million for a promissory note and $2.4 million for property, equipment and capitalized software.
- Financing activities provided $83.0 million, primarily from the February 2021 offering of 5.566 million shares at $15.50 per share. Net proceeds were approximately $80.6 million.
- The company had $35.0 million of borrowings under its SLR Investment Corp. credit facility, with a February 2025 maturity and a $1.9 million final payment fee. Principal amortization was expected to begin in 2023, subject to subsequent amendments.
- Future interest payments were estimated at $7.6 million, including $3.3 million due within 12 months. Fixed lease obligations totaled $5.3 million.
- Management stated that cash, cash equivalents and anticipated product revenue were sufficient to fund operations for at least 12 months from issuance of the financial statements.
- The company loaned Success TMS $10.0 million under a secured five-year note bearing interest at prime plus 6.00%. The note is secured by substantially all of Success TMS’s assets and includes a limited guarantee and equity pledge.
Material changes versus the prior comparable period
- Revenue growth was driven by higher treatment-session utilization, partially offset by COVID-19-related weakness in capital equipment purchases and delayed patient starts.
- Gross margin improved because treatment sessions, which carry higher margins than system sales, comprised a larger share of revenue.
- Operating and net losses widened as the company increased commercial investment, marketing, information technology spending, general and administrative costs, and equity compensation.
- Cash increased substantially because of the equity offering, despite continued operating cash burn and the Success TMS loan.
- In February 2022, lenders waived defaults related to the minimum trailing-twelve-month revenue covenant, reduced future covenant thresholds, eliminated availability of the Term D loan tranche, and permitted principal amortization to be extended to March 1, 2023. The company stated it was in compliance with the amended covenants as of December 31, 2021.
Guidance, outlook, management commentary and risks
- No specific 2022 revenue, earnings or cash-flow guidance is provided in the filing.
- Management expects sales and marketing expense and research and development expense to increase in 2022, while general and administrative expense is expected to remain materially consistent.
- The company plans to expand its U.S. direct sales and customer-support organization, increase utilization at existing sites, expand in Japan and pursue additional indications and system enhancements.
- COVID-19 continued to materially affect capital purchases, treatment starts, utilization, supply chains and cash flows. Management stated that the ultimate impact remains uncertain.
- Key risks include ongoing losses and cash burn, dependence on treatment-session adoption and reimbursement, competition, regulatory requirements, product liability and recalls, single-source suppliers, third-party distributors, cybersecurity and health-data privacy, intellectual-property protection, and the need to comply with debt covenants.
- One customer accounted for more than 10% of revenue in both 2021 and 2020, creating customer-concentration risk.
- The company has incurred net losses since inception and had an accumulated deficit of $308.7 million at December 31, 2021. It expects losses to continue in the near term.
- The filing reports no legal claims or proceedings expected to have a material adverse effect, but ordinary-course claims remain possible.
Most important facts for investors to verify
- Whether treatment-session growth and the increase in active sites can offset continued weakness in system sales and COVID-19-related utilization effects.
- Cash-burn trends, the sufficiency of the $94.1 million cash balance, and the timing of any additional capital raise.
- Compliance with the amended SLR credit-facility revenue covenants and the effect of principal amortization beginning in 2023.
- Credit quality and repayment prospects for the $10.0 million secured Success TMS note.
- Actual 2022 spending on sales expansion, research and development, and share-based compensation relative to revenue growth.
- Coverage and reimbursement stability in the United States and Japan, including the effect of payer policy changes.
- Regulatory, product-safety, supply-chain, cybersecurity and intellectual-property developments, including core U.S. patents beginning to expire in 2024.