Q4 2024 dentalcorp Holdings Ltd Earnings Call - Q&A
Good morning, and welcome to dental Corp's fourth quarter and fiscal 'twenty 'twenty four will still its conference call.
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Speaker Change: At this time I would like to turn the call over to Mr. Nate choppy, Yeah, President and Chief Financial Officer of Dental Corp. Sir. Please go ahead.
Nate Choppy: Thank you operator, and good morning, everyone and welcome to the Dental Corp, fourth quarter and fiscal 2024 results Conference call I'm joined here by Graham Rosenberg, Our Chief Executive Officer.
Speaker Change: Before we start we would like to remind you that all amounts discussed on this call are denominated in Canadian dollars unless otherwise indicated.
Speaker Change: Please note that the 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 probably.
Speaker Change: <unk> and opportunities.
Speaker Change: Such statements are made as the date hereof and demo Corp assumes no obligation to update or revise them to reflect events disclosures or circumstances, except as required by applicable securities laws.
Speaker Change: Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results.
Speaker Change: A 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 M. DNA our earnings press release issued today for additional information.
Speaker Change: 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 will now turn the call over to our Chief Executive Officer, Graham Rosenberg for opening remarks Graham.
Graham Rosenberg: Thanks, Nathan and good morning, everyone. We're pleased to be with you today to review dental called recent developments as well as our financial and operating results for the three and 12 months ended December 31 2024.
Graham Rosenberg: For today's call I'm going to share a number of those developments with you and I will then hand, the call over to Nathan who will discuss our financial results in detail after which I will provide forward looking remarks about how our business is trending.
Graham Rosenberg: As highlighted on slide three total culp operates in a $22 billion highly fragmented market that is only 7% consolidated.
Graham Rosenberg: She is a highly recurring essential cash pay health care service that is resilient through economic cycles and insulated from disintermediation biotechnologies.
Graham Rosenberg: When combined with our proven and repeatable M&A engine, we have delivered strong growth across all key metrics.
Graham Rosenberg: In addition, we have multiyear Canadian dollar denominated supply contracts with our key suppliers.
Graham Rosenberg: Opinion minimal direct tariff or foreign exchange exposure.
Graham Rosenberg: Our confidence in the business is supported by our fourth quarter and full year results, which met or exceeded our expectations and provide a constructive outlook for the coming year.
Graham Rosenberg: Yeah.
Graham Rosenberg: As you can see on slide four our teams continue to deliver the highest standards of care to more than $2 3 million active patients, 91% of which are occurring and visited our practices approximately $5 5 million times last year.
Graham Rosenberg: We closed fiscal 2024 with approximately $1 6 billion.
Graham Rosenberg: Over the last 12 months pro forma revenue and approximately $300 million of pro forma adjusted EBITDA.
Graham Rosenberg: The 12 months ending December 31, 2024, adjusted free cash flow came in strong at $152 million.
Graham Rosenberg: On the next slide you'll see that we continue to convert a high percentage of our EBITDA into free cash flow in any given period and we expect this conversion to increase as we continue to de lever and realized network wide operating leverage.
Graham Rosenberg: Our business operates with robust and expanding margins low capex requirements and kept interest rate exposure on a 100% of our existing debt.
Graham Rosenberg: Outstanding.
Graham Rosenberg: And our last 12 months free cash flow conversion increased to 63% expressed as a percentage of GAAP EBITDA in the quarter.
Graham Rosenberg: 59% in Q4 2023.
Graham Rosenberg: On slide six as expected, we reduced our leverage by 0.6 times from the same period last year to three eight times Q4 marks the fourth consecutive quarter of deleveraging will continue to work towards our medium term target band of three to three five times.
Graham Rosenberg: Turning to the next slide you can see a comparison of valuation and free cash flow yields versus our peers at the end of the quarter. We were trading at a level that implied at five eight times discount job peer group.
Graham Rosenberg: Enterprise value to your LTM EBITDA basis, and a nine 4% free cash flow yield compared to our total peer group of 3%.
Graham Rosenberg: On slide eight you'll see that I am pleased to report that our business delivered revenue of $397 $5 million in the fourth quarter of 2024 up nine 7% over the same period in 2023, and adjusted EBITDA of $73 $9 million up 12, 3% over the same period last year.
Graham Rosenberg: Yeah.
Graham Rosenberg: Our adjusted EBITDA margin came in at 18, 6% an improvement of 40 basis points over Q4 2023.
Graham Rosenberg: And this quarter's adjusted EBITDA margin is the highest in the past nine quarters dating back to Q3 of 2022.
Graham Rosenberg: Same practice revenue growth was two 7% for the quarter and we delivered free cash flow per share of <unk> <unk> cents for the quarter, representing an increase of close to 16%.
Graham Rosenberg: I've kind of operating efficiencies was a strong adjusted free cash flow for the quarter of $39 million up approximately 16% of Q4 2023, enabling us to fund the entirety of our acquisition program with free cash flow for the seventh consecutive quarter.
Graham Rosenberg: With respect to M&A, we acquired 12 practices in the fourth quarter for total consideration of $75 million. These practices are expected to generate $10 3 million and pro forma adjusted EBITDA after rent, resulting in full year acquired pro forma adjusted EBITDA after rent of $21 4 million exceeding our.
Graham Rosenberg: Patients.
Graham Rosenberg: We remain the best positioned and bus and well capitalized partner for independent centers and will continue to be disciplined about it impacts us as we acquire.
Graham Rosenberg: I will now pass the call over to <unk>, who will walk us through the details of our financial results and I will share some clothes and shoes and I will share some closing remarks before we open the call for questions Nate.
Nate Choppy: Thank you Graham.
Nate Choppy: In early December 2020 for the Canadian government communicated up patients between the ages of 18 to 64 will become eligible to receive care under the CDP in early 2025, which caused some patients to defer appointments.
Nate Choppy: The start date is still not yet been determined and so far in Q1, we have seen the beginning of the return of these patients due to the uncertainty with the program overall.
Nate Choppy: Overall, we continue to see the CDC P is a favorable development for both the Canadian public and dental professionals alike, and expect it to be modestly positive for dental Corp.
Nate Choppy: Our quarterly results, which met or exceeded expectations in most respects demonstrate the strength and predictability of our business.
Speaker Change: Turning to the next slide Youll see that revenue for the three month period ended December 31, 2024, as grant mentioned was $398 million compared to 362 million for the corresponding period last year, representing an increase of approximately 10%.
Speaker Change: The increase is attributable to our continued acquisitive and organic growth as you can see we reported fourth quarter adjusted EBITDA of approximately 74 million compared to $66 million in the same quarter last year and reported fourth quarter adjusted EBITDA margins of 18, 6%, representing a 40 basis point increase year over year.
Speaker Change: As we continue to realize operating leverage following our significant investments in corporate infrastructure through 2022 and 2023.
Speaker Change: Looking forward, we continue to be confident about our ability to grow the business through acquisitions and organically.
Speaker Change: On the next slide you can see that our net leverage and liquidity as of December 31, 2020 for on a net basis was approximately three point in times Levered.
Speaker Change: Which shows a deleveraging of <unk> six times compared to the same period in 2023.
Speaker Change: Fourth quarter and full year adjusted free cash flow was 39 and $152 million, respectively. Further supporting our strong balance sheet.
Speaker Change: We ended the fourth quarter 2024, with liquidity of $433 million comprised of $80 million in cash and $353 million in undrawn debt capacity under our senior credit facilities.
Speaker Change: This quarter marks the sixth consecutive quarter over quarter increase in our interest coverage as defined by our last 12 months pro forma adjusted EBITDA. After rent divided by net interest expense, which currently sits at three six times up from three five times in Q3 of 2024.
Speaker Change: Overall, our fourth quarter 2024 performance demonstrates the strength and resilience of our business model, we delivered positive organic growth, while successfully expanding margins through operational efficiencies we.
Speaker Change: We continue to strengthen our financial position by deleveraging the balance sheet completed accretive acquisitions and realize the operating leverage as we continue to expand margins.
Speaker Change: I will now pass the call over to Graham, who will share some closing remarks before we open up the call for questions Graham.
Graham Rosenberg: Thanks Nate.
Speaker Change: Remain highly confident about our future opportunities as we look ahead to 2025, we accept we expect the same practice revenue growth of 325%.
Speaker Change: On M&A, we expect to complete acquisitions that amounts into $25 million plus our pro forma adjusted EBITDA after rent.
Speaker Change: These will combine.
Speaker Change: For revenue increases.
Speaker Change: 10% to 11% over fiscal 2024, and we expect to achieve 20 basis points of adjusted EBITDA margin expansion to 18, 7% and 15% pre tax adjusted free cash flow per share growth, all while continuing to delever the balance sheet.
Speaker Change: I would note that as of today's disclosure we have completed all.
Speaker Change: Or signed Loi's on acquisitions, representing over 60% about $25 million plus targets.
Speaker Change: For Q1, we anticipate 2000, we anticipate revenues to increase by 8% to 9% over Q1 of 2024, while delivering 3% to 5% same practice revenue growth. We expect adjusted EBITDA margins increased by 20 basis points over the first quarter of 2020.
Speaker Change: Four and anticipate completing acquisitions, representing pro forma adjusted EBITDA after rent of $8 billion plus.
Speaker Change: Finally, we are pleased to announce that the board of directors has declared a quarterly dividend of two and a half cents per subordinate voting share multiple voting share payable on April 22nd 2025 to shareholders of record at the close of business on April 4th 2025.
Speaker Change: This dividend reflects our commitment to maximizing shareholder value, while maintaining our disciplined approach to capital allocation, including adherence to our medium term leverage target of three to three and a half times.
Speaker Change: This also provides a return of capital to our network of more than 10000, dentists and dental professionals throughout the country.
Speaker Change: We'd like to thank you all for joining our call. Today. This concludes the formal part of our presentation and we would like to now open the call to questions operator.
Speaker Change: Thank you ladies and gentlemen, we will now begin the answer and question and answer session I would like to remind everyone to limit ourselves from one question one follow up.
Speaker Change: Should you have a question please press star.
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Speaker Change: Our first question comes from the line of Brian Kincannon from Jefferies. Sir. Please go ahead.
Brian Kincannon: Hey, good morning, and congrats on the quarter.
Speaker Change: Let me Graham as we think about the dividend, obviously very positive here, but just thinking about how youre viewing going forward, yes, you alluded to capital structure and capital deployment. So just curious how we should be thinking of how you're thinking about leverage targets and balancing that with M&A and now you've got a dividend in the mix as well.
Brian Kincannon: If you can just share with us how you're thinking through all of that.
Speaker Change: Okay.
Speaker Change: Thanks, Thanks for the questions.
Speaker Change: As it relates to the dividend, we have more than sufficient free cash flow to support a $2.05 dividend.
Speaker Change: <unk>.
Speaker Change: And the dividend this year will be approximately $15 million of cash out the door during fiscal 2025.
Speaker Change: We have more than sufficient capital available to support our M&A program, all while Delevering Delevering impact.
Speaker Change: In all scenarios that we've run is that standpoint of five times.
Speaker Change: From a leverage perspective, and so we remain well on track to achieving our three to three five times target.
Speaker Change: Maybe you want to add anything to that.
Speaker Change: If we look at about 15 million, albeit it's as it is.
Speaker Change: Our quarter dividend.
Graham Rosenberg: Dividend will be two and a half and for the year call. It will be $20 million, but the cash outlay as Graham mentioned would be 15 million. So if we look at that.
Graham Rosenberg: While keeping our M&A pacing consistent at the $25 million, we expect to complete this year, all things being equal it's really a 0.05 impact on on our overall leverage.
Graham Rosenberg: So it doesn't impact our ability to continue to drive organic growth our ability to continue to execute on our increased pacing of acquisitions, all while continuing to delever to below that three five time Mark.
Graham Rosenberg: No. That's very helpful. And then maybe my follow up a couple of quick hits here. So as I think about margin. You said you hit kind of like your the highest margin we've seen in seven years or so quarters. Just curious where you think that could go and then the other follow up is just on <unk> anything.
Graham Rosenberg: Can share with us in terms of how that partnership is going thank you.
Graham Rosenberg:
Graham Rosenberg: Absolutely.
Graham Rosenberg: As far as margins go we're very pleased with the results that we're seeing in primarily.
Graham Rosenberg: The continued leverage that we're seeing on our built out corporate infrastructure as well as the increased margins that we're seeing at the practice level from the efficiencies, we're able to drive from our negotiated agreements as well as overall operating playbooks.
Graham Rosenberg: As we see it today, our margins exceeded our expectations in 2024.
Graham Rosenberg: And we expect that to continue in the 20 basis points 20 basis points plus range of margin expansion as we enter 2025 and continue through the year, Brian sorry, I didn't I didn't hear the last part of your question.
Graham Rosenberg: Alright the partnership.
Graham Rosenberg: The data or video.
Graham Rosenberg: Yes, absolutely.
Graham Rosenberg: Ownership with video has been growing really nicely. The product has been received incredibly well by our partners across our network of practices.
Graham Rosenberg: As we stand here today, we've implemented it in across roughly 100 practices and really thats from a standing start at the beginning of Q1.
Today's date, our expectation as we continue through the balance of the year is to have it across 350 plus of our practices across the network and then as we enter 2026 wrapping up the balance there on.
Graham Rosenberg: But the reception has been phenomenal the clinicians enjoy working with it it's it's improving their efficiency.
Graham Rosenberg: Allowing for them to ensure that their diagnosis.
Graham Rosenberg: As being supportive and they have a tool to continue their development and from a patient perspective, any time that a patient is able to sit in the chair and how that third party validation and a visual to help them understand the treatment that they are going to undertake.
Graham Rosenberg: Thats always thats always an improvement overall in the relationship that they have with their dentist and their abilities to accept that treatment.
Graham Rosenberg: Awesome Congrats again, thanks guys.
Brian Kincannon: Thanks, Brian.
Speaker Change: Thank you. Our next question comes from the line of Barry Liang from Stifel. Please go ahead.
Barry Liang: Hey, good morning, everyone.
Barry Liang: Just one quick one for me I noticed you added a lot of great detail on the new Investor presentation, and I was just looking at some of the data around practice growth over the last 12 months visits active patients.
Barry Liang: And I'm just wondering was there any.
Barry Liang: The decrease in the average price or a mix shift in the year that would have potentially offset some of the growth in visits and growth in active patients.
Barry Liang: Yes, I think overall I think that the year last year.
Barry Liang: Just given some of the turbulence that was caused by the rollout in <unk>.
Barry Liang: Really disrupted normal patient behavior. There was deferrals of overall visits and there was also a deferral of the acceptance of larger treatments with the expectation that they were going to become eligible for <unk>. So, yes, 2024, absolutely hard disk.
Barry Liang: <unk> as it related to the uninsured population.
Barry Liang: Given the programs.
Barry Liang: Rollout or announcement in December 'twenty, three really only began to.
Barry Liang: Go in large scale in July of 24, and then ultimately as we saw at the end of December in the Middle of December with the Minister of health coming out.
Barry Liang: And not really providing great detail around the launch date and 25 for the remaining cohorts of the working population 18 to 64.
Barry Liang: But saying that it's going to be launched in earnest and what that really does is that lack that lack of conviction around start date creates confusion and absolutely does cause some disruption again, both in patient visits as well as acceptance of overall cases, especially the ones that are of higher value given their desire to participate and have the plan support.
Support that investment.
Speaker Change: That's great color and just a quick follow up to that then as we go forward and the CDC it impacts normalize with the historical sort of 5% to 1% price algorithm in the same practice revenue growth still Stan yeah. So I think if we if we just split apart the 4% plus range and.
Barry Liang: What we're expecting for the year is at three 3% to 5%.
Barry Liang: Which really with the midpoint of 4% with upside from there.
Barry Liang: If we take the 4% roughly call it two 5% of that given inflation as a reminder.
Barry Liang: The provincial associations.
Barry Liang: Work to set the fee got it on an annual basis with reference to the prior year's inflation, so assuming things stay consistent with historical rates of two and a half thats expectation this year and on a go forward basis with the remaining 150 basis points split evenly between increase in volume and that increase in volume.
Barry Liang: Split by frequency of patient visits from our existing patients and newly acquired patients from our acquisitions as well as our ability to attract.
Barry Liang: The gross new patients into our practices given the scale of our network and the ability to communicate to them in a very efficient manner with the other 75 basis points of the remaining growth coming from increased modalities of service that we're able to bring into the practices be it again orthodontic services with our partnership with align implants.
Barry Liang: With our partnership with in Vista.
Barry Liang: And continued operating efficiencies and training with our dentist. So the 4% plus is something that we're absolutely have conviction around.
Barry Liang: And expect to continue through this year.
Speaker Change: Great. Thanks, and congrats on the good update guys. Thanks Scott.
Barry Liang: Okay.
Speaker Change: Our next question comes from the line of Scott <unk>.
Speaker Change: From CIBC, Sir Please go ahead.
Speaker Change: Hi, Good morning wanted to ask a question on the Q1 guide versus the full year.
Speaker Change: Q1, you're sort of lapping the weaker same practice revenue growth in the prior year, given the <unk> rollout and Youre still sort of looking at three 5% in the quarter as well as the full year, maybe sort of help us bridge the gap there between both sort of just say.
Tim the flat growth across the full year, but then Q1 being lower than the full year on a total basis.
Speaker Change: Color there would be helpful. Yes, absolutely.
Speaker Change: As we sit here today.
Speaker Change: Just given given the announcement that took place in the middle of December.
Speaker Change: There's still the.
Speaker Change: Uncertainty around the <unk> program, what we are seeing is the behavior of our insured patient base. There is no disruption there continuing to come back.
Speaker Change: Accepting of service in the normal course, but what we are seeing specifically in the uninsured population base that have historically visited our practices. We are we are seeing a slowdown on that front.
Speaker Change: The correlation with the beginning of that coming with the announcement in December, albeit there is now a increase in their return back into our practices through Q1, we're not seeing that same level that we would otherwise expect in a normal in a normal period.
Speaker Change: There hasnt really been any clarifying communications since that announcement by the Ministry of health in the Middle of December we expect hopefully with.
Speaker Change: The pending election, and the results thereof, there will become a little bit more clarity and one of the worst things that can happen is lack of clarity because people don't have the ability to make a decision. They don't have the ability to plan.
Speaker Change: So without the date.
Speaker Change: Freezes freezes people's behaviors, both and booking appointments and accepting of service, but despite all of that the.
Speaker Change: The quarter.
Speaker Change: We expect to report.
Speaker Change: In Q1 of 25 is a strong one we're seeing great results.
Speaker Change: Despite the fact that we're still in the middle of a little bit of this period as a result of CDP.
Speaker Change: Okay. That's great and then just a second one for me.
Speaker Change: On the broader M&A environment I'm, just curious on whether there has been any changes.
Speaker Change: Youre seeing whether that's appetite to sell from the practices are a competitive pressure.
Speaker Change: Any sort of difference that youre seeing so far this year, yes.
Speaker Change: Yes, absolutely and as Graeme mentioned, we're sitting here.
Speaker Change: With 60% plus of our expected acquisitions of $25 million for fiscal 'twenty five either signed or closed really is as of today's date.
Speaker Change: Our continued position as the acquirer of choice in my 10, plus years here at Dental Corp.
Speaker Change: Has never been more significant than it is today.
Speaker Change: Our ability to convert the offering that we have.
Speaker Change: As part of our whole thesis in going public and being able to provide a liquid currency for acquisitions.
Speaker Change: Our continued investments in the delivery of our services that we've seen in the build out of our corporate infrastructure supports are partners in 10000 team members and being able to do what they do so that that continued delivery that building of trust and that track record has really allowed us to accelerate our growth and continue to maintain pace as a leader.
Speaker Change: One item as well as around around the dividend as well.
Speaker Change: We discussed the benefits.
Speaker Change: Really this was done for the continued.
Speaker Change: Denude improvement of our acquisitive model.
Speaker Change: And as we look at our our 10000 plus people, we have thousands of shareholders and all of our partner dentist and vendor dentists are equity holders in dental Corp, as well and this continues to increase the overall value and attractiveness of our offer as well as continuing to align all of our people shareholders as well and the continued busy.
Speaker Change: So the rollout of the dividend, we will just continue to accelerate that position that we do have.
Speaker Change: And from a competitive perspective, there really hasnt been any change we continue to speak about the strength of our balance sheet.
Speaker Change: At three point in times, three eight times Levered, we have the strongest balance sheets in the industry and we will continue to make use of that to drive our growth in 'twenty five and beyond.
Speaker Change: Excellent. Thank you for the color I appreciate it.
Speaker Change: Thank you. Our next question comes from the line of Alan.
Speaker Change: Bank of America. Please go ahead.
Alan: Good morning, and thanks for taking the questions one for either Graham.
Speaker Change: Really strong incremental gross margins in for Q.
Alan: When you think about the 20 bps of <unk>.
Alan: Or more of margin expansion next year, how should we think about the breakout between direct cost leverage and operating cost leverage you mentioned corporate infrastructure and margins at the practice level improving can you talk about just the relative strength that's embedded in that 2025 guidance.
Alan: Yes, absolutely great question.
Alan: Really there is as you put it there's two main drivers one is practice level margin expansion and then the leverage on our corporate infrastructure one of the benefits of <unk>.
Alan: A dental practices roughly 75% to 80% of all costs are variable. So as we continue to drive forward and grow both topline and bottom line at the practices margin is relatively stable, albeit there is a marginal increase in contribution. So if we break down call. It about 20 basis points of growth I'd say roughly five basis.
Alan: <unk> will come from practice level margin expansion with the remainder coming on the leverage of our corporate infrastructure and as we think about that.
Alan: From an overall top line growth perspective.
Alan: Expecting high single digit growth, while our corporate infrastructure will grow annually at roughly inflation in that 2% to 3% range.
Alan: We have the ability to accelerate our margin expansion and that really is a factor of the pace of our acquisition. So as we continue to increase our pace of acquisition this year of $25 million and in future years that continues to grow that pace of margin expansion will continue to grow incrementally and in line with that with that pacing.
Speaker Change: That's really helpful and then for my follow up.
Speaker Change: Trying to get a sense of the seasonality of M&A in 2025, that's embedded in the guide here you mentioned, 60% LOI is out.
Speaker Change: On your goal for the year, how should we think about the.
Speaker Change: The cadence of the contribution from M&A in 2025 MB versus 2024 or just on an absolute basis. Thanks, guys. Thanks guys.
Speaker Change: Absolutely. So I think if we think about M&A and it's.
Speaker Change: As predictable as our M&A engine is theres always some differentiation year to year, but again, we're very pleased with our performance to date, we expect that 60% of our $25 million target.
Speaker Change: It will be closed by the end of Q2, and 40% will be completed in the back half of the year.
Speaker Change: Yeah.
Speaker Change: Great. Thank you. Thank you.
Speaker Change: Our next question comes from the line of David Kwan from TD Cowen.
Speaker Change: Yeah.
David Kwan: Hey, guys.
Speaker Change: Obviously, a strong end to the year.
Speaker Change: And M&A standpoint, and a good start to this year as well how much faster.
Speaker Change: Faster pace that we've seen is that you guys I guess, maybe intentionally going out there trying to be more active trying to close deals versus maybe more dentists, just hitting a point, where they're more ready to sell their practices.
Speaker Change: Yes, I think it's a it's a great question David.
Speaker Change: If we look to our historical pacing of acquisitions right. If we go back to 2019, it was $40 million plus even in 2020 during Covid, we closed $25 million of acquisitions coming out in 'twenty 140, plus $22 54, and then really only in the last two years, how we brought it down to just north of <unk>.
Speaker Change: 'twenty to really provide that balanced approach to growth with the overall macro backdrop and driving our leverage down to below four times as we sit here today, it's never been for a lack of opportunity. It's never been for a lack of our position as a leader in the market and that's really underpinned.
Speaker Change: By the consistency of our business development teams efforts the consistency of the number of conversations which we do report or on a quarterly basis that has remained flat and frankly, increasing over the last number of years as well as our ability to continue to convert.
Speaker Change: We have the relationships we have the balance sheet, we have the teams. So really it's a function of our desire to continue to.
Speaker Change: <unk> maintained <unk> increase our ability to grow we believe that on any given period, we can closed $35 million plus of acquisitions those opportunities are before us, but we're committed to continuing to drive both organic growth the acquisitive growth, while getting down to our band of leverage in that three to three five times.
Speaker Change: Yeah.
Speaker Change: So just it's Greg so just to add to that as we model things out over the next two to three years, we do expect to return to that $30 million plus level.
Speaker Change: I would say potentially as soon as next year, depending on things play out this year. So.
Speaker Change: Pipe and the pace of closing as well within our control.
Speaker Change: We see no reason why we can't get back to that 30 to 35.
Speaker Change: At our at our discretion if you will.
Speaker Change: Should next year, we should see a number closer to 30 of just north of 30.
Speaker Change: Yeah.
Speaker Change: Yes, thanks for the color guys.
Speaker Change: And just a follow up question.
Speaker Change: Got you.
Speaker Change: Had a great start to the year.
Are you guys it could be maybe a little bit more selective in terms of the acquisitions youre going to pursue.
Speaker Change: In the coming quarters here and should we expect valuations to remain in kind of that normal range of 7% at that time, there might you be able to get a little bit.
Speaker Change: <unk> been a little bit better valuation.
Speaker Change: Great question Devin.
Speaker Change: We've always really been selective with our partners and our acquisitions and we expect to continue our disciplined approach to growth.
Speaker Change: As it relates to valuations very pleased with what the team was able to accomplish in 2024.
Speaker Change: Great year of acquisitions, Great partners really had a tremendous value.
Speaker Change: And as we look here in 2025, our expectations in how we've internally modeled 2025 and beyond really is that that consistent valuation of seven five times on a pre synergy basis.
Speaker Change: And just as a reminder.
Speaker Change: They are able to on a on a 12 month look back from acquisition purely as a result of our efficiencies on our purchasing power able to bring that valuation down by 10% to 15% to the mid sixes.
Speaker Change: So still highly accretive valuations for us from a from an acquisitive perspective, even where we're trading today.
Speaker Change: We expect those valuations to continue in that range through 2025.
Speaker Change: Great. Thanks.
Speaker Change: Our next question comes from Steven <unk> from BMO capital markets. Please go ahead.
Speaker Change: Thank you and good morning, guys.
Speaker Change: Just wanted to ask about Q4 with respect to the CDC P headwinds I guess, you sort of disclosed or talked about at the end of.
Speaker Change: Beginning in mid December.
Speaker Change: Is there a way to quantify kind of how that may have held back youre seeing practice revenue growth in Q4.
Speaker Change: Well.
Speaker Change: What I would say, it's very difficult because it's from a from a household income perspective, we don't have that data. So it's very difficult for us to overlay that onto the patient.
But what I can say is prior to the announcement.
Speaker Change: We were an on trend to get into that 4% plus.
Speaker Change: So that was that was likely the impact in the quarter.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: That's helpful. Thanks, Nate and then just turning to <unk>.
Speaker Change: Thinking about leverage here or not I know you talked to you've talked a lot about kind of the balancing.
Speaker Change: Between leverage reduction and M&A and now the dividend do you still kind of intend or expect to.
Speaker Change: Continuing to Delever at that rate of call. It like 0.25 to 0.5 times on an annual basis.
Speaker Change: Absolutely and again, if we look at the dividend cash outflow.
Speaker Change: In 2025.
Speaker Change: It's $15 million.
Speaker Change: And what will be a.
Speaker Change: A free cash flow growth. We ended we ended 2024 with $151 million and we expect on a pretax basis or kind of free cash flow to grow in that 15% plus range in 2025, so ample ample support from our continued free cash flow generation to drive the funding for acquisitions.
Speaker Change: As well as our.
Speaker Change: Available debt capacity under our credit facilities, all while driving deleveraging as you put it in that 0.5 to five times through the balance of 2025.
Speaker Change: Yes, okay.
Speaker Change: Great. Thanks, guys appreciate it.
Speaker Change: Our next question comes from the line of Zachary I appreciate it.
Of banks in Asia.
Speaker Change: Good morning, everyone congrats on the quarter.
Speaker Change: Just wanted to follow up on the CDC disruption you did mentioned that you are starting to see re bookings from the December announcement.
Speaker Change: And then the impacts roughly 130 basis points plus given that you are on track for 4%.
Speaker Change: Should we expect the same level of Choppiness once we get the actual date announcements and if you could remind us how the catch up re bookings timeline usually plays out after that.
Speaker Change: Great question, Great question Zach.
Speaker Change: I think if just to level set around the disruption that we saw through 2024 and then we can talk about.
Speaker Change: What we're seeing in 'twenty five one of the.
Speaker Change: The significant issues in 2024 is even though the program was announced.
Speaker Change: The program didn't launch until July and dentists were not signed up to really accept the program.
Speaker Change: Until call it middle to end of July.
Speaker Change: So what you saw as patients wanting to come to the practice, but ultimately the practices in the individual clinicians were in support in the program as we sit here today, we have 92% plus of the clinicians and our network that do support the program. So once the patients to become eligible and do receive their cards.
Speaker Change: They'll have no issue and getting seen by a clinician in the network, which will limit that level of disruption or that level of call. It lead time prior to the patient coming in.
Speaker Change: What we are seeing and what we saw from from last quarters again.
Speaker Change: There is that confusion as to when they will be accepted and there was a period of time now where they thought maybe it's been two weeks three weeks four weeks were where they were willing to wait but ultimately given the efforts from our clinical teams and reaching out and educating them on the.
Speaker Change: The really risks and issues of continued deferral for their overall oral care, we do get a significant portion back, albeit there is a small portion.
Speaker Change: That does continue to wait.
Speaker Change: And we'll.
Be disrupted until they do receive that final final date, where they will become eligible and be able to accept service under the under the program so very difficult to tell you.
Speaker Change: What will be in the future what I can tell you is we're very confident.
Speaker Change: And that 3% to 5% range specifically in that mid point.
Where we will continue to drive that growth in Q1, and very confident in that three to five range again.
Speaker Change: Midpoint plus for the balance of 2025.
Speaker Change: Great color, Thanks, I'll turn it over.
Speaker Change: Thank you. Our next question comes from the line of Tony Armstrong from Canaccord Genuity. Please go ahead.
Tony Armstrong: Hi, good morning, guys.
Tony Armstrong: Most of my questions have been asked so just a couple of Mark for me on taxes. I think you previously indicated that you expect to start paying cash taxes in 2025.
Tony Armstrong: The free cash flow.
Tony Armstrong: Growth number that you provided in your guidance is a pretax number do you still expect to start paying cash taxes.
Tony Armstrong: End of the year.
Tony Armstrong: Okay.
Tony Armstrong: Thanks for the question and Unfortunately, we do.
Tony Armstrong: It'll be somewhere in the neighborhood of $20 million again dependent depending on how things shake out through the year, but that's that's a number that today, we believe is.
Tony Armstrong: An estimate of approximately the capex.
Speaker Change: Okay, that's very helpful.
Speaker Change: And then secondly on your in sourcing initiative.
Speaker Change: Correct me, if I'm wrong, but I think the number of dental practices that have completed the acceleration program.
Speaker Change: Yeah.
Much like unchanged.
Speaker Change: Do you think you've reached critical mass I guess at that point should have or are there still new practices to comment there.
Speaker Change: Hi.
Speaker Change: That's absolutely theres still practices to come.
Speaker Change: We've been working with align over the last.
Speaker Change: Six to nine months on updating the program just because the line has improved some of their technologies, there's been change in systems.
Speaker Change: And we wanted to update.
Speaker Change: The clinical education program around it too.
To call it elevated to that two point now so the the slowdown and the rollout has absolutely been intentional and youll see that pick up in 2025.
Speaker Change: Excellent thanks for that Courtney.
Speaker Change: Yeah.
Speaker Change: Our last question comes from the line of Gary <unk> from J P. O. John Please go ahead.
Speaker Change: Hey, good morning, guys.
Speaker Change: First question is maybe just going back to video health partnership so interesting venture.
Speaker Change: Any stats you can share maybe in practices, where this has been implemented have you seen the number of treatments increase or improve in efficiency and accuracy just generally how do you.
Speaker Change: The measure of success of the smaller overtime.
Gary: Thanks for the question Gary.
Speaker Change: And yes, we absolutely have still very early days.
Speaker Change: We ran a pilot last year with a small group of practices.
Speaker Change: And without without sharing the statistics, because we want to prove those out.
Speaker Change: As we continue to roll it out at scale, but the benefits of the program. We saw on one the clinicians efficiency.
Speaker Change: So overall overall time and chair and ability to clinically diagnosed at a more rapid pace using using the tool to validate.
Speaker Change: Their initial findings we've seen an increase in overall case acceptance of treatment by patients just given again the trust that our builds with that third party validation and four sorry, and three what we've seen is the increase in.
Speaker Change: The total.
Speaker Change: Total comprehensiveness of services that are now being provided.
Speaker Change: Which is likely as a result of the more robust nature of diagnosis of the system is able to pick up with the ability of the dentist to continued to validate.
Speaker Change: And have those conversations with the patient to ensure that there are overall oral care is being optimized so all those things proved out in the pilot.
Speaker Change: And the first 100 that we've rolled out now it's still very early days, but seeing signs of those same results continuing and we believe that it will be fully scaled and those benefits will accrue to the network over time.
Speaker Change: Great color. Thanks for that and then my next question you've done a great deal of deleveraging over the past few years. So at three eight times youre not too far from your medium term band of three to three five times. So once you hit that should we expect.
Graham Rosenberg: And the strategy, whether that's increasing the pace of M&A Graham just mentioned, maybe $30 million plus as early as next year or anything else, we should know or more of a status quo.
Speaker Change: Yeah, absolutely I think our desire and as you know we're being the acquirer of choice, having the built out infrastructure to support a business is significantly larger than ours. Our desire is to continue to be the leader in dentistry in Canada.
Graham Rosenberg: You can expect as Graham mentioned, our acquisitive pacing to increase year over year, we expect.
Speaker Change: That reinvestment going.
Speaker Change: Into our acquisitions as the primary source and primary use of capital and $25 26 and beyond.
Speaker Change: Outside of that Theres no no.
Speaker Change: Significant shift in strategy that we expect today.
Speaker Change: But do expect to continue that that significant pace of growth.
Okay great.
Speaker Change: Thanks very much.
Speaker Change: Yeah.
Speaker Change: Thank you that concludes our conference call for today. Thank you for joining you may now disconnect.
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