dentalcorp Holdings Ltd.

Good morning, and welcome to the Dental Corp Third 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 withdraw your question, please press star, followed by the two. At this time, I would like to turn the call over to Mr. Nate Chaplia, President and Chief Financial Officer of Dental Corp. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Welcome to the Dental Corp's third quarter results conference call. I'm joined here by Graham Rosenberg, our CEO. Before we start, we would like to remind you that all amounts discussed on this call are denominated in Canadian dollars and unless otherwise indicated. Please note that statements made during this call may include forward-looking statements and information and future-oriented financial information regarding Dental Corp and 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 of the date hereof, and Dental Corp assumes no obligation to update or revise them to reflect events, disclosures, or circumstances, except as required by applicable 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 and our earnings press release issue 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 presentation section. I will now turn the call over to our Chief Executive Officer, Graham Rosenberg, for opening remarks. Graham?

Thanks, Nate, and good morning, everyone. We're pleased to be with you today to review Dental Corp's recent developments as well as our financial and operating results for the three months ended September 30th, 2024. For today's call, I'm going to share a number of those developments with you, and I will then hand the call over to Nate, who will discuss our financial results in detail, after which I will provide forward-looking remarks about how our business is trending. As a reminder, Dental Corp 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 Dental Corp'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 third quarter results, which met or exceeded our expectations and provide a constructive outlook for the remainder of the year. As you'll see on slide three, our results have been made possible by our deep and diverse 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, including 91% of patients who are recurring, and manage over 5.4 million patient visits annually. We completed our third quarter ended September 30th, 2024, with $1.55 billion of last 12 months performer revenue and $288 million of performer adjusted EBITDA. As you can see on the next slide, we continued with our balanced approach to drive sustained double digit growth, and we intend to continue growing our business organically through creative mergers and acquisitions and by driving overall business efficiencies and operating leverage over the medium to long term. During the quarter, we made an indirect investment in Dental Innovation Alliance, VC Fund, which positions DentalCorp to potentially benefit from a wide range of emerging innovations in dental technology, and subsequent to the quarter, following a very successful pilot, we announced a strategic partnership with Vidya Health that will allow DentalCorp to deploy AI technology across our network. This will allow us to benefit from enhanced accuracy and consistency in diagnoses and improved patient education, among other benefits. This partnership marks a notable milestone in General Corp's long-term agenda and is expected to allow the company to set benchmarks for clinical excellence and business efficiencies through the use of advanced technology. With respect to M&A, we acquired four practices in a quarter for a total consideration of $16 million. These practices are expected to generate $2.3 million in pro forma adjusted EBITDA after rent. We remain as as the best position and capitalized partner for independent dentists and will continue to be disciplined about the practices we acquire. On slide five, you will see that our business continues to operate 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 as we continue to realize network-wide operating leverage. Over the last 12 months, our free cash flow conversion increased to 63% on an LTM basis in the quarter, up from 58% in Q3 2023. On slide six, as expected, we completed the quarter at 4.0 times leverage, down 0.4 times from the same time last year. Key Street 2024 marks the fourth consecutive quarter of deleveraging. In addition, our bank leverage, as calculated under our credit facilities, dropped below four times during the quarter. On slide seven, you will see that for the sixth consecutive quarter, we self-funded our acquisition program and we continue to apply this disciplined approach to growth. Subsequent to the quarter, we entered into a blend and extend on our hedges for 100% of our existing debt through January 2028 aligned with the maturity of our credit facilities. When combined with the savings on our bank spread from deleveraging below four times as calculated under our credit facilities, we have an interest rate ceiling of 6% through January 2028 compared to 6.6% through May 2026 prior to the hedge. We expect to see a $6 million annual improvement or approximately 4% increase to our annual adjusted free cash flow from these interest rate savings. Turning to the next slide, you will see a comparison of valuation and free cash flow yields versus our peers. At the end of the quarter, we were trading at a 37% discount to our total peer group. And at the same time, we are currently trading at an 8.8% free cash flow yield compared to our total peer group of approximately 3.1%. Turning now to slide 9, I'm delighted to report that our business delivered revenue of $375.4 million in the third quarter of 2024, up 11.4% over the same period in 2023, and adjusted EBITDA of $68.9 million, up 13.1% over the same quarter last year. Our adjusted EBITDA margin came in at 18.4%. an improvement of 30 basis points over Q3 of 2023. Same practice revenue growth was strong at 4.2% for the quarter, and we delivered free cash flow per share of 19 cents for the quarter, representing an increase of 36.4% over the same quarter last year. The outcome of our operational efficiencies was a strong adjusted free cash flow for the quarter of $36 million, up 37.6% over the same quarter last year, enabling us to fund the entirety of our acquisition program with free cash flows for the six consecutive quarter. Subsequent to the quarter end, we completed nine acquisitions that are expected to generate $8.5 million in pro forma adjusted EBITDA after rent. thereby substantially reaching our annual target of $20 million in acquired EBITDA. As we look to the fourth quarter of 2024, we anticipate revenues to increase by eight to 10% over Q4 2023, while delivering three and a half to four and a half percent same practice revenue growth with expected adjusted EBITDA margins increasing by 20 basis points over the fourth 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. Nate?