CIBCCurrently have a $20 target. GLTA
EQUITY RESEARCH
March 25, 2022 Flash Research
DENTALCORP HOLDINGS LTD.
Q4/21 First Look: Headline Numbers In Line; Acquisition
Multiples Rise
Our Conclusion
Dentalcorp’s headline fourth-quarter results were as expected, with revenue
and adjusted EBITDA in the quarter and annually acquired EBITDA all in line
with the January pre-release. The average acquisition multiple of 7.6x was
above the longer-term average of 6.5x, likely due to larger practice or mid-
market acquisitions in the quarter. Same-practice sales growth was up
sequentially from 3.5% to 4.9%, driven by insourcing momentum and strong
performance of new practices. We will be looking for additional details on the
conference call regarding the elevated acquisition multiples in the quarter
and the impact of Omicron on patient visits and expense inflation in 2022.
Key Points
Q4/21 Results: Dentalcorp reported revenue of $273 million, in line with the
pre-released expectation of ~20% Y/Y growth. Adjusted EBITDA of $50.1
million was in line with consensus given adjusted EBITDA margins of 18.4%
matched commentary in the pre-release that margins would be substantially
consistent with recently reported quarters. Rent expenses were $8.7 million,
leading to Pre-IFRS 16 EBITDA of $41.4 million, at margins of 15.2%.
Acquisition Update: Dentalcorp acquired 13 practices in the quarter, with
those practices expected to generate annualized adjusted EBITDA of $10.4
million. Dentalcorp paid $79 million in consideration for the 13 practices,
implying an average multiple of 7.6x. This is ahead of the historical average
of 6.5x adjusted EBITDA, but the $800,000 in EBITDA per acquired practice
is above historical levels of ~$600k, implying larger practices acquired in the
quarter. Dentalcorp ended Q4 with $542 million in liquidity, comprised of
$142 million in cash and $400 million in debt capacity.
Same-practice Sales Growth: Dentalcorp reported same-practice sales
growth of 4.9%, as a result of the orthodontic acceleration program and
strong performance from acquired practices. These levels are above the
target range of 3.5%-4.5% although the impact of COVID continues to add
noise to same-practice sales growth figures.
Leverage: With pro forma adjusted EBITDA (after rent) of $179.2 million and
net debt of $752 million, we calculate leverage in the range of 4.2x on a pre-
IFRS 16 basis. Leverage is up slightly from 4.0x in the prior quarter.
Conference Call Details: Management will host a conference call on
Monday morning at 8:30 a.m. ET; dial-in: 1-888-664-6383, reference number:
09145645.