Our view: Q4/22 revenues and adj. EBITDA were above RBCe and broadly in-line with consensus. Same practice sales growth was +2.0% y/y in Q4 (flu influenced). dentalcorp acquired 7 practices with adj. EBITDA (IFRS) of $4.9MM in Q4 at ~6.5x IFRS EBITDA multiple (~8.1x in Q3). We view the decline in acquisition multiple positively. Post the quarter close, DNTL hedged an additional $300MM of its bank debt (~75% of debt exposure now hedged). DNTL expects to deliver 22%-24% y/y revenue growth and same practice revenue growth of ~7-8% y/y in Q1/23, aided by volume recovery and price increases.
Key points:
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 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 (adding back $1.5MM of costs related to the ongoing strategic review process), 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%).
Acquired 7 practices ($4.9MM adj. EBITDA) in Q3 at implied ~6.5x IFRS EBITDA multiple. dentalcorp acquired 7 dental practices in Q4/22 for total consideration of $32.0MM (mgmt expects acquired practices to generate ~$4.9MM in annualized adj. EBITDA implying an acquisition multiple of ~6.5x). The company plans to acquire $4-5MM in GAAP EBITDA in Q1/23.
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%.
Strategic review process. Management did not provide any material updates to the ongoing strategic review process. However, we note that the announced change in executive compensation as it relates to management loans for the CFO and President ($12.8MM each) seems beneficial for them under a potential change of control. In our view, the near-term stock price movement remains likely to be driven by updates to the ongoing strategic review process.