Neuronetics Inc (STIM) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Neuronetics Fourth Quarter and Full Year 2018 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Mark Klausner from Westwicke.

Sir, you may begin.

Thank you, operator.

Good morning, and thank you for joining us for Neuronetics' Fourth Quarter and Full Year 2018 Conference Call.

A replay of this call will be available on our website for 30 days.

Joining me on today's call are: Neuronetics' Chief Executive Officer, Chris Thatcher; and its Chief Financial Officer, Peter Donato.

Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our business strategy, financial and revenue guidance and other operational items and metrics.

Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business.

For a discussion of risks and uncertainties associated with Neuronetics' business, I encourage you to review the company's filings with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K that will be filed today.

The company disclaims any obligation to update any forward-looking statements made during the course of this call, except as required by law.

During the call, we'll also discuss certain financial information on a non-GAAP basis, including EBITDA.

Management believes that non-GAAP financial measures, taken in conjunction with U.S. GAAP financial measures, provide useful information for both management and investors by excluding certain noncash and other expenses that are not indicative of our core operating results.

Management uses non-GAAP measures to compare our performance relative to forecasts and strategic plans to benchmark our performance externally against competitors and for certain compensation decisions.

Reconciliations between U.S. GAAP and non-GAAP results are presented in tables accompanying our press release, which can be viewed on our website.

With that, it's my pleasure to turn the call over to Neuronetics' Chief Executive Officer, Chris Thatcher.

Good morning, everyone, and thank you for joining us on today's call.

I'll start by providing an update on our performance during the fourth quarter and the full year 2018, followed by an update on the progress we made towards our key priorities.

I'll then hand the call over to Peter to walk through our financial performance and guidance for Q1 and 2019, after which we will discuss our priorities for 2019 before opening up the line to take your questions.

Overall, the fourth quarter was very strong as we continued to drive the adoption of NeuroStar Advanced Therapy.

Total revenue was $15.6 million, an increase of 29% over the prior year, largely driven by 37% growth in U.S. NeuroStar Advanced Therapy revenue and 23% growth in U.S. treatment session revenue.

For the full year of 2018, total revenue was $52.8 million, an increase of 31% over the prior year.

We are proud of what we've been able to accomplish in 2018.

Our performance demonstrates our ability to execute on our strategy to drive the adoption of NeuroStar Advanced Therapy and maintain our market leadership position.

We've continued to see strong growth in a number of psychiatric practices utilizing our therapy, which, we believe, is driven by our ability to offer a clinically proven therapy that is both user- and patient-friendly, while at the same time providing world-class training, practice support and service.

Shifting gears to an update on our operating performance.

As we outlined last year, we have three strategic priorities as we seek to drive growth in the business: As a reminder, the first was to continue to drive the adoption of NeuroStar Advanced Therapy in the U.S. through the expansion of our sales force and the implementation of marketing initiatives.

Second, increase recurrent treatment session revenue by improving active system utilization by penetrating high-volume single group practice.

And third, make progress towards obtaining reimbursement approval and commercialization in Japan.

So taking each of these in order.

During the fourth quarter, we continued to expand our sales force.

Our goal for 2018 was to add an incremental 15 BDM territories on top of the 29 BDM territories which were active at the beginning of 2018.

As a reminder, the BDMs are Business Development Managers who are focused on driving capital sales.

Through the first 3 quarters of the year, we filled 14 of the 15 BDM territories, and we filled the last BDM territory in the fourth quarter, bringing our total to 44 at the end of the year.

We're very pleased with how these recently hired reps have been able to get up to speed with their hiring and productivity being slightly ahead of our internal modeling.

During the fourth quarter, we continued to utilize TV advertising campaigns to help increase patient awareness of NeuroStar Advanced Therapy and ultimately drive increased utilization.

We ran our second national DTC campaign of the year in October and November.

Leveraging the learnings from our initial campaign, we optimized our strategy to more effectively target potential patients.

We saw strong lifts in many key return metrics, including website traffic and lead generation, which is characterized as position locator usage, click-to-call usage and appointments generated, which we're very pleased with.

While we view this as a very successful campaign, we did learn that there is an opportunity to improve our customers' conversion rates or converting an interested patient into an active patient.

What we learned is that in order to convert a patient, the psychiatric office must respond within a very narrow window of time, following the potential patient's initial outreach, after which, conversion metrics declined significantly.

As we look into the future marketing campaigns, we will work with our customers to help take advantage of this opportunity.

Part of our strategy to drive and improve system utilization was the addition of the CTC, or Clinical Training Consultant, in 2019.

We hired 9 CTCs in the first half of 2018 to help more quickly onboard new accounts and allow for the CPC to focus on working with psychiatrists and practices to successfully treat patients and drive increased utilization.

Given our recent BDM expansion, we felt the CTC addition will be critical in order to keep up with the new customer training.

In the second half of the year, we were able to see an overall improvement and pull-through as systems were able to begin treating patients more quickly at a higher rate than in previous years.

I'm very proud of the commercial organization that we have been able to build over the last few years and specifically, the progress we made in 2018.

We've developed and grown a highly sophisticated, deeply integrated commercial infrastructure which encompasses sales, marketing, reimbursement and customer support.

I look forward to leveraging what we built to continue to drive adoption for years to come.

Moving to Japan.

As we announced in January, we believe a decision on reimbursement will occur in the second half of 2019 and remain enthusiastic on the opportunity to bring our product to a country that would so greatly benefit.

This shift in timeline came as a result of discussions we had with the Ministry of Health, Labor and Welfare during the fourth quarter.

The shift was largely driven by routine trade-off decisions involving reimbursement rates and the breadth of provider access.

In anticipation of the reimbursement decision, we have continued to work with our partner in Japan, Teijin Pharmaceuticals, on market development efforts ahead of an official launch.

Teijin remains a committed partner.

They've invested millions of dollars to establish and develop a fully dedicated division within the company focused on the eventual commercial launch in NeuroStar Advanced Therapy throughout Japan.

I would now like to turn the call over to Peter to review our financial results.

Thanks, Chris.

Total revenue for the quarter was $15.6 million, a 29% increase over the prior year quarter.

U.S. revenue was $15.1 million, an increase of 27% over the fourth quarter of 2017.

OUS revenue was approximately $550,000, an increase of 101% versus the prior year period.

The increase in OUS revenue was primarily a function of NeuroStar system sales in Japan as well as the ongoing amortization of milestone payments from our Japanese partner.

U.S. NeuroStar Advanced Therapy system revenue was $4.8 million during the fourth quarter, a 37% increase over the prior year.

As a reminder, NeuroStar Advanced Therapy system revenue primarily consists of revenue from capital sales, but also includes revenue from system upgrades to allow our NeuroStar systems to perform 19-minute treatment sessions.

Capital sales revenue grew 46%, driven by higher unit sales volume during the period as a result of our ongoing sales force expansion and continued marketing initiatives.

This was partially offset by a 4% decrease in average selling price as compared to the prior year period.

The positive trends in capital sales volume and revenue were partially offset by lower upgrades for the 19-minute treatment session in 2018 versus 2017.

During the quarter, we saw our active installed base increase to 907 units, a net increase of 49 units from the third quarter of 2018 and an increase of 155 units from year-end 2017.

Keep in mind, we define an active unit as a NeuroStar unit that was placed in service during the quarter or one that ordered treatment sessions during the last 12 months.

U.S. treatment sessions revenue's was $9.9 million for the fourth quarter of 2018, an increase of 23% over the prior year quarter.

The increase was primarily due to an approximate 26% increase in treatment sessions purchased as well as a 3% increase in other treatment session revenue.

This was partially offset by just under a 6% decline in treatment session ASPs due to predetermined volume pricing discounts within our existing customer base, which are triggered when those customers surpass certain predefined high-volume thresholds.

U.S. service and other revenue was approximately $400,000, a 21% increase as a result of our expanded installed base.

Gross profit for the fourth quarter of 2018 was $11.9 million, an increase of $2.8 million from $9.2 million during the fourth quarter of 2017.

Gross margin for the fourth quarter of 2018 was 76.3%, which was higher than the fourth quarter of 2017 gross margin of 75.6%.

The improvement in gross margin was driven by increased leverage on our service and operations areas.

Sales and marketing expenses for the fourth quarter of 2018 were $10.6 million, an increase of $2 million over the prior year.

The increase was primarily due to the increased size of our sales force and the spending on our marketing campaigns.

General and administrative expenses were $4.7 million, an increase of about $1.9 million compared to the prior year.

The increase was primarily driven by increased costs related to being a public company.

Research and development expenses for the fourth quarter of 2018 were $2.2 million, an increase of approximately $300,000 from the prior year period.

The increase was primarily due to higher personnel and product development costs related to the commencement of our next-generation platform design.

Net loss for the fourth quarter was $6.1 million compared to a net loss of $4.9 million in the fourth quarter of 2017.

EBITDA, which is a non-GAAP measure, for the fourth quarter of 2018 was a loss of $5 million compared to an EBITDA loss of $4 million in the fourth quarter of 2017.

Moving to the balance sheet.

We ended the quarter with cash and cash equivalents of $104.6 million compared to $106.8 million at the end of the third quarter of 2018 and $29.1 million at year-end 2017.

Cash usage during the quarter was in line with our expectations.

Turning to guidance.

For the full year 2019, we expect total worldwide revenue of between $62.5 million and $64.5 million, representing approximately 18% and 22% year-over-year growth, respectively.

For the full year 2019, we expect gross margins to be in the mid-70s range, in line with full year 2018 margins and previous guidance.

For the full year of 2019, we expect operating expenses to be between $71.5 million and $76.5 million, primarily due to continued investment in our sales force expansion efforts, research and development related to the development of our next-generation NeuroStar platform and clinical spending as we pursue additional indications for use, namely PTSD and Bi-Polar disorders.

For the first quarter of 2019, we expect total worldwide revenue of between $12.4 million and $13 million, representing 22% and 28% year-over-year growth, respectively.

I'll now turn the call back over to Chris.

Chris?

Thanks, Peter.

As we look to 2019, our primary focus is driving the continued adoption of NeuroStar Advanced Therapy and bringing relief to the greatest number of patients possible.

I'm pleased to note that our year is off to a good start.

In particular, at the recent CTMS and Brain Stimulation Conference, we saw significant booth traffic which led to strong lead generation.

As we continue to drive growth in 2019, our strategic priorities are as follows: First, continue the expansion of our sales force and related marketing efforts; second, continue the focus on driving long-term increases in system utilization; third, the continuing development of our next-generation NeuroStar system; fourth, beginning the clinical work to set the stage for the expansion into new indications; and lastly, launch NeuroStar Advanced Therapy in Japan and selectively evaluate entry into other international markets.

Taking each of these in order, beginning with the continued expansion of our sales force and related marketing efforts.

In 2019, our goal is to add an incremental 15 BDM territories, bringing our total to 59 by the end of the year.

We continue to be very excited about the quality of the salespeople we're able to attract, and we feel very confident that we can continue to drive predictable growth in new system sales and subsequent pull-through as a result.

In addition to the expansion of our sales force, we will continue to utilize DTC marketing campaigns throughout the year.

We launched multiple campaigns during 2018, each of which allowed us to drive greater insight into the most effective ways to turn a viewer of a television ad into a patient undergoing treatment for MDD with NeuroStar Advanced Therapy.

We believe that further investments will pay dividends in the form of increased patient awareness, lead generation, system sales and, ultimately, system utilization.

We plan to continue to test and retest the DTC campaign in 2019.

We will provide periodic updates on the details around the campaign throughout the year.

Moving on to driving long-term increases in system utilization.

In line with our BDM expansion and recent new system installation growth, we're also going to be adding both CPCs and CTCs throughout the year.

Part of our value proposition to psychiatrists is being be able to help onboard, train and grow our practices' use of NeuroStar Advanced Therapy.

We plan -- our plan is to add an incremental 5 CPCs and 6 CTCs during the year, bringing the total number of CPCs to 33 and the total number of CTCs to 15 by the end of the year.

Another of our strategic priorities is the development and future launch of our next-generation NeuroStar system.

We are in the beginning of a multiyear process to create the next-generation NeuroStar system.

As good as the system is today in meeting patients' or providers' needs, we feel it could be even better.

As we prepare for the natural replacement cycle for NeuroStar systems, we're committed to maintaining our industry leadership position by continually advancing the capabilities of our system for use in both clinical and research settings.

On the clinical front, we're building out our clinical science team in advance of planned discussions later this year with the FDA on clinical trials for PTSD and Bi-Polar.

We believe that both of these indications represent large and underserved market opportunities that are complementary to our existing call points.

Based on our initial exploration, we believe that the NeuroStar Advanced Therapy system may be an effective treatment for patients suffering from these conditions.

Our last strategic priority is prudently expanding our global footprint.

It's estimated that there are over 300 million MDD patients globally, the significant majority of which reside outside the U.S. While our near-term focus is in Japan, we are planning to explore additional commercial expansions very selectively in Europe, in Asia in the second half of this year.

We expect to receive a reimbursement decision in Japan in the second half of 2019, and we'll continue to work with our partner in Japan to be ready to launch quickly after the decision is finalized.

As a reminder, there are currently no commercial revenues from Japan included in our guidance.

We're very excited about the future of Neuronetics and look forward to updating you on our progress in future quarters.

And with that, I'd like now to open up the line for questions.

(Operator Instructions) Our first question comes from Margaret Kaczor with William Blair.

First off, just wanted to follow up on the inputs to guidance, kind of what gets you to the low end, the high end?

It seems like you are going to add more sales reps, more BDMs than originally thought, and the guidance appears relatively in line.

So are you assuming maybe the sales rep productivity goes down?

Or just walk us through those.

Yes.

I assume, Margaret, before we answer your -- this is Peter.

Good morning.

I assume you're referring to the full-year 2019 guidance?

Correct.

Sure.

I mean, just to remind you, we set our guidance based off of the model, right?

And it's worked well for us.

You've been following us for a while.

The number of BDMs are the key driver to that model, and we put them in there at flat productivity.

I was always hoping for better, but we put them in there at flat productivity.

We use their -- we use historical utilization rates for the utilization based on the prior year [capacity], which is the largest [one] as well as the new installs for 2019.

We assume a little bit of a decline in ASP on the treatment sessions at 3% to 5%, and as Chris indicated in his prepared remarks, there's no revenue up for Japan, right?

So that's how we set up the guidance for the full year.

And you're right, we do have a few additional BDMs in the plan with the total of 15 expected up for 2019.

Those are staged through the year, and we put them into the model and it generated the guidance which we guided you to today.

Okay.

So if we kind of look at that BDMs and the fact that they outperformed for 2018 on the number of system sales, is that the historical reps versus the new reps that are coming online?

And then can you speak anything to the quality of reps you're bringing on and the advertising dollars you're spending, any kind of clarity on the ROI there?

Yes.

I'll take the first part, and maybe we can tag team with Chris, parts two and three.

So what we have in there for the BDMs, Margaret, are they did.

You're right.

They slightly overperformed our expectations.

And if you remember, a BDM is considered a full BDM in month 13.

So there's some blending there.

But if you take the blended average of the seasoned reps versus the new reps, and I think we're a little skewed right now towards the unseasoned rep, which would lower the blended rate.

But what we did is we did not take into some of that overachievement in 2019 -- into our 2019 guidance.

We view as kind of where we have always been, just assuming for conservative -- just take that's their productivity for the BDMs.

I hope that answers the first part of your question.

And then obviously, we take ASP is a big driver.

If you recall, we guided to at least a few kind of low-single digits price deterioration on the capital piece, and we are pleasantly surprised.

We came up at less than 1% decline.

So we did build in some decline in ASP into our guidance for 2019, again, in the low-single digits, knowing that we achieved less than 1% price decline and have been 7 or 8 quarters straight of kind of record ASPs on the NeuroStars.

Okay, yes.

And that's helpful.

Then just to follow up on the advertising ROI.

If you can give us a sense of what that was in 2018, expectations for spend into 2019, knowing that you guys are trialing the steps, but it seems like you referenced maybe an ability to improve the psychiatrist customer conversion rate?

So ways that you could potentially do that as well would be helpful.

Yes.

Sure.

So good morning, Margaret.

So this is really a beta that we're running, and I qualify it as a test and retest, and we're still in the learning process here.

And we haven't and we don't plan to share the level of detail as it relates to the expense, but it's incorporated in our OpEx guidance as well.

But I can give you a little bit better sense.

So the first metric we look at is just the basic increase in traffic, and it is -- they either increase significantly or the cost -- the number -- the cost is then reduced each time we've done this to get patients to come to our website.

And more importantly, we look at the leads generation, which is the physician locator searches, appointments booked online and click to call.

And from our side of the funnel, and this is our side of funnel, which we feel we are optimizing each time we've done this, but we still have some work to do in converting these leads into treated patients once they go to practice, and what we've learned this most recent time around, is we found that practices that follow up quickly on patients, and remember, these patients are depressed, have a much higher conversion rate, and we're exploring opportunities to capitalize on this finding.

And we'll keep you abreast of how that evolves.

But we'll start talking about ROIs when we start, what I would say, investing significantly on this.

And at this point, I would qualify what we're doing as a beta.

And then there was one other -- to you, Chris, the second part of Margaret's original question was just on the quality of the reps.

And Chris can certainly take it.

From where I sit, Margaret, as we put it into the model, as we shared with you before, we're at or ahead of our hiring schedule.

We were all of 2018, we are attracting kind of President's Club Winners from a lot of the larger medical device companies, where it's a lot easier to recruit when you're growing 31% have a unique technology out there.

So we found that the quality of the rep and our ability to attract that talent has exceeded our expectations.

So we're confident that we could fill the 15 reps, again, in 2019 at or ahead of schedule because we've done it for the last 2 years.

I don't know, Chris, if you have any more to add.

And our next question comes from Dave Turkaly with JMP Securities.

I know you mentioned some of the meetings that you guys were at in February and it looks like the first one in Vancouver that there was a discussion of the contact sensing.

And I think that's sort of one of the bigger differentiators of your technology.

You mentioned a head-to-head study.

So I was just curious if you'd talk to us about how big a differentiator that is?

And what were the outcomes of that study?

Yes.

Good morning, Dave.

I think what you're referring to is we did an even factors testing that showed that [it's in four styles that were] reproducible by a NeuroStar user than it is for one of the competitors to be more reproducible in placing their magnet.

And at a high level -- and we haven't published this yet.

We will publish it shortly.

But at a high level, it shows that the NeuroStar is much more predictable and reproducible in finding the treatment location and having the magnet aligned, and it is relatively significant.

The findings generally were in the high teens, around 15% of the NeuroStar users were more precise in finding the treatment location than one of our competitors.

And then in the study, we actually crossed over treaters as well and the competitors were actually much more efficient in finding the treatment location time and time again in using our system.

And we have several -- and you might recall, our product was actually designed for psychiatry and high throughput device, where these products are actually neurological products that were not designed for this.

And I think that came out in this human factor study.

And it did bring out kind of the benefits of NeuroStar and the way it's designed versus how the competitors' product is.

And two quick ones on the account base.

So I think you mentioned that upgrades were a little lower in '18, but I imagine it's because most people have already decided to do so.

So I guess what percent of your installed base do you think is upgraded to the faster regimen?

And as a last one, you mentioned some of the ASP declined because of the high-volume accounts.

So obviously, not a bad thing if you're getting a lot of volume from discounting a bit because the accounts are using it so often.

I guess, any color on what percent of the installed base you kind of think is moving towards that high-volume area?

Or is there today?

Yes.

So we think it's about half taking advantage of the upgrade, Dave.

And keep in mind, too, that beginning in the second quarter of 2017, all the systems have the 19-minute treatment session.

So each successive quarter as you get past that -- April of 2017, there'll be less upgrade revenue, right, because there are less folks taking advantage of it.

So we've found that it's really good for customers that are trying to manage peak load.

As you can imagine, a lot of folks would like to come in before work or start their day doing treatment or come in over lunch or end their day a little early.

So there's that -- it helps alleviate that.

So those customers that are generally trying to manage that and it's more cost-effective than buying a second system.

So those are the folks that take advantage of the treatment session upgrade technology, right?

And then you mentioned -- you were talking a little bit about treatment.

I want to make sure I answer all your questions.

Treatment session pricing, we've been pretty consistent, Chris and I have over the course of last few quarters, of telling folks, we expect kind of mid-single digits kind of 3% to 4%, 5% range of price breaks that we give customers and reminding folks out there that this is not a discount we do to drive sales at the end of the quarter or just for promotions on these treatment sessions.

These are predetermined, we negotiate with the customer, and it's all part of this surrounding the customer and partnering with them, right?

So we share in their success.

As the volumes goes up, we give them price breaks.

And as we've said, 3% to 5% -- and that's what volumes, Dave, growing in kind of the 23%, 24%, 25% range.

When you see volumes kind of growing faster or system sales growing faster, then you could see getting above the 5% range.

But we're comfortable guiding that, that's where we'll be 3% to 5% kind of price breaks will take hold again in 2019 versus 2018, and we'll come back and tell you the good news, right?

It's really good news because we'll trade 1 point or a few basis points of ASP on a product that's growing 95% -- has 95 -- 90% to 95% margins for us that's growing and people are taking advantage of the technology.

And our next question comes from Matthew O'Brien with Piper Jaffray.

Just to start off with guidance to put a little bit of finer point on it.

You've grown north of 25%-ish for the last 6 quarters.

You're now guiding 18% to 22%.

It implies a pretty meaningful deceleration in the back half of the year even though in Q1, here after toughest comp, you're still guiding very good top line growth.

So I'm just wondering if there's something specifically that you're trying to call out in the back half that we need to pay attention to?

Or if it's just a bit of management conservatism?

Yes.

So good morning, Matt.

Thanks for the question.

And I'll parrot kind of first what I told Margaret.

We're basing full year guidance at 18% to 22%, right?

And that's all the reasons I cited to Margaret a few minutes ago.

We're using all kind of historical utilization rates, historical averages, productivity.

We build in some price declines as I've answered in a couple of previous questions and that spits out a number, Matt, for full year guidance in that 20% range, right?

So that's where we, as a management team, want to be comfortable giving that number.

For the first quarter, right, given that we're 2 months into the quarter already, we have more visibility, right?

So we have a lot more confidence in projecting a higher growth rate for the first quarter relative to the annual guidance.

But the annual guidance is set based on all those predicates that I pointed out on the call, which is the addition of the BDMs, their flat productivity year-over-year, some modest price declines on the capital and 3% to 5% price breaks on the treatment sessions, with no increase in utilization.

Obviously, we intend to a bit overachieve on those, and we'll come back to you as we go out through the year.

And if we can point to something, a trend, then we'll adjust our guidance accordingly.

Okay.

So you've built in quite a few leverage points then potentially, maybe if those would come through like they did in '18, there could be upside?

Let me put this together, Matt.

We think about a lot of things.

And so we think about the productivity of the business development managers.

As we add more, could the productivity potentially decline?

Could it stay the same?

Could it slightly increase like it did this year?

And we put that range in there, we make an assumption range on pricing, and we're making an assumption range on utilization.

We consider the marketplace that we're in as well, and we put that all together and we try to be really thoughtful with it and give you a range where we feel comfortable that we're going to achieve within that range.

So this is where we've come out.

We've, I think, given a pretty good range for the first quarter.

Our growth rate is strong coming off of Q4, and you can project from there, and we'll keep you updated quarter-to-quarter as we implement.

In Q1, we'll give you an update on how we feel the rest of the year is going to go.

Okay.

Fair enough.

Can we talk a little bit about the -- you've added so many systems in the last -- especially in the back half of last year, but over the last couple of years.

It's difficult to tease out the growth rates on the treatment side for some of your more tenured facilities.

So when you look at the growth rate in treatment session revenue, I think it was up 23%.

Can you talk a little bit about some of the more mature centers and how they're trending as far as their growth rates go?

I mean, are they growing well ahead of what you expected?

Or any just kind of qualitative commentary there would be helpful.

Yes.

I'll start, Matt, and I'll let Chris weigh in if he needs to.

If you look at the historical base, it's roughly two patients a day, right?

And obviously, the new HVT strategy, once they get up and running, have 3x more potential right, round numbers.

As that we just talked about, we're not factoring in that potential into our guidance, but certainly, the newer accounts are achieving ahead at a much higher level or will be at a much higher level over time, and we're starting to see some of the fruits of that strategy which is -- we're still, believe it or not, still kind of in the early innings with respect to that strategy.

So we're comfortable that those accounts have a much higher potential, but we're -- we haven't given you the granularity around that just yet.

Okay.

Fair enough.

And the last one for me.

Just on the OpEx side, I mean the guide for the year was a little bit -- was more than we were modeling.

And I think I get it.

I think it's more on the personnel side with the BDMs, and CTCs, CPCs, et cetera.

So how do we think about those investments?

Is it fair to say '19 is a personnel kind of driven year above what we may have expected?

And then into '20, could be more on the clinical side and then with the new indications you're going after plus next-generation technology?

And I don't know if you want to talk about it or not, but do you want to give us any sense for when that next-generation product would be out?

Yes, I'll handle the quantitative stuff, and I'll let Chris come in.

So I think what you said, Matt, for the most part, is pretty accurate.

If you think about 2019, the largest driver versus 2018 will be the increase in personnel, right?

It's the 15 BDMs.

And I know of folks who were thinking it might be as low as 10 or as high as 15, and we're on the high end of that range.

So that's the lion's share of the OpEx increase.

And then as you think about the R&D line, it's two components, which is the product development, next-gen platform.

That's the second largest driver of the year-over-year increase and the largest driver within the R&D line.

And then there's a small component, especially, as we get into the back half of 2019 on the clinical spend, which is the two indications.

You are correct that, that will ramp and start to be a little bit of a higher number as you look at to 2020 before starting to tail back down, much like most clinicals would do.

And then there's a small increase, just as you think about 2018 versus 2019, Matt, in terms of the G&A costs, which is the full year of public company costs.

But those are 1 through 4, the drivers of the year-over-year increase and perhaps differences in how you were initially viewing our 2019.

And our next question comes from Jason Mills with Canaccord Genuity.

This is actually Cecilia on for Jason.

And I just wanted to ask kind of further around BDMs, CTCs and what you're viewing as what your current ratio and then just what would be an optimal ratio going forward?

And then just thinking about 2019, how you're looking at or expecting the cadence of hires and to occur to -- of the BDMs and if this could provide upside to your guidance?

Well, let me dissect those.

I didn't write them all down.

If I miss any, we can circle back.

So it's 15 BDMs, much like we did as our first year of a public company is we will come out, and we'll update you how many we add each quarter.

What we've generally guided folks to is to use a half year convention.

So 15 BDM adds would probably equate to 7 or 8 full-time equivalents over the course of the year, and we'll fine-tune that throughout the year.

As far as BDMs versus CPC, we don't have a ratio on that.

We basically -- we look and assess where the territories that -- where we need to add the BDMs, and we said, we've been saying consistently, we've gone from 15 to 29, 29 to 44 and, and we'll go 44 to 59.

We're going to continue to add and split territories because we have full geographic coverage now.

So we'll be looking to add in those territories that we think have potential in those accounts.

The CPCs, again, not on a ratio basis, but you can see that we've had a little bit of leverage on the CPCs if you just take the treatment session revenue line over the number of CPCs that we've shared with you over time.

At the same time, we're always -- it's not a ratio, but we're assessing the workload in those territories and the account maintenance required.

Not all accounts are created equal.

Some require a little bit more maintenance.

So that's sort of how we view the world.

We have said that the CPCs revenue per territory have historically been down, closer to $1 million, and we said, over time, that could get a little better over time.

And I think if you do the math yourself, you'll see that there's a little bit of leverage going on over the last couple of years.

But that's sort of how we assess the situation, and we work hand in glove with the commercial team on where they think they need help relative to the territories.

Okay, great.

And then if I could just ask on [OpEx] just specifically around clinical trials.

You mentioned kind of seeing a little bit more of an impact from PTSD and Bi-Polar in the second half.

Can you just walk us through kind of your current thinkings around timelines, what we should expect to hear from you, and then just thinking about 2020 and how that plays through?

Yes.

Sure.

Good morning, Cecilia.

So our plan here is we're meeting with the FDA later in the year on both of these trials, and that's around the trial design.

So at this point in time, I really can't comment on a timeline, and we'll keep you updated and abreast on it.

But basically, we have to get, like every other company, we'd have to get our IDE approved.

We'd have to enroll the patients.

We'd have to assess the clinical data and then submit that to the FDA.

So this is, fair to say, a several-year program for both PTSD and Bi-Polar.

And as the quarters continue to advance, we'll keep you abreast of how those conversations with the FDA are and what the specific timelines are when we know them.

But I think it's an exciting time for psychiatry and patients.

When you think about PTSD and Bi-Polar, those two diseases, which are significant -- have significant unmet needs, both of them we know in early clinical findings have responded to NeuroStar TMS Therapy in small pilots.

And we're excited about the potential of helping a group of really sick patients that don't have an alternative today.

So -- and it's on our call point as well.

So that's why we're kicking this off this year.

And our next question comes from Alex Silverman with Special Situations.

I'm wondering -- a couple of quick questions.

Wondering if you could give us any sense of that $71.5 million to $76.5 million OpEx, how much of that is noncash?

Yes.

The majority -- Alex, this is Peter.

Just kind of making sure I fully think it through.

Most of it is our cash expenses.

It's personnel related to the R&D efforts, the consulting efforts that go around next-gen platform, the clinical trial piece and then obviously, the sales force expansion would be all salary benefits and then the fully loaded.

So I would say all if not most of it, though there's a small equity comp component in there that would lower the number, but the lion's share is cash.

Okay.

Secondly, given that you haven't been public that long, wondering if you could give us a sense of seasonality in terms of first quarter mix?

How we should think about it?

Yes.

So -- and this is evolving a little bit as well as we get larger and larger.

And there's seasonality effects for sure, typically in November and December, what we see is less patients getting started in November and December because we're starting a 6-week therapy, and a lot of doctors delay, which usually leads to a slightly lower NeuroStar treatment session in the first quarter.

And then usually, treatment sessions from there take off for a couple of reasons is because we have much more systems that are installed in later part of Q3 and in early parts of Q4.

And I would say, in Q1 -- Q1 is a little bit compounded with NeuroStar treatment session starts because what happens is, in Q4, you can see we had a record-breaking Q4.

Our system sales were up 46%, north of $4 million.

It was quite the quarter.

And what happens is when we get that many systems in a short period of time and many of those systems were actually backloaded into November and December, getting them up, it's somewhat -- it's a high-class problem.

It overwhelms the CPCs in the short term.

So in Q1, we're digging out, getting customers up and running and trained.

So for those reasons, we see a little bit of softness on the NeuroStar treatment sessions.

But we typically, though, see a nice bump in NeuroStar's place year-over-year because we now have 15 more BDMs in the territory in the beginning of this quarter versus last year.

So typically, we see a really nice lift in NeuroStar sales in the first quarter.

Okay.

And that's helpful.

And last question is, what's your typical length of NeuroStar sales cycle?

Yes.

So that's -- we do, and we have implemented as of the beginning of last year a CRM module.

Last year, we actually are now calling on a different subsegment of psychiatrists.

And the -- our expectation is the deals typically close in less than 6 months.

That's at a maximum length of time, and we've had deals close as quickly as 3 weeks.

And a lot is deal-specific.

So somewhere between 3 weeks and 6 months is the typical cycle.

That concludes our question-and-answer session for today.

I would now like to turn the call back over to Chris Thatcher for any closing remarks.

So thank you for joining us this morning.

We look forward to keeping you abreast with the progress we make in 2019 in upcoming earnings calls.

Have a good day.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude today's program, and you may all disconnect.

Everyone, have a wonderful day.