Results reflect margin expansion, strong free
cash flow, and deleveraging in Q1
First Quarter 2024 Highlights
- Revenue of $372.4 million, an increase of 3.9% over the first
quarter of 2023, with Same Practice Revenue Growth (“SPRG”)1 of
0.9%.
- Adjusted EBITDA1 of $68.1 million, an increase of 3.8% compared
to the same period in 2023; Adjusted EBITDA margin1 of 18.3%, an
increase of 0.1% from the fourth quarter of 2023.
- Adjusted Net Income1 of $24.7 million, an increase of 53.4%
compared to the same period in 2023, and Adjusted Free Cash Flow1
of $35.2 million, an increase of 7.0% compared to the same period
in 2023.
- Net debt to PF Adj. EBITDA after rent of 4.3x, a decrease of
0.1x from the fourth quarter of 2023.
- Acquired 5 new practices in the quarter, expected to generate
$2.6 million in PF Adjusted EBITDA after rent1 at 6.4x,
representing multiples 10% lower than the same period in 2023.
Second Quarter 2024 Outlook
- Revenue and SPRG1 for the second quarter of 2024 are estimated
to increase by 7.0% to 9.0% ($394M to $401M) and 2% to 3%,
respectively, over the second quarter of 2023.
- Adjusted EBITDA Margin1 for the second quarter of 2024 is
estimated to be materially consistent with the first quarter of
2024.
(1) Non-IFRS financial measure, non-IFRS ratio, or supplementary
financial measure. For comprehensive definitions and quantitative
reconciliations, please refer to the “Non-IFRS and Other Financial
Measures” section within this news release.
Dentalcorp Holdings Ltd. (“Dentalcorp” or the “Company”) (TSX:
DNTL), Canada’s largest and one of North America’s fastest growing
networks of dental practices, today announced its financial and
operating results for the first quarter ended March 31, 2024. All
financial figures are in Canadian dollars unless otherwise
indicated.
“Our teams across the country delivered another strong quarter
of results achieving revenue growth and SPRG of approximately 4%
and 1%, respectively, over the first quarter of 2023, despite
lapping a prior year quarter which benefited from rescheduled
appointments due to a heavy flu season in late 2022.” said Graham
Rosenberg, CEO and Chairman of Dentalcorp.
Rosenberg continued, "we also observed a deferral of patient
volumes from the first quarter into the balance of the year, due to
the anticipated launch of the CDCP for certain eligible patients in
the second quarter. Over the short to medium term, we continue to
expect the CDCP to have a neutral to slightly positive impact on
our business.”
“During the quarter, we focused our efforts on driving operating
efficiencies and free cash flow generation. We expanded our
Adjusted EBITDA Margin by 0.1% and de-levered by 0.1x compared to
the fourth quarter of 2023, while generating $35 million of
Adjusted Free Cash Flow in the quarter, an increase of 7% compared
to the first quarter of 2023. This was supported by Same Practice
EBITDA Growth of 2.5% in the first quarter of 2024. We deployed
approximately $17 million into 5 accretive acquisitions, all of
which were self-funded, and are expected to generate PF Adjusted
EBITDA after rent of $2.6 million,” Rosenberg added.
“Looking forward, we expect SPRG of 4%+ for the second half of
2024. We remain on track to meet our full-year targets for Adjusted
Free Cash flow per Share growth, Adjusted EBITDA Margin expansion,
acquisition pacing, and balance sheet deleveraging, as we continue
to self-fund a significant portion of our acquisition program,”
Rosenberg concluded.
Financial and Operating Results for the First Quarter Ended
March 31, 2024:
- Revenue of $372.4 million, representing an increase of 3.9%
compared to the first quarter of 2023, driven in part by SPRG1 of
0.9%.
- Adjusted EBITDA1 of $68.1 million, a 3.8% increase over the
first quarter of 2023, with Adjusted EBITDA margin1 of 18.3%.
- Adjusted Net Income1 for the quarter was $24.7 million, an
increase of 53.4% over the first quarter of 2023.
- Adjusted Free Cash Flow1 for the quarter was $35.2 million, a
7.0% increase over the first quarter of 2023.
- Acquired 5 practices expected to contribute $2.6 million in PF
Adjusted EBITDA after rent1.
(¹) Non-IFRS financial measure, non-IFRS ratio, or supplementary
financial measure. For comprehensive definitions and quantitative
reconciliations, please refer to the “Non-IFRS and Other Financial
Measures” section within this news release.
Consolidated Financial Results
Three months ended March 31,
2024
2023
(expressed in millions of dollars) Revenue
372.4
358.3
Cost of revenue
190.4
179.3
Gross profit
182.0
179.0
Selling, general and administrative expenses
118.5
117.2
Depreciation and amortization
50.8
51.8
Share-based compensation
3.5
4.2
Foreign exchange (gain) loss
(0.3
)
(0.1
)
Net finance costs
25.2
23.3
Change in fair value of derivative instruments
(7.0
)
3.0
Change in fair value of contingent consideration
3.3
(0.9
)
Change in fair value of preferred shares
(0.2
)
—
Loss on disposal of dental practices
—
19.3
Loss before income taxes
(11.8
)
(38.8
)
Income tax recovery
(0.1
)
(5.5
)
Net loss and comprehensive loss
(11.7
)
(33.3
)
Other Metrics
Adjusted EBITDA(a)
68.1
65.6
Adjusted net income(a)
24.7
16.1
(a)
Non-IFRS financial measure,
non-IFRS ratio or supplementary financial measure. See the
“Non-IFRS and Other Financial Measures” section of this release for
definitions and quantitative reconciliations.
Conference Call Notification
The Company will hold a conference call to provide a business
update on Friday, May 10, 2024, at 8:30 a.m. ET. A
question-and-answer session will follow the business update.
LIVE CONFERENCE CALL DETAILS
DATE:
Friday, May 10, 2024
TIME:
8:30 a.m. ET
WEBCAST:
https://events.q4inc.com/attendee/332881982
DIAL-IN NUMBERS:
1 (888) 660-6396 or 1 (929)
203-0889
CONFERENCE ID:
9097710
REPLAY
Available for two weeks after the
call
DIAL-IN NUMBERS:
1 (800) 770-2030 or 1 (647)
362-9199
CONFERENCE ID:
9097710
Non-IFRS and Other Financial Measures
As appropriate, we supplement our results of operations
determined in accordance with IFRS with certain non-IFRS and other
financial measures that we believe are useful to investors,
lenders, and others in assessing our performance and which
highlight trends in our core business that may not otherwise be
apparent when relying solely on IFRS measures and are described and
reconciled to the closest applicable IFRS measure in further detail
below. Our management also uses non-IFRS and other financial
measures for purposes of comparison to prior periods, to prepare
annual operating budgets, for the development of future projections
and earnings growth prospects, to measure the profitability of
ongoing operations and in analyzing our financial condition,
business performance and trends, including the operating
performance of the business after taking into consideration the
acquisitions of dental practices, and to determine components of
employee compensation. As such, these measures are provided as
additional information to complement those IFRS measures by
providing further understanding of our results of operations from
management’s perspective, including how we evaluate our financial
performance and how we manage our capital structure. We also
believe that securities analysts, investors, and other interested
parties frequently use these non-IFRS and other financial measures
and industry metrics in the evaluation of issuers. These non-IFRS
and other financial measures are not recognized measures under IFRS
and do not have a standardized meaning prescribed by IFRS and may
include or exclude certain items as compared to similar IFRS
measures, and such measures may not be comparable to similarly
titled measures reported by other companies. Accordingly, these
measures should not be considered in isolation nor as a substitute
for analysis of our financial information reported under IFRS. For
further information on non-IFRS and other financial measures,
including the most directly comparable IFRS measures, composition
of the measures, a description of how we use these measures, an
explanation of how these measures are useful to investors and
applicable reconciliations, refer to the “Non-IFRS and Other
Financial Measures”, “Non-IFRS Financial Measures”, “Non-IFRS
Ratios” and “Certain Supplementary Financial Measures” sections of
management’s discussion and analysis of operations for the three
months ended March 31, 2024 (the “MD&A”), which is
available on the Company’s profile on SEDAR+ at
www.sedarplus.com.
EBITDA
“EBITDA” means, for the applicable period, Net loss and
comprehensive loss plus (a) net finance costs, (b) income tax
recoveries, and (c) depreciation and amortization. Management does
not use EBITDA as a financial performance metric, but we present
EBITDA to assist investors in understanding the mathematical
development of Adjusted EBITDA and Same Practice EBITDA Growth. The
most comparable IFRS measure to EBITDA is Net loss and
comprehensive loss, for which a reconciliation is provided
below.
Three months ended March 31,
2024
2023
(expressed in millions of dollars) Net loss and
comprehensive loss
(11.7
)
(33.3
)
Adjustments: Net finance costs
25.2
23.2
Income tax recovery
(0.1
)
(5.5
)
Depreciation and amortization
50.8
51.8
EBITDA
64.2
36.3
Adjusted EBITDA
“Adjusted EBITDA” is calculated by adding to EBITDA certain
expenses, costs, charges or benefits incurred in such period which
in management’s view are either not indicative of underlying
business performance or impact the ability to assess the operating
performance of our business, including: (a) net impact of
unrealized foreign exchange gains and losses on non-cash balances,
change in fair value of derivative instruments, and share of
associate losses; (b) share-based compensation; (c) external
acquisition expenses; (d) change in fair value of contingent
consideration; (e) strategic review costs; (f) other corporate
costs; (g) loss on disposal of dental practices; (h) change in fair
value of preferred shares; (i) loss on disposal and impairment of
property and equipment and intangible assets; (j) loss on
settlement of other receivables; (k) impairment of right-of-use
assets; (l) post-employment benefits; and (m) other adjustments.
Adjusted EBITDA is a supplemental measure used by management and
other users of our financial statements to assess the financial
performance of our business without regard to the effects of
interest, depreciation and amortization costs, expenses that are
not considered reflective of underlying business performance, and
other expenses that are expected to be one-time or non-recurring.
We use Adjusted EBITDA to facilitate a comparison of our operating
performance on a consistent basis from period to period and to
provide for a more complete understanding of factors and trends
affecting our business. The most comparable IFRS measure to
Adjusted EBITDA is Net loss and comprehensive loss, for which a
reconciliation is provided below.
Three months ended March 31,
2024
2023
(expressed in millions of dollars) EBITDA
64.2
36.3
Add: Net impact of unrealized foreign exchange gains or losses on
non-cash balances and change in fair value of derivatives(a)
(7.0
)
2.9
Share-based compensation
3.5
4.2
External acquisition expenses(b)
1.0
1.5
Change in fair value of contingent consideration(c)
3.3
(0.9
)
Change in fair value of preferred shares(d)
(0.2
)
—
Strategic review costs(e)
—
0.3
Other corporate costs(f)
1.0
2.0
Loss on disposal of dental practices(g)
—
19.3
Post-employment benefits(h)
2.3
—
Adjusted EBITDA
68.1
65.6
(a)
Represents the sum of (i)
unrealized foreign exchange gains or losses on non-cash balances,
(ii) change in fair value of derivatives, and (iii) share of
associate losses.
(b)
Represents professional fees and
other expenses paid to third parties related to practice
acquisitions. These costs are excluded as they are incurred in
connection with each practice acquisition and are not related to
the underlying business operations of the Company.
(c)
On acquisition, and at each
subsequent reporting date, obligations under earn-out arrangements
are measured at fair value with the changes in fair value
recognized in the condensed interim consolidated statements of loss
and comprehensive loss.
(d)
The Management Preferred Shares
are classified as a financial asset at fair value through profit or
loss (“FVTPL”). During the three months ended March 31, 2024, the
Company recognized a gain on change in fair value of preferred
shares of $0.2 million in the condensed interim consolidated
statements of loss and comprehensive loss.
(e)
Represents costs related to the
strategic review process and other costs incurred by the Company to
evaluate strategic alternatives to unlock shareholder value.
(f)
Represents costs related to the
implementation of new corporate technology systems, the undertaking
of vendor consolidations, termination benefits and other costs of
restructuring.
(g)
Represents the loss on disposal
of dental practices that were disposed of during the three months
ended March 31, 2023.
(h)
Represents post-employment
benefits provided to the Company’s former President on his
departure from the Company.
Adjusted EBITDA Margin
“Adjusted EBITDA Margin” means Adjusted EBITDA divided by
revenue. We use Adjusted EBITDA Margin to facilitate a comparison
of our operating performance on a consistent basis from period to
period and to provide for a more complete understanding of factors
and trends affecting our business.
Adjusted Free Cash Flow
“Adjusted free cash flow” is calculated by adding or subtracting
from cash flow from operating activities: (a) external acquisition
expenses; (b) strategic review costs; (c) other corporate costs;
(d) post-employment benefits (e) other adjustments; (f) repayment
of principal on leases; (g) maintenance capex; and (h) changes in
working capital. We use Adjusted free cash flow to facilitate a
comparison of our operating performance on a consistent basis from
period to period, to provide for a more complete understanding of
factors and trends affecting our business, and to determine
components of employee compensation. The most comparable IFRS
measure to Adjusted free cash flow is cash flow from operating
activities.
Adjusted Free Cash Flow per Share
“Adjusted free cash flow per Share” means Adjusted free cash
flow divided by the total number of shares of Dentalcorp
outstanding on a fully diluted basis. Adjusted free cash flow per
Share is utilized to determine components of employee
compensation.
Adjusted Net Income
“Adjusted net income” is calculated by adding to Net loss and
comprehensive loss certain expenses, costs, charges or benefits
incurred in such period which in management’s view are either not
indicative of underlying business performance or impact the ability
to assess the operating performance of our business, including: (a)
amortization of intangible assets; (b) share-based compensation;
(c) change in fair value of contingent consideration; (d) external
acquisition expenses; (e) strategic review costs; (f) other
corporate costs; (g) loss on disposal of dental practices; (h)
change in fair value of preferred shares; (i) loss on disposal and
impairment of property and equipment and intangible assets; (j)
loss on settlement of other receivables; (k) impairment of
right-of-use assets; (l) loss on modification of borrowings; (m)
post-employment benefits; (n) other adjustments; and (o) the tax
impact of the above. We use Adjusted net income to facilitate a
comparison of our operating performance on a consistent basis from
period to period and to provide for a more complete understanding
of factors and trends affecting our business. The most comparable
IFRS measure to Adjusted net income is Net loss and comprehensive
loss.
PF Revenue
“PF Revenue” in respect of a period means revenue for that
period plus the Company’s estimate of the additional revenue that
it would have recorded if it had acquired each of the dental
practices that it acquired during that period on the first day of
that period, calculated in accordance with the methodology
described in the reconciliation table below. Given the highly
acquisitive nature of our business, management believes PF Revenue
is more reflective of our operating performance. We use PF Revenue
to determine components of employee compensation. The most
comparable IFRS measure to PF Revenue is revenue, for which a
reconciliation is provided in the table below.
Year ended March 31,
2024
(expressed in millions)
Revenue
$1,439.7
Add:
Acquisition adjustment(a)
$43.3
PF Revenue
$1,483.0
a.
The Company regularly acquires
dental practices and estimates that if it had acquired each of the
practices that it acquired during the last twelve months ended
March 31, 2024, it would have recorded additional revenue of $43.3
million. These estimates are based on the amount of revenue
budgeted by the Company to be earned by the relevant practices at
the time of their acquisition by Dentalcorp. There can be no
assurance that if the Company had acquired these practices on the
first day of the applicable fiscal period, they would have actually
generated such budgeted revenue, nor is this estimate indicative of
future results.
PF Adjusted EBITDA
“PF Adjusted EBITDA” in respect of a period means Adjusted
EBITDA for that period plus the Company’s estimate of the
additional Adjusted EBITDA that it would have recorded if it had
acquired each of the dental practices that it acquired during that
period on the first day of that period, calculated in accordance
with the methodology described in the reconciliation table below.
Both creditors and the Company use PF Adjusted EBITDA to assess our
borrowing capacity, which management believes, given the highly
acquisitive nature of our business, is more reflective of our
operating performance. We also use PF Adjusted EBITDA to determine
components of employee compensation. The most comparable IFRS
measure to PF Adjusted EBITDA is Net loss and comprehensive
loss.
PF Adjusted EBITDA Margin
“PF Adjusted EBITDA Margin” means PF Adjusted EBITDA divided by
PF Revenue. Both creditors and the Company use PF Adjusted EBITDA
Margin to assess our borrowing capacity, which management believes,
given the highly acquisitive nature of our business, is more
reflective of our operating performance.
Year ended March 31,
2024
(expressed in millions)
Adjusted EBITDA
$262.6
Add:
Acquisition adjustment(b)
$11.7
PF Adjusted EBITDA
$274.3
PF Adjusted EBITDA Margin
18.5%
b.
The Company regularly acquires
dental practices and estimates that if it had acquired each of the
practices that it acquired during the last twelve months ended
March 31, 2024, it would have recorded additional Adjusted EBITDA
of $11.7 million. These estimates are based on the amount of
Practice-Level EBITDA budgeted by the Company to be earned by the
relevant practices at the time of their acquisition by Dentalcorp.
There can be no assurance that if the Company had acquired these
practices on the first day of the applicable fiscal period, they
would have actually generated such budgeted Practice-Level EBITDA,
nor is this estimate indicative of future results.
PF Adjusted EBITDA After Rent
“PF Adjusted EBITDA after rent” in respect of a period means PF
Adjusted EBITDA less interest and principal repayments on leases
and lease interest and principal repayments on acquisitions. Both
creditors and the Company use PF Adjusted EBITDA after rent to
assess our borrowing capacity, which management believes, given the
highly acquisitive nature of our business, is more reflective of
our operating performance. The most comparable IFRS measure to PF
Adjusted EBITDA after rent is Net loss and comprehensive loss.
Same Practice EBITDA Growth
“Same Practice EBITDA Growth” in respect of a period means the
percentage change in EBITDA derived from Established Practices in
that period as compared to EBITDA from the same dental practices in
the corresponding period in the immediately prior year. A dental
practice will be deemed to be an “Established Practice” in a period
if it was operating as part of Dentalcorp for the entirety of the
relevant period and for the entirety of the corresponding period in
the immediately prior year.
Same Practice Revenue Growth
“Same Practice Revenue Growth” (SPRG) in respect of a period
means the percentage change in revenue derived from Established
Practices in that period as compared to revenue from the same
dental practices in the corresponding period in the immediately
prior year.
Forward-Looking Information
This release includes forward-looking information and
forward-looking statements within the meaning of applicable
Canadian securities legislation, including the Securities Act
(Ontario). Forward-looking information includes, but is not limited
to, statements about the Company’s objectives and strategies to
achieve those objectives, our financial outlook, and about the
Company’s beliefs, plans, expectations, anticipations, estimates,
or intentions. Forward-looking information includes words like
could, expect, may, anticipate, assume, believe, intend, estimate,
plan, project, guidance, outlook, target, and similar expressions
suggesting future outcomes or events.
Our forward-looking information includes, but is not limited to,
the information and statements under “Outlook” relating to our
goals for the second quarter of 2024 for Revenue, Same Practice
Revenue Growth, Adjusted EBITDA Margin, PF Adjusted EBITDA after
rent attributable to practices acquired in 2024, as well as our
medium-term expectations regarding Same Practice Revenue Growth and
Net Debt / PF Adjusted EBITDA after rent Ratio. Such
forward-looking information relating to these metrics are not
projections; they are goals based on the Company’s current
strategies and may be considered forward-looking information under
applicable securities laws and subject to significant business,
economic, regulatory and competitive uncertainties and
contingencies, many of which are beyond the control of the Company
and its management.
The purpose of disclosing such forward-looking information is to
provide investors with more information concerning the financial
results that the Company currently believes are achievable based on
the assumptions below. Readers are cautioned that the information
may not be appropriate for other purposes. While these targets are
based on underlying assumptions that management believes are
reasonable in the circumstances, readers are cautioned that actual
results may vary materially from those described above.
Forward-looking statements are necessarily based upon
management’s perceptions of historical trends, current conditions
and expected future developments, as well as a number of specific
factors and assumptions that, while considered reasonable by
management as of the date on which the statements are made, are
inherently subject to significant business, economic and
competitive uncertainties and contingencies which could result in
actions, events, conditions, results, performance or achievements
to be materially different from those projected in the
forward-looking statements. Forward-looking information is based on
many factors and assumptions including, but not limited to, the
following assumptions for the second quarter of 2024, the remainder
of fiscal 2024 and the medium-term, as applicable: the Company’s
business, operations and capital structure continuing as currently
maintained, that the Company’s acquisition program continues
without any re-deployment of capital of the Company, the Company’s
ability to realize pricing increases, an increase in patient visit
volumes in the second quarter of 2024, the implementation of the
CDCP, the enrollment of patients in the CDCP, reductions in
previously imposed industry wide regulatory restrictions, the
impact of the investments the Company has made in its marketing and
talent teams and the upgrades to its core information technology
systems; the Company’s ability to continue to make and integrate
acquisitions at attractive valuations including a reduction in
acquisition purchase multiples as compared to prior periods, the
impact of corporate investments made in fiscal 2022 and 2023 on the
Company’s operations, including the Company’s corporate
infrastructure and technology stack and new Human Resource
Information system and ERP system, the Company benefiting from its
unhedged borrowings due to future and forecasted rate decreases,
the expansion of service offerings and frequency of patient visits
which contribute to optimal patient care, the Company’s ability to
mitigate anticipated supply chain disruptions, geopolitical risks,
inflationary pressures and labour shortages, expand service
offerings and generate cash flow, no changes in the competitive
environment or legal or regulatory developments affecting our
business; visits by patients to our Practices at the same rate as
current visits, and no further COVID-19 related significant
restrictions.
Actual results and the timing of events may differ materially
from those anticipated in the forward-looking information as a
result of known and unknown risk factors, many of which are beyond
the control of the Company, and could cause actual results to
differ materially from the forward-looking statements. Such risks
include, but are not limited to, the Company’s potential inability
to successfully execute its growth strategy and complete additional
acquisitions; its dependence on the integration and success of its
acquired dental practices; the potential adverse effect of
acquisitions on its operations; the Company’s inability to
integrate acquired dental practices; its dependence on the parties
with which the Company has contractual arrangements and
obligations; changes in relevant laws, governmental regulations and
policy and the costs incurred in the course of complying with such
changes; competition in the dental industry; increases in operating
costs; the risk of difficulty complying with public company
reporting obligations; and the risk of a failure in internal
controls and other factors described herein under “Risk Factors”
and in “Risk Factors” in the AIF and the Annual MD&A.
Accordingly, we warn readers to exercise caution when considering
statements containing forward-looking information and caution them
that it would be unreasonable to rely on such statements as
creating legal rights regarding the Company’s future results or
plans. We are under no obligation (and we expressly disclaim any
such obligation) to update or alter any statements containing
forward-looking information or the factors or assumptions
underlying them, whether as a result of new information, future
events, or otherwise, except as required by applicable securities
laws. All of the forward-looking information in this release is
qualified by the cautionary statements herein.
About Dentalcorp
Dentalcorp is Canada's largest and one of North America's
fastest growing networks of dental practices, committed to
advancing the overall well-being of Canadians by delivering the
best clinical outcomes and unforgettable experiences. Dentalcorp
acquires leading dental practices, uniting its network in a common
goal: to be Canada's most trusted healthcare network. Leveraging
its industry-leading technology, know-how and scale, Dentalcorp
offers professionals the unique opportunity to retain their
clinical autonomy while unlocking their potential for future
growth. To learn more, visit dentalcorp.ca.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240510321544/en/
For investor inquiries:
Investor Relations
Nick Xiang Senior Director, Corporate Finance
nick.xiang@dentalcorp.ca (647) 220-4905
Media
Sebastien Bouchard Vice President, Corporate Communications
sebastien.bouchard@dentalcorp.ca (437) 216-0733
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