dentalcorp Reports First Quarter 2023 Results

Record results driven by strong organic growth

First Quarter 2023 Highlights

• Revenue of $358.3 million, an increase of 28% over the same period in 2022
• Same Practice Revenue Growth of 8.5%, with Same Practice EBITDA Growth of 11.2%
• Adjusted EBITDA Growth From Acquisitions Completed in Prior Period⁽¹⁾ was 19.3%
• Adjusted EBITDA⁽¹⁾ of $65.6 million, an increase of 31% compared to the same period in 2022; Adjusted EBITDA Margin⁽¹⁾ of 18.3%
• Adjusted net income⁽¹⁾ of $16.1 million
• Adjusted free cash flow⁽¹⁾ of $32.9 million, with net leverage levels reducing to 4.4x
• Acquired six practices in the quarter expected to generate $5.4 million in PF Adjusted EBITDA⁽¹⁾ at 7.1x, 27% lower than the same period last year

Second Quarter 2023 Outlook

• Revenues are estimated to increase by 9.5% to 10.5% to $358 million to $361 million, with Adjusted EBITDA Margins⁽¹⁾ materially consistent with the same period in 2022
• Same Practice Revenue Growth is estimated to be 5% to 6%
• Expecting to complete acquisitions representing PF Adjusted EBITDA after rent⁽¹⁾ between approximately $4.0 million to $5.0 million at purchase multiples consistent with the first quarter

⁽¹⁾ Non-IFRS financial measure, non-IFRS ratio or supplementary financial measure. See “Non-IFRS and Other Measures” section of this news release for definitions and quantitative reconciliations.

dentalcorp Holdings Ltd. (“dentalcorp” or the “Company”) (TSX: DNTL), Canada’s largest, and one of North America’s fastest growing networks of dental practices, announced today its three-month financial and operating results for the period ended March 31, 2023. All references to dollar values in this press release are in Canadian dollars, unless otherwise indicated.

“We are pleased to report our strongest quarterly results on record. Our performance is a testament to the hard work of our nearly 10,000 team members from coast to coast, and the resilience of our business as we benefitted from our strategy of balanced growth across organic, acquisitive and balance sheet deleveraging initiatives” said Graham Rosenberg, founder and Chief Executive Officer. “Once again, we delivered double-digit revenue and Adjusted EBITDA growth, driven by record Same Practice Revenue Growth of 8.5%, which is attributable to growth in patient visits over the same period last year, and the contribution of fee guide increases. Adjusted EBITDA margins were up over the same period last year, as organic growth offset the inflationary pressures that we experienced in 2022. Finally, outperformance from our 2022 acquisitions, driven by the rigors of dentalcorp’s integration program, also contributed to our results.”

Financial and Operating Results for the Three Months Ended March 31, 2023

• Revenue for the first quarter 2023 of $358.3 million, an increase of $78.1 million or 28% over the first quarter 2022. This increase was driven by incremental revenue from acquired practices, and Same Practice Revenue Growth.

• Same Practice Revenue Growth of 8.5% compared to the first quarter 2022, driven by overall demand for services, 2023 fee guide increases, and the Company’s insourcing initiatives, and Same Practice EBITDA up 11.2%. Adjusted EBITDA Growth For Acquisitions Completed in Prior Period was 19.3% over comparable performance, driven by overall demand for services, pricing increases, the Company’s insourcing initiatives, and the rigors of the Company’s integration program.

• Adjusted EBITDA increased to $65.6 million in the first quarter 2023, an increase of 30.9% compared to the first quarter of 2022. Adjusted EBITDA Margin of 18.3% in the first quarter 2023 was up compared to 17.9% during the corresponding period in 2022.

• Adjusted net income for the quarter was $16.1 million, a decrease from the first quarter of 2022 due to increased financing costs incurred in the first quarter of 2023.

• Adjusted free cash flow for the quarter was $32.9 million, compared to $30.7 million in the first quarter 2022, an increase despite the significant increase in financing costs in the last twelve months.

• The Company acquired 6 dental practices during the first quarter 2023, which are budgeted to generate approximately $5.4 million in PF Adjusted EBITDA, for total consideration of $35 million. As at March 31, 2023, the Company owned 536 dental practices in Canada, compared to 500 practices at March 31, 2022. The number of practices owned at March 31, 2023, included the divesture of 13 standalone orthodontics practices as part of dentalcorp’s program to rationalize certain non-core standalone specialty practices. The Company anticipates that the sale of these assets will have a positive impact on overall Adjusted EBITDA margins, allowing it to re-allocate resources to higher growth areas of its business.

• The Company ended the first quarter 2022 with liquidity of $785 million, comprised of $111 million in cash, and $674 million in undrawn debt capacity under the senior debt facilities. Approximately $1.1 billion of its senior debt facilities were drawn at year end. During the quarter, dentalcorp executed an additional $300 million of interest rate swaps. Approximately 75% of the Company’s bank debt exposure, or $800 million, is now carrying a fixed Canadian Dollar Offered Rate plus margin for an-all-in cost of approximately 6.4%.

Consolidated Financial Results

Other Metrics

Second Quarter 2023 Outlook

“Our first quarter results provide us with a solid backdrop for strong second quarter revenue growth driven by the performance of our same practice cohort and 2022 acquisitions,” said Mr. Rosenberg. “We expect Adjusted EBITDA Margin to remain consistent with the same period last year, with solid practice-level performance offsetting the significant investments we have made in corporate infrastructure including in our marketing and talent teams, and the upgrades to our core information technology systems. Furthermore, when combined with lower acquisition multiples, we expect our overall performance to be constructive to our objective of reducing leverage and driving increases in free cash flow per share, consistent with our balanced approach to growth.”

The foregoing outlook with respect to the second quarter is based on the Company’s current strategies and may be considered forward-looking information under applicable securities laws. Such targets are based on estimates and assumptions made by the Company regarding, among other things, the assumptions set out under “Forward-Looking Information”. Readers are cautioned that actual results may vary materially from the above targets if the Company’s assumptions are incorrect or as a result of the risks and uncertainties that may impact our business and that may cause actual results to vary. See “Forward-Looking Information”.

Normal Course Issuer Bid

dentalcorp also announced today acceptance by the Toronto Stock Exchange (the “TSX”) of dentalcorp’s notice of intention to make a normal course issuer bid (the “NCIB”). Pursuant to the NCIB, dentalcorp intends to purchase for cancellation up to 3,500,000 subordinate voting shares in the capital of the Company (the “Subordinate Voting Shares”), representing approximately 2% of dentalcorp’s 178,079,763 issued and outstanding Subordinate Voting Shares as at May 3, 2023, subject to such limitations as may be applicable from time to time under dentalcorp’s credit agreement.

“We believe that the market price of the Subordinate Voting Shares may, at certain times throughout the duration of the NCIB, be undervalued based on our financial performance and prospects,” said Mr. Rosenberg. “We believe that the repurchase of our Subordinate Voting Shares under the NCIB is a desirable use of funds in order to increase shareholder value and is in the best interests of the Company.

Under the NCIB, dentalcorp may purchase up to 51,779 of its Subordinate Voting Shares on the TSX during any trading day, which represents 25% of the average daily trading volume of 207,119 Subordinate Voting Shares on the TSX for the 6 months ended April 30, 2023, other than block purchase exemptions. Purchases under the NCIB may commence on May 16, 2023, and continue until May 15, 2024, or such earlier date as dentalcorp completes its purchases pursuant to the NCIB.

The NCIB will be conducted in accordance with TSX rules and policies through the facilities of the TSX and through alternative trading systems, if eligible. The price that dentalcorp will pay for any Subordinate Voting Shares will be the market price prevailing at the time of purchase or such other price as may be permitted.

In connection with the NCIB, the Company also announces that it has entered into an issuer automatic purchase plan agreement (the “Plan”) with an independent designated broker (the “Broker”) responsible for making purchases of Subordinate Voting Shares pursuant to the Plan. Under the Plan, the Broker will have sole discretion to purchase Subordinate Voting Shares pursuant to the NCIB during trading black-out periods established under the Company’s Insider Trading Policy, subject to the price limitations and other terms of the Plan and the rules of the TSX. The Company may instruct the Broker to make specific purchases and suspend or terminate the Plan, provided in each case that the Company certifies to the Broker that it is not in possession of any material undisclosed information and such request is otherwise in compliance with the terms of the Plan.

Conclusion of Strategic Review Process

In November 2022, the Company’s Board of Directors formed a special committee of non-executive, independent directors (the “Special Committee”) to undertake, in consultation with its financial and legal advisors, a review and evaluation of strategic alternatives that may be available to the Company to unlock shareholder value (the “Strategic Review”).

The Special Committee conducted an extensive review and evaluation of several alternatives available to the Company. The Special Committee provided its final report to the Board on May 11, 2023 and – based on the Company’s strong outlook and prospects for future growth, as well as the fact that none of the alternatives proposed by third parties reflected the fair value of the Company – recommended that it would be in the best interests of the Company, giving due regard to the interests of the Company’s shareholders and other stakeholders, to continue to pursue its existing business strategy, which contemplates the achievement of balanced growth through organic, acquisitive and balance sheet deleveraging initiatives under the leadership of the Company’s existing senior management team.

The Special Committee’s recommendation has been accepted and endorsed by the Board. Accordingly, the work of the Special Committee has been completed, and the committee will be dissolved.

Conference Call Notification

The Company will hold a conference call to provide a business update on Friday, May 12, 2023, at 8:30 a.m. ET. A question-and-answer session will follow the business update.

Non-IFRS and Other Measures

As appropriate, we supplement our results of operations determined in accordance with IFRS with certain non-IFRS 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. Our management also uses non-IFRS 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 run-rate of the business after taking into consideration the acquisitions of dental practices. 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 measures and industry metrics in the evaluation of issuers. These non-IFRS 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 financial measures, including, the most directly comparable IFRS measures, composition of the measures, a description of how we use these measures and an explanation of how these measures provide useful information to investors, and applicable reconciliations refer to the "Non-IFRS and Other Measures", "Non-IFRS Financial Measures", "Non-IFRS Ratios" and "Supplementary Financial Measures" sections of our management discussion and analysis for the three months ended March 31, 2023 (the “MD&A”), available on the Company's profile on SEDAR at www.sedar.com, which is incorporated by reference herein.

Adjusted EBITDA Growth From Acquisitions Completed in Prior Period

Adjusted EBITDA Growth From Acquisitions Completed in Prior Period in respect of a period is the percentage of Adjusted EBITDA for the period attributable to practices acquired in the corresponding period in the immediately prior year as compared to actual Adjusted EBITDA attributable to such practices plus management's estimate of Adjusted EBITDA attributable to such practices for any portion of the period they were not owned by the Company in such period in the corresponding period in the immediately prior year.

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. We present EBITDA to assist investors in understanding the mathematical development of Adjusted EBITDA. 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.

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 noncash 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) Initial Public Offering (“IPO”) costs; (f) strategic review costs; (g) other corporate costs; (h) loss on disposal of businesses; and (h) other one-time 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.

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 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) IPO costs; (f) strategic review costs; (g) other corporate costs; (h) loss on disposal of businesses; (i) other one-time adjustments; and (j) 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 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 in “Reconciliation of Non-IFRS Measures”. Given the highly acquisitive nature of our business, PF Revenue is more reflective of our expected run-rate. We use PF Revenue to determine components of employee compensation. The most comparable IFRS measure to PF Revenue is Revenue.

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 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 in “Reconciliation of Non-IFRS Measures”. Both creditors and the Company use PF Adjusted EBITDA to assess our borrowing capacity and given the highly acquisitive nature of our business is more reflective of our expected run-rate. We also use PF Adjusted EBITDA to determine components of employee compensation. The most comparable IFRS measure to PF Adjusted EBITDA is Net income (loss) and comprehensive income (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 and given the highly acquisitive nature of our business is more reflective of our expected run-rate.

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. Both creditors and the Company use PF Adjusted EBITDA after rent to assess our borrowing capacity and given the highly acquisitive nature of our business is more reflective of our expected run-rate. The most comparable IFRS measure to PF Adjusted EBITDA after rent is Net income (loss) and comprehensive income (loss).

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) IPO costs; (c) strategic review costs; (d) other corporate costs; (e) other one-time 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.

Same Practice EBITDA Growth

“Same Practice EBITDA Growth” in respect of a period means the percentage change in EBITDA derived from Established Practices (other than Legacy Specialty Practices) in that period as compared to EBITDA from the same practices in the Corresponding period in the immediately prior year.

Same Practice Revenue Growth

“Same Practice Revenue Growth” in respect of a period means the percentage change in revenue derived from Established Practices (other than Legacy Specialty Practices) in that period as compared to revenue from the same practices in the corresponding period in the immediately prior year. A 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. A “Legacy Specialty Practice” means a practice acquired prior to mid-2014 using a legacy deal structure that is no longer utilized today.

Forward-Looking Information

This news release includes forward-looking information and forward-looking statements within the meaning of applicable Canadian securities legislation, including the Securities Act (Ontario) (collectively, “forward-looking statements”), which reflect management’s expectations regarding the Company’s future growth, future financial outlook, our ability to sustain momentum in our business and advance our strategic growth drivers, results from operations (including, without limitation, future expansion and capital expenditures), performance (both operational and financial) and business prospects, future business plans, opportunities and our goals for the second quarter of 2023 for Revenue, Same Practice Revenue Growth, PF Adjusted EBITDA after rent, acquisition multiples realizable for practice acquisitions and Adjusted EBITDA Margin. Wherever possible, words such as “plans”, “expects”, “scheduled”, “budgeted”, “projected”, “estimated”, “timeline”, “forecasts”, “anticipates”, “suggests”, “indicative”, “intend”, “guidance”, “outlook”, “potential”, “prospects”, “seek”, “strategy”, “targets” or “believes”, or variations of such words and phrases or statements that certain future conditions, actions, events or results “will”, “may”, “could”, “would”, “should”, “might” or “can”, or negative or grammatical versions thereof, “be taken”, “occur”, “continue” or “be achieved”, and other similar expressions, have been used to identify forward looking statements. Such forward-looking information includes, but is not limited to, the forward-looking information related to the Canadian dental industry; addressable markets for the Company’s services; expectations regarding its revenue and its revenue generation potential; its business plans and strategies; its competitive position in its industry and its expectations regarding double-digit growth, and the information and statements under “Outlook” relating to our goals for the second quarter of 2023 for Revenue, Same Practice Revenue Growth, PF Adjusted EBITDA after rent, acquisition multiples realizable for practice acquisitions and Adjusted EBITDA Margin.

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. Such factors and assumptions include, but are not limited to, the following assumptions for the remainder of 2023 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 divestitures of non-core assets or 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 2023, 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 Practices Level EBITDA Purchase multiples as compared to prior periods, the impact of corporate investments made in 2022 and 2023 on the Company’s operations, including the Company’s corporate infrastructure and technology stack, including its 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, ability to expand service offerings, cash flow generation ability, 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; a steady improvement in the general COVID-19 environment including, the continued reopening of the economy and no further significant restrictions and other factors listing under the heading Risk Factors in the Company’s Annual Information Form dated March 25, 2022 and the MD&A. While the Company considers these assumptions to be reasonable, many assumptions are based on factors and events that are not within its control and there is no assurance that they will prove to be correct.

By their nature, forward-looking statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct, and that objectives, strategic goals and priorities will not be achieved. Known and unknown risk factors, many of which are beyond the control of the Company, 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; 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.

Although the Company has attempted to identify important factors that could cause actual actions, events, conditions, results, performance or achievements to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events, conditions, results, performance or achievements to differ from those anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, or to explain any material difference between subsequent actual events and such forward-looking statements, except to the extent required by applicable law. Accordingly, investors should not place undue reliance on forward-looking statements. All the forward-looking statements are expressly qualified by the foregoing cautionary statements.

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/20230512005080/en/