Q4/22: Results broadly in line with consensus (above RBCe) - Q1 guide brackets consensus/RBCe
TSX: DNTL | CAD 8.19 | Outperform | Price Target CAD 15.00
Sentiment: Neutral
Our initial view: dentalcorp reported Q4/22 revenues of $331.0MM (+6% q/q; +21% y/y), ahead of RBCe ($325.1MM) but slightly below consensus ($331.9MM). GMs of 48.2% in the quarter decreased q/q (49.5% in Q3) and were below RBCe and consensus (~49.6%). Q4/22 adj. EBITDA of $60.6MM was ahead of RBCe ($59.2MM) and broadly in line with consensus ($60.8MM). The company anticipates delivering 22%-24% y/y revenue growth in Q1/23 (RBCe: 23.8% y/y and consensus: 22.3% y/y) and estimate same practice revenue growth of 7-8%, likely aided by rebound in visits after flu cases normalized and easing of the COVID-related regulatory restrictions. dentalcorp acquired 7 dental practices in Q4 for a total of $32.0MM (~6.5x IFRS EBITDA multiple vs. ~8.1x IFRS EBITDA multiple in Q3) and now has 542 practices across Canada. On the earnings call, we expect updates on volume recovery following the peak of the flu season in Q4 and as COVID-related regulatory restrictions have eased. Additionally, we will look for any updates to the ongoing strategic review process and associated timelines.
Revenues above RBCe but slightly below consensus; GMs declined q/q. dentalcorp reported Q4/22 revenues of $331.0MM (+6% q/q; +21% y/y), ahead of RBCe ($325.1MM) but slightly below consensus ($331.9MM). Gross margins of 48.2% in the quarter declined q/q (49.5% in Q3) and were below RBCe and consensus (~49.6%). dentalcorp reported same practice sales growth of +2.0% y/y in Q4/22 likely impacted by severe flu season in Q4/22 (vs. +2.4% y/y in Q3, that was impacted by Hurricane Fiona).
Adj. EBITDA ahead of RBCe and broadly in line with consensus. dentalcorp reported Q4/22 adj. EBITDA of $60.6MM on an IFRS basis, ahead of RBCe ($59.2MM) and broadly in line with consensus ($60.8MM). The adj. EBITDA margin of 18.3% was down q/ q (19.0% in Q3, aided by realized FX gains) and broadly in line with consensus (18.3%) and RBCe (18.2%). Adj. FCF for Q4/22 was $7.6MM, down q/q and y/y ($28.8MM in Q3; $22.2MM in Q4/21) that was impacted due to timing of changes in working capital. For full year, adj. FCF was $124.6MM (+38% y/y). DNTL noted working capital was neutral for the full year.
Acquired 7 practices ($4.9MM adj. EBITDA) in Q4 at an implied ~6.5x IFRS EBITDA multiple - a positive change. dentalcorp acquired 7 dental practices in Q4/22 for total consideration of $32.0MM. The company expects the acquired practices to generate ~$4.9MM in annualized adj. EBITDA (implying an acquisition multiple of ~6.5x). This compares to $12.9MM of acquired EBITDA at an IFRS EBITDA multiple of ~8.1x in Q3/22. We view the reduction in acquisition multiple positively. As of the end of Q4/22, dentalcorp owned 542 dental practices in Canada (vs. 538 practices end Q3/22).
Outlook for Q1/23 - brackets RBCe and consensus. The company anticipates delivering 22%-24% y/y revenue growth in Q1/23 (RBCe: 23.8% y/y and consensus: 22.3% y/y) and estimates very high same practice revenue growth of 7-8%, likely aided by rebound in visits after flu cases normalized and easing of the COVID-related regulatory restrictions, in our view. The Q1/23 guide implied revenue of $341.8-$347.4MM vs. consensus ($342.7MM) and RBCe ($346.8MM). The company expects to acquire PF GAAP Adj. EBITDA between $4-5MM in Q1/23 (RBCe: $5.0MM).
Sufficient liquidity for future acquisitions. dentalcorp ended the Dec-22 quarter with ~$110.5MM in cash and ~$685.3MM in debt capacity under its $1.75B senior debt facility (of which ~$1.1B was drawn at quarter-end). Post the quarter close, DNTL hedged an additional $300MM of its bank debt. Approximately 75% of the bank debt exposure (~$800MM) carries a fixed CDOR rate plus margin for an all-in cost of ~6.4%.
Conference call. Today (23-Mar) at 8:30AM ET. Dial-in: 1 (888) 660-6396 or 1 (929) 203-0889; Conference ID: 9097710; Webcast