Greenbrook TMS Inc. Q1 2023 Earnings Call
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Welcome to the Greenbrook TMS Inc. Fiscal Year 2023 Q1 Results Conference Call and Webcast. All lines are currently on mute to prevent any background noise. I would 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 investor section events.
After the speaker's remarks, there will be a question and answer session. Analysts and investors are reminded that any additional questions can be directed to company at investorrelations at greenbrooktms.com.
This call contains forward-looking statements which reflect the current expectations or beliefs of the company based on 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 Factor section of the company's annual report on Form 20F for the fiscal year ended December 31, 2022, and in the company's other materials filed with the Canadian Securities Regulatory Authorities.
and the US Securities and Exchange Commission from time to time which are available on CEDAR, EDCAR and on the company's website.
Any forward-looking statement speak only as of the date on which it is made and the company disclaims any intent or obligation to update any forward-looking statement unless required by law. I would now like to turn the meeting over to Mr. Bill Leonard, President and Chief Executive Officer of Greenbrook TMS and Ernst Loypship Chief Financial Officer.
Go ahead please Mr. Leonard.
Thank you, Johanna, and thank you to everyone for joining our conference call and webcast today.
During Q1 2023, we're predominantly focused on the planning and execution of our comprehensive restructuring plan. We are very pleased with our progress to date and our Q1 2023 results illustrate green shoots of significant progress made.
The company returned to positive regional operating income with significant cost reductions in respect of marketing and recurring corporate, general and administrative expenses without proportionate corresponding impact on revenue.
Revenue remain relatively steady quarter over quarter.
after adjusting for your typical seasonal factors of Quarter 1.
We also made significant progress in respect of our EBITDA results, reducing adjusted EBITDA loss by 45% compared to Q4 2022, showing progress in our path to near-term profitability.
We expect the restructuring plan will continue to allow us to rationalize our cost structure, while further reducing business complexity, streamline our operating model, and drive operational efficiencies to improve our cash flows, and ultimately achieve profitability in the future.
Quarterly revenue increased by 52% to $19.9 million, up $6.8 million as compared to the first quarter of 2022, predominantly due to the completion of the success TMS acquisition in the third quarter of 2022, and a strong performance in our mature regions as compared to Q1 2022.
Patient starts and treatment volumes both increased by 57% as compared to the comparative previous quarter.
As I mentioned, the company has made significant progress on its restructuring plan during quarter one 2023 by eliminating approximately $19 million of annualized costs from the business to date.
The company will continue to focus on reducing expenses through the implementation of the restructuring plan. These savings are expected to fully reflected in late 2023 as the cost associated with executing these savings begins to dissipate.
We believe the company is on track to achieve its previously announced target of 22 million to 25 million in cost reductions once the Restruction Plan is fully implemented.
From a macro perspective, we've also seen some positive momentum in the payer criteria on the TMS side, including the use of non-physician practitioners to prescribe TMS.
Although not immediately impacting our operational regions, it's a positive sign for the industry as a whole.
On the Spravato side, we are excited about the continued rollout of this program to diversify our offering to patients. As of the date of this press release, the company has expanded its Spravato offering to 45 treatment centers.
Mental health remains a key focus in the United States, and the unmet demand for treatment remains at an all-time high. We continue to offer innovative solutions for the unmet need, and our leadership position and nationwide footprint continues to serve as a valuable platform to bring the needed help to patients struggling with depression. At the end of Q1 2023, the company...
As Will mentioned, quarterly revenue increased by 52% to 19.9 million, up 6.8 million as compared to the first quarter of 2022, predominantly due to the completion of the acquisition of Success TMS in the third quarter of 2022 and strong performance in our mature regions as compared to Q1 2022.
Patient start and treatment volumes both increased by 57% to 2854 and 92533 respectively as compared to Q1 2022.
Average revenue per treatment decreased by 3% to 215 in Q1 2023 compared to Q1 2022. This decrease was primarily attributed to the change in payer mix and the geographical distribution of revenue.
Same region sales growth was 26.8% in Q1 2023 as compared to 8.3% in Q1 2022. This was predominantly due to the strong performance in our mature region, paired with the weaker market conditions in the comparative prior period, we were impacted by the Omicron Covid variant.
Q3 2021 saw a return to entity wide regional operating income. Regional operating income was 0.7 million during Q1 2023 as compared to a $1 million loss in Q1 2022.
The increase was primarily due to the execution of the restructuring plan. We believe we will be able to continue to achieve near-term operational synergies through the restructuring plan, resulting in a significant reduction in direct center and regional costs, and further enhancing regional operating income.
Corporate GNA, excluding one-time costs and the revaluation of the conversion instruments, increased by 20% compared to Q1 2022 due to the success team TMS acquisition, but decreased by 15% compared to Q4 2022 as a result of the restructuring plan execution.
We believe we can reduce the corporate GNI costs significantly as part of the restructuring plan.
The loss for the period and comprehensive loss increased by 16% to 9.3 million during Q1 2023. The increase is predominantly due to the increase in interest expense arising from the additional equity, additional equity and debt financing completed in Q1 2023. The increase in the depreciation.
as a result of the completion of the success TMS acquisition in Q3 2022 and one-time costs associated with the execution of the restructuring plan. Financing initiatives related expenses and the success TMS related integration expenses.
This was partially offset by the revaluation of the conversion instrument. From a balance sheet perspective, accounts receivable increased by 0.9 million to 14.8 million in Q1 2023 as compared to the end of Q4 2022. The increase in Q1 2023 as compared to Q4 2020 was...
Cash at the end of fiscal 2022 was $8.05 million, including restricted cash.
Moving to our core operating metrics. As at the end of Q1 2023, the total treatment centers increased by 9% to 162 from 148 a year ago. As mentioned previously, subsequent to the execution of the restructuring plan, we will be operating 133 treatment centers.
Compared to Q1 2022, the number of consultations performed increased by 128% to 7975, while the number of new patients starts increased by 57% to 2854, and the number of treatments performed increased by 57% to 92533.
These increases will predominantly due to the completion of the success team, TMS acquisition and strong performance and amateur regions as compared to T1 2022, as I previously mentioned.
We believe that devoting more resources and focus to our best performing centers through the restructuring plan and robust growth on the Alps Provider program will be a catalyst for future revenue growth, despite the reduction in centers.
Back to you, Bill.
Thanks, Ernst. We're very pleased that our focus on the execution of our comprehensive restructuring plan has already yielded early positive results, including the return to entity-wide regional operating income.
We believe that we are now well positioned to reduce the business cost structure sufficiently to operate profitably. As we continue to implement the restructuring plan, we believe that mental health remains a key focus in the United States, and the unmet demand for the treatment remains an all-time high.
We continue to offer innovative solutions for this unmet need and our leadership position and nationwide footprint continues to serve as a valuable platform to bring the needed help to patients struggling with depression.
As always, I would like to take a moment to thank our amazing team. We're extremely proud of them as they continue to deliver the highest levels of care. Most importantly, we know they're making a difference.
We have now treated over 32,000 patients with more than 1.2 million treatments performed. 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 updated on the progress of the company. Thank you for your time today. And with that, Joanna, we will now take questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a three tone prompt acknowledging your request. If you would like to withdraw your question, please press star followed by two.
And if you are using a speakerphone, please lift the handset before pressing any keys.
One moment please for your first question. First question comes from Frank Tackenen at Lake Street Capital Markets. Please go ahead.
Great. Thanks for taking the questions, and congrats on the progress. Bill, I was hoping you could start with one on taking us a little bit deeper into the NeuroNetics Partnership. How are you and NeuroNetics working together, and what is the intended or expected benefit to the partnership? And then maybe if you can touch on if you're seeing any of that come to fruition early in.
Q1 if that was at all a driver of the performance. Yeah, thanks Frank. You know, obviously we've been long-term leaders in this industry since both companies started back in the day. The relationship has never been better. We're both aligned and understand we're driven to provide care for patients really suffering from depression.
What I'm seeing now is positive responses from both senior field management and working closely with Nordinetics to really increase our ability to treat more patients and do more MTs. Keith and I continue to work closely together to enhance the industry and to grow the business. I believe there's opportunities for our team to work closer with them in a field in terms of identifying potential doctors, potential referral sources.
Obviously, they've started a North Star University in Charlotte and our group has access to them. But I love the dialogue taking place between the senior management level. I think Keith and I can really begin to focus on some strategic opportunities along with the payers itself, creating more access to care in terms of expanding the operational capacity and the
ability for providers and also kind of continue to push down that criteria to allow people to kind of get into TMS. So right now
opportunities exist there and opportunities exist on the marketing side as we're both spending money and I think we can kind of streamline that to really focus on effective ways of generating patient opportunities for both companies. So I'm really pleased with the partnership as it exists today.
Got it. That's a great color. And then maybe just for my second one for urns, a two-parter on the financials, can you tease out what portion of the $19.9 million of revenue in Q1 was – urns, a two-parter on the financials, can you tease out what portion of revenue in Q1 was – urns, a two-parter on the financials, can you tease out what portion of revenue in Q1
from the 133 existing centers that are still operating today, and then maybe just walk us through what, where we expect to see the biggest step down in expenses over Q2 and Q3 as these cost savings are reflected in the model.
Absolutely. So as a place to the revenue piece, all intensive purposes, the centers, we wound down those centers during Q1. So the majority of the revenue generated in, the vast majority of the revenue generated in Q1 came from the remaining centers.
So, and what we're seeing going into April is stability in kind of daily treatments. So we haven't seen degradation as it relates to the revenue that was generated by the sentence closed. So the focus in management and the transfer of patients has yielded results.
from a from a cost side perspective. As you can see if you compare Q4 over Q1 a very significant drop in other regional and sensitive support costs predominantly driven by marketing expense and as I alluded to.
the corporate G&A came down on a recurring basis more than 15%, and we'll continue to see a downward trajectory on both of those line items. So that's where we're going to see the biggest cost savings.
essentially a revenue ramp without a proportional increase in costs. And as I mentioned previously on our calls, we're targeting a 55% margin after direct center and patient care costs and ultimately
our mature regions does a 30% margin, a regional operating income margin. So we want to see a gradual reversion to that over the next few years.
Does that answer your question Frank?
Yes, that's perfect. I'll stop there. Thanks for taking the questions.
That's perfect. I'll stop there. Thanks for taking the questions.
Thank you. The next question comes from David Martin at Bloomberg. Please go ahead.
Yes, first one, did you say you hope to get to those margins in the next few years or the next few quarters?
So, in terms of the, we won't get to 30% in the next few quarters, but like we said, we went from the comparative prior year period, a million dollar loss in regional operating income to 2.5.
to generating about 5% regional operating income. We want to scale that into kind of the mid 20s going into through 2023 and then as we go into 2024 hit that target margin of 30%.
Okay, so once all the steps have been taken in the restructuring and the restructuring costs are out, where do you think your corporate G&A expenses going to level out in your other regional and center support costs are going to level out? So—
other regional centers support costs will probably level out to add. There's a marketing is in other regional and center support costs so you have to bear in mind as you ramping revenue there's a variable element to that but if we look at the near term
We key one was about 5 million, we want to keep that consistent and and ramp revenue. That's going to be in the in a working between increasing marketing spending, expand a little bit and reducing the regional personal personnel expenses significantly from a core G&A side.
We, on a recurring basis, are about six million, and we want to get that down to about between four and four and a half million going into 2024.
Okay, great. Second question, your direct center and patient care costs were about $126 per treatment this quarter. They have been as low as in the $107 per treatment range in third and fourth quarter last year. I'm wondering why the jump and
Do you expect this to go down moving forward or to be up in this $126 range?
That's a really good question. So there's a little bit of an accounting anomaly. As you know, we switched the the neuronetics master services agreement, we had a fixed fee arrangement on some of the success.
about success CMS devices, NeuroSAR devices, and we swapped that to a per click fee. So it was a reallocation of where we recognized that as expense. So that's why you've seen a growth from Q4 to Q1 in direct center and patient care costs. So...
That's kind of the anomaly there. If you want to get a sense of where that's going to be going forward, once again, as I said, we want that cost line item to be about 45% in the near term of top line.
essentially generating a 55% direct center operating margin. Okay, like is wage inflation any part of that increase and is lower capacity utilization in the first quarter?
Also part of it that as you move through the quarters and as you typically see capacity utilization go up Will that? drop per treatment
Absolutely. So, in terms of the first quarter, we haven't fully obviously executed the restructuring plan and although there's variable costs in the direct center and patient care cost line item, there's also fixed costs in the…
staffing fixed costs. So we'll see we'll see those as we scale up and utilize utilization goes up, we'll see that drop as a percentage of revenue.
Okay, thanks, that's it for me.
Okay, thanks. That's it for me. Thanks David.
Thank you ladies and gentlemen. As a reminder, should you have any questions, please press star 1. Next question from Justin Keywood at Stifle. Please go ahead.
Hi, good morning. Thanks for taking my call. Ernst, can you speak to the liquidity position of the company and does the current cash position...
enable the business to proceed through the restructuring and into profitability.
So, as we've outlined in our financials, we are in various discussions in terms of shoring up our balance sheet a little bit to execute the restructuring plan.
There is a need for additional capital at the moment and we've got a lot of interest. And we've obviously also got a very supportive lender in Madron, which is also an equity holder and insiders. The accounts payable reduced in the current quarter.
the accounts receivable increased slightly. Any risk in that accounts receivable dragging on as far as the number of days.
Really good question. As I said, we experienced even you have a seasonal factor as it relates to collections. In Q1 typically you see a little bit of a slowdown but even justice for that, we saw some slower collections. We benchmark that against other health care services.
is at risk. As it relates to accounts payable, obviously, that coming down has a lot to do with the conversion of the neuronetics note. And as we raise additional funding, catching up with time and times on bit with vendors.
their rationale for that expansion, what has been the uptake, and how the Spervado offering will continue going forward as for GTMS.
Yeah, thanks, just as we said on earlier calls, we're going to continue to ramp up our model. I think on my last call, I said we'd like to get to at least north of 70 locations this year by the end of the year. It again expands on our platform, creating great utilization at the center level with our doctors and staff, not to mention being able to access additional patients that are here as well.
not responding to TMS or further down the line on depression. So we love what we're seeing from Sperato in terms of its complementary relationship with TMS. We have scenarios where that TMS patient did not respond and we're putting them in Sperato and then we have situations where the Sperato patient.
is now ready, they're at baseline and moving to TMS. So as part of our discussion, we never entered this business to be just TMS. We really wanted to capitalize on a center-based offering for those patients who failed drug therapy at their individual doctor's office.
So for us, one day psychedelics maybe, but for now we really like the expansion to Spervato and TMS and the ability to give patients a treatment that makes sense based on our doctor's recommendation. So we'll continue to see the expansion of Spervato.
Thank you. This bravado in the current quarter as a percentage of total revenue, do you have that?
Yeah, I think Spravato was north of 10% on our current revenue. It's up from last year just based on the fact that we had more centers existing from day one of 2023 compared to the staggered approach of 2022. We do expect to see Spravato north of 10% of our revenue this year.
I think Spervato was north of 10% on our current revenue. It's up from last year, just based on the fact that we had more centers existing from day one of 2023 compared to the staggered approach of 2022. And we do expect to see Spervato north of 10% of our revenue this year. Thank you.
Thank you at this time. There are no further questions. You may proceed. Appreciate everyone's questions and a chance to listening. We can look forward to updating you on our next call. We hope to have more progress for you and we'll see you again in the summertime. Enjoy your summer and thanks for participating.