Q3 2023 dentalcorp Holdings Ltd Earnings Call
After the speakers remarks, there will be a question and answer session.
Speaker Change: If you would like to ask a question during that time simply press. The Star then the number one on your telephone keypad.
Speaker Change: If you'd like to withdraw your question. Please press star followed by the two.
Speaker Change: At this time I would like to turn the call over to Mr. Nate <unk> Chief Financial Officer of Dental Corp. Please go ahead Sir.
Mr. Nate: Thank you operator, and good morning, everyone. Welcome to the Dental Corp, third quarter 2023 results conference call I'm joined here by Graham Rosenberg, our CEO and <unk> our president.
Mr. Nate: Before we start we would like to remind you all amounts discussed on this call are denominated in Canadian dollars unless otherwise indicated.
Mr. Nate: 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 managements' expectations of future growth results of operations business performance business prospects.
Mr. Nate: 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 circumstances, except as required by applicable securities law.
Mr. Nate: Yeah.
Mr. Nate: Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results.
Mr. Nate: A number of these risks and uncertainties could cause results to differ materially from results discussed today.
Mr. Nate: Given these risks and uncertainties, one should not place undue reliance on these statements and information.
Mr. Nate: Please refer to the forward looking statements and information in a future oriented financial information section of our <unk>.
Mr. Nate: Public filings without limitations, our MD&A and our earnings press release issued today for additional information.
Mr. Nate: For those of you who have dialed into the call. The company has prepared a series of slides to complement our prepared remarks. This.
Mr. Nate: These slides are available on the Investor Relations section of our website in the events and presentations section.
Speaker Change: I will now turn the call over to our Chief Executive Officer, Graham Rosenberg for opening remarks Graham.
Graham Rosenberg: Thanks, Nate and good morning, everyone. We're pleased to be here with you today to review dental clubs recent developments as well as our financial and operating results for the three and nine months ended September 30 of 2023.
Graham Rosenberg: Today's call I'm going to share a number of those developments with you and I'll then hand, the call back over to Nathan who will discuss our financial results in more detail after which I'll provide forward looking remarks about how our business is trending.
Graham Rosenberg: As a reminder, dental cope operates at a higher recurring essential health care industry that is cash pay resilient through economic cycles insulated from disintermediation by technologies and more importantly general corporate expenditures.
Graham Rosenberg: <unk> expenditures have experienced strong relative growth during periods of higher than average inflation.
Graham Rosenberg: Accordingly in the context of the current macro environment, we believe that tunnel clubs favorable cost structure of high margins of our commodity risk and negligible capital expenditures provide support for the Companys continued delivery of balanced double digit growth in the $20 billion Canadian definitely industry, our confidence in the business at some point about third quarter and year to date.
Graham Rosenberg: <unk>, which met our expectations and provide a constructive outlook for the remainder of the year.
Graham Rosenberg: I am pleased with the quarters. This quarter's results for which our base business results were in line with our expectation and included strong practice level performance underpinned by strong patient volumes with acquisitions on track to meet our expectations for the second half of 2023.
Graham Rosenberg: On slide three you will see that this performance has been made possible by our keeping a diverse network of nearly 10000 health care professionals from coast to coast.
Graham Rosenberg: And our teams continue to deliver the highest standards of care during the reporting periods supporting more than $2 1 million active patients and managing more than $5 one patient visits annually.
Graham Rosenberg: Youll see that we compete at our third quarter ended September 30, with approximately $1 $4 billion of LTM pro forma revenue and $263 million of.
Graham Rosenberg: Pro forma adjusted EBITDA.
Graham Rosenberg: Youll see on slide four that we continued with our balanced approach to growth.
Graham Rosenberg: And we intend to continue growing our business organically through accretive M&A and driving overall business efficiencies and operating leverage.
Graham Rosenberg: Over the medium to long term. This is a program we have meticulously built over the past decade, and we believe we are able to thrive in any economic climate.
Graham Rosenberg: With respect to M&A, we acquired three practices in a quarter for total consideration of $8 million. These practices are expected to generate $1 4 million in pro forma adjusted EBITDA after rent.
Graham Rosenberg: For the second quarter in a row, our acquisitions were self funded.
And during the third quarter as part of dental clubs program to rationalize certain noncore standalone specialty practices, we completed the sale of another standalone orthodontic specialty practice.
Graham Rosenberg: Bringing the total to 17, so far in 2023.
Graham Rosenberg: We are also encouraged to see that in the third quarter practice valuations are declining in Canada has access to financing opportunities Titan for many buyers across the across the industry.
Graham Rosenberg: We remain the best positioned and capitalized and as the partner of choice for independent dentists and will continue to be disciplined about the practice as we acquire.
Graham Rosenberg: On slide five you can see that our business continues to convert a high percentage of EBITDA to free cash flow and without acquisitions, our business has the potential to potential to drive our leverage down by a quarter to a half turn per annum to the mid to high ones over the medium term.
Graham Rosenberg: Turning to slide six I am pleased to report that our business generated revenues of $336 9 million in the third quarter 2023 up seven 9% over the same period in 2022, and adjusted EBITDA of $60 9 million.
Graham Rosenberg: With adjusted EBITDA margins coming in at 18, 1%.
Graham Rosenberg: We are also encouraged that same practice revenue growth was approximately five 2% for the quarter and six 3% on a year to date basis.
Graham Rosenberg: And same practice EBITDA growth was 10% for the quarter and six 5% on a year to date basis, driven by strong patient visits.
Graham Rosenberg: During the quarter, we also delivered 12% growth in the EBITDA of our 2022 acquisitions over their comparable performance driven by our purchasing efficiencies and the effectiveness of our integration programs.
Graham Rosenberg: In addition, we have completed the vast majority of our planned corporate investments.
Graham Rosenberg: Which has helped to drive strong practice level performance in both the base business and our recent acquisition cohorts.
Graham Rosenberg: The outcome of all of this was a strong adjusted free cash flow for the quarter of approximately $26 3 million compared to $26 5 million in the third quarter of 2022, despite increased financing costs driven by the historical interest rate increases we have experienced over the last 18 months.
Graham Rosenberg: As we look ahead for the fourth quarter of this year, we anticipate continued growth with revenues estimated to increase by 9% to 10%.
Graham Rosenberg: Adjusted EBITDA margins consistent with our year to date 2023 results and the same practice revenue growth of five 6%.
Graham Rosenberg: We are also expecting to complete acquisitions, representing pro forma adjusted EBITDA after rent of approximately $8 5 million in the fourth quarter in line with expectations that we set for the second half of 2023.
Graham Rosenberg: I will now pass the call over to <unk>, who will walk us through the details of our financial results and then I will share some closing remarks before we open the call to questions.
Thank you Graham.
Speaker Change: During our third quarter of 2023, the company hosted its first partner conference since 2019, bringing together, our dentist and strategic industry partners from across the country.
Speaker Change: This year marked the first time since before the pandemic that dental Corp was able to host as dental partner conference. It's a momentous event that galvanizes, our relationships and creates strategic alignment with our dentists and partners.
Speaker Change: The diversity in our dentist base allowed us to substantially deliver on our quarterly results and demonstrates the strength and predictability of our business.
Speaker Change: Turning to slide seven revenue for the three months period ended September 32023, as Graham mentioned was $337 million compared to $312 million for the corresponding period last year.
Speaker Change: Representing an increase of 8% the.
Speaker Change: The increase is attributable to our strong acquisitive and organic growth, including a positive contribution from continued strong patient demand as you can see we reported third quarter adjusted EBITDA of approximately $61 million compared to $59 5 million in the same quarter last year and reported third quarter adjusted EBITDA margins of 18, 1%.
Speaker Change: Same practice revenue growth was five 2% over the same period in 'twenty, two and six 3% on a year to date basis.
Speaker Change: Looking forward, we continue to be confident about our ability to grow the business through both acquisitions as well as organically.
Speaker Change: Turning to slide eight you can see our net leverage and liquidity as of September 32023 on a net debt basis. We are approximately at four four times levered at the end of the third quarter consistent with Q2 2023.
Speaker Change: We ended the third quarter 2023, with liquidity of $776 million comprised of $103 million in cash and $674 million in undrawn debt capacity under our senior debt facilities.
Speaker Change: Third quarter and last 12 months adjusted free cash flow was $26 million and $125 million, respectively, which support our strong balance sheet position.
Speaker Change: On the debt side of the ledger, approximately 75% of our bank debt exposure or 800 million is carrying a fixed SEDAR rate plus margin for an all in cost of approximately six 4% the remaining quarter of our senior debt facilities remain on a variable rate.
Speaker Change: As a reminder, every 100 basis points of rate increase on our credit facilities is expected to result in less than a 3% impact on adjusted free cash flow.
Overall, we are pleased with our third quarter 2023 results, we delivered organic growth in part due to our in sourcing efforts created ongoing operating efficiencies closed accretive acquisitions and continue to develop our pipeline.
Speaker Change: With that I will turn the call over to Graeme to provide some closing remarks.
Speaker Change: <unk>.
Graeme: Thanks Nate.
Speaker Change: Turning to slide nine we remain highly confident about our opportunities going forward fiscal 2023 continues to be a strong year for dental club due to our continued strong same practice revenue growth and disciplined approach to acquisitions. We believe that this disciplined approach will continue to drive sustained double digit growth and deleveraging in the fourth quarter and beyond.
Speaker Change: I'd like to thank you all for taking the time to join our call today that concludes the formal part of our presentation and I would like to open the call to questions operator.
Speaker Change: Thank you at this time I would like to remind everyone in order to ask a question. Please press star one.
Speaker Change: We ask that you limit to one question and one follow up question.
Speaker Change: Okay.
Speaker Change: Your first question comes from Brian <unk> with Jefferies. Please go ahead.
Speaker Change: Good morning, <unk> on for Brian. Thank you for taking my question. So first to get into the same practice sales growth, obviously very strong in the quarter and it has been for the year. My question really relates to the sustainability of the strong same store growth. So I know that you guys usually guide that 30.
Speaker Change: Thats from price volume and from menu mix.
Speaker Change: Looking in your seat now we are aware of like were greatest trending but is there anything on the volume side on the mix side that would.
Speaker Change: Sustained.
Speaker Change: Same store growth.
Speaker Change: Where are you typically guide for next year.
Speaker Change: Yes.
Speaker Change: Hey, it's guy here.
Speaker Change: Sorry, just repeat that last part of your question are you, saying is there anything that we see that with sustained at or above where we guided for this year, yes exactly.
Speaker Change: Just your long term guidance for same store right and then particularly in volume and mix I think we are aware of what's going on in rate currently.
Speaker Change: So I don't think the underpinnings of what we've indicated for them are you seeing in practice revenue growth are changing in terms of their composition or how much they contribute to the overall number we haven't issued obviously long term guidance in that regard, but it's always fair to say that about a third price a third volume and sort of that continued optimization of the types of treatments are delivering for our patients a couple of things to note.
Speaker Change: And we mentioned this.
Speaker Change: During his comments.
Speaker Change: Vast majority of the of our business is probably general dentistry, So it's non elective.
Speaker Change: It's all active it is non discretionary.
Speaker Change: It's very highly recurring and viewed as essential health care and so that will always underpinned sustained demand and we've seen that in dentistry for decades through all manners of the economic cycle and so.
Speaker Change: As we indicated despite economic headwinds, we see continued strength in volumes, we don't have a lot of exposure to overly elective or very discretionary nature of spending in health care.
Speaker Change: Some other disciplines do.
Speaker Change: So we continue to take.
The confidence in that from a long term perspective on volume.
Speaker Change: If again, if you're looking at our long term indication of four plus percent given where we continue to see pricing coinciding with CPI for prior years, we continue to see.
Speaker Change: Volume consistent with prior years and the modest growth there from.
Speaker Change: We've got nothing to indicate that we should see any softness in what.
Speaker Change: We viewed as sustainable same practice revenue growth.
Speaker Change: Thank you that's really helpful. And then just looking at consolidated revenue and very impressive that you were.
Speaker Change: He will talk in Martin.
Speaker Change: What lessons first half just curious I mean, as you've called out in your prepared remarks and in the press release, obviously are still weathering labor expenses on inflationary costs right.
Speaker Change: What are the offsets.
Speaker Change: That you have in your business or can you call out areas, where there is cost initiatives.
Speaker Change: And where we can see margin upside moving forward.
Speaker Change: Yeah, absolutely so.
Speaker Change: It's Nate here, we've of course been operating in an environment of inflation for the last number of years and given the pricing dynamics.
Speaker Change: That Guy just went through.
Speaker Change: We continue to.
Speaker Change: Come down to <unk>.
Speaker Change: Inflationary levels, which are consistent with kind of historical rates, we're going to see the impact or the positive impact on margins really coming from from too.
Speaker Change: Main places one is at the practice level, we're going to see recovery and increase in margin.
Speaker Change: Over call it the medium term as well as through the last two years, we've had some increased investments and planned investments on the on the corporate end of things, which are coming to.
Speaker Change: And by the end of this year and we're going to start seeing the operating leverage overall from the business and the.
Speaker Change: The operating leverage on the corporate infrastructure that has been built significantly come through so do expect to see margin expansion in 2020 for both at the practice level as well as through leverage on our corporate infrastructure.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Allen Lutz with Bank of America. Please go ahead.
Speaker Change: Good morning, and thanks for taking the questions. You mentioned that practice valuations are coming down is there any way to frame how much. These valuations are changing and then does that impact the overall strategy around M&A in the near term. Thanks.
Speaker Change: The valuations have come down quite significantly from the same period last year. This quarter, we were down over 30% from a total valuation perspective, albeit on a smaller sample of acquisitions.
Speaker Change: We do believe that valuations will continue to.
Speaker Change: Be in and around.
Speaker Change: Where we will end the year and where we've spoken to call. It in the low to mid 7% range sustainably both in call. It the medium the medium term here.
Speaker Change: As far as our strategy.
Speaker Change: Through 2023.
Speaker Change: To be a balanced approach.
Speaker Change: Very good about our pipeline as well as our closings here on the back half of the year of course, a little bit more back ended to Q4, just given the seasonality in the summer months.
Speaker Change: That we just that we just passed.
Speaker Change: But as far as our total capital allocation here.
Speaker Change: A very balanced approach between continued to drive organic growth using.
Speaker Change: Using our share buybacks.
Opportunistically as well as continuing to complete our acquisitions of $10 million in EBITDA for the back half of the year.
Speaker Change: Okay.
Speaker Change: That's great and then my follow up one for Graham.
Speaker Change: In the U S. We've seen a pretty big step function change in patient volumes over the past eight weeks or so curious if there's any if you're seeing anything similar to the business I know that Nate mentioned that a lot of the.
Speaker Change: Services are routine and recurring but just curious if there's anything to call out there. Thanks.
Speaker Change: Yeah, I mean, I'll, let guy dive into more detail here, but suffice it to say that our business is primarily general dentistry.
Speaker Change: We're obviously looking to continue to provide more comprehensive catch up patients, but the base still remains highly recurring.
Speaker Change: Preventative care driven through hygiene.
Speaker Change: And obviously general dentistry at at its core and so we continue to see decent volumes.
Speaker Change: And modest volume growth as we move through this year and into next year.
Speaker Change: This sort of two things that underpin what I would say you shouldnt be surprised by divergence between Canadian dental consumers patients and Americans.
Speaker Change: If you just look fundamentally utilization of dental services in Canada is just at a higher level more Canadians routinely see to Dennis for Canadians.
Speaker Change: Recognize that.
Speaker Change: <unk> preventative dental care on overall health and wellbeing and so everything from higher rates of seeing a dentist for children to more coverage for the average Canadian versus the average American to greater frequency from a behavioral perspective, so all of those things underpin a stronger call. It a stronger demand base for patients in Canada versus the U S and two.
Speaker Change: You look at the nature of coverage, obviously various degrees of coverage in the U S for dental services.
Speaker Change: Depending on which part of the country we're in.
Speaker Change: Our portion of the economy, you're referring to you've got much more stability than just pure coverage rates employer sponsored that'll benefits plan cover about 75% of Canadians and.
Speaker Change: This government programs that every province to cover those who fallout of certain socioeconomic status.
Speaker Change: So access to care has always been a strength that's given again the Canadians the opportunity you guys see Dennis to greater degree and that's it from our perspective, we're not shocked to C C.
Speaker Change: Sort of a worst scenario in the U S relative to where we are here.
Speaker Change: Really helpful. Thank you.
Speaker Change: Our next question comes from Stephen Macleod with BMO capital markets. Please go ahead.
Stephen Macleod: Thank you good morning, guys.
Stephen Macleod: Just wanted to.
Stephen Macleod: To circle around on a couple of things just.
Speaker Change: First question on the same practice revenue growth.
Speaker Change: Can you just talk a little bit about sort of what what drivers.
Speaker Change: Our in play that would cause you to be at sort of the higher low end of that 5% to 6% range.
Speaker Change: We're really just talking about the dynamics within the quarter.
Speaker Change: As Nate mentioned, we did have the partner conference, where a lot of our dentists were away from practices for a portion of time.
Speaker Change: Spending time with your organization.
Speaker Change: It does have an effect on sort of in that week or in that month or frankly in that quarter productivity, just given that they're away from the chair.
Speaker Change: The biggest driver we see we saw this last year. If you recall during Q1 of <unk>, where you had 30% of our providers.
Speaker Change: At various times during the quarter were at home sick with Covid and the overcrowded wave those things tend to have swings within the quarter.
They tend to neutralize over the course of the year, but you will see some modest swings between that 5% to 6% range within those periods of time as a result of primarily providers and to a certain degree patient availability, if there's significant weather events and a portion of the country Youll see deferral of visits so you may get them in the next quarter.
Speaker Change: Or in the next months.
<unk> got like we had last year, a pretty bad flu season in the winter you ended up seeing them more in January they want to see them in December and so those things have sort of swings between quarters, but again over the course of a 12 month or extended period of time.
Speaker Change: You see much more stability in the overall number.
Speaker Change: Right Okay.
Speaker Change: Helpful. Thanks, guys.
Speaker Change: And then just are you able to give them a little bit of color around sort of margin expectations into 2024, but just wondering if you could give a little color on sort of how youre seeing things evolve or what your expectation would be for.
Speaker Change: Other parts of the model like same practice revenue growth in your acquisition pipeline heading into next year.
Speaker Change: A lot there so I'll try and I'll try and cover it all here.
Speaker Change: If we look to specifically from a margin perspective.
Speaker Change: Q3.
Speaker Change: From a seasonality perspective is one of the lowest revenue quarters.
Speaker Change: As a result.
Speaker Change: <unk> dentistry benefiting from our highly variable cost structure.
Speaker Change: There is there is less leverage call it in our on our fixed infrastructure.
Speaker Change: And fixed spend obviously in a lower revenue quarter, which does affect margin. So as we look forward.
Speaker Change: Into the end of 2023 expect margins again to be consistent with where we are at at a year to date level in 2023 and as we enter 2024 do expect modest margin expansion from the two areas.
Speaker Change: We discussed earlier, one again as.
Speaker Change: As the inflationary pressures.
Speaker Change: Do subside and we are seeing them subside as well as greater efficiencies around labor management.
We're going to see expansion at the practice level as well as the completion of our spend at the corporate level now providing further operating leverage on the totality of the business.
Speaker Change: As we look to our pipeline and the volume of acquisitions.
Speaker Change: It's a very very robust pipeline our business development team.
Speaker Change: And in every corner of the country continues to maintain.
Speaker Change: Consistent volume and frankly, a growing volume of conversations and interest.
Speaker Change: We're highly focused today.
Speaker Change: <unk> been very selective and judicious in our acquisitive plan.
Speaker Change: We're focused on completing what we spoke to is approximately $8 $5 million of acquired EBITDA through the balance of Q4.
Speaker Change: Enter 2024, with a very robust pipeline, allowing us to continue on that path of double digit growth.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Our next question comes from Doug <unk> with RBC capital markets. Please go ahead.
Speaker Change: Mr. Ma'am your line is live.
Speaker Change: Yes.
Speaker Change: Good morning.
When we look at the pacing of acquisitions, we saw what happened in Q3 and your expectation for <unk>.
Speaker Change: $8 5 million in EBITDA in Q4, and just curious in terms of are these going to be backend loaded so that you're closing in the last couple of weeks of.
Speaker Change: December.
Speaker Change: To give the opportunity for the dentist to work and then as we think about the competitive.
Speaker Change: Market have you noticed anything.
Speaker Change: Different that's occurring we've been seeing on lower multiples on your part.
Speaker Change: Maybe you could just talk to us a little bit about what youre seeing from a competitive standpoint. Thank you.
Speaker Change: Sure so from a from a timing of acquisition perspective.
As much as we'd like to not have to complete transactions in and around the holiday period oftentimes that is the case.
Speaker Change: So I'd say, it's probably a 70 30 split.
As far as as timing of acquisitions are call it through December versus the earlier parts of the quarter.
Speaker Change: As it relates to the competitive environment again, we continue to be.
Speaker Change: The largest acquirer of dental practices buys by volume.
Speaker Change: Albeit the individual dentist continues to remain the largest buyer.
Speaker Change: As a group and given the interest rate environment, the availability of capital.
Speaker Change: The demand side on the individual's dentist ability to acquire and participate in a partnership and a practice to be constrained.
Speaker Change: As it relates to the.
Speaker Change: The other players in the industry I think the the largest number two player there.
Speaker Change: To be focused on integration of our of the merger that's taken place just over a year ago and from a capital structure perspective again, we continue to remain and be the lowest leverage with the highest availability of capital to allow us to continue to execute on our M&A agenda.
Speaker Change: So as far as competition goes and as far as demand. We are seeing that subside continue to subside on a consecutive quarterly basis.
Speaker Change: Which provides us with a great opportunity before us and still.
Speaker Change: What is still a very highly fragmented industry.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Tanya Armstrong Whitworth with Canaccord. Please go ahead.
Speaker Change: Thank you just firstly on the divestiture.
Speaker Change: Specialty and orthodontic practices I'm wondering if you're also selling closing or merging non specialty practices. I know you mentioned one was sold in the quarter, but doesn't quite add unnecessary debris.
You acquired so so were there other practices that you're selling in and can you provide any reasoning for that now.
Speaker Change: No.
Speaker Change: Hi, Tanya it's no no other practices that are being sold as just a 2017.
Speaker Change: We're all predominantly Standalone orthodontics.
Speaker Change: There was one specialty practice and and that group no. Other general practice dentists dental practices have ever been sold nor nor have been sold in this period there are consistently.
Speaker Change: <unk> seen even prior to the sale of the orthodontic practices mergers that do take place. These are planned mergers and part of our acquisitive strategy.
Speaker Change: That we look to acquire practices that are near to our existing locations that may not have the real estate footprint or the practice build out that would meet our standard from a standalone operation perspective, but we look to move their patients.
Speaker Change: And relevant team members into our Standalone practice, and really drive efficiency from that collective operation.
Speaker Change: Okay excellent that's very helpful.
Speaker Change: And then just secondly on the EBITDA acquired I think you usually provide a number for what that 1.4 translates into in terms of ISR asks are you able to give us that again for Q3, yeah sure not a problem. It's roughly it's roughly one five to one six.
Speaker Change: Perfect. Thank you so much does it.
Speaker Change: Your next question comes from Scott <unk> with CIBC. Please go ahead.
Hi, Good morning, I wanted to ask I guess my question on the M&A again, obviously fewer deals in the quarter than we've seen in the past I'm wondering if that if you could provide some color on whether that's more on your end on the seller and then sort of frame that in terms of the bid ask spread is it pretty wide for some of these deals.
Speaker Change: So it's the.
Speaker Change: A discussion.
A discussion that we provided at the end of Q2 with the second half.
Speaker Change: Guidance as to our acquisitive pacing being $10 million was very deliberate.
Speaker Change: These were acquisitions that we understood the timing of closing.
Speaker Change: And we're very very confident and that continued pacing so.
Speaker Change: No difference no change in pacing from where we thought we would be at the end of Q2.
Speaker Change: Pleased with where we're at and from a valuation perspective, consistent again with what we speak to from a full year basis again in the low to mid Sevens.
Okay. Thanks, and then Scott you mentioned.
Speaker Change: Joe This is Greg and I'll just reiterate.
Speaker Change: Hum.
Speaker Change: Aberrate pacing.
Speaker Change: In the second half of the year and again, we will come in consistent with expectations.
Speaker Change: Okay. Thanks.
Speaker Change: And then you mentioned sort of your bill.
Speaker Change: We're really trying to be specific with the practices you do acquire and given the lower volumes, obviously that gives you.
Speaker Change: Even enhance the ability to be selective can you maybe give us an idea of what what some of the attributes or locations that you are focusing on right now.
Speaker Change: Okay.
Speaker Change: Yes from a from a geographic perspective.
Speaker Change: We continue to look for geographies.
Speaker Change: That have that have positive attributes around around demographics positive attributes around the talent environment.
Speaker Change: As well as being remaining consistent as it relates to the.
Speaker Change: The footprint that we look to multiple dentist in a location high visibility.
Speaker Change: In retail like real estate location.
Speaker Change: We just continue again to maintain those conversations develop those relationships.
Speaker Change: And continue to be the partner of choice for the leading dentists across the industry.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Our final question comes from David Kwan with TD Securities. Please go ahead.
Speaker Change: Hey, guys.
Speaker Change: Just a couple of follow up questions for knee.
Speaker Change: Just on the margin side, you talked about the corporate investments pretty much going to be done by the end of this year and expecting some modest margin expansion.
Speaker Change: 2024.
Speaker Change: Can you help quantify it it sounds like maybe at least in terms of the adjusted EBITDA margin, we might not get to 19%.
Speaker Change: More likely a 2025 target does that sound about right.
Speaker Change: Okay.
Speaker Change: That does sound about right I think what you're going to start seeing and I wish we had the crystal ball as it relates to the cooling of the inflationary pressure.
Pressures I think we're hopefully at the peak and we're gonna start seeing the other side, but I think your assessment of it is correct.
Speaker Change: Great. Thanks, and then.
Speaker Change: Just as it relates to I guess M&A and leverage.
Speaker Change: So obviously you had a slow quarter in Q.
Speaker Change: Q3, expecting a more significant impact in Q4, I'm just kind of curious how you see that impacting the leverage levels I think you've talked about Tom.
Speaker Change: Targeting to get.
Speaker Change: Kind of a four to four and a quarter level exiting this year.
Speaker Change: Based on this expectation of higher M&A activity in Q4 do you still think that's leverage targets are reasonable.
As far as as far as the completion of our acquisition again, we do acquire.
Speaker Change: Primarily through free cash flow are there there will likely be from a leverage perspective, and an ending the year somewhere closer in that four three range.
Speaker Change:
Speaker Change: Given again, the timing of that coming through in one quarter, but we do believe and we do remain confident in our consistent deleveraging of the business.
Speaker Change: At the acquisition levels that we have been maintaining throughout the year and that $20 million plus of acquisitions on an annual basis again, if we look at the free cash flow generation of the business the majority of the.
Speaker Change: The spend from the for those funds for the funding of those acquisitions does primarily come from free cash flow generation from the business.
Speaker Change: That's helpful. Maybe quickly slip one last one in do you think that $20 million.
Target in terms of the acquired EBITDA is that something that you still think is reasonable for next year.
Speaker Change: That's really our plan in the short term through 2023, I think we have to continue to look to the environment given the.
Speaker Change: The size scale and quality of our pipeline and the opportunities before us that's something that we'll continue to evaluate and make decisions. The decisions that are in the best interest of the continued growth and scalability of the business.
Speaker Change: I appreciate it thanks.
Speaker Change: There are no further questions at this time I will now turn the call back to Dental Corp, CEO Graham Rosenberg for any closing remarks.
Graham Rosenberg: Okay. Thanks, operator.
Graham Rosenberg: Just to reiterate again for the fourth quarter.
Graham Rosenberg: We anticipate.
Graham Rosenberg: Continued growth.
Graham Rosenberg: Consistent with our balanced approach for this year with revenues estimated to increase by 9% to 10% with strong same practice revenue growth of five 6% and again competing acquisitions.
Graham Rosenberg: Pro forma adjusted EBITDA after rent of approximately $8 5 million for the quarter in line with the expectations that we set.
Graham Rosenberg: For the second half of 2023, and making up for the timing.
Graham Rosenberg: Some of the acquisitions that did not close in Q3.
It's that time of the year against they pronounce it can many of you or any of you before the end of the year I wish you and your families a happy holidays and look forward to reporting on our Q4 results early next year. Thanks. Thanks operator.
This concludes today's conference call you may now disconnect.