Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dentalcorp Holdings Ltd (DNTCF, Financial) reported a revenue increase of 8.6% in Q2 2024 compared to the same period in 2023, reaching $399.8 million.
- The company achieved an adjusted EBITDA margin of 18.5%, showing a 30 basis point improvement over Q2 2023.
- Dentalcorp Holdings Ltd (DNTCF) successfully acquired 9 practices in the quarter, expected to generate $6.3 million in proforma adjusted EBITDA after rent.
- The company has maintained strong margins and low capital expenditure requirements, converting a high percentage of EBITDA into free cash flow.
- Dentalcorp Holdings Ltd (DNTCF) is on track to reduce its interest rate by 0.5% due to de-leveraging efforts, which will enhance free cash flow.
Negative Points
- The rollout of the Canadian Dental Care Plan (CDCP) led to initial patient visit deferrals, impacting patient volumes in the quarter.
- Despite improvements, the company still faces challenges with the gradual enrollment of providers in the CDCP, affecting patient volumes.
- Dentalcorp Holdings Ltd (DNTCF) experienced a slower than expected ramp-up of CDCP enrollment, impacting revenue growth.
- The company anticipates continued friction in patient volumes due to the phased rollout of CDCP eligibility, which may affect short-term growth.
- Dentalcorp Holdings Ltd (DNTCF) faces competitive pressures in the supplier environment for equipment and consumables, which could impact future margins.
Q & A Highlights
Q: Can you provide some color on the Q3 same practice revenue guide and how much is driven by CDCP patient volumes versus underlying demand? Also, any notes on business seasonality?
A: The CDCP rollout impacted patient volumes, but we are seeing a return to normal in Q3. The government reported 2.3 million Canadians approved for CDCP, with 450,000 treated. We expect volumes to improve as more age cohorts become eligible. Seasonality-wise, Q2 and Q4 are stronger, with Q1 and Q3 slightly slower.
Q: Could you discuss the quarter-over-quarter margin changes and expectations for the next quarter?
A: The Q3 margins will be consistent with Q3 2023 due to costs from our annual partner conference. However, we are confident in achieving 20 basis points of margin expansion for the full year.
Q: What qualifies practices for disposal, and is this expected to continue?
A: Disposals are part of our strategy to focus on general practitioners and family dentistry. The disposals are from standalone specialty practices acquired pre-2014. We may see a few more disposals, but they are minimal in our overall performance.
Q: How is the competitive supplier environment affecting your pricing or support agreements?
A: We systematically review supplier arrangements to ensure success for our practices and patients. We enter long-term fixed pricing agreements, which helped maintain margins during inflation. This strategy supports our margin expansion in 2024.
Q: How should we think about the CDCP's long-term impact on your business?
A: Our business is representative of the Canadian industry, and CDCP patient figures align with national trends. As more patients qualify, we expect a positive volume impact. The program will be a slight positive tailwind, with more comprehensive treatments available in November.
Q: Is the expectation for accelerated patient growth in 2025 included in your 4% revenue growth target?
A: The 4% target assumes normal patient behavior without considering increased volumes from previously non-seeking patients. There is upside potential beyond the 4% figure.
Q: Are there any economic differences between CDCP patients and uninsured patients?
A: There is no difference in economics. The billing and treatment process is standard, similar to employer-sponsored insurance plans. Practices balance bill to provincial fee guidelines, ensuring consistent economics.
Q: How do you see leverage moving by the end of the year?
A: We expect to deleverage by roughly 0.1 per quarter, aiming for 4x or below by year-end. Crossing below 4x leverage will reduce our interest costs by 50 basis points, increasing free cash flow by $5 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
