dentalcorp Holdings Ltd T.DNTL

TD

[retiredcf]

A bit more subdued than the others but I'll cut them some slack as they have a $19.00 target. GLTA

dentalcorp Holdings Ltd.

(DNTL-T) C$10.78

First Look: Solid Quarter with Revenue and Margins In Line Event

dentalcorp reported Q2/22 adj. EBITDA (IFRS 16) of $59.8mm, effectively in-line with our estimate of $60.9mm and 3.1% above consensus of $58.0mm.

Impact: NEUTRAL

We view the Q2/22 results as largely neutral, with the quarter broadly in line with our estimates, as dentistry remains a resilient essential service. Management noted that the quarter continued to be impacted by lingering COVID-related patient cancellations and dentist/hygienist absenteeism (consistent with commentary across many industries, with COVID-impacts diminished but not gone). Looking forward, management provided an optimistic outlook for double-digit growth in Q3, including strong SSSG. We believe that possible upside exists to SSSG near-term given Ontario has now significantly decreased COVID-related regulatory restrictions around patient throughput. We believe that this could be the first of a broader reduction of restrictions across Canada.

• Revenue increased 25.2% y/y to $327.0mm (TD/cons: $325.4mm/$315.5mm), reflecting 3.1% SSSG (TD: 4.0%) and a 22.0% growth in the practice count y/y to 526. SSSG continued to be impacted by pandemic related headwinds in the quarter (capacity restrictions, practitioner absences, and patient cancellations). Practices in the Ortho Acceleration Program increased ~40% y/y to 250. Revenue from recent acquisitions exceeded expectations. Adjusted EBITDA margins of 18.3% were broadly in line with TD's 18.7% estimate.

• Practice acquisitions: 28 new practices acquired in Q2/22 (TD: 18), expected to generate ~$16.1mm in annual adjusted IFRS 16 EBITDA (11 acquisitions for a $142.7mm consideration). YTD DNTL has acquired 60 practices expected to generate ~$41.4mm in annual adj. IFRS 16 EBITDA. dentalcorp's acquisition pipeline remains robust with >730 total opportunities in its pipeline and 200+ in the more advanced stages of negotiation.

• Pro-forma LTM revenue/EBITDA including acquisitions is $1,274.7mm/ $245.8mm ($206mm pre IFRS16), respectively. PF EBITDA margin: 19.3%.

• FCF (pre-working capital) of $31.4mm was healthy, albeit below TD's $33.3mm estimate reflecting slightly higher-than-expected interest paid.

• Balance sheet: Net debt (excl. leases): $853.9mm (cash: $152.2mm, debt: $1,006.1mm), up from $780.1mm as at Q1/22 reflecting positive FCF offset by acquisitions. Leverage: ~4.2x pro-forma. Available liquidity: $440.8mm.

• Subsequent to quarter end DNTL entered a strategic partnership with Envista to expand its dental implant services (see here).