CIBCRate DNTL as Outperform with an $18.00 target. GLTA
EQUITY RESEARCH
August 12, 2022 Flash Research
DENTALCORP HOLDINGS LTD.
Q2/22 First Look: Easing COVID-19-related Pressure Leads To
Same-practice Sales Growth
Our Conclusion: Modest Positive. dentalcorp reported solid Q2/22 results
that were a 3.5% beat on the top line against consensus and 5% on the
adjusted EBITDA line. Same-practice sales growth of 3.1% was up from
(3.3%) in Q1 as COVID-19-related pressures eased. Annualized acquired
EBITDA of $16.1 million was above our forecast of $11 million due to
additional mid-market practice acquisitions. The average acquisition multiple
of 8.9x this quarter was higher than the longer-term average of 6.5x-7.0x
(8.8x in Q1/22). Following the recently announced merger of 123Dentist and
Altima Dental, we will be keeping a close eye on acquisition multiples in the
coming quarters. We will also be looking for more details on the impact of the
newly announced implant program, COVID-19-related pressures in the
quarter, inflationary pressures, and acquisition pipeline on the conference
call this morning.
Key Highlights
Q2 Results: dentalcorp reported Q2 revenue of $327 million (consensus
$316 million/our estimate $314 million) and adjusted EBITDA of $60 million
(consensus and our estimate $57 million). Adjusted EBITDA margins of
18.3% were 30 bps above consensus and in line with our estimate. Adjusted
EBITDA margin compressed 40 bps Y/Y. There were no COVID-19-related
adjustments to EBITDA in the quarter compared to $1 million in Q2/21.
Acquisition Update: dentalcorp completed 11 acquisitions for a total of
28 acquired practices in in Q2. The practices are expected to generate
$16.1 million in pro forma adjusted EBITDA. dentalcorp paid $143 million in
total consideration, implying an average multiple of 8.9x, compared to our
assumed multiple of 8x. The implied EBITDA per acquired practice is $509K,
down sequentially from $550K in the previous quarter even with acquisition
multiples climbing. dentalcorp ended Q2 with $408 million in liquidity, with
$152 million in cash and $289 million in debt capacity.
Same-practice Sales Improve Post Omicron: Q2 same-practice revenue
(SPR) was 3.1%, improving sequentially from (3.3%) in Q1/22. The
improvement is due to the easing of Omicron, although there is still some
lingering impact. The recovery demonstrates the resilience of the dental
market in an uncertain economic environment driven by pent-up dentistry
services demand from COVID-19.
FCF Conversion: dentalcorp generated $39.4 million in FCF this quarter,
with a FCF conversion rate of 66% of adjusted EBITDA. FCF was slightly
lower than our FCF estimate of $46.9 million while conversion was in line
with the prior quarter.
Conference Call: Management will host a conference call at 8:30 a.m. ET
today. Webcast: lin