dentalcorp Reports First Quarter 2022 Results

Delivers Record Quarter of M&A, Surpassing 500 Practices Acquired Since 2011  

• Revenue of $280.2 million for the first quarter 2022, an increase of 13.4% compared to the same period last year
• Adjusted EBITDA⁽¹⁾ of $50.1 million for the first quarter 2022, an increase of 7.3% compared to the same period last year; Adjusted EBITDA margins⁽¹⁾ of 17.9% for the quarter
• Last 12-months PF Revenue⁽¹⁾ and PF Adjusted EBITDA⁽¹⁾ of $1.2 billion and $234.1 million, respectively; PF Adjusted EBITDA margin⁽¹⁾ of 19.4%
• Acquired $25.0 million in PF Adjusted EBITDA⁽¹⁾ from the acquisition of 42 practices in the first quarter 2022, surpassing 500 practices acquired nationwide since the Company's inception in 2011
• Adjusted Same Practice Sales Growth⁽¹⁾ of 2.7%; Adjusted Free Cash Flow⁽¹⁾ of $40.4 million; Adjusted Net Income⁽¹⁾ of $28.6 million; Net Loss of $11.0 million, all for the first quarter 2022

⁽¹⁾ Non-IFRS financial measure, non-IFRS ratio or supplementary financial measure. See "Non-IFRS and Other Measures" section of this news release.

TORONTO, May 10, 2022 /CNW/ - dentalcorp Holdings Ltd. ("dentalcorp" or the "Company") (TSX: DNTL), Canada's largest, and one of North America's fastest growing networks of dental practices, announced today its three-month financial and operating results for the period ended March 31, 2022. All references to dollar values in this press release are in Canadian dollars, unless otherwise indicated.

"Our financial results again demonstrate the durability and strength of our business," said Graham Rosenberg, Chief Executive Officer. "Our team delivered another strong quarter despite significant headwinds from Omicron. During the first quarter, we completed a record 16 acquisitions comprised of 42 locations, which are expected to generate approximately $25.0 million in PF Adjusted EBITDA. This rapid acquisition pacing reinforces dentalcorp's position as the acquirer of choice for Canada's leading dental practices and results from the significant investment we have made in our national business development team and our automated integration capabilities."

Mr. Rosenberg added, "This quarter marked a significant milestone as we acquired our 500^th practice and is a testament to the trusting relationships we have built over the last decade with our dentist partners and with the dental community more broadly. We have the most robust pipeline in our history and we are well on our way to delivering another year of strong double-digit growth."

The Company has now successfully deployed the $115 million of gross proceeds raised through a bought deal offering in January 2022.

Financial and Operating Results for the Three Months Ended March 31, 2022

• Revenue for the first quarter 2022 was $280.2 million, an increase of $33.2 million or 13.4% over the first quarter 2021. The increase in revenue for the quarter was driven by incremental revenue from acquired practices, offset by Same Practice Sales Growth of (3.3%).
  
  
• Dental provider absences and patient cancellations from Omicron had a significant impact on Same Practice Sales Growth over the first quarter of 2021. When adjusting for these impacts, Adjusted Same Practice Sales Growth during the period was 2.7%. dentalcorp experienced sequential monthly growth through the first quarter 2022. This sequential growth has continued into April and early May with Sales Practice Sales Growth substantially in line with Q1 without factoring in any Omicron impact. The Company continued to generate a positive contribution from orthodontics insourcing with 217 practices in the ortho acceleration program versus 165 in the first quarter 2021.
  
  
• Adjusted EBITDA increased by $3.4 million to $50.1 million in the first quarter 2022 over the first quarter 2021, an increase of 7.3%.
  
  
• Adjusted EBITDA Margin decreased to 17.9% in the first quarter 2022 as capacity utilization was impacted by Omicron headwinds.
  
  
• Adjusted Free Cash Flow was $40.4 million for the first quarter 2022 compared to $14.9 million for the first quarter 2021.
  
  
• Adjusted Net Income for the first quarter 2022 was $28.6 million, compared to $12.5 million for the first quarter 2021.
  
  
• The Company acquired 42 dental practices during the first quarter 2022, which are budgeted to generate a total of approximately $25.0 million in PF Adjusted EBITDA, for total consideration of $220 million. As at March 31, 2022, the Company owned 500 dental practices compared to 412 practices at March 31, 2021.
  
  
• The Company ended the first quarter 2022 with liquidity of $514.3 million, comprised of $164.3 million in cash and $350.0 million in debt capacity under its $1.3 billion Senior Debt facility. Approximately $950.0 million of its Senior Debt facility was drawn at quarter end.
  
  
• As previously disclosed, the Company completed a bought deal offering for total gross proceeds of $115.0 million. The proceeds were used to fund outpaced, acquisitive growth, driven by accretive, mid-market deals. The Company closed a portion of these transactions in the first quarter 2022, with additional mid-market platforms expected to close in the second quarter 2022. The Company continues to be in position to capitalize on a fragmented market and drive sustained growth through its strong M&A pipeline.

Subsequent to Quarter End:

• dentalcorp and Risio Institute formed an exclusive partnership to train new Certified Dental Assistants across the dentalcorp network. This innovative partnership will allow students to learn through a high-quality online curriculum, while continuing to work.
  
  
• The Company partnered with the University of Alberta School of Dentistry to support student well-being, and access to financial aid and education. The partnership will be recognized by naming facilities at the University of Alberta School as the dentalcorp Student Lab, and the dentalcorp Simulation Lab.
  
  
• dentalcorp was recognized as one of Canada's Best Managed Companies for the eighth year in a row, and the second year as a Platinum Club member. Canada's Best Managed Companies continues to be the mark of excellence for Canadian-owned and managed companies with revenues over $50 million.

Consolidated Financial Results

	Three months ended
	March 31,		March 31,
	2022		2021
	$		$
	(expressed in millions)
Statements of Loss and Comprehensive loss:
Revenue	280.2		247.0
Cost of revenue	141.1		125.6
Gross Profit	139.1		121.4
Selling, general and administrative expenses	94.4		83.3
Depreciation and amortization	41.5		37.9
Share-based compensation	5.6		2.6
Foreign exchange gain	—		(17.9)
Net finance costs	11.1		39.6
Change in fair value of derivative instruments	—		13.4
Change in fair value of contingent consideration	11.0		(3.9)
Change in fair value of conversion option	—		(19.8)
Loss before income taxes	(24.5)		(13.8)
Income tax recovery	(13.5)		(4.8)
Net loss and comprehensive loss	(11.0)		(9.0)

Other Metrics

Adjusted Net Income	28.6		12.5
Adjusted EBITDA	50.1		46.7

For the definition of Adjusted Net Income and a reconciliation to Net Income, see Non-IFRS measures below.
For the definition of Adjusted EBITDA and a reconciliation to EBITDA, see Non-IFRS measures below.

Outlook

dentalcorp continues to reinforce its position as the acquirer of choice for leading dentists, and demonstrate its ability to add value to acquired dental practices. With 745+ total opportunities in its pipeline, and 200+ opportunities in more advanced stages of negotiation, dentalcorp expects to maintain its path of delivering sustained double-digit growth.

dentalcorp experienced sequential monthly increases in Same Practice Sales Growth during the first quarter 2022 and through April 2022. When combining this trend with the Company's strong ongoing acquisitive growth program, the Company expects to deliver double-digit revenue growth in the second quarter 2022 over the first quarter 2022 and with strong Same Practice Sales Growth over the comparable period in 2021.

Conference Call Notification

The Company will hold a conference call to provide a corporate update on Tuesday, May 10, 2022, at 8:30 a.m. ET. A question-and-answer session will follow the corporate update.

CONFERENCE CALL DETAILS
DATE:	Tuesday, May 10, 2022
TIME:	8:30 a.m. ET
DIAL-IN NUMBER:	416-764-8650 or 1-888-664-6383
TAPED REPLAY:	416-764-8677 or 1-888-390-0541
REFERENCE NUMBERS:	78476939 (live call); 476939# (taped replay)

This call is being webcast and can be accessed by going to:

https://produceredition.webcasts.com/starthere.jsp?ei=1543304&tp_key=ff139c42ff

An archived replay of the webcast will be available for two weeks by clicking the link above.

Reminder of Annual General Meeting

The Company will hold its annual general meeting ("AGM") of shareholders virtually on May 26th, 2022, at 11:00 am ET.

Further information regarding the AGM is set forth in the Notice of Meeting and Record Date filed on SEDAR on March 17, 2022, and in the management information circular filed on SEDAR.

Non-IFRS and Other Measures

As appropriate, we supplement our results of operations determined in accordance with IFRS with certain non-IFRS financial measures that we believe are useful to investors, lenders, and others in assessing our performance and which highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. Our management also uses non-IFRS measures for purposes of comparison to prior periods, to prepare annual operating budgets, for the development of future projections and earnings growth prospects, to measure the profitability of ongoing operations and in analyzing our financial condition, business performance and trends, including the run-rate of the business after taking into consideration the acquisitions of dental practices. As such, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective, including how we evaluate our financial performance and how we manage our capital structure. We also believe that securities analysts, investors, and other interested parties frequently use these non-IFRS measures and industry metrics in the evaluation of issuers. These non-IFRS measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and may include or exclude certain items as compared to similar IFRS measures, and such measures may not be comparable to similarly-titled measures reported by other companies. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS.

During the three months ended March 31, 2022, the Company changed the composition of "Adjusted EBITDA" to (i) remove the Canada Emergency Wage Subsidy ("CEWS") to reflect that the adjustment to EBITDA related to CEWS was not applicable for the three months ended March 31, 2022 and 2021, and (ii) to remove the loss on disposal of property and equipment as the adjustment to EBITDA was not applicable for the three months ended March 31, 2022 and 2021.

The composition of "Adjusted net income" and "Adjusted free cash flow" were each changed to (i) remove the CEWS to reflect that the adjustment to (a) net income and comprehensive income and (b) cash flow from operating activities arising from CEWS, was not applicable for the three months ended March 31, 2022 and 2021, and (ii) to remove the adjustment for legacy debt, net of tax impact as the adjustment to (a) net income and comprehensive income and (b) cash flow from operating activities arising from the legacy debt, was no longer applicable for the three months ended March 31, 2022. "Adjustment for legacy debt" relates to (i) a reduction of cash interest due to lower interest rates on the Credit Facilities and lower overall level of borrowings, (ii) non-cash losses related to the refinancing of the Company's borrowings; and (iii) the realized foreign exchange impact on the Company's draw-downs and repayments under the Pre-IPO Borrowings.

The Company also changed the composition of "PF Adjusted EBITDA" and "PF Revenue" to remove the estimated impact of the COVID-19 related closures on the Company as the adjustment arising from the estimated impact of the COVID-19 related closures was no longer applicable for the three months ended March 31, 2022 and 2021.

EBITDA

"EBITDA" means, for the applicable period, net loss and comprehensive loss plus (a) net finance costs, (b) income tax expense (recoveries), and (c) depreciation and amortization. We present EBITDA to assist investors in understanding the mathematical development of Adjusted EBITDA. Management does not use EBITDA as a financial performance metric. For more information on how EBITDA is calculated, see below.

	Three months ended
	March 31,		March 31,
	2022		2021
	$		$
	(expressed in millions)
Net loss and comprehensive loss	(11.0)		(9.0)
Add:
Net finance costs	11.1		39.6
Income tax recovery	(13.5)		(4.8)
Depreciation and amortization	41.5		37.9
EBITDA	28.1		63.7

Adjusted EBITDA

"Adjusted EBITDA" is calculated by adding to EBITDA certain expenses, costs, charges or benefits incurred in such period which in management's view are either not indicative of underlying business performance or impact the ability to assess the operating performance of our business, including: (a) net impact of foreign exchange, change in fair value of derivative instruments, change in fair value of conversion option, and share of associate losses; (b) share-based compensation; (c) external acquisition expenses; (d) COVID-19 costs; (e) change in fair value of contingent consideration; (f) one-time costs related to the IPO; and (g) other one-time corporate costs (consisting primarily of consulting costs related to our recent Enterprise Resource Planning ("ERP") implementation). Adjusted EBITDA is a supplemental measure used by management and other users of our financial statements to assess the financial performance of our business without regard to the effects of interest, depreciation and amortization costs, expenses that are not considered reflective of underlying business performance, and other expenses that are expected to be one-time or non-recurring. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period to period and to provide for a more complete understanding of factors and trends affecting our business. Adjusted EBITDA is not an IFRS measure. For more information on how Adjusted EBITDA is calculated, see below.

	Three months ended
	March 31,		March 31,
	2022		2021
	$		$
	(expressed in millions)
EBITDA	28.1		63.7
Add:
Net impact of foreign exchange, change in fair value of derivatives, change in fair value of conversion option, and share of associate losses	—		(24.3)
Share-based compensation	5.6		2.6
External acquisition expenses^(1)	4.2		1.0
COVID-19 costs^(2)	—		1.0
Change in fair value of contingent consideration^(3)	11.0		(3.9)
IPO costs	—		5.9
Other corporate costs^(4)	1.2		0.7
Adjusted EBITDA	50.1		46.7

1.	Represents professional fees and other expenses paid to third parties related to practice acquisitions. These costs are excluded as they are incurred in connection with each practice acquisition and are not related to underlying business operations of the Company.
2.	Represents costs incurred as a result of the COVID-19 pandemic that are not expected to recur, including additional employee benefits and retention payments to staff, retrofitting expenses at practices, and payments to safety consultants. The Company's cost of revenue was also impacted in 2021 due to the normalization of the cost of consumable inventories from previously inflated rates as a result of COVID-19.
3.	On acquisition, and at each subsequent reporting date, obligations under earn-out arrangements are measured at fair value with the changes in fair value recognized in the consolidated statements of loss or comprehensive loss.
4.	Represents costs related to the implementation of new corporate systems and the undertaking of vendor consolidations.

Adjusted EBITDA Margin

"Adjusted EBITDA Margin" means Adjusted EBITDA divided by revenue. Adjusted EBITDA Margin is not an IFRS measure.

PF Revenue

"PF Revenue" in respect of a period means revenue for that period plus the Company's estimate of the additional revenue that it would have recorded if it had acquired each of the practices that it acquired during that period on the first day of that period, in each case calculated in accordance with the methodology described in the reconciliation table below.

	Year ended Mar 31, 2022
	(expressed in millions of dollars)
Revenue	1,063.9
Add:
Acquisition adjustment^(5)	140.2
PF Revenue	1,204.1

5.

The Company regularly acquires dental practices and estimates that if it had acquired each of the practices that it acquired during the LTM period ended March 31, 2022 on the first day of the applicable period, it would have recorded additional revenue of $140.2 million. These estimates are based on the amount of revenue budgeted by us to be earned by the relevant practices at the time of their acquisition by us. There can be no assurance that if we had acquired these practices on the first day of the applicable fiscal period, they would have actually generated such budgeted revenue, nor is this estimate indicative of future results.

PF Adjusted EBITDA

"PF Adjusted EBITDA" in respect of a period means Adjusted EBITDA for that period plus the Company's estimate of the additional Adjusted EBITDA that it would have recorded if it had acquired each of the practices that it acquired during that period on the first day of that period, in each case calculated in accordance with the methodology described in the reconciliation table below. PF Adjusted EBITDA is utilized by certain financial institutions to measure borrowing capacity.

	Year ended Mar 31, 2022
	(expressed in millions of dollars)
Adjusted EBITDA	195.3
Add:
Acquisition adjustment^(6)	38.8
PF Adjusted EBITDA	234.1
PF Adjusted Margin	19.4%

6.

The Company regularly acquires dental practices and estimates that if it had acquired each of the practices that it acquired during the LTM period ended March 31, 2022 on the first day of the applicable period, it would have recorded additional Adjusted EBITDA of $38.8 million. These estimates are based on the amount of Practice-Level EBITDA budgeted by us to be earned by the relevant practices at the time of their acquisition by us. There can be no assurance that if we had acquired these practices on the first day of the applicable fiscal period, they would have actually generated such budgeted Practice-Level EBITDA, nor is this estimate indicative of future results.

Adjusted Free Cash Flow

"Adjusted free cash flow" is calculated by adding or subtracting from cash flow from operating activities: (a) external acquisition expenses; (b) COVID-19 costs; (c) IPO costs; (d) other corporate costs (consisting primarily of consulting costs related to our recent ERP implementation); (e) repayment of principal on leases; and (f) maintenance capex. We use Adjusted free cash flow to facilitate a comparison of our operating performance on a consistent basis from period to period, to provide for a more complete understanding of factors and trends affecting our business, and to determine components of employee compensation. Adjusted Free Cash Flow is not an IFRS measure. For more information on how Adjusted Free Cash Flow is calculated, see below.

	Three months ended
	March 31,		March 31,
	2022		2021
	$		$
	(expressed in millions)
Cash flow from operating activities	44.0		14.1
Add/deduct:
External acquisition costs	4.2		1.0
COVID-19 costs	—		1.0
IPO costs	—		5.9
Other corporate costs	1.2		0.7
	49.4		22.7
Deduct:
Repayment of principal on leases	(5.6)		(5.2)
Maintenance capex	(3.4)		(2.6)
Adjusted free cash flow	40.4		14.9

Adjusted Net Income

"Adjusted net income" is calculated by adding to net loss and comprehensive loss certain expenses, costs, charges or benefits incurred in such period which in management's view are either not indicative of underlying business performance or impact the ability to assess the operating performance of our business, including: (a) amortization of intangible assets; (b) share-based compensation; (c) change in fair value of contingent consideration; (d) external acquisition expenses; (e) COVID-19 costs; (f) IPO costs; (g) other one-time corporate costs (consisting primarily of consulting costs related to our recent ERP implementation); and (h) the tax impact of the above. We use Adjusted net income to facilitate a comparison of our operating performance on a consistent basis from period to period and to provide for a more complete understanding of factors and trends affecting our business. Adjusted Net Income is not an IFRS measure. For more information on how Adjusted Net Income is calculated, see below.

	Three months ended
	March 31,		March 31,
	2022		2021
	$		$
	(expressed in millions)
Net loss and comprehensive loss	(11.0)		(9.0)
Add:
Amortization of intangible assets	20.5		17.8
Share-based compensation	5.6		2.6
Change in fair value of contingent consideration	11.0		(3.9)
External acquisition costs	4.2		1.0
COVID-19 costs	—		1.0
IPO costs	—		5.9
Other corporate costs	1.2		0.7
	31.5		16.1
Tax impact of the above	(2.9)		(3.6)
Adjusted net income	28.6		12.5

Adjusted Same Practice Sales Growth

"Adjusted Same Practice Sales Growth" in respect of a period means the percentage change in revenue derived from Established Practices (other than Legacy Specialty Practices) plus the Company's estimate of the impact on Same Practice Sales Growth of the COVID-19 Omicron variant. For the three months ended March 31, 2022 compared to the three months ended March 31, 2021, the Company estimates that this impact was a reduction of approximately 5.5%-6.0% which arose from patient cancellations and lost provider days.

Same Practice Sales Growth

"Same Practice Sales Growth" in respect of a period means the percentage change in revenue derived from Established Practices (other than Legacy Specialty Practices) in that period as compared to revenue from the same practices in the corresponding period in the immediately prior year. A practice will be deemed to be an "Established Practice" in a period if it was operating as part of dentalcorp for the entirety of the relevant period and for the entirety of the corresponding period in the immediately prior year. A "Legacy Specialty Practice" means a practice acquired prior to mid-2014 using a legacy deal structure that is no longer utilized today.

Forward Looking Statements

This news release includes forward-looking information and forward-looking statements within the meaning of applicable Canadian securities legislation, including the Securities Act (Ontario) (collectively, "forward-looking statements"), which reflect management's expectations regarding the Company's future growth, results from operations (including, without limitation, future expansion and capital expenditures), performance (both operational and financial) and business prospects, future business plans and opportunities. Wherever possible, words such as "plans", "expects", "scheduled", "budgeted", "projected", "estimated", "timeline", "forecasts", "anticipates", "suggests", "indicative", "intend", "guidance", "outlook", "potential", "prospects", "seek", "strategy", "targets" or "believes", or variations of such words and phrases or statements that certain future conditions, actions, events or results "will", "may", "could", "would", "should", "might" or "can", or negative or grammatical versions thereof, "be taken", "occur", "continue" or "be achieved", and other similar expressions, have been used to identify forward looking statements. Such forward-looking information includes, but is not limited to, the forward-looking information related to the Canadian dental industry; addressable markets for the Company's services; expectations regarding its revenue and its revenue generation potential; its business plans and strategies; and its competitive position in its industry.

Forward-looking statements are necessarily based upon management's perceptions of historical trends, current conditions and expected future developments, as well as a number of specific factors and assumptions that, while considered reasonable by management as of the date on which the statements are made, are inherently subject to significant business, economic and competitive uncertainties and contingencies which could result in actions, events, conditions, results, performance or achievements to be materially different from those projected in the forward-looking statements. Such factors and assumptions include, but are not limited to, the Canadian dental industry; the Company's ability to retain key personnel, its ability to maintain and expand geographic scope; its ability to execute on its business plans and strategies; its ability to obtain and maintain existing financing on acceptable terms; changes in laws, rules, regulations and global standards; the extent of the impact of COVID-19 and inflation on its operations and overall financial performance and other factors listing under the heading Risk Factors in the Company's Annual Information Form dated March 25, 2022. While the Company considers these assumptions to be reasonable, many assumptions are based on factors and events that are not within its control and there is no assurance that they will prove to be correct.

By their nature, forward-looking statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct, and that objectives, strategic goals and priorities will not be achieved. Known and unknown risk factors, many of which are beyond the control of the Company, could cause actual results to differ materially from the forward-looking statements. Such risks include, but are not limited to, the Company's potential inability to successfully execute its growth strategy and complete additional acquisitions; its dependence on the integration and success of its acquired dental practices; the potential adverse effect of acquisitions on its operations; its dependence on the parties with which the Company has contractual arrangements and obligations; changes in relevant laws, governmental regulations and policy and the costs incurred in the course of complying with such changes; competition in the dental industry; increases in operating costs; the risk of difficulty complying with public company reporting obligations; and the risk of a failure in internal controls.

Although the Company has attempted to identify important factors that could cause actual actions, events, conditions, results, performance or achievements to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events, conditions, results, performance or achievements to differ from those anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are provided for the purpose of providing information about management's expectations and plans relating to the future, as at the date they are provided. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, or to explain any material difference between subsequent actual events and such forward-looking statements, except to the extent required by applicable law. Accordingly, investors should not place undue reliance on forward-looking statements. All the forward-looking statements are expressly qualified by the foregoing cautionary statements.

About dentalcorp

dentalcorp is Canada's largest and one of North America's fastest growing networks of dental practices, committed to advancing the overall well-being of Canadians by delivering the best clinical outcomes and unforgettable experiences. dentalcorp acquires leading dental practices, uniting its network in a common goal: to be Canada's most trusted healthcare network. Leveraging its industry-leading technology, know-how and scale, dentalcorp offers professionals the unique opportunity to retain their clinical autonomy while unlocking their potential for future growth. To learn more, visit dentalcorp.ca

SOURCE dentalcorp Holdings Ltd.

For investor inquiries, please contact: 416.558.8338 x 116, [email protected]