Neuronetics' 2025 Gross Margin Guidance: A Calculated Path to Profitability Amid Integration Challenges

In the ever-evolving landscape of mental health innovation, Neuronetics (NASDAQ: STIM) has emerged as a pivotal player, leveraging its NeuroStar TMS therapy and the strategic acquisition of Greenbrook TMS to reshape its business model. However, the company's 2025 financial performance has sparked critical questions about its ability to balance margin expansion with rising costs and cash flow volatility. For investors, the key question is whether Neuronetics' revised gross margin guidance and operational adjustments justify continued investment in a sector where margins are under pressure from integration challenges and competitive dynamics.

The Gross Margin Conundrum: Compression and Strategic Rebalancing

Neuronetics' gross margin for Q2 2025 plummeted to 46.6%, a stark contrast to the 74.0% reported in the same period of 2024. This compression is directly tied to the integration of Greenbrook's clinic business, which operates on a lower-margin revenue model compared to Neuronetics' historical focus on NeuroStar system sales and treatment sessions. The company's updated full-year 2025 gross margin guidance of 48–50% reflects a deliberate shift in revenue mix, with Greenbrook's clinic-based services now accounting for a larger share of total revenue.

While this margin contraction is concerning, it is not without strategic intent. Neuronetics is prioritizing long-term scalability over short-term profitability, betting that the expanded clinic network will drive recurring revenue and patient retention. The company anticipates margin improvement in H2 2025 as it optimizes its Spravato business model—shifting from a “bill-and-buy” to an “administer-and-observe” approach—and leverages fixed infrastructure. This pivot could reduce variable costs while increasing throughput, a critical factor in a market where operational leverage is paramount.

Cost Management and Cash Flow: A Delicate Balancing Act

The integration of Greenbrook has also strained Neuronetics' cost structure. Operating expenses in Q2 2025 rose 25% year-over-year to $25.8 million, driven by the inclusion of Greenbrook's general and administrative costs. However, the company has offset some of these pressures through cost savings in sales and marketing and $20 million in annualized synergies from 2024 integration efforts.

Cash flow remains a wildcard. Neuronetics reported a net loss of $9.8 million in Q2 2025 but reduced cash burn to $3.5 million, exceeding its guidance of under $5 million. The company secured an additional $10 million in funding from Perceptive Advisors in August 2025, extending its liquidity runway until September 2026. While this provides temporary relief, the path to positive cash flow hinges on achieving $25–28 million in year-end cash reserves—a target that assumes continued revenue growth and disciplined cost control.

Market Demand and Strategic Positioning: A Tailwind for Growth

Despite margin pressures, Neuronetics is capitalizing on robust demand for its therapies. Greenbrook clinic revenue surged to $23.0 million in Q2 2025, driven by expanded access to TMS and Spravato treatments. The company's recent clinical data on NeuroStar TMS for adolescent depression, coupled with expanded insurance coverage from major providers, positions it to capture a growing segment of the mental health market.

Spravato, in particular, is a double-edged sword. While its inclusion in the revenue mix has compressed margins, its role as a fast-acting treatment for major depressive disorder (MDD) ensures a steady patient pipeline. Neuronetics' ability to optimize the balance between Spravato's variable costs and NeuroStar's fixed infrastructure will be critical to unlocking margin expansion.

The Investment Case: Risks and Rewards

For investors, Neuronetics presents a high-conviction opportunity with clear risks and rewards. On the upside, the company's aggressive integration of Greenbrook has created a diversified revenue stream and a scalable clinic network. The projected cash flow positivity in Q4 2025, if achieved, would validate its operational discipline and provide a foundation for long-term profitability.

However, the path to profitability is fraught with challenges. The company's reliance on external financing (e.g., the Perceptive Advisors tranche) introduces liquidity risk, and its operating expense guidance of $100–105 million for 2025 suggests continued pressure on margins. Additionally, the mental health sector is highly competitive, with rivals like Magstim and BrainsWay offering alternative TMS solutions.

Conclusion: A Calculated Bet on Operational Resilience

Neuronetics' 2025 gross margin guidance and operational adjustments reflect a strategic recalibration rather than a crisis. While the integration of Greenbrook has temporarily dented margins, the company's focus on optimizing its business mix, leveraging fixed infrastructure, and securing liquidity provides a plausible path to profitability. For investors willing to tolerate short-term volatility, Neuronetics offers exposure to a high-growth sector with a clear value proposition.

Investment Advice:
- Bullish Case: Investors who believe in Neuronetics' ability to execute its margin improvement plans and capitalize on the mental health boom should consider a long position, particularly if the stock trades below its intrinsic value based on 2025 cash flow projections.
- Bearish Case: Those wary of cash flow uncertainty and competitive pressures may prefer to wait for clearer signs of margin stabilization or a more conservative valuation.

In the end, Neuronetics' success will hinge on its ability to transform integration challenges into operational leverage—a test of management's execution and the market's appetite for long-term value.