Greenbrook TMS dominates the US Northeast, says Clarus

Clarus Securities analyst Noel Atkinson is resuming coverage of Greenbrook TMS (Greenbrook TMS Stock Quote, Chart, News, Analysts, Financials TSX:GTMS), maintaining a “Speculative Buy” rating with a target price of C$26.00/share in an update to clients on September 30.

Greenbrook TMS operates 148 treatment centres across the United States providing Transcranial Magnetic Stimulation (TMS) therapy for the treatment of depression and other mental health disorders. TMS uses electromagnetic stimulation to specific regions of the brain associated with mood regulation, with Greenbrook having now treated over 19,000 patients with more than 675,000 TMS treatments.

Atkinson’s latest analysis comes after Greenbrook announced its intent to acquire Achieve TMS East and Achieve TMS Central, which operates 17 clinics in Massachusetts, Connecticut and Iowa to expand its footprint (Greenbrook announcing closing on the acquisitions on October 1).

“We have assumed Achieve East to be on the top of GTMS’s M&A target list since the Company acquired Achieve TMS (overlapping investor group) on the West Coast in 2019,” Atkinson said. “We estimate the acquisitions will contribute about $8 million/year in revenues and $1 million/year of Adj. EBITDA.”

The $8 million acquisition (all figures in US dollars except where noted otherwise), which Atkinson expects will close in the fourth quarter, positions Greenbrook as the primary TMS treatment provider in the American Northeast, with Atkinson noting that the company now has approximately 145 locations covering 18 states, nearly five times that of the next biggest chain, with Atkinson’s modelling projecting further growth to 152 treatment centres by the end of 2021 and 184 by the end of 2022.

The acquisition also comes with an earnout capped at $2.5 million based on the performance of the centres for the 12 months after acquisition, which was financed with a $13.2 million bought deal (1,707,750 common shares at US$7.75/share).

“This acquisition brings the Greenbrook care experience to more communities, and further strengthens our platform for sustained growth,” said Bill Leonard, President and CEO of Greenbrook in the company’s October 1 press release. “Changing patients’ lives for the better is the fuel that motivates our work. I’m excited to welcome Achieve TMS East and Achieve TMS Central into the Greenbrook family and look forward to the impact we will all have together.”

The additional locations push Greenbrook up the charts in Massachusetts to become the state’s sixth-largest in terms of clinic numbers, while Atkinson expects the additional two Connecticut locations to work in nicely with the company’s six other locations in the state.

“As with the Achieve TMS locations, the Achieve East and Central locations predominantly use the Brainsway TMS equipment and are therefore capable of FDA-approved treatment for OCD and smoking cessation as well as major depressive disorder,” Atkinson said.

The acquisition has prompted Atkinson to revise some of his financial metrics for Greenbrook, lowering his revenue target to $14 million for the third quarter compared to his initial $14.6 million estimate, while raising his EBITDA loss projection to $3 million from $2.7 million, though he still expects the company to become EBITDA positive in the third quarter of 2022. 

Atkinson attributes the changes to prolonged adverse weather in Texas and an expectation that patients and staff embraced summer vacations as COVID lockdowns eased.

From an annual perspective, Atkinson’s 2021 revenue projection for the company is now set at $55.8 million, a slight dip from the previous $56 million estimate. However, Atkinson projects a more prosperous 2022, revising his estimate to $85.2 million from his previous $77.8 million figure.

Atkinson has also revised his EBITDA figures for the next two years, as he now projects a loss of $11.5 million in 2021 compared to his initial $11.1 million analysis, though the loss projection is much more reasonable for 2022 at $200,000 compared to his initial $1.3 million projection.

On the company’s Price/Sales multiple Atkinson is projecting the figure to be 2.5x in 2021 before dipping to a projected 1.6x in 2022.

With the pending acquisitions, Atkinson continues to believe in Greenbrook’s positioning in its industry.

“Greenbrook continues to have a plethora of macro growth drivers for the TMS services sector overall, which should particularly benefit the Company given its positioning as by far the largest independent TMS treatment provider,” Atkinson said. “We believe the expected rollout of Spravato treatments (and other psychedelic treatments once FDA-approved) could eventually have a materially positive impact on facility utilization and profitability and would make Greenbrook by far the largest chain of treatment centers in the U.S. for administering FDA-approved psychedelic drugs to treat depression and other mental illnesses.”

Overall, Greenbrook’s share price is down 25.2 per cent for the year to date, reaching a high point of $21.35/share on February 3, while presently being at its lowest point of 2021 at $9.05/share. At the time of publication, Atkinson’s C$26.00 target represented a projected return of 178 per cent.