Q1 2025 dentalcorp Holdings Ltd Earnings Call
Speaker Change: [music].
Good morning, and welcome to dental Corp's first quarter 'twenty 25 results Conference call. Please note that all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Operator: Good morning and welcome to DentalCorp's first quarter 2025 results conference call. Please note that all lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the two.
Speaker Change: If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press Star followed then at you at this time I would like to turn the call over to Mr. Nate Czapla, President and Chief Financial Officer O Dental Corp. Please go ahead Sir.
Nate Tchaplia: At this time, I would like to turn the call over to Mr. Nate Tchaplia, President and Chief Financial Officer of DentalCorp. Please go ahead. Thank you, operator. And good morning, everyone.
Sure.
Speaker Change: Thank you operator, and good morning, everyone. Welcome to the Dow Corp. First quarter 2025 results conference call I'm joined here by Graham Rosenberg, Our Chief Executive Officer.
Nate Tchaplia: Welcome to the dentalcorp first quarter 2025 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.
Nate Tchaplia: Before we start, we would like to remind you that all amounts discussed on this call are denominated in Canadian dollars unless otherwise indicated. Please note that statements made during this call may include forward-looking statements and information and future-oriented financial information regarding DentalCorp and its business and disclosure regarding possible events, conditions, or results that are based on information currently available to management, which indicate management's expectation of future growth, results of operations, business performance, business prospects, and opportunities. Such statements are made as the date hereof, and dentalcorp assumes no obligation to update or revise them to reflect events, disclosures, or circumstances except as required by applicable securities law.
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 indicate managements' expectations of future growth results of operations business performance.
Speaker Change: Business prospects and opportunities.
Speaker Change: Such statements are made as the date hereof, and dermal Corp assumes no obligation to update or revise them to reflect events disclosures or circumstances, except as required by applicable securities law.
Nate Tchaplia: Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results. A number of these risks and uncertainties could cause results to differ materially from results discussed today. Given these risks and uncertainties, one should not place undue reliance on these statements and information.
Speaker Change: Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results.
A number of these risks and uncertainties could cause results to differ materially from results discussed today, given these risks and uncertainties one should not place undue reliance on these statements and information. Please refer to the forward looking statements and information and future oriented financial information section of our public filings without limitations our M. D N. A in our earnings press release issued today.
Nate Tchaplia: 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 issue today for additional information.
Speaker Change: For additional information.
Nate Tchaplia: 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 and the events and presentation section.
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.
Graham Rosenberg: I will now turn the call over to our Chief Executive Officer, Graham Rosenberg, for opening remarks. Graham. Thanks, Nate. And good morning, everyone. We're pleased to be with you today to review dental corp's recent developments, as well as our financial and operating results for the three months ended March 31, 2025.
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 dental called recent developments as well as our financial and operating results for the three months ended March 31 2025.
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 Nate, who will discuss our financial results in detail, after which I will provide forward-looking remarks about how our business is trending. As highlighted on slide 3, dentalcorp operates in a $22 billion, highly fragmented market that is only 7% consolidated. Dentistry is a highly recurring essential cash pay health care service and it is resilient through economic cycles and insulated from disintermediation by technology. Dentalcorp expects to continue outpacing the broader Canadian dental services market by delivering 4% plus same practice revenue growth.
Graham Rosenberg: For today's call I'm going to show a number of those developments with you and I will then hand, the call over 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: As highlighted on slide three dental Culp operates at a $22 billion highly fragmented market that is only 7% consolidated.
Graham Rosenberg: Dentistry is a highly recurring essential cash pay health care service. It is resilient through economic cycles and insulated from just seem to mediation by technologies.
Graham Rosenberg: Kennel club, we expect to continue outpacing the broader Canadian dental services market by delivering 12% plus same practice revenue growth.
Graham Rosenberg: and taking advantage of multi-year Canadian dollar supply contracts with our key suppliers, resulting in minimal direct tariff or foreign exchange exposure. When combined with our proven repeatable M&A engine, we have delivered predictable double-digit growth across all key financial metrics since our IPO in 2021 and expect to continue to deliver that double-digit growth moving forward. Our confidence in the business is supported by our first quarter results, which exceeded expectations and reinforced our confidence in the full year outlook. On slide 4, you will see that we completed our first quarter, March 31, 2025, with approximately $1.6 billion of the LTM pro forma revenue and approximately $310 million of pro forma adjusted EBITDA for the same period.
Graham Rosenberg: And taking advantage of multiyear Canadian dollar supply contracts with our key suppliers, resulting in minimal direct tariff all foreign exchange exposure.
Graham Rosenberg: When combined with our proven repeatable M&A engine, we have delivered predictable double digit growth across all key financial metrics since our IPO in 2021 and expect to continue to deliver that double digit growth moving forward.
Graham Rosenberg: Our confidence in the business is supported by our first quarter results, which exceeded expectations and reinforced our confidence in the full year outlook.
Graham Rosenberg: On slide four you will see that we completed our first quarter March 31, 2025, with approximately $1 6 billion of LTM pro forma revenue and approximately $310 million of pro forma adjusted EBITDA for the same period.
Graham Rosenberg: Last 12 months adjusted free cash flow also came in strong at $161 million. Our teams continue to deliver the highest standards of care to more than 2.3 million active patients, 92% of which are recurring, and visit our practices over 5.6 million times annually.
Graham Rosenberg: Last 12 months adjusted free cash flow also came in strong at $161 million.
Graham Rosenberg: Our teams continue to deliver the highest standards of care, it's more than $2 3 million extra patients, 92% of which are recurring and visit our practices over $5 6 million times annually.
Graham Rosenberg: As you can see on the next slide.
Graham Rosenberg: As you can see on the next slide. We continue to convert a high percentage of our EBITDA into free cash flow in any given period and expect this conversion to increase as we continue to de-lever and realize network-wide operating leverage and efficiencies. Our business operates with robust and expanding margins, low CapEx requirements, and capped interest rate exposure on 100% of our existing debt outstanding. In our last 12 months, free cash flow conversion increased to 65% in the quarter, up from 59% in Q1 of 2024, resulting in 16% year-over-year adjusted free cash flow growth per share.
Graham Rosenberg: We continue to convert a high percentage of our EBITDA into free cash flow in any given period and expect this conversion to increase as we continue to delever and realized network wide operating leverage and efficiencies.
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 outstanding.
Graham Rosenberg: In the last 12 months free cash flow conversion increased to 65% in the quarter up from 59% in Q1 of 2024, resulting in 16% year over year adjusted free cash flow per share.
Graham Rosenberg: On slide six as expected we would you sounded average by five seven times from the same period last year to $3 seven seven times Q1, 2025 marks the sixth consecutive quarter of deleveraging and we continue to work towards our medium term target band of three to three and a half times.
Graham Rosenberg: On slide six, as expected, we reduced our leverage by 0.57 times from the same period last year to 3.77 times. Q1 2025 marks the sixth consecutive quarter of deleveraging, and we continue to work towards our medium-term target band of three to three and a half times.
Graham Rosenberg: On the next slide you'll see a comparison a valuation of free cash flow yields versus our peers at the end of the quarter. We were trading at a level that implies a four seven times a discount to our peer group on an EV to LTM EBITDA basis and at the same time, what kind of a peak trading at an eight 7% free cash flow yield compared to our peer group of three 9%.
Graham Rosenberg: On the next slide, you'll see a comparison evaluation of free cash flow yields versus our peers. At the end of the quarter, we were trading at a level that implies a 4.7 times discount to our peer group on an EV to LTM EBITDA basis. And at the same time, we're currently trading at an 8.7% free cash flow yield compared to our peer group of 3.9%. Turning to slide 8, I'm pleased to report that our business delivered revenue of $409.4 million in the first quarter of 2025, up approximately 10% over the same period in 2024, underpinned by strong same-practice revenue growth of 4.6%, and a 91.5% recurring patient visit rate, reflecting the strong predictability and continued demand for routine care underlying our business.
Graham Rosenberg: <unk>.
Graham Rosenberg: Turning to slide eight.
Graham Rosenberg: I'm pleased to report that our business delivered revenue of $409 $4 million in the first quarter in 2025 up approximately 10% over the same parity in 2024 underpinned by strong same practice revenue growth up four 6% and a 91, 5% recurring patient visit rate, reflecting the strong predictability.
Graham Rosenberg: And continued demand for routine care underlying our business.
Graham Rosenberg: Adjusted EBITDA was $75 9 million up 11, 5% over the same quarter last year with margins coming in at 18, 5% and it prevents off 0.2% over Q1 of 2024.
Graham Rosenberg: Adjusted EBITDA was $75.9 million, up 11.5% over the same quarter last year, with margins coming in at 18.5%, an improvement of 0.2% over Q1 of 2024. increased operational efficiency, delivered adjusted free cash flow of $44.3 million or $0.22 on a per share basis, representing growth of 26% and approximately 16% respectively over the same quarter last year. This enabled us to fund the entirety of our acquisition program with free cash flow for the eighth consecutive quarter. With respect to M&A, we acquired 12 practices in the first quarter for a total consideration of $61 million. These practices are expected to generate $8.3 million in pro forma just a day after rent.
Graham Rosenberg: Increased operational efficiency delivered adjusted free cash flow of $44 3 million or 22 cents on a per share basis, representing growth of 26% and approximately 16% respectively over the same quarter last year. This enabled us to fund the entirety of our acquisition program.
Graham Rosenberg: With free cash flow for the eighth consecutive quarter.
Graham Rosenberg: With respect to M&A, we acquired 12 practices in the first quarter for total consideration of $61 million. These practices are expected to generate $8 3 million and pro forma adjusted EBITDA afterwards.
Graham Rosenberg: We remain as the best positioned and best capitalized partner for independent dentists, and we will continue to be disciplined about the practices we acquire.
We remain as the best positioned and wealth and muscle and best capitalized partner for independent dentists, and we will continue to be disciplined about the types of assets we acquire.
Graham Rosenberg: Looking ahead, we anticipate second quarter 2025 revenues to increase by between 9% and 10% of Q2 of 2024, while delivering 3% to 5% same-practice revenue growth. We expect adjusted EBITDA margins to increase by 20 basis points over the second quarter of 2024, and anticipate completing acquisitions representing pro forma adjusted EBITDA after rent of approximately $6 million plus.
Graham Rosenberg: Looking ahead, we anticipate second quarter 2025 revenues to increase by between nine and 10% of acute care of trailing 24, while delivering 3% to 5% same practice revenue growth. We expect adjusted EBITDA margins to increase by 20 basis points over the second quarter of 2024, and anticipate completing acquisitions representing pro forma adjusted.
Graham Rosenberg: EBITDA after rent of approximately $6 million plus.
Nate Tchaplia: I will now pass the call over to Nate who will walk us through the details of our financial results and then I will share some closing remarks before we open the calls. for questions.
Graham Rosenberg: I will now pass the call over to Nathan who will walk us through the details of our financial results and then I will share some cousin remarks before we open the calls.
Graham Rosenberg: Four questions Nate.
Nate Tchaplia: Nate. Thank you, Graham. In mid-March 2025, the Canadian government communicated that patients between the ages of 18 to 64 will be eligible to receive care under the CDCP in the beginning of June 1, 2025. This led to a deferral of appointments by certain eligible patients late in the quarter and into Q2. That said, the impact from deferrals has been more muted than 2024, as a majority of this age cohort benefits from employer-sponsored dental insurance. Additionally, 95% of our practices are now participating in the program, compared to lower adoption during the initial rollout in 2024. Overall, we continue to see the CDCP as a favorable development for both Canadian public and dental professionals and expect it to be modestly positive to dentalcorp.
Speaker Change: Thank you Graham and mid March 2025, the Canadian government communicated up patients between the ages of 18 to 64 will be eligible to receive care under the sea DCP in the beginning of June one 2025.
Speaker Change: This led to a deferral of appointments by certain eligible patients late in the quarter and into Q2 that said the impact from deferrals has been more muted in 2024 as a majority of this age cohort benefits from employer sponsored dental insurance. Additionally, 95% of our practices are not participating in the program compared to lower adoption during the initial rollout in 2024.
Speaker Change: Overall, we continue to see the CDC P is a favorable development for both the Canadian public and dental professionals and expect it to be modestly positive to dental Corp.
Speaker Change: Our quarterly results, which met or exceeded expectations in most respects demonstrate the durability and predictability of our business.
Nate Tchaplia: Our quarterly results, which met or exceeded expectations in most respect, demonstrate the durability and predictability of our business. Turning to slide nine, revenue for the three month period ended March 31st, 2025, as Graham mentioned, was $409 million compared to $372 million for the corresponding period last year, representing an increase of approximately 10%. The increase is attributable to our continued acquisitive and organic growth. As you can see, we reported first quarter adjusted EBITDA of approximately $76 million compared to $68 million in the same quarter last year and reported first quarter adjusted EBITDA margins of 18.5%, representing 20 basis points of margin expansion year over year as we continue to realize operating leverage in our fully built out corporate infrastructure.
Graham Rosenberg: Turning to slide nine revenue for the three months period ended March 31, 2025, as Graham mentioned was $409 million compared to $372 million for the corresponding period last year representing.
Speaker Change: An increase of approximately 10%.
Speaker Change: The increase is attributable to our continued acquisitive and organic growth as you can see we reported first quarter adjusted EBITDA of approximately $76 million compared to $68 million in the same quarter last year and reported first quarter adjusted EBITDA margins of 18, 5%, representing 20 basis points of margin expansion year over year as we continue to realize operating leverage in our fully built.
Speaker Change: Our corporate infrastructure.
Nate Tchaplia: Looking forward, we continue to be confident about our ability to grow the business through acquisitions and organically. Turning to the next slide, you can see our net leverage and liquidity as of March 31, 2025. On a net debt basis, we were approximately 3.77 times levered at the end of the first quarter, deleveraging by 0.57 times compared to the same period in 2024. First quarter adjusted free cash flow came in at $44 million, representing a growth of 25.9%, further bolstering our already robust balance sheet. We ended the first quarter 2025 with liquidity of $408 million, comprised of $58 million in cash and $350 million in undrawn debt capacity under our senior debt facilities.
Speaker Change: Looking forward, we continue to be confident about our ability to grow the business through acquisitions and organically.
Speaker Change: Turning to the next slide you can see our net leverage and liquidity as of March 31, 2025 on a net debt basis, we were approximately $3 seven seven times levered at the end of the first quarter deleveraging by 0.57 times compared to the same period in 2024.
Speaker Change: First quarter adjusted free cash flow came in at 44 million, representing a growth of 25.9% further bolstering our already robust balance sheet.
Speaker Change: We ended the first quarter 2025 with liquidity of $408 million comprised of $58 million of cash and $350 million to $350 million in undrawn debt capacity under our senior debt facilities.
Speaker Change: This quarter marks the sixth consecutive quarter over quarter increase in our interest coverage is defined by our last 12 months pro forma adjusted EBITDA. After rent divided by net interest expense, which currently sits at three nine times up from three six times in Q4 2024.
Nate Tchaplia: This quarter marks the sixth consecutive quarter over quarter increase in our interest coverage as defined by our last 12 months performing adjusted EBITDA after rent divided by net interest expense, which currently sits at 3.9 times up from 3.6 times in Q4 2024.
Nate Tchaplia: Overall, our first quarter 2025 performance demonstrates the strength and resilience of our business model. We delivered positive organic growth while successfully expanding margins through operational efficiencies. We continue to strengthen our financial position by deleveraging the balance sheet, completed accretive acquisitions, and realized operating leverage as we continue to expand margins.
Speaker Change: Overall, our first quarter 2025 performance demonstrates the strength and resilience of our business model, we delivered positive organic growth while successfully expanding margins through operational efficiencies, we continue to strengthen our financial position by deleveraging the balance sheet.
Speaker Change: Pleated accretive acquisitions and realize operating leverage as we continue to expand margins I will now pass the call over to Graham who will share some closing remarks before we open the call up for questions Graham.
Graham Rosenberg: I will now pass the call over to Graham, who will share some closing remarks before we open the call up for questions. Graham. Thanks, Nate.
Graham Rosenberg: Thanks Nate.
Graham Rosenberg: As you'll see on slide 7, sorry, slide 11. Apologies are strong. First quarter performance reinforces our confidence, enabling us to reaffirm our full year 2025 guidance of 10 to 11% revenue growth. and 3% to 5% same practice revenue growth, a 20% or 20 basis points improvement in adjusted EBITDA margins, acquisitions representing pro forma adjusted EBITDA affluence of $25 million plus and 15% plus pre-tax adjusted pre-cash flow per share growth.
Graham Rosenberg: As Youll see on slide seven I'm, sorry, slide 11, apologies a strong first quarter performance reinforces our confidence, enabling us to reaffirm our full year 2025 guidance of 10% to 11%.
Graham Rosenberg: Revenue growth.
Graham Rosenberg: And 3% to 5% same practice revenue growth at 20% or 20 basis points improvement in adjusted EBITDA margins acquisitions, representing pro forma adjusted EBITDA. After a range of $25 million, plus and 15% plus pre tax adjusted free cash flow per share growth.
Graham Rosenberg: I want to thank you all for joining our call today.
Graham Rosenberg: I want to thank you all for joining our call. Today. This concludes the formal part of our presentation and we'd now like to open the call to questions operator.
Operator: This concludes the formal part of our presentation, and we'd now like to open the call to questions. Operator. At this time, I would like to remind everyone, in order to ask a question, please press star then the number 1 on your telephone keypad. We request that you limit yourself to one question and one follow-up. We will pause for just a moment to compile the Q&A roster.
Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Graham Rosenberg: We request that you limit yourself to one question and one follow up with.
Speaker Change: We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Brian <unk> with Jefferies. Your line is open.
Megan Holton: Your first question comes from the line of Brian Tanquilut with Jeffreys. Your line is open.
Good morning. This is meghan hold on for Brian Congrats on another good quarter as well.
Graham Rosenberg: Good morning, this is Megan Holton for Bryan. Congrats on another good quarter. As we look at like, you know, Q2 guide and the full year same practice revenue guide as well, can you provide some color of how much is expected to be driven by the CDCP patient volume versus underlying patient demand? Absolutely. And thanks for the question. So as far as CDCP, today, as we mentioned in some of our materials, you saw that we've seen, to date, roughly 90,000 patients. If you look at the total number of patient visits, which we see, and that five and a half million plus mark on an annual basis, which comes out from 2.3 million plus patients, albeit, it is a small amount, it is it is helpful to our overall growth.
Speaker Change: You look at like you know Q2 guide and the full year same practice revenue guide as well can you provide some color on how much is excited should be driven by the C. D. C P patient volume versus underlying patient demand.
Speaker Change: Absolutely and.
Speaker Change: And thanks for the question so as far as <unk> today is as we mentioned in.
Speaker Change: Some of our materials you saw that we've seen to date roughly 90000 patients if you look at.
Speaker Change: The total number of patient visits which received in that $5 5 million plus mark on a on an annual basis basis, which comes out from $2 3 million plus patients, albeit it is a small amount. It is it is helpful to our overall growth.
Speaker Change: But our expectations today, and our Q2 guide as well as our full year guide, we're not including any additional Ah patient demand or patient growth, that's coming from Cds to be.
Graham Rosenberg: But our expectations today, in our Q2 guide, as well as our full year guide, we're not including any additional patient demand or patient growth that's coming from CDCP. Okay, thanks for your color. And then as a follow up, the 65% free cash flow conversion number that you guys did this quarter, is that sustainable? And how should we be thinking about it for the full year? And not only is it sustainable, ultimately our expectation is that's going to continue to grow. As you've seen over the last six plus quarters, ultimately we funded all of our growth from our existing free cash flow as we continue to grow both organically as well as acquisitively.
Speaker Change: Okay. Thanks for that color and then as a follow up to 65% of free cash flow conversion number that you guys did this quarter is that sustainable and how should we be thinking about it for the full year.
Speaker Change: And not only is it sustainable ultimately our expectation is that's going to continue to grow.
Speaker Change: As you've seen over the last six plus quarters ultimately, we funded all of our growth.
Speaker Change: From our existing free cash flow as we continue to grow both organically as well as acquisitive Lee.
Graham Rosenberg: Currently our debt has not increased over that six quarter period and ultimately our free cash flow will continue to grow at that 15% plus range year over year. Thank you.
Currently our our debt has not increased over that six quarter period, and ultimately our free cash flow will continue to grow at that 15% plus range year over year.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Scott <unk> with CIBC. Your line is open.
Scott Fletcher: Your next question comes from the line of Scott Fletcher with CIBC. Your line is open.
Speaker Change: Hi, good morning, and congrats on the quarter.
Graham Rosenberg: Hi, good morning and congrats on the quarter. Safe practice revenue growth was strong in the quarter at the upper end of the range. Was the strike there largely additional volume after the deferrals in the prior year? Or is there anything else you can call out? I think there's some puts and takes. I think ultimately what we saw is a return to more normalized volume. Obviously, last year, Q124 was impacted slightly by the CDCP, whereas this year we had that come through, albeit the announcement for the 18 to 64 rollout at the end of the quarter did see some deferrals.
Speaker Change: Same practice revenue growth was strong in the quarter at the upper end of the range was the strike there largely additional volume after the deferrals in the prior year or is there anything else you can call out on that on a stronger number.
Speaker Change: You know I think I think theres some theres some puts and takes I think ultimately what.
Speaker Change: What we saw is a return to more normalized volume Oh, obviously last year Q1, 'twenty four was was impacted slightly by by the CDC P. Whereas this year, we had a we had that come through albeit the announcement for the 18 to 64 rollout at the end of the quarter did see some deferrals.
What we are what we are seeing overall is a strong patient demand.
Graham Rosenberg: What we are seeing overall is strong patient demand, consistency in maintenance of appointment, and ultimately strong overall organic growth performance of the business, and that continues to be expected in Q2 and through the bounce of the year.
Speaker Change: Consistency in maintenance of appointment.
Speaker Change: And ultimately a strong strong overall organic growth performance of the business and that continues to be expected in Q2, and then through the balance of the year.
Okay. Thanks, and then on the deferrals is is it possible to quantify the impact in Q1, and maybe whether you expect the Q2 impact to be more or less obviously, there's some puts and takes in Q2 with.
Graham Rosenberg: Okay, thanks. And then on the deferrals, is it possible to quantify the impact in Q1? And maybe whether you expect the Q2 impact to be more or less? Obviously, there's some puts and takes in Q2 with start date in June. So any color that will be. Yeah, you know, I think it's as we wrap the end of the quarter, I'd say Q1 was limitedly impacted. I'd say we're seeing a slight increase in overall cancellation rates, as we sit here at the midway point in Q2, albeit now by the end of Q2 or by by June 1, we're going to be able to start seeing those patients.
Speaker Change: Start date in June so any color there would be helpful.
Speaker Change: I think it's it's as we wrap the end of the quarter I'd say Q1 was limited impacted our I'd say, where we're seeing a slight increase in overall cancellation rates are as we sit here at the midway point in Q2, albeit now by the end of Q2 or buy by June 1st we're gonna be able to start seeing those pace.
Speaker Change: <unk> are very difficult to predict exactly how the balance of the rest of the month will go.
Graham Rosenberg: Very difficult to predict exactly how the balance of the rest of the month will go. However, we're very confident in that three to 5% range for Q2, as well as for the balance of the year.
Speaker Change: However, we're very confident in that 3% to 5% range for Q2 as well as for the balance of the year.
Speaker Change: Okay. Appreciate it thank you.
Graham Rosenberg: Okay, appreciate it.
David Kwan: Your next question comes from the line of David Kwan with TD Securities. Your line is open.
David Kwan: Your next question comes from the line of David Kwan with TD Securities, your line is open. Thanks. Nate, just to clarify, I guess, on your comments or anything, I can't remember if you or Graham had talked about it, but just as it relates to the debt levels, obviously, the actual absolute level of the borrowings has essentially been unchanged, I think, for the last year and a half or so. But just given the, I guess, timing of the cash outlays for M&A and then cash taxes later this year, it sounds like you're not expecting to need to increase your borrowings against your credit line, even if it's just temporary.
Speaker Change: Thanks.
Speaker Change: Dave just to clarify I guess on your comments I can't remember a year ago.
Speaker Change: <unk> talked about it but just as it relates to the debt levels. Obviously, the actual absolute level of the borrowings is essentially unchanged from the last year and half or so but just given the.
Speaker Change: Timing of the cash outlays for M&A and then cash taxes later this year.
Speaker Change: It sounds like Youre, not expecting to need to increase share of your borrowings against your credit line, even if its just temporary.
Speaker Change: Yes, I think that's.
Nate Tchaplia: I think as we look through the through the end of the year, expectation is we're going to continue to delever, right, ultimately, our medium term target of three to three and a half times leverage, we're sitting at 3.77 times leverage today. That really is our main goal and our main focus.
Speaker Change: As we look through the through the end of the year. Our expectation is we're going to continue to delever. Our ultimately our medium term target of three to three five times leverage we're sitting at 377 times leverage today.
Speaker Change: That really is our main goal and our main focus if through the balance of the year or into 2026, we might see a little bit of incremental debt.
Nate Tchaplia: If through the balance of the year or into 2026, we might see a little bit of incremental debt dollars added. The real focus is driving deleveraging while maintaining that double digit growth .
Speaker Change: <unk> dollars added the real focus is driving deleveraging, while maintaining a double digit growth.
Speaker Change: Okay that's perfect.
Nate Tchaplia: Okay, that's perfect.
Nate Tchaplia: And then just secondly, you noted in the presentation about the orthoacceleration program, I think, 330 dental practices at this point up from 310 last year.
Speaker Change: And then just secondly, you noted in the presentation.
Speaker Change: Or sort of acceleration program excuse me 30 dental practices.
Speaker Change: At this point up from trade spend last year can you talk about the expected timing for the rollout to the other just on specialty practices.
Nate Tchaplia: Can you talk about the expected timing for the rollout to the other non-specialty practices? Absolutely. So I think as we sit here today, and on the last call, we discussed the revamping of the ortho acceleration program, we're now at the point where we are going to begin rolling it out to additional practice locations across our network through to the balance of the year expectations is to roll it out to an additional 40 to 50 locations. And we'll continue to update on that on that rollout as we continue through the balance of the year.
Speaker Change: Absolutely.
Speaker Change: I think as we sit here today and.
On the last call we discussed the revamping of the Ortho acceleration program. We're now at the point, where we are going to begin rolling it out to additional practice locations across our network through the balance of the year. Our expectations are is to roll it out to an additional 40 to 50 locations and we will continue to update.
On that on that rollout as we continue through the balance of the year.
Great. Thanks.
Nate Tchaplia: Great, thanks.
Speaker Change: Your next question comes from the line of Gerald Young with Stifel. Your line is open.
Daryl Young: Your next question comes from the line of Daryl Young with Stifel, your line is open. Yeah, just following on David's question on the balance sheet and leverage, I'm just wondering if you've seen any opportunities amid the interest rate volatility to maybe consider some alternative longer dated notes or anything at attractive financing rates that you might be considering? And I guess just broadly, how are you thinking about structuring the balance sheet in the future?
Gerald Young: Yes, just following on David's question on the balance sheet and leverage I'm, just wondering if you've seen any opportunities amid the interest rate volatility to maybe consider some alternatives longer dated notes or anything at attractive financing rates that you might be considering and I guess just broadly how are you thinking about structuring the balance sheet in the future.
Nate Tchaplia: Thanks for the question, Daryl. We're constantly looking at ways to optimize our capital structure and ensure that our overall carry is as efficient as possible. As we sit here today, looking at our forward rates to call January 2028, capped at 6%. We have visibility to bringing it down an additional 25 basis points if we get below three and a half times. So thinking about an overall carry somewhere in that five and three quarter range on a medium term basis. As we compare it to really other alternatives that are available to the market to us today, we find that this is the most efficient structure for us, most optimal for driving our adjusted free cash flow growth and ultimately supporting our overall continued funding of our acquisitive program.
Speaker Change: Thanks, Thanks for the question Daryl.
Speaker Change: We're constantly looking at ways to optimize our capital structure.
Speaker Change: And ensure that our overall carry.
Speaker Change: Is as efficient as possible as we sit here today looking at looking at our our forward rates to call January 2028th capped at 6% we have visibility to bring it down an additional 25 basis points. If we got below three five times, so thinking about an overall carry somewhere in that five.
Speaker Change: Five and three quarter range.
Speaker Change: On a on a medium term basis as we compare it to other alternatives that are available to the market to us today, we find that this is the most efficient the most efficient structure for us most optimal for driving our adjusted free cash flow growth and ultimately supporting our overall.
Speaker Change: Continued funding of our acquisitive program.
Speaker Change: Okay. Thanks, and then.
Nate Tchaplia: Okay, thanks.
Nate Tchaplia: And then on CapEx, I'm splitting hairs a little bit here, but just Q4 and Q1 were maybe a little more elevated than they've been recently. Is there anything going on there or any additional spend we should be aware of? Slightly elevated, just a few larger projects, all on the growth side, wouldn't expect that to continue on a sustained basis quarter over quarter. But from a CapEx perspective, the way that we still continue to look at the business and model it is roughly $30,000 per practice locations per year on a maintenance side. And frankly, over the last number of years, it's come in below that.
Speaker Change: On Capex I'm splitting hairs, a little bit here, but just Q4 and Q1, where we're maybe a little more elevated than they have been recently is there anything else going on there or any additional spend we should be aware of.
Speaker Change: Slightly elevated just.
Speaker Change: A few larger projects are all on the growth side.
Speaker Change: Wouldn't expect that to continue on a sustained basis quarter over quarter.
Speaker Change: But at all from them from a capex perspective, the way that we still continue to look at the business and model. It is.
Speaker Change: Its roughly $30000 per practice locations per year on the maintenance side and frankly over the last number of years, it's come in below that so.
Nate Tchaplia: So just a few projects that have come up over the last six months. These were all discretionary projects, so nothing to update on that.
Speaker Change: Just a few a few a few projects that have come over come up over the last six months. These were all discretionary projects. So nothing nothing to update on that.
Speaker Change: Great Thanks, and congrats on a good quarter.
Nate Tchaplia: Great.
Nate Tchaplia: Thanks, and congrats on a good quarter.
Nate Tchaplia: Thanks, Daryl.
Speaker Change: Thanks Darryl.
Allen Lutz: Your next question comes from the line of Allen Lutz with Bank of America. Your line is open.
Allen Lutz: Your next question comes from the line of Allen Lutz with Bank of America. Your line is open. Good morning, and thanks for taking the questions.
Allen Lutz: Good morning, and thanks for taking the questions Graham I wanted to talk about the visibility into some of the deferrals as we think about the trend beyond June 1st do you have any visibility into patient scheduling as it relates to appointments that are beyond June 1st and then is it fair to assume that <unk> given.
Graham Rosenberg: Graham, I want to talk about the visibility into some of the deferrals as we think about the trend beyond June 1st. Do you have any visibility into patient scheduling as it relates to appointments that are beyond June 1st? And then is it fair to assume that 2Q, given the dynamic that we're seeing today, that that's going to be the lowest quarter for SPRG of the year? Thanks. Look, as we see it today and we look forward, we look at our forward bookings on a consistent basis. We're not seeing much impact. Um And we think that You know, the the the forward looking views on the business are pretty stable and in line with expectations, so not a big impact at all.
Allen Lutz: The dynamic that we're seeing today, but that's going to be the lowest quarter for <unk> of the year.
Allen Lutz: Yeah.
Allen Lutz: Look as we see it today and we look forward, we look at our forward bookings on a consistent basis.
Allen Lutz: We're not seeing much impact.
Allen Lutz:
Allen Lutz: And we think that you know.
The forward looking.
Allen Lutz: He is on the business are pretty stable and in line with expectations.
Allen Lutz: Not a big impact at all.
Speaker Change: Okay Fair enough and then as we think about.
Graham Rosenberg: Okay, fair enough. And then as we think about acquisitions in the quarter and the valuations there, they've picked up a little bit over the past few quarters, but they're still well below where they were a couple years ago. Just would love the latest on the appetite out there for acquisitions. Are prospects coming to the table more than they were three, six, 12 months ago? Just any update there would be helpful. Thanks. Yeah, look, our pipeline remains as robust as it's ever been. We continue to reaffirm our role in the marketplace as the acquirer of choice, which really comes down to execution and how partnerships and relationships are married or are managed after after acquisition.
Speaker Change: Acquisitions in the quarter and the valuations there it ticked up a little bit over the past few quarters, but they are still well below where they were a couple of years ago, just would love the latest on.
Speaker Change: The appetite out there for acquisitions or <unk>.
Speaker Change: Prospects coming to the table more than they were three 612 months ago, just any update there would be helpful. Thanks.
Speaker Change: Yes look our pipeline remains as robust as it's ever been.
Speaker Change: We continue to reaffirm our role in the market place as the acquirer of choice.
Speaker Change: Which really comes down to execution and how partnerships and relationships are married or managed after after acquisition.
Speaker Change: Multiples are.
Nate Tchaplia: Multiples are. are pretty balanced. And there's a nice balance between supply and demand. And we think that those multiples that we've been indicating to will continue to persist as far as we can see for the medium to long term.
Speaker Change: A pretty balanced.
Speaker Change: And there is there is a nice balance between supply and demand and we think backed those multiples that we've been.
Speaker Change: Indicating too.
Speaker Change: We'll continue to persist as far as we can see.
Speaker Change: For the medium to long term.
Nate Tchaplia: Nate, do you want to add anything? No, I think we've had a great couple of years here from an acquisition perspective and from perspective. Internally, we've always guided to that seven and a half times range and we continue to be very confident in that as we continue to balance into the year and into 2026.
Speaker Change: Yeah.
Speaker Change: I think it's we've had a great great couple of years here from an acquisition perspective and from a valuation perspective.
Speaker Change: Internally, we've always guided to that seven five times range and we continue to be very confident in that.
Speaker Change: As we continue to see the bounce into the year and into 2026.
Speaker Change: Yes.
Nate Tchaplia: Great, thank you both.
Speaker Change: Great. Thank you both.
Speaker Change: Your next question comes from the line of Zachary <unk> with National Bank. Your line is open.
Zachary Evershed: Your next question comes from the line of Zachary Evershed with National Bank. Your line is open. Good morning everyone, congrats on the quarter. There was one disposal in the quarter.
Speaker Change: Good morning, everyone congrats on the quarter.
Speaker Change: Yeah.
Speaker Change: So there was one disposal in the quarter could you give us an update on how you view your current mix of general versus specialist practices.
Graham Rosenberg: Could you give us an update on how you view your current mix of general versus specialist practice? Yeah, thanks. Thanks, Zach. It's a great question. So the one disposal we had this quarter was part of the standalone orthodontic group, which we have now almost entirely disposed of. There are two remaining standalone orthodontic practices, which we continue to work to remove. As we think about that business itself, our standalone orthodontic business now is de minimis and frankly, non-existent. What we do have is ultimately 25 standalone specialty practices, which represent less than 5% of our total business.
Speaker Change: Yeah. Thanks, Thanks, Zach it's a great question. So the one disposal we had this quarter.
Speaker Change: It was part of the Standalone Orthodontic group.
Speaker Change: Which we have now.
Speaker Change: Almost entirely disposed of.
Speaker Change: There are two remaining a standalone orthodontic practices.
Which we continued to work two.
Speaker Change: To remove a as we as we think about that business itself.
Speaker Change: Our Standalone orthodontic business now is de Minimis and frankly nonexistent, while we do have is ultimately twenty-five standalone specialty practices.
Speaker Change: Which represented less than 5% of our total business are the way to think about our strategy on a go forward basis as a general practice family dentistry.
Graham Rosenberg: The way to think about our strategy on a go-forward basis is general practice family dentistry, which is consistent with our strategy of insourcing, our strategy of continuing to drive education for general dentist practitioners across the full gambit of modalities.
Speaker Change: Which is consistent with our strategy of in sourcing our strategy of continuing to drive education for general dentists practitioners.
Speaker Change: Across the full gambit of modalities.
Graham Rosenberg: So very small practice that was disposed of a couple of more that might come over time, but immaterial overall. or Ray Culler, thanks. And then it sent it pretty clear, but I'll just check in and harp on that again. You know, a little bit of noise given the CDCP launch date, but checking in on the overall macro environment, we did see unemployment take up to 6.9% in April. You feeling any pressure on that front? You know, it's uh... It's not something that we've seen come through overall on the patient demand side. It's something that we do watch very closely.
Speaker Change: So.
Speaker Change: Small practice that was disposed of couple of more that might come over time, but but immaterial overall.
Speaker Change: Great color. Thanks, and then it sounded pretty clear, but I will just check in on that again.
Speaker Change: You know a little bit of noise, given the CDP launch date, but checking in on the overall macro environment. We did see unemployment take up to six 9% in April you feeling any pressure on that front.
Speaker Change: It's.
Speaker Change: It's not something that we've seen come through our overall on the patient demand side, it's something that we do watch watch very closely.
Graham Rosenberg: One thing to highlight, as we think about CDCP and unemployment, as they do go hand-in-hand, CDCP does become a bit of a natural hedge to the unemployment figure, as we think about medium-term patient behavior, as they'll become eligible for the CDCP if they don't have important sponsored insurance. But nothing really to report on. Very strong organic performance in Q1. As we look at our forward bookings into Q2 and beyond, we're seeing levels that are at or above levels that we have expected, but something that we'll continue to monitor and report on. Thank you very much.
Speaker Change: One thing to highlight as we think about CDP and unemployment is they do go hand in hand.
Speaker Change: And see DCP does become a bit of a natural hedge to the unemployment figure as we think about our medium term patient behavior.
As there'll be they'll become eligible for the CDC P. If they don't have employer sponsored insurance.
Speaker Change: But nothing nothing really to report on.
Speaker Change: Very strong organic performance of Q1, as we look at our forward bookings into Q2 and beyond.
Speaker Change: We're seeing levels that are at or above levels that we would have expected.
Speaker Change: But something that we'll continue to monitor and report on.
Speaker Change: Thank you very much I'll turn it over.
Graham Rosenberg: I'll turn it over.
Speaker Change: Your next question comes from the line of Tony Armstrong Mechanics Genuity. Your line is open.
Tania Armstrong: Your next question comes from the line of Tania Armstrong with Kanakora Genuity, your line is open. Hey, good morning, gentlemen. Congrats on the quarter. Following up on some of the other questions on M&A, you guys have just done a really good job executing Q1. And I think the commentary was that you're through 70% of your acquisition target for the year. Just wondering, why not take that number up for the full year? Is this just in an effort to be conservative if you don't want to focus on paying down debt? Like looking at Q3, Q4, it's pretty light in terms of M&A.
Tony Armstrong: Hey, good morning, gentlemen, congrats on the quarter.
Tony Armstrong: Following up on some of the other question on M&A you guys have just done a really good job of executing in Q1 and I think the commentary was that your 370% of your acquisition target for the year, just wondering why not take that number up for the full year at this just in an effort to be conservative if you didn't want to focus on paying down debt.
Speaker Change: Looking at Q3 Q4, its pretty light in terms of M&A, how likely are we to exceed that 25.
Tania Armstrong: How likely are we to exceed the 25 target?
Tony Armstrong: Target.
Graham Rosenberg: Thanks for the question, Tania. So, as we looked at our M&A performance, 24 was just over $20 million. This year, we brought it up to $25 million. And as mentioned, the pipeline is frankly as strong as it ever has been. Our position in the market as the partner of choice has now been cemented. So, we do have the opportunity to bring that up. I think as we sit here today, that's just over 70% signed and closed. We continue to have the confidence, as we continue through the balance of the year, that there is opportunity to increase our inquisitive pacing if we so choose.
Tony Armstrong: Thanks for the question Tanya So as we looked at our M&A performance Ah 24 was just over $20 million. This year, we brought it up to 25 and as mentioned.
Tony Armstrong: And the pipeline is frankly is as strong as it ever has been our position in the market as the partner of choice.
Tony Armstrong: <unk> has now been cemented so we do have the opportunity to bring that up I think as we sit here today, that's just over 70% signed and closed.
Tony Armstrong: We continue to have the confidence as we continue through the balance of the year that there is opportunities to increase our acquisitive pacing is S. If we so choose.
Graham Rosenberg: So, ultimately, as we stand here today, our expectation is to be in that $25 million-plus range, and we'll continue to update on our progress around our pipeline as we continue through the balance of the year. Okay, great. Thanks, guys.
Tony Armstrong: So ultimately as we stand here today, our expectation is to be in that $25 million plus range and we will continue continue to update on our progress around our pipeline as we continue through the balance of the year.
Tony Armstrong: Okay, great. Thanks, guys Thats all from me.
Speaker Change: Your next question comes from the line of <unk> with BMO capital markets. Your line is open.
Neva and Yushim: Your next question comes from the line of Neva and Yushim with BMO Capital Markets. Your line is open. Yeah, thanks. Good morning, guys. You got Nevidan for Steve today. Hoping we can touch on margins, your target for 20 beeps expansion this year. Would you expect that to be spread out evenly through the remainder of the year?
Speaker Change: Yes. Thanks, Good morning, guys. He got an Avalon for Steve today, how can we can touch on margins your target for 20 bps expansion. This year, what do you expect that to be spread out evenly through the remainder of the year and then can you provide some thoughts around your long term margin target.
Nate Tchaplia: And then can you provide some thoughts around your long term margin target? Absolutely, and thanks for the question. Expectation as far as it being spread across, there's some slight seasonality, as you know, in the business where Q2 and Q4 are stronger performers from a total revenue perspective, and ultimately that provides operating leverage on our fixed cost infrastructure. But outside of that seasonality impact, we do expect the 20 basis points margin expansion to be consistent quarter over quarter as we go through the year. As we think a little bit more long-term, expectation is we're going to continue to drive that operating leverage from our fixed cost infrastructure, as well as some modest margin expansion at the practice level.
Speaker Change: Absolutely and thanks for the question.
Speaker Change: Spectation as far as it.
Speaker Change: It being spread across there theres some slight seasonality as you know in the business where our.
Speaker Change: Q2 and in Q4.
Speaker Change: Our our stronger performers from a from a total revenue perspective, but ultimately that provides operating leverage on our fixed cost infrastructure, but outside of that that seasonality impact we.
Speaker Change: We do expect the 20 basis points margin expansion to be consistent quarter over quarter as we go through the year.
Speaker Change: As we think a little bit more more long term expectation is we're going to continue to drive that operating leverage from our fixed cost infrastructure as well as some modest margin expansion at the practice level and the reason being why it's modest as given the highly variable cost structure.
Nate Tchaplia: And the reason being why it's modest is given the highly variable cost structure that dental practices do benefit from.
Speaker Change: That dental practices do benefit from so as we think about it in 2026 going forward that 20 plus basis points of margin expansion year over year is something that we expect over over that medium term, which ultimately we defined is that three to five year period.
Nate Tchaplia: So as we think about it in 2026 going forward, that 20 plus basis points of margin expansion year over year is something that we expect over that medium term, which ultimately we define as that three to five-year period. Great, thanks Nate.
Speaker Change: Great. Thanks, Nate and then maybe just on taxes.
Nate Tchaplia: And then maybe just on taxes, my understanding is you guys could become taxable sometime later this year. Are you able to provide an update there on just your expected timing? Yeah, I think it's the timing remains consistent. We should we should become taxable in the back half of 2025. Ultimately, from a from an actual cash layout, those that that cash layout won't happen until early 2026. But ultimately, we do become taxable by by the second half of the Perfect. Thank you.
Speaker Change: My understanding is you guys can become taxable sometime later this year or you want to provide an update there on just your expected timing.
Speaker Change: Yeah, I think it's the timing remains consistent we should we should become taxable.
Speaker Change: In the back half of 2025, ultimately from a from an actual cash lay out.
Speaker Change: Those that that that cash that won't happen until early 2026, but ultimately we do become taxable by by the the second half.
Speaker Change: Perfect. Thank you.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining.
Operator: You may now disconnect.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].