Neuronetics Inc (STIM) 2019 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Q3 2019 Neuronetics Inc.

Earnings Call.

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

I would now like to turn the conference over to your host, Mr. Klausner from Westwicke Partners.

Thank you, operator.

Good morning, and thank you for joining us for Neuronetics Third Quarter 2019 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, Steve Furlong.

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 issues 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 filed on March 5, 2019, and the Form 10-Q expected to be filed later 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 that includes EBITDA.

Management believes that non-GAAP financial information 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 forecast 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.

On today's call, I will provide an update on our performance during the third quarter, followed by an update on a few operational aspects of the business.

I'll then hand the call over to Steve to walk through our financial performance and updated guidance for Q4 and the full year, after which we will provide our closing remarks before opening up the line to take your questions.

Total revenue in the quarter was $16 million, an increase of 16% over the prior year primarily driven by an 18% growth in the U.S. NeuroStar Advanced Therapy revenue and 11% growth in U.S. treatment session revenue.

Results during the quarter were at the lower end of our expectations due to slightly lower productivity in our legacy customer base.

This quarter was another very positive quarter for our NeuroStar Advanced Therapy system and was the sixth consecutive quarter in a row that the active installed base increased by approximately 20% over the prior year quarter.

This demonstrates our ability to consistently execute our strategy and the significant potential in what is still a relatively untapped market.

On today's call, I'd like to focus my remarks on the following topics: The ongoing expansion of the BDM, CPC and CTC field sales forces; trends among HVT customers and in particular, TMS-only providers; marketing initiatives designed to raise awareness of NeuroStar Advanced Therapy; the early progress we're seeing in Japan and our plan to expand into new indications beyond major depressive disorder.

Starting with an update on our BDM sales force.

Our goal remains to bring our total BDM territories to 59 by year-end, which would be an increase of 15 versus the end of 2018.

In the third quarter, we filled an additional 8 new territories and now have 13 of the 15 expansion territories filled year-to-date, bringing our current BDM territory count to 57.

We have also been continuing to build a number of CPCs, or clinical practice consultants, and CTCs, or clinical training consultants, in line with the growth of our installed base.

These teams are an important part of the value proposition that we offer customers to ensure that customers are supported in training and building a practice to maximize the utility of the NeuroStar Advanced Therapy System.

As of the end of the quarter, there are 33 CPCs and 15 CTCs in the field, and both of these cohorts are in line with our expectations for the size of these groups at the end of 2019.

Going forward, the CPC will be referred to as a NeuroStar Practice Consultant or NPC, better recognizing the value they bring to our customer.

This team's primary focus is working with our customers to help them drive treatment session volume.

While we are trending well with new provider volume growth, we have found that we need to spend a bit more time with our legacy providers as they are not performing as well as expected.

We are revisiting our call point cycles and anticipate this will take some time to optimize.

I would now like to discuss some trends we observed at a few of our larger HVT accounts.

As you may have seen through recent press releases, we're experiencing rapid growth with TMS-only providers who take patient referrals from psychiatrists in the community that don't currently offer TMS.

They do their own local marketing and efficiently convert our DTC efforts.

In September, we announced that our 100th system was installed with Greenbrook TMS, a NeuroStar Advanced Therapy provider with 82 treatment centers across the U.S. In October, we announced that we have agreed with Success TMS to be the preferred TMS technology at over 21 locations across 21 states.

We're pleased that these large providers, which are multimillion dollar business entities, are choosing to partner with us over other companies in the TMS space.

As these and other large providers expand, they often place multiunit orders, which would require a significant cash outlay.

As a result, these customers are choosing to utilize rent-to-own agreements for NeuroStar Advanced Therapy Systems, which spreads the cash outlay over time and allows them to expand more quickly.

This has led to a significant increase in other NeuroStar revenue during the quarter.

These rent-to-own systems are accounted for as sales-type leases and have a lower ASP than a traditional capital sale.

During the quarter, we also saw a significant uptick in other treatment session revenue, the primary driver of which is a rapid increase in the number of new systems being activated for HVT customers who utilize fixed price purchase agreements.

We view this as a positive indicator of the demand for our therapies among these high volume centers, and we'll continue to opportunistically offer this pricing model to customers who feel that they can drive high volumes of patients and thus, multiple new system purchases over time through their practices.

We're pleased with how our HVT strategy is playing out.

Our ability to successfully partner with larger providers will allow us to continue to expand our installed base and drive predictable high-margin treatment session revenue.

To help support practice utilization, we're continuing to utilize DTC marketing campaigns to expand awareness of NeuroStar Advanced Therapy.

We recently ran a national TV ad campaign in conjunction with National Depression Awareness month to leverage the spotlight on MDD to increase the awareness around NeuroStar Advanced Therapy and how we can help patients who are suffering.

As a reminder, there are over 17 million adult Americans and over 300 million people worldwide that are depressed.

However, less than half will see treatment, which is why increasing awareness of depression and the treatment options is critical.

The October campaign was one of our most successful to date.

Appointment requests increased 64% and physician located searches increased 33% over our May 2019 campaign.

While we are thrilled with these results, we continue to look for ways to optimize the financial return on these campaigns.

We're about to take those learnings and embark on expanded DTC pilot tests from mid-November through January next year.

You may recall that in May, we ran a very successful pilot test where potential patients who responded to a commercial were directed to a call center.

The clinical consultants at the call center determined if the patient would be a good candidate for NeuroStar Advanced Therapy, and if so booked the patient an appointment directly with a nearby NeuroStar psychiatrist.

The purpose of this new pilot will be to determine the ROI on our DTC campaigns with a call center component before deciding how we best move forward.

I'd like to update you on the expansion of our global footprint.

As we announced earlier this year, NeuroStar Advanced Therapy received national reimbursement in Japan, which went into effect on June 1. The first patient was treated with NeuroStar Advanced Therapy in July.

Subsequent to that, we have had good early commercial traction.

Teijin placed another multisystem order in the quarter as they're beginning to get early adopters up and running.

The sale of these systems was factored into our guidance for the year, although we were not sure whether the sales would occur in the third or fourth quarter.

We currently don't have any additional system sales built into our outlook for the fourth quarter in Japan.

We continue to view Japan as a high potential geography, but do not expect revenue -- but do expect revenues to be lumpy over the near-term as we work with our partner, Teijin, to increase awareness, get psychiatrist trained on the system, get systems installed and ultimately drive treatment session revenue.

Lastly, I'd like to discuss the future expansion of indications for use for the NeuroStar Advanced Therapy System.

We're currently working with the FDA to determine the best regulatory path forward to expand our indications to include bipolar and PTSD.

We expect to have some clarity on this pathway in early 2020, and we'll be able to share more at that time.

The TMS market is still in its nascent stages, and the technology continues to gain popularity among psychiatrists, health care providers and patients.

We're enthusiastic about the success we're having with their HVT strategy and our rapidly expanding active installed base.

Overall, we believe that we remain well positioned to continue to drive top line growth in the business and build upon our market leadership position over the long term.

I'd now like to hand the call over to Steve to discuss our financial performance.

Thanks, Chris.

Total revenue for the quarter was $16 million, a 16% increase over the prior year quarter.

U.S. revenue was $15.3 million, an increase of 13% over the third quarter of 2018.

Outside the U.S., revenue was approximately $700,000, an increase of approximately $490,000 versus the prior year quarter.

U.S. NeuroStar Advanced Therapy System revenue for the third quarter of 2019 was $4.6 million, an increase of 18% over third quarter 2018 revenue of $3.9 million.

As a reminder, this revenue line is comprised of NeuroStar Capital revenue, which is revenue from systems sold and other NeuroStar revenue, which has 3 primary components: Sales-type lease revenue; operating lease revenue; and revenue from upgrades to the 3.0 treatment coil.

As Chris discussed, there were significantly higher number of sales-type leases in the quarter, which led to other NeuroStar Advanced Therapy System revenue of approximately $1.6 million during the quarter as compared to approximately $500,000 during the third quarter of 2018, representing 240% growth.

NeuroStar Capital revenue in the quarter was driven by a 6% decrease in capital units sold and a 10% decline in average selling prices as compared to last year.

On a sequential basis, average selling prices declined by 3%.

During the quarter, we saw our active installed base increase to 1,032 units, a net increase of 174 units or 20% from the third quarter of 2018 and a net increase of 56 units sequentially.

As a reminder, the active installed base includes capital units sold, sales-type leases and operating leases.

U.S. treatment session revenue was $10.3 million for the third quarter of 2019, an increase of 11% over the prior year quarter.

The increase was primarily due to an increase in other treatment session revenue, which represents our fixed price treatment session revenue.

Per click treatment sessions purchased in the quarter grew by approximately 8%.

This increase was partially offset by a 6% decline in treatment session ASPs due to predetermined volume pricing discounts within our existing customer base.

During the quarter, other treatment session revenue was $1.4 million, up from $512,000 during the third quarter of 2018, representing over 170% growth.

U.S. service and other revenue was approximately $426,000, a 9% increase over the prior year.

Gross profit for the third quarter 2019 was $11.8 million, an increase of $1.1 million from $10.7 million during the third quarter of 2018.

Gross margin for the third quarter of 2019 was 73.8%, which was lower than the third quarter of 2018 gross margin of 77.9%.

The decrease in gross margin was the result of a higher mix of NeuroStar Advanced Therapy revenue and lower average selling prices as a result of a higher portion of new systems placed as sales-type leases.

Sales and marketing expenses for the third quarter of 2019 were $10.4 million, an increase of approximately $700,000 over the prior year.

This increase was primarily due to the increased size of our sales force as well as spend related to marketing campaigns.

General and administrative expenses were $4.3 million, an increase of approximately $1 million compared to the prior year.

This increase was primarily driven by increased compensation-related expenses.

Research and development expenses for the third quarter of 2019 were $3.5 million, an increase of approximately $1.4 million from the prior year period.

The increase was primarily due to product development costs related to the continued development of our next-generation platform and higher personnel costs in preparation of the clinical trials.

Net loss for the third quarter was $6.9 million compared to a net loss of $5 million in the third quarter of 2018.

EBITDA, which is a non-GAAP measure for the third quarter of 2019, was a loss of $5.6 million compared to an EBITDA loss of $3.8 million in the third quarter of 2018.

Moving to the balance sheet.

We ended the quarter with cash and cash equivalents of $82.4 million compared to $104.6 million at year-end 2018.

Turning to guidance.

For the full year 2019, we are reducing our guidance of total worldwide revenue to between $62 million and $63 million representing approximately 17% and 19% year-over-year growth, respectively, down from our prior guidance of $63 million and $65 million.

The primary driver of the reduction in full year revenue guidance is lower-than-expected average selling prices and lower-than-expected volumes in certain existing customers.

For the fourth quarter of 2019, we expect total worldwide revenue of between $16.7 million and $17.7 million, representing 7% and 13% year-over-year growth, respectively.

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

For the full year 2019, we now expect operating expenses to be between $73.5 million and $75.5 million, down slightly from our previous guidance of $74 million to $77.5 million.

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

Chris?

Thanks, Steve.

We continue to be very excited by the opportunity for NeuroStar Advanced Therapy to help a significant number of patients worldwide who suffer from major depressive disorder.

We're pleased with our success in partnering with some of the largest HVT providers and enthusiastic about this segment of the market and our leadership position.

We continue to optimize our industry-leading commercial infrastructure to support our expanding customer base and our marketing efforts to raise awareness of TMS as a treatment for those suffering from depression.

Longer term, we're enthusiastic about our ability to expand indications to bring relief to an even greater number of patients suffering from psychiatric disorders.

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

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

First question for me is along the lines of guidance.

I know you guys aren't providing 2020 guidance.

But I guess what I'm hoping for is you can provide us a little bit of a sense of the moving pieces as you go into 2020.

Should we assume that growth is similar to what you're seeing in the second half of this year, better than that, and kind of walk us through the moving dynamics, whether it's leasing, utilization, et cetera?

Yes, Margaret, thanks for the question.

So we're -- to your point, we're not going to provide any guidance on Q4.

So we can talk a little bit more -- I'm sorry, we're not going to talk about next year, we're going to talk a little bit more about Q4, as you like.

But the primary softening in Q4 is a function of lower utilization rates in some of our legacy customers, and we expect our NeuroStar system volume to come in as we expected to our guidance.

But the issue is that the rent to owns are significantly higher, and those are lower ASP.

So those are the fundamental drivers for us taking down the guidance next year -- I'm sorry, in Q4 this year.

Got it.

Yes.

And so let's maybe hit on those 2 items a bit.

So first of all, legacy NeuroStar accounts, you referenced that maybe you're seeing some lower productivity than you expected.

Have you given or seen any consistent reasons why maybe a sense of profile or scale?

And then does that Q4 guidance assume that utilization within these legacy accounts improves from what you've seen in the third quarter, stay the same or gets worse?

Right.

Yes.

So the lower utilization really is a result of our over-indexed shift of the NPC team towards the recently sold systems.

If you think about it, we've installed 174 systems in the last 12 months, which the -- new systems and 280 over the last 7 quarters.

And what we're revisiting right now is the NPC call cycle has been shifted towards those 280 systems, and we need to go back and recircle on our legacy customer utilization.

I don't see this being a long-term issue.

These are experienced users who we need to revisit and review their practice development plans.

Okay.

And then just one last one in terms of leasing dynamic.

As we look out, do you see these sales-type leases increasing going forward?

And how should we really look at the mix of sales versus leases and the ROI of those investments?

Yes.

So we offer the flexibility of a rent-to-own option for these reasons, is to minimize the upfront barriers to these larger accounts.

So we can -- so they can expand to new sites faster, which ultimately gets us to more treatment session sooner.

We would expect this trend to continue and I think that this further validates the strategy.

I would not categorize this as a fundamental shift in our strategy.

It's really a partner and execution of our existing customer segmentation strategy.

But you can expect this to continue to move forward -- to continue into Q4 and beyond.

Your next question comes from Jason Mills with Canaccord Genuity.

Several questions, I'll try to limit it a little bit but.

Chris, talk about the competitive landscape.

We've seen growth slow here.

And we've also seen new competitors coming to the market over the last 12 months or so.

Has that had any impact or been one of the reasons we've seen slowing growth?

Could you just comment about wins or losses in the space and whether or not you've seen any regrettable departures of large customers or competitive ire is having any impact on your business at all?

Yes, Jason, thanks for the question.

So the fundamental competitive dynamics really hasn't changed very much as we look at how we're performing in the marketplace.

And I think that's really indicative of -- this is now our sixth consecutive quarter where we've increased the install base by 20%.

And so we feel like we're operating pretty well in the marketplace.

The primary drivers to the lower-than-expected guidance in Q4 is just a function of not lower systems placed and sold into the market, it's really around the ASP around those systems in the market and in a softening of our existing customers.

We have really -- when you think about the growth rate that we had over the last 7 quarters, 280 systems placed, that's putting a lot more demand on the NPCs.

And in a lot of businesses, and particularly in the pharmaceutical business, you have a sales call rotation with your reps, and you need to keep reinforcing behaviors.

And what we're starting to recognize is we were under-indexed with our legacy customers and we would expect it to not get better in Q4, and we're moving the NPC team on an increased call cycle for our existing customer base moving forward.

And we'll see how that plays out within that group.

But this is not a competitive issue.

I would say that this is -- when you look at the fundamentals of this business, our install base has grown 20%, the clinical performance is strong.

It's still a nascent untapped market, and this is just growing things as we've rapidly expanded and penetrated new customers.

And we got to get our call point ratio right between existing customers and new customers, and we're just a little bit off at the moment.

Okay.

I mean that makes some sense, Chris.

So how long do you expect, maybe you could give us a peek behind the curtain just a little bit.

And I'm going to push you a little bit on 2020 because otherwise, the Street is going to value you as a 10% grower and -- given your fourth quarter guidance.

And it sounds to me like you see yourself as something north of a 10% grower, and -- over the longer term.

But I guess the question is, how long does it take to sort of not change the business model, but adapt to the business model from a sales force perspective with these NPCs.

It sounds like the model's changing.

That the legacy providers were sort of left on their own volition and sort of they didn't fall down, but they slowed down.

And they need a bit more handholding, for a lack of a better way to put it.

And it sounds like you expect that once those changes are instituted and you are providing better support for legacy customers, that you see growth accelerating within those customers, which at this point in time is still a relatively material piece of your business, which is why it's being reflective in lower guidance in the nearer term.

Perhaps you could talk about those dynamics a little bit more and talk about what is the prudent way to model growth in the overall franchise in 2020, given the puts and takes.

And I understand you're not ready to give official guidance, but I think it behooves you to talk at least directionally.

Right.

So let me see if -- I'm going to try to help you out as best I can, Jason.

So what are we doing right now?

So we're assessing our deployment as part of our annual operating plan process.

And we know for sure that we're going to add in 2020, we got to rebalance some of our NPC territories.

We do this every year because of unequal and disproportionate number of new system sales going into 1 rep versus another.

So we're going to add more NPCs next year, we did it this past year as you know.

And I think the other thing is we need to look at either adding more CTCs and NPCs because the install base is increasing 20%, and just by definition, that means we're selling more systems year-over-year when your -- when that base is increasing 20% year-over-year.

And we got to find a better balance.

So we're very thoughtful, as you know.

So we're going through a process here over the last several weeks to understand our call cycle frequency and how much we move.

And then we're going to have to test and retest and see how fast we can move the needle on it.

The good news is, right -- this is not customers that we've lost, this is customers that have trended down.

They have a system.

They're committed to it.

And we just got to get back in there and revisit and review their practice development plans and reengage them.

So this is more of a behavior versus what I would call a material environmental issue around the business.

This is what I'd call just growing pains.

And we shifted the team potentially too hard to these new customers, these 280 new customers, and we've got to revisit the call cycle.

And I -- so this is going to take some time for us to figure out and test and retest, and we'll give you a better insight into it.

But let's be clear, I mean you can project the current Q4 revenues and compare that to Q1 and Q2 and that's not going to be a 10% grower, right?

The business is not going away.

We just have a softening in 1 segment of our customer market.

And you can see that we're adding systems as fast as we've ever had in the history of the company.

So the underlying fundamentals are strong.

Okay.

Great.

And lastly, so it sounds like just to push on that a little bit more, it sounds like you're expecting the first half of the year to improve modestly relative to fourth quarter levels and that your comps are going to be easier in the second half of the year.

And with the addition of these new systems, it sounds like you might even see sequential improvement second half of '20 versus first half.

So improvement as you're moving through 2020.

Am I hearing that right?

Jason, we're focused on finishing the year, and we're in the process of creating our operating plan.

I can't really get into specifics around 2020 at this point in time.

I think we've got, again, a strong install base.

I've indicated in Q4 that the number of systems that we expect to install are in line with our prior guidance of 63 to 65, but we're taking our guidance down because of lower ASPs associated with those NeuroStar systems as we get into these bigger accounts, that the primary shortfall on NeuroStar's in Q4 and then further softening of our -- a subsegment of our customer group, which is our legacy customers.

And then that's going to take some time to square away, and I'm not quite sure how long it's going to take, but it's going to take us beyond Q4 probably to square that away.

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

Chris, can you talk a little bit more about those legacy accounts?

I mean how do you really qualify what a legacy account is?

Is that something you've held for 2, 3 years?

Or is it -- and how do you think about what visibility do you have as far as what kind of opportunity you have there, if they've bought a competitive product and how quickly you can turn these guys back on?

Yes.

So when we think about the legacy customer group, we think about customers that acquired systems beyond 3 years and that they're up and running.

And one of the advantages we have versus maybe some other medical device companies is we have pretty good transparency because most of our NeuroStar treatment session volume is done through the cloud.

So we can see actual utilization trends over a period of time and see their purchases.

There you see the utilization real-time versus their purchases real time.

So what we're doing, Matt, is we're just going back.

We're looking at these customers, they fall into 3 groups, customers that are trending below our expectations at and above and what we're going back to is the people that are trending below our expectations that have the highest volume, the highest impact is where we're circling our NPCs back to.

We always factor in every year a number of, what we call, hybrid customers, customers that have competitive products in our product.

We also factor in lost business.

And we don't feel that those 2 metrics are off.

This is just a function of -- and again, I'll say, we've seen this before in my pharmaceutical days is you can call on your high-volume docs, but you've got to go back and continue to maintain, and I think that we've shifted too far towards the most recent install class and those 280 units that we put in over the last 7 quarters, and we just need to spend a bit more time with this customer group.

And remember, this legacy customer group is not the high-value target group, right?

These are the customers that we brought on in early days, and we just need to spend a bit more time with them.

And that's just another reason why we're moving to these higher volume targets because operationally, they can keep it rolling and these are smaller accounts, typically, that we -- our time and effort makes a difference in those accounts.

Okay, that's helpful.

And then when you talk about maybe slicing this a little bit differently, the accounts you've added maybe over the last year that they have been using for a year to maybe up to 3 years.

So little bit more focused on the NPC side.

Do you have any sense, and I would imagine you do, given that it's all done in the cloud, what kind of growth you've seen from those accounts on the session side?

Has it been high teens, 20% kind of growth out of that group, maybe over the last year or so?

Yes.

We haven't aggregated -- we haven't disaggregated that on these calls.

But I will tell you that relative to guidance, they're performing as we expected, those groups.

I will go a step further and tell you that our fixed price contracted customers are growing significantly faster than our average customer in terms of utilization.

Okay.

And then one last one actually for Steve.

When you guys came public, the model was different.

And I think Jason got into some of the evolving market dynamics, so I won't go there here.

But with more and more of these sales-type leases coming out and some of the pricing pressure that we've seen, how do we think about gross margins going forward?

This is something we thought as you were coming public would be a metric that would be certainly (inaudible) and potentially falling a little bit?

Or how do we think about that in the future?

Yes.

I think we have a couple dynamics that will impact gross margins going forward.

But there's puts and takes, and we really don't see much change from that mid-70 guidance perspective.

The sales-type leases will continue.

It's really a function of our partner growth in the future, something we don't have a lot of control over.

But we do have control over the expense aspect.

And we're at the point where we will be able to leverage our infrastructure from a service and support perspective.

So we feel the ASP decline will be able to be offset by the P&L leverage.

So I wouldn't come off that mid-70 guidance.

Yes, just like kind of add on is, the sensitivity around this business at this size, a couple percentage shift between NeuroStar treatment sessions and NeuroStar revenue because of the large gross margin difference with it can move the gross margin a couple of points.

And you can see in this quarter, our percentage of NeuroStar treatment sessions is slightly lower than it was this time last year, and NeuroStar's are a little bit higher.

And when that happens, you just see a shift down.

And then you also know that our international sales were up, and it's further compounded when the international sales are up and that's going to be a little bit lumpy and that can move us up 500 basis points as well from quarter-to-quarter.

So those are kind of the key drivers there.

And then we talked a little bit is -- a little bit about our price as well.

Your next question comes from Dave Turkaly with JMP Securities.

Just on to the legacy customers, again, I just want to be clear, not any specific geography in the U.S. You said that you don't think there's any competitive impact.

And it really, based on your analysis, has to do with how long they've had them.

So if they've had them for longer, they're not seeing your reps as often.

Is that fair?

Dave, that is fair.

And so what we're seeing is that there's a little bit more time to maintain those customers than we anticipated.

Got it.

And then you mentioned Greenbrook and Success as well.

What percent of your business today is covered by groups like that?

And I mean do we see this moving forward?

I'd love you to just take a guess at where is that going?

I mean are there going to be several more of these, do you think that becomes, I don't know, maybe even more significant part of your business, maybe 30%, 40% over time?

Any color you can give us there?

Yes.

So we haven't really talked about that -- the number specifically, but when you think about -- when we think about fixed-price contracts, you can see how fast that aspect of our business is growing.

We haven't provided a specific number of systems or total installed base, but it's a little bit over 10% of our current installed base.

And that's the number of systems out there or in this fixed-price contract component.

Got it.

And I imagine you think that, that continues to build over the next couple of years as the companies grow, right?

Yes.

Yes.

So think about it, right?

Our customer segmentation strategy is focused on really the top 10% of the market that those -- that treats 1/3 of patients.

Well, that leaves 90 other -- 90% of market call points that we're not really actively calling on and these small doctors need to refer to somewhere.

And this has given rise to this service provider concept where that doctor needs a place that's TMS-only where they can refer to.

It's kind of like the orthopedic surgeon doesn't refer to an orthopedic surgeon with an MRI or x-ray.

And many of the largest, largest orthopedic centers have that, they refer to radiology group.

So in this way, the corollary is really these service providers are creating an opportunity for psychiatrists to TMS-only facility, meaning they just go there to get treated and come back, they don't have an option to get CVT therapy or get written a prescription.

And we see this as really a function also of our direct-to-consumer efforts, right, when patients around the country seeing NeuroStar advertised, they're depressed, they'll go into their existing psychiatrist, and we -- you all understand that this market is significantly underpenetrated.

And they'll go into these psychiatrists, and they just don't have a TMS, and they're looking to create an option for their patient to get treatment.

And moving it to these service providers is really how they create a continuum of care within their practice.

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

I will now turn the call back to Mr. Thatcher for closing remarks.

Thanks for joining us this morning.

We look forward to updating you on our next quarterly call.

That concludes today's conference.

Thank you for your participation.

You may now disconnect.