Nexstim’s guidance indicates profitability turnaround but industry companies seem to continue making losses

Translation: Original comment published in Finnish on 3/21/2023 at 6:52 am.

The medical technology company Nexstim designs and manufactures TMS systems (TMS = transcranial magnetic stimulation) that electronically stimulate the brain. The systems are used for pre-operative mapping of brain surgeries and treatment of major depressive disorder and chronic pain. The company has two listed competitors: the US-based Neuronetics and the US-Israeli -based Brainsway, of which Neuronetics in particular seems to have achieved growth at the end of 2022. The companies in the industry seem to continue to generate losses, although Nexstim’s guidance indicated a profitability turnaround this year.

Revenue development of Nexstim and its listed competitors has been bumpy

Nexstim’ revenue (2022: 6.0 MEUR) grew strongly in 2019-2021, driven especially by the therapy system (NBT) whose sale started in 2018, which had a positive impact on both the system sales and recurring revenue. The slope of the growth stabilized in 2022 and in H2 revenue decreased from the comparison period, especially due to lower system sales. Nexstim’s cumulative growth (CAGR) H1’19-H2’22 was about 26 %.

Brainsway (revenue 2022: 27.2 MEUR) stands out from its competitors by technology that affects deeper brain areas. The company was able to grow fairly evenly until Q2'22, but the last two quarters have been difficult as revenue fell clearly. The reasons for the weak development remained unclear in the reports. The company’s cumulative growth Q2’19-Q4’22 was 1.5 %.

Neuronetics (revenue 2022: 65.2 MEUR) is the largest company in the industry with cumulative growth of 2.7% in Q2’19-Q4’22. The company suffered from COVID lockdowns in early 2020 but has grown more strongly than its competitors in the past few quarters. In the latest report, the company reported an 18% annual growth. Growth has been driven by both system sales and good business development based on recurring treatments.

*EUR 3.5 million signing fee adjusted from Nexstim’s H1’22 figures.

The companies in the industry continue to be loss-making for now

Nexstim reported an operating profit for the financial year 2022 but adjusted for the non-recurring signing fee from a license agreement, continuing business was still loss-making. We believe that Nexstim’s loss-making performance is mainly explained by the low revenue level. We also believe that competitors have been loss-making throughout their operations. In Neuronetics’ case, loss-making appears to be explained by a pursuit of growth with heavy sales and marketing investments. Brainsway, on the other hand, approached profit in 2020, but especially the recent fall in revenue has also turned profitability clearly negative. We believe, the non-listed competitors of Nexstim are also loss-making, so in terms of profitability the industry situation seems challenging at the moment.

Nexstim seems to emphasize profitability more than its competitors

During the ongoing strategy period, Nexstim has emphasized profitable growth and for the current year the company’s guidance is a positive EBITDA. The guidance was a positive surprise to us, which, if materialized would be an important step for the company towards sustainable profit. We estimate that there were no signs of Neuronetics’ and Brainsway’s loss-making ending in the latest reports. Both companies have a strong cash position which we estimates enables the current loss level to continue for around two years without collecting new capital. A general trend of the industry towards profitability would, in our opinion, be positive for Nexstim.