Greenbrook TMS Inc. (NASDAQ:GBNH) Q4 2021 Earnings Conference Call April 1, 2022 10:00 AM ET
Company Participants
Bill Leonard – President and Chief Executive Officer
Erns Loubser – Chief Financial Officer
Conference Call Participants
Frank Takkinen – Lake Street Capital
Noel Atkinson – Clarus Securities
Marie Thibault – BTIG
Operator
Welcome to the Greenbrook TMS Inc. Fiscal 2021 Results Conference Call and Webcast [Operator Instructions]. I’d like to remind you that this conference is being recorded today and is also being webcast on the Company’s Web site at www.greenbrooktms.com under the Investor section Event [Operator Instructions]. This call contains forward looking statements, which reflect the current expectations or beliefs of the company 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 would 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 the risk and certainties section of the management discussion and analysis for the fiscal years ended December 31, 2021, 2020 and 2019, which is included in the Annual Report and in the company’s other materials filed with the Canadian security authorities and the US Securities and Exchange Commission from time to time, which are available on CEDAR, EDGAR and on the company’s Web site. 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 like to turn the meeting 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, Blue. And thank you to everyone for joining our conference call and webcast today. Despite the challenging operating environment over the past two years, our business continue to grow steadily with revenue increasing by 21% in fiscal year 2021 to a record $52.2 million as compared to fiscal 2020, and by 42% in Q4 2021 to a record of $14 million as compared to Q4 2020. We are extremely proud of our dedicated team who consistently delivered the highest level of patient care in a very challenging operating environment. Mental health remains a key focus in the US with the right unmet need for the treatment in all time high and we have the right platform to serve this need. We are excited about the ongoing rollout of our Spravato program at select TMS centers, which continue through Q4 2021. This program builds on our long term business plan of utilizing our existing networks of TMS centers to deliver new and innovative treatments to patients suffering from MDD and other mental health disorders. Providing Spravato at our TMS centers enables us to leverage capacity in an existing platform, which effectively enhances our profit margins.
As of March 31, 2022, the company has expanded its offerings of Spravato to 23 TMS centers across the US. On October 1, 2021, the company completed the acquisition of Achieve TMS East and Achieve TMS Central LLC, which include the acquisition of 17 active TMS centers. We are very excited about this acquisition as it strengthens our presence in New England and in the Central United States. This acquisition secures robust payer contracts, brand recognition, physician reputation and a strong management team within these regions. We also expect the acquisition to serve as a foundation for continued growth within these regions and to realize operational synergies by leveraging our established infrastructure in adjacent regions. From a development perspective, we add a 31 active TMS centers in fiscal year 2021, including, as I mentioned, 17 active TMS centers acquired as part of the Achieve TMS East and Central acquisition. As of December 31, 2021, our footprint consisted of 149 centers in 17 states.
And now for 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 Bill mentioned, annual revenue increased by 21% to a record $52.2 million as compared to fiscal 2020 and quarterly revenue increased by 42% to a record $14 million as compared to Q4 2020. Average revenue per treatment increased 5% to 231 in fiscal 2021 as compared to fiscal 2020, and by 26% to 229 in Q4 2021 as compared to Q4 2020. The increase was primarily attributable to three key factors; the normalization of the adjustment to key variable consideration estimate, driven by stronger collections, more favorable rates negotiated in established markets, and a favorable payer mix. Same region sales growth was 19% in fiscal 2021 as compared to negative 1.5% in fiscal 2020. Fiscal 2021 resulted in an entity wide regional operating loss of only 3,000, a 51% reduction in the last as compared to fiscal 2020. This is a result of increase in revenue offset by an increase in direct sales and regional costs as a result of operating 147 active centers as at December 31, 2021 as compared to 160 inactive TMS centers at December 31, 2020.
Q4 2021 resulted in an entity wide regional operating income of 40,000, a turnaround as compared to the entity wide regional operating loss $2.05 million in Q4 of 2020. Corporate G&A for fiscal 2021 increased 36% to $20.7 million as compared to $15.1 million in fiscal 2020. This was predominantly due to 1 time cost related to financing and acquisition activities during the year. The loss for the period and comprehensive loss decreased by 18% during fiscal 2021 to $24.9 million as compared to fiscal 2020. From a balance sheet perspective, the accounts receivable balance remains stable despite the revenue growth, which as I mentioned, points to strong collections. We maintained adequate capitalization through fiscal 2021 with the completion of a private placement for gross proceeds of $23.5 million, public offering for gross proceeds of $13.2 million and the forgiveness of the PPP loan. As of December 31, 2021, we had approximately $11.9 million of cash on hand, including restricted cash related to the Achieve TMS East and Central acquisition, as Bill mentioned.
Moving to our core operating metrics. We saw continued year-over-year growth in all key operating metrics. As at the end of fiscal 2021, the total TMS centers increased by 19% to 149 from the 125 a year ago. Compared to fiscal 2020, the number of consultations performed increased 25% to 14,108. The number TMS treatments performed increased 15% to 226,286 and new patients starts increased by 18% to 6,429. From a quarterly perspective, the number of consultations performed remained stable at approximately three and a half thousand. However, the number of TMS treatments performed during the quarter increased by 13% to 61,416. New patient starts also increased by 17% to 1,667 pointing to stronger conversion rates in the quarter. As Bill mentioned, market conditions were challenging in fiscal 2021 but we remain optimistic as we are currently seeing positive trends in patient activity with operating conditions starting to normalize in fiscal 2022. Back to you Bill.
Bill Leonard
Thanks Erns. As I mentioned, despite the challenges we faced over the past two years, we saw continued growth in both revenue and patient treatments. Our Spravato program adds to our rapporteur of an innovative treatment, building on the company’s long term business plans of utilizing its center’s network as a platform to serve patients suffering from major depression disorder, OCD and other mental health disorders. I would like to reiterate that we are extremely proud of our dedicated team that continue to deliver the highest level of patient care in a very challenging operating environment. Most importantly, our business is a needed one. Mental health treatment demand is at an unprecedented levels. Our business fundamentals remain sound and we are positioned better than ever to serve the unmet need in mental health support across the United States. We’re excited to continue our growth plans through 2022 with a specific focus on enhanced utilization of our established TMS center platform. We have now treated over 22,000 patients with over 790,000 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 will now take questions.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from line of Frank Takkinen with Lake Street Capital.
Frank Takkinen
Wanted to start on the comments around specific focus on enhanced utilization of established TMS center platform. I think this makes a lot of sense, obviously, there’s a lot of opportunity in just improving same store sales metrics in the established networks. Maybe just dig a little bit deeper into this and how you’re thinking about focus and growth there as well as new center additions in established regions?
Bill Leonard
Really as we said in the call, we opened up about six regions prior to kind of COVID starting right around that timeframe. And that group has yet to kind of see the ramp based on the kind of operating conditions that we’ve seen in our other kind of centers around the country during normal business times. So for us the focus instead just new centers across the country is really getting that group of centers to kind of begin to mature and ramp like we’ve seen in our previous marketplaces. Obviously a focus on direct to consumer and our focus and our work with the community based positions. But we really believe that is the significant upside since those kind of costs are already built in, management in place, physicians in place, and really a greater chance for us to kind of run towards profitability with that group kind of ramping up versus brand new start up cost.
Frank Takkinen
And then maybe just to ask a little bit more specifically on COVID impacts. Can you talk to monthly impacts in the fourth quarter and how those trends continued into the first quarter of 2022?
Bill Leonard
I’ll start it off and kick it over to Erns on the actual numbers. But I think the reality in 2021 was we were booking, we were booking with COVID, all companies were booking with COVID it from the start, and then the Omicron came back at the end. And that was challenging to be honest with you from a contagious factor. Omicron was much more difficult to handle based on the fact the infection rate and was impacting doctors, our staff and patients in midstream, a patient would end up getting COVID and have to kind of start and stop treatment or move away from. So from that and you combine that with the balance you get with the labor market, really the impact kind of started in kind of mid-November and carried into the quarter. But like we said on the call, we thought we did a tremendous job with our care team and kind of working through those challenges. Erns do you want to add a little bit more detail to that?
Erns Loubser
So as Bill mentioned, we saw and as we previously spoke on the quarter we saw a very strong October, and kind of geared up for what we expected to be a very strong Q4. But mid November to December, we really saw the patient treatments drop off. And the reason for that is, as Bill mentioned, not only — not necessarily this time due to lockdown but the community based physicians that we work with closing down their practices, a depressed patient is known for not wanting to leave their house and staff getting sick. So we’re in a pretty good trajectory. And then December was not a good month that has spilled over a little bit into January and February. But we are seeing, as I mentioned, a really good progress as kind of locking conditions continue to normalize in March 2022.
Frank Takkinen
And then just last one for me. I wanted to ask on Spravato and getting to that ‘23 figure on time by the end of the quarter. Maybe just talk a little bit about early feedback you’re getting, how much of it is anecdotal. But talk to — any feedback you’re getting and then how should would be thinking about your rollout plans with Spravato beyond the ‘23 that you’ve established so far into 2022?
Bill Leonard
Ultimately patients want to feel better. So it’s important to have a variety of treatment options that best fit that patient’s preferences. The response from both our community based physicians and the patients himself has been fantastic. If you look at it, TMS therapy is still a really good treatment in our core product and treatment we offer. It’s durable and patients can fit it into their daily schedule between work or normal activities and return to their normal activities. For Spravato, sometimes it’s easier for patients just to carve out a couple days and want a more rapid response. So overall, we’re really optimistic from the early response from both patients and our community providers as it relates to the expansion of the treatment modalities on our Greenbrook platform.
In terms of what’s next for Spravato, I think for right now we kind of had a stagger rollout in Q1 of the 23 centers, some of them coming on board kind of late March. The focus which is the message through the company for the whole year is utilization. So it will get that operators to ramp up Spravato. As for current expansion, we will continue to look at adding Spravato for additional centers on a case by case basis, but that 23 we put in place really represents a shortest time line to ramp up due to physician coverage and footprint. So we’ll continue to look at some other opportunities. But for now that focus will be to kind of continue to kind of increase utilization both on Spravato and also on TMS therapy.
Operator
Your next question comes from the line f Noel Atkinson from Clarus Securities.
Noel Atkinson
Just following up on the prior questions about Spravato. I was wondering if you could just remind us again about what you’re seeing for relative average procedure revenue for Spravato versus TMS procedures?
Erns Loubser
As we previously said, we don’t break that out currently. But it is just kind of — just above the average that we seeing currently is just above the TMS average for treatment. So from a modeling perspective, we — kind of the assumption is that rates will remain stable with the obvious potential for upside based on that reimbursement as it becomes a bigger part of our business.
Noel Atkinson
In prior comments, management discussed targeting 5% to 10% of total revenue for Spravato on a run rate basis exiting 2022 [are] you folks still hoping to be able to achieve that?
Erns Loubser
That’s correct. So our plan is — at the same time, we said we have targeted the 23 centers by early 2022. We’ve obviously met that target and our Spravato program is on target. So we believe we should still be coming in in that range.
Noel Atkinson
You also — it looks like you did some cost reductions in December, reduced some staff, that sort of thing. I was wondering if you could give us a sense of kind of what the dollar cost savings were from some of those actions on a quarterly basis and how much could spill into and we would sort of see as fresh savings in the Q1 results?
Erns Loubser
So I think our savings, good question, Noel. Our savings is two [tiers] at the corporate G&A level and really what we — as I mentioned, we grew up 36%, there was about $2 million of onetime cost in there. So really flattening that off in terms of we’ve got capacity and we’ve got all the pieces in play. So we want to keep that number on a quarterly and annualized basis fairly stable going into 2022. So that’s the number one. And then the cost of saving on the regional and direct center side is really related to, as Bill mentioned, utilization of existing established cost base. And then also we had some rationalization of our sales force to make sure we reward the star performance and rationalize not so good performance. So you’ll see that in the cost line item from a utilization perspective. So once again, the similar dynamic we want to keep the regional line item flat but scale the revenue.
Noel Atkinson
And then just before I just jump back into the queue here. The average rate, so it bounced around a little bit through 2021 and part of that was I guess a material proportion of that was the ability to collect on accounts receivable. It looks like you still have a fair amount of sort of the legacy little longer aged accounts receivables. So is there potential for improvements on the average rate in 2022 as you start to collect again, or are we kind of at sort of the typical collection run rate here?
Bill Leonard
I think there’s certainly — in terms of — from a new business perspective, I think our average during treatment is representative. What we said before we continue to collect on aged receivables and changes we’ve made in our revenue cycle has yielded significant results as well. So there is definitely upside as it relates to collecting on those older accounts.
Operator
[Operator Instructions] Your next question comes from line of Marie Thibault from BTIG.
Marie Thibault
Thanks for taking the questions and congrats on the progress here. I wanted to ask a first question here on — you called out stronger conversion rates during Q4. We’d love to hear what factors are influencing that or what efforts are driving that success?
Bill Leonard
I mean, really the conversion rates are something we monitor and measure every day. We have real time data on the performance. We’re constantly working and training that group of individuals at our call center and in our centers. The focus on that area is to really value and trust every lead that comes in to kind of give it your best effort. As you know, Marie, in covering this industry it’s really hard to kind of get a patient in the door when they finally have that courage to do so. You have to give them every opportunity to kind of make that happen. The patient today is a little bit different in the sense that a little bit of the low hanging fruit is gone and you’re dealing with a patient that is probably failed six, seven, eightcycles of meds. So it’s much harder to get them into the center. But once into the center and get through the consult process, our conversion rates are fantastic, once we get them into the chair from consult to conversion. So that’s something we constantly work with. That process is done on a front end by a call center and then moves into the patient consultant at the center where that patient can see the center, see the equipment and have a chance to meet the doctor. That is again, something we monitor and kind of lead and measure every day.
Marie Thibault
Sounds like some cumulative efforts coming together there. Sounds good. A couple of questions here on Spravato, curious about the competitive landscape you’re seeing for Spravato around those 23 centers where you have it, as well as how it’s maybe changing, if at all kind of the inflow of patients coming into your centers, whether Spravato is drawing them in and then they’re learning about TMS that way. Just curious about how that sort of changing the dynamic of patient attraction to the TMS centers.
Bill Leonard
Obviously physicians are comfortable with scripting for Spravato as it is a drug. So that is something that psychiatric base is used to doing. So it does have a — if you look on the Jansen Web site, there’s a significant amount of doctors that are providing Spravato to their patients. With that said, we have not — there’s competition in TMS as well, but we have not seen it impact to our rollout. In fact, we’ve done a great job in terms of not only rolling it out but really created utilization at some of our early centers in a pilot. As far as what that’s done for the patient, I think I looked at my earlier comments, which is the response from both patients and our community based physicians who work with us has been outstanding. And from my end, it’s really giving that patient a chance to come in and our physician deciding what is best for them, whether it be TMS therapy or whether it be Spravato.
What we’re seeing is it’s expanding our capture area in terms of the number of patients that are calling in. We have a significant amount of the calls coming in on Spravato. We do do some direct consumer work with Spravato and we work closely with the manufacturers on also patients in the pipeline. So for me I’m really optimistic about the rollout of both the combination of Spravato and TMS therapy. It gives us the opportunity to kind of decide what is best for that patient in terms of the treatment modality. And they actually do complement each other and actually cross kind of refer to each other in a sense that a patient may come in it for TMS but not at the moment they need a quicker onset of action may go to Spravato to start and then switch over to TMS. So we think it’s a feeder system for both. And again, the response has been really strong from both patients who have worked with Greenbrook in past for new patients and more importantly, the community based referrals working with us.
Marie Thibault
One last quick one for me then here. Just curious of any impacts as part of the macroeconomic environment we’re seeing today. I know you’re — further away from certainly supply chain logistics and input costs. But I’m curious of rates or any impacts with sort of how you think about real estate, anything that we should be aware of on that economic front?
Bill Leonard
I think in terms of — as you mentioned, the supply, we’ve been shielded from the supply. We’re lucky in that way that there’s a short supply of the devices. I think the only impact which has been globally experienced by all companies is the labor market. It’s obviously challenging especially kind of at our technician level. I think the benefits that we have is that we really offer quality employment. We offer that individual, a lot of patient face time and a really valuable experience to enhance their career. And to a certain extent that is mitigated kind of some of the challenges that we’ve experienced in the labor market, but that would be the main one that’s impacting that.
Operator
There are no further questions at this time. I would now like to turn the call back over to Mr. Leonard.
Bill Leonard
Thank you very much for joining the call today. We look forward to keeping you updated on the progress of the company, and really have a good start to spring. And we’ll talk to you all in a couple of months. Thanks, operator.
Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
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