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Greenestone Healthcare (GRST.OB) operates medical clinics in Ontario, Canada. The company offers various medical services, including addiction treatment, endoscopy, minor cosmetic procedures, and executive health care services.
The dominant part of Greenestone’s business for most of its operating history has been endoscopy services. However, starting in July 2011, when the addiction treatment facilities were added, this business segment has quickly grown to generate most of the company’s cash flows. An analyst from Jacob Securities predicts that these cash flows will continue to have higher margins, and remain the company’s primary focus.
This shift paid off when Greenestone reported its annual report on April 2, 2013. Starting with the balance sheet, Greenestone reported an increase in accounts receivable of 102% from $188,423 to $380,043. Additionally, the company’s total current assets increased by 75% from $289,864 to $507,426. As good as the balance sheet looks, the income statement is where Greenestone really shined. For 2012, the company reported a revenue increase of 230% to $5.5 million, compared to just $1.68 million for 2011. Greenestone was also able to improve its net income loss as compared to 2011. For 2012, the net income came in at a loss of $1.55 million. In 2011, the loss was $2.46 million.
The increase in revenue was mainly due to an increase in business volume. Greenestone believes that revenue growth will continue to increase and its profitability will continue to improve since most of its costs, such as rent and salaries are relatively fixed. As revenue continues to grow, the costs will end up becoming a smaller percentage of that overall number.
The future certainly looks bright but will depend on a few upcoming catalysts. First, the company’s greatest margins are in the mental health facilities. This is particularly true of the Muskoka facility. Greenestone management estimates that it can generate between $27,000 and $74,000 in additional revenue for each additional patient that is admitted to the Muskoka facility. This will allow the company to increase cash flows from only a slight increase in capacity utilization at this facility in the near-term. Additionally, there is the possibility of future acquisitions of existing facilities. Late last year, the company announced its intention to pursue a “Build and Buy” growth strategy that will increase its in-patient capacity. This could result in substantial accretive earnings in the next several quarters.
Now while the earnings report and future catalysts sound great, the company is not without risk. First, it does trade on the bulletin boards, and as such, is subject to volatile price movements and market manipulation. An additional risk is future financings. Since the company is not yet profitable, cash to pursue the “Buy and Build” growth strategy will need to come from somewhere. The likely culprit will be additional financings in the future which could come from loans and/or secondary offerings. That being said, despite the risks, the company has a lot of potential based on their recent earnings report and upcoming catalysts.
