dentalcorp Holdings Ltd.

Good morning and welcome to Dental Corp's second quarter results conference call. Please note that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to redraw your question, please press star followed by the two. At this time, I would like to turn the call over to Mr. Nate Chapalea, President and Chief Financial Officer of Dental Corp. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Welcome to the Dental Corp Second Quarter Results Conference Call. I'm joined here by Graham Rosenberg, our CFO. Before we start, we would like to remind you that all amounts discussed on this call are denominated in Canadian dollars unless otherwise indicated. Please note that the statements made during this call may include forward-looking statements and information and future-oriented financial information regarding Dental Corp, its business and disclosure regarding possible events, conditions or results that are based on information currently available to management, which indicate management's expectation of future growth, results of operations, business performance, business prospects, and opportunities. Such statements are made as the date hereof, and Dental Corp assumes no obligation to update or revise them to reflect events, disclosures, or circumstance except as required by applicable securities law. Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results. A number of these risks and uncertainties could cause results to differ materially from results discussed today. Given these risks and uncertainties, one should not place undue reliance on these statements and information. Please refer to the forward-looking statements and information and future-oriented financial information section of our public filings. Without limitations, our MD&A, our earnings press release, issued today for additional information. For those of you who have dialed into the call, the company has prepared a series of slides to complement our prepared remarks. These slides are available on the investor relations section of our website and the events and presentations section. I will now turn the call over to our Chief Executive Officer, Graham Rosenberg, for his opening remarks. Graham?

Thanks, Nate, and good morning, everyone. We're pleased to be with you today to review General Corp's recent developments, as well as our financial and operating results for the three months ended June 30th, 2024. For today's call, I'm going to share a number of those developments with you, and then I will hand the call over to Nate, who will discuss our financial results in detail and provide forward-looking remarks about how our business is trending. As a reminder, DentalCorp operates in a highly recurring essential healthcare industry that is cash pay, resilient through economic cycles, and insulated from disintermediation by technologies. Importantly, dental expenditures have experienced strong relative growth during periods of higher than average inflation. Accordingly, and in the context of the current macro environment, we believe that DentalCorp's favorable cost structure, high margins, low commodity risk, and negligible capital expenditures provide support for the company's continued delivery of balanced double-digit growth in the $22 billion Canadian dental industry. Our confidence in the business is supported by our second quarter results, which met or exceeded our expectations and provide a constructive outlook for the remainder of the year. Overall, I am pleased with our results this quarter, and as you can see on slide three, our results have been made possible by our network of over 10,000 team members across the country. Our teams continue to deliver the highest standards of care during the reporting period, as we support more than 2.3 million active patients and manage over 5.3 million patient visits annually. You will see that we completed our second quarter end of June 30th, 2024 with approximately $1.5 billion of last 12 months pro forma revenue and $283 million of pro forma adjusted EBITDA. As you'll see on the next slide, we continued with our balanced approach to growth, driving sustained double digit growth and we intend to continue growing our business organically and through accretive M&A and by driving overall business efficiencies and operating leverage over the medium to long term. This is a program that we have meticulously built over the past decade and we believe we are able to thrive in any economic climate. With respect to M&A, we acquired nine practices in the quarter for total consideration of $41 million. These practices are expected to generate $6.2 million in pro forma adjusted EBITDA after rent. We are also encouraged to see that practice valuations continue to decline, down 3% in the second quarter 2024 over 2023, as access to financing opportunities tighten for many buyers across the industry. Our acquisition multiple has declined on a year-over-year basis for the past seven quarters, and we remain the best positioned and capitalized partner for independent dentists and will continue to be disciplined about the practices we acquire. On slide five, you can see that our business operates with robust and expanding margins, low capex requirements, and capped interest rate exposure on 100% of our existing debt outstanding. We continue to convert a high, steady percentage of our EBITDA into free cash flow in any given period and expect this conversion to increase over time. On slide six, and as expected, we completed the quarter at 4.1 times leverage, down 0.3 times from the same time last year as we pursue a medium-term target of under 3.0 times leverage. And on slide seven, you will see that for the fifth consecutive quarter, we self-funded our acquisition program, and we will continue to apply this discipline to post-year growth. By the end of the year, we anticipate realizing a financial benefit from interest savings due to our deleveraging efforts. As per our credit agreements, as we cross below the next leverage threshold, the interest rate on our existing outstanding debt will be reduced by half a percent, bringing our blended cost of debt from 6.65% to 6.15%. Turning to the next slide, you can see a comparison of valuation and free cash flow yields versus our peers. Since our IPO, we have seen a decline of 9.4 times EBITDA, or 47%. in our EV to LTM EBITDA trading multiple, and we're currently trading at a 34% discount to our total peer group. At the same time, we're trading at an 8.7% free cash flow yield compared to our peer group of 3.8%. Turning now to slide nine, I'm pleased to report that our business delivered revenue of $399.8 million in the second quarter of 2024, up 8.6% over the same period in 2023. an adjusted EBITDA margin of $73.9 million, up 10.3% over the same quarter last year. Our adjusted EBITDA margin came in at 18.5%, an improvement of 30 basis points over Q2 of 2023, and we are encouraged that same-practice revenue growth was 2% for the quarter. I would now like to provide an update on the Canadian Dental Care Plan, also known as the CDCP. We began providing care to CDCP patients on May the 1st. However, in anticipation of that start date, we experienced the deferral of patient visits in April as they awaited their coverage start date under the program. These patient deferrals combined with gradual provider enrollment resulted in lower than anticipated patient volumes in a quarter. Despite these initial challenges, We are now pleased to report that Dental Corps participation in the program is generally tracking at or above the current national figures and we expect that number to increase over the coming months as the program matures. As participation across our network continues to grow and we continue accepting more CDCP patients, we anticipate that same practice revenue and EBITDA growth will follow suit. Notably, Our practices that are seeing CDCP patients are outperforming those that do not, which is an encouraging trend as more practices within our network begin to treat those patients. They have adapted well to the new processes, alleviating initial concerns at the practice level about potential operational challenges. Under the CDCP, we have and will continue to deliver services at rates consistent with our usual and customary fees. This ensures the high quality of care that all of our patients, both new and returning, expect and rely on. Overall, we regard the CDCP as a favorable development for both the Canadian public and dental professionals, and we expect it to be neutral to slightly positive for dental health. Despite the initial adjustments related to the CDCP rollout, our overall financial performance remained robust. The outcome of our operational efficiency and strategic initiatives was a strong adjusted free cash flow for the quarter of $41 million, enabling us to fund the entirety of our acquisition program with free cash flow for the fifth consecutive quarter. As we look to the third quarter of 2024, we anticipate revenues to increase by 8% to 10% over Q3 of 2023, while delivering 3.5% to 4.5% same practice revenue growth. We expect adjusted EBITDA margin to be materially consistent with the third quarter of 2023. I will now pass the call over to Nate, who will walk us through the details of our financial results and share some closing remarks before we open the call for questions.