Record revenues driven by strong organic growth, sustaining double-digit growth trajectory

Second Quarter 2023 Highlights

• Revenue of $368.3 million, an increase of 12.6% over the same period in 2022 with Same Practice Revenue Growth⁽¹⁾ of 5.5%
• Adjusted EBITDA⁽¹⁾ of $67.0 million, an increase of 10.9% compared to the same period in 2022; Adjusted EBITDA Margin⁽¹⁾ of 18.2%
• LTM Same Practice EBITDA Growth of 5.1% with Adjusted EBITDA Growth From Acquisitions Completed in Prior Period⁽¹⁾ of 19.3%
• Adjusted net income⁽¹⁾ of $35.5 million
• Adjusted free cash flow⁽¹⁾ of $33.6 million, with net leverage levels reducing to 4.38x
• Acquired six practices in the quarter representing $5.6 million in PF Adjusted EBITDA⁽¹⁾ at 6.8x, representing multiples 30% lower than the same period in 2022

Outlook

• Third quarter 2023 revenues and Same Practice Revenue Growth are estimated to increase by 9.5% to 10.5% and 5% to 6%, respectively, over the third quarter of 2022
• Adjusted EBITDA Margins⁽¹⁾ are expected to be consistent with the first half of 2023
• For the balance of 2023, expect to complete acquisitions representing PF Adjusted EBITDA after rent⁽¹⁾ of approximately $10 million

⁽¹⁾ Non-IFRS financial measure, non-IFRS ratio or supplementary financial measure. See “Non-IFRS and Other Measures” section of this news release for definitions and quantitative reconciliations.

dentalcorp Holdings Ltd. (“dentalcorp” or the “Company”) (TSX: DNTL), Canada’s largest, and one of North America’s fastest growing networks of dental practices, announced today its three and six month financial and operating results for the period ended June 30, 2023. All references to dollar values in this press release are in Canadian dollars, unless otherwise indicated.

“Our second quarter results included the highest quarterly revenue on record, and were driven by 5.5% Same Practice Revenue Growth, as well as the successful execution of our repeatable acquisition program,” said Graham Rosenberg, founder and Chief Executive Officer. “We also reduced leverage for the second consecutive quarter, demonstrating our continued disciplined approach to growth. These results are a testament to the hard work and commitment to patient care of our nearly 10,000 team members across Canada.”

“Our year to date results provide a solid backdrop for sustained double digit growth in the third quarter of 2023 over the same period last year driven by Same Practice Revenue Growth and the strong performance of our 2022 acquisition cohort,” added Mr. Rosenberg. “Adjusted EBITDA Margin is expected to remain steady with the first half of this year, with solid practice-level performance offsetting labour inflation. Finally, with lower acquisition multiples, we expect to continue reducing leverage, consistent with our balanced approach to growth.”

Financial and Operating Results for the Three and Six Months Ended June 30, 2023

• Revenue for the second quarter 2023 of $368.3 million, an increase of $41.3 million or 12.6% over the second quarter 2022. This increase was driven by incremental revenue from acquired practices, and Same Practice Revenue Growth.
  
  
  
  
• Same Practice Revenue Growth of 5.5% compared to the second quarter 2022, driven by overall demand for services, with LTM Same Practice EBITDA up 5.1%.
  
  
  
  
• Adjusted EBITDA Growth For Acquisitions Completed in Prior Period was 19.3% over comparable performance, driven by overall demand for services, pricing increases, the Company’s insourcing initiatives, and the excellence of the Company’s integration program.
  
  
  
  
• Adjusted EBITDA increased to $67.0 million in the second quarter 2023, an increase of 10.9% compared to the second quarter of 2022. Adjusted EBITDA Margin of 18.2% in the second quarter 2023 was lower compared to 18.5% during the corresponding period in 2022 due to inflationary labour pressures.
  
  
  
  
• Adjusted net income for the quarter was $35.5 million, an increase of 46.7% compared to $24.2 million in the second quarter of 2022.
  
  
  
  
• Adjusted free cash flow for the quarter was $33.6 million, compared to $35.7 million in the second quarter 2022.
  
  
  
  
• The Company acquired six dental practices during the second quarter 2023, representing $5.6 million in PF Adjusted EBITDA, for total consideration of $34 million. As at June 30, 2023, the Company owned 537 dental practices in Canada, compared to 526 practices at June 30, 2022. The number of practices owned as at June 30, 2023, included the divesture of three standalone orthodontics and specialty practices as part of dentalcorp’s program to rationalize certain non-core standalone specialty practices. The Company anticipates that the sale of these assets will have a positive impact on overall Adjusted EBITDA Margin, allowing it to re-allocate resources to higher growth areas of its business.
  
  
  
  
• The Company ended the second quarter 2023 without drawing on additional debt facilities in the quarter and with liquidity of approximately $778 million, comprised of approximately $104 million in cash, and $674 million in undrawn debt capacity under the senior debt facilities​. Approximately $1.1 billion of the Company’s senior debt facilities were drawn at quarter end. Approximately 75% of the Company’s bank debt exposure, or $800 million, is carrying a fixed CDOR rate plus margin for an all-in cost of approximately 6.4%.

Consolidated Financial Results

Other Metrics

Conference Call Notification

The Company will hold a conference call to provide a business update on Friday, August 4, 2023, at 8:30 a.m. ET. A question-and-answer session will follow the business update.

Non-IFRS and Other Measures

As appropriate, we supplement our results of operations determined in accordance with IFRS with certain non-IFRS and other financial measures that we believe are useful to investors, lenders, and others in assessing our performance and which highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. Our management also uses non-IFRS and other financial measures for purposes of comparison to prior periods, to prepare annual operating budgets, for the development of future projections and earnings growth prospects, to measure the profitability of ongoing operations and in analyzing our financial condition, business performance and trends, including the run-rate of the business after taking into consideration the acquisitions of dental practices. As such, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective, including how we evaluate our financial performance and how we manage our capital structure. We also believe that securities analysts, investors, and other interested parties frequently use these non-IFRS and other financial measures and industry metrics in the evaluation of issuers. These non-IFRS and other financial measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and may include or exclude certain items as compared to similar IFRS measures, and such measures may not be comparable to similarly titled measures reported by other companies. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. For further information on non-IFRS and other financial measures, including, the most directly comparable IFRS measures, composition of the measures, a description of how we use these measures and an explanation of how these measures provide useful information to investors, and applicable reconciliations refer to the "Non-IFRS and Other Measures", "Non-IFRS Financial Measures", "Non-IFRS Ratios" and "Supplementary Financial Measures" sections of management’s discussion and analysis of operations for the three and six months ended June 30, 2023 (the “MD&A”), available on the Company's profile on SEDAR+ at www.sedarplus.ca, which is incorporated by reference herein.

Adjusted EBITDA Growth From Acquisitions Completed in Prior Period

“Adjusted EBITDA Growth from Acquisitions Completed in Prior Period” in respect of a period is the percentage of Adjusted EBITDA for the period attributable to practices that were acquired in the corresponding period in the immediately prior year as compared to actual Adjusted EBITDA attributable to such practices plus management's estimate of Adjusted EBITDA attributable to such practices for any portion of the period they were not owned by the Company in such period in the corresponding period in the immediately prior year.

EBITDA

“EBITDA” means, for the applicable period, net (loss) income and comprehensive (loss) income plus (a) net finance costs, (b) income tax recoveries, and (c) depreciation and amortization. We present EBITDA to assist investors in understanding the mathematical development of Adjusted EBITDA. Management does not use EBITDA as a financial performance metric, but we present EBITDA to assist investors in understanding the mathematical development of Adjusted EBITDA and Same Practice EBITDA Growth. The most comparable IFRS measure to EBITDA is Net (loss) income and comprehensive (loss) income, for which a reconciliation is provided below.

Adjusted EBITDA

“Adjusted EBITDA” is calculated by adding to EBITDA certain expenses, costs, charges or benefits incurred in such period which in management’s view are either not indicative of underlying business performance or impact the ability to assess the operating performance of our business, including: (a) net impact of unrealized foreign exchange gains and losses on non-cash balances, change in fair value of derivative instruments, and share of associate losses; (b) share-based compensation; (c) external acquisition expenses; (d) change in fair value of contingent consideration; (e) Initial Public Offering (“IPO”) costs; (f) strategic review costs; (g) other corporate costs; (h) loss on disposal of businesses; (i) change in fair value of preferred shares; and (j) other adjustments. Adjusted EBITDA is a supplemental measure used by management and other users of our financial statements to assess the financial performance of our business without regard to the effects of interest, depreciation and amortization costs, expenses that are not considered reflective of underlying business performance, and other expenses that are expected to be one-time or non-recurring. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period to period and to provide for a more complete understanding of factors and trends affecting our business. The most comparable IFRS measure to Adjusted EBITDA is Net (loss) income and comprehensive (loss) income, for which a reconciliation is provided in below.

Adjusted EBITDA Margin

“Adjusted EBITDA Margin” means Adjusted EBITDA divided by revenue. We use Adjusted EBITDA Margin to facilitate a comparison of our operating performance on a consistent basis from period to period and to provide for a more complete understanding of factors and trends affecting our business.

Adjusted net income

“Adjusted net income” is calculated by adding to net (loss) income and comprehensive (loss) income certain expenses, costs, charges or benefits incurred in such period which in management’s view are either not indicative of underlying business performance or impact the ability to assess the operating performance of our business, including: (a) amortization of intangible assets; (b) share-based compensation; (c) change in fair value of contingent consideration; (d) external acquisition expenses; (e) IPO costs; (f) strategic review costs; (g) other corporate costs; (h) loss on disposal of businesses; (i) change in fair value of preferred shares; and (j) other adjustments; and (k) the tax impact of the above. We use Adjusted net income to facilitate a comparison of our operating performance on a consistent basis from period to period and to provide for a more complete understanding of factors and trends affecting our business. The most comparable IFRS measure to Adjusted net income is Net (loss) income and comprehensive (loss) income.

PF Revenue

“PF Revenue” in respect of a period means revenue for that period plus the Company’s estimate of the additional revenue that it would have recorded if it had acquired each of the practices that it acquired during that period on the first day of that period, calculated in accordance with the methodology described in the reconciliation table below. Given the highly acquisitive nature of our business, management believes PF Revenue is more reflective of our operating performance. We use PF Revenue to determine components of employee compensation. The most comparable IFRS measure to PF Revenue is Revenue.

PF Adjusted EBITDA

“PF Adjusted EBITDA” in respect of a period means Adjusted EBITDA for that period plus the Company’s estimate of the additional Adjusted EBITDA that it would have recorded if it had acquired each of the practices that it acquired during that period on the second day of that period, calculated in accordance with the methodology described in the reconciliation table below. Both creditors and the Company use PF Adjusted EBITDA to assess our borrowing capacity and given the highly acquisitive nature of our business is more reflective of our expected run-rate. We also use PF Adjusted EBITDA to determine components of employee compensation. The most comparable IFRS measure to PF Adjusted EBITDA is Net income (loss) and comprehensive income (loss).

PF Adjusted EBITDA Margin

“PF Adjusted EBITDA Margin” means PF Adjusted EBITDA divided by PF Revenue. Both creditors and the Company use PF Adjusted EBITDA Margin to assess our borrowing capacity and given the highly acquisitive nature of our business is more reflective of our expected run-rate.

PF Adjusted EBITDA after rent

“PF Adjusted EBITDA after rent” in respect of a period means PF Adjusted EBITDA less interest and principal repayments on leases. Both creditors and the Company use PF Adjusted EBITDA after rent to assess our borrowing capacity which management believes, given the highly acquisitive nature of our business, is more reflective of our operating performance. The most comparable IFRS measure to PF Adjusted EBITDA after rent is Net (loss) income and comprehensive (loss) income, for which a reconciliation is provided below.

Adjusted free cash flow

“Adjusted free cash flow” is calculated by adding or subtracting from cash flow from operating activities: (a) external acquisition expenses; (b) IPO costs; (c) strategic review costs; (d) other corporate costs; (e) other adjustments; (f) repayment of principal on leases; (g) maintenance capex; and (h) changes in working capital. We use Adjusted free cash flow to facilitate a comparison of our operating performance on a consistent basis from period to period, to provide for a more complete understanding of factors and trends affecting our business, and to determine components of employee compensation. The most comparable IFRS measure to Adjusted free cash flow is cash flow from operating activities, for which a reconciliation is provided below.

Same Practice EBITDA Growth

“Same Practice EBITDA Growth” in respect of a period means the percentage change in EBITDA derived from Established Practices (other than Legacy Specialty Practices) in that period as compared to EBITDA from the same practices in the Corresponding period in the immediately prior year.

Same Practice Revenue Growth

“Same Practice Revenue Growth” in respect of a period means the percentage change in revenue derived from Established Practices (other than Legacy Specialty Practices) in that period as compared to revenue from the same practices in the corresponding period in the immediately prior year. A practice will be deemed to be an “Established Practice” in a period if it was operating as part of dentalcorp for the entirety of the relevant period and for the entirety of the corresponding period in the immediately prior year. A “Legacy Specialty Practice” means a practice acquired prior to mid-2014 using a legacy deal structure that is no longer utilized today.

Forward-Looking Information

This news release includes forward-looking information and forward-looking statements within the meaning of applicable Canadian securities legislation, including the Securities Act (Ontario) (collectively, “forward-looking statements”), which reflect management’s expectations regarding the Company’s future growth, future financial outlook, our ability to sustain momentum in our business and advance our strategic growth drivers, results from operations (including, without limitation, future expansion and capital expenditures), performance (both operational and financial) and business prospects, future business plans, opportunities and our goals for the third quarter of 2023 for Revenue, Same Practice Revenue Growth, PF Adjusted EBITDA after rent, acquisition multiples realizable for practice acquisitions and Adjusted EBITDA margins. Wherever possible, words such as “plans”, “expects”, “scheduled”, “budgeted”, “projected”, “estimated”, “timeline”, “forecasts”, “anticipates”, “suggests”, “indicative”, “intend”, “guidance”, “outlook”, “potential”, “prospects”, “seek”, “strategy”, “targets” or “believes”, or variations of such words and phrases or statements that certain future conditions, actions, events or results “will”, “may”, “could”, “would”, “should”, “might” or “can”, or negative or grammatical versions thereof, “be taken”, “occur”, “continue” or “be achieved”, and other similar expressions, have been used to identify forward looking statements. Such forward-looking information includes, but is not limited to, the forward-looking information related to the North American dental industry; addressable markets for the Company’s services; expectations regarding its revenue and its revenue generation potential; its business plans and strategies; its competitive position in its industry and its expectations regarding double-digit growth, and the information and statements under “Outlook” relating to our goals for the third quarter of 2023 for Revenue, Same Practice Revenue Growth, PF Adjusted EBITDA after rent, acquisition multiples realizable for practice acquisitions and Adjusted EBITDA Margin.

The purpose of disclosing such forward-looking information is to provide investors with more information concerning the financial results that the Company currently believes are achievable based on the assumptions below. Readers are cautioned that the information may not be appropriate for other purposes. While these targets are based on underlying assumptions that management believes are reasonable in the circumstances, readers are cautioned that actual results may vary materially from those described above.

Forward-looking statements are necessarily based upon management’s perceptions of historical trends, current conditions and expected future developments, as well as a number of specific factors and assumptions that, while considered reasonable by management as of the date on which the statements are made, are inherently subject to significant business, economic and competitive uncertainties and contingencies which could result in actions, events, conditions, results, performance or achievements materially different from those projected in the forward-looking statements. Such factors and assumptions include, but are not limited to, the following assumptions for the remainder of 2023 and the medium-term, as applicable: the Company’s business, operations and capital structure continuing as currently maintained, that the Company’s acquisition program continues without any divestitures of non-core assets or re-deployment of capital of the Company, the Company’s ability to realize pricing increases, an increase in patient visit volumes in the third quarter of 2023, reductions in previously imposed industry wide regulatory restrictions, the impact of the investments the Company has made in its marketing and talent teams and the upgrades to its core information technology systems; the Company’s ability to continue to make and integrate acquisitions at attractive valuations including a reduction in acquisition purchase multiples as compared to prior periods, the impact of corporate investments made in 2022 and 2023 on the Company’s operations, including the Company’s corporate infrastructure and technology stack, including its new Human Resource Information system and ERP system, the Company benefiting from its unhedged borrowings due to future and forecasted rate decreases, the expansion of service offerings and frequency of patient visits which contribute to optimal patient care, the Company’s ability to mitigate anticipated supply chain disruptions, geopolitical risks, inflationary pressures and labour shortages, ability to expand service offerings and generate cash flow, no changes in the competitive environment or legal or regulatory developments affecting our business; visits by patients to our Practices at the same rate as current visits; no further COVID-19 related significant restrictions and other factors listed in the Company’s Annual Information Form dated March 23, 2023 and the MD&A under “Risk Factors”. While the Company considers these assumptions to be reasonable, many assumptions are based on factors and events that are not within its control and there is no assurance that they will prove to be correct.

By their nature, forward-looking statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct, and that objectives, strategic goals and priorities will not be achieved. Known and unknown risk factors, many of which are beyond the control of the Company, could cause actual results to differ materially from the forward-looking statements. Such risks include, but are not limited to, the Company’s potential inability to successfully execute its growth strategy and complete additional acquisitions; its dependence on the integration and success of its acquired dental practices; the potential adverse effect of acquisitions on its operations; its dependence on the parties with which the Company has contractual arrangements and obligations; changes in relevant laws, governmental regulations and policy and the costs incurred in the course of complying with such changes; competition in the dental industry; increases in operating costs; the risk of difficulty complying with public company reporting obligations; and the risk of a failure in internal controls.

Although the Company has attempted to identify important factors that could cause actual actions, events, conditions, results, performance or achievements to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events, conditions, results, performance or achievements to differ from those anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are provided for the purpose of providing information about management’s expectations and plans relating to the future, as at the date they are provided. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, or to explain any material difference between subsequent actual events and such forward-looking statements, except to the extent required by applicable law. Accordingly, investors should not place undue reliance on forward-looking statements. All of the forward-looking statements are expressly qualified by the foregoing cautionary statements.

About dentalcorp

dentalcorp is Canada's largest and one of North America's fastest growing networks of dental practices, committed to advancing the overall well-being of Canadians by delivering the best clinical outcomes and unforgettable experiences. dentalcorp acquires leading dental practices, uniting its network in a common goal: to be Canada's most trusted healthcare network. Leveraging its industry-leading technology, know-how and scale, dentalcorp offers professionals the unique opportunity to retain their clinical autonomy while unlocking their potential for future growth. To learn more, visit dentalcorp.ca

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