Aug 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Greenbrook TMS Inc earnings conference call or presentation Wednesday, August 5, 2020 at 2:00:00pm GMT

Greenbrook TMS Inc. - President, CEO & Director

Greenbrook TMS Inc. - CFO, Treasurer & Corporate Secretary

* David C. Martin

Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation

Welcome to the Greenbrook TMS Inc. Second Quarter 2020 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 http://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 disclosed under the heading Risk Factors in the company's annual information form dated March 10, 2020, and in the company's MD&A for the period ended June 30, 2020, which are available on SEDAR 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 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 Erns Loubser, Chief Financial Officer. Go ahead, please, Mr. Leonard.

Bill Leonard, Greenbrook TMS Inc. - President, CEO & Director [2]

Thank you, Lindsey, and thank you to everyone for joining our conference call and webcast today. We are very excited about our Q2 2020 results, which demonstrates our ability to navigate and grow during the challenging operating environment imposed by the COVID-19 pandemic. Overall, we were able to continue to grow our business even more than we expected, exceeding our previously disclosed revenue guidance while finding ways to continue to provide the highest quality services and to protect our patients, employees and physician partners.

Despite the challenging operating environment imposed by COVID-19 pandemic, we showed a resilient performance and sustained strong year-over-year revenue growth. With access to TMS therapy now more essential than ever, we have increased efforts to expand patient interactions virtually and the corresponding increased usage of these platforms by both patients and physicians contribute to this positive result. COVID-19 forced us to adapt and innovate. We expect our learning and experience through these times to provide valuable lessons and strong leverage as we continue to focus on expanding our base of clinics.

Quarterly consolidated revenue for Q2 2020 increased by 21% to $9.8 million as compared to Q2 2019, significantly exceeding our previously disclosed guidance. On a year-to-date 2020 basis, consolidated revenue increased by 44% to $21.2 million. Furthermore, Q2 2020 consolidated revenue of $9.8 million represented a decrease of only 14% as compared to Q1 2020, again, significantly exceeding our previously disclosed guidance.

We added 3 active TMS Centers during Q2 2020 with an additional 12 TMS Centers in development. This brings our total network to 125 Greenbrook Centers, which is an increase of 62% from Q2 2019. We're also particularly proud of our ability to reach new patients during this difficult time. In June, we established a record monthly high and new patient treatment starts, which supports a strong upward trend following the initial impact of COVID-19 and position us well for what we hope to be a strong Q3 and beyond.

And now for a more detailed review of the company's financial and operating performance, I will turn it over to our CFO, Erns Loubser.

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Erns Loubser, Greenbrook TMS Inc. - CFO, Treasurer & Corporate Secretary [3]

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Thank you, Bill. As Bill mentioned, despite the impact of COVID-19, consolidated quarterly revenue increased by 21% to $9.8 million in Q2 2020. On a year-to-date basis, consolidated revenue increased by 44% to $21.2 million. Furthermore, Q2 2020 consolidated revenue represented a decrease of only 14% as compared to Q1 2020. This positive result was primarily attributable to the increased efforts to provide greater access to patients virtually, through the expanded use of online platforms and focused marketing efforts on the safety and accessibility of our TMS Centers. The continued development of our TMS Center network by adding 3 active TMS Centers coupled with the Achieve TMS acquisition, also contributed to the strong growth. COVID-19 has increased demand for mental health services, including an increase in psychiatric visitors -- visits and depression and anxiety scripts, which we believe will continue to promote growth as operating conditions normalize.

As expected, same-region sales growth was negative 19% in Q2 2020, but remained positive at 2% on a year-to-date basis. The negative growth experienced in Q2 2020 was directly attributable to the impact of COVID-19. As operating conditions continue to normalize, we believe this metric will revert back to the pre-COVID-19 levels. Average revenue per treatment increased by 5% to $230 in Q2 2020 and by 5% to $234 during the year-to-date 2020 period. This increase was predominantly attributable to an increase in reimbursement rates from certain players with which we've had long-standing relationships in our established regions, and its expansion to more favorable reimbursement jurisdictions.

Moving to regional operating income. In line with our expectations, we incurred a regional operating loss for Q2 2020 of $200,000 as compared to regional operating income of $1 million in Q2 2019. Regional operating income decreased 68% to $500,000 during the year-to-date period 2020. This is from a prior -- this is attributable to a reduction in patient treatments during the period as a result of COVID-19. The regional operating income margin was 2.4% in year-to-date 2020 compared to 11.1% year-to-date 2019, again, due to the impact of COVID-19. Year-over-year corporate -- aggregate corporate costs increased by only 9% to $3.1 million for Q2 2020 and by 35% to $7 million on a year-to-date basis 2020. Quarter-over-quarter aggregate corporate costs, however, decreased by 19% or $750,000 compared to Q1 2020, really illustrating the success of our cost mitigation strategies.

The modest year-over-year increase in corporate G&A and decrease quarter-over-quarter, respectively, is a result of the investment in our business infrastructure and increased staffing of our shared services function in fiscal 2019, coupled with the Achieve TMS acquisition, again, offset significantly by disciplined measures implemented to control costs as a result of COVID-19.

As anticipated, the Q2 2020 and year-to-date 2020 aggregate corporate costs growth rate has decreased significantly as compared to the fiscal 2019, as we continue to scale into our centralized business infrastructure. This is further highlighted by the growth in revenue eclipsing the growth rate in aggregate corporate cost in both Q2 2020 and on a year-to-date 2022 basis. The loss for the period increased predominantly as a result for the earnout -- of the earnout payable to the sellers of Achieve TMS, which demonstrates the strong performance even during these challenging times by that business.

From a balance sheet perspective, accounts receivable increased by 0 -- by $800,000 to $10.9 million in Q2 2020 compared to Q4 2019 and decreased by $100,000 compared to Q1 2020. The company has already started to realize the benefits of the recent enhancements made to the billing and reimbursement system. This is despite the continued number of new TMS Centers with effects of payer contracting and billing system setup impacts to normal cash conversion cycle. And slightly slower reimbursement time lines experienced from payers due to the disruption caused by COVID-19. We expect accounts receivable to continue to stabilize throughout fiscal 2020.

As of Q2 2020, we had approximately $13.6 million in cash on hand, including an unsecured loan of approximately $3.1 million under the United States Paycheck Protection Program received during the quarter. We also completed a public offering of common shares for an aggregate gross proceeds of approximately CAD 15 million during the quarter. The company is using the net proceeds from the offering to fund operating activities and for other working capital and general corporate purposes, effectively strengthening our balance sheet in this current uncertain economic environment.

Moving to our core operating metrics. As of the end of Q2 2020, the total number of TMS Centers increased by 62% to 125 from 77 a year ago. Of the 125, currently, 113 centers are active and contributing to revenue. The number of consultations performed increased by 7% to 2,075 compared to Q2 2019. We increased the number of TMS treatments performed by 16% to 42,581 over Q2 2019. Patient starts increased by 22% to 1,218 compared to Q2 2019.

Our forward-looking indicators were all skewed down as a result of COVID-19 experienced during the quarter. As Bill mentioned earlier, however, we have seen a positive sentiment towards the end of the quarter, established a record monthly high in new patient start in June, which supports a strong upward trend and which we believe will position us well for the next quarter and beyond.

Back to you, Bill.

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Bill Leonard, Greenbrook TMS Inc. - President, CEO & Director [4]

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Thanks, Erns. As we mentioned earlier, we have demonstrated our ability to navigate and grow during the challenging operating environment imposed by COVID-19. Overall, we were able to exceed previously disclosed revenue guidance while continuing to provide the highest quality services and protecting our patient, employees and physician partners. We are particularly proud of our ability to reach new patients during this difficult time, and I am confident that our business will emerge even stronger as market conditions continue to normalize. The need for mental health support is an all-time high, and despite a slowdown in development activity, our development pipeline is stronger than ever and prime for expansion when market conditions allow. We have now treated over 13,000 patients with over 460,000 treatments performed. We are closing in on 0.5 million TMS therapy treatments, a significant positive impact on the lives of so many patients suffering from depression. We look forward to keeping you updated on the progress of the company throughout 2020.

Thank you for your time today. And with that, Lindsey, we will now take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of David Newman with Desjardins.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [2]

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Solid results and the trends look positive. So congratulations. I just want to get a little bit more attribution though around your outlook overall. So if you had to go month by month, in terms of patient volumes, revenues, new patient starts and some of the metrics that you guys measure. How did July shape up? And how did June shape up? And how did this kind of trend month-by-month through the quarter? Just so we get a better sense of your optimism for the third quarter, which obviously is looking pretty decent.

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Bill Leonard, Greenbrook TMS Inc. - President, CEO & Director [3]

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Yes, great question, David. I think from our perspective, when Q2 started, the initial impact of the pandemic was felt late March and then into the start of Q2 in April. From that point, we did several key items operationally that really helped us start to trend up. I think the first thing we did was really from a marketing perspective was to really get the message out on what shelter-in-place and stay-at-home government mandate meant. We did a great job with utilizing platforms such as TV and news radio to make sure patients understood the need for care of their mental health indications. That was the first thing. Allowing us to utilize the platform virtually really created patients the opportunity to get to us without having to have multiple trips to the center. And then really, we start to see a significant impact and rise in our treatments and new patient starts from really May and then into a record-breaking June. Obviously, I can't speak a lot about July, but I will tell you that I don't believe June will be our forever high watermark for the company for the year.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [4]

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Okay. And do you think you -- as you look out, do you think you could -- it sounds like you could, but I just want to hear your thoughts on it. But do you think you could exceed pre COVID level run rates?

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Bill Leonard, Greenbrook TMS Inc. - President, CEO & Director [5]

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Yes. I mean I continue to see positive trends. I think we are still in the midst of the pandemic, with hotspots popping up throughout the U.S. With that said, there's a different sentiment right now. I think patients were really confused early on the whole government mandates of stay-at-home and shelter-in-place. I think now you're seeing an increase in depression scripts written, you're seeing an increase in psychiatric visits. We've seen numbers of 20% to 30% of new scripts written, which really builds a pipeline for us in the future months ahead. So obviously, I do think the company will continue to grow, as we stated earlier. I think we are in a great position as an organization to take advantage of, unfortunately, the growth in mental health needs. So we feel really confident about the position we're in and expect to see growth in the months to come.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [6]

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All right, Bill. And then Bill, if you look out, I think your target -- initial target was like 140 centers by the end of this year. And you're not about far off, to be honest. And you've got about 18 months of capital for OpEx and CapEx. I mean how are you thinking about center expansion again? If you're seeing this kind of activity level. So what are you guys thinking in terms of that, in terms of expansion?

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Bill Leonard, Greenbrook TMS Inc. - President, CEO & Director [7]

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Yes. We are still focused on being a growth company. We are really kind of making sure that the trends continue to kind of move upwards. And as far as growth is concerned, like I said earlier, our pipeline has gotten better. One thing COVID did do was create a really strong pipeline for us. We continue to explore opportunities and at the right time, we'll kind of get back on the development train, which we hope to be late this year into Q1.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [8]

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Very good. And the last one for me, guys. Just on the cost cutting efforts, obviously, you did a lot of good things here in terms of your ability to cut costs, including furloughing some employees which are now coming back. And any of the savings that you're -- that you might believe could become more permanent? Often, these are opportunities to come along where -- I mean that COVID is not really an opportunity, but it does allow you to sort of look in the mirror and kind of look at your cost structure and find inefficiencies, and you did cite that you're around USD 1.2 million in discretionary expenses realized. I assume that's an annualized number towards your $2 million target. But anything that could be -- as we're looking to sort of forecasting our cost structure going out, any that's going to be more permanent in nature?

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Erns Loubser, Greenbrook TMS Inc. - CFO, Treasurer & Corporate Secretary [9]

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I think we certainly, as we mentioned, what COVID-19 did, it forced us to innovate. And also, as you mentioned, forced us to look at kind of our cost structure and the optimal cost structure. So I think there's certainly lessons learned how we managed to fairly rapidly take costs out of the cost structure from Q1 to Q2, a $750,000 reduction. So I think there is opportunity and some lessons learned that we can rationalize that and learn going forward as it relates to, for instance, marketing expenses to keep the business even leaner than it was before.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [10]

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And, Erns. Was that -- was the $750,000, was that actually out of the income statement? Or is that an annualized number?

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Erns Loubser, Greenbrook TMS Inc. - CFO, Treasurer & Corporate Secretary [11]

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That was actually -- so we had about $3.8 million in corporate G&A in Q1, and we came in about a $3.1 million in -- just below $3.1 million in Q2. So that was actual cost cuts based on kind of our Q1 run rate to our Q2.

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Operator [12]

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Our next question comes from the line of Noel Atkinson with Clarus Securities.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [13]

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Well done in Q2. I wanted to get your insight about Neuronetics. So they've announced recently some significant improvements in TMS therapy eligibility with several major insurers. And I just wanted to see how you think that flows through to hopefully benefiting Greenbrook?

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Bill Leonard, Greenbrook TMS Inc. - President, CEO & Director [14]

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Yes. We appreciate and applaud the work Neuronetics did to continue to expand accessibility for TMS therapy. As it relates to their announcement yesterday, to me, what I think you're seeing now is the momentum driving as with TMS therapy is close to first-line treatment as possible when you're getting down to 1 to 2 failed cycles of med, compared to when we started, where in 2013, '17, it was 4 to 6 cycles of meds. So I think now that the payers are seeing the results of TMS therapy and the need to support depression modalities, I think you're seeing positive movement. With that said, to me, what I loved about it was the fact that demographically, it opens up the opportunity for us to treat younger patients. Some of the patients in that 18 to 21 range, 22, 23, have not been on 4 or 5 cycles of meds yet. They've only been on 1 or 2, so it allows you to get to that demographic, that younger patient population sooner as opposed to later. There is a lag period. I think, for every 1 or 2 trials you make, it's probably a 6th month lag. So I do think it helps increase the pipeline and expand the demographics late fall -- late winter, early spring for Greenbrook. And we're in a great position to take advantage of it, not only with our footprint, but with our growth. And obviously, we have great doctors and a great patient experience.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [15]

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Okay. Great. This might have been asked already, I apologize, I had to step off for a sec. But are you negotiating with any of your landlords in terms of rent forbearance or deferrals or anything like that?

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Bill Leonard, Greenbrook TMS Inc. - President, CEO & Director [16]

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I wouldn't say we're negotiating because unlike some businesses, we actually have been open and seeing patients. We have not closed any of our centers down. So our patients are actively coming to our centers on a day-to-day basis. So it would be difficult for us to negotiate kind of abatement when we are still actively using those centers, which is a good thing as we stayed open during this pandemic.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [17]

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Edited Transcript of GTMS.TO earnings conference call or presentation 5-Aug-20 2:00pm GMT - Yahoo Finance