Q4 2022 dentalcorp Holdings Ltd Earnings Call
Ill mute to prevent any background noise.
Speaker Change: After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press. The Star then the number one on your telephone keypad.
Speaker Change: If you would like to withdraw your question Press Star one once again.
Speaker Change: At this time I would like to turn the call over to Mr. Nate Chaplet, Chief Financial Officer of Dental Corp. Please go ahead Sir.
Nate Chaplet: Thank you operator, and good morning, everyone.
Nate Chaplet: Welcome to the Dental Corp, fourth quarter and fiscal 2022 results conference call.
Nate Chaplet: I'm joined here by Graham Rosenberg, our CEO and Guy <unk> our president.
Nate Chaplet: Before we start we would like to remind you all that all amounts discussed on this call are denominated in Canadian dollars unless otherwise indicated.
Nate Chaplet: Please note that the statements made during this call may include forward looking statements and information and future oriented financial information regarding the dermal Corp, and its business and disclosure regarding possible events conditions or results that are based on information currently available to management.
Nate Chaplet: Which indicate managements' expectations of future growth results of operations business performance business prospects 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 laws.
Nate Chaplet: Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results.
Nate Chaplet: A number of these risks and uncertainties could cause results to differ materially from results discussed today.
Nate Chaplet: Given these risks and uncertainties, one should not place undue reliance on these statements and information.
Nate Chaplet: Please refer to the forward looking statements and information and future oriented financial information section of our public violence without limitations, our M DNA and our earnings press in the press release issued today for additional information.
Nate Chaplet: 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 in the events and presentations section.
Speaker Change: I'll now turn the call over to our Chief Executive Officer, Graham Rosenberg for opening remarks Graham.
Graham Rosenberg: Good morning, everyone.
Graham Rosenberg: We're pleased to be with you today to review dental clubs recent developments as well as our financial and operating results for the three and 12 months ended December 31st 2022.
Graham Rosenberg: For today's call I'm going to share a number of those developments with you and I will then hand over the call to <unk>, who will discuss our financial results in detail after which I will provide forward looking remarks about how our business is trending.
Graham Rosenberg: On slide six.
Speaker Change: On slide three you will see that dental club works within an industry that is highly recurring essential health care services and that is cash pay and protect it from economic cycles and disintermediation by technologies.
Speaker Change: Importantly, steadily expenditures have experienced strong relative growth during periods of higher than average inflation accordingly.
Speaker Change: Context of the current macro environment, we believe that general clubs favorable cost structure high margins low commodity risk and minimal capital expenditures provide support for the company's continued delivery of double digit growth in the $18 billion Canadian dental industry.
Speaker Change: Our confidence in the business is validated by our fourth quarter results and strong outlook for the first quarter of 2023 and the remainder of the year.
On slide four you will see that we completed the fourth quarter ended December 31, 2022, with approximately $1 $3 billion of last 12 months pro forma revenue and $254 million of pro forma adjusted EBITDA all supported by healthy same practice revenue growth of 2%. This can.
Speaker Change: <unk> growth has been made possible by a deep and diverse network of 800, plus dentists, 'twenty 100, plus hygienist and close to 4700 auxiliary until health professionals across the country from coast to coast.
Speaker Change: Our health care professionals continue to deliver the highest standards of care during the reporting period supporting more than 2 million active patients and managing more than $4 7 million patient visits annually.
Speaker Change: On slide five you will see that we continue to leverage our leadership position in the Canadian dental industry by acquiring seven practices in the fourth quarter for a total consideration of $32 million.
Speaker Change: These practices I expect to generate approximately $5 million in pro forma adjusted EBITDA.
Speaker Change: We are also encouraged to see in the fourth quarter and so far in the first quarter that practice valuations are beginning to decline in Canada. As we suggested previously as access to financing tightens for most buyers across the industry. We believe we are well positioned in this regard as a capitalized partner of choice for independent answers and could continue.
Speaker Change: To be judicious about the practices we acquire.
Speaker Change: On slide six you will see that we have remained disciplined in our multi pronged approach to growth and intend to continue growing our business organically through accretive M&A and by driving overall business efficiencies and operating leverage over the medium to long term.
Speaker Change: This is a program that we have refined over the past decade.
Speaker Change: We're able to adapt to any short or longer term fluctuations in the broader economy.
Speaker Change: On slide seven Youll see that our business continues to convert a high percentage of EBITDA into free cash flow and without acquisitions has the potential to drive our leverage down by quarters for half a point per annum to the mid ones over the medium term.
Speaker Change: On slide eight I'm pleased to report that our business again delivered robust growth with fourth quarter of 2022 revenue of $331 million up 21, 5% over the same period in 2021, and adjusted EBITDA of almost $61 million up 21% over the same quarter last year with adjusted EBITDA margin.
Speaker Change: It's coming in at 18, 3%.
Speaker Change: We are also encouraged that our same practice revenue growth was approximately 2% for the quarter.
Speaker Change: The outcome of this was a strong adjusted free cash flow for the year of $125 million.
Speaker Change: Representing a 38% increase over 2021.
Speaker Change: For the quarter adjusted free cash flow was approximately $8 million compared to 2022 in the fourth quarter of 2020, one primarily due to changes in working capital which for the year.
Speaker Change: And which drove the 125 million, 38% increase over 2020 one was neutral.
Speaker Change: With respect to our strategic review process, which we announced in November the Special Committee of the Board continues to conduct an extensive review and evaluate.
Speaker Change: A number of potential strategic alternatives available to the company, while there can be no assurance that this process will lead to the approval or completion of any transaction company does not currently intend to provide any updates with respect to this process unless and until the board of directors approved a specific transaction or otherwise concludes its review of strategic alternatives.
Speaker Change: I will now pass the call over to nature will walk us through the details of our financial results and then I will share some cutting remarks before we open the call for questions.
Nate Chaplet: Thank you Graham.
Speaker Change: We believe that our fourth quarter results demonstrate the strength of our underlying business and the macro environment that is still churning through elevated inflation and escalating interest rates.
Speaker Change: The results also reflect an early in heavy flu season in Canada, which adversely impacted patient visits and provider available availability for the quarter.
Speaker Change: We've seen our hygiene business returned to normal performance. Thanks to the removal removal of many regulatory restrictions largely offsetting the downward pressures from the impact of the flu season.
Speaker Change: Turning to slide nine revenue for the three months period ended December 31, 2022 was $331 million compared to $273 million for the corresponding period last year, representing an increase of approximately 2022%.
Speaker Change: The increase is attributable to our strong acquisitive and organic growth, including a positive contribution from orthodontic and sourcing.
Speaker Change: As you can see we reported fourth quarter adjusted EBITDA of approximately $61 million compared to $50 million in the same quarter last year and reported fourth quarter adjusted EBITDA margins of 18, 3%.
Speaker Change: Same practice revenue growth was 2% with adjusted same practice revenue growth of two 5% over 2021.
Speaker Change: Looking forward, we continue to be optimistic about our ability to grow the business through acquisitions and organically.
Speaker Change: With respect to M&A, we completed the acquisition of seven practice locations with $4 9 million of pro forma adjusted EBITDA.
Speaker Change: Turning to slide 10, you can see that our net leverage and liquidity as of December 31 2022.
On a net debt basis, we were approximately four point in times of four five times Levered at the end of the fourth quarter.
Speaker Change: We ended the quarter with liquidity of $796 million comprised of $111 million in cash and $685 million in debt capacity under our $1 75 billion senior debt facilities of which approximately $1 1 billion was drawn at quarter end.
Speaker Change: Yeah.
Speaker Change: Fourth quarter and year to date, adjusted free cash flow was $8 million and $125 million, respectively, which supports our strong balance sheet. Looking ahead. We believe that we will have ample financial resources to achieve our growth goals, while maintaining a strong balance sheet.
Speaker Change: We also locked in a significant portion of our debt costs in the fourth quarter.
Speaker Change: Subsequent to quarter end, we had an additional $300 million of our banks.
Speaker Change: Approximately 75% of our exposure or $800 million is now carrying a fixed seat or rate plus margin for an all in cost of approximately six 4%.
The other quarter of our senior debt facilities remain on a variable rate.
Speaker Change: It is important to note that every 100 basis point rate increase on our credit facilities is expected to result in less than a 3% impact on our adjusted free cash flow.
Speaker Change: Overall, we are very pleased with our fourth quarter 2022 results, we increased organic growth in part through our in sourcing efforts created ongoing operating efficiencies and close accretive acquisitions and continued to develop our pipeline.
Speaker Change: With that I'll turn the call over to Graeme to provide some closing remarks Graham.
Graham Rosenberg: Thanks Nate.
Speaker Change: On Slide 11, you will see that we remain highly confident about our business prospects going forward.
Speaker Change: Fiscal 2023 is off to a very strong start with first quarter revenue is expected to grow by 22% to 24% over the same period last year with the same practice revenue growth of 728% driven by price increases.
Speaker Change: Rebounding patient visit volumes.
Speaker Change: <unk> reductions and previously imposed regulatory restrictions.
During the first quarter, we expect to acquire approximately $4 million to $5 million of pro forma adjusted EBITDA. After rent at the acquisition multiples that are 15% to 20% lower.
And fiscal 'twenty, two levels and we expect adjusted EBITDA margins to expand over the same period last year with solid solid practice level performance offsetting the significant investments we have made in our marketing and talent teams and the upgrades we have made to our core information technology systems.
Speaker Change: With overall market conditions, improving we expect to again deliver double digit revenue and adjusted EBITDA growth in fiscal 2023 with corresponding practice margin expansion, while generating strong free cash flow and deleveraging of the business.
Speaker Change: We will continue to execute our disciplined approach to.
Speaker Change: Acquisitions benefiting from decreased valuations of fiscal 2022 levels and expect to deliver strong same practice revenue and same practice EBITDA growth.
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'd like to open the call to questions operator.
Speaker Change: Thank you.
Speaker Change: I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Speaker Change: We ask that you. Please limit yourself to one question and one follow up question and we will pause for just a moment to compile the Q&A roster.
Speaker Change: We will take our first question from Michael Cherny with Bank of America. Your line is open.
Speaker Change: Hi, This is Charlotte on for Mike. Thanks for taking my question just wanted to ask about any real time update you are seeing on patient demand trends following the flu season and any improvement you've seen there in recent weeks and then how that's impacted the provider side as well.
Scott: Oh, Hey, it's Scott here.
Scott: I think we saw what we expected to see following the heightened cancellation in Q4 and that often we need to get those heightened moments of cancellation or periods of cancellations you get a deferral of visits rather than a loss of patient. So we did anticipate having a strong rebound demand has been quite strong.
Scott: Certainly since Q3, Q4 last year and that sustained itself into Q1 of this year.
Scott: We continue to see strong interest in bookings of our network.
Scott: It continues to have strong requests from our patient base to committed to the network.
Scott: So again not too shocking to see the rebound in visitation this quarter, especially after last.
Scott: And we expect and hope to see that sustain itself through the course of the year.
Scott: Okay.
Speaker Change: Great. Thank you and then just another one could you provide a little color on your update or out there in your in sourcing initiatives and specifically an update on your ortho acceleration program.
Speaker Change: Yes, we continue to deploy the program across our network our rate of new practice Onboarding remains consistent with the pace you would have seen last year and so expectations should be the same for the course of this year.
Speaker Change: Given the variability in patient visits as a result of both those restrictions have heightened flu season, you will see some ebbs and flows as practices also make sure they prioritize getting patients back in for the routine care.
Speaker Change: Their annual checkups, any any sort of more urgent related care that needs to be done, giving patients weren't able to commit as much as they'd like to last year.
Speaker Change: So you'll see some variability over the course of save months or a quarter.
Speaker Change: But our expectations are we'll see similar continued deployment of the program across their networks results consistent with prior periods.
Speaker Change: Yeah.
Speaker Change: And we will take our next question from Brian <unk>.
Speaker Change: Kelly with Jefferies. Your line is open.
Speaker Change: Hey, good morning, guys congratulations.
Speaker Change: So I guess my first question for you as I think about.
Speaker Change: The guidance on acquisition contribution this year.
Step back and looking at what the M&A environment looks like I know you said that valuations are they started coming down, but just curious what deal flow looks like and maybe.
Maybe interest level that you're seeing from more medium sized asset to sell at this point.
Speaker Change: Yeah.
Thanks for the question Brian.
Speaker Change: As far as the pipeline continues to main remained strong and robust consistent with.
Speaker Change: Really what we saw throughout 2022.
Speaker Change: What I can say as it relates to the valuation environment.
Speaker Change: As we're seeing the interest rates digest themselves through the market.
And really the individual dentist, who.
Speaker Change: Who is trying to buy a practice and working with their local professional lending group.
They are now being asked to put in equity and when Theyre running the math, there theyre not able to make it work as far as the debt carrying cost and really that individual dentist is the number one buyer for dental practices across the country, albeit we may be the single largest buyer of dental practices, it's still very much supported by that individual.
Speaker Change: So as that now is becoming a reality, we're seeing valuations normalized to pre COVID-19 levels in that 15% to 20% range lower than what we experienced in 2022.
Speaker Change: And again as you see printed today in a quarter. So we're optimistic.
Speaker Change: As to driving the volume of acquisitive growth that we spoke to at the end of Q3 in that $20 million to $25 million on an after rent base EBITDA.
Speaker Change: The pipeline is definitely there to support it.
I appreciate that and then I guess as I think about rate increases.
Speaker Change: Potential rate increases what are you seeing in terms of the provinces.
Speaker Change: Proving our proving recommendations for.
Speaker Change: Great adjustments for 2023, and so I think for me as well.
Speaker Change: So just to make sure we're answering the question Youre, saying rate increases as it relates to fee guidance.
Speaker Change: The dental right.
Speaker Change: Yes, that's right, yes, yes, and so what is your question specifically around the provinces.
What rate are.
Speaker Change: Are we seeing the.
Speaker Change: Fee guide.
Speaker Change: Going up right.
Speaker Change: For 2023.
Yes.
Speaker Change: Yeah. So so just just to level set those on the call.
Speaker Change: Each of the within each province, primarily the dental boards, whether its the.
Speaker Change: The associations are some semblance of dental professionals will on an annual basis.
Speaker Change: Produce what I'll call tea guides.
Speaker Change: The province, or a government bodies themselves don't have a preview of this it is sort of industry set by the dental dental representatives within each province, so those have all been.
Speaker Change: At least and I have been set for the year.
Speaker Change: If you look at the mix of services within our network, which is probably fairly representative of the mix of services are an average general general Dentistry clinic, the price increase again, depending on sort of where you are in the country and depending on specifics around your volume composition or your mix composition.
Speaker Change: 6% to 7%.
Speaker Change: Got it thank you.
Speaker Change: And we will take our next question from Stephen Macleod with BMO capital markets. Your line is open.
Thank you good morning, guys.
Speaker Change: Just just wanted to talk a little bit about leverage and just wondering if you can provide any updates if it's changed at all just your deleveraging targets on an annual basis.
Speaker Change: In terms of net debt to EBITDA.
Speaker Change: Yes. So thanks for the question Steven as we look to the medium term.
Speaker Change: Our leverage targets are still in the high twos to low threes.
Speaker Change: As we look through to the balance of the year our.
Speaker Change: Deleveraging pace of roughly a quarter to half a turn by by the end of 2023.
Speaker Change: Okay. That's that's great. Thank you for that.
Speaker Change: And then maybe just.
Speaker Change: Just on the fundamentals I was just wondering if you could give a little bit of color around sort of what youre seeing.
In terms of.
Speaker Change: Like the same practice revenue growth I know you haven't you called it a very strong number for Q1 and I'm just wondering if there's anything unusual in there outside of outs.
Speaker Change: Outside of just a rebound in patient visits from from what was a slower slower Q4.
Scott: It's Scott here.
Scott: I don't know if you want to call. It unusual again I think there was a portion of pent up demand from Q4, given just the ramp in flu season, and so you've got a whole bunch of patients who otherwise would have come in in the quarter that didnt. So you obviously saw some of that in Q1.
Beyond that.
Scott: It looks it feels more like a normal operating environment for the first time since COVID-19.
Scott: But beyond that again I think we're seeing continued sustained demand that's not surprising given the nature of dentistry, plus when you combine quality of more normalized.
Scott: Environment as it relates to both Covid and regulatory restrictions. So there is out there of the.
The nature of demand.
Obviously seems it seems in line with our expectations. The other thing that we can point to as a driver a strong start to the year is if you recall, we made significant investments over the last year, particularly around.
Scott: Our core infrastructure.
Scott: On the marketing side, so really sophisticated marketing engine that drives patient acquisition.
Scott: Significantly invested in that engine last year, obviously in the back half of the year you are seeing the dividends being paid.
Scott: But do your typical patients booking an appointment that takes some time for them to get into the system.
Scott: The benefit of those investments that we made the back half of last year show there a bear fruit in the first half for at least the start of this year.
Speaker Change: That's great. Thank you.
Speaker Change: We will take our next question from Doug <unk>.
Speaker Change: <unk> with RBC capital markets. Your line is open.
Speaker Change: Yeah, Thanks very much.
Speaker Change: With respect to the margins, we have prices, increasing 6% to 7% I'm just curious on the cost side of your business.
And what the impact you see for margins.
Speaker Change: Throughout 2023, not necessarily specific to Q1.
Speaker Change: Yes, so just just to to come.
Speaker Change: Come back to the price and obviously the the list prices again.
Speaker Change: As shown by the provinces as we look to it from an from an from an internal perspective from a from a pricing the way that we look at it in that 4% plus range you have to look at it from an overall mix perspective.
Speaker Change: Which again as you overlay the volumes is what is driving our strong our strong Q1.
Speaker Change: From an inflationary period again, the pricing that we receive is always a year late right. So it looks to the inflationary environment driven from the prior year and as we look into <unk>.
Speaker Change: In the year ahead.
Speaker Change: We're going to be able to drive.
Speaker Change: Pricing and drive growth that is in excess of the inflationary period.
Speaker Change: The inflationary environment, that's before us from a margin perspective, when taking into consideration.
Speaker Change: The additional investments that we're making in our overall infrastructure, we feel really good about continuing to maintain and finally expand margins throughout 2023.
Speaker Change: Okay, perfect and then.
My second question just has to do with.
The loans are.
Speaker Change:
Speaker Change: Well have changed I think over the last for the while with respect to management could you expand on that and just tell us what the implications might be.
Graham Rosenberg: Sure. It's Graham here so over the last nine years <unk> have each played increasingly instrumental role in the growth and development of the company.
Graham Rosenberg: And in various roles, including today as president and CFO, respectively.
Graham Rosenberg: The covenants in comp Committee and the board have determined it was in the best interest of the company to further align their interests with those of the shareholders for the long term.
Graham Rosenberg: And and restructured to manage their loans.
Graham Rosenberg: At <unk> the.
Graham Rosenberg: The.
Description and that's.
Graham Rosenberg: That set out in more detail in the press release.
Okay. Thank you Graham.
Speaker Change: We will take our.
Speaker Change: Next question from Scott <unk> with CIBC. Your line is open.
Speaker Change: Good morning, and thanks for taking the question.
Speaker Change: In the last couple of months quarters results, you've talked about doing between $5 million to $7 million in acquired EBITDA in Q4 and over the course of 'twenty three with Q4 at the lower end of that range. In Q1. The Q1 guide also at the lower end or are there plans to maybe accelerate.
Speaker Change: In the back half of the year too.
Speaker Change: To get to the midpoint of that range are you comfortable with being at the lower end vehicles on.
Speaker Change: Okay.
Speaker Change: I think at this point we're comfortable.
Speaker Change: With the lower end of the range.
Speaker Change: We'll continue to evaluate both the.
Speaker Change: The macro.
Speaker Change: As well.
Speaker Change: As the strategic initiatives and plans for the business and we'll update we will provide updates as necessary.
Speaker Change: Okay. Thanks.
Speaker Change: Obviously government health care funding, that's been a big topic at the start of the year I'm just wondering if you're hearing anything.
Speaker Change: If you have any insights or updates on the approach to dental funding and if theres any sort of changes on the horizon to what's already been announced.
Speaker Change: No we haven't heard anything other than they continue to tell.
Speaker Change: To work on the program. Obviously, you saw its first iteration last year.
Speaker Change: That was launched in October.
Speaker Change: We didn't see any real impact one way or the other including as it relates to sort of call. It incremental volume just again, we would anticipate that we will see minimal impact of this program on our network.
Speaker Change: There's no reason to believe government has changed its intentions and we haven't heard anything to the otherwise.
Speaker Change: Okay. Thanks, Okay, all right I'll leave it there thank you.
Speaker Change: And we will take our next question from Tanya Armstrong Whitworth with Canaccord Genuity. Your line is open.
Speaker Change: Hi, guys. Thanks, so much for taking my question.
Speaker Change: Firstly on the guidance provided for Q1 at 7% to 8% I know the pricing increases that we've got across some of the provinces are quite large so.
Speaker Change: I guess, how much of that volume growth versus price growth because it seems like your commentary is.
Speaker Change: You had mentioned that most of this is around volume growth.
Speaker Change: Okay.
Speaker Change: Yes, we did see a significant amount of volume growth again, highlighting one dynamic of Q4 is artificially depressed volumes because the flu season. So we did see significant rebound.
Speaker Change: And volume again I'll point to our.
Speaker Change: Our programs, particularly around the investments you've made in marketing and technology capability, which drove.
Speaker Change: Even greater volumes than we would've seen otherwise just a testament to the infrastructure that we continue to build out.
Speaker Change: Again, I think if you look at if you look at those few guy that's produced by the dental ports across each province.
Speaker Change: It is the real distinction that needs to be drawn between the quoted a fee increase and what it applies to or what it means when its applied to your mix of services for your for your practices.
Speaker Change: And so again I think the short answer to question is we saw significant volume uptick in at the beginning of the quarter.
Speaker Change: But it continues to be by you by price increases, which sufficiently offset the inflationary environment.
Speaker Change: Okay. Thank you.
Speaker Change: And on the impact of flu season in Q4 are you able to quantify it in dollar terms, how much you think it removed.
Speaker Change: From your revenue line.
Speaker Change: Yes.
Speaker Change: Thing that we would for purposes of this call, but again I can tell you that from a patient cancellation provider availability dynamic it wasn't unlike what we saw in January of last year.
Speaker Change: For a shorter period of time, but again, we saw a pronounced change in patient behaviors I think normally during what would normally be a flu season in terms of its spread you would associate patients coming in are provider, saying I'll go to work not feeling well I think given the change in behavior.
Speaker Change: Post spin Abercrombie as a result of pandemic.
Speaker Change: If people have the sniffles, they stay home and unfortunately, a lot of people had the sniffles and Q4, so we had significant uptick in cancellation rates significant.
Speaker Change: Absence of provider availability and I think that's a big driver of what we saw in the quarter in terms of points.
Speaker Change: Okay. Thank you and then just lastly, I don't know if you can answer this but in terms of the type of business loans that individual tend to have.
Speaker Change: To run their practices today do you know if they're mostly on variable rate loans or on fixed loans mfa's interest rate increases are hitting them and maybe propelling them too to sell sooner than they otherwise would.
Speaker Change: That's a great question, Tom and most most are on variable term.
Speaker Change: Loans.
Speaker Change: That also do have cash amortization throughout the tenure of those loans.
Speaker Change: Absolutely.
Speaker Change: They are being impacted by the current macro both those on our current owners with leverage as well as those that are looking to acquire new practices.
Speaker Change: Okay.
Speaker Change: Well take our next question from Daryl Young with TD Cowen Your line is open.
Daryl Young: Hey, good morning, everyone.
Daryl Young: My question is just around.
Daryl Young: The patient volumes and I guess.
Trends in terms of churn of patients maybe moving from urban offices to suburban offices, and whether you've seen a stabilization of that kind of patient churn as work from home dynamics have started to stabilize.
Daryl Young: And then second to that is that movement at all.
Daryl Young: Indicated how you how you plan to attack M&A in the future or you may be targeting more suburban areas than historical.
Speaker Change: It's news to me that work from home dynamics have stabilized I think every company I know there was a headline the other day about RBC moving.
Speaker Change: Moving to more strict requirements for in office, obviously some of the large tech companies in the U S are making significant alterations to their their cup.
Speaker Change: <unk> philosophy on work from home. So I think there's still a great state of flux.
Speaker Change: On on on worker employer employee behaviors and that drives sort of where they're spending their.
Speaker Change: Their time between Monday to Friday, and obviously as we know you go to a dentist to relive her work and so I'd still say, we find ourselves in a state of flux, particularly in the financial district of let's say Toronto Calgary.
Speaker Change: Yes, even Montreal areas, where we've got a good mix or a good healthy mix of downtown our core practices. So we haven't seen a stabilization there quite yet I think.
Speaker Change: We are seeing.
Speaker Change: Continued flux I wouldn't say our patient churn rate has drastically increased in any meaningful way as a result, it's more of a frequency behaviors that are that are causing some some some noise in the overall volume numbers.
Speaker Change: As it relates to your second question strategically again.
Speaker Change: We've always targeted stable practices and great overall geographies, whether there's sort of a core suburban we continue to see great opportunities even in suburban practices and those will always sustain themselves and be areas, where we can drive continued growth. So I don't think it's required establish material deviation in overall strategy as it relates to acquisitions.
Speaker Change: But we are mindful of it.
Speaker Change: In this environment at least for now are practices that are sort of true true financial Corps.
Speaker Change: If we're not able to tap a sustained view or a prolonged view of their own patient base. It does inform how we think about the acquisition opportunity.
Speaker Change: That's great color, thanks very much.
Speaker Change: Yeah.
Speaker Change: We'll take our next question from Gary Ho with Chardan capital markets. Your line is open.
Speaker Change: Thanks, and good morning, I set that question on the adjusted free cash flow was $7 6 million.
Speaker Change: So just wondering.
Speaker Change: If there is any seasonality in that number I think Q3 was also a little bit light versus the kind of the first half of this year maybe.
Speaker Change: Maybe you can elaborate on that working capital.
Speaker Change: As well.
Yes, so for the full year basis.
Speaker Change: The adjusted free cash flow was $125 million, which we're very pleased with again given the turbulence.
Speaker Change: Both in the Covid environment as well as the macroeconomic environment.
Speaker Change: As we look quarter over quarter and period over period a dent.
Speaker Change: Dentistry in general is a flat too.
Speaker Change: Two potentially negative working capital business.
Speaker Change: Over the year.
Speaker Change: Swings in our networking capital were nominal.
Speaker Change: The impact of working capital was a it was very minimal on a on a full year basis.
There will be some timing.
Speaker Change: Differences quarter over quarter and period over period, which you see here in Q4.
But again the full year of $125 million is something that as a management team and the company are very pleased with.
Speaker Change: But theres no seasonality like first half being higher second half et cetera.
Speaker Change: There is some seasonality.
In the quarters with Q2 and Q4 again, it's minimal some of it comes down to again timing of operations and timing.
Speaker Change: Certain events that occur.
Okay and then my second question Slide 12, you provided some additional disclosure on the U S market maybe for Graham are you still looking at international expansion expansion of that kind of on pause just given the strategic review.
Speaker Change:
Speaker Change: I think you'll see us this shift focus.
Speaker Change: Yeah.
Speaker Change: With rigor on our same store growth and a disciplined approach to acquisitions in the Canadian market.
Yeah.
Speaker Change: <unk> 70.
Speaker Change: Hi, guys.
Speaker Change: Okay great.
Speaker Change: Okay.
Question from Andre <unk> with National Bank. Your line is open.
Speaker Change: Good morning, Andre sitting in core <unk> Leno.
Speaker Change: Just wondering if you could provide some more color on labor cost and any trends youre seeing over there.
Okay.
Speaker Change: Well, let's start we'll start with again.
Speaker Change: With with the nature of of rates in Dentistry, you do get a bit of a lag. So this year's rates will reflect the inflationary environment. We saw last year, that's just how the industry sort of unfolds.
Speaker Change: So again, we're very appreciative and encouraged that the rate increases we were able to take this year more than offset the pressures we saw last year.
Due to the substance of your question I'd say, it's still a challenging labor environment I think across the board for any industry healthcare in particular that said there are encouraging signs that we can point to internally that gives us confidence that this year will be more manageable than last year, particularly as it relates to timing of those right.
Speaker Change: Increases.
Speaker Change: So again.
Speaker Change: Two points to takeaway one.
Speaker Change: Rate increases that we were able to take it or network that more than offset the inflationary pressures from last year and to.
Speaker Change: Encouraging signs that the labor market is slowly but hopefully shortly.
Speaker Change: If that's the analogy.
Speaker Change: Great. Thank you and.
Speaker Change: I was wondering if you could comment on the interest of dentist to sell at the lower multiples that you're seeing and if your pipeline has any specific weighting towards one province over another.
Yeah.
Speaker Change: So as far as far as the valuations that we're seeing here come through and again in Q4, and what we expect to come through in Q1.
Speaker Change: Valuations are one that that the market.
Speaker Change: Experienced four.
Speaker Change: A significant period.
Speaker Change: The increase in valuations.
Speaker Change: The debt that we incurred through 2022 was really driven by a couple of factors one was the mix.
Speaker Change: The types of deals that we completed.
Speaker Change: And in the early part of the year are weighing more towards the mid market opportunities.
Speaker Change: And the larger practices.
Speaker Change: As well as.
Speaker Change: Some of the behavior of our market participants.
Speaker Change: Again in those early a couple of quarters that has subsided.
Speaker Change: And the valuations reverted back to normal.
Speaker Change: From a dentist perspective, or a vendor a vendor perspective.
Speaker Change: These are normal and expected levels.
Speaker Change: They expect to transact upon so.
Speaker Change: So we're not seeing a significant amount of friction.
Speaker Change: As far as it relates to the geographic dispersion of our pipeline.
Speaker Change: We are a national business development team that's located in.
Speaker Change: In every province across the country.
Speaker Change: They're tasked with again building those relationships and maintaining.
Speaker Change: Maintaining a pipeline of conversations in those local markets.
Speaker Change: So we look to continue to grow.
Speaker Change: In a manner, which is consistent with the past a very very proportional to both the population of dentist across the country as well as the population of Canadians.
Speaker Change: Yeah.
Speaker Change: Okay.
We will take our next question from Justin <unk> with Stifel. Your line is open.
Speaker Change: Good morning, Thanks for taking my call just had a question on the.
Newly merged entity has there been any change in the competitive dynamics, there and do you anticipate any any developments in 2023.
Speaker Change: I think as we had estimated when the deal was announced.
Speaker Change: It's never it's never easy to combine.
Speaker Change: Any two materially sized businesses or even businesses are those two sizes.
Speaker Change: So I think unsurprisingly that's expected.
Speaker Change: We can tell us they continue to focus on ensuring integration goes successfully.
Speaker Change: Given again, given our significant premium paid for that merger.
So.
Speaker Change: As far as we can tell from market activity. They are far more focused on successful integration than they are proactively.
Proactively are aggressively seeking new casino opportunities.
Speaker Change: Thanks, and then maybe just a question for Nate if we can have the.
Speaker Change: No.
Speaker Change: What does the business ended up for Q4.
Speaker Change: Sorry, you just you just cut out there for me what was the question around what the what the Q4 net debt was.
Speaker Change: Net debt to EBITDA, yes.
Speaker Change: It was at four five times.
Speaker Change: Thank you.
Speaker Change: And we have a follow up question from Stephen Macleod with BMO capital markets. Your line is open.
Speaker Change: Thank you.
Just had a follow up question.
Speaker Change: In the past you've given some distinct color on on how many practices are in your ortho acceleration program I'm. Just wondering if you have that number for the end of the year.
Speaker Change: Yeah, It's a 268 practices that are in the program.
Great. Thanks, Mike.
Speaker Change: Okay.
Speaker Change: And there are no further questions at this time I will now turn the call back to Mr. Graeme Rosenberg for closing remark.
Thanks, operator, and thanks, everybody for taking the time.
Graeme Rosenberg: We look forward to reporting on a very strong Q1 and balance of the year.
Graeme Rosenberg: We're finally in a normalized what feels like a normalized operating environment, which gives us cause for optimism.
Graeme Rosenberg: Price increases off and I wanted to just specify this and make sure everyones curve of roughly 4% plus offsetting inflationary pressures from previous years and volumes returning.
Graeme Rosenberg: From last year's first flu season, but.
Graeme Rosenberg: More importantly from the significant investments we've made in our technology infrastructure, HRS ERP systems marketing and talent teams.
Graeme Rosenberg: We expect a really strong performance in Q1 with a consequential drop through to <unk> EBITDA and we look forward to reporting our results in Q1 and intend to expand our reporting to provide more detail of practice that well performance.
Graeme Rosenberg: And network performance, including our <unk> to Pac for several of our same store and recent acquisitive.
Graeme Rosenberg: Program and the performance of those acquisitions. So again strong Q1 coming up and I look forward to speaking to all in May.
Graeme Rosenberg: Yeah.
Speaker Change: Ladies and gentlemen, this concludes today's conference call and we thank you for your participation.