# Neuronetics, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Neuronetics, Inc.](/companies/stim.md) (CIK 1227636)
- Form: 10-Q
- Filed: 2023-11-07
- Accepted by EDGAR: Nov 7, 2023, 16:30 ET
- Period: 2023-09-30
- Accession: 0001558370-23-018015
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1227636/000155837023018015/stim-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1227636/000155837023018015/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $17.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $51.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $6.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $15.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $11.8m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $35.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $2.2m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $7.3m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$8.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$26.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $1.2m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $3.6m | us-gaap:InterestExpense |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$9.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$24.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.33 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.87 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.33 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.87 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 28,876,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 28,505,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$34.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $1.5m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2023-09-30 | $35.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $71.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $93.0m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $15.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $55.0m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $36.9m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-09-30 | $37.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,672 characters.

*The following discussion and analysis of our financial condition and results of operations, as well as other sections in this Quarterly Report on Form 10-Q, should be read in conjunction with our unaudited interim financial statements and related notes thereto included elsewhere herein. In addition to historical financial information, some of the information contained in the following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. All statements other than statements of historical facts, including statements regarding our future results of operations and financial position, business strategy, current and prospective products, product approvals, research and development costs, current and prospective collaborations, timing and likelihood of success, plans and objectives of management for future operations and future results of current and anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties, assumptions and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, without limitation, risks and uncertainties related to: our ability to achieve or sustain profitable operations due to our history of losses; our reliance on the sale and usage of our NeuroStar Advanced Therapy System to generate revenues; the scale and efficacy of our salesforce; availability of coverage and reimbursement from third-party payors for treatments using our products; physician and patient demand for treatments using our products; developments in respect of competing technologies and therapies for the indications that our products treat; product defects; our ability to obtain and maintain intellectual property protection for our technology; developments in clinical trials or regulatory review of the NeuroStar Advanced Therapy System for additional indications; developments in regulation in the U.S. and other applicable jurisdictions; and the impacts on our operational and budget plans due to inflation. For a discussion of these and other related risks, please refer to our recent SEC filings which are available on the SEC’s website at www.sec.gov, including those described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10 K filed with the SEC, on March 7, 2023. These forward-looking statements are based on our expectations and assumptions as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no duty or obligation to update any forward-looking statements contained in this Quarterly Report on Form 10-Q as a result of new information, future events or changes in our expectations.*

### Overview

We are a commercial stage medical technology company focused on designing, developing and marketing products that improve the quality of life for patients who suffer from neurohealth disorders. Our first commercial product, the NeuroStar Advanced Therapy System, is a non-invasive and non-systemic office-based treatment that uses TMS to create a pulsed, MRI-strength magnetic field that induces electrical currents designed to stimulate specific areas of the brain associated with mood. The system is cleared by the FDA to treat adult patients with MDD who have failed to achieve satisfactory improvement from prior antidepressant medication in the current MDD episode. The NeuroStar Advanced Therapy System is also available in other parts of the world, including Japan, where it is listed under Japan’s national health insurance. The NeuroStar Advanced Therapy System is safe, clinically effective, reproducible and precise and we believe is supported by the largest clinical data set of any competing TMS system. We believe we are the market leader in TMS therapy based on over 162,575 global patients treated with over 5.9 million of our treatment sessions through September 30, 2023. We generated revenues of $17.9 million and $16.5 million for the three months ended September 30, 2023 and 2022, respectively, and $51.0 million and $47.0 million for the nine months ended September 30, 2023 and 2022, respectively.

We designed the NeuroStar Advanced Therapy System as a non-invasive therapeutic alternative to treat patients who suffer from MDD and to address many of the key limitations of other treatment options. We generate revenues from initial capital sales of our systems, recurring treatment sessions and service and repair and extended warranty contracts. We derive the majority of our revenues from recurring treatment sessions. For the three months ended September 30, 2023 revenues from sales of our treatment sessions and NeuroStar Advanced Therapy Systems represented 76% and 21% of our U.S. revenues, respectively, and for the nine months ended September 30, 2023 revenues from sales of our treatment sessions and NeuroStar Therapy Systems represented 73% and 24% of our U.S. revenues, respectively.

We currently sell our NeuroStar Advanced Therapy System and recurring treatment sessions in the U.S. with the collaborative support of our 211 employees as of September 30, 2023. Our sales force targets an estimated 50,000 psychiatrists across 26,000 psychiatric practices in the U.S., based on a 2020 data set from Symphony Health and our own internal estimates that treat approximately 42% of the total MDD patients in the U.S. who meet our labeled indication and are insured. Some of our customers have purchased or may purchase more than one NeuroStar Advanced Therapy System. Based on our commercial data, we believe our customers can recoup their initial capital investment in our system by providing a standard course of treatment to approximately 12 patients. We believe our customers can generate approximately $8,500 of average revenue per patient for a standard course of treatment, which may provide meaningful incremental income to their practices. We have a diverse customer base, including psychiatrists in group psychiatric practices, pain management physicians and other medical professionals in the U.S. For the three and nine months ended September 30, 2023, one customer accounted for more than 10% of our revenues.

We market our products in a few select markets outside the U.S. through independent distributors. International revenues represented 4% and 2% of our total revenues for the three months ended September 30, 2023 and 2022, respectively, and 3% and 2% for the nine months ended September 30, 2023 and 2022, respectively. In October 2017, we entered into an exclusive distribution agreement with Teijin Pharma Limited (“Teijin”), for the distribution of our NeuroStar Advanced Therapy Systems and treatment sessions to customers who treat patients with MDD in Japan. We received regulatory approval for our system in Japan in September 2017 and we received the initial reimbursement of JPY 12,000 per treatment session, which went into effect on June 1, 2019.

Our research and development efforts are focused on the following: hardware and software product developments and enhancements of our NeuroStar Advanced Therapy System and clinical developments relating to additional indications. We outsource the manufacture of components of our NeuroStar Advanced Therapy Systems that are produced to our specifications, and individual components are either shipped directly from our third-party contract manufacturers to our customers or consolidated into pallets at our Malvern, Pennsylvania facility prior to shipment. Final installation of these systems occurs at the customer site.

Our total revenues increased by $1.4 million, or 8%, from $16.5 million for the three months ended September 30, 2022 to $17.9 million for the three months ended September 30, 2023 and increased by $4.0 million, or 9%, from $47.0 million for the nine months ended September 30, 2022 to $51.0 million for the nine months ended September 30, 2023. For the three and nine months ended September 30, 2023, our U.S. revenues were $17.2 million and $49.5 million, respectively, compared to $16.2 million and $45.9 million for three and nine months ended September 30, 2022, respectively, which represents an increase of 6% and 8% respectively, period over period. The increase was primarily attributable to an increase in U.S NeuroStar Advanced Therapy System sales period over period. We incurred net losses of $9.4 million and $24.8 million for the three and nine months ended September 30, 2023 compared to net losses of $7.6 million and $28.9 million for three and nine months ended September 30, 2022. We expect to continue to incur losses for the next several years as we invest in our commercial organization to support our planned sales growth and while continuing to invest in our pipeline indications. As of September 30, 2023, we had an accumulated deficit of $370.7 million.

### Global Economic Conditions

We are continuing to closely monitor macroeconomic impacts, including, but not limited to, developments affecting financial institutions, inflationary and potential recessionary pressures, on our business, results of operations and financial results. We currently believe these conditions have no material impact at this time.

### Components of Our Results of Operations

#### Revenues

To date, we have generated revenues primarily from the capital portion of our business and related sales and rentals of the NeuroStar Advanced Therapy System and the recurring revenues from our sale of treatment sessions in the U.S.

***NeuroStar Advanced Therapy System Revenues***. NeuroStar Advanced Therapy System revenues consist primarily of sales or rentals of a capital component, including upgrades to the equipment attributable to the initial sale of the system. NeuroStar Advanced Therapy Systems can be purchased outright or on a rent-to-own basis by certain customers.

***Treatment Session Revenues***. Treatment session revenues primarily include sales of NeuroStar Advanced Therapy System treatment sessions and SenStar treatment links. The treatment sessions are access codes that are delivered electronically in the U.S. The SenStar treatment links are disposable units containing single-use access codes that are sold and used outside the U.S. Access codes are purchased separately by our customers, primarily on an as-needed basis, and are required by the NeuroStar Advanced Therapy System in order to deliver treatment sessions.

***Other Revenues***. Other revenues are derived primarily from service and repair and extended warranty contracts with our existing customers.

We refer you to the section titled “Critical Accounting Policies and Use of Estimates—Revenue Recognition” appearing in our Form 10-K filed with the SEC on March 7, 2023. We also refer you to “Note 3. Summary of Significant Accounting Policies.”

#### Cost of Revenues and Gross Margin

Cost of revenues primarily consists of the costs of components and products purchased from our third-party contract manufacturers of our NeuroStar Advanced Therapy Systems as well as the cost of treatment packs for individual treatment sessions. We use third-party contract manufacturing partners to produce the components for and assemble the completed NeuroStar Advanced Therapy Systems. Cost of revenues also includes costs related to personnel, warranty, shipping, and our operations and field service departments. We expect our cost of revenues to increase to the extent our revenues grow.

Our gross profit is calculated by subtracting our cost of revenues from our revenues. We calculate our gross margin as our gross profit divided by our revenues. Our gross margin has been and will continue to be affected by a variety of factors, primarily product sales mix, pricing and third-party contract manufacturing costs. Our gross margins on revenues from sales of NeuroStar Advanced Therapy Systems are lower than our gross margins on revenues from sales of treatment sessions and, as a result, the sales mix between NeuroStar Advanced Therapy Systems and treatment sessions can affect the gross margin in any reporting period.

#### Sales and Marketing Expenses

Sales and marketing expenses consist of marketing programs and commercial activities related to the sale of our NeuroStar Advanced Therapy Systems and treatment sessions and salaries and related benefits, sales commissions and share-based compensation for employees focused on these efforts. Other significant sales and marketing costs include conferences and trade shows, promotional and marketing activities, including direct and online marketing, practice support programs and digital media campaigns, travel and training expenses.

We anticipate that our sales and marketing expenses will decrease in 2023 compared to 2022 expenses due in part to the termination of the one-time 2022 sales equity match incentive.

#### General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, including salaries and related benefits, share-based compensation and travel expenses, for employees in executive, finance, information technology (“IT”), legal and human resource functions. General and administrative expenses also include the cost of insurance, outside legal fees, accounting and other consulting services, audit fees from our independent registered public accounting firm, board of directors’ fees and other administrative costs, such as corporate facility costs, including rent, utilities, depreciation and maintenance not otherwise included in cost of revenues.

We anticipate that our general and administrative expenses in 2023 will remain flat compared to our 2022 expenses.

#### Research and Development Expenses

Research and development expenses consist primarily of personnel expenses, including salaries and related benefits and share-based compensation for employees in clinical development, product development, regulatory and quality assurance functions, as well as expenses associated with outsourced professional scientific development services and costs of investigative sites and consultants that conduct our preclinical and clinical development programs. We typically use our employee, consultant and infrastructure resources across our research and development programs.

We plan to incur research and development expenses for the near future as we expect to continue our development of TMS therapy for the treatment of additional patient populations and new indications related to neurohealth disorders, as well as for various hardware and software development projects. As a result, we expect our research and development expenses to increase during 2023 compared to our 2022 expenses.

#### Interest Expense

Interest expense consists of cash interest payable under our credit facility and non-cash interest attributable to the accrual of final payment fees and the amortization of deferred financing costs related to our indebtedness.

#### Other Income, Net

Other income, net consists primarily of the ERC and interest income earned on our money market account balances and notes receivable.

### Results of Operations

### Comparison of the three months ended September 30, 2023 and 2022

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Three Months Ended September 30, 2023 | ​ ​ ​ ​ ​ 2022 | ​ ​ ​ ​ Increase / (Decrease) Dollars | ​ ​ | ​ ​ ​ ​ Percentage |
| --- | --- | ---: | ---: | ---: | --- | ---: |
| 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% | ​ |  | ​ |
| ​ | ​ | ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ |
| Operating expenses: | ​ | ​ | ​ | ​ |  | ​ |
| Sales and marketing | ​ | 12,141 ​ | 11,643 ​ | 498 |  | 4% |
| General and administrative | ​ | 6,339 ​ | 6,391 ​ | (52) |  | (1)% |
| Research and development | ​ | 2,155 ​ | 2,348 ​ | (193) |  | (8)% |
| Total operating expenses | ​ | 20,635 ​ | 20,382 ​ | 253 | ​ | 1% |
| Loss from Operations | ​ | (8,871) ​ | ​ (7,454) ​ | (1,417) |  | (19)% |
| Other (income) expense: | ​ | ​ ​ | ​ | ​ |  | ​ |
| Interest expense | ​ | 1,184 ​ | 1,061 ​ | 123 |  | 12% |
| Other income, net | ​ | (664) ​ | (906) ​ | 242 |  | (27)% |
| Net Loss | ​ | $(9,391) ​ | $(7,609) ​ | $(1,782) |  | (23)% |

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ Revenues by Geography Three Months Ended September 30, 2023 ​ ​ Amount | ​ ​ | ​ ​ ​ % of ​ Revenues | ​ ​ 2022 ​ ​ Amount | ​ ​ | ​ ​ % of Revenues |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: |
| U.S. | ​ | $17,211 | ​ | 96% | $16,244 | ​ | 98% |
| International | ​ | 673 |  | 4% | 254 |  | 2% |
| Total revenues | ​ | $17,884 |  | 100% | $16,498 |  | 100% |

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ U.S. Revenues by Product Category Three Months Ended September 30, 2023 ​ ​ Amount | ​ ​ | ​ ​ ​ % of ​ Revenues | ​ ​ 2022 ​ ​ Amount | ​ ​ | ​ ​ % of Revenues |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: |
| NeuroStar Advanced Therapy System | ​ | $3,597 | ​ | 21% | $3,934 | ​ | 24% |
| Treatment sessions | ​ | 13,060 |  | 76% | 11,864 |  | 73% |
| Other | ​ | 554 |  | 3% | 446 |  | 3% |
| Total U.S. revenues | ​ | $17,211 |  | 100% | $16,244 |  | 100% |

#### Revenues

Total revenue for the three months ended September 30, 2023 was $17.9 million, an increase of 8% compared to the three months ended September 30, 2022 revenue of $16.5 million. During the quarter, total U.S. revenue increased by 6% and international revenue increased by 165% over the prior year quarter. The U.S. revenue growth was primarily driven by an increase in treatment session sales. The increase in international revenue was primarily driven by an increase in NeuroStar Advanced Therapy System sales and treatment session sales.

U.S. NeuroStar Advanced Therapy System revenue for the three months ended September 30, 2023 was $3.6 million, a decrease of 9% compared to the three months ended September 30, 2022 revenue of $3.9 million. For the three months ended September 30, 2023 and 2022, the Company sold 43 and 49 systems, respectively, that were recognized as NeuroStar Advanced Therapy System capital revenue during each period. Additionally, for the three months ended September 30, 2022 the Company executed 1 operating lease agreement that contributed to operating lease revenue.

U.S. treatment session revenue for the three months ended September 30, 2023 was $13.1 million, an increase of 10% compared to the three months ended September 30, 2022 revenue of $11.9 million. The revenue growth was primarily driven by an increase in treatment session volume and utilization over the prior year quarter.

#### Cost of Revenues and Gross Margin

Cost of revenues increased by $2.5 million, or 71%, from $3.6 million for the three months ended September 30, 2022 to $6.1 million for the three months ended September 30, 2023. This increase was primarily due to the recording of a $1.9 million inventory impairment for specialized component parts secured for discontinued NeuroStar Advanced Therapy Systems for which costs exceed net realizable value. Gross margin decreased from 78.4% for the three months ended September 30, 2022 to 65.8% for the three months ended September 30, 2023. The decrease in gross margin was driven by the one-time inventory impairment, higher operational costs related to our transition to a new third-party contract manufacturing partner and software amortization expense from the latest product release.

#### Sales and Marketing Expenses

Sales and marketing expenses increased by $0.5 million, or 4%, from $11.6 million for the three months ended September 30, 2022 to $12.1 million for the three months ended September 30, 2023. The increase was primarily due to increased spending on co-op marketing related to growth in that program.

#### General and Administrative Expenses

General and administrative expenses remained materially consistent from $6.4 million for the three months ended September 30, 2022 to $6.3 million for the three months ended September 30, 2023.

#### Research and Development Expenses

Research and development expenses decreased by $0.1 million, or 8%, from $2.3 million for the three months ended September 30, 2022 to $2.2 million for the three months ended September 30, 2023. The decrease was primarily due to higher software capitalization, related to the latest development of the NeuroStar system.

#### Interest Expense

Interest expense increased by $0.1 million, or 12%, from $1.1 million for the three months ended September 30, 2022 to $1.2 million for the three months ended September 30, 2023 due to interest rate and debt balance increases.

#### Other Income, Net

Other income, net decreased by $0.2 million, or 27%, from $0.9 million for the three months ended September 30, 2022 to $0.7 million for the three months ended September 30, 2023, primarily as a result of decreased interest income earned on the Company’s money market accounts which was partially offset by increase in notes receivable interest.

### Comparison of the nine months ended September 30, 2023 and 2022

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Nine Months Ended September 30, 2023 | ​ ​ ​ ​ ​ 2022 | ​ ​ ​ ​ Increase / (Decrease) Dollars | ​ ​ | ​ ​ ​ ​ Percentage | ​ ​ ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | --- | ---: | --- |
| 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% | ​ |  | ​ | ​ |
| ​ | ​ | ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ | ​ |
| Operating expenses: | ​ | ​ | ​ | ​ |  | ​ | ​ |
| Sales and marketing | ​ | 35,602 ​ | 37,977 ​ | (2,375) |  | (6)% | ​ |
| General and administrative | ​ | 19,151 ​ | 19,125 ​ | 26 |  | 0% | ​ |
| Research and development | ​ | 7,308 ​ | 6,197 ​ | 1,111 |  | 18% | ​ |
| Total operating expenses | ​ | 62,061 ​ | 63,299 ​ | (1,238) |  | (2)% | ​ |
| Loss from Operations | ​ | (26,127) ​ | (27,384) ​ | 1,257 |  | 5% | ​ |
| Other (income) expense: | ​ | ​ | ​ | ​ |  | ​ | ​ |
| Interest expense | ​ | 3,580 ​ | 3,039 ​ | 541 |  | 18% | ​ |
| Other income, net | ​ | (4,895) ​ | (1,554) ​ | (3,341) |  | (215)% | ​ |
| Net Loss | ​ | $(24,812) ​ | $(28,869) ​ | $4,057 |  | 14% | ​ |

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ Revenues by Geography Nine Months Ended September 30, 2023 ​ ​ Amount | ​ ​ | ​ ​ ​ % of ​ Revenues | ​ ​ 2022 ​ ​ Amount | ​ ​ | ​ ​ % of Revenues | ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | --- |
| United States | ​ | $49,464 | ​ | 97% | $45,893 | ​ | 98% | ​ |
| International | ​ | 1,570 |  | 3% | 1,115 |  | 2% | ​ |
| Total revenues | ​ | $51,034 |  | 100% | $47,008 |  | 100% | ​ |

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ U.S. Revenues by Product Category Nine Months Ended September 30, 2023 ​ ​ Amount | ​ ​ | ​ ​ ​ % of ​ Revenues | ​ ​ 2022 ​ ​ Amount | ​ ​ | ​ ​ % of Revenues | ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | --- |
| 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% | ​ |
| Total U.S. revenues | ​ | $49,464 |  | 100% | $45,893 |  | 100% | ​ |

#### Revenues

Total revenue for the nine months ended September 30, 2023 was $51.0 million, an increase of 9% compared to the nine months ended September 30, 2022 revenue of $47.0 million. During the nine months ended September 30, 2023, total U.S. revenue increased by 8% and international revenue increased by 41%. The U.S. revenue growth was primarily driven by an increase in treatment sessions sales and the increase in international revenue was primarily driven by an increase in NeuroStar Advanced Therapy System and treatment session sales.

U.S. NeuroStar Advanced Therapy System revenue for the nine months ended September 30, 2023 was $11.9 million, a decrease of $0.1 million compared to the nine months ended September 30, 2022 revenue of $12.0 million. For the nine months ended September 30, 2023 and 2022, the Company sold 146 and 155 systems, respectively, that were recognized as NeuroStar Advanced Therapy System capital revenue during each period. Additionally, for the nine months ended September 30, 2022 the Company executed 2 operating lease agreements which contributed to operating lease revenue.

U.S. treatment session revenue for the nine months ended September 30, 2023 was $36.0 million, an increase of 10% compared to the nine months ended September 30, 2022 revenue of $32.6 million. The revenue growth was primarily driven by an increase in treatment session volume and utilization over comparative period.

#### Cost of Revenues and Gross Margin

Cost of revenues increased by $4.0 million, or 36%, from $11.1 million for the nine months ended September 30, 2022 to $15.1 million for the nine months ended September 30, 2023. This increase was primarily due to the recording of a $1.9 million inventory impairment for specialized component parts secured for discontinued NeuroStar Advanced Therapy Systems for which costs exceed net realizable value. Additionally capitalized software and the corresponding amortization expense increased by $1.0 million associated with the latest product release. Finally increases in volume and price related to our Senstars used by our international customers contributed $0.4 million.

Gross margin decreased from 76.4% for the nine months ended September 30, 2022 to 70.4% for the nine months ended September 30, 2023. The decrease in gross margin was driven by the higher operational costs related to our transition to a new third-party contract manufacturing partner and software amortization expense from the latest product release, the recording of an inventory reserve and increased Senstar costs.

#### Sales and Marketing Expenses

Sales and marketing expenses decreased by $2.4 million, or 6%, from $38.0 million for the nine months ended September 30, 2022 to $35.6 million for the nine months ended September 30, 2023. The decrease was primarily due to reduced spending in marketing on brand development, as: (a) the new brand development initiative completed in 2022 and (b) Neuronetics offered a retention program to sales personnel in 2022 and did not continue the program in 2023, resulting in a decrease in sales personnel expense.

#### General and Administrative Expenses

General and administrative expenses remained materially consistent from $19.1 million for the nine months ended September 30, 2022 to $19.2 million for the nine months ended September 30, 2023.

#### Research and Development Expenses

Research and development expenses increased by $1.1 million from $6.2 million for the nine months ended September 30, 2022 to $7.3 million for the nine months ended September 30, 2023. The increase was primarily due to higher clinical research and personnel expenses as the Company continues to look to increase the usability of the NeuroStar Advanced Therapy System.

#### Interest Expense

Interest expense increased by $0.6 million from $3.0 million for the nine months ended September 30, 2022 to $3.6 million for the nine months ended September 30, 2023 due to an increase in interest rates and debt balance.

#### Other Income, Net

Other income, net increased by $3.3 million from $1.6 million for the nine months ended September 30, 2022 to $4.9 million for the nine months ended September 30, 2023, primarily as a result of the ERC of $2.9 million and increased interest income earned on the Company’s money market accounts which was partially offset by an increase in notes receivable interest.

### Liquidity and Capital Resources

#### Overview

As of September 30, 2023, we had cash and cash equivalents of $35.8 million and an accumulated deficit of $370.7 million, compared to cash and cash equivalents of $70.4 million and an accumulated deficit of $345.9 million as of December 31, 2022. We incurred negative cash flows from operating activities of $34.2 million and $27.6 million for the nine months ended September 30, 2023 and 2022, respectively. We have incurred operating losses since our inception, and we anticipate that our operating losses will lessen in the near term as we adjust our sales and marketing initiatives, research and development activities and other corporate initiatives. The Company’s primary sources of capital to date have been proceeds from its IPO, private placements of its convertible preferred securities, borrowings under its credit facility, proceeds for its secondary public offering of common stock and revenues from sales of its products. As of September 30, 2023, the Company had $37.5 million of borrowings outstanding under its credit facility, which has a final maturity in March 2028. Subsequent to September 30, 2023, the Company drew down an additional $22.5 million pursuant to the terms of its amended credit facility. Management believes that the Company’s cash and cash equivalents as of September 30, 2023 and anticipated revenues from sales of its products are sufficient to fund the Company’s operations for at least 12 months from the issuance of these financial statements.

If our cash and cash equivalents and anticipated revenues from sales of our products are insufficient to satisfy our liquidity requirements, we may seek to sell additional common or preferred equity or debt securities or enter into a new credit facility or another form of third-party funding or seek other debt financing. If we raise additional funds by issuing equity or equity-linked securities, our stockholders would experience dilution and any new equity securities could have rights, preferences and privileges superior to those of holders of our common stock. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. We cannot be assured that additional equity, equity-linked or debt financing will be available on terms favorable to us or our stockholders, or at all. It is also possible that we may allocate significant amounts of capital towards products or technologies for which market demand is lower than expected and, as a result, abandon such efforts. If we are unable to maintain our current financing or obtain adequate additional financing when we require it, or if we obtain financing on terms that are not favorable to us, or if we expend capital on products or technologies that are unsuccessful, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, or we may be required to delay the development, commercialization and marketing of our products.

Our current and future funding requirements will depend on many factors, including:

- our ability to achieve revenue growth and improve operating margins;
- compliance with the terms and conditions, including covenants, set forth in our credit facility;
- the cost of expanding our operations and offerings, including our sales and marketing efforts;
- our ability to improve or maintain coverage and reimbursement arrangements with domestic and international third-party and government payors, particularly in Japan;
- our rate of progress in establishing coverage and reimbursement arrangements from international commercial third-party and government payors, particularly in Japan;
- our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of our products and maintaining or improving our sales to our current customers;
- the cost of research and development activities, including research and development relating to additional indications of neurohealth disorders;
- the effect of competing technological and market developments;
- costs related to international expansion; and
- the potential cost of and delays in product development as a result of any regulatory oversight applicable to our products.

As of September 30, 2023, there were no significant changes to our material cash requirements as set forth in our Form 10-K, filed with the SEC on March 7, 2023.

#### Cash Flows

The following table sets forth a summary of our cash flows for the nine months ended September 30, 2023 and 2022:

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: |
| Net Cash Used in Operating Activities | ​ | $(34,171) | ​ | $(27,639) |
| Net Cash (Used in) Provided by Investing Activities | ​ | (759) | ​ | 7,234 |
| Net Cash Provided by (Used in) Financing Activities | ​ | 437 | ​ | (38) |
| Net (Decrease) in Cash and Cash Equivalents | ​ | $(34,493) | ​ | $(20,443) |

#### Net Cash Used in Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2023 was $34.2 million, consisting primarily of a net loss of $24.8 million and an increase in net operating assets of $19.3 million, partially offset by non-cash charges of $9.9 million. The increase in net operating assets was primarily due to an increase in accounts receivable, the ERC and a decrease in accrued expenses. Non-cash charges consisted of depreciation and amortization, inventory impairment, non-cash interest expense, and share-based compensation.

Net cash used in operating activities for the nine months ended September 30, 2022 was $27.6 million, consisting primarily of a net loss of $28.9 million and an increase in net operating assets of $7.1 million, partially offset by non-cash charges of $8.3 million. The increase in net operating assets was primarily due to increases in accounts receivable and inventory and decreases in accounts payable as a result of timing of payments. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by customers.

#### Net Cash (Used in) Provided by Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2023 was $0.8 million, which was attributable to purchases of property and equipment and capitalized software costs partially offset by the repayment of our notes receivable.

Net cash provided by investing activities for the nine months ended September 30, 2022 was $7.2 million which was attributable to the repayment of our promissory note which were partially offset by purchases of property and equipment and capitalized software costs.

#### Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2023 was $0.4 million and primarily consisted of the additional debt net of the final payment and amendment fee paid in connection with the Solar Fourth Amendment.

Net cash used in financing activities for the nine months ended September 30, 2022 was $0.04 million and consisted of the amendment fee paid in relation to a 2022 amendment to the Solar Facility, which was offset by cash proceeds related to stock option exercises.

### Indebtedness

Refer to “Debt” in Notes to Interim Financial Statements located in Part I – FINANCIAL INFORMATION, Item 1. Financial Statements for information regarding the Solar Facility.

### JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”), and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. Section 107 of the JOBS Act provides that we can elect to opt out of the extended transition period at any time, which election is irrevocable.

### Recent Accounting Pronouncements

Refer to “Summary of Significant Accounting Policies” and “Recent Accounting Pronouncements” in Notes to Interim Financial Statements located in Part I – FINANCIAL INFORMATION, Item 1. Financial Statements.

## Market risk

As filed, 851 characters.

Refer to the information described in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” section in the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2023. There have been no material changes to our market risk described therein.

We continue to monitor inflationary factors, such as increases in our cost of revenues and operating expenses that may adversely affect our operating results. Although we do not believe inflation has had a material impact on our financial condition, results of operations or cash flows to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain and increase our gross margin or decrease our operating expenses as a percentage of our revenues if the selling prices of our products do not increase as much or more than our costs increase.

## Controls and procedures

As filed, 1,803 characters.

### Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our management, with the participation of our Principal Executive Officer and Principal Financial and Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Principal Executive Officer and our Principal Financial and Accounting Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023.

### Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2023, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 241 characters.

You should carefully consider the information described in the “Risk Factors” section of the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2023. There have been no material changes to the risk factors described therein.

Filed Nov 7, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-018015. Last ingested by Listed: Nov 4, 2026, 08:02 ET. No prices; not investment advice.