Neuronetics, Inc. (STIM)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, some of the information contained in the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should review the Risk Factors section of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We believe that mental health is as important as physical health. As a global leader in neuroscience, we are delivering more treatment options to patients and healthcare providers by offering exceptional in-office treatments that produce extraordinary results. Our first commercial product, the NeuroStar Advanced Therapy System, is a non-invasive and non-systemic office-based treatment that uses TMS to create a pulsed, MRI-strength magnetic field that induces electrical currents designed to stimulate specific areas of the brain associated with mood. The system is cleared by the FDA to treat adult patients with MDD that have failed to achieve satisfactory improvement from prior antidepressant medication in the current MDD episode. It is also cleared by the FDA, as an adjunct for adults with OCD and for adolescent patients aged 15-21 with MDD. NeuroStar Advanced Therapy System is safe, clinically effective, reproducible and precise and we believe is supported by the largest clinical data set of any competing TMS system. We believe we are the market leader in TMS therapy based on the estimated 195,356 global patients treated with over 7.1 million of our treatment sessions through December 31, 2024. We generated revenues of $74.9 million and $71.3 million for the years ended December 31, 2024 and 2023, respectively.

Effective as of December 9, 2024, Neuronetics and Greenbrook completed the Arrangement. Each Greenbrook Share outstanding immediately prior to the effective time of the Arrangement was exchanged for Neuronetics Shares at the Exchange Ratio upon closing of the Arrangement.

In connection with and prior to closing of the Arrangement, Madryn converted (i) all of the outstanding amount owing under Greenbrook’s credit agreement into 2,056,453,835 Greenbrook Shares, representing 95.3% of the Greenbrook Shares (including the Greenbrook Shares held by Madryn prior to such conversion) immediately prior to closing of the Arrangement and (ii) all of the interim period funding provided by Madryn to Greenbrook into an additional 252,999,770 Greenbrook Shares, which Greenbrook Shares were exchanged for Neuronetics Shares at the Exchange Ratio upon closing of the Arrangement.

The Company continues to operate as Neuronetics, Inc., and the Neuronetics Shares continues to trade on the NASDAQ Global Market under the ticker “STIM”.

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 existing treatment options. We generate revenues from initial capital sales of our systems, sales of our recurring treatment sessions and

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from service and repair and extended warranty contracts. Additionally, through our acquisition of Greenbrook we now derive revenue directly from our Treatment Centers, by providing TMS and SPRAVATO therapy for MDD and other mental health disorders. We derive the majority of our revenues from recurring treatment sessions. For the year ended December 31, 2024, revenues from sales of our treatment sessions and NeuroStar Advanced Therapy Systems represented 70% and 21% of our U.S. revenues, respectively. For the year ended December 31, 2023, revenues from sales of our treatment sessions and NeuroStar Advanced Therapy Systems represented 73% and 24% of our U.S. revenues, respectively.

We currently sell our NeuroStar Advanced Therapy System and recurring treatment sessions in the United States through our sales and customer support team. Our sales force targets an estimated 53,000 psychiatrists across 26,000 practices. We expect to continue to expand our direct sales and customer support team to further penetrate the market by demonstrating the benefits of our NeuroStar Advanced Therapy System to psychiatrists and their MDD patients. Some of our customers have and may purchase more than one NeuroStar Advanced Therapy System. Based on our commercial data, we believe psychiatrists can recoup their initial capital investment in our system by providing a standard course of treatment to approximately 12 patients. We believe psychiatrists can generate approximately $8,500 of average revenue per patient for a standard course of treatment, which may provide meaningful incremental income to their practices. We have a diverse customer base of psychiatrists in group psychiatric practices in the United States. For the years ended December 31, 2024, 2023 and 2022 one customer Greenbrook accounted for 12%,15% and 17% respectively, of the Company’s revenue. Following the acquisition, Greenbrook is no longer a customer. Patients are reimbursed by federal healthcare programs and the vast majority of commercial payors in the United States for treatment sessions utilizing our NeuroStar Advanced Therapy System.

We market our products in a few select markets outside the United States through independent distributors. International revenues represented 3% of our total revenues for the years ended December 31, 2024 and 2023, respectively. In October 2017, we entered into an exclusive distribution agreement, for the distribution of our NeuroStar Advanced Therapy Systems and treatment sessions to customers who will treat patients with MDD in Japan. We received regulatory approval for our system in Japan in September 2017. We obtained reimbursement coverage for NeuroStar Advanced Therapy System in Japan, which went into effect on June 1, 2019 and covers patients who are treated in the largest inpatient and outpatient psychiatric facilities in Japan. We expect our international revenues to decrease as a percentage of our total revenue.

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 development relating to additional indications. We outsource the manufacture of components of our NeuroStar Advanced Therapy Systems that are produced to our specifications, and individual components are either shipped directly from our third-party contract manufacturers to our customers or consolidated into pallets at our Malvern, Pennsylvania facility prior to shipment. Final installation of these systems occurs at the customer site.

Our total revenues increased by $3.6 million, or 5%, from $71.3 million for the year ended December 31, 2023 to $74.9 million for the year ended December 31, 2023. For the year ended December 31, 2024, our U.S. revenues were $72.5 million, compared to $69.3 million for the year ended December 31, 2023, which represented an increase of 5% period over period. As of December 31, 2024, we had an accumulated deficit of $419.8 million.

Components of Our Results of Operations

Revenues

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

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NeuroStar Advanced Therapy System Revenues. NeuroStar Advanced Therapy System revenues consist primarily of sales or rentals of a capital component, including equipment upgrades 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 the United States. The SenStar treatment links are disposable units containing single-use access codes that are sold and used outside the United States. Access codes are purchased separately by our customers, primarily on an as-needed basis, and are required by the NeuroStar Advanced Therapy System in order to deliver treatment sessions.

Clinic Revenue. Clinic revenue is determined based on net patient fees, which includes estimates for contractual allowances and discounts. Net patient fees are estimated using an expected value approach where management considers such variables as the average of previous net patient fees received by the applicable payor and fees received by other patients for similar services and the Company’s best estimate leveraging industry knowledge and expectations of third-party payors’ fee schedules. We expect clinic revenue to increase in 2025.

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

We refer you to the section titled “Critical Accounting Policies and Use of Estimates—Revenue Recognition” appearing elsewhere in this Annual Report on Form 10-K for additional information regarding how we account for revenues.

Sales in the United States represented 97% of our total revenues for the years ending December 31, 2024 and 2023, respectively, and have been generated by our direct sales force. Outside the United States, our sales are made through local third-party distributors. International revenues were 3% for the years ended December 31, 2024 and 2023, respectively. We expect that both our United States and international revenues will increase in the near term as we continue to expand active customer sites utilizing our NeuroStar Advanced Therapy Systems and increase the related patient utilization in the United States, as well as grow our presence in Japan. We expect our revenues to be positively impacted to the extent our direct sales force is successful in increasing the rate of adoption and utilization of treatment with TMS Therapy as an alternative to other MDD treatments.

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, royalties, warranty, shipping, amortization of capitalized software and our operations and field service departments. Our new Treatment Center costs include direct center and patient care costs, regional employee compensation, regional marketing expenses, and depreciation. We expect our cost of revenues to increase mainly for Treatment Centers, as our product mix changes. We expect to realize efficiencies with our new contract manufacturer.

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 and clinic revenue are lower than our gross margins on revenues from sales of treatment sessions and, as a result, the

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sales mix between NeuroStar Advanced Therapy Systems, clinic revenues and treatment sessions can affect the gross margin in any reporting period.

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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, primarily digital media campaigns, travel and training expenses.

We anticipate that our sales and marketing expenses will increase in 2025 relative to 2024 as a result of the addition of the Greenbrook sales personnel to our company.

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 increase in 2025 from 2024 due to an increase in the overall size of the general and administrative function within the consolidated company.

Research and Development Expenses

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

We expect our research and development expenses to decrease during 2025 compared to our 2024 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.

Loss on extinguishment of debt

Loss on debt extinguishment consists of prepayment penalties and impairment of deferred financing costs associated with the extinguishment of debt, as well as fees incurred with third parties in connection with debt extinguishment.

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Other Income, Net

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

Results of Operations

Comparison of the Years ended December 31, 2024 and 2023

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Revenues

Total revenues increased by $3.6 million, or 5%, from $71.3 million for the year ended December 31, 2023 to $74.9 million for the year ended December 31, 2024. For the period ended December 31, 2024, U.S. revenue increased by 5% and international revenue increased by 19% over the comparative prior year period. The U.S. revenue growth was primarily due to the addition of U.S. clinic revenue as a result of the acquisition of Greenbrook and the international revenue growth was primarily driven by an increase in NeuroStar Advanced Therapy System revenue.

Revenues in the United States increased by $3.2 million, or 5%, from $69.3 million for the year ended December 31, 2023 to $72.5 million for the year ended December 31, 2024. NeuroStar Advanced Therapy System revenue in the United States for the year ended December 31, 2024 decreased $1.2 million or 7% from $16.5 million for the year ended December 31, 2023 to $15.3 million for the year ended December 31, 2024. The $1.2 million decrease in revenue was directly attributable to a decrease in the number of units sold from 204 units for year ended December 31, 2023 to 185 units for the year ended December 31, 2024. This decrease in revenue was partially offset by a marginal increase in our average selling price per unit. The Company expects to recognize future recurring treatment session revenue related to the sale of 185 NeuroStar Advanced Therapy Systems for the year ended December 31, 2024.

Treatment sessions revenues represented 70% and 73% of total revenues in the United States for the years ended December 31, 2024 and 2023, respectively. Treatment session revenue in United States for year ended December 31, 2024 was $50.8 million which was materially consistent with revenue for the year ended December 31, 2023 of $50.9 million.

Cost of Revenues and Gross Margin

Cost of revenues increased by $1.1 million, or 6%, from $19.6 million for the year ended December 31, 2023 to $20.7 million for the year ended December 31, 2024. Gross margin was 72.3% for the year ended December 31, 2024 compared to 72.5% for the year ended December 31, 2023. The decrease in gross margin was primarily a result of the inclusion of Greenbrook’s clinic business and reduction in Treatment session revenue.

Sales and marketing Expenses

Sales and marketing expenses decreased by $1.7 million, or 4%, from $47.3 million for the year ended December 31, 2023 to $45.6 million for the year ended December 31, 2024. The decrease was primarily driven by the reduction in marketing program spend due to synergies obtained on account of the acquisition of Greenbrook.

General and Administrative Expenses

General and administrative expenses increased by $4.9 million, or 19% from $25.4 million for the year ended December 31, 2023 to $30.3 million for the year ended December 31, 2024. The increase was due to additional professional fees of $3.8 million relating to the acquisition of Greenbrook and $2.8 million related to Solar, which were partially offset by savings in personnel expense.

Research and Development Expenses

Research and development expenses increased by $3.3 million, or 34% from $9.5 million for the year ended December 31, 2023 to $12.8 million for the year ended December 31, 2024. The Company halted development on a certain product release resulting in a software impairment charge of $4.0 million. The impairment was a result of a refocus in the product development priorities and strategies of the Company post Greenbrook acquisition. This increase was partially offset by savings related to project spend and personnel.

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Interest Expense

Interest expense increased by $1.9 million, or 34%, from $5.4 million for the year ended December 31, 2023 to $7.3 million for the year ended December 31, 2024 due to interest rates and debt balance increases.

Loss on extinguishment of debt

Loss on extinguishment of debt amounting to $4.4 million was recorded during the three months ended September 30, 2024, related to the Solar Facility. This included $1.2 million of early prepayment fees and $3.2 million of deferred financing expense related to extinguishment of debt.

Other Income, Net

Other income, net decreased by $3.2 million from $5.8 million for the year ended December 31, 2023 to $2.5 million for the year ended December 31, 2024, primarily as a result of the Employee Retention Credit (the “ERC”) of $2.9 million recorded during the year ended December 31, 2023. In addition, interest income earned on the Company’s money market accounts decreased during December 31, 2024 due to lower investment balances during the year.

Comparison of the Years ended December 31, 2023 and 2022

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The information required within this section is incorporated by reference to the information set forth in the section titled “Comparison of the Years ended December 31, 2023 and 2022” in “Management’s Discussion and Analysis of our Financial Condition and Results of Operations” in our 2023 Annual Report on Form 10-K filed on March 8, 2024.

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Liquidity and Capital Resources

Overview

As of December 31, 2024, we had cash and cash equivalents of $18.5 million and an accumulated deficit of $419.8 million, compared to cash and cash equivalents of $59.7 million and an accumulated deficit of $376.1 million as of December 31, 2023. We incurred negative cash flows from operating activities of $31.0 million and $32.0 million for the years ended December 31, 2024 and 2023, respectively. We have incurred operating losses since our inception, and we anticipate that our operating losses will continue in the near term as we seek to expand our sales and marketing initiatives to support our growth in existing and new markets, invest funds in additional research and development activities and utilize cash for other corporate purposes. Our primary sources of capital to date have been from our IPO, private placements of our convertible preferred securities, borrowings under our credit facility, sales of our products and a secondary public offering of our common stock. The Company entered into a Credit Agreement and Guaranty with Perceptive as collateral agent and other lenders defined in the Perceptive Facility. As of December 31, 2024, the Company had $60.0 million of borrowings outstanding under the Perceptive Facility, which has a final maturity on July 25, 2029. The Perceptive Facility is subject to certain financial covenants including a minimum net revenue covenant that escalates over the term of the Perceptive Facility and a minimum liquidity covenant.

If our cash and cash equivalents and anticipated revenues from sales or our products and services 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

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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 Company’s material cash requirements include the following contractual and other obligations.

Debt

On March 2, 2020 the Company entered into a Loan and Security Agreement with Solar as collateral agent and other lenders as defined in the Solar Facility.

On March 7, 2024, the Company entered into a sixth amendment (the “Solar Sixth Amendment”) to the Solar Facility.

Under the Solar Sixth Amendment, Solar (i) waived the specified events with respect to the Company’s non-compliance with the required revenue under the net product revenue covenant and (ii) amended the financial covenants to reflect current projections.

On July 25, 2024 the Company entered into a Credit Agreement and Guaranty with Perceptive and used the proceeds to partially prepay in full all outstanding obligations under our Solar Facility. In connection with this prepayment, the Company paid Solar $64.7 million, which consisted of (i) $60.0 million of remaining principal amount outstanding, (ii) $0.5 million of accrued and unpaid interest, (iii) $3.0 million in connection with the

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final payment fee, and (iv) $1.2 million in connection with the prepayment fee. The Company funded the prepayment of the Solar Facility using proceeds from the Perceptive Facility and cash on hand.

In connection with the Perceptive Facility and closure of the Solar Facility the Company recorded a loss on extinguishment of $4.4 million. This included $1.2 million of early prepayment fees and $3.2 million of deferred financing expense related to extinguishment of debt.

As of December 31, 2024, the Company had $60.0 million of borrowings outstanding under the Perceptive Facility, which has a final maturity on July 25, 2029. The interest rate on borrowings under the Perceptive Facility is the monthly SOFR rate plus 7%.

Leases

The Company has lease arrangements for equipment and certain facilities, including corporate headquarters and our warehouse in Malvern, Pennsylvania and a training facility in Charlotte, North Carolina. Additionally following the acquisition of Greenbrook, the Company has lease agreements related to its Treatment Centers. These lease agreements range from “month-to-month” to seven years in length. As of December 31, 2024, the Company had fixed lease payment obligations of $39.2 million, including $7.7 million due within the next twelve months.

Cash Flows

The following table sets forth a summary of our cash flows for the years ended December 31, 2024, 2023, and 2022:

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Net Cash Used in Operating Activities

Net cash used in operating activities for 2024 was $31.0 million, consisting primarily of a net loss of $43.7 million and an increase in net operating assets of $6.8 million, partially offset by non-cash charges of $19.5 million, primarily consisting of depreciation and amortization, capitalized software impairment, allowance for credit losses, share-based compensation, non-cash interest expense and loss on extinguishment of debt. The increase in net operating assets was primarily due to increases in accounts receivable, prepaid expenses and other assets, prepaid commission expense and decreases in accounts payable and accrued expenses.

Net cash used in operating activities for 2023 was $32.0 million, consisting primarily of a net loss of $30.2 million and an increase in net operating assets of $14.1 million, partially offset by non-cash charges of $12.3 million. The increase in net operating assets was primarily due to increases in accounts receivable and prepaid commission expense, and decreases in accrued compensation. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by customers.

Net cash used in operating activities for 2022 was $30.7 million, consisting primarily of a net loss of $37.2 million and an increase in net operating assets of $4.8 million, partially offset by non-cash charges of $11.2 million. The increase in net operating assets was primarily due to increases in accounts receivable, inventory and prepaid commission expense, which were offset by increases in accounts payable and accrued expenses

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as a result of timing and accrued 2022 compensation and commissions as of December 31, 2022. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by customers.

Net Cash (Used in) Provided by Investing Activities

Net cash (used in) provided by investing activities for the years ended December 31, 2024, 2023 and 2022 was $(2.4) million, $(1.3) million and $6.7 million, respectively. Net cash used in investing activities for the year ended December 31, 2024 was due to cash paid for acquisition, net of cash and restricted cash acquired, purchases of property and equipment and capitalized software costs partially offset by payment received on our promissory notes. Net cash used in investing activities for the year ended December 31, 2023 was due to payments received on our promissory notes offset partially by purchases of property and equipment and capitalized software. Net cash provided by investing activities for the year ended December 31, 2022 was attributable to repayment of a promissory note and purchases of property and equipment and capitalized software costs.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities for the year ended December 31, 2024 was $6.8 million and primarily consisted of the repayment of the Solar Facility, proceeds from the Perceptive Facility issuance of long-term debt and warrants and payment of debt issuance costs related to the Perceptive Facility.

Net cash provided by financing activities for the year ended December 31, 2023 was $22.7 million attributable primarily to additional debt net of final payment and amendment fee paid in connection with the two amendments of the Solar Facility in 2023.

Net cash provided by financing activities for the year ended December 31, 2022 was $0.2 million attributable primarily to proceeds related to stock option exercises.

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Indebtedness

Refer to Note 14. Debt in our audited financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K for information regarding our current Perceptive Facility.

Perceptive Credit Facility

The following table sets forth by year our required future principal payments under the term loan portion of the Perceptive Facility (as discussed in Note 14. Debt) (in thousands):

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Common Stock Offering

On February 10, 2025, the Company closed on a secondary public offering of its common stock in which the Company issued and sold 9,200,000 shares of its common stock, which included shares pursuant to an option granted to the underwriter to purchase additional shares, at a public offering price of $2.25 per share. We received net proceeds of approximately $18.9 million after deducting underwriting discounts, commissions and estimated offering expenses.

Critical Accounting Policies and Use of Estimates

The preparation of our consolidated financial statements in accordance with U.S. GAAP and the rules and regulations of the SEC requires us to make estimates and assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and assumptions on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although we believe our estimates and assumptions are reasonable when made, they are based upon information available to us at the time they are made. We evaluate our estimates and assumptions on an ongoing basis and, if necessary, make adjustments. Due to the risks and uncertainties involved in our business and evolving market conditions and given the subjective element of the estimates and assumptions made, actual results may differ from estimated results.

We define our critical accounting policies as those accounting policies that are most important to the portrayal of our financial condition and results of operations and require our most difficult and subjective judgments. While our significant accounting policies are more fully described in Note 3. Summary of Significant Accounting Policies in our audited consolidated financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies.

Revenue Recognition

We account for revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. Under ASC 606, we recognize revenue when control of the promised good or service is transferred to our customers in an amount that reflects the consideration to which we expect to be

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entitled in exchange for those good or services. Accordingly, we determine revenue recognition by applying the following steps:

We primarily earn revenues from the sale of NeuroStar Advanced Therapy Systems, consumable use treatment sessions, and accessory products. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied, which generally is the point in time when the product is shipped or control is transferred. We sell to end users in the United States and to third-party distributors outside the United States and do not provide return rights. Sales to distributors outside the United States are made in U.S. dollars.

Revenue attributable to the NeuroStar Advanced Therapy Systems purchased on a rent-to-own basis are accounted for either (1) as operating leases and revenue is recognized on a straight-line basis over the term of the lease; or (2) as a sales-type lease and revenue is recognized upon installation.

Our NeuroStar Advanced Therapy System sales in the United States typically have a post-sale training obligation. This obligation is fulfilled after product shipment, and we defer recognizing revenue until training occurs. We defer the fair value attributable to the post shipment training and recognize such revenue when the obligation is fulfilled. We base the fair value of the training using stand-alone service rates. Our sales to our third-party distributors outside the United States do not have these post-sale obligations.

In addition, we provide a one-year warranty for systems sold in the United States. Terms of product warranty differ amongst our third-party distributors outside the United States, but are generally one year. We provide for the estimated cost to repair or replace products under any warranty at the time of sale. We also offer our customers in the United States annual service contracts. Revenue from the sale of annual service contracts is recognized on a straight-line basis over the period of the applicable contract. We also earn revenue from customers from services outside of their warranty term or annual service contracts. Such service revenue is recognized as the services are provided.

Clinic revenue is recognized at a point in time upon the performance of services under contracts with customers and represents the consideration to which the Company expects to be entitled. Clinic revenue is determined based on net patient fees, which includes estimates for contractual allowances and discounts. Net patient fees are estimated using an expected value approach where management considers such variables as the average of previous net patient fees received by the applicable payor and fees received by other patients for similar services and management’s best estimate leveraging industry knowledge and expectations of third-party payors’ fee schedules. Third-party payors include federal and state agencies (under the Medicare programs), managed care health plans and commercial insurance companies.

Business Combinations

We allocate the total purchase price of tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the business combination date, with the excess purchase price recorded as goodwill. The purchase price allocation process requires us to use significant estimates and assumptions, including fair value estimates, as of the business combination date. Although we believe the assumptions and

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estimates we have made are reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired company. Our assumptions and estimates are also partially based on valuation models that incorporate projections of expected future cash flows and operating plans and are inherently uncertain. Valuations are performed by management or third-party valuation specialists under management’s supervision. In determining the fair value of assets acquired and liabilities assumed in business combinations, as appropriate, we may use one of the following recognized valuation methods: the income approach (including discounted cash flows, relief from royalty and excess earnings model), the market approach, or the replacement cost approach.

Examples of significant estimates used to value certain intangible assets acquired include but are not limited to:

Different assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount recorded under each type of asset and liability. The valuations of lease properties, intangible assets, goodwill and non-controlling interests depend heavily on assumptions. Subsequent assessment could result in future impairment charges. We refine these estimates over a measurement period not to exceed one year to reflect new information obtained surrounding facts and circumstances existing at the acquisition date.

Accounting for Goodwill and Other Intangible Assets

Our goodwill represents the excess of the cost over the fair value of net assets acquired. The determination of the value of goodwill and intangibles assets arising from acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of net tangible and intangible assets acquired. Goodwill is not amortized and is assessed for impairment using fair value measurement techniques on an annual basis or more frequently if facts and circumstances warrant such a review. Goodwill is considered to be impaired if we determine that the carrying value of our reporting unit exceeds its respective fair value.

We have finite-lived intangible assets that are reviewed for impairment whenever indicators of impairment exist such as changes in circumstances that indicate the carrying value of the assets may not be recoverable. Recoverability is measured by a comparison of the carrying amount of future net undiscounted cash flows expected to be generated by the associated asset. If the asset’s carrying value is determined to not be recoverable, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the intangible asset. Calculating cash flows for this measurement requires is to make significant estimates and assumptions related to forecasts of futures revenues, expenses and discount rates. Changes in these assumptions could have a significant impact on the fair value of the intangible asset. If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Any impairment recognized could significantly impact our results of operations in the period of impairment.

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Recent Accounting Pronouncements

We refer you to Note 4. Recent Accounting Pronouncements in our audited consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, some of the information contained in the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should review the ‘‘Risk Factors’’ section of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a commercial stage medical technology company focused on designing, developing and marketing products that improve the quality of life for patients who suffer from neurohealth disorders. Our first commercial product, the NeuroStar Advanced Therapy System, is a non-invasive and non-systemic office-based treatment that uses TMS to create a pulsed, MRI-strength magnetic field that induces electrical currents designed to stimulate specific areas of the brain associated with mood. The system is cleared by the FDA to treat adult patients with MDD that have failed to achieve satisfactory improvement from prior antidepressant medication in the current MDD episode. NeuroStar Advanced Therapy System is safe, clinically effective, reproducible and precise and we believe is supported by the largest clinical data set of any competing TMS system. We believe we are the market leader in TMS therapy based on the estimated 169,068 global patients treated with over 6.1 million of our treatment sessions through December 31, 2023. We generated revenues of $71.3 million and $65.2 million for the years ended December 31, 2023 and 2022, respectively.

We designed the NeuroStar Advanced Therapy System as a non-invasive therapeutic alternative to treat patients who suffer from MDD and to address many of the key limitations of existing treatment options. We generate revenues from initial capital sales of our systems, sales of our recurring treatment sessions and from service and repair and extended warranty contracts. We derive the majority of our revenues from recurring treatment sessions. For the year ended December 31, 2023, revenues from sales of our treatment sessions and NeuroStar Advanced Therapy Systems represented 73% and 24% of our U.S. revenues, respectively. For the year ended December 31, 2022, revenues from sales of our treatment sessions and NeuroStar Advanced Therapy Systems represented 71% and 26% of our U.S. revenues, respectively.

We currently sell our NeuroStar Advanced Therapy System and recurring treatment sessions in the United States through our sales and customer support team. Our sales force targets an estimated 53,000 psychiatrists across 26,000 practices. We expect to continue to expand our direct sales and customer support team to further penetrate the market by demonstrating the benefits of our NeuroStar Advanced Therapy System to psychiatrists and their MDD patients. Some of our customers have and may purchase more than one NeuroStar Advanced Therapy System. Based on our commercial data, we believe psychiatrists can recoup their initial capital investment in our system by providing a standard course of treatment to approximately 12 patients. We believe psychiatrists can generate approximately $8,500 of average revenue per patient for a standard course of treatment, which may provide meaningful incremental income to their

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practices. We have a diverse customer base of psychiatrists in group psychiatric practices in the United States. For the years ended December 31, 2023, 2022 and 2021 one customer accounted for 15%, 17% and 20% respectively, of the Company’s revenue. Patients are reimbursed by federal healthcare programs and the vast majority of commercial payors in the United States for treatment sessions utilizing our NeuroStar Advanced Therapy System.

We market our products in a few select markets outside the United States through independent distributors. International revenues represented 3% of our total revenues for the years ended December 31, 2023 and 2022, respectively. In October 2017, we entered into an exclusive distribution agreement with Teijin, for the distribution of our NeuroStar Advanced Therapy Systems and treatment sessions to customers who will treat patients with MDD in Japan. We received regulatory approval for our system in Japan in September 2017. We obtained reimbursement coverage for NeuroStar Advanced Therapy System in Japan, which went into effect on June 1, 2019 and covers patients who are treated in the largest inpatient and outpatient psychiatric facilities in Japan. We expect our international revenues to be consistent as a percentage of our total revenue.

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 development relating to additional indications. We outsource the manufacture of components of our NeuroStar Advanced Therapy Systems that are produced to our specifications, and individual components are either shipped directly from our third-party contract manufacturers to our customers or consolidated into pallets at our Malvern, Pennsylvania facility prior to shipment. Final installation of these systems occurs at the customer site.

Our total revenues increased by $6.1 million, or 9%, from $65.2 million for the year ended December 31, 2022 to $71.3 million for the year ended December 31, 2023. For the year ended December 31, 2023, our U.S. revenues were $69.3 million, compared to $63.4 million for the year ended December 31, 2022, which represented an increase of 9% period over period. As of December 31, 2023, we had an accumulated deficit of $376.1 million.

Components of Our Results of Operations

Revenues

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

NeuroStar Advanced Therapy System Revenues. NeuroStar Advanced Therapy System revenues consist primarily of sales or rentals of a capital component, including equipment upgrades 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 the United States. The SenStar treatment links are disposable units containing single-use access codes that are sold and used outside the United States. Access codes are purchased separately by our customers, primarily on an as-needed basis, and are required by the NeuroStar Advanced Therapy System in order to deliver treatment sessions.

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

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We refer you to the section titled “Critical Accounting Policies and Use of Estimates—Revenue Recognition” appearing elsewhere in this Annual Report on Form 10-K for additional information regarding how we account for revenues.

Sales in the United States represented 97% of our total revenues for the years ending December 31, 2023 and 2022, respectively, and have been generated by our direct sales force. Outside the United States, our sales are made through local third-party distributors. International revenues were 3% for the years ended December 31, 2023 and 2022, respectively. We expect that both our United States and international revenues will increase in the near term as we continue to expand active customer sites utilizing our NeuroStar Advanced Therapy Systems and increase the related patient utilization in the United States, as well as grow our presence in Japan. We expect our revenues to be positively impacted to the extent our direct sales force is successful in increasing the rate of adoption and utilization of treatment with TMS Therapy as an alternative to other MDD treatments.

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, royalties, warranty, shipping, amortization of capitalized software and our operations and field service departments. We expect our cost of revenues to decrease as our product mix changes and we realize efficiencies with our new contract manufacturer.

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, primarily digital media campaigns, travel and training expenses.

We anticipate that our sales and marketing expenses will remain materially consistent during 2024 compared to 2023 expenses, with the exception of the planned growth in our co-op marketing program.

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.

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We anticipate that our general and administrative expenses will remain relatively consistent during 2024 compared to our 2023 expenses.

Research and Development Expenses

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

We plan to incur research and development expenses for the near future as we expect to continue our development of TMS Therapy for the treatment of additional patient populations and new indications related to neurohealth disorders, as well as for various hardware and software development projects. As a result, we expect our research and development expenses to increase during 2024 compared to our 2023 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 notes receivable.

Results of Operations

Comparison of the Years ended December 31, 2023 and 2022

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Revenues

Total revenues increased by $6.1 million, or 9%, from $65.2 million for the year ended December 31, 2022 to $71.3 million for the year ended December 31, 2023. For the period ended December 31, 2023, U.S. revenue increased by 9% and international revenue increased by 12% over the comparative prior year period. The U.S. revenue growth was primarily due to an increase in Treatment sessions revenues in connection with the growth of active customer sites and utilization.

Revenues in the United States increased by $5.9 million, or 9%, from $63.4 million for the year ended December 31, 2022 to $69.3 million for the year ended December 31, 2023. NeuroStar Advanced Therapy System revenue in the United States for year ended December 31, 2023 was $16.5 million which was in line with revenue at December 31, 2022 at $16.6 million. NeuroStar capital sales consisted of 204 units in NeuroStar Advanced Therapy Systems for the year ended December 31, 2023 compared to 213 units for the year ended December 31, 2022. The Company expects to recognize future recurring treatment session revenue related to the sale of 204 NeuroStar Advanced Therapy systems for the year ended December 31, 2023.

Treatment sessions revenues represented 73% and 71% of total revenues in the United States for the years ended December 31, 2023 and 2022, respectively, and increased by 13% from $45.1 million for the year ended December 31, 2022 to $50.9 million for the year ended December 31, 2023. The increase in U.S. treatment session revenue was primarily the result of an increase of 218,244 treatment sessions sold from 572,587 units for the year ended December 31, 2022 to 791,023 for the year ended December 31, 2023. We

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believe the increase in overall volume of treatment session revenue between these two periods was primarily due to the growth in active customer sites of 44 from 1,101 as of December 31, 2022 to 1,145 as of December 31, 2023 and increase in overall utilization. Due to the time it takes for the customer sites to become fully operational, treatment session revenue will lag in the growth of our active customer sites.

Cost of Revenues and Gross Margin

Cost of revenues increased by $4.2 million, or 27%, from $15.5 million for the year ended December 31, 2022 to $19.6 million for the year ended December 31, 2023. This increase was primarily due to the recording of a $1.9 million inventory impairment for specialized component parts secured for discontinued NeuroStar Advanced Therapy Systems for which costs exceed net realizable value. Also capitalized software and the corresponding amortization expense increased by $1.3 million associated with the latest product release. One-time expense relating to our transition to a new contract manufacturer amounted to $0.7 million. Gross margin was 72.5% for the year ended December 31, 2023 compared to 76.3% for the year ended December 31, 2022. The decrease in gross margin was driven by the one-time inventory impairment, the higher operational costs related to our transition to a new third-party contract manufacturing partner and software amortization expense from the latest product release.

Sales and marketing Expenses

Sales and marketing expenses decreased by $2.7 million, or 5%, from $50.0 million for the year ended December 31, 2022 to $47.3 million for the year ended December 31, 2023. The decrease was primarily driven by the discontinuation of a sales compensation program in 2023. Neuronetics offered a retention program to sales personnel in 2022 and did not continue the program in 2023, resulting in a decrease in sales personnel expense. The decrease was partially offset by an increase in marketing program spend, specifically the growth in the co-op marketing initiative.

General and Administrative Expenses

General and administrative expenses remained relatively consistent at $25.4 million for the year ended December 31, 2023 compared with $25.5 million for the year ended December 31, 2022.

Research and Development Expenses

Research and development expenses remained relatively consistent at $9.5 million for the year ended December 31, 2023 compared with $9.3 million for the year ended December 31, 2022

Interest Expense

Interest expense increased by $1.2 million, or 28%, from $4.2 million for the year ended December 31, 2022 to $5.4 million for the year ended December 31, 2023 due to interest rates and debt balance increases.

Other Income, Net

Other income, net increased by $3.5 million from $2.2 million for the year ended December 31, 2022 to $5.8 million for the year ended December 31, 2023, primarily as a result of the Employee Retention Credit (the “ERC”) of $2.9 million, increased interest income earned on the Company’s money market accounts and increase in notes receivable interest.

Comparison of the Years ended December 31, 2022 and 2021

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The information required within this section is incorporated by reference to the information set forth in the section titled “Comparison of the Years ended December 31, 2022 and 2021” in “Management’s Discussion

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and Analysis of our Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K filed on March 7, 2023.

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Liquidity and Capital Resources

Overview

As of December 31, 2023, we had cash and cash equivalents of $59.7 million and an accumulated deficit of $376.1 million, compared to cash and cash equivalents of $70.3 million and an accumulated deficit of $345.9 million as of December 31, 2022. We incurred negative cash flows from operating activities of $32.0 million and $30.7 million for the years ended December 31, 2023 and 2022, respectively. We have incurred operating losses since our inception, and we anticipate that our operating losses will continue in the near term as we seek to expand our sales and marketing initiatives to support our growth in existing and new markets, invest funds in additional research and development activities and utilize cash for other corporate purposes. Our primary sources of capital to date have been from our IPO, private placements of our convertible preferred securities, borrowings under our credit facility, sales of our products and a secondary public offering of our common stock. As of December 31, 2023, we had $60.0 million of borrowings outstanding under our credit facility, which has a final maturity in March 2028. Management believes that the Company’s cash and cash equivalents as of December 31, 2023 and anticipated revenues from sales of its products are sufficient to fund the Company’s operations for at least 12 months.

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:

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The Company’s material cash requirements include the following contractual and other obligations.

Debt

In March 2020, the Company entered into the Solar Facility. As of December 31, 2023, the Company had $60.0 million of borrowings outstanding under the Solar Facility, which has a final maturity in March 2028. The interest rate on borrowings under the credit facility is variable and resets monthly. The Company will commence principal payments on the facility starting April 2026 with total borrowings of $60.0 million due at maturity. In addition, the Company will make a final payment fee of $1.9 million at maturity. Future interest payments related to the facility total $22.0 million, including $6.7 million due within the next twelve months as of December 31, 2023.

On March 7, 2024, the Company entered into a sixth amendment (the “Solar Sixth Amendment”) to the Solar Facility.

Under the Solar Sixth Amendment, Solar (i) waived the specified events with respect to the Company’s non-compliance with the required revenue under the net product revenue covenant and (ii) amended the financial covenants to reflect current projections.

The foregoing summary of the Solar Sixth Amendment does not purport to be complete and is qualified in its entirety by reference to the Solar Sixth Amendment, a copy of which is filed as Exhibit 10.9 hereto and incorporated herein by reference.

Leases

The Company has lease arrangements for equipment and certain facilities, including corporate headquarters and our warehouse in Malvern, Pennsylvania and a training facility in Charlotte, North Carolina. As of December 31, 2023, the Company had fixed lease payment obligations of $3.7 million, including $0.9 million due within the next twelve months.

Cash Flows

The following table sets forth a summary of our cash flows for the years ended December 31, 2023, 2022, and 2021:

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Net Cash Used in Operating Activities

Net cash used in operating activities for 2023 was $32.0 million, consisting primarily of a net loss of $30.2 million and an increase in net operating assets of $14.1 million, partially offset by non-cash charges of $12.3 million. The increase in net operating assets was primarily due to increases in accounts receivable and prepaid commission expense, and decreases in accrued compensation. Non-cash charges consisted of depreciation and amortization, inventory impairment, non-cash interest expense, share-based compensation, and the cost of rental units purchased by customers.

Net cash used in operating activities for 2022 was $30.7 million, consisting primarily of a net loss of $37.2 million and an increase in net operating assets of $4.8 million, partially offset by non-cash charges of $11.2 million. The increase in net operating assets was primarily due to increases in accounts receivable, inventory and prepaid commission expense, which were offset by increases in accounts payable and accrued expenses as a result of timing and accrued 2022 compensation and commissions as of December 31, 2022. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by customers.

Net cash used in operating activities for 2021 was $28.0 million, consisting primarily of a net loss of $31.2 million and an increase in net operating assets of $6.6 million, partially offset by non-cash charges of $9.8 million. The increase in net operating assets was primarily due to increases in accounts receivable, inventory and prepaid commission expense, which were offset by increases in accounts payable and accrued expenses as a result of timing and accrued 2021 compensation and commissions as of December 31, 2021. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by customers.

Net Cash (Used in) Provided by Investing Activities

Net cash (used in) provided by investing activities for the years ended December 31, 2023, 2022 and 2021 was $(1.3) million, $6.7 million and $(9.8) million, respectively. Net cash used in investing activities for the year ended December 31, 2023 was due to payments received on our promissory notes offset partially by purchases of property and equipment and capitalized software costs. Net cash provided by investing activities for the year ended December 31, 2022 was attributable to repayment of a promissory note and purchases of property and equipment and capitalized software costs. Net cash used in investing activities for the year ended December 31, 2021 was attributable to issuance of our promissory note and purchase of property and equipment and capitalized software costs.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2023 was $22.7 million attributable primarily to additional debt net of final payment and amendment fee paid in connection with the two amendments of the Solar Facility in 2023.

Net cash provided by financing activities for the year ended December 31, 2022 was $0.2 million attributable primarily to proceeds related to stock option exercises.

Net cash provided by financing activities for the year ended December 31, 2021 was $83.0 million and primarily consisted of additional proceeds from our secondary public offering and sale of our common stock on February 2, 2021 and cash proceeds related to stock option exercises.

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Indebtedness

Refer to “Note 12. Debt” in our audited financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K for information regarding our current Solar Facility.

Solar Credit Facility

The following table sets forth by year our required future principal payments under the term loan portion of the Solar Facility (as discussed in “Note 12. Debt”) (in thousands):

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Common Stock Offering

On February 2, 2021, we closed a secondary public offering of our common stock in which we issued and sold 5,566,000 shares of our common stock, which included shares pursuant to an option granted to underwriters to purchase additional shares, at a public offering price of $15.50 per share. We received net proceeds of approximately $80.6 million after deducting underwriting discounts, commissions and estimated offering expenses. The Company intends to use the net proceeds of the offering for general corporate purposes, including working capital, research and development, marketing and evaluating new clinical indications.

Critical Accounting Policies and Use of Estimates

The preparation of our financial statements in accordance with U.S. GAAP and the rules and regulations of the SEC requires us to make estimates and assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and assumptions on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although we believe our estimates and assumptions are reasonable when made, they are based upon information available to us at the time they are made. We evaluate our estimates and assumptions on an ongoing basis and, if necessary, make adjustments. Due to the risks and uncertainties involved in our business and evolving market conditions and given the subjective element of the estimates and assumptions made, actual results may differ from estimated results.

We define our critical accounting policies as those accounting policies that are most important to the portrayal of our financial condition and results of operations and require our most difficult and subjective judgments. While our significant accounting policies are more fully described in “Note 3. Summary of Significant Accounting Policies” in our audited financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies.

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Revenue Recognition

We account for revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. Under ASC 606, we recognize revenue when control of the promised good or service is transferred to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those good or services. Accordingly, we determine revenue recognition by applying the following steps:

We primarily earn revenues from the sale of NeuroStar Advanced Therapy Systems, consumable use treatment sessions, and accessory products. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied, which generally is the point in time when the product is shipped or control is transferred. We sell to end users in the United States and to third-party distributors outside the United States and do not provide return rights. Sales to distributors outside the United States are made in U.S. dollars.

Revenue attributable to the NeuroStar Advanced Therapy Systems purchased on a rent-to-own basis are accounted for either (1) as operating leases and revenue is recognized on a straight-line basis over the term of the lease; or (2) as a sales-type lease and revenue is recognized upon installation.

Our NeuroStar Advanced Therapy System sales in the United States typically have a post-sale training obligation. This obligation is fulfilled after product shipment, and we defer recognizing revenue until training occurs. We defer the fair value attributable to the post shipment training and recognize such revenue when the obligation is fulfilled. We base the fair value of the training using stand-alone service rates. Our sales to our third-party distributors outside the United States do not have these post-sale obligations.

In addition, we provide a one-year warranty for systems sold in the United States. Terms of product warranty differ amongst our third-party distributors outside the United States, but are generally one year. We provide for the estimated cost to repair or replace products under any warranty at the time of sale. We also offer our customers in the United States annual service contracts. Revenue from the sale of annual service contracts is recognized on a straight-line basis over the period of the applicable contract. We also earn revenue from customers from services outside of their warranty term or annual service contracts. Such service revenue is recognized as the services are provided.

Recent Accounting Pronouncements

We refer you to “Note 4. Recent Accounting Pronouncements” in our audited financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, some of the information contained in the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should review the ‘‘Risk Factors’’ section of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

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, (“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 United States Food and Drug Administration, (“FDA”), to treat adult patients with major depressive disorder, (“MDD”), that have failed to achieve satisfactory improvement from prior antidepressant medication in the current MDD episode. NeuroStar Advanced Therapy is safe, clinically effective, reproducible and precise and we believe is supported by the largest clinical data set of any competing TMS system. We believe we are the market leader in TMS therapy based on the estimated 147,431 global patients treated with over 5.3 million of our treatment sessions through December 31, 2022. We generated revenues of $65.2 million and $55.3 million for the years ended December 31, 2022 and 2021, respectively.

We designed the NeuroStar Advanced Therapy System as a non-invasive therapeutic alternative to treat patients who suffer from MDD and to address many of the key limitations of existing treatment options. We generate revenues from initial capital sales of our systems, sales of our recurring treatment sessions and from service and repair and extended warranty contracts. We derive the majority of our revenues from recurring treatment sessions. For the year ended December 31, 2022, revenues from sales of our treatment sessions and NeuroStar Advanced Therapy Systems represented 71% and 26% of our U.S. revenues, respectively. For the year ended December 31, 2021, revenues from sales of our treatment sessions and NeuroStar Advanced Therapy Systems represented 78% and 18% of our U.S. revenues, respectively.

We currently sell our NeuroStar Advanced Therapy System and recurring treatment sessions in the United States through our sales and customer support team. Our sales force targets an estimated 50,000 psychiatrists across 26,000 practices that we estimate, based on a 2020 dataset from Symphony Health and our own internal estimates, treat approximately 42% of the total MDD patients in the United States who meet our labeled indication and are insured. We expect to continue to expand our direct sales and customer support team to further penetrate the market by demonstrating the benefits of our NeuroStar Advanced Therapy to psychiatrists and their MDD patients. Some of our customers have and may purchase more than one NeuroStar Advanced Therapy System. Based on our commercial data, we believe psychiatrists can

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recoup their initial capital investment in our system by providing a standard course of treatment to approximately 12 patients. We believe psychiatrists can generate approximately $8,500 of average revenue per patient for a standard course of treatment, which may provide meaningful incremental income to their practices. We have a diverse customer base of psychiatrists in group psychiatric practices in the United States. One customer accounted for more than 10% of our revenues for the years ended December 31, 2022 and 2021. Patients are reimbursed by Medicare and the vast majority of commercial payors in the United States for treatment sessions utilizing our NeuroStar Advanced Therapy System.

We market our products in a few select markets outside the United States through independent distributors. International revenues represented 3% and 3% of our total revenues for the years ended December 31, 2022 and 2021, respectively. In October 2017, we entered into an exclusive distribution agreement with Teijin Pharma Limited, (“Teijin”), for the distribution of our NeuroStar Advanced Therapy Systems and treatment sessions to customers who will treat patients with MDD in Japan. We received regulatory approval for our system in Japan in September 2017. We obtained reimbursement coverage for NeuroStar Advanced Therapy in Japan, which went into effect on June 1, 2019 and covers patients who are treated in the largest inpatient and outpatient psychiatric facilities in Japan. We expect our international revenues to increase as a percentage of our total revenues as we grow our presence in Japan.

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 development relating to additional indications. We outsource the manufacture of components of our NeuroStar Advanced Therapy Systems that are produced to our specifications, and individual components are either shipped directly from our third-party contract manufacturers to our customers or consolidated into pallets at our Malvern, Pennsylvania facility prior to shipment. Final installation of these systems occurs at the customer site.

Our total revenues increased by $9.9 million, or 18%, from $55.3 million for the year ended December 31, 2021 to $65.2 million for the year ended December 31, 2022. For the year ended December 31, 2022, our U.S. revenues were $63.4 million, compared to $53.4 million for the year ended December 31, 2021, which represented an increase of 19% period over period. We expect to continue to incur losses for the next several years as we expand our commercial organization to support our planned sales growth and while continuing to invest in our pipeline indications. As of December 31, 2022, we had an accumulated deficit of $345.9 million.

Recent Developments

COVID-19

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. We experienced significant disruptions, in the first quarter of 2022 and in the years ended 2021 and 2020 from the COVID-19 pandemic. Although business conditions during the rest of 2022 were largely not impacted by the COVID-19 pandemic, we are unable to predict whether the COVID-19 pandemic may have a material impact on our financial condition, results of operations and cash flows in the future due to numerous uncertainties. These uncertainties include the potential resurgence of COVID-19 due to new variants or otherwise, 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 United States, has significantly adversely impacted global economic activity.

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, refer to “Risk Factors” in “Item 1A” of this Annual Report on Form 10-K.

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Components of Our Results of Operations

Revenues

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

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 the United States. The SenStar treatment links are disposable units containing single-use access codes that are sold and used outside the United States. Access codes are purchased separately by our customers, primarily on an as-needed basis, and are required by the NeuroStar Advanced Therapy System in order to deliver treatment sessions.

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

We refer you to the section titled “Critical Accounting Policies and Use of Estimates—Revenue Recognition” appearing elsewhere in this Annual Report on Form 10-K for additional information regarding how we account for revenues.

Sales in the United States represented 97% of our total revenues for the years ending December 31, 2022 and 2021, respectively, and have been generated by our direct sales force. Outside the United States, our sales are made through local third-party distributors. International revenues were 3% for the years ended December 31, 2022 and 2021, respectively. We expect that both our United States and international revenues will increase in the near term as we continue to expand active customer sites utilizing our NeuroStar Advanced Therapy Systems and increase the related patient utilization in the United States, as well as grow our presence in Japan. We expect our revenues to be positively impacted to the extent our direct sales force is successful in increasing the rate of adoption and utilization of treatment with TMS Therapy as an alternative to other MDD treatments.

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, royalties, 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.

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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, television and radio media campaigns, travel and training expenses.

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

General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, including salaries and related benefits, share-based compensation and travel expenses, for employees in executive, finance, information technology, 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 materially consistent during 2023 compared to our 2022 expenses.

Research and Development Expenses

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

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

Interest Expense

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

Other Income, Net

Other income, net consists primarily of interest income earned on our money market account balances and note receivables.

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Results of Operations

Comparison of the Years ended December 31, 2022 and 2021

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Revenues

Total revenues increased by $9.9 million, or 18%, from $55.3 million for the year ended December 31, 2021 to $65.2 million for the year ended December 31, 2022. For the period ended December 31, 2022, U.S. revenue increased by 19% and international revenue marginally decreased by 3% over the comparative prior year period. The U.S. revenue growth was primarily due to an increase in NeuroStar Advanced Therapy System revenues.

Revenues in the United States increased by $10.0 million, or 19%, from $53.4 million for the year ended December 31, 2021 to $63.4 million for the year ended December 31, 2022. NeuroStar Advanced Therapy System revenue in the United States increased by $6.8 million, or 70%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily driven by a 79% increase in NeuroStar Advanced Therapy System capital revenue, which includes capital sales and sales-type leases. The increase in NeuroStar capital revenue was primarily driven by an increase of 84 units in NeuroStar Advanced Therapy Systems sold from 129 units for the year ended December 31, 2021 to 213 units for the year ended December 31, 2022. The Company expects to recognize future recurring treatment session revenue related to the sale of 213 NeuroStar Advanced Therapy systems, for the year ended December 31, 2022 compared to 147 units including 18 units recognized as operating leases for the December 31, 2021 period.

Treatment sessions revenues represented 71% and 78% of total revenues in the United States for the years ended December 31, 2022 and 2021, respectively, and increased by 7% from $41.9 million for the year ended December 31, 2021 to $45.1 million for the year ended December 31, 2022. The increase in U.S. treatment session revenue was primarily the result of an increase in 50,608 treatment sessions sold from 521,979 units for the year ended December 31, 2021 to 572,587 for the year ended December 31, 2022. We believe the increase in overall volume of treatment session revenue between these two periods was primarily due to the growth in active customer sites of 142 from 959 as of December 31, 2021 to 1,101 as of December 31, 2022. Due to the time it takes for the customer sites to become fully operational, treatment session revenue will lag in the growth of our active customer sites.

Cost of Revenues and Gross Margin

Future Issuance

Cost of revenues increased by $3.8 million, or 33%, from $11.7 million for the year ended December 31, 2021 to $15.5 million for the year ended December 31, 2022. Gross margin was 76.3% for the year ended December 31, 2022 compared to 78.9% for the year ended December 31, 2021. The decrease in gross margin was the result of a change in the product mix of revenue versus the prior year.

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Sales and Marketing Expenses

Sales and marketing expenses increased by $12.2 million, or 32%, from $37.7 million for the year ended December 31, 2021 to $50.0 million for the year ended December 31, 2022. The change was primarily due to an increase of $9.4 million in personnel costs related to salary, share-based compensation, bonus, commissions (this includes a one-time commission retention benefit of $3.7 million), and payroll taxes. $0.7 million in marketing related to a new campaign launch and focus on in person customer sales summits, and $0.9 million related to the opening of Charlotte facility for NeuroStar University and other sales training programs. Travel expense increased by $0.9 million driven by inflation and additional head count.

General and Administrative Expenses

General and administrative expenses remained relatively consistent at $25.5 million for the year ended December 31, 2022 compared with $25.6 million for the year ended December 31, 2021.

Research and Development Expenses

Research and development expenses increased by $1.4 million, or 18%, from $7.9 million for the year ended December 31, 2021 to $9.3 million for the year ended December 31, 2022. The change was primarily due to an increase of $0.9 million in personnel costs related to salary and share-based compensation expense due to an increase in headcount, $0.3 million increase in professional fees related to consulting expense as the Company continued to incur research and development costs to pursue additional indications and NeuroStar Advanced Therapy System upgrades.

Interest Expense

Interest expense increased by $0.2 million, or 6%, from $4.0 million for the year ended December 31, 2021 to $4.2 million for the year ended December 31, 2022.

Other Income, Net

Other income, net increased by $1.8 million from $0.4 million for the year ended December 31, 2021 to $2.2 million for the year ended December 31, 2022, primarily as a result of increased interest income earned on the Company’s money market accounts and note receivables.

Comparison of the Years ended December 31, 2021 and 2020

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The information required within this section is incorporated by reference to the information set forth in the section titled “Comparison of the Years ended December 31, 2021 and 2020” in “Management’s Discussion and Analysis of our Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K filed on March 8, 2022.

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Liquidity and Capital Resources

Overview

As of December 31, 2022, we had cash and cash equivalents of $70.3 million and an accumulated deficit of $345.9 million, compared to cash and cash equivalents of $94.1 million and an accumulated deficit of $308.7 million as of December 31, 2021. We incurred negative cash flows from operating activities of $30.7 million and $28.0 million for the years ended December 31, 2022 and 2021, respectively. We have incurred operating losses since our inception, and we anticipate that our operating losses will continue in the near term as we seek to expand our sales and marketing initiatives to support our growth in existing and new markets, invest funds in additional research and development activities and utilize cash for other corporate purposes.

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Our primary sources of capital to date have been from our IPO, private placements of our convertible preferred securities, borrowings under our credit facility, sales of our products and a secondary public offering of our common stock. As of December 31, 2022, we had $35.0 million of borrowings outstanding under our credit facility, which has a final maturity in February 2025. Management believes that the Company’s cash and cash equivalents as of December 31, 2022 and anticipated revenues from sales of its products are sufficient to fund the Company’s operations for at least 12 months from the issuance of these financial statements.

If our cash and cash equivalents and anticipated revenues from sales 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 Company’s material cash requirements include the following contractual and other obligations.

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Debt

As of December 31, 2022, the Company had $35.0 million of borrowings outstanding under the Solar credit facility, which has a final maturity in February 2025 (“maturity”). The interest rate on borrowings under the credit facility is variable and resets monthly. Prior to the Company commencing principal payments on the facility in March 2023 with total borrowings of $35.0 million coming due in monthly installments, the Company and Solar agreed to delay the first principal payment while negotiating a refinanced credit facility. Under the current facility, the Company will be required to make a final payment fee of $1.9 million at maturity. Future interest payments related to the current facility total $5.4 million, including $3.7 million due within the next twelve months as of December 31, 2022.

Leases

The Company has lease arrangements for equipment and certain facilities, including corporate headquarters and our warehouse in Malvern, Pennsylvania and a training facility in Charlotte, North Carolina. As of December 31, 2022, the Company had fixed lease payment obligations of $4.5 million, including $0.9 million due within the next twelve months.

Cash Flows

The following table sets forth a summary of our cash flows for the years ended December 31, 2022, 2021, and 2020:

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Net Cash Used in Operating Activities

Net cash used in operating activities for 2022 was $30.7 million, consisting primarily of a net loss of $37.2 million and an increase in net operating assets of $4.8 million, partially offset by non-cash charges of $11.2 million. The increase in net operating assets was primarily due to increases in accounts receivable, inventory and prepaid commission expense, which were offset by increases in accrued expenses as a result of timing and accrued 2022 compensation and commissions as of December 31, 2022. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by customers.

Net cash used in operating activities for 2021 was $28.0 million, consisting primarily of a net loss of $31.2 million and an increase in net operating assets of $6.6 million, partially offset by non-cash charges of $9.8 million. The increase in net operating assets was primarily due to increases in accounts receivable, inventory and prepaid commission expense, which were offset by increases in accounts payable and accrued expenses as a result of timing and accrued 2021 compensation and commissions as of December 31, 2021. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by customers.

Net cash used in operating activities for 2020 was $28.4 million, consisting primarily of a net loss of $27.5 million and an increase in net operating assets of $8.3 million, partially offset by non-cash charges of $7.3 million. The increase in net operating assets was primarily due to an increase in net investment in sales-type leases and prepaid commission expense, which were offset by a decrease in accrued expense due to timing and the 2020 payments of 2019 incentive compensation and commission accrued as of December 31, 2019.

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Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by customers, and the loss on debt extinguishment.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by (used in) investing activities for the year ended December 31, 2022, 2021 and 2020 was $6.7 million, $(9.8) million and $(0.7) million, respectively. Net cash provided by investing activities for the year ended December 31, 2022 was due to the repayment of our promissory note offset partially by purchases of property and equipment and capitalized software costs. Net cash used in investing activities for the year ended December 31, 2021 was attributable to issuance of our promissory note and purchases of property and equipment and capitalized software costs. Net cash used in investing activities for the year ended December 31, 2020 was attributable to purchases of property and equipment and capitalized software costs.

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Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31 2022 was $0.2 million attributable primarily to proceeds related to stock option exercises.

Net cash provided by financing activities for the year ended December 31, 2021 was $83.0 million and primarily consisted of additional proceeds from our secondary public offering and sale of our common stock on February 2, 2021 and cash proceeds related to stock option exercises.

Net cash provided by financing activities for the year ended December 31, 2020 was $2.4 million and attributable primarily to proceeds from the exercise of stock options.

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Indebtedness

Refer to “Note 12. Debt” in our audited financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K for information regarding our current Solar credit facility and extinguished Oxford credit facility.

Solar Credit Facility

The following table sets forth by year our required future principal payments under the term loan portion of the Solar Facility (as discussed in “Note 12. Debt”) (in thousands):

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Common Stock Offering

On February 2, 2021, we closed a secondary public offering of our common stock in which we issued and sold 5,566,000 shares of our common stock, which included shares pursuant to an option granted to underwriters to purchase additional shares, at a public offering price of $15.50 per share. We received net proceeds of approximately $80.6 million after deducting underwriting discounts, commissions and estimated offering expenses. The Company intends to use the net proceeds of the offering for general corporate purposes, including working capital, research and development, marketing and evaluating new clinical indications.

Critical Accounting Policies and Use of Estimates

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States, or GAAP, and the rules and regulations of the SEC requires us to make estimates and assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and assumptions on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although we believe our estimates and assumptions are reasonable when made, they are based upon information available to us at the time they are made. We evaluate our estimates and assumptions on an ongoing basis and, if necessary, make adjustments. Due to the risks and uncertainties involved in our business and evolving market conditions and given the subjective element of the estimates and assumptions made, actual results may differ from estimated results.

We define our critical accounting policies as those accounting policies that are most important to the portrayal of our financial condition and results of operations and require our most difficult and subjective judgments. While our significant accounting policies are more fully described in “Note 3. Summary of Significant Accounting Policies” in our audited financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies.

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Revenue Recognition

We account for revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. Under ASC 606, we recognize revenue when control of the promised good or service is transferred to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those good or services. Accordingly, we determine revenue recognition by applying the following steps:

We primarily earn revenues from the sale of NeuroStar Advanced Therapy Systems, consumable use treatment sessions, and accessory products. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied, which generally is the point in time when the product is shipped or control is transferred. We sell to end users in the United States and to third-party distributors outside the United States and do not provide return rights. Sales to distributors outside the United States are made in U.S. dollars.

Revenue attributable to the NeuroStar Advanced Therapy Systems purchased on a rent-to-own basis are accounted for either (1) as operating leases and revenue is recognized on a straight-line basis over the term of the lease; or (2) as a sales-type lease and revenue is recognized upon installation.

Our NeuroStar Advanced Therapy System sales in the United States typically have a post-sale training obligation. This obligation is fulfilled after product shipment, and we defer recognizing revenue until training occurs. We defer the fair value attributable to the post shipment training and recognize such revenue when the obligation is fulfilled. We base the fair value of the training using stand-alone service rates. Our sales to our third-party distributors outside the United States do not have these post-sale obligations.

In addition, we provide a one year warranty for systems sold in the United States. Terms of product warranty differ amongst our third-party distributors outside the United States, but are generally one year. We provide for the estimated cost to repair or replace products under any warranty at the time of sale. We also offer our customers in the United States annual service contracts. Revenue from the sale of annual service contracts is recognized on a straight-line basis over the period of the applicable contract. We also earn revenue from customers from services outside of their warranty term or annual service contracts. Such service revenue is recognized as the services are provided.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the JOBS Act, and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, (the “Securities Act”), for complying with new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. 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. We have elected to avail ourselves of this exemption from complying with new or revised

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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.

Subject to certain conditions, as an emerging growth company, we may rely on certain other exemptions and reduced reporting requirements under the JOBS Act, including without limitation (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (b) the last day of the fiscal year following the fifth anniversary of the date of the completion of our IPO; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous six years; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Recent Accounting Pronouncements

We refer you to “Note 4. Recent Accounting Pronouncements” in our audited financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, some of the information contained in the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should review the ‘‘Risk Factors’’ section of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

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 United States Food and Drug Administration, or FDA, to treat adult patients with major depressive disorder, or MDD, that have failed to achieve satisfactory improvement from prior antidepressant medication in the current MDD episode. NeuroStar Advanced Therapy is safe, clinically effective, reproducible and precise and we believe is supported by the largest clinical data set of any competing TMS system. We believe we are the market leader in TMS therapy based on the estimated 121,960 global patients treated with over 4.3 million of our treatment sessions through December 31, 2021. We generated revenues of $55.3 million and $49.2 million for the years ended December 31, 2021 and 2020, respectively.

We designed the NeuroStar Advanced Therapy System as a non-invasive therapeutic alternative to treat patients who suffer from MDD and to address many of the key limitations of existing treatment options. We generate revenues from initial capital sales of our systems, sales of our recurring treatment sessions and from service and repair and extended warranty contracts. We derive the majority of our revenues from recurring treatment sessions. For the year ended December 31, 2021, revenues from sales of our treatment sessions and NeuroStar Advanced Therapy Systems represented 78% and 18% of our U.S. revenues, respectively. For the year ended December 31, 2020, revenues from sales of our treatment sessions and NeuroStar Advanced Therapy Systems represented 73% and 23% of our U.S. revenues, respectively.

We currently sell our NeuroStar Advanced Therapy System and recurring treatment sessions in the United States through our sales and customer support team. Our sales force targets an estimated 50,000 psychiatrists across 26,000 practices that we estimate, based on data from Symphony Health and our own internal estimates, treat approximately 42% of the total MDD patients in the United States who meet our labeled indication and are insured. We expect to continue to expand our direct sales and customer support team to further penetrate the market by demonstrating the benefits of our NeuroStar Advanced Therapy to psychiatrists and their MDD patients. Some of our customers have and may purchase more than one NeuroStar Advanced Therapy System. Based on our commercial data, we believe psychiatrists can recoup their initial capital investment in our system by providing a standard course of treatment to approximately 12 patients. We believe psychiatrists can generate approximately $8,500 of average revenue per patient for a standard course of treatment, which may provide meaningful incremental income to their practices. We have a diverse customer base of psychiatrists in group psychiatric practices in the United States. One customer accounted for more than 10% of our revenues for the years ended December 31, 2021 and 2020. Patients

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are reimbursed by Medicare and the vast majority of commercial payors in the United States for treatment sessions utilizing our NeuroStar Advanced Therapy System.

We market our products in a few select markets outside the United States through independent distributors. International revenues represented 3% and 4% of our total revenues for the years ended December 31, 2021 and 2020, respectively. In October 2017, we entered into an exclusive distribution agreement with Teijin Pharma Limited, or Teijin, for the distribution of our NeuroStar Advanced Therapy Systems and treatment sessions to customers who will treat patients with MDD in Japan. We received regulatory approval for our system in Japan in September 2017. We obtained reimbursement coverage for NeuroStar Advanced Therapy in Japan, which went into effect on June 1, 2019 and covers patients who are treated in the largest inpatient and outpatient psychiatric facilities in Japan. We expect our international revenues to increase as a percentage of our total revenues as we grow our presence in Japan.

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 development relating to additional indications. We outsource the manufacture of components of our NeuroStar Advanced Therapy Systems that are produced to our specifications, and individual components are either shipped directly from our third-party contract manufacturers to our customers or consolidated into pallets at our Malvern, Pennsylvania facility prior to shipment. Final installation of these systems occurs at the customer site.

Our total revenues increased by $6.1 million, or 12%, from $49.2 million for the year ended December 31, 2020 to $55.3 million for the year ended December 31, 2021. For the year ended December 31, 2021, our U.S. revenues were $53.4 million, compared to $47.5 million for the year ended December 31, 2020, which represented an increase of 12% period over period. We expect to continue to incur losses for the next several years as we expand our commercial organization to support our planned sales growth and while continuing to invest in our pipeline indications. As of December 31, 2021, we had an accumulated deficit of $308.7 million.

Recent Developments

COVID-19

Throughout the years ended 2021 and 2020, the Company experienced a material impact to revenue, particularly with regards to U.S. treatment session revenues as a result of the COVID-19 pandemic. The Company expects that capital equipment sales and treatment session revenues will continue to be materially impacted by the pandemic as customers defer capital purchase decisions and delay new patient treatment starts. System utilization has also declined compared to pre-COVID-19 projections.

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 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 United States, has significantly adversely impacted global economic activity.

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, refer to “Risk Factors” in “Item 1A” of this Annual Report on Form 10-K.

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Components of Our Results of Operations

Revenues

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

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 the United States. The SenStar treatment links are disposable units containing single-use access codes that are sold and used outside the United States. Access codes are purchased separately by our customers, primarily on an as-needed basis, and are required by the NeuroStar Advanced Therapy System in order to deliver treatment sessions.

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

We refer you to the section titled “Critical Accounting Policies and Use of Estimates—Revenue Recognition” appearing elsewhere in this Annual Report on Form 10-K for additional information regarding how we account for revenues.

Sales in the United States represented 97% and 96% of our total revenues for the years ending December 31, 2021 and 2020, respectively, and have been generated by our direct sales force. Outside the United States, our sales are made through local third-party distributors. International revenues were 3% and 4% for the years ended December 31, 2021 and 2020, respectively. We expect that both our United States and international revenues will increase in the near term as we continue to expand active customer sites utilizing our NeuroStar Advanced Therapy Systems and increase the related patient utilization in the United States, as well as grow our presence in Japan. We expect our revenues to be positively impacted to the extent our direct sales force is successful in increasing the rate of adoption and utilization of treatment with TMS Therapy as an alternative to other MDD treatments.

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, royalties, warranty, shipping, and our operations and field service departments. We expect our cost of revenues to increase and 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.

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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, television 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 the United States.

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 materially consistent during 2022 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 and clinical development programs. We typically use our employee, consultant and infrastructure resources across our research and development programs.

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

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Results of Operations

Comparison of the Years ended December 31, 2021 and 2020

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Revenues

Total revenues increased by $6.1 million, or 12%, from $49.2 million for the year ended December 31, 2020 to $55.3 million for the year ended December 31, 2021. For the period ended December 31, 2021, U.S. revenue increased by 12% and international revenue increased by 8% over the comparative prior year period. The U.S. revenue growth was primarily due to an increase in U.S. treatment session revenue and the international revenue growth was primarily driven by an increase in international NeuroStar Advanced Therapy Systems sales.

Revenues in the United States increased by $5.9 million, or 12%, from $47.5 million for the year ended December 31, 2020 to $53.4 million for the year ended December 31, 2021. NeuroStar Advanced Therapy System revenue in the United States decreased by $1.3 million, or 12%, in the year ended December 31, 2021 compared to the year ended December 31, 2020. The decrease was primarily driven by a 16% decrease in NeuroStar Advanced Therapy System capital revenue, which includes capital sales and sales-type leases. The decrease in NeuroStar capital revenue was primarily driven by a decrease of 37 units in NeuroStar Advanced Therapy Systems sold from 166 units for the year ended December 31, 2020 to 129 units for the year ended December 31, 2021. We believe the decline in volume for the NeuroStar Advanced Therapy System revenues between these two periods was primarily due to the impact of COVID-19 as demand for our NeuroStar Therapy System units continued to be significantly impacted by the on-going economic uncertainty created by COVID-19, which created slower than expected expansion into new customer accounts and existing national accounts by our commercial organization. The Company expects to recognize future recurring treatment session revenue related to the sale of 147 NeuroStar Advanced Therapy systems, including 18 units recognized as operating leases, for the year ended December 31, 2021 compared to 166 units for the December 31, 2020 period. The Company did not enter into any operating lease sale agreements in the year ended December 31, 2020 period.

Treatment sessions revenues represented 78% and 73% of total revenues in the United States for the years ended December 31, 2021 and 2020, respectively, and increased by 20% from $34.9 million for the year ended December 31, 2020 to $41.9 million for the year ended December 31, 2021. The increase in U.S. treatment session revenue was primarily the result of an increase in 82,043 treatment sessions sold from 439,936 units for the year ended December 31, 2020 to 521,979 for the year ended December 31, 2021. We believe the increase in overall volume of treatment session revenue between these two periods was primarily due to the growth in active customer sites of 50 from 909 as of December 31, 2020 to 959 as of December 31, 2021. The growth in U.S. treatment session revenue was offset by the impact of COVID-19, which continued to delay new patient starts in 2021.

Cost of Revenues and Gross Margin

Cost of revenues increased by $0.1 million, or 1%, from $11.6 million for the year ended December 31, 2020 to $11.7 million for the year ended December 31, 2021. Gross margin was 78.9% for the year ended December 31, 2021 compared to 76.5% for the year ended December 31, 2020. The increase in gross margin was the result of a change in the product mix of revenue versus the prior year.

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Sales and Marketing Expenses

Sales and marketing expenses increased by $5.1 million, or 16%, from $32.6 million for the year ended December 31, 2020 to $37.7 million for the year ended December 31, 2021. The change was primarily due to an increase of $4.1 million in personnel costs related to salary, share-based compensation, bonus, commissions and payroll taxes, $2.8 million in marketing, related to advertising, trade shows, and new marketing directives, $0.6 million in travel related expenses and $0.3 million related to national sales meetings and sales training costs. The increase in expense was offset by a decrease of $2.1 million in severance related costs and $0.6 million in professional fees. The Company incurred additional sales and marketing expense for the year ended December 31, 2021 compared to the year ended December, 2020 in order to strategically implement new marketing initiatives and to hold more in-person sales events in 2021 with the lifting of certain COVID-19 restrictions.

General and Administrative Expenses

General and administrative expenses increased by $7.4 million, or 40%, from $18.2 million for the year ended December 31, 2020 to $25.6 million for the year ended December 31, 2021. The change was primarily due to an increase of $4.0 million in personnel costs related to share-based compensation and bonus expense, $2.1 million in IT costs related to consulting spend, $0.7 million of administrative costs related to an increase in D&O insurance and credit card processing fees and $0.6 million in other consulting, travel and professional fee related expenses.

Research and Development Expenses

Research and development expenses decreased by $1.3 million, or 14%, from $9.2 million for the year ended December 31, 2020 to $7.9 million for the year ended December 31, 2021. The change was primarily due to a decrease of $1.5 million in personnel costs related to salary, severance and share-based compensation expense due to a decrease in headcount, which was offset by $0.2 million increase in professional fees related to consulting expense as the Company continued to incur research and development costs to pursue additional indications and NeuroStar Advanced Therapy System upgrades.

Interest Expense

Interest expense decreased by $0.5 million, or 11%, from $4.5 million for the year ended December 31, 2020 to $4.0 million for the year ended December 31, 2021. The decrease in interest expense was due to the loss on extinguishment of debt charge recognized in the first quarter of 2020 as part of the termination of Oxford debt facility. Refer to “Note 12. Debt” in our audited financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K regarding the Oxford debt facility.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was due to our recognition of unamortized debt discount and deferred issuance costs as part of Oxford debt facility extinguishment in the first quarter of 2020.

Other Income, Net

Other income, net increased by $0.1 million, or 29% from ($0.3) million for the year ended December 31, 2020 to ($0.4) million for the year ended December 31, 2021, primarily as a result of increased interest income earned on the Company’s money market accounts and note receivables.

Comparison of the Years ended December 31, 2020 and 2019

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The information required within this section is incorporated by reference to the information set forth in the section titled “Comparison of the Years ended December 31, 2020 and 2019” in “Management’s Discussion

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and Analysis of our Financial Condition and Results of Operations” in our 2020 Annual Report on Form 10-K filed on March 2, 2021.

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Liquidity and Capital Resources

Overview

On February 2, 2021, we closed a secondary public offering and sale of our common stock in which we issued and sold 5,566,000 shares of our common stock, which included shares pursuant to an option granted to underwriters to purchase additional shares, at a public offering price of $15.50 per share. We received net proceeds of approximately $80.6 million after deducting underwriting discounts, commissions and estimated offering expenses. Our common stock is listed on the Nasdaq Global Market under the trading symbol “STIM.”

As of December 31, 2021, we had cash and cash equivalents of $94.1 million and an accumulated deficit of $308.7 million, compared to cash and cash equivalents of $49.0 million and an accumulated deficit of $277.5 million as of December 31, 2020. We incurred negative cash flows from operating activities of $28.0 million and $28.4 million for the years ended December 31, 2021 and 2020, respectively. We have incurred operating losses since our inception, and we anticipate that our operating losses will continue in the near term as we seek to expand our sales and marketing initiatives to support our growth in existing and new markets, invest funds in additional research and development activities and utilize cash for other corporate purposes. Our primary sources of capital to date have been from our IPO, private placements of our convertible preferred securities, borrowings under our credit facility, sales of our products and a secondary public offering of our common stock. As of December 31, 2021, we had $35.0 million of borrowings outstanding under our credit facility, which has a final maturity in February 2025. Management believes that the Company’s cash and cash equivalents as of December 31, 2021 and anticipated revenues from sales of its products are sufficient to fund the Company’s operations for at least 12 months from the issuance of these financial statements.

If our cash and cash equivalents and anticipated revenues from sales 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:

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The Company’s material cash requirements include the following contractual and other obligations.

Debt

As of December 31, 2021, the Company had $35.0 million of borrowings outstanding under the Solar credit facility, which has a final maturity in February 2025 (“maturity”). The interest rate on borrowings under the credit facility is variable and resets monthly. Unless the Company refinances the debt, the Company will commence principal payments on the facility starting in April 2023 with total borrowings of $35.0 million due at maturity. In addition, the Company will make a final payment fee of $1.9 million at maturity. Future interest payments related to the facility total $7.6 million, including $3.3 million due within the next twelve months as of December 31, 2021.

Leases

The Company has lease arrangements for equipment and certain facilities, including corporate headquarters and our warehouse in Malvern, Pennsylvania and a training facility in Charlotte, North Carolina. As of December 31, 2021, the Company had fixed lease payment obligations of $5.3 million, including $0.7 million due within the next twelve months.

Cash Flows

The following table sets forth a summary of our cash flows for the years ended December 31, 2021, 2020, and 2019:

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Net Cash Used in Operating Activities

Net cash used in operating activities for 2021 was $28.0 million, consisting primarily of a net loss of $31.2 million and an increase in net operating assets of $6.6 million, partially offset by non-cash charges of $9.8 million. The increase in net operating assets was primarily due to increases in accounts receivable, inventory and prepaid commission expense, which were offset by increases in accounts payable and accrued expenses as a result of timing and accrued 2021 compensation and commissions as of December 31, 2021. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by customers.

Net cash used in operating activities for 2020 was $28.4 million, consisting primarily of a net loss of $27.5 million and an increase in net operating assets of $8.3 million, partially offset by non-cash charges of $7.3 million. The increase in net operating assets was primarily due to an increase in net investment in sales-type leases and prepaid commission expense, which were offset by a decrease in accrued expenses due to timing and the 2020 payments of 2019 incentive compensation and commissions accrued as of December 31, 2019. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, the cost of rental units purchased by customers, and the loss on debt extinguishment.

Net cash used in operating activities for 2019 was $30.5 million, consisting primarily of a net loss of $29.0 million and an increase in net operating assets of $6.9 million, partially offset by non-cash charges of $5.5 million. The increase in net operating assets was primarily due to an increase in accounts receivable and inventory as a result of higher sales volumes, as well as an increase in prepaid commission expense. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by customers.

Net Cash Used in Investing Activities

Net cash used in investing activities for the year ended December 31, 2021, 2020 and 2019 was $9.8 million, $0.7 million and $0.8 million, respectively. Net cash used in investing activities for the year ended December 31, 2021 was due to the issuance of our promissory note and purchases of property and equipment and capitalized software costs. Net cash used in investing activities for the year ended December 31, 2020 and 2019 was in each case attributable to purchases of property and equipment and capitalized software costs.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31 2021 was $83.0 million and primarily consisted of additional proceeds from our secondary public offering and sale of our common stock on February 2, 2021 and cash proceeds related to stock option exercises.

Net cash provided by financing activities for the year ended December 31, 2020 and 2019 was $2.4 million and in each cash attributable primarily to proceeds from the exercise of stock options.

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Indebtedness

Refer to “Note 12. Debt” in our audited financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K for information regarding our current Solar credit facility and extinguished Oxford credit facility.

Solar Credit Facility

Based on a 36-month amortization of the outstanding principal amounts of the Term A Loan beginning on April 1, 2023 as discussed in “Note 12. Debt”, the following table sets forth by year our required future principal payments under the Term A Loan (in thousands):

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Common Stock Offering

On February 2, 2021, we closed a secondary public offering of our common stock in which we issued and sold 5,566,000 shares of our common stock, which included shares pursuant to an option granted to underwriters to purchase additional shares, at a public offering price of $15.50 per share. We received net proceeds of approximately $80.6 million after deducting underwriting discounts, commissions and estimated offering expenses. The Company intends to use the net proceeds of the offering for general corporate purposes, including working capital, research and development, marketing and evaluating new clinical indications.

Critical Accounting Policies and Use of Estimates

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States, or GAAP, and the rules and regulations of the SEC requires us to make estimates and assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and assumptions on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although we believe our estimates and assumptions are reasonable when made, they are based upon information available to us at the time they are made. We evaluate our estimates and assumptions on an ongoing basis and, if necessary, make adjustments. Due to the risks and uncertainties involved in our business and evolving market conditions and given the subjective element of the estimates and assumptions made, actual results may differ from estimated results.

We define our critical accounting policies as those accounting policies that are most important to the portrayal of our financial condition and results of operations and require our most difficult and subjective judgments. While our significant accounting policies are more fully described in “Note 3. Summary of Significant Accounting Policies” in our audited financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies.

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Revenue Recognition

On January 1, 2019, we adopted Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, using the modified retrospective method. Under ASC 606, we recognize revenue when control of the promised good or service is transferred to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those good or services. Accordingly, we determine revenue recognition by applying the following steps:

We primarily earn revenues from the sale of NeuroStar Advanced Therapy Systems, consumable use treatment sessions, and accessory products. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied, which generally is the point in time when the product is shipped or control is transferred. We sell to end users in the United States and to third-party distributors outside the United States and do not provide return rights. Sales to distributors outside the United States are made in U.S. dollars.

Revenue attributable to the NeuroStar Advanced Therapy Systems purchased on a rent-to-own basis are accounted for either (1) as operating leases and revenue is recognized on a straight-line basis over the term of the lease; or (2) as a sales-type lease and revenue is recognized upon installation.

Our NeuroStar Advanced Therapy System sales in the United States typically have a post-sale training obligation. This obligation is fulfilled after product shipment, and we defer recognizing revenue until training occurs. We defer the fair value attributable to the post shipment training and recognize such revenue when the obligation is fulfilled. We base the fair value of the training using stand-alone service rates. Our sales to our third-party distributors outside the United States do not have these post-sale obligations.

In addition, we provide a one year warranty for systems sold in the United States. Terms of product warranty differ amongst our third-party distributors outside the United States, but are generally one year. We provide for the estimated cost to repair or replace products under any warranty at the time of sale. We also offer our customers in the United States annual service contracts. Revenue from the sale of annual service contracts is recognized on a straight-line basis over the period of the applicable contract. We also earn revenue from customers from services outside of their warranty term or annual service contracts. Such service revenue is recognized as the services are provided.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the JOBS Act, and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act 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. 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. We have elected to avail ourselves of this exemption from complying with new or revised

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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.

Subject to certain conditions, as an emerging growth company, we may rely on certain other exemptions and reduced reporting requirements under the JOBS Act, including without limitation (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (b) the last day of the fiscal year following the fifth anniversary of the date of the completion of our IPO; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous six years; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Recent Accounting Pronouncements

We refer you to “Note 4. Recent Accounting Pronouncements” in our audited financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

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