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, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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: the ongoing
impact of the novel coronavirus, or COVID-19, pandemic on general political and
economic uncertainty, including as a result of efforts by governmental
authorities to mitigate the COVID-19 pandemic and the related impact on resource
allocations, manufacturing and supply chains and patient access to commercial
products; our ability to execute our business continuity as well as our
operational and budget plans in light of the COVID-19 pandemic; 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 NeuroStar Advanced Therapy System for
additional indications; developments in regulation in
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. The forward-looking statements in this Quarterly Report on
Form 10-Q are only predictions. We have based these forward-looking statements
largely on our current expectations and projections about future events and
financial trends that we believe may affect our business, financial condition
and results of operations. These forward-looking statements speak only as of the
date of this Quarterly Report on Form 10-Q and are subject to a number of risks,
uncertainties and assumptions 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
22 Table of Contents 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 transcranial magnetic stimulation, or 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
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
We currently sell our NeuroStar Advanced Therapy System and recurring Treatment
Sessions in
We market our products in a few select markets outside
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
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Our total revenues increased by
COVID-19
Throughout 2020, 2021 and the three months ended
We have monitored the impact of the COVID-19 pandemic on all aspects of our business and geographies,
including how it has and will continue to impact the Company's customers, supply
chain, employees and other business partners. While we experienced significant
disruptions in the current period and in the years ended 2021 and 2020 from the
COVID-19 pandemic, we are unable to predict the ultimate impact that the
COVID-19 pandemic may have on our financial condition, results of operations and
cash flows due to numerous uncertainties. These uncertainties include the scope,
severity and duration of the ongoing pandemic, the actions taken to contain the
pandemic or mitigate its impact and the direct and indirect economic effects of
the pandemic, vaccination rates and containment measures, among others. The
outbreak of COVID-19 in many countries, including
The situation surrounding the COVID-19 pandemic remains fluid, and we are
actively managing our response in collaboration with business partners and
assessing potential impacts to our financial position and operating results, as
well as potential adverse developments in our business. For further information
regarding the impact of COVID-19 on the Company, see Item 1A titled "Risk
Factors" of our Annual Report on Form 10-K for the year ended
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
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 Treatment Sessions and SenStar treatment links. The NeuroStar
Treatment Sessions are access codes that are delivered electronically in
24 Table of Contents
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
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 market research 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 radio media campaigns, travel and training expenses.
We anticipate that our sales and marketing expenses will increase in 2022
compared to 2021 expenses as we continue to execute on our growth initiatives
and expand our business in
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, 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 will remain flat compared to our 2021 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
25 Table of Contents
and clinical development programs. We typically use our employee, consultant and infrastructure resources across our research and development programs.
We plan to incur additional 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 2022 compared to our 2021 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 interest income earned on our money market account balances and note receivables.
Results of Operations
Comparison of the three months ended
Three Months Ended March 31, Increase / (Decrease) 2022 2021 Dollars Percentage (in thousands, except percentages) Revenues$ 14,181 $ 12,288 $ 1,893 15 % Cost of revenues 3,485 2,221 1,264 57 % Gross Profit 10,696 10,067 629 6 % Gross Margin 75.4 % 81.9 % Operating expenses: Sales and marketing 12,649 8,561 4,088 48 % General and administrative 6,379 6,104 275 5 % Research and development 1,803 2,311 (508) (22) % Total operating expenses 20,831 16,976 3,855 23 % Loss from Operations (10,135) (6,909) (3,226) (47) % Other (income) expense: Interest expense 978 985 (7) (1) % Other income, net (275) (13) (262) 2,015 % Net Loss$ (10,838) $ (7,881) $ (2,957) (38) % Revenues by Geography Three Months Ended March 31, 2022 2021 % of % of Amount Revenues Amount Revenues (in thousands, except percentages) United States$ 13,517 95 %$ 11,802 96 % International 664 5 % 486 4 % Total revenues$ 14,181 100 %$ 12,288 100 % 26 Table of Contents U.S. Revenues by Product Category Three Months Ended March 31, 2022 2021 % of % of Amount Revenues Amount Revenues (in thousands, except percentages) NeuroStar Advanced Therapy System$ 3,642 27 %$ 1,755 15 % Treatment sessions 9,469 70 % 9,629 82 % Other 406 3 % 418 3 % Total U.S. revenues$ 13,517 100 %$ 11,802 100 % U.S. NeuroStar Advanced Therapy System Revenues by Type Three Months Ended March 31, 2022 2021 % of % of Amount Revenues Amount Revenues (in thousands, except percentages) NeuroStar Capital$ 3,485 96 %$ 1,589 91 % Operating lease 67 2 % 108 6 % Other 90 2 % 58 3 % Total United States NeuroStar Advanced Therapy System revenues$ 3,642 100 %$ 1,755 100 % Revenues
Total revenue for the three months ended
Cost of Revenues and Gross Margin
Cost of revenues increased by
27 Table of Contents Sales and Marketing Expenses
Sales and marketing expenses increased by
General and Administrative Expenses
General and administrative expenses increased by
Research and Development Expenses
Research and development expenses decreased by
Interest Expense
Interest expense remained constant from
Other Income, Net
Other income, net increased by
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Liquidity and Capital Resources
Overview
On
As of
If our cash and cash equivalents and anticipated revenues from sales or 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 which 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:
? the impact of COVID-19 and related governmental responses;
? 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 third-party and government payors, particularly in
? our rate of progress in establishing coverage and reimbursement arrangements
from international commercial third-party and government payors;
29 Table of Contents
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
Cash Flows
The following table sets forth a summary of our cash flows for the three months
ended
Three Months Ended March 31, 2022 2021 (in thousands) Net Cash Used in Operating Activities$ (12,182) $ (9,168) Net Cash Used in Investing Activities (1,074) (675) Net Cash (Used) Provided by Financing Activities (48) 82,163
Net (Decrease) Increase in Cash and Cash Equivalents
Net cash used in operating activities for the three months ended
Net cash used in operating activities for the three months ended
Net cash used in investing activities for the three months ended
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Net cash used by financing activities for the three months ended
Indebtedness
Refer to "Note 13. Debt" in our unaudited financial statements and related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q for information regarding our current Solar credit facility.
Common Stock Offering
Refer to "Note 14. Common Stock" in our unaudited financial statements and related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q for information regarding our secondary public offering of our common stock.
JOBS Act Accounting Election
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or 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 of 1933, or 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
We refer you to "Note 3. Summary of Significant Accounting Policies" and "Note 4. Recent Accounting Pronouncements" in "Notes to Interim Financial Statements" located in "Part I - FINANCIAL INFORMATION, Item 1. Financial Statements".
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