Earnings call transcript: Dentalcorp Q4 2024 sees revenue growth, stock rises

Dentalcorp Holdings Ltd reported its fourth-quarter earnings for 2024, showcasing a solid performance with revenue growth and improved margins. The company’s stock responded positively, with a pre-market increase of 2.48%. According to InvestingPro analysis, the company currently appears undervalued, with analysts setting price targets suggesting significant upside potential. The company maintains a "GREAT" Financial Health Score of 3.25 out of 5, indicating robust operational fundamentals.

Key Takeaways

• Revenue for Q4 2024 reached $397.5 million, a 9.7% increase year-over-year.
• Adjusted EBITDA rose by 12.3% to $73.9 million, enhancing the margin by 40 basis points.
• The stock price climbed 2.48%, reflecting investor confidence in the company’s growth trajectory.
• Dentalcorp aims to expand its Vidya Health partnership significantly by the end of 2025.

Company Performance

Dentalcorp demonstrated robust performance in Q4 2024, with a notable increase in revenue and EBITDA. The company continues to leverage its market-leading position in dental practice consolidation, benefiting from a resilient healthcare service market. InvestingPro data reveals the company’s strong revenue CAGR of 19% over the past five years, with current market capitalization standing at $1.025 billion. The implementation of strategic partnerships, such as with Vidya Health, has bolstered its operational capabilities and market reach. For deeper insights into Dentalcorp’s financial health and growth prospects, subscribers can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Financial Highlights

• Revenue: $397.5 million, up 9.7% year-over-year
• Adjusted EBITDA: $73.9 million, up 12.3% year-over-year
• Adjusted EBITDA Margin: 18.6%, a 40 basis point improvement
• Free cash flow per share: $0.20, up 16%
• Full year pro forma revenue: $1.6 billion

Earnings vs. Forecast

Dentalcorp’s actual revenue of $397.5 million slightly surpassed the forecast of $397.01 million. This performance aligns with the company’s historical trend of steady growth, reflecting its effective operational strategies and market positioning.

Market Reaction

Following the earnings announcement, Dentalcorp’s stock saw a pre-market increase of 2.48%, reaching a price of $7.64. This movement places the stock closer to its 52-week high of $10.50, signaling positive investor sentiment and confidence in the company’s future prospects. InvestingPro Tips highlight the stock’s historically low price volatility and strong free cash flow yield, with analysts maintaining a bullish consensus and setting a high target of $10.46. The company’s beta of 1.14 suggests slightly higher volatility than the market average.

Outlook & Guidance

For 2025, Dentalcorp projects same-practice revenue growth of 3-5% and a total revenue increase of 10-11%. The company expects a modest EBITDA margin expansion of 20 basis points and plans to continue its M&A activities, contributing over $25 million in pro forma adjusted EBITDA. Dentalcorp also intends to maintain a quarterly dividend of $0.025 per share while focusing on deleveraging efforts.

Executive Commentary

CEO Graham Rosenberg stated, "We have more than sufficient free cash flow to support a $0.025 dividend," highlighting the company’s strong financial health. CFO Nate Choklia emphasized the significance of their acquisition strategy, noting, "Our continued position as the acquirer of choice... has never been more significant than it is today."

Risks and Challenges

• Potential patient behavior changes due to CDCP implementation.
• Macroeconomic pressures could impact consumer spending in healthcare.
• Competition in the dental market may intensify, affecting market share.
• Regulatory changes could pose operational challenges.

Q&A

During the earnings call, analysts inquired about the impact of the Canadian Dental Care Plan on patient behavior and potential implications for future growth. Management assured that their dividend strategy would not hinder M&A activities or deleveraging goals, reaffirming their commitment to returning to a $30-35 million annual M&A pace.

Full transcript - dentalcorp Holdings Ltd (DNTL) Q4 2024:

Conference Call Operator: Good morning, and welcome to Dental Corp’s Fourth Quarter and Fiscal twenty twenty four Results Conference Call. Please note that all lines have been placed on mute to prevent any background noise. At this time, I would like to turn the call over to Mr. Nate Choklia, President and Chief Financial Officer of Dental Corp. Sir, please go ahead.

Nate Choklia, President and Chief Financial Officer, Dental Corp: Thank you, operator, and good morning, everyone. Welcome to the Dental Corp. Fourth quarter and fiscal twenty twenty four results conference call. I’m joined here by Graham Rosenberg, our Chief Executive Officer. 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 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 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 and 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 opening remarks.

Graham?

Graham Rosenberg, Chief Executive Officer, Dental Corp: Thanks, Nate, and good morning, everyone. We are pleased to be with you today to review Dental Cult’s recent developments as well as our financial and operating results for the three and twelve months ended 12/31/2024. 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 highlighted on Slide three, Dental Corp operates in a 22,000,000,000 highly fragmented market that is only 7% consolidated.

Industry is a highly recurring essential cash pay healthcare service that is resilient through economic cycles and insulated from disintermediation by technologies. When combined with our proven and repeatable M and A engine, we have delivered strong growth across all key metrics. In addition, we have multi year Canadian dollar denominated supply contracts with our key suppliers, resulting in minimal direct tariff or foreign exchange exposure. Our confidence in the business is supported by our fourth quarter and full year results, which met or exceeded our expectations and provide a constructive outlook for the coming year. As you can see on Slide four, our teams continue to deliver the highest standards of care to more than 2,300,000 active patients, ninety one percent of which are occurring and visited our practices approximately 5,500,000 times last year.

We closed fiscal twenty twenty four with approximately $1,600,000,000 of last twelve months pro form a revenue and approximately $300,000,000 of pro form a adjusted EBITDA. In the twelve months ending 12/31/2024, adjusted free cash flow came in strong at $152,000,000 On the next slide, you will see that we continue to convert a high percentage of our EBITDA into free cash flow in any given period and we expect this conversion to increase as we continue to delever and realize network wide operating leverage. Our business operates with robust and expanding margins, low CapEx requirements and capped interest rate exposure on 100% of our existing debt outstanding. And our last twelve months free cash flow conversion increased to 63% expressed as a percentage of GAAP EBITDA in the quarter, up from 59% in Q4 twenty twenty three. On Slide six, as expected, we reduced our leverage by 0.6 times from the same period last year to 3.8 times.

Q4 marks the fourth consecutive quarter of deleveraging and we continue to work towards our medium term target band of three to 3.5 times. Turning to the next slide. You can see a comparison of valuation and free cash flow yields versus our peers. At the end of the quarter, we were trading at a level that implied a 5.8 times discount to our peer group on an enterprise value to LTM EBITDA basis and a 9.4% free cash flow yield compared to our total peer group of 3%. On Slide eight, you’ll see that I’m pleased to report that our business delivered revenue of $397,500,000 in the fourth quarter of twenty twenty four, up 9.7% over the same period in 2023 and adjusted EBITDA of $73,900,000 up 12.3% over the same period last year.

Our adjusted EBITDA margin came in at 18.6%, an improvement of 40 basis points over Q4 twenty twenty three. And this quarter’s adjusted EBITDA margin is the highest in the past nine quarters, dating back to Q3 of twenty twenty two. Same practice revenue growth was 2.7% for the quarter, and we delivered free cash flow per share of $0.2 for the quarter, representing an increase of close to 16%. The outcome of our operating efficiencies was a strong adjusted free cash flow for the quarter of ’30 ’9 million dollars up approximately 16% of Q4 twenty twenty three, enabling us to fund the entirety of our acquisition program with free cash flow for the seventh consecutive quarter. With respect to M and A, we acquired 12 practices in the fourth quarter for total consideration of $75,000,000 These practices are expected to generate $10,300,000 in pro form a adjusted EBITDA after rent, resulting in full year acquired pro form a adjusted EBITDA after rent of $21,400,000 exceeding our expectations.

We remain the best positioned well capitalized partner for independent dentists and will continue to be disciplined about the practices we acquire. I will now pass the call over to Nate, who will walk us through the details of our financial results and I will share some closing remarks before we open the call for questions. Nate?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Thank you, Graham. In early December twenty twenty four, the Canadian government communicated that patients between the ages of 18 to 64 will become eligible to receive care under the CDCP in early twenty twenty five, which caused some patients to defer appointments. The start date has still not yet been determined and so far in Q1, we have seen the beginning of the return of these patients due to the uncertainty with the program. Overall, we continue to see the CDCP as a favorable development for both Canadian public and dental professionals alike and expect it to be modestly positive for Dental Corp. Our quarterly results, which met or exceeded expectations in most respects, demonstrate the strength and predictability of our business.

Turning to the next slide, you’ll see that revenue for the three month period ended 12/31/2024, as Graham mentioned, was $398,000,000 compared to $362,000,000 for the corresponding period last year, representing an increase of approximately 10%. The increase is attributable to our continued acquisitive and organic growth. As you can see, we reported fourth quarter adjusted EBITDA of approximately $74,000,000 compared to $66,000,000 in the same quarter last year and reported fourth quarter adjusted EBITDA margins of 18.6%, representing a 40 basis point increase year over year. As we continue to realize operating leverage following the significant investments in corporate infrastructure through 2022 and 2023. Looking forward, we continue to be confident about our ability to grow the business through acquisitions and organically.

On the next slide, you can see that our net leverage and liquidity as of 12/31/2024, on a net basis was approximately three point times levered, which shows a deleveraging of 0.6 times compared to the same period in 2023. Fourth quarter and full year adjusted free cash flow were $39,000,000 and $152,000,000 respectively, further supporting our strong balance sheet. We ended the fourth quarter twenty twenty four with liquidity of $433,000,000 comprised of $80,000,000 in cash and $353,000,000 in undrawn debt capacity under our senior credit facilities. This quarter marks the sixth consecutive quarter over quarter increase in our interest coverage as defined by our last twelve month pro form a adjusted EBITDA after rent divided by net interest expense, which currently sits at 3.6 times, up from 3.5 times in Q3 twenty twenty four. Overall, our fourth quarter twenty twenty four performance demonstrates the strength and resilience of our business model.

We delivered positive organic growth, while successfully expanding margins through operational efficiencies. We continue to strengthen our financial position by deleveraging the balance sheet, completed accretive acquisitions and realized operating leverage as we continue to expand margins. I will now pass the call over to Graham, who will share some closing remarks before we open up the call for questions. Graham?

Graham Rosenberg, Chief Executive Officer, Dental Corp: Thanks, Nate. We remain highly confident about our future opportunities. As we look ahead to 2025, we expect same practice revenue growth of three percent to 5%. On M and A, we expect to complete acquisitions amounting to $25,000,000 plus of pro form a adjusted EBITDA after rent. These will combine for revenue increases of 10% to 11% over fiscal twenty twenty four, and we expect to achieve 20 basis points of adjusted EBITDA margin expansion to 18.715% pretax adjusted free cash flow per share growth, all while continuing to delever the balance sheet.

I would note that as of today’s disclosure, we have completed or signed LOIs on acquisitions representing over 60% of our $25,000,000 plus target. For Q1, we anticipate revenues to increase by 8% to 9% over Q1 of twenty twenty four, while delivering 3% to 5% same practice revenue growth. We expect adjusted EBITDA margin to increase by 20 basis points over the first quarter of twenty twenty four and anticipate completing acquisitions representing pro form a adjusted EBITDA after rent of $8,000,000 plus Finally, we are pleased to announce that the Board of Directors has declared a quarterly dividend of $0.025 per subordinate voting share and multiple voting share payable on 04/22/2025 to shareholders of record at the close of business on 04/04/2025. This dividend reflects our commitment to maximizing shareholder value while maintaining our disciplined approach to capital allocation, including adherence to our medium term leverage target of three to 3.5 times. This also provides a return of capital to our network of more than 10,000 dentists and dental professionals throughout the country.

We would like to thank you all for joining our call today. This concludes the formal part of our presentation and we would like to now open the call to questions. Operator?

Conference Call Operator: Thank you. Our first question comes from the line of Brian Tanquilut from Jefferies. Sir, please go ahead.

Brian Tanquilut, Analyst, Jefferies: Hey, good morning and congrats on the quarter. Maybe, Graham, as we think about the dividend, obviously, very positive here, but just thinking about how you’re viewing going forward, you lose capital structure and capital deployment. So just curious how we should be thinking or how you’re thinking about leverage targets and balancing that with M and A and now you’ve got a dividend in the mix as well. So if you can just share with us how you’re thinking through all that.

Graham Rosenberg, Chief Executive Officer, Dental Corp: Okay. Thanks for the questions. As it relates to the dividend, we have more than sufficient free cash flow to support a $0.025 dividend. And the dividend this year will be approximately $15,000,000 of cash out the door during fiscal twenty twenty five. We have more than sufficient capital available to support our M and A program, all while delevering.

The delevering impact on in all scenarios that we run is the 10.05 times from a leverage perspective. And so we remain well on track to achieving our three to 3.5 times target. Nate, do you want to add anything to that?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Yes. I think if we look at that $15,000,000 albeit it’s as a quarter dividend will be $0.025 and for the year call it will be $20,000,000 but the cash out latest Gram mentioned would be $15,000,000 So if we look at that while keeping our M and A pacing consistent at the $25,000,000 we expect to complete this year, all things being equal, it’s really a 0.05% impact on our overall leverage. So it doesn’t impact our ability to continue to drive organic growth, our ability to continue to execute on our increased pacing of acquisitions, all while continuing to delever to below that 3.5 time mark.

Brian Tanquilut, Analyst, Jefferies: Awesome. Very helpful. And then maybe my follow-up, a couple of quick hits here. So as I think about margins, you said you hit kind of like your the highest margin we’ve seen in seven or so quarters. Just curious where you think that could go?

And then the other follow-up is just on VDAYA Health that you think you can share with us in terms of how that partnership is going? Thank you.

Nate Choklia, President and Chief Financial Officer, Dental Corp: Absolutely. As far as margins go, we’re very pleased with the results that we’re seeing and primarily the continued leverage that we’re seeing on our built out corporate infrastructure as well as the increased margins that we’re seeing at the practice level from the efficiencies we’re able to drive from our negotiated agreements as well as overall operating playbooks. As we see it today, our margins exceeded our expectations in 2024 and we expect that to continue in the 20 basis points plus range of margin expansion as we enter 2025 and continue through the year. Brian, sorry, I didn’t hear the last part of your question.

Brian Tanquilut, Analyst, Jefferies: The partnership is it Vidya or Vidya Health?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Vidya Health, yes, absolutely. The partnership with Vidya has been going really nicely. The product has been received incredibly well by our partners across our network of practices. As we stand here today, we’ve implemented it in across roughly 100 practices and really that’s from a standing start at the beginning of Q1 to today’s date. Our expectation as we continue through the balance of the year is to have it across three fifty plus of our practices across the network and then as we enter 2026, wrapping up the balance thereon.

But the reception has been phenomenal. The clinicians enjoy working with it. It’s improving their efficiency. It’s allowing for them to ensure that their diagnosis is being supported and they have a tool to continue their development. And from a patient perspective, any time that a patient is able to sit in a chair and have that third party validation and a visual to help them understand the treatment that they’re going to undertake, that’s always an improvement overall in the relationship that they have with their dentist and their ability to accept that treatment.

Brian Tanquilut, Analyst, Jefferies: Awesome. Congrats again. Thanks guys.

Nate Choklia, President and Chief Financial Officer, Dental Corp: Thanks Brian.

Conference Call Operator: Thank you. Our next question comes from the line of Barry O’Neill from Stifel. Please go ahead.

Barry O’Neill, Analyst, Stifel: Hey, good morning everyone. Just one quick one for me. I noticed you added a lot of great detail on the new investor presentation. And I’m just looking at some of the data around practice growth over the last twelve months visits, active patients. And I’m just wondering, was there any decrease in the average price or a mix shift in the year that would have potentially offset some of the growth in visits and growth in active patients?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Yes. I think overall, I think that the year last year, just given some of the turbulence that was caused by the rollout in CDCP, really disrupted normal patient behavior. There was deferrals of overall visits and there was also deferral of the acceptance of larger treatments with the expectation that they were going to become eligible for CDCP. So yes, 2024 absolutely had disruption as it related to the uninsured population given the program’s rollout or announcement in December 2023 really only began to go in large scale in July of twenty twenty four and then ultimately as we saw at the December and the December with the Minister of Health coming out and not really providing great detail around the launch date in 2025 for the remaining cohorts of the working population eighteen to sixty four, but saying that it’s going to be launched in earnest. And what that really does is that lack of conviction around start date creates confusion and absolutely does cause some disruption again both in patient visits as well as acceptance of overall cases especially the ones that are of higher value given their desire to participate and have the plan support that investment.

Got it. That’s great color.

Barry O’Neill, Analyst, Stifel: And just a quick follow-up to that then. As we go forward and the CDCP impacts normalize, would the historical sort of 0.5% to 1% price algorithm in the same practice revenue growth still stand?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Yes. So, I think if we just split apart the 4% plus range and what we’re expecting for the year is that 3% to 5%, which really with the midpoint of 4% with upside from there. So if we take the 4% roughly, call it 2.5% of that, give inflation, right? As a reminder, the provincial associations work to set the fee cut on an annual basis with reference to the prior year’s inflation. So assuming things stay consistent with historical rates at 2.5%, that’s the expectation this year and on a go forward basis with the remaining 150 basis points split evenly between increase in volume.

And that increase in volume is split by frequency of patient visit from our existing patients and newly acquired patients from our acquisitions as well as our ability to attract the gross new patients into our practices given the scale of our network and ability to communicate to them in a very efficient manner. With the other 75 basis points of the remaining growth coming from increased modalities of service that we’re able to bring into the practices, be it again orthodontic services with our partnership with Align implants with our partnership with Envista and continued operating efficiencies and training with our dentist. So the 4% plus is something that we absolutely have conviction around and expect to continue through this year. Great. Thanks and congrats on the good update guys.

Thanks Scott.

Conference Call Operator: Our next question comes from the line of Scott Fletcher from CIBC. Sir, please go ahead.

Scott Fletcher, Analyst, CIBC: Hi, good morning. Wanted to ask a

Analyst: question on the Q1 guide versus the full year. With Q1, you’re sort of lapping the weaker same practice revenue growth in the prior year given the CBC rollout and you’re still sort of looking at 3.5% in the quarter as well as the full year. Maybe sort of help us bridge the gap there between both sort of the same the flat growth across the full year, but then Q1 just being lower than the full year on a total basis?

Barry O’Neill, Analyst, Stifel: Any color there would be helpful.

Nate Choklia, President and Chief Financial Officer, Dental Corp: Yes, absolutely. I think as we sit here today, just given the announcement that took place in the December, there’s still the uncertainty around the CDCP program. What we are seeing is the behavior of our insured patient base. There’s no disruption. They’re continuing to come back accepting of service in the normal course.

But what we are seeing specifically is the uninsured population base that have historically visited our practices. We are seeing a slowdown on that front and the correlation with the beginning of that coming with the announcement in December, albeit there is now an increase in their return back into our practices through Q1. We’re not seeing that same level that we would otherwise expect in a normal period. So there hasn’t really been any clarifying communication since that announcement by the Minister of Health in the December. We expect hopefully with the pending election and the results thereof, there will become a little bit more clarity.

And one of the worst things that can happen is lack of clarity because people don’t have the ability to make a decision, they don’t have the ability to plan. So without the date, it kind of freezes people’s behaviors both in booking appointments and accepting of service. But despite all of that, the quarter that we expect to report in Q1 of twenty twenty five is a strong one. We’re seeing great results despite the fact that we’re still in the middle of a little bit of this period as a result of CDCP.

Analyst: Okay. That’s great. And then just a second one for me. On the broader M and A environment, I’m just curious on whether there has been any changes that you’re seeing, whether that’s appetite to sell from the practices or competitive pressure, just any sort of difference that you’re seeing so far this year?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Yes, absolutely. And as Graham mentioned, we’re sitting here with 60% plus of our expected acquisitions of $25,000,000 for fiscal twenty twenty five either signed or closed really as of today’s date. Our continued position as the acquirer of choice in my ten plus years here at Dental Corp has never been more significant than it is today. I see our ability to convert the offering that we have as part of our whole thesis and going public and being able to provide a liquid currency for acquisitions, Our continued investments and the delivery of our services that we’ve seen in the build out of our corporate infrastructure supports our partners and 10,000 team members and being able to do what they do. So that continued delivery, that building of trust and that track record has really allowed us to accelerate our growth and continue to maintain pace as a leader.

One item as well is around the dividend as we discussed the benefits. Really, this was done for the continued improvement of our acquisitive model. And as we look at our 10,000 plus people, we have thousands of shareholders and all of our partner dentists and vendor dentists are equity holders in Dental Corp as well. And this continues to increase the overall value and attractiveness of our offer as well as continuing to align all of our people shareholders as well in the continued business. So, the rollout of the dividend will just continue to accelerate that position that we do have.

And from a competitive perspective, there really hasn’t been any change. We continue to speak about the strength of our balance sheet at 3.8 times levered. We have the strongest balance sheet in the industry and we’ll continue to make use of that to drive our growth in 2025 and beyond.

Brian Tanquilut, Analyst, Jefferies: Excellent. Thank you for the color. Appreciate it.

Conference Call Operator: Thank you. Our next question comes from the line of Alan Lutz from Bank of America. Sir, please go ahead.

Alan Lutz, Analyst, Bank of America: Good morning and thanks for taking the questions. One for either Graham or Nate. Really strong incremental gross margins in 4Q. When you think about the 20 bps of or more of margin expansion next year, how should we think about the breakout between direct cost leverage and operating cost leverage? You mentioned corporate infrastructure and margins at the practice level improving.

Can you talk about just the relative strength that’s embedded in that 2025 guidance?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Yes, absolutely. Great question. Really, there’s as you put it, there’s two main drivers. One is practice level margin expansion and then the leverage on our corporate infrastructure. One of the benefits of a dental practice is roughly 75% to 80% of all costs are variable.

So as we continue to drive forward and grow both top line and bottom line at the practices, margin is relatively stable, albeit there is a marginal increase in contribution. So if we break down, call it, that 20 basis points of growth, I’d say roughly five basis points will come from practice level margin expansion with the remainder coming on the leverage of our corporate infrastructure. And as we think about that, from an overall top line growth perspective, expecting high single digit growth while our corporate infrastructure will grow annually at roughly inflation in that 2% to 3% range. We have the ability to accelerate our margin expansion, and that really is a factor of the pace of our acquisition. So as we continue to increase our pace of acquisition this year, $25,000,000 and in future years that continues to grow, that pace of margin expansion will continue to grow incrementally and in line with that pacing.

Alan Lutz, Analyst, Bank of America: That’s really helpful. And then for my follow-up, trying to get a sense of the seasonality of M and A in 2025 that’s embedded in the guide here. You mentioned 60% LOIs out on your goal for the year. How should we think about the cadence of the contribution from M and A in 2025 maybe versus 2024 or just on an absolute basis? Thanks guys.

Nate Choklia, President and Chief Financial Officer, Dental Corp: Yes, absolutely. So I think if we think about M and A and it’s as predictable as our M and A engine is, there’s always some differentiation year to year. But again, we’re very pleased with our performance to date. We expect that 60% of our $25,000,000 target will be closed by the end of Q2 and 40% will be completed in the back half of the year.

Alan Lutz, Analyst, Bank of America: Great. Thank you.

Conference Call Operator: Our next question comes from the line of David Kwan from TD Cowen.

David Kwan, Analyst, TD Cowen: Hey, guys. Obviously, it’s a strong end to the year, from an M and A standpoint and a good start to this year as well. How much of this faster pace that we’ve seen is you guys, I guess, maybe intentionally going out there trying to be more active, trying to close deals versus maybe more dentists just hitting a point where they’re more ready to sell their practices?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Yes. I think it’s a great question, David. If we look to our historical pacing of acquisitions, right, if we go back to 2019, it was $40,000,000 plus even in 2020 during COVID. We closed $25,000,000 of acquisitions coming out in twenty twenty one million dollars ’40 million dollars plus $22,000,000 50 4 million dollars And then really only in the last two years, have we brought it down to just north of $20,000,000 to really provide that balanced approach to growth with the overall macro backdrop and driving our leverage down to below four times as we sit here today. It’s never been for a lack of opportunity.

It’s never been for a lack of our position as a leader in the market and that’s really underpinned by the consistency of our business development team’s efforts. The consistency of the number of conversations which we do report on a quarterly basis that has remained flat and frankly increasing over the last number of years as well as our ability to continue to convert. We have the relationships. We have the balance sheet. We have the teams.

So really it’s a function of our desire to continue to maintain and or increase our ability to grow. We believe that on any given period, we can close $35,000,000 plus of acquisitions. Those opportunities are before us, but we’re committed to continuing to drive both that organic growth, the acquisitive growth while getting down to our band of leverage in that three to 3.5 times range.

Graham Rosenberg, Chief Executive Officer, Dental Corp: So just it’s Graham here. So just to add to that, as we model things out over the next two to three years, we do expect to return to that $30,000,000 plus level. I’d say potentially as soon as next year depending on things play out this year. So the pipe and the pace of closing is well within our control. We see no reason why we can’t get back to that 30 to 35 at our discretion if you will.

And should next year we should see a number close to 30 or just north of 30.

David Kwan, Analyst, TD Cowen: Thanks for the color guys. And just a follow-up question, Given that you’ve had a great start to the year, are you guys thinking maybe a little bit more selective in terms of the acquisitions you’re going to pursue in the coming quarters here? And should we expect valuations to remain in kind of the normal range of seven to 7.5 times? Or might you be able to get a little bit better valuation?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Great question, David. And we’ve always really been selective with our partners and our acquisitions and we expect to continue our disciplined approach to growth. As it relates to valuations, very pleased with what the team was able to accomplish in 2024. Great year of acquisitions, great partners, really at tremendous value. And as we look here in 2025, our expectations and how we’ve internally modeled 2025 and beyond really is that consistent valuation of 7.5 times on a pre synergy basis.

And just as a reminder, we’re able to, on a twelve month look back from acquisition, purely as a result of our efficiencies on our purchasing power able to bring that valuation down by 10% to 15% to the mid-6s. So still highly accretive valuations for us from an acquisitive perspective even where we’re trading today. And we expect those valuations to continue in that range through 2025.

David Kwan, Analyst, TD Cowen: Right. Thanks.

Conference Call Operator: Our next question comes from Stephen from BMO Capital Markets. Please go ahead.

Scott Fletcher, Analyst, CIBC: Thank you. Good morning, guys. Just wanted to ask about Q4 with respect to the CDCP headwinds, I guess, that you sort of disclosed or talked about at the end of beginning of mid December. Is there a way to quantify kind of how that may have held back your same practice revenue growth in the Q4?

Nate Choklia, President and Chief Financial Officer, Dental Corp: What I would say is it’s very difficult because it’s from a household income perspective. We don’t have that data. So it’s very difficult for us to overlay that onto the patient. But what I can say is prior to the announcement, we were on trend to get into that 4% plus. So that was likely the impact in the quarter.

Scott Fletcher, Analyst, CIBC: Okay. That’s helpful. Thanks, Nate. And then just turning to just thinking about leverage here. I know you talked a lot about kind of the balancing now between leverage reduction and M and

Barry O’Neill, Analyst, Stifel: A and then now the dividend.

Scott Fletcher, Analyst, CIBC: Do you still kind of intend or expect to continue to delever at that rate of call it like 0.25 times to 0.5 times on an annual basis?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Absolutely. And again, if we look at the dividend cash outflow in 2025, it’s $15,000,000 on what will be a free cash flow growth. We ended 2024 with $151,000,000 and we expect on a pretax basis our free cash flow to grow in that 15% plus range in 2025. So ample support from our continued free cash flow generation to drive the funding for acquisitions as well as our available debt capacity under our credit facilities all while driving deleveraging as you put it in that 0.25 to 0.5 times through to the balance of 2025.

Scott Fletcher, Analyst, CIBC: Yes. Okay. That’s great. Thanks guys. Appreciate it.

Conference Call Operator: Our next question comes from the line of Zachary Eberscheid from National Bank Financial.

Zachary Eberscheid, Analyst, National Bank Financial: Good morning, everyone. Congrats on the quarter. Just wanted to follow-up on the CDCP disruption. You did mention that you’re starting to see rebookings from the December announcement. And then the impact is roughly 130 basis points plus given that you’re on track for 4%.

Should we expect the same level of choppiness once we get the actual date announcement? And if you could remind us how the catch up rebookings time line usually plays out after that?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Great question, Zack. I think just to level set around the disruption that we saw through 2024 and then we can talk about what we’re seeing in 2025. One of the significant issues in 2024 is even though the program was announced, the program didn’t launch until July and dentists were not signed up to really accept the program until call it July. So what you saw is patients wanting to come to the practice, but ultimately the practices and the individual clinicians weren’t supporting the program. As we sit here today, we have 92% plus of the clinicians in our network that do support the program.

So once the patients do become eligible and do receive their cards, they will have no issue in getting seen by a clinician in the network, which will limit that level of disruption or that level of lead time prior to the patient coming in. What we are seeing and what we saw from last quarter is again there is that confusion as to when they will be accepted. And there was a period of time now where they thought maybe it’s been two weeks, three weeks, four weeks where they were willing to wait. But ultimately given the efforts from our clinical teams in reaching out and educating them on the really risks and issues of continued deferral for their overall oral care, we do get a significant portion back. Albeit there is a small portion that does continue to wait, and will be disrupted until they do receive that final date, where they will become eligible and be able to accept service under the program.

So very difficult to tell you what will be in the future. What I can tell you is we’re very confident in that 3% to 5% range, specifically in that midpoint, where we’ll continue to drive that growth in Q1 and very confident in that 3% to 5% range again at that midpoint plus for the balance of 2025%.

Zachary Eberscheid, Analyst, National Bank Financial: Great color. Thanks.

Nate Choklia, President and Chief Financial Officer, Dental Corp0: I’ll turn

Zachary Eberscheid, Analyst, National Bank Financial: it over.

Conference Call Operator: Thank you. Our next question comes from the line of Tanya Armstrong from Canaccord Genuity. Please go ahead.

Nate Choklia, President and Chief Financial Officer, Dental Corp1: Hi. Good morning, guys. Most of my questions have been asked. So just a couple more from me. On taxes, I think you’ve previously indicated that you expect to start paying cash taxes in 2025.

I noticed the free cash flow growth number that you provided in your guidance was a pretax number. Do you still expect to start paying cash taxes toward the end of

Graham Rosenberg, Chief Executive Officer, Dental Corp: the year? Thanks for

Nate Choklia, President and Chief Financial Officer, Dental Corp: the question. And unfortunately, we do. It will be somewhere in the neighborhood of $20,000,000 again depending on how things shake out through the year. But that’s a number that today we believe is an estimate of approximately the cat tax.

Nate Choklia, President and Chief Financial Officer, Dental Corp1: Perfect. That’s very helpful. And then secondly, on your in sourcing initiative, correct me if I’m wrong, but I think the number of dental practices that have completed the ortho acceleration program is pretty much like unchanged. So it’s kind of flattening out. Do you think you’ve reached critical mass, I guess, of that initiative?

Or are there still new practices to come? Is there a reason that’s been kind of paused?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Absolutely, there’s still practices to come. We’ve been working with Align over the last six to nine months on updating the program, just because Align has improved some of their technologies. There’s been change in systems,

Graham Rosenberg, Chief Executive Officer, Dental Corp: and

Nate Choklia, President and Chief Financial Officer, Dental Corp: we wanted to update the clinical education program around it, to, call it, elevate it to that two point zero. So the slowdown in the rollout has absolutely been intentional and you’ll see that pick up in 2025.

Conference Call Operator: Excellent. Thanks for that color, Nate. Our last question comes from the line of Gary Ho from Jade Rauschang. Please go ahead.

Nate Choklia, President and Chief Financial Officer, Dental Corp0: Hey, good morning guys. First question is maybe just going back to Vidya Health Partnership. So interesting venture. Any stats you can share maybe in practices where this has been implemented? Have you seen the number of treatments increase or improve in efficiency and accuracy?

Just generally, how do you measure success of this rollout over time?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Thanks for the question, Gary. And yes, we absolutely have. Still very early days. We ran a pilot last year with a small group of practices and without sharing the statistics because we want to prove those out as we continue to roll it out at scale. But the benefits of the program we saw on one, the clinicians’ efficiency.

So overall time and share and ability to clinically diagnose at a more rapid pace using the tool to validate their initial findings. We’ve seen an increase in overall case acceptance of treatment by patients just given again the trust that it builds with that third party validation. And three, what we’ve seen is the increase in the total comprehensiveness of services that are now being provided, which is likely as a result of the more robust nature of diagnosis that the system is able to pick up with the ability of the dentist to continue to validate and have those conversations with the patient to ensure that their overall oral care is being optimized. So, all those things proved out in the pilot in the first one hundred that we’ve rolled out now, still very early days, but seeing signs of those same results continuing, and we believe that it will be fully scaled and those benefits will accrue to the network over time.

Nate Choklia, President and Chief Financial Officer, Dental Corp0: Great color. Thanks for that. And then my next question, you’ve done a great deal deleveraging over the past few years. So at 3.8 times, you’re not too far from your medium term band of three to 3.5 times. So once you hit that, should we expect a pivot in the strategy, whether that’s increasing the pace of M and A Graeme just mentioned maybe $30,000,000 plus as early as next year or anything else we should know or more of a status quo?

Nate Choklia, President and Chief Financial Officer, Dental Corp: Yes, absolutely. I think our desire and as you know, we’re being the acquirer of choice, having the built out infrastructure to support a business that is significantly larger than ours, our desire is to continue to be the leader in dentistry in Canada. You can expect, as Graham mentioned, our acquisitive pacing to increase year over year. We expect that reinvestment going into our acquisitions as the primary source and primary use of capital in 2025, ’20 ’20 ’6 and beyond. Outside of that there’s no significant shift in strategy that we expect today, but do expect to continue that significant pace of growth.

Nate Choklia, President and Chief Financial Officer, Dental Corp0: Okay, great. Those are my two. Thanks very much.

Conference Call Operator: Thank you. That concludes our conference call for today. Thank you for joining. You may now disconnect.

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