Q3 2022 Greenbrook TMS Inc Earnings Call
Based on currently 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.
Patients 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 risk and uncertainties section of the company's management's discussion and analysis for the period ended September 32022.
And in the company's other materials filed with the Canadian Securities regulator.
Regulatory authorities and the U S Securities and Exchange Commission from time to time, which are available on SEDAR and Edgar and on the company's website any forward looking statements speaks only as of the date on which it is made and the company disclaims any intent.
Or obligation to update any forward looking statements unless required by law.
I would now like to turn the meeting over to Mr. Bill Leonard and President and Chief Financial Officer of Green broke Tms and earns Loescher Chief Financial Officer. Please go ahead Mr. Lerner.
Thank you Colin and thank you to everyone for joining our conference call and webcast. Today Q3, 2022 was a very busy and exciting quarter for the company.
Success, Tms acquisition added significant operating scale and topline growth to the business and allowed us to achieve a record quarterly consolidated revenue as well as our highest quarterly treatment volumes and consultations performed to date.
Furthermore, we recapitalize the business with the support of that partner in Mandarin asset management.
Revenue for Q3, 2022 increased by 58% to a record high of $20 8 million as compared to Q3 2021.
Quarterly treatment volumes in Q3, 2022 increased by 74% to a record high of 95046 as compared to Q3 2021.
Most exciting consultations performed in Q3 2022 increased by 156% to a record high of 8797% as compared to Q3 2021, while new patient starts increased by 87% to 2848 as compared.
Two Q3 2021 outpacing the revenue growth.
We believe we believe that these increases in consultations perform and new patient starts provides strong momentum into the fourth quarter of fiscal 2022.
We're also very excited about the ongoing rollout of our provider program at select Tms centers, which continue through Q3 2022.
But the program supports our long term business plan of utilizing our existing network of Tms centers to deliver new and innovative treatments to patients suffering from <unk> and other mental health disorders provide.
Providing has provided our Tms centers enable us to leverage excess capacity in our existing centers, thereby enhancing our profit margin.
As at September 30, the company has expanded its offerings to provide up to 35 Tms centers across the U S up from 25% Tms centers as of June 30th.
While I am reviewing our highlights I'll repeat that we completed the previously announced acquisition of Tms success Tms on July 14th 2022, and concurrently entered into a credit agreement for $75 million secured credit facility with management asset management and its affiliated entities, drawing down $55 million term loan at closing on.
July 14th 2022.
From a development perspective.
As of September 32022, our footprint consisted of 184 centers in 20 states up from 131 centers at September 32021.
The success Tms acquisition added 47, Tms centers to our network all complimentary to our existing footprint.
During the quarter management focused on integration of the combined business and the execution of near term operational synergies with a focus on accelerating the companys timeline to profitability, which included reducing our Tms center footprint by seven we are very pleased with the progress of the integration and synergies realized to date.
But our work is not finished we see significant synergies that we can take advantage of over the next 12 months.
And for now a more detailed review of the company's financial and operating performance I will turn it over to our CFO Ernst <unk>.
Thank you Bill before I move into a detailed financial results review it is important to contextualize. The Q3 2022 results.
We consolidated two independent businesses with fully fledged cost structures and although we've made solid progress on executing on synergies. We have not had the time to fully realize the material synergies available to us.
The current cost structure. Therefore still includes a significant duplication of costs, which we believe when removed can make a material impact to the company's profitability profile.
As Bill mentioned revenue for Q3, 2022 increased by 58% to a record high of $20 8 million as compared to Q3, 2021, and 26% to $48 million, while year to date 2022 as compared to year to date 2021.
This was driven predominantly by the completion of the success team.
Acquisition in Q3, 2022, and achieved <unk> is central acquisitions in Q4 tends to anyone.
Average revenue per treatment decrease by 10% to 218 in Q3 2023 as compared to compared to Q3 'twenty to 'twenty, one and decreased by 4% to 222 and year to date 2022 as compared to year to date 2021.
This decrease was primarily attributable to the geographical distribution of revenue.
We're happy to report that same region sales growth came in at 17, 1% in Q3 2022 as compared to nine 4% in Q3 2021 as a result of the growth in our mature regions.
Same reason sales growth was six 9% and year to date 2022, as compared to 14, 9% and yet today 2020 one as a result of the growth in our mature regions decreased in the year to date figure was predominantly due to tight labor market, coupled with prevailing inflation inflationary environment.
Q3 turned into any result in.
Wide regional operating loss.
0.8 million as compared to an entity wide regional operating income of <unk> 2 million. During Q3 2021 entity wide regional operating loss was $2 million during year to date 2022, as compared to <unk> 3 million during year to date 2021.
As mentioned earlier the decrease predominantly related to the duplicate duplicate costs associated with the success Tms acquisition in a challenging economic environment earlier in the period.
Corporate G&A for Q3, two entering into increased by 87% to $9 6 million as compared to Q3, 2021 and increased by 29% to $20 4 million during year to date 2022 as compared to year to date tuning to anyone.
Very important to note that these increases predominantly reflect the one time professional and legal fees related to the <unk> acquisition and the <unk> credit facility and the reevaluation.
Equity based conversion instruments in connection with the <unk> credit facility.
Excluding one time costs and equity based conversion instruments the increase in growth of corporate G&A was 31% and 17% during Q3 2022 and year to date respective Irrespectively. This indicates a relatively lower growth rate as compared to the growth in revenue illustrating that the business is scaling into it centrally.
<unk> business infrastructure structure once again bear in mind, we still believe that we can execute on material synergies, which we believe will rationalize the cost structure even further.
Our operating leverage and planned revenue ramp from the success team acquisition supports our near term timeline to profitability.
The loss for the period and comprehensive loss increased 386% to $16 8 million. During Q3 2022 as compared to Q3 2021 and increased by 78% during yesterday 2022 as compared to yesterday turning to anyone.
This increased similarly was predominantly due to incurring duplicate costs of the combined business. After the acquisition of success Tms arising from operational synergies not yet executed as previously mentioned also increased interest expense depreciation and amortization on acquired net assets loss on extinguishment.
<unk> of loans and the revaluation of equity based conversion instruments played a major role in the increased loss.
From a balance sheet perspective, the accounts receivable balance in Q3, 2022 increased by $3 4 million as compared.
Okay into Q4 2021.
Primarily due to the acquisition.
As Bill mentioned the company completed the previously announced acquisition of success team S. On July 14th 2022. The company also concurrently entered into a credit agreement for its previously announced $75 million secured credit facility with matter in asset management and its affiliated entities drawing down $55 million.
So I'm on the term loan at closing on July 14th 2022.
Importantly, the proceeds from the credit facility were used as follows.
$15 4 million to repay the Oxford credit facility $15 1 million to repay previously loans.
By success, Tms $3 1 million in financing and closing costs too.
$2 9 million to normalized vendor payments aging, resulting from cash management practices practices bias to strengthening our balance sheet and $2 3 million in cash and investments in new Jamie a central locations added on the success Tms side, leaving leaving a remaining balance of the proceeds with respect to the Madden credit facility of 16.
$2 million cash.
Our cash balance of $11 2 million as at September 32022.
Moving to our core operating metrics.
As of the end of Q3 2022, the total Gms centers increased by 40% to 184 from 131 a year ago.
Compared to Q3, 2021 the number of consultation performed increased by a significant 156% to a record 8797, while the number of new patient starts increased by 87% 2848, which we believe will provide strong momentum into the fourth quarter.
Fiscal 2022.
Number of treatments performed increased by 74% to a record 95046% as compared to Q3 2021.
Increases were predominantly due to the additional Tms centers acquired by the company in connection with the <unk> acquisition as well as operational changes to our intake process.
We anticipate that our record highs importantly, consultation and patient treatment starts coupled with the success payments.
<unk> acquisition and the continued rollout of us provider program to be a catalyst for accelerated future growth.
Cubo.
Thank you Ernst we're very excited about the scale and reach of our new combined platform and manager and we have a strong strategic partner, which we expect will help and accelerating green Brooks ability to grow and further expand our mental health platform as we move to profitable operations are all stock acquisition aligns shareholder interest both <unk>.
<unk> and financially.
Our spray bottle program as 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, OCD and other mental health disorders, making the best treatments available. We expect this to be a core growth driver.
Moving forward.
Our record quarterly highs in revenue treatment volumes and consultations perform coupled with the continued rollout of our <unk> program demonstrate the value of our business model and growth strategy, allowing us to deliver exceptional patient care to those suffering from mental health disorders.
Over the next couple of quarters, we will continue to focus on the integration of the combined business and our near term synergies with our focus on positive cash flow.
Before ending I would like to take a moment to thank our amazing team. We're extremely proud of them has continued to deliver the highest level of care.
Most importantly, we know that we are making a difference our servicer in high demand as mental health disorders are at unprecedented levels.
We have now treated over 27000 patients with over 1 million treatments performed an amazing milestone for the company our physicians, our staff and an entire Tms industry.
We are having a significant positive impact on the lives of so many people suffering from mental health disorders.
We look forward to keeping you update on the progress of the company. Thank you for your time today and with that Collin, We will now take questions.
Thank you, ladies and gentlemen, we will now conduct the question and answer session. If you'd like to ask a question. Please press star followed by one on your telephone keypad, if you'd like to withdraw. Your question. Please press star followed by two if you are using a speaker phone. Please lift the handset before pressing any keys.
One moment for your first question.
Okay. Your first question comes from Noel Atkinson from Clarus Securities Noel. Please go ahead.
Hi, Bill and earns well done in Q3, and thanks for taking our questions. This morning.
First off.
Hurricane kind of rolled through Florida at the end of the quarter I was wondering if there was any impact on our revenue there.
There definitely was an impact unfortunate timing of the hurricane and feel bad people had to go through it was probably somewhere between six to 700000 in terms of the revenue hit to Florida. Some.
Some of those patients came back into the system are staffed with amazing job of turning around our centers within a three to five day period, but obviously some patients were lost due to the impact of them on personal level in terms of our house and family. So it definitely had a impact to us.
On at that late in the quarter Okay.
I was wondering if you'd be able to provide some details provided.
35 centers, even growing through deployment quite quickly if that treatment mechanism.
Are you able to provide any details about yours provide of activity in terms of.
Percentage of total treatments or how average rate is relative to the corporate average or anything like that.
Absolutely.
A company standpoint.
The revenue per treatment is north of $300 again, youre seeing less treatments per month, but at the same time that patient is staying in the <unk> program.
Sure.
And a maintenance session as well for two to three months. So its consistent revenue interestingly about half of our patients that we treated thus far have utilized both modalities, whether they started out in Tms therapy, and a path and have come back with <unk>. So it's really giving you kind of their reflection on green broken the care they care of it.
Got in their initial treatment. It is very complementary of one another just shy of about 10% of our patients have moved from <unk> to Tms and in some cases, we do have some patients that are having both modalities. So we like what we're seeing with the provider in terms of growth, but keep in mind. It only represents about 8% of our <unk>.
Revenue in Q3, we're still truly focus on being the leader in Tms therapy and continue to grow in that area, which is represents about 90 plus percent of our business.
And lastly, I don't see us ending the year at 35 centers I can I will say that continue to grow throughout the Q4.
Okay. So I think you folks were hoping to get to a run rate of 5% to 10% of revenues.
<unk>.
Exiting 2022 firms novato, and even though success doesn't do any.
Provider treatments you were already at 8% on the combined business in Q3.
That's correct, Doug, we well within that range and unexpected.
Hey, there.
Yes.
Okay.
And then just one last quick thing here.
I don't know if you folks have provided this before can you just refresh our memories. If you provided any targets for ultimate cost synergies through the success of integration and then.
Or.
Feeling that.
You give us a sense of what.
The savings.
Essentially are for Q4 versus Q3.
Yes, so we haven't given guidance on the on the ultimate.
Percentage of those material what I can say.
If you take the two businesses separately.
And the cost structure versus the combined business, we've managed to take out roughly $1 1 million in recurring costs.
Out of the business, so that represent just north of $4 million and annualized costs.
We've only started scratching the surface as it relates to that.
And.
Although I'm not going to myself to a specific number there.
It's still multiples of that out there as it relates to duplicate costs as we referenced in our public disclosures.
Just to add to that no I think our initial onset of synergies is really we tackled the low hanging fruit you took our marketing area two companies with two different vendors really merge that to create that synergies in our first area, obviously more material changes and synergies available to us as Ernie alluded to.
And the revenue cycle management area, you want to make sure that when you take over a company the size of the SaaS you want to make sure your lineup those contracts and make sure everything's covered off in terms of.
The.
Revenue cycle management side. In addition to intake side, we're seeing significant opportunities.
In response, the intake system, which we highlighted success for and their expertise. So we have plenty of more material synergies go we took advantage of kind of that low hanging fruit in the first quarter. Okay. Great. All right. That's great. That's all for me. Thanks a lot.
Your next question comes from Frank Pakenham from Lake Street Capital markets. Frank. Please go ahead.
Hey, Thanks for taking my questions and congrats on all the progress I wanted to start with the consultations number that number looked a disproportionately strong obviously the year on year comp isn't perfect given it inclusive of success, but that number looks to be EBIT more disproportionately strong even considering the.
Success contribution so maybe just unpack that a little bit what potentially occurred in the quarter and how does that provide you guys confidence going into Q4.
So I think yes, as you say 50, 58% growth in revenue.
We.
Consolidated consultations at the same time in 156% growth in there. So we were very pleased with that and that really is important in looking indicator what that potential pipeline patient pipeline looks like.
I think that as a result, we always said one of the things that the success platform did very well.
On the intake side.
Think.
In executing that synergies and integrating the business we started to.
Yield results from that and I think that the.
That's.
It obviously it took some time to integrate but we've not seen the results on the console side that obviously still needs to translate to patient conversions, but it provides certain providers.
Strong forward looking indicators going into Q4.
Got it Okay. That's helpful. And then maybe one on the business development side, a broader question just top down I heard the comments around <unk> and continued expansion, but maybe looking at the network now that you've had a couple of months with it.
Maybe just give us your renewed thoughts on business development as far as new consolidation closure optimization, just how youre thinking about the current network you have out there right now.
Yes, So we did open up a lot new centers this quarter on the success side of the platform.
We're going to give those time to ramp up we expect a quick ramp and kind of as we go into the new year as far as new centers are going to go we will always take a look at opportunities that come our way both with potential partner doctors and also new development. We believe we have great opportunity to kind of continue to ramp the underperforming areas that were impacted by COVID-19.
<unk> as I said, we expect that number to grow by the end of the year and then into 2023.
And then lastly, we will as a management team, we're always going to evaluate the performance of our centers, whether they are impacted by.
Payer criteria or to factor.
To close the other centers, so that's going to be a consistent theme throughout each quarter right. Now we're comfortable where we are and will continue to look for ramp up both in the underperforming areas success and also with <unk>.
Okay, and then last one for me I think earns your specific commentary was something along the lines of.
Near term timeline to profitability can you provide any further color around the bridge to profitability.
Yes so.
<unk> is very important to contextualize kind of the cash usage, obviously a lot of the cash was used to.
To settle that catch up on transaction costs, and and also investments in new centers on the success side. So the actual operational burn was was actually.
Significantly lower.
As.
Illustrates that at first glance.
Four and half to $5 million.
And as we said we have already taken $1 1 million and recurring costs out of the business.
We expect revenue ramp for the for the.
For the reasons that Bill mentioned and while taking out the cost in the business and that translates to what we've already seen.
<unk> significantly reduced burn.
As we said, we always said we want to be.
<unk> EBITDA positive.
Kind of by the end of the year at least at an exit run rates and then move to kind of cash flow breakeven early early in 2023.
And we're fairly we are laser focused on executing that I'm pretty confident that we can do so.
Great. Okay I'll stop there thanks for taking my questions and congrats again on all the progress.
Thank you thanks.
Your next question comes from Alex Silverman from AWS investment Alex. Please go ahead.
Good morning, and congrats on.
The progress so far.
Number of the other folks here at <unk>.
Sort of the same question, but wondering I'm going to ask it in a different way.
Wondering if you might give us a sense of what a.
Breakeven model might look like in other words, you know what.
<unk>.
What do you need to generate at the regional and center level to be breakeven as a business or.
What are you thinking about below that line in terms of spend just help us with.
What that might look like.
So Alex in terms of we haven't historically given guidance, but what we have always kind of reference.
This combination we essentially if we generated $28 million.
If you consolidate success for the for the full.
Quarter, Ed would be a kind of a 22 million so called an H 8 million run rate.
We need to be kind of about $100 million level and execute on our synergies and that's essentially what the what the breakeven model looks like.
Okay.
The real the three.
<unk> is to become a $100 million business.
And that's kind of the breakeven scenario.
With with maybe a 20% regional margin.
Yeah in terms of like.
As we've guided before the optimal ultimate regional margin.
30%.
From a breakeven perspective.
Obviously needs to be at about 20% and then kind of.
The Gulf G&A being kind of a 20% that will cause it to be breakeven yes.
Got it that's helpful. Thank you very much appreciate that.
Okay.
Your next question comes from Justin <unk> from Stifel. Justin. Please go ahead.
Alright, Thanks for taking my call just on the gross margins of bravado versus a regular Tms services, what's the difference.
So.
Margins are very similar profile slightly higher on the provider side, because you've got a higher reimbursement rate as Bill mentioned is just north of 300 typical for us to provide a treatment.
The.
They've been flows there is you obviously spend.
You don't spend the device cost.
On that treatment, but you are require more provided time.
So that kind of washes out to kind of a very similar similar margin profile. If you call. It the center of that.
The target margins, 30%, you can probably runs bravado out a full center closer to 40%.
And are there any material setup costs for expanding <unk> to new clinics.
So no it's not material, it's a few chairs and kind of divide is and kind of repurposing the room.
Yes.
If you look at our center development costs. The majority of the cost that's going through there because we're not.
Going forward.
For the for the foreseeable future with without a heavy developed center development plan is going to be kind of the retrofitting full force, Nevada, but that's going to be nominal nominal.
In aggregate.
Yes, Joe just to add to that it's roughly we look to have three to six chairs and each provide O clinic across our platform.
Right.
I know, it's relatively early but as far as the.
Operating margins for.
Our clinic with provide plus Tms versus Tms only.
Is there has there been a difference in that I assume with greater revenue. There is some operating leverage to be had.
Yes, no for sure so.
In terms of.
Our case.
Study would be a kind of a rockwell location is where we launched bravado program.
And that is obviously not reflective of our entire network of centers, but that operates.
Above the 40% regional operating margin.
Got it and then just finally.
For the pursuits of breakeven EBITDA for the consolidated operations whats the target timing for that.
So breakeven EBITDA is.
We really want to push for through.
<unk> provided a growth ramp of the new news to the centers and the success platform plus some of the things we're doing to underperforming.
Under performing regions.
We want to get there and as we've always said in Q4.
You kind of a breakthrough breakeven adjusted EBITDA level, and then obviously, we have to ramp a little bit.
From there to be cash flow self sufficient.
And we hope to do that going into 2023.
Got it thanks for taking my questions.
No problem. Thank you.
Your next question comes from David Martin from Bloom Burton David. Please go ahead.
Yes. Thank you I had some problems polling for questions I may have missed some things so I apologize.
But you mentioned the 100 million.
To get to breakeven or profitability.
Do you need new centers for that or can you achieve that with.
The network you have now.
I think in terms of we are fairly confident once again as both the tablets for.
Core catalysts for growth.
New centers.
Establishes its essentially since the time we started.
Engaging with success to now.
<unk> gone from 33 to 47 locations.
So theres a lot of new centers and investment that's gone into that just by virtue of maturing those.
Increased growth in all its provider regions I meant on the management changes we've made in underperforming regions should should have our existing network to be able to get there.
And I want to reiterate in terms of obviously the $100 million is kind of that benchmark for a breakeven when it's when we executed synergies.
And in a steady state scenario, but that really is the.
The aim for the business, that's where we want to get too.
Okay and do you do you believe the cash on the balance sheet now is sufficient to get you to that breakeven point.
Yes, we are.
Based on our targets, we are laser focused in terms of doing those two things.
Executing on the topline growth for the for the reasons that I mentioned and executing on synergies, where there's still significant opportunity and as we speak we are still executing on those so yes.
We obviously don't have.
Enormous amount of cash we still believe through a laser the laser focused execution.
We can get there.
Okay.
Your revenue per treatment in the third quarter was about $11 lower than in second quarter, but the direct center in patient care cost per treatment was $16 lower so you're making $5 more profit.
Treatment was this mainly due to differences in successes cost structure or other factors such as seasonality and do you expect any changes in these levels going forward do you expect the.
Our revenue per treatment to go up or down in the cost per treatment to go up or down.
So yes, there is.
There's a couple of things in play there.
You're right that it's purely the movement in kind of the cost per treatment and revenue per treatment.
Julia product of kind of like I said, you have to contextualize. These results combining two businesses.
The reimbursement rates I'll address first.
Kind of jurisdiction based.
Obviously success of AAV.
The presence in Florida that traditionally has a little bit of a lower reimbursement rates. We also.
Another fact that lets say in a row, we see.
And if you look back we always see this a little bit of softer collections and during the summer months with their.
Folks taking vacation that's reversed so all adjustments with variable consideration was a little bit higher so that will reverse in the uptick and then as we as we expand our provider business.
That's a higher reimbursement rate will probably.
Pick that up again, so I'm fairly confident.
We will see a little bit of a.
Even though in aggregate the success Tms business operates at a slightly lower reimbursement just purely because where they operate.
We'll see a little bit of a reversion back to do very well.
And David.
Add to that and David just to add to that every year or two we have the ability to go back and negotiate with payers to try to get our reimbursement.
Our reimbursement rates increase again, the more patients, we deliver Tms therapy, too and to provide a treatment to and show value in that we believe we have a good opportunity to kind of increase our reimbursement rates.
Okay.
On the other side of things direct center in patient care cost per treatment is that because success has higher capacity utilization that there's centers.
Should we expect that lower cost per treatment at the center level to remain low.
Absolutely. So I think that speaks to some of the synergies on some of the reasons why we made the acquisition things that success.
Really well on specifically relates to the in process there.
<unk> also kind of leverage.
<unk> was more aggressive on using fixed costs and leveraging those.
And as you say capacity utilization so.
With combining the businesses and put it in kind of a best of breed together.
The goal is absolutely to Jude.
Continuing to operate at a lower cost for treatment.
Okay, and then last question once the dust settled where do you expect quarterly regional costs and corporate G&A expenses to track to.
In terms of.
Uh huh.
At what level of revenue.
And it's kind of.
The question I mean, if you if you normalize out.
Our current G&A.
It was nine six in the quarter, if you normalize that out it's running around six we want to take.
<unk>.
So a chunk of that is still out so that gives you a sense in terms of.
Call it between that.
20%.
$5 million range with the revenue ramp.
Alright.
Suri.
What you said normalize that six that would take you back to where you were before you bought success doesn't success add some to the corporate G&A.
It does.
But we are.
Are taking off.
I'm, an individual business, taking out costs and rationalizing our corporate G&A.
And as we've said, yes success will add a little bit of coop G&A, but it is to build a fully fledged cost structures that we've put together.
And part of the synergistic value is.
Kind of eliminating kind of a duplication of large duplication of Corp. G&A. So.
You get to that towards the higher end of that.
$25 million.
Okay, and then the <unk>.
Eight point.
$3 million of regional costs is that expected to be stable going forward or can you get sooner.
Got.
There's going to be less synergies in that theres going to be some synergies as it relates to the intake process.
But that's it's more scale operating leverage there so you're going to ramp your revenue with on significantly ramping your cost structure.
Okay. So expect the cost structure of the regional costs to stay at about $8 three per quarter, but the revenues to start growing.
Again, we'll take.
Okay. Okay. Thank you that's it.
Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by one.
Okay. We have no further questions at this time I will turn it back to you.
I want to thank everyone for participating todays call. This is our last opportunity to speak to you before the ended the year. So wishing you all a happy holiday season, and stay safe stay healthy and we look forward to sharing our progress with you early next year.
And look forward to Avenue again on our next call. Thanks, so much.
Ladies and gentlemen, this concludes your conference call for today.
Thank you for participating and ask that you. Please disconnect your lines.
Okay.