This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: 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 factors section of the company's annual report on Form 20-F for the fiscal year ended December 31, 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 CDAR, EDGAR, 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 Laubscher, Chief Financial Officer. Go ahead, please, Mr. Leonard.
spk03: Thank you, Joanna, and thank you to everyone for joining our conference call and webcast today. During Q1 2023, we 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 remained relatively steady quarter over quarter after adjusting for your typical seasonal factors of quarter one. We also made significant progress in respect of our EBITDA results, reducing adjusted EBITDA loss by 45% compared to Q4 2022, showing progress on 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 restructuring 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 Profoto 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 bravado 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 had a footprint of 162 treatment centers. As of today, we have reduced our operating footprint to 133 treatment centers as a result of this restructuring plan. And now, for a more detailed review of the company's financial and operating performance, I will turn it over to our CFO, Ernst Loebscher. Thank you, Bo.
spk05: As Bo 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 CMS 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 2,854 and 92,533 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 attributable 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 regions paired with the weaker market conditions in the comparative prior period where 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 incomes. Corporate G&A, excluding one-time costs and the revaluation of the conversion instruments, increased by 20% compared to Q1 2022 due to the success in 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 G&A 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 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 CMS 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 primarily as a result of slower than anticipated collection activity, even when considering the typical seasonal factor in our collection cycle. We believe that we will benefit from the reversion to normalize levels in the second quarter, the second and third quarter of fiscal 2023. 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 a percent to 7,975, while the number of new patient starts increased by 57% to 2,854, and the number of treatments performed increased by 57% to 92,533. These increases were predominantly due to the completion of the success TMS acquisition and strong performance in our mature regions as compared to Q1 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 of the office provider program will be a catalyst for future revenue growth, despite the reduction in centers. Back to you, Bill.
spk03: 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 our 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.
spk01: 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 touchtone 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.
spk00: One moment, please, for your first question. First question comes from Frank Takanan at Lake Street Capital Markets.
spk01: Please go ahead.
spk02: 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, and if that was at all a driver of the performances.
spk03: 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 Neuronetics 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 Norristar 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 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.
spk02: Got it. That's a great color. And then maybe just for my second one for Ernst, a two-parter on the financials, can you tease out what portion of the $19.9 million of revenue in Q1 was 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?
spk05: Yeah, absolutely. So, as it relates to the revenue piece, all intensive purposes, the centers, we wound down those centers during Q1. the vast majority of the revenue generated in Q1 came from the remaining centers. And what we're seeing going into April is stability in daily treatments. So we haven't seen degradation as it relates to the revenue that was generated by the centers closed. So the focus and management and the transfer of patients as yielded results. From a cost side perspective, as you can see, if you compare Q4 over Q1, a very significant drop in other regional incentive support costs, predominantly driven by the 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 off the 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.
spk06: Does that answer your question, Frank? That's good. Awesome.
spk02: Yes, that's perfect. I'll stop there. Thanks for taking the questions.
spk01: Thank you. The next question comes from David Martin at Bloombergton. Please go ahead.
spk04: Yes, first one. Did you say you hope to get to those margins in the next few years or the next few quarters?
spk05: 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 generating about 5% regional operating income. We want to scale that into kind of the mid, low to mid 20s going into through 2023. And then as we go into 2024, hit that target margin of 30%. Okay.
spk04: 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 expense is going to level out and your other regional and center support costs are going to level out?
spk05: So other regional and center support costs will probably level out at, there's a, marketing is in other regional incentive 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, Q1 was about 5 million. We want to keep that consistent and ramp revenue. That's going to be in a working between increasing marketing spending, spend a little bit, and reducing the regional personnel expenses significantly. From a corp G&A side, we, on a recurring basis, are at about 6 million, and we want to get that down to about between the 4 and 4.5 million going into 2024.
spk04: Okay, great. Second question. Your direct center and patient care costs were about $126 per treatment this quarter. They have been as low as $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.
spk05: So there's a little bit of an accounting anomaly. As you know, we switched the Neuronetics Master Services Agreement. We had a fixed fee arrangement on some of the success CMS devices, Neurostar devices, and we swapped that to a per-click agreement. So it was a reallocation of where we recognize that 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.
spk04: Okay. Like, is wage inflation any part of that increase? And is lower capacity utilization in the first quarter also part of it as you move through the quarters and as you typically see capacity utilization go up? Will that drop per treatment?
spk05: 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 those as we scale up and utilize, utilization goes up, we'll see that drop as a percentage of revenue.
spk06: Okay. Okay. Thanks. That's it for me. Thanks, David.
spk00: Thank you, ladies and gentlemen.
spk01: As a reminder, should you have any questions, please press star one. Next question from Justin Keywood at Stifle. Please go ahead.
spk07: 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?
spk05: So, as we've outlined in our financials, we are in various discussions in terms of the 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.
spk07: The accounts payable reduced in the current quarter, the accounts receivable reduced. increased slightly. Any risk in that accounts receivable dragging on as far as the number of days?
spk05: 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 just for that, we saw some slower collections. We benchmarked that against other healthcare services companies, and there was a kind of a global macro impact in terms of payers paying a little bit slower. We've seen a very good reversion in March, and we're hoping that that will continue. So I don't think the accounts receivable is at risk. As it relates to accounts payable, obviously, the... That coming down has a lot to do with the conversion of the Neuronetics note. And as we raise additional funding, catching up with payment plans with vendors, with key vendors.
spk07: Thank you. And a question for Bill in your opening remarks. I believe you mentioned Spravato expanding to 45 clinics, which I think is a pretty big jump from Last quarter, if you can just describe the rationale for that expansion, what has been the uptake, and how the Spravato offering will continue going forward as for GTMS.
spk03: Yeah, thanks, Josh. As we said on earlier calls, we're going to continue to ramp Spravato. 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 not responding to TMS or further down the line on depression. So, We love what we're seeing from Spravato in terms of its complementary relationship with TMS. We have scenarios where that TMS patient did not respond and we're putting them in Spravato. And then we have situations where the Spravato 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 situation. 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 Spravato 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 Spravato.
spk07: Thank you. Does Spravato in the current quarter as a percentage of total revenue? Do you have that?
spk03: 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. And we do expect to see Spravato north of 10% of our revenue this year.
spk06: Thank you.
spk00: Thank you. At this time, there are no further questions. You may proceed.
spk03: Appreciate everyone's questions and a chance to listening. We 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 today.
spk01: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Disclaimer