Post by
retiredcf on Nov 09, 2022 10:05am
CIBC
Have a $16.50 target. GLTA
EQUITY RESEARCH
November 9, 2022 Flash Research
DENTALCORP HOLDINGS LTD.
First Look: Modest Profitability Beat; M&A Pace To Slow In Q4
Our Conclusion: Modest Positive. dentalcorp reported solid Q3/22 results
with in-line revenues and a 4% beat on adjusted EBITDA. Adjusted
same-practice sales growth of 2.4% was down from 3.1% in Q2. DNTL
acquired practices expected to contribute annual EBITDA of $12.9 million for total consideration of $104 million. The average acquisition multiple of 8.1x remains high relative to the longer-term average of 6.5x-7.0x but was down nearly a turn from 8.9x in Q2/22. With the quarter DNTL also noted plans to slow the pace of M&A in Q4 and 2023 to help accelerate deleveraging. We will be looking for more details on moderating same-store-sales growth and plans to slow M&A spending on the conference call this morning.
Key Highlights
Q3 Results: dentalcorp reported Q3 revenue of $312 million (consensus
$313 million/our estimate $311 million) and adjusted EBITDA of $59.3 million (consensus and our estimate $57 million). Adjusted EBITDA margins of 19.0% were 80 bps above consensus and 60 bps above our estimate of 18.4%. Adjusted EBITDA margin expanded 50 bps Y/Y.
Acquisition Update: dentalcorp acquired 14 practices in Q3 that are
expected to generate $12.9 million in pro forma adjusted EBITDA. dentalcorp paid $104.1 million in total consideration, implying an average multiple of 8x, down from 8.8x in the prior quarter. While multiples did decline sequentially, acquisition multiples remain elevated above historical levels, although we expect further declines in the coming quarters as individual acquirers are less willing to take on debt at higher rates. dentalcorp ended Q3 with $833 million in liquidity, with $133 million in cash and $700 million in debt capacity.
Acquisition Outlook Updated: dentalcorp noted that it is planning to
moderate its acquisition spending for Q4 and 2023, expecting to acquire
between $5 million-$7 million in annual EBITDA on a quarterly basis vs. an average of $15 million over the previous five quarters. Reduced M&A
spending will help with deleveraging efforts given leverage finished the
quarter at 4.2x after adjusting for Rent Expenses.
Same-practice Sales Declines Sequentially: Q3 adjusted same-practice
revenue (SPR) growth was 2.4%, down sequentially from 3.1% in Q2/22. The adjusted SPR benefited from an orthodontics insourcing initiative as 268 practices are now enrolled in the Ortho Acceleration Program, up from 250 in Q2/22. On an unadjusted basis, SPR growth was 2.2% in the quarter.
FCF Conversion: dentalcorp generated $28.8 million in adjusted FCF this
quarter, with an adjusted FCF conversion rate of 49% of adjusted EBITDA.
Conference Call: Management will host a conference call at 8:30 a.m. ET
today. Webcast: link