GBNH - Greenbrook TMS Inc. (GBNH) Q3 2023 Earnings Call Transcript
2023-11-11 13:45:30 ET
Greenbrook TMS Inc. (GBNH)
Q3 2023 Earnings Conference Call
November 9, 2023 12:00 PM ET
Company Participants
William Leonard - President and Chief Executive Officer
Peter Willett - Interim Financial Officer
Conference Call Participants
Frank Takkinen - Lake Street Capital Markets
David Martin - Bloom Burton & Co.
Benjamin Haynor - Alliance Global Partners
Presentation
Operator
Welcome to the Greenbrook TMS Inc. FY 2023 Q3 Results Conference Call and Webcast. [Operator Instructions] 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 Investors section, Events.
[Operator Instructions] Analysts and investors are reminded that any additional questions can be directed to the company at investorrelations@greenbrooktms.com. 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 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 SEDAR, EDGAR and the company's website.
Any forward-looking statement speaks 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 Peter Willett, Interim Financial Officer. Go ahead please, Mr. Leonard.
William Leonard
Thank you, Blair, and thank you to everyone for joining our conference call and webcast today. During Q3 2023, we continued to focus on the execution of our restructuring plan, and we are very pleased with the progress to date.
The reduction in headcount, rationalization of the marketing spend, extinguishment of the lease liabilities and a reduction of other recurring corporate, general and administrative expenses has effectively removed $23 million in annualized costs from the company as compared to Q4 2022, achieving our targeted range of $22 million to $25 million in cost reductions. We remain optimistic about our future as we execute on the remaining components of the restructuring plan.
Quarterly revenue decreased by 13% to $18 million, down $2.8 million as compared to Q3 2022, despite the closure of 53 treatment centers or 29% of the active treatment centers in connection with the restructuring plan as at Q3 2022. Year-to-date 2023 revenue increased by 17% to $56.3 million, predominantly due to the success of TMS acquisition that was completed in July 2022.
Q3 2023 revenue provided resilient -- proved to be resilient at approximately 86% of the total quarterly revenue achieved in Q4 2022 despite the closure of 53 treatment centers mentioned above and general liquidity constraints, prohibiting any meaningful investment in marketing year-to-date, which impacted the revenue we were able to generate.
Despite this, our base level post restructuring quarterly revenue continues to prove very encouraging and present a great foundation for future profitability, especially in context of our newly rationalized cost structure. We believe reverting back to more optimal levels of marketing investment will enhance our TMS business. The continued rollout of the SPRAVATO program, including the launch of buy-and-bill and a significant focus on contract negotiation with payers provides a holistic path to this goal.
We have also commenced the rollout of Medication Management program as an additional revenue stream and a mechanism to build on internal patient pipeline, which has already yielded positive results to the business. While liquidity constraints still remain, we are confident in our ability to have continued access to capital to drive us to self-sufficiency as evidenced by our recent financial -- financing transaction with our supportive insiders and lender.
On the strategic partnership side, we continue to work with Neuronetics' leadership closely at various levels to implement a mutually beneficial strategy as it relates to enhancing TMS awareness, expanding patient access to care and effectively redeploying systems from recently closed treatment centers.
We're also very excited about the launch of their new Better Me Guarantee pilot program, which we believe will allow us to further increase our access to patients suffering from mental health disorders. Early results of the pilot show an increase on historical averages in leads and booked consults which should translate into patients.
Although we have achieved our previously announced annual cost savings, we continue to execute on the remaining components of the restructuring plan. Given the ongoing nature of execution, the reduction in costs were only partially reflected in Q3 2023, and we expect our new operating structure will continue to allow us to rationalize cost, while further reducing business complexity, streamline our operating model and drive operational efficiencies.
We believe that mental health remains a key focus in the United States, and the unmet demand for treatment remains at an all-time high with our network of treatment centers well positioned to serve the unmet demand. We believe our business fundamentals are stronger than ever with the growth of the SPRAVATO program, the opportunity to increase marketing investment in our streamlined business, the introduction of Medication Management and the potential future treatment option, including psychedelics.
At the end of Q3 2023, the company had a footprint of 130 treatment centers. As of today, we have 56 treatment centers offering SPRAVATO, and we expect to have 70 to 80 treatment centers offering SPRAVATO by the end of the year through an accelerated rollout plan. And now for a more detailed review of the company's financial and operating performance, I will turn it over to our Interim CFO, Peter Willett.
Peter Willett
Thank you, Bill. As Bill mentioned, revenue in Q3 2023 decreased by 13% to $18 million, down $2.8 million as compared to Q3 2022 despite the closure of 53 treatment centers or approximately 29% of active treatment centers in connection with the restructuring plan as at Q3 2022.
Year-to-date 2023 revenue increased by 17% to $56.3 million, up $8.3 million as compared to year-to-date 2022, predominantly due to the Success TMS acquisition that was completed in July 2022. Furthermore, Q3 2023 revenue remained resilient by approximately 86% of our total quarterly revenue achieved in Q4 2022, despite the closure of 53 treatment centers mentioned above and a significantly reduced marketing spend, which represented 10% of marketing spend in Q4 2022.
Average revenue per treatment increased by 4% to $227 in Q3 2022 and remain consistent at $222 in year-to-date 2023. The quarter-over-quarter increase was primarily attributable to changes in payer mix, treatment modalities and the geographical distribution of revenue.
Despite lower revenue levels in Q3 2023, we continue to generate entity-wide regional operating income for the third consecutive quarter as a result of the significant cost reductions implemented in connection with the restructuring plan. With reduction in headcount, rationalization of marketing spend, extinguishment of lease liabilities and reduction of other recurring corporate, general and administrative expenses, the company has effectively stabilized its cost structure and removed $23 million in annualized costs as compared to Q4 2022.
Direct center and regional costs decreased by 19% to $17.5 million during Q3 2023 compared to Q3 2022 due to a reduction in headcount, rationalization of marketing spend and a reduction in other direct center expenses resulting from the execution of the restructuring plan. Given the ongoing nature of the restructuring plan execution, the reduction in associated costs were only partially reflected in Q3 2023 but will be fully realized by the end of fiscal 2023.
Direct center and regional costs increased by 10% to $54.8 million during year-to-date 2023 as compared to year-to-date 2022, predominantly due to the Success TMS acquisition, partially offset by the cost savings in relation to the execution of the restructuring plan previously mentioned.
Entity-wide regional operating income was $0.5 million during Q3 2023 as compared to an entity-wide regional operating loss of $0.8 million in Q3 2022 and the company generated entity-wide regional operating income of $1.5 million during year-to-date 2023 as compared to an entity-wide regional operating loss of $2 million during year-to-date 2022. Both increases were primarily a result of the significant cost reductions previously described.
Corporate, G&A, excluding onetime costs and the revaluation of conversion instruments decreased by 10% compared to Q3 2022 and by 20% compared to Q4 2022 as a result of restructuring plan execution, but increased by 10% as compared to year-to-date 2022 due to the Success TMS acquisition offset by the restructuring plan execution.
We believe we can continue to reduce corporate, G&A costs as we execute on the remaining components of the restructuring plan. The loss for the period and comprehensive loss decreased by 24% in Q3 2023 to $12.7 million, down $4.1 million as compared to Q3 2022, primarily due to the increase in regional operating income and a decreases in corporate, G&A as part of the execution of the restructuring plan.
The loss for the period and comprehensive loss increased by 7% to $34.4 million for year-to-date 2023, up $2.3 million as compared to year-to-date 2022, primarily due to the increases in interest expenses arising from the additional debt fiances, the loss on device contract termination, the increase in share-based compensation expense, the increase in costs and depreciation as a result of the completion of the Success TMS acquisition and onetime costs, partially offset by the increases in regional operating income and the cost savings associated with the execution of the restructuring plan.
From a balance sheet perspective, accounts receivable remains fairly stable as we have optimized our RCM function and now effectively generate cash revenue. Cash at the end of Q3 2023 was $1.8 million, including restricted cash.
Subsequent to Q3 2023, the company received $4.7 million in financing from our supportive lender and various investors. We remain confident in our ability to continue to access capital to move to a self-sustaining business. Now more than ever, we believe we have completely defined pathway to profitability with a stable cost base as Bill described earlier.
Moving to our core operating metrics. As at the end of Q3 2023, total active treatment centers decreased by 29% to 130 from 183 a year ago. Compared to Q3 2022, the number of consultations performed decreased by 5% to 8,334, while number of new patient starts decreased by 11% to 2,546 and the number of treatments performed decreased by 16% to 79,488. These decreases were predominantly due to the decrease in treatment centers previously noted.
Compared to year-to-date 2022, the number of consultations performed increased by 58% to 26,233, while the number of new patient starts increased by 24% to 8,047, and the number of treatments reformed increased by 17% to 253,876. These increases were predominantly due to the completion of the Success TMS acquisition.
We believe that the building more resources and focus to our past performing centers through the restructuring plan will increase conversions. This paired with a measured approach to increased marketing will boost our core TMS business and a continued strong growth of our SPRAVATO program will be a catalyst for future revenue growth despite reduction in centers.
Back to you, Bill.
William Leonard
Thanks, Peter. Our business has shown a remarkable resilience in spite of the challenges we've been facing this year. Our commitment to the execution of the restructuring plan continued to yield positive results in Q3 2023, including our third consecutive quarter of regional operating income. The company is in the final phases of the restructuring plan and anticipate the reductions made to the business cost structure will solidify our path to profitability once we're able to resume investment in activities to support our revenue growth.
We're excited to continue our rollout of new treatment modalities, including our previously announced Medication Management pilot and our newly introduced SPRAVATO buy-and-bill program, which will complement our current administer and observe programs and allowing us to further enhance our access to patients.
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 are extremely proud of them as they continue to deliver the highest level of care through some recent turbulence. Most importantly, we know that we're making a difference.
We now have treated over 40,000 patients with more than 1.3 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, Blair, we will now take questions.
Question-and-Answer Session
Operator
[Operator Instructions] We have our first question coming from the line of Frank Takkinen from Lake Street Capital Markets.
Frank Takkinen
Bill, I was hoping you could start with just talking a little bit more about the NeuroStar pilot program. What should we expect to see out of that? What are some early learnings? And how should we expect that to impact the business going forward?
William Leonard
Yes. Thanks, Frank. Good to hear from you. We're really excited about the pilot that we've kicked off with Neuronetics. There was a lot of thought put into it. The reality is it focuses on a select group of practices that really adheres to kind of rigorous criteria to achieve the highest level of clinical excellence in patient care.
Key areas like attending NeuroStar University, getting that patient up to treatments of 36 where we see that remission come into play and kind of really addressing kind of that customer service of the patient. And through this, we're going to see significant path to patient awareness brought on by the advertising through both Neuronetics and through Greenbrook.
While extremely early, the pilot has shown an increase on historical averages in our leads and booked consults, where, like I said, we're only about 5 weeks into it, we're starting to see some of those consults translating into patients.
And so for me, having the access for our center personnel to have the awareness to attract more patients and our ability to close and convert patients at the local levels really gives us an opportunity to expand care for those patients and get them into the Greenbrook centers. So I'm excited and appreciative of the work with Neuronetics, and we look forward to kind of watching this full as we continue to help them enhance the pilot from our learnings.
Frank Takkinen
Got it. That's helpful color. And then maybe just one more for me. Congrats on reaching your cost savings initiative that you put in place. I was hoping you could just update us on how we should be thinking about EBITDA breakeven level? How much more growth do we need now that we have the new infrastructure in place to reach that EBITDA breakeven level?
Peter Willett
Yes. I think great question. And also, Frank, nice to hear from you. From our perspective, as we previously guided from, it's $21.5 million is the EBITDA breakeven, and we look to be closer to that $100 million mark next year in revenue towards cash flow breakeven.
Operator
Our next question comes from the line of David Martin from Bloom Burton.
David Martin
You mentioned that the $23 million in annual cost reduction wasn't fully in the third quarter. I'm wondering, looking into fourth quarter, how much reduction we can see in the various expense lines, the direct center and patient care costs, regional costs and corporate G&A.
Peter Willett
Absolutely. Dave, to your point, I think what we expect Q4 to end up is towards the higher end of that range, towards the $25 million mark or exceed it. I think where you'll see a lot of the cost savings come in, that have not been baked in yet, will be in core G&A with a little bit in the regional costs as well.
David Martin
Okay. And then beyond Q4, how much more do you think you'll take out of the cost structure?
Peter Willett
I think as we mentioned on the call, I think we are always evaluating our business and continue to rationalize our cost structure. And at this point, it's too early to tell. But we remain confident in our ability to evaluate our business and make the right calls appropriately relating to costs.
David Martin
Okay. Related to Frank's question, my line broke up a bit when you said what kind of revenue you need for breakeven? That's $100 million a year?
Peter Willett
Yes, as previously mentioned on our call a couple of quarters ago, that's -- we're still towards that target is our breakeven for cash.
David Martin
Okay. The buy-and-bill strategy, is the profit higher per patient? Or is the drug cost just a flow-through?
Peter Willett
It's higher on contribution as well as revenue and cost. So to your point, Dave, you have a higher -- currently our reimbursement is around $300. While it's early to tell, based on the launch of our pilot, we expect to be closer to $1,000 with a sizable increase in costs. But from a contribution standpoint, we expect, again, a significant increase from our current contribution. So it's not just a flow-through. It essentially is a win for us from a contribution side.
William Leonard
And David, I just want to add to that because I think it's important. The move to buy and bill in specific marketplace is also tied to the fact, it creates more access to care because some payer contracts do not allow you to participate in patient care with SPRAVATO, unless you're a part of buy and bill.
David Martin
Okay. Great. There's $5.9 million that you need to pay down for device contract terminations. Is that -- that's early this year, later this year, what's the timing on that?
Peter Willett
That will be completed by end of Q2 in 2024.
David Martin
Okay. And last thing, usually you give corporate personnel head counts, and it wasn't -- I didn't see it in the press release this time. What is the corporate personnel head count?
Peter Willett
It would be fairly consistent with last quarter.
William Leonard
Yes. I think from a year-over-year basis, David, we're down north of 150 kind of staff members over that time.
David Martin
Over the entire business, not just corporate?
William Leonard
Correct.
Operator
[Operator Instructions] We have our next question coming from the line of Ben Haynor from Alliance Global.
Benjamin Haynor
Nice to hear the progress on the restructuring. First off for me, on the pilot program for Medication Management. Is there any worry that, that could upset in any way your existing referral base? Or is that sort of a pain point for them as well?
William Leonard
No, I think that's a great question, and we actually spent a lot of time looking at this. And I think from our perspective, there is a boatload of patients out there that are not being treated because they can't gain access to care through psychiatric offices due to the wait list. So from our perspective, this allows more access to care.
And I think a lot of those doctors really like to kind of have the cash pay business and what our company is involved in, we're on all the payer contracts. So by having insurance kind of panel, we really haven't upset the apple cart at this point. And it is early in our kind of pilot, but we are seeing some initial results that we're really excited about.
Number one, the ability to kind of hopefully shorten that pathway to both TMS and SPRAVATO. We've seen that already in the first 5 weeks where we've been able to get patients into SPRAVATO and TMS who have failed multiple med trials. And in addition, patients who needed additional med trials to kind of qualify and meet the criteria for TMS and SPRAVATO, we've been able to cross refer that out to our med management center.
Benjamin Haynor
Okay. So it may even be that it's a tailwind for you in that they may be more likely to refer to you and just do not have to deal with those patients that are maybe more difficult and less desirable for themselves.
William Leonard
Yes. This is a significant upside for us. I mean you have to think about it a couple of different ways, like even if we didn't talk about this yet, the fact that it enhances our direct-to-consumer marketing spend, it makes that spend kind of more viable because it allows us to take a patient who may have not even been interested in TMS but have to get into the program.
The other particular interesting point is, for us, it's going to shorten a pathway to that treatment. I think the average in the industry now is a patient will pursue possibly TMS or SPRAVATO probably after 6 or 7 failed cycles of meds, we think we can shorten that pathway to generating great care through TMS or SPRAVATO much earlier in the treatment paradigm.
Benjamin Haynor
Okay. So -- and then that kind of gets into my next question. On these patients that you do attract with the Medication Management, are there a handful of failed cycles of meds into it? Or are they at 0? Is it -- where do they sit? And what's the typical -- to the extent that there is considered a typical cycle for these failed cycles if that makes sense?
William Leonard
It's a really good question, and I look forward to answer that in more detail on the next call. What I will tell you just off the cup because we're only a few weeks into this. You're going to get patients calling there for their first time suffering from depression, who obviously are going to have their first introduction to a mental health crisis and some that have kind of been through the gamut of multiple drugs that have not helped them. So it's all over the board right now.
Operator
There are no further questions at this time. I'd now like to turn the call back over to Mr. Leonard for final closing comments.
William Leonard
Thank you, Blair. I appreciate everyone joining our call this quarter. We look forward to the continued progress on our company. We feel really good about our future opportunity. I want to wish everyone a happy Thanksgiving and a healthy and happy holiday season.
Operator
Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.
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Greenbrook TMS Inc. (GBNH) Q3 2023 Earnings Call Transcript