Tonnes of upside to Greenbrook TMS, says Clarus

Clarus Securities analyst Noel Atkinson has altered his outlook on Greenbrook TMS (Greenbrook TMS Stock Quote, Chart, News, Analysts, Financials TSX:GTMS), maintaining a “Speculative Buy” rating while lowering his target price from C$26.00/share to C$23.75/share in an update to clients on Thursday.

With its headquarters in Toronto, Greenbrook TMS operates nearly 150 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 17,000 patients with more than 620,000 TMS treatments.

Atkinson’s latest analysis comes after Greenbrook released its third quarter financial results, which Atkinson noted to reflect seasonal softness despite an optimistic end to the quarter.

“After a record Q2 for patient starts, treatment volumes, and revenues, patients went to the beach in Q3,” Atkinson said. “A COVID flare-up in certain regions in late Q3 also impacted activity. However, management noted that activity was back to near record levels in October.”

The company’s results were headlined by revenue of $13.1 million in the quarter, south of the Clarus expectation of $14 million, largely attributable to the company completing approximately 54,500 treatments in the quarter to fall short of the Clarus estimate of 59,800 treatments, as well as the reported 58,200 treatments in the second quarter. (All report figures in US dollars except where noted otherwise.)

However, the news wasn’t all bad for Greenbrook, as the company’s average rate rose to $240 from $235 in the previous quarter, and the company’s EBITDA was a $2.9 million loss to beat the Clarus projection of a $3 million loss.

Atkinson noted that the company appears to be having solid success with its Spravato pilot, as the company’s esketamine product representing nearly half the company’s revenue at a few clinics, with management noting the potential for Spravato to account for five to 10 per cent of the company’s overall revenue by the end of 2022 as it expands its Spravato offering to an additional 14 clinics on top of the nine it already services.

The company experienced a very busy quarter overall, having completed the acquisition of both Achieve TMS East and Achieve TMS Central, which Greenbrook acquired together for $8 million, with a portion of the total purchase price payable subject to a capped earn-out of up to an additional $2.5 million based on the financial performance of Achieve TMS East over the next year.

Greenbrook also completed a bought deal public offering of 1.7 million shares at an offering price of $7.75/share for aggregate gross proceeds of $13.2 million.

“These moves build on our long-term strategy of utilizing our growing network of TMS Centers and affiliated physicians as a services platform to deliver innovative treatments to patients suffering from mental health disorders,” said Bill Leonard, President and Chief Executive Officer of Greenbrook in the company’s November 9 press release. “We believe that our business fundamentals remain sound, and we are positioned better than ever to serve the need for mental health support across the country, which we believe is at an all-time high.”

Greenbrook’s quarter has caused Atkinson to revise some of his financial projections, lowering his revenue expectation for 2021 from $55.8 million to $53.8 million and his 2022 projection from $85.2 million to $79.5 million.

Atkinson made similar adjustments to the company’s EBITDA projections, as he now forecasts a loss of $12 million in 2021 instead of the initial $11.5 million loss, with a further revision to a $300,000 loss in 2022 from the $200,000 loss originally projected.

On Price/Sales, Atkinson projects Greenbrook’s 2021 to come in at 2.3x and dropping to 1.6x for 2022.

Overall, Atkinson believes the company is positioned to rebound from this slower quarter in relatively short order.

“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. “The Spravato rollout appears to be gaining good traction and should eventually have a materially positive impact on facility utilization and profitability, and by early 2022 Greenbrook should have the largest number of outpatient treatment centers in the U.S. administering FDA-approved psychedelic drugs to treat depression and other mental illnesses.”

Greenbrook’s stock price has not found greener pastures in 2021, having dropped by 30.8 per cent over the course of the year. The stock has continuously dropped in price since hitting a year high of C$21.35/share on February 3, recently bottoming out at C$8.30/share on October 28. At press time, Atkinson’s new C$23.75 target represented a projected return of 185 per cent.