Q2 2024 Earnings Summary
- Strong Underlying Demand and Expected Recovery: Despite temporary challenges due to the Change Healthcare cybersecurity breach, utilization across customer segments was up significantly, with high double-digit teens to low 20% year-over-year growth. Management anticipates that historic purchasing patterns will return to normal over the balance of the year, confident that revenue patterns will rebound by the end of the year. The company maintained its full-year guidance, reflecting confidence in a strong revenue rebound in the second half of the year.
- Transformative Merger with Greenbrook TMS Driving Growth and Synergies: The merger with Greenbrook TMS is expected to result in significant cost synergies of at least $15 million annually, primarily from G&A, vendor spend, and marketing efficiencies. This acquisition is anticipated to accelerate revenue growth to mid-teens levels in fiscal years 2025 and 2026, with growth coming from expanded opportunities like SPRAVATO and unified marketing efforts. Additionally, the merger strengthens the financial position by reducing debt ratios, as Greenbrook's lenders are converting approximately $140 million in debt to common shares, enhancing the combined company's balance sheet.
- Significant Upside in Revenue per Active Site: The company sees substantial room for growth in revenue per site, aiming to increase from the current approximately $10,000 per site per quarter to $15,000 to $17,000 per site per quarter. With initiatives like the Better Me Program (BMP) showing positive results and a focus on increasing utilization to capacity levels of 7 to 8 patients per day per NeuroStar system, there is potential for substantial revenue growth per site.
- The company's revenue was significantly impacted by a $2 million shortfall due to the Change Healthcare cybersecurity breach, and the lingering effects may continue longer than expected, potentially affecting near-term revenue recovery.
- Management expressed uncertainty in achieving long-term revenue per active site targets. The CFO admitted he's "not 100% confident we'll get there" regarding increasing revenue per site from $10,000 to $15,000-$17,000 per quarter, indicating potential challenges in optimizing utilization.
- The acquisition of Greenbrook TMS involves integration risks, as both companies have been losing money. While management expects cost synergies of at least $15 million, there is execution risk in realizing these savings and achieving the anticipated mid-teens revenue growth.
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Change Healthcare Impact
Q: How did the Change Healthcare issue affect revenue?
A: The Change Healthcare cybersecurity breach caused an approximately $2 million revenue shortfall in the quarter. Despite this, utilization was up significantly year-over-year, and we're confident we'll hit our full-year guidance. -
Merger Rationale
Q: Why merge with Greenbrook now?
A: Greenbrook's lenders agreed to convert about $140 million in debt to common shares, making this the ideal time for the merger. This conversion, combined with our lower debt load of $50 million, is a financial game changer, strengthening our debt-to-revenue ratio. -
Synergies and Growth
Q: What revenue and cost synergies are expected from the merger?
A: We anticipate $15 million in cost synergies by 2025 through G&A reductions, vendor spend optimization, and marketing efficiencies. We expect mid-teens, approximately 15%, revenue growth in 2025 and 2026 for the combined entity, driven by expanded opportunities and marketing synergies. -
Guidance Confidence
Q: Are you comfortable with the Q3 and Q4 outlook?
A: We're very comfortable with the Q3 guidance of $18.5 million to $19.5 million. Collections rebounded strongly, with July being our highest collection month since Q4 2023, giving us confidence that customers are receiving reimbursements and have cash flow. -
Accounts Receivable and Inventory
Q: How are receivables and customer inventories affecting guidance?
A: Customers faced reimbursement delays due to the Change Healthcare breach, impacting their ability to pay. We're expecting a rebound in Q3 and a return to normal inventory levels in Q4, which is why we maintained our full-year guidance. -
Utilization Goals
Q: What are the long-term revenue goals per active site?
A: Our goal is revenue per site of $15,000 to $17,000 per quarter, up from the current $10,000, by increasing utilization to 7–8 patients per day. This will be a focus in 2025, leveraging the success we've seen with our BMP partners. -
Integration Priorities
Q: What are the immediate priorities for integrating Greenbrook?
A: First priority is achieving the $15 million cost synergy target to be cash flow positive in 2025. We'll increase efficiency and utilization in the approximately 120 Greenbrook stores, leveraging proven training programs to boost revenue. -
Growth Opportunities
Q: How will the merger enhance growth?
A: We'll expand SPRAVATO into all Greenbrook stores and share best practices between sales teams. By educating primary care physicians and boosting patient referrals, which have high conversion rates, we'll drive greater growth.