Q2 2023 dentalcorp Holdings Ltd Earnings Call
Background noise. After the Speakers' remarks, there will be a question and answer session <unk> like to ask a question. During this time simply press Star and then the number one on your telephone keypad. If you would like to withdraw your question do the same.
Speaker Change: <unk> Star followed by the number one at this time I would like to turn the call over to Mr. Nate Chapel Lea Chief Financial Officer of Dental core. Please go ahead Sir.
Speaker Change: Thank you operator, and good morning, everyone welcome to the Dental Corp, second quarter 2023 results conference call.
Speaker Change: I'm joined here by Graham Rosenberg, our CEO and <unk> <unk> our president.
Speaker Change: Before we start we would like to remind you that all amounts discussed on this call are denominated in Canadian dollars.
Speaker Change: Please 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 indicates management's expectations of future growth results of operations.
Speaker Change: 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.
Statements involve significant risks and uncertainties and are not a guarantee of future performance or results.
Speaker Change: Number of these risks and uncertainties could cause results to differ materially from results discussed today.
Speaker Change: Given these risks and uncertainties, one should not place undue reliance on these statements and information.
Speaker Change: Please refer to the forward looking statements and information and future oriented financial information section of our public filings without limitations, our MD&A and our earnings press release issued today additional information.
Speaker Change: For those of you who 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 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 with you today to review Journal clubs recent developments as well as our financial and operating results for the three and six months ended June 30 of 2023.
Graham Rosenberg: Today's call I'm going to show a number of those developments with you and then I will hand, the call over to <unk>, who will discuss our financial results in detail after which I'll provide some forward looking remarks about how our business is trending.
Graham Rosenberg: As a reminder, Kennel club operates in a highly recurring essential health care industry that is cash pay resilient through economic cycles and insulated from testing.
Graham Rosenberg: It does seem to mediation by technologies.
Graham Rosenberg: Importantly, general corporate expenditures have experienced strong relative growth during periods of higher than average inflation.
And accordingly in the context of the current macro environment, we believe that total cogs favorable cost structure high margins low commodity risk and negligible capital expenditures provide support for the Companys continued delivery of balanced double digit growth in the $20 billion Canadian dental industry.
Graham Rosenberg: Confidence confidence in the business is reinforced by our second quarter and year to date results, which are above expectations and provide a constructive outlook for the third quarter and remainder of the year.
Graham Rosenberg: I am delighted with our results this quarter during which we delivered record revenue performance.
Graham Rosenberg: And as Youll see on slide three this performance has been made possible by our deep and diverse metric.
Graham Rosenberg: Of close to 10000 health care professionals across the country our teams continue.
Graham Rosenberg: You need to deliver the highest standards of care during the reporting period supporting more than 2 million active patients and managing more than 5 million patient visits annually.
Graham Rosenberg: You will see that we completed our second quarter ended June 30 of 2023 with approximately $1 $4 billion of last 12 months' pro forma revenue and $266 million a pro forma adjusted EBITDA.
Graham Rosenberg: Continuing to slide four you.
Graham Rosenberg: You will see that our balanced approach to growth once again drove sustainable double digit growth and we 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.
This is a program and playbook that we have built over the last decade, and we believe we are able to adapt and thrive. If there are any short or longer term shifts in the broader economy.
Graham Rosenberg: Moving on to M&A, we continue to demonstrate our leadership position in the Canadian dental industry by acquiring six practices in the second quarter for a total consideration of $34 million. These practices are expected to generate $5 6 million and pro forma adjusted EBITDA.
Graham Rosenberg: What's most exciting for us is that the acquisitions during the reporting period was self funded using cash on hand, and equity consistent with our alignment with dentists through our acquisition model during the quarter and as part of internal cost program to rationalize certain noncore standalone specialty.
Graham Rosenberg: <unk>. We also completed the sale of three Standalone orthodontic and specialty practices, we anticipate that the sale of these assets will have a positive impact on overall, adjusted EBITDA margins, allowing us to reallocate resources to higher growth areas of the business.
Graham Rosenberg: We are also encouraged sustainment quarter, and so far in the second quarter and so far in the third quarter that practice valuations are declining in Canada as access to financing opportunities tighten up for many buyers across the industry, we remain well positioned and well capitalized as the partner of choice for independent dentists and will continue to be disciplined about the practices we acquire.
Graham Rosenberg: On slide five you can see that our business continues to convert a high percentage of EBITDA into free cash flow evidence C&I steady deleveraging over the last three quarters without acquisitions to our business has the 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: On slide six I.
Graham Rosenberg: I am delighted to report that our business once again delivered double digit growth with second quarter 2023 revenue of $368 million up 13% over the same parity in 2020 material and adjusted EBITDA of $67 million up 11% over the same quarter last year with adjusted EBITDA margins coming in at 18.
Graham Rosenberg: 2%.
Graham Rosenberg: We're also very encouraged that same practice revenue growth.
Of approximately five 5% for the quarter was driven by strong patient visits.
Graham Rosenberg: During the quarter. We also delivered 19, 3% growth in the EBITDA of our acquisitions over there about 2022 acquisitions apologies of their comparable performance driven by our purchasing efficiencies and the effectiveness of our integration program, including the implementation of our industry, leading technology stack.
Graham Rosenberg: The outcome of this was strong adjusted free cash flow for the quarter of approximately $33 6 million compared to $35 7 million in the second quarter of 2022, despite increased financing costs and driven by historical rate increases in the last 12 months.
Graham Rosenberg: As we look ahead to the third quarter. This year, we anticipate continued growth with revenues estimated to increase by nine and a half to 10, 5% adjusted EBITDA margins materially consistent with the first half of this year and same practice revenue growth of 6% once again.
Graham Rosenberg: We're also expecting to complete acquisitions, representing pro forma adjusted EBITDA after rent of approximately $10 million through the balance of the year.
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 for questions right.
Graham Rosenberg: Thank you Graham.
We believe that our second quarter results demonstrate the strength consistency and predictability of our business turning to slide seven revenue for the three months period ended June 32023, as Graham mentioned was $368 million compared to $327 million for the corresponding period last year, representing an increase of approximately 12, 6%.
Graham Rosenberg: The increase is attributable to our strong acquisitive and organic growth, including positive contribution from orthodontic and sourcing as you can see we reported second quarter adjusted EBITDA of approximately $67 million compared to $60 4 million in the same quarter last year and reported second quarter adjusted EBITDA margins of 18, 2% same practice.
Graham Rosenberg: Revenue growth was five 5% over the same period in 'twenty two.
Graham Rosenberg: Looking forward, we continue to be confident about our ability to grow the business through acquisitions and organically.
Graham Rosenberg: Turning to slide eight you can see that our leverage and liquidity as of June 32023 on a net debt basis, we have approximately 438 times levered at the end of the second quarter down from 4.44 times at the end of Q1 2023.
Graham Rosenberg: We ended the second quarter 2023, with liquidity of $778 million comprised of $104 million of cash and $674 million in undrawn debt capacity under our senior debt facilities.
Second quarter, and last 12 months adjusted free cash flow was $34 million and $119 million, respectively, which support our strong balance sheet position.
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%.
Graham Rosenberg: The remaining quarter of our senior debt facilities remain on a variable rate.
Graham Rosenberg: As a reminder, every 100 basis point increase in our credit facilities is expected to result in less than 3% impact on our adjusted free cash flow.
With respect to slide nine you can see that we met or exceeded our public forecast during our second quarter. Since inception, we have built a strong business that has consistent predictable and growing and we anticipate those characteristics will continue as we move forward.
Graham Rosenberg: Overall, we are pleased with our second quarter 2023 results, we increased organic growth in part through our in sourcing efforts created ongoing operating efficiencies close accretive acquisitions and continued to develop our pipeline with that I will turn the call over to Graeme to provide his closing remarks Graham Smith.
Graeme: Thank you Nate.
Graeme: We remain highly confident about our opportunities going forward.
Graeme: Fiscal 2023 continues to be a very strong year for identical and we don't anticipate slowing down. Thanks to our continued strong same practice revenue growth disciplined approach to acquisitions and robust market conditions, we believe that this balanced approach.
Graeme: Our business will continue to drive sustained double digit growth and deleveraging in the third quarter and beyond.
Graeme: I'd like to thank you all for taking the time to join our call today.
Graeme: That concludes the formal part of our presentation.
Graeme: And I am delighted to open the call to questions operator.
Speaker Change: At this time I would like to remind everyone in order to ask a question press Star and then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from Michael Cherny from Bank of America. Please go ahead.
Speaker Change: Hi, This is Hannah Lee on for Mike Cherny. Thanks for taking the question can you talk about any real time updates you've been seeing on patient demand and if you've been seeing any improvements in recent week.
Speaker Change: Yeah.
Speaker Change: Hey, it's Scott here. Thanks for the question, we're seeing continued strength in patient demand, particularly on returning patients.
Speaker Change: Many of whom.
Speaker Change: I think took a step back from the regular frequency of recurring visits to our practice during COVID-19.
Speaker Change: As we've intimated on prior calls we are really seeing a return to.
Speaker Change: Call it normalized levels and behavior on the patient demand and patient behavior side as.
Speaker Change: We're seeing strong strong demand again, a good combination of both new patients as well as strength in our returning patients coming back to the regular habits.
Speaker Change: Okay. That's helpful. Thank you.
Speaker Change: Our next question comes from Brian Klein.
Speaker Change: From Jefferies.
Speaker Change: Please go ahead.
Speaker Change: Hi, Good morning, you've got <unk> on for Brian. Thanks for taking my question. So first is going to be on M&A.
Speaker Change: This year, you talked about digesting some of the deals that you've completed lab.
Speaker Change: Last year, right, keeping assortment of deleveraging and driving organic growth just curious if the multiples are down 30% how are you thinking about the sustainability.
Speaker Change: Of the current acquisition opportunity in terms of just deal valuations.
Speaker Change: Is that maybe pushing.
Speaker Change: Capital allocation expectations for this year.
Speaker Change: Really capitalize on the opportunity in terms of just lower practice prices.
Speaker Change: Yeah. Thanks, Thanks for the question Nate here as far as the pipeline goes it remains consistent over the last number of users of our business development team.
Speaker Change: That is located across the country in their local markets building, those relationships and ensuring that stability and predictability.
Speaker Change: Is really coming through ultimately last year was a banner year from acquisitions and.
And we continue to be very confident to be in line with expectations for our M&A activity for the balance of this year.
Speaker Change: We are very pleased with where valuations are at and were very pleased at.
Speaker Change: The performance of our 2022 acquisitions as you see.
Speaker Change: In the remarks. This morning, so again very very confident that the continued continued pacing pipeline and performance of our M&A program.
Speaker Change: Great. Thank you and just a follow up I know that you had mentioned in the press release.
Speaker Change: Margins were down slightly because of continued inflationary labor pressure and I know that you expect margins to be consistent.
Speaker Change: In the back half with the first half right. So just curious on the update on the labor environment.
Speaker Change: I guess what is your fill rate look like in terms of your clinical and non clinical need in your practices.
Okay.
Speaker Change: Hey, Scott just wanted make sure I'm answering the question specifically when you say fill rate what do you mean.
Speaker Change: Sorry, I mean, I guess it means.
Speaker Change: The amount of do you have it.
Speaker Change: Essentially how much demand can you fill with your current labor force right or how much more <unk>.
Speaker Change: <unk> is that what you're getting at.
Speaker Change: Sure Yes.
Speaker Change: Yes, let me give you some broad color.
Speaker Change: On the labor environment, it's not dissimilar I think from from any other industry, north or south of border, particularly health care.
Speaker Change: We've seen strain on the availability of dental professionals.
Speaker Change: For quite some time now and that strain was obviously materially exacerbated over the last several years.
Speaker Change: We've seen some positive trends this year I think we are certainly looking at it better labor environment than we were last year.
Speaker Change: It's still not still not a perfect one or one where there is an abundance of dental professionals.
Speaker Change: Fortunate that our retention rates, particularly for our docs alright, I'd call at all time highs on a year over year basis. In particular, we're seeing really strong retention rates of the clinical staff. Similarly, with dental hygienist and assistance, which are key to being able to meet obviously patient demand.
Speaker Change: Are we able to meet all of the patient demand.
Speaker Change: And minimize wait times, unfortunately, not as much as we'd like.
Speaker Change: Still seeing obviously, some tightness, particularly as it relates to dental hygienist.
Speaker Change: The positive.
Speaker Change: Tailwind in our networks favor us again.
Speaker Change: Retention rates, we don't have a ton of vacancies that we're doing our best we're doing our best to retain our staff keeping them happy and thankfully the base business is performing well enough for us to be able to do that while while obviously mitigating the pressure on the margins.
Speaker Change: Our next question comes from Stephen Mccleod.
Speaker Change: From <unk> capital.
Speaker Change: Capital markets. Please go ahead.
Speaker Change: Thank you good morning, guys.
Speaker Change: Just I just wanted to circle around on the margins.
Speaker Change: Got it got it to flat back half margins versus the first half just with some inflationary pressures are you seeing some of those pressures or do you have visibility in some of those pressures easing into 2024.
Speaker Change: And if so.
Speaker Change: How do you sort of see margins.
Speaker Change: Progressing exiting.
2023 sort of beyond over the next couple of years.
Speaker Change: Yes, I think thanks for the question Stephen.
Speaker Change: As we look to margins they've been fairly consistent really through through 2022 and into 2023.
Speaker Change: And we have a positive outlook of consistency through 'twenty three with expansion in 'twenty four.
Ultimately.
Speaker Change: The from an industry perspective.
Speaker Change: The pricing that is set across the Canadian dental industry is done at the beginning of the year as it relates to the fee guidance and Thats always with reference to the prior period's CPI.
Speaker Change: So really the pricing that we're looking at receiving and we're experiencing in 2023 really relates to the 2022 cost increases and unfortunately 2023.
Speaker Change: We're still in an elevated inflationary environment, where ultimately pricing will be taken into account in 2024, So as we look to the.
The return of stability in inflationary environment and the overall macros.
Speaker Change: That is when ultimately we will retain called that stability.
Speaker Change: That opportunity for continued margin expansion.
Speaker Change: What we're also happy to.
Speaker Change: A report as we continue to see efficiency.
Speaker Change: And our investments in our corporate infrastructure broke both from our people as well as our technologies as we continue to grow and we will start seeing that operating leverage come through.
Speaker Change: Yeah.
Speaker Change: Okay. That's great. So so we should expect some potentially some operating leveraging 24 on the marketing.
Speaker Change: Hey, guys.
Speaker Change: And then maybe just secondly, with respect to deleveraging you talked about the ability to deleverage.
Speaker Change: 0.2 half a turn without acquisitions, just curious with the acquisition program that you do have in place and your expectations.
Speaker Change: How do you see leverage.
Speaker Change: Potentially being reduced over the next like on an annual basis.
Speaker Change: Yeah. So.
Speaker Change: As you see the business has a very high free cash flow conversion.
Speaker Change: In the last six months 100, roughly $120 million in free cash flow.
Speaker Change: And when we look at on a on a basis without acquisitions, we would de lever again call. It in that half a turn plus on an annual basis, so you'd see significant deleveraging, but of course that doesn't take into account.
Speaker Change: Our M&A activity as we see it today with a balanced approach to our capital allocation.
Speaker Change: We're going to be able to delever by roughly call. It <unk> five to <unk>, one on a quarterly basis.
Speaker Change: Albeit at the same time continuing to execute on our accretive acquisitions for the balance of the year and into 2024.
Speaker Change: Okay.
Speaker Change: Okay. That's great. Thank you Mike.
Speaker Change: Our next question comes from Douglas <unk>.
Speaker Change: From RBC capital markets. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Hum.
Speaker Change: I just wanted to I guess, maybe as a final question with respect to these margins.
Specifically focusing on the gross margin side.
Speaker Change: The only significant drop off relative to Q1.
Speaker Change: Coming into Q2 was there anything specific that.
Speaker Change: Cause that and.
Speaker Change: How can we think about that gross margin changing stay flat from what we just saw in Q2 or would we expect that to rebound.
Speaker Change: During the year.
Speaker Change: Okay.
Speaker Change: Thanks, Doug for the question.
Speaker Change: From a gross margin perspective.
Speaker Change: One call a contributing factor there.
Is our distribution of our practices across the Canadian geography.
Speaker Change: Certain markets will have a little bit of an elevated draw versus others.
Speaker Change: Specifically.
Speaker Change: Specifically in the Quebec market.
Speaker Change: <unk> receive a certain compensation on certain hygiene services. So if you look at the dental draw that a dentist in Quebec received compared to other provinces. It is elevated.
Significant.
Speaker Change: A number of our acquisitions in 2022 were in the province of Quebec, which is one where we continue to grow and expand which did have that impact on gross margin. So nothing that is systemic overall on the margin. It's just a matter of the geographic dispersion of our practices.
Speaker Change: Excellent Okay, and then just as a follow up.
Speaker Change: What has been going on with respect to the government program, that's being put in place I know that.
We had an existing ones and this was just a bit of an add on but is it having any impact on your business or is it just negligible and nothing really to talk about.
Speaker Change: Hey, it's Scott here, Thanks for the question.
So it's a multi phase as much as we know as much as government has expressed its a multi phased over multiple years program that every year as supposed to expand onto itself.
Speaker Change: So far all they have done was which is just what they did last year, which was to provide a I'll call. It a reimbursement for <unk>.
Speaker Change: Particularly narrow set of eligible Canadians, who if they went out and got dental services. The government reimbursement to the tune of I think about 600, and some odd dollars, we didn't see virtually any impact any incremental patients the utilization of that benefit was relatively limited.
The next phase as the government has previewed.
Speaker Change: As reliable as that may be.
Speaker Change: Is it sort of an expansion of eligibility for Canadians, which is supposed to come into place.
Speaker Change: By the end of this year early next year.
We've been doing our best till the as with the various agencies involved and I think they are scrambling.
Speaker Change: If I'm being honest I'm trying to get this program off the ground and.
So our expectation wasn't to see any impact obviously not negative, but even if you even discounting of positive impact from incremental volumes.
Speaker Change: So we'll have to wait and see on the expanded eligibility if we're going to see some more patients through our doors.
Speaker Change: Again, we see real strength in the average Canadian dental patient, who had that 75% of them across the country today have dental benefits provided by their employer that number is north of 90% when you factor in children.
Speaker Change: So there is already a significant proportion of the Canadian population with coverage and that continues to be the driver of the overall industry.
Okay.
Speaker Change: Okay, great. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Scott <unk>.
You May go ahead.
Speaker Change: Hi, Good morning, same practice revenue growth was in line with the guidance, but the total revenue growth was slightly above that which I think implies more contribution from the acquired the acquired practices than you'd been expecting was there anything specific that drove that in the quarter or things or it should be and can we expect that going forward potentially.
Speaker Change: Yeah.
Speaker Change: Yes, I think thanks for the thanks for the question Scott you.
Speaker Change: You saw the strong performance of our prior acquisitions come through ultimately our integration playbook is.
Speaker Change: One that we're very proud of and that's what we're able to drive those efficiencies from our acquisitions. So ultimately expectation is that we're able to realize that growth post acquisition, both in the near and long term. So nothing nothing nothing specifically to report on outside again in a normalized environment and strong performance.
<unk> from our prior year acquisitions.
Speaker Change: Okay. Thanks, and then I wanted to ask a question on demand, particularly for the for the clear aligner and the more discretionary spend categories have you seen any changes over the course of 2023 and demand there.
Speaker Change: Yeah.
During the course of 'twenty three.
Speaker Change: If you look at commentary from align and even some other of the large dental suppliers have gotten into the clear aligner game they have.
Speaker Change: Seen a bit of a drop off from call. It peak COVID-19 demand a lot of people at home a lot of people have disposable income a lot of people have masks over their face it could invest in.
Speaker Change: The complexities of having trade in their mouth.
Speaker Change: We've seen sort of a drop off from that peak, but it's been relatively consistent with the course of 'twenty three.
Okay. That's helpful. Thank you.
Speaker Change: Our next question comes from Gary Ho Hum.
Speaker Change: Jordan capital market. Please.
Speaker Change: Go ahead.
Speaker Change: Thanks, Good morning.
Speaker Change: I just wanted to touch on the corporate infrastructure comment maybe coordinate.
Speaker Change: When does that taper off and maybe walk us through.
Speaker Change: As you implement the technology what are some of the concrete benefits that youre seeing.
Speaker Change: Yeah. So thanks for the question Gary as far as the tapering off of our expectation of our large scale technology investments.
Speaker Change: We will be fully implemented through by the end of 2023.
Speaker Change: As it relates to specifically the efficiencies that we're able to garner from a corporate system.
Speaker Change: With industry, leading ERP systems as well as our people management systems allow us to be in greater contact.
Speaker Change: With our teams of 10000 of approximately 10000.
Speaker Change: Ensure that we're able to provide them with all.
Speaker Change: The necessary information training.
Speaker Change: And really use our scale most efficiently across the Canadian geography in the local markets.
From a from a practice perspective practice level perspective, those efficiencies is what sets us apart and what allows us to continue to deliver care to patients from a corporate perspective, we're able to ultimately continue to service our teams and our practices to a much greater degree.
Speaker Change: With a much greater degree of efficiency.
Speaker Change: <unk> capability.
Speaker Change: Okay, great. Thanks for the color and then my other question just.
In terms of the practices that you sold maybe just walk us through your process here these practices.
Speaker Change: Generating subpar growth subpar margins.
Speaker Change: <unk> exercise that you'd look at.
Speaker Change: All your practices or is this more of a one off and with multiples to be similar to the ones that you're buying practices.
Speaker Change: So the practices that we've sold both in Q1 and Q2 are specifically standalone orthodontic practices.
Speaker Change: As far as general practices, we have never we have never sold one.
Speaker Change: We are looking at and we have been looking at our overall network and with our focus being on general practices, our ability to drive patients as well as expanding the services provided.
Speaker Change: <unk> alone orthodontic practices were not part of our go forward strategy.
Speaker Change: As far as ultimate.
Speaker Change: Growth and the margins they.
Speaker Change: They were both sub par to our GP.
Speaker Change: GP business.
Speaker Change: Overall, the representation of the Standalone ortho practices with sub sub 5%. So a very small portion of our business and ultimately now even significantly smaller than that.
Speaker Change: Okay.
Speaker Change: Okay great.
Speaker Change: Great.
Speaker Change: Those are my questions. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Andrei Leno from National Bank.
Speaker Change: Okay.
Speaker Change: I just wanted to continue a bit on the <unk>.
Speaker Change: Arthur with divestitures.
Speaker Change: I was just wondering like how many more are.
Speaker Change: In your network and would you consider essentially our overtime divesting all of them or would you retain them.
Speaker Change: Okay.
Speaker Change: There are very few number of remaining Standalone ortho practices in our network.
Speaker Change: We continue to evaluate.
The opportunity both.
Speaker Change: Continuing as well as divesting.
Reallocating those resources, both from a corporate cost.
Speaker Change: In time perspective, as well as <unk>.
Speaker Change: Overall capital allocation perspective, so it's possible there'll be further divestitures, but again I really want to highlight that it's a very small portion of our business.
Speaker Change: Okay.
Speaker Change: And the other one let me still a bit on the ortho, but more any update on your ortho enforcement program. I mean have you enrolled without trading where clinics are any update.
Speaker Change: Sure.
Speaker Change: It's guy here.
Speaker Change: Steady as she goes continuing to.
Speaker Change: Expand the.
Speaker Change: Penetration of that program across our practices. We are on plan with respect the number of new practices, we've put through the trading.
Speaker Change: The protocols to be able to deliver clear aligner therapy.
Speaker Change: So all things continuing forward.
Speaker Change: So we're right on plan from our perspective.
Speaker Change: Okay, great. Thank you and last one for me coordinate actually just a quick one on the fixed interest rate of six.
Speaker Change: Four percentage you highlighted how long that floor.
Speaker Change: Okay.
Speaker Change: Yes, so our.
Speaker Change: Our hedges.
Speaker Change: Full $800 million.
Speaker Change: Our through to the maturity of our current deal. So roughly may may 2026 or end of May 2026.
Speaker Change: Okay, that's great.
Just to highlight that those those hedges are currently in.
Speaker Change: And the money north of $20 million, so significantly ahead of where the market, otherwise, where we would otherwise be and a variable rates of tuition.
Speaker Change: Good call.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Our next question comes from Pena Armstrong with work from Canada cord Genuity.
Speaker Change: Go ahead.
Speaker Change: Good morning, gentlemen.
Outlook you provided some medium term guidance at first just wondering when you say medium term over what timeframe is that and then secondly, that's 4% plus same practice growth you highlight can you break that down in terms of.
Speaker Change: Volume in sourcing initiatives like you usually do.
Speaker Change: Yes, so I'll take the first part of the question and I'll hand over the breakdown of our future same practice revenue growth to guy to discuss.
Speaker Change: As it relates to medium medium term generally speaking that that's three to five years.
Speaker Change: Is there a specific point.
Speaker Change: Point of the outlook that you're referencing or just trying to understand what the medium medium term target looks like.
Nope that was sent to China.
Speaker Change: Whether that was like a two year timeframe or a five year timeframe. So that's helpful.
Speaker Change: Three to five.
Speaker Change: Okay.
Speaker Change: Yeah, just on that 4%. So if you look at call. It the last three decades of dentistry in Canada.
Speaker Change: In a normalized environment, you tend to get a 1% to 2% price increase in the form of those annual fee guidance of obviously this year, we've been the benefit of higher CPI CPI.
Speaker Change: CPI it was little higher this year.
Speaker Change: But if you factor in a steady state of 1% to 2% in a normalized environment.
Speaker Change: That gets you to one portion of that four we anticipate about a 1% increase in volume year over year, and then about a half to one 5% expansion of services that drive growth that gets you to a four plus.
Speaker Change: Okay, excellent and that I'm, assuming that doesn't.
Speaker Change: Taking into consideration 2024, which then late season outside.
Speaker Change: Yes, yes, we won't know that till its obviously of course at the end of the year beginning of next year, but that's probably a fair assumption.
Speaker Change: Okay excellent. Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from David Wang from UBS.
Speaker Change: Securities. Please go ahead.
Speaker Change: Good morning.
Speaker Change: And.
Speaker Change: You comment I guess on the M&A this cargo being self funding and how you guys didn't increase.
Speaker Change: On the bank debt.
Speaker Change: I guess so.
Speaker Change: At least maybe looking on annualized basis is that kind of strategy going forward here that youre, just going to spend within your free cash flow generation or could you see times, where.
Speaker Change: Stan spend differently.
Speaker Change: Thanks for the question David.
Speaker Change: As we look to 2023, specifically as as we entered.
Speaker Change: The strategy. This year was on a balanced approach of driving deleveraging continuing our accretive acquisitions.
Speaker Change: And that remains consistent for the balance of the year, we continue to evaluate our opportunities our pipeline again continues to be very robust.
<unk>.
And we will evaluate on a case by case basis.
Speaker Change: Whether and how we allocate our capital what I, what kind of what I can assure you is that deleveraging remains a significant priority to the business.
Speaker Change: As well as does our growth and will continue to ensure that we deliver on both those metrics.
Speaker Change: Yeah.
Speaker Change: No that's helpful.
You've been buying back stock as well.
Speaker Change: I guess after that.
Speaker Change: And then can you comment how that fits in.
Speaker Change: Especially where the share shares are trading right now.
Speaker Change: Yes, I think it's no surprise.
Speaker Change: That we feel that our shares are significantly undervalued.
Speaker Change: And we used the NCI be quite sparingly again with a balanced approach to share buybacks acquisitions as well as deleveraging.
Speaker Change: But we do see significant value in our equity.
Speaker Change: And then ultimately did exercise under the CIB at the beginning of the quarter.
Speaker Change: Okay.
Speaker Change: Thanks, and then just.
Speaker Change: One last question just on the costs and the labor inflation like is there anything else that you are experiencing outside of kind of the labor inflation.
Speaker Change: That's kind of holding back your margins at least.
Speaker Change: For what Youre expecting for the balance of the year.
Speaker Change: And also maybe yes.
Speaker Change: Yeah, sorry go ahead.
Speaker Change: And just to the extent that maybe the tight labor market are you seeing that having any kind of material impact on your clinic performance.
Speaker Change: This is just going to throw your question back to make sure that we got it are you, saying are we seeing pressure on other line items over and above labor and are seeing some some expansion of margins with respect to those line items and to what extent is the labor pressure affecting clinical performance of those did I got I got it right yes.
Speaker Change: Yes, so thankfully given our scale.
Speaker Change: <unk> largest provider in the country.
Speaker Change: Okay.
We've been able to garner significant economies of scale and price efficiencies on consumable supplies et cetera. So we've seen continued strength.
On that line item, which is a which is a material one.
Speaker Change: So it's a relatively steady if not expansion of margins as it relates to some other line items across the P&L, which are helping us mitigate those labor pressures.
Speaker Change: To the extent that it's affecting critical performance, obviously, you've got the pressure of labor wage rate inflation on those clinics, but again given the strength in demand and given the continued strength on the top line of our clinics broadly speaking, we've been able to mitigate it.
Speaker Change: In addition, obviously as we continue to deploy our playbooks across their practices are able to garner some efficiencies as it relates to staffing scheduling and those things also help as well.
Speaker Change: That's great. Thanks.
Speaker Change: Our next question comes from Justin Keyword from Stifel. Please go ahead.
Justin Keyword: Good morning.
Speaker Change: The press release mentioned acquiring clinics in the quarter.
Speaker Change: Six eight times EBITDA.
Speaker Change: 30% lower from last year, and I believe thats below our target range of seven to nine times EBITDA.
Speaker Change: My question is.
Speaker Change: How sustainable is.
Speaker Change: This multiple range to continue to acquire at low multiples.
Speaker Change: Thanks for the question Justin.
Speaker Change: We're very pleased with seeing the valuations come down to this level.
Speaker Change: But what is driving it mostly as albeit we are the single largest acquirer of dental and.
Speaker Change: Canada and are the partner of choice.
Speaker Change: The greatest number of transactions still take place between an individual dentist buying into in part or in whole and to another practice.
Speaker Change: That market has always been.
Speaker Change: Supported by the capacity of the professional lending groups at our banks here.
Speaker Change: To land to fund these acquisitions, obviously with higher interest rates costs.
Speaker Change: And greater cost of carry the individual's ability to acquire.
Speaker Change: <unk> has significantly come down and.
Speaker Change: And we're seeing some of the benefits of that decline in demand and valuations coming down to call. It pre COVID-19 levels, and then frankly, even lower.
Speaker Change: As far as our outlook here on valuations.
We expect to again continue to be in.
Speaker Change: And that in that seven to eight times range.
Speaker Change: But however, there is opportunity for outperformance as you've seen in this quarter.
Speaker Change: Is there an opportunity to maybe lever up the balance sheet.
Speaker Change: In the near term to make acquisitions.
Speaker Change: Much lower multiples or is the focus continuing to be on delever, because it seems like it may be a bit of a unique opportunity to acquire some clinics.
The multiples here.
Speaker Change: Yes.
Speaker Change: I think that there is an opportunity. However, we're committed to our balanced approach to growth, while both showing the deleveraging as well as completing our accretive acquisitions.
Speaker Change: Thank you. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Andrea <unk> from National Bank. Please go ahead.
Speaker Change: Hey, Thanks, very much for the follow up I just had a quick one for me.
Speaker Change: In the all the U S U S <unk> as well, but there has been some FDA investigation on some dental devices expanders.
Speaker Change: Are you guys seeing anything like that or do you use them at all or is it just a blip if it works out.
Speaker Change: No we're not seeing anything in that.
Speaker Change #100: Okay, great. Thank you.
Speaker Change #101: I will now turn the call over to Graham Rosenberg for closing remarks.
Graham Rosenberg: Thanks, operator, and thanks, everyone for taking the time today.
Graham Rosenberg: Look forward to reporting a strong Q3.
Speaker Change #102: And I guess, it's in November early November.
Speaker Change #102: And then drive the rest of the summer thanks.
Speaker Change #102: Yeah.
Speaker Change #103: Ladies and gentlemen that concludes today's call. Thank you for joining you may now disconnect.