Greenbrook TMS Inc. (GBNH) CEO Bill Leonard on Q2 2022 Results - Earnings Call Transcript

Greenbrook TMS Inc. (NASDAQ:GBNH) Q2 2022 Results Conference Call August 3, 2022 10:00 AM ET

Company Participants

Glen Akselrod - IR

Bill Leonard - President and CEO

Erns Loubser - CFO

Conference Call Participants

Noel Atkinson - Clarus Securities

David Martin - Bloom Burton

Justin Keywood - Stifel GMP

Tania Armstrong - Canaccord Genuity

Frank Takkinen - Lake Street Capital Markets

Operator

Good morning, ladies and gentlemen, and welcome to the TMS Second Quarter 2022 Financial Results. [Operator Instructions]

I would now like to remind everyone that this call is being recorded on Wednesday, August 3, and I’ll turn the conference over to Glen Akselrod. Please go ahead.

Glen Akselrod

Thank you, Joanna, and thank you, everybody, for joining the Greenbrook TMS Q2 2022 Results Conference Call. As noted, I’d like to remind you that this conference call is being recorded today and is also being webcast on the company’s website at www.greenbrooktms.com under the Investors section Events. [Operator Instructions] Analysts and investors are reminded that any additional questions can be directed to the company’s website or to the company’s e-mail at [e-mail]. This call contains forward-looking statements, which reflect the current expectations or beliefs of the company based on the current available information. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the company to differ materially from those discussed in the forward-looking statements.

Factors that could cause actual results or events to differ materially from current expectations are discussed in the Risk Factors section of the company’s annual report on Form 20-F for the fiscal year ended December 31, 2021, and in the Risks and Uncertainties section of the company’s management discussion and analysis for the period ended June 30, 2022, and in the company’s other materials filed with the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission from time to time, which are available on SEDAR, EDGAR and on the company’s website.

Any forward-looking statements speak only as of the date of which it is made, and the company disclaims any intent or obligation to update any forward-looking statements unless required by law. I’d now like to turn the call over to Mr. Bill Leonard, President and Chief Executive Officer of Greenbrook TMS; and Erns Loubser, Chief Financial Officer. Go ahead, please, Mr. Leonard.

Bill Leonard

Thank you, Glen, and thank you to everyone for joining our conference call and webcast today. During Q2 2022, we achieved record quarterly consolidated revenue as well as our highest quarterly treatment volumes and consultations performed to date. Despite a tight labor market and the uncertain macroeconomic factors, which proved to be challenging, we are very excited to report a record quarter, the successful recapitalization of the business and the consolidation of two of the largest TMS providers in the industry. Quarterly revenue increased in Q2 2022 by 4% to $14.2 million as compared to Q2 2021.

While treatment volumes increased in Q2 2022 by 7% with 62,038 treatments performed during Q2 2022 as compared to 58,219 in Q2 2021. We also achieved a record high in quarterly condensation reform, which increased by 22% to 4,318 as compared to 3,522 in Q2 2021, which we believe will provide strong momentum into the third quarter of fiscal 2022. We continue to be excited about the ongoing rollout of SPRAVATO program, which continued through Q2.

This program highlights and affirms our long-term business plan of utilizing our existing network of TMS centers to deliver new and innovative treatments to patients suffering from MDD and other mental health disorders. Providing SPRAVATO to our TMS centers enable us to leverage excess competing in our existing centers, thereby enhancing our profit margins. As of June 30, the company has expanded its offering of SPRAVATO to 25 TMS centers across the U.S. On July 14, 2022, we completed the previously announced acquisition of Success TMS. As one of the largest TMS therapy providers in the United States, the Success TMS acquisition is expected to add significant operating scale and top line growth and is expected to accelerate the company’s time line to profitability through potential near-term operational synergies.

The acquisition added 47 TMS centers to our existing network, which are complementary to our existing footprint. We expect that acquisition has a potential to generate more than $30 million in consolidated revenues to the combined company on a full year basis. We also believe that the all-equity deal structure aligns incentives to build substantial shareholder value to the combined entity. The company also concurrently entered into a credit agreement for its previously announced $75 million secured credit facility with Management -- Asset management LP and its affiliated entities, and funded a $55 million term loan at closing. Using $15.4 million of the proceeds, therefore, to repay the outstanding balance owing under the company’s existing credit facility with Oxford Finance.

We believe this agreement has effectively recapitalized the combined business in an effort to move towards near-term EBITDA positive operations, accelerating our time line to cash flow self-sufficiency.

From a development perspective, as of June 2022, our footprint consisted of 144 centers in 17 states, up from 129 centers as of June 30, 2021. As mentioned previously, the Success TMS acquisition added 47 TMS centers to our existing network, complementary to our existing footprint and brings our combined platform to 191 TMS centers. And for now, on more detailed review of the company’s financial and operating performance, I will turn it over to our CFO, Erns Loubser.

Erns Loubser

Thank you, Bill. As Will mentioned, revenue for Q2 2022 increased by 4% to a record high of $14.2 million as compared to Q2 2021. Revenue for year-to-date 2022 increased by 9% to $27.3 million as compared to year-to-date 2021. This was predominantly due to the Achieve TMS East and Central acquisition, which was completed in Q4 2021. Average revenue per treatment decreased by 3% to $229 in Q2 2022 as compared to Q2 2021 and decreased by 1% to $224 and year-to-date 2022 as compared to year-to-date 2021.

This decrease was primarily attributable to a change in payer mix and the geographical distribution of revenue. Same-region sales growth was negative 4.1% in Q2 2022, the decrease was predominantly due to a tight labor market that created a challenging operating environment, coupled with management’s time and focus on the Success TMS acquisition and the recapitalization of the business. Q2 2022 results on the entity-wide operating loss of $0.1 million as compared to an entity-wide operating income of $0.9 million during Q2 2021.

The loss -- were primarily attributable to costs associated with operating 144 active TMS centers as of June 30, 2022, compared to 122 active TMS centers as of June 30, 2021. Entity-wide regional operating loss was $1.1 million during year-to-date 2022 as compared to $0.6 million during year-to-date 2021. Corporate G&A for Q2 2022 decreased by 4% to $5.6 million as compared to Q2 2021, and increased by 2% to $10.7 million during year-to-date 2022 as compared to year-to-date 2021, demonstrating a flattening of G&A as the company matures. We continue to have operating leverage in our platform and the planned revenue ramp and contribution from the Success TMS acquisition spend supports a near-term time line to profitability. The loss for the period and comprehensive loss increased by 9% during Q2 2022 as compared to Q2 2021, and increased by 5% during year-to-date 2022 as compared to year-to-date 2021.

From a balance sheet perspective, the accounts receivable balance in Q2 2022 decreased compared to Q4 2021 as we continue to see strong cash collections, building off the momentum from H2 2021 and Q1 2022. Our cash balance was $2 million as of June 30, 2022. As a reminder, we recapitalized the business through the $75 million Madryn Credit Facility shortly after the quarter end.

As Bill mentioned, we are very excited about Success TMS transaction, which occurred subsequent to Q2 2022, which we expect will provide the company with accelerated time line to profitability through potential near-term operational synergies. Moving to our core operating metrics. As of the end of Q2 2021, the total number of TMS centers increased by 12% to 144 from 129 a year ago. Compared to Q2, 2021, the number of consultations performed increased by 22% to a record 4,318. The number of new patient starts increased by 9% to 1,809 which we believe is an indicator of strong momentum going into the third quarter of fiscal 2022.

The number of treatments performed increased by 7% to a record 62,038 as compared to Q2 2021. We anticipate that our record highs in quarterly consultations and consistent number in patient treatment starts, coupled with the Success TMS acquisition and the continued rollout of our SPRAVATO program will be a catalyst for accelerated future growth. Back to you, Bill.

Bill Leonard

Thanks, Erns. Challenges aside, we continue to see record results in revenue and growth across our core operating metrics in Q2 2022. We are very excited about the closing of the Success TMS acquisition and to start the journey with success management team, specifically Success CEO, Ben Klein, joining Greenbrook as Chief Operating Officer and a member of the company’s Board of Directors. The Madryn credit facility is expected to accelerate our ability to grow and give us the needed capitalization to further expand on our mental health platform and move towards EBITDA-positive operations and cash flow self-sufficiency, which is our primary goal. Our SPRAVATO program adds to our repertoire of innovative treatments building on the company’s long-term business plan of utilizing its center network as a platform to serve patients suffering from major depressive disorder and other mental health disorders.

We expect this to be a core a growth driver going forward, and now we have the opportunity to expand across the Success TMS platform, which has not yet introduced SPRAVATO into their network. We are extremely proud of our dedicated team that continue to deliver the highest level of patient care in a challenging operating environment. Most importantly, we believe that our business is a needed one.

Mental health treatment demand is at unprecedented levels. Our business fundamentals remain sound. And with the acquisition of Success TMS and the recapitalization of our business through the Madryn Credit Facility, we believe we will become an even more prominent player in the behavioral health market, positioning us better than ever to serve the unmet need for mental health support across the United States. We have now treated over 25,000 patients and are closing in on 1 million treatments performed, a significant positive impact on the lives of so many patients suffering from mental health disorders. We look forward to keeping you updated on the progress of the company.

Thank you for your time today. And with that, operator, we’ll now take questions.

Question-and-Answer Session

Operator

[Operator Instructions] First question comes from Noel Atkinson at Clarus Securities.

Noel Atkinson

Well done on closing the Success acquisition and the new credit facility, that’s great. I have a few quick ones here. Okay. In terms of the labor pressures that you’ve been experiencing, would you be able to provide a sense of how many more procedures could have been completed? Hadn’t you been experiencing those labor shortages and what you’re going to do to try to rectify that?

Bill Leonard

Yes. Thanks, Noel. As you know, it’s been a tight labor market. In this case, we’ve experienced some staffing issues creating some of our patient coverage issues in certain centers. But we’re seeing improving labor market.

So we -- as we go into Q3. As a specific number, I don’t have that answer for you, but we definitely left some opportunities on the table just with some staffing challenges. Disappointingly, those patients will still have the depression. So I believe we can kind of rebound with them and get them back into the centers.

Noel Atkinson

Okay. Secondly, in terms of the Success TMS business, could you be able to provide some profitability metrics? Was it achieving positive EBITDA prior to your acquisition of it?

Erns Loubser

We have not publicly disclosed the financials of Success TMS. We will issue a business acquisition report that will highlight those. In terms of -- on a pro forma basis, with synergies, it’s certainly a profitable business. And -- but on a stand-alone basis, that was trending towards profitability. You essentially at a breakeven point.

Noel Atkinson

Okay. Great. And then just finally, in terms of average rate, so -- how should we think about trends for average rate per procedure following the Success acquisition? And as you scale up here across your existing portfolio?

Erns Loubser

I think the outlook would remain fairly stable. As we do their operating markets with higher reimbursement rates and slightly lower reimbursement rates. They’ve got a slightly higher medicare mix that is lower. But outlook as I look at my modeling, is stable reimbursement from our perspective.

Operator

Next question comes from David Martin from Bloom Burton.

David Martin

I noticed your number of centers decreased from 146 to 144 and the number of regions from 15 to 13. Did you close some centers? Is that what that accounts for? And did you combine some regions? And should we expect some cost savings going forward as a result of both of those moves?

Bill Leonard

Yes. Thanks, David. In terms of the two centers that closed in this quarter, we did close one center in the Massachusetts marketplace just based on proximity to another center, and we combined two centers together from the Achieve East acquisition, which is within West Hartford. We both had locations that were roughly 10 minutes apart, and we merged into one larger center. As for the regions are concerned, I don’t believe any of the region numbers changed.

I’ll have to get back to you on that one. Nothing in my mind changed.

David Martin

Okay. I must have the wrong number. Second question, the impact of COVID and other macro factors, this Q2 versus last year’s Q2. I’m wondering, was there more of an impact this year, like you seem to do really well last year in Q2. And this year, year-over-year growth has slowed a bit despite the fact you bought the Achieve at the end of last year.

Erns Loubser

I think we had -- in Q2 last year, a little bit of a gap between waves and COVID and had some pent-up demand that we treated. So it was a really good quarter for us. as Bill alluded to, this quarter, a combination of, obviously, we achieved a lot in the quarter, a lot of focus on recapitalizing the business through the Madryn facility, merger of success. And then as Bill alluded to, the -- a tight labor market was probably the biggest impact, where we had some coverage issues where we couldn’t start patients due to staffing shortages but also as Bill mentioned with what the macro factor is getting a little bit better, we resolve those issues, and we believe those on lost patients, and we’ve got some momentum going into Q3.

David Martin

So the negative impacts were stronger this year’s Q2 versus last year’s Q2.

Erns Loubser

I would -- it’s difficult to compare, but I would -- I would say so.

Operator

Next question comes from Justin Keywood at Stifel GMP.

Justin Keywood

Just wanted to follow up on the growth. I understood as of Q1, there were some impacts on Omicron affecting procedures. And if I understand correctly, those headwinds are subsiding, but now there’s new headwinds emerging in a tight labor market and the ability to I guess, facilitate these procedures. Are you able to maybe point us towards how this shows up as far as a metric as if there’s an order or a backlog that’s still high as far as patients requesting this treatment that maybe, we’ll be able to execute on in the coming quarters ahead, assuming the tight labor market subsides a bit?

Bill Leonard

Yes. Thanks, Justin. To be honest with you, that tight labor market has been in existence. This is really the first time we’ve experienced it at this level. With that said, even with the tight labor market, the metrics going forward shows that we still have the ability to kind of attract patients and put them in it as record highs and consultations show.

So we’re excited about that moving forward. As we discussed, we’re seeing kind of some -- as we moved into Q3, we’re seeing kind of the labor conditions kind of get stronger and better for us. So we don’t consider this an ongoing issue. It just happened to get us this time. As most have talked about over the last 2 years, a year, especially the labor has been a challenge for a lot of companies.

Erns Loubser

Yes. And just in pointing to the number -- the record number of consultations we’ve done and with sorting out the patient coverage with labor -- with the labor force conversion rates won’t go up. So I think if you keep an eye on kind of the leads, the consultations and leads, that’s a good indicator in terms of what momentum is going in through the next quarter.

Operator

Next question comes from Tania Armstrong at Canaccord Genuity.

Tania Armstrong

Just on the integration of Success TMS, I’m wondering if you could provide a rough estimate of what integration costs will look like as well as what the time line will look like.

Bill Leonard

Yes. Thanks, Tania. We’ve not provided guidance to that, but I’ll be happy to kind of provide, kind of an overview on the key buckets regarding the synergies. So I think if you look at it, we looked at kind of 4 key buckets, and that is really the G&A and recurring corporate cost. And that is -- they were a large company with the same departments as we had, such as legal and HR. And so you have -- obviously, you have some opportunities there. From a marketing standpoint, both companies were spending significant dollars on marketing. Not only will you need less dollars to kind of get what we need to get to, but we won’t be kind of raising those prices as we both compete for keywords. The third area, which is probably the biggest area is the intake optimization. That is something the Success team has done really well, which is going to allow us to kind of streamline operations just through their kind of well-oiled call center. And the last area is the fact that we represent a significant portion of the market now, we do believe the leverage we’ve created in this new company really does provide us some opportunities for kind of purchasing power throughout our landscape.

Erns Loubser

And then if I’ll add to that, Tania. From a time line perspective, we’ve really have the ground running and starting to execute those. Obviously, it’s not going to happen overnight, and there’s going to be some initial costs, which you will see probably come through in the first 2 quarters. And with the expectation to have full integration and full realization of synergies within a 12-month period -- a 6- to 12-month period.

Operator

[Operator Instructions] Next question comes from Frank Takkinen at Lake Street Capital Markets.

Frank Takkinen

Just a couple for me. I wanted to start with just a question around if there’s any potential network optimization. Obviously, it’s a big network now with 191 sites and I heard your comments about some of the combining of sites this quarter in reporting Greenbrook sites at 144 versus 146 last quarter. So now that you have 191 under the umbrella, just any commentary around any network optimization or combining of sites to improve profitability or anything like that?

Bill Leonard

Yes. We’ll definitely look at that as part of our synergies, Frank. But in addition to that, I just think you took the -- combined entity just took the best is going to take the best of both companies. So we’re extremely excited about this. Obviously, like I said, they never had SPRAVATO in their model.

In addition, we generated about 50% of our business from physician relationships in the community. That is something the Success team did not have in place. So we think there’s upside there. As I’ve talked about numerous times, their ability to optimize leads through their call center and their programs is something we’re going to add soon. So we think we’re going to see a stronger performance in the conversion area. And then you look at it from the 191 centers, there’s still some growth available in that market. We’ll continue to look at case-by-case examples of opportunity to both at SPRAVATO and also kind of optimize synergies from a center perspective.

One thing about it is the 47 centers we did add, there was no overlap in that model. There was a -- it’s added new states to us. And even in Florida, they were more on the East Coast side of the state, and we were on the West Coast side of state. So that’s something Ben and I always kind of looked at in terms of the opportunity to merge was that existing footprint. But I think every scenario and every bucket, we’ll look at to drive towards growth and drive towards profitability as quickly as possible.

Frank Takkinen

Okay. That’s helpful. And then maybe one on marketing. Could you bring us just into that strategy a little bit deeper? I mean, I don’t know if you’re comfortable sharing any specific metrics around leads, conversion or anything like that, but just a little bit deeper into what the best of both marketing strategy might look like for Greenbrook on a go-forward basis?

Bill Leonard

Yes. I think we’re going to look at each bucket. So if you looked at the Success side, they were a digital marketing kind of successful company. And if you looked at Greenbrook, we had various buckets. We utilize radio, we utilize digital, but we also utilize a really strong community-based relationships with doctors through our sales team in the field.

Again, so we’re going to look at kind of taking their digital expertise and their optimization from an intake perspective with the call center and then obviously overlay some opportunities we’ve done in the field with our business. We believe that kind of combining those will create a stronger, kind of offering to those network leads that while we’re easy to close, they actually become better now and stronger now. So that’s kind of the area. So each bucket we’ve looked at, we’re going to go forward with the ones that actually drove the most leads and most effective manner.

Operator

There are no further questions. Please proceed.

Bill Leonard

I’d like to thank everyone for joining our call today. Obviously, have -- enjoy all, the rest of your summer and look forward to talking to you again on our next earnings call sometime in November. Thanks, and have a great day.

Erns Loubser

Thank you, all.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.