All right, let's get started. Welcome everyone to the 20th annual Morgan Stanley Healthcare Conference. Thank you all for coming. Before we kick off, I wanna read the research disclosure. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosure. If you have any questions, please reach out to your Morgan Stanley sales representative. Thank you for coming. I'm joined by Graham Rosenberg, CEO of Dentalcorp, and Nate Tchaplia, CFO of Dentalcorp. Why don't I pass it over for quick introductory comments? Great. Appreciate it. Good to be here. Thanks for having us. Dentalcorp is just on 11 years old. We are the largest player in the Canadian dental industry, which is a CAD 18 billion industry that still remains ripe for consolidation, with only approximately 6% of practices having been consolidated. We are larger than our next 5+ competitors combined. We're close to double the size of our largest competitor. We completed our second quarter with 525 locations, generating approximately CAD 1.4 billion of revenue and CAD 250 million of EBITDA. That's on an IFRS basis, about CAD 210 million on a GAAP basis, giving a full year effect to acquisitions. We've generated double-digit growth every year in our history, and we have a growth algorithm that we believe will continue to allow us to drive double-digit growth in all material respects on revenue, EBITDA, and most importantly to us, free cash flow per share. That comes via organic growth of 3%-4% on a sustained basis, margin expansion of 25-50 basis points per annum over the medium term, combined with a very robust acquisition program, which continues to bear fruit on a quarterly basis. Highly predictable is our growth algorithm, and we believe we will double, and then triple over the next four to seven years, as we continue to execute on that plan. That's great and great growth. I think where I wanna start is more on the macro side, to kind of lean in there a little. This environment and the dental sector as a whole, can you talk a little bit about the macro side of it if we are heading into a recessionary period. Yeah. For a period of high inflation, it almost feels like you're immune to some of that and the technology disintermediation. Can you just talk a little bit on that? Yeah. Yeah, absolutely. Look, over the last 40-plus years, dentistry has outperformed in all cycles. It's outperformed GDP or CPI, should I say, in inflationary periods by about 400 basis points. It's proven to be a positive grower in recessionary environments as well. You know, underpinning that is the high dental IQ of Canadians. About 85% of Canadian adults visit the dentist at least once a year. That combined with a strong focus on oral health, Canadians have the highest dental IQ on the planet, pretty much. Compliance around oral health, those repetitive visits on the hygiene side of things, really make it a business that's resilient through all economic cycles. We continue to see that today. Second quarter was 3.5%+ of same-store comps, driven by a combination of price and volume. We also have a very strong insourcing agenda. In the event that there is, you know, a possible drop-off people are concerned about, we don't share those concerns, but a drop-off in discretionary services, the fact that we're actually providing more services than we ever have in terms of aesthetic procedures and design treatments, and also implants, we think positions us really nicely going through whatever the cycle may hold. Thanks for that. Can we spend a minute on the competitive landscape as a whole? There was a big deal that just announced in the Canadian landscape. Maybe a second on that, and then also just your perspective on big incumbents, new entrants into that market, how you kinda see that shaping out. Yeah. Look, KKR, Canadian dental players, ourselves included, we're probably the first to bring private equity into the Canadian market back in our second year of existence. That was 2014. L Catterton, which is a large consumer-focused private equity shop out of Connecticut, invested in us in 2018. Our next two largest competitors, which combined, did a deal with KKR, and we think that brings validation to the dental industry in Canada. We think we're a unique opportunity to participate in dental. As many of you may know, dental in the U.S. and North America, even globally, is primarily private equity owned, and so you have an opportunity to participate in a public vehicle, which is otherwise owned by private equity. That transaction, those two businesses have been in business 40+ years. We've been in business about 11 years. We're close to double their size on an EBITDA basis and revenue basis, combined. We obviously know those two players very well. We've chosen a path to put our heads down and continue to execute on what has made us successful over the last 11-plus years. What we believe will make us successful over the next 10-plus years is continuing to execute on single and double acquisition locations, sometimes multi-site locations, more than that, sometimes 10 or 15 locations in a transaction, but doing deals our way with our structure, with our playbook for growth, our integration technology, and backdrop to drive that. I'm gonna follow up on that point. Can I add anything? Yeah. I think from a competitive landscape perspective, we view it positively as well. It's gone from three competitors to now two. More interestingly is, again, these three players, as they announced it, have been around for 30+ years. They have their own cultures. They have their own way of approaching the market. Bringing this together through an integration process, which is gonna take significant time, that's now created confusion in the market for the dentists that are looking for that partner to support their next 20 years of operations. The average age of a partner dentist that's joining our network is in their mid-40s, and now being approached by this now newly combined entity. There's five CEOs there. There's three different ways of operating. Albeit they're getting a significant purchase price up front, they're still continuing in their careers for 20+ years. That assurance as to the stability of their partner, the culture of their partner isn't there today. That's really allowed us to continue to build and flourish our pipeline to a significant degree. I wanna follow up on the M&A point. In this rising interest rate environment, I gotta think that that's having an impact on valuations for some of these tuck-in acquisitions that you're making. How do you see that playing out? Can you talk a little bit more on, you know, the white space within that market? Yeah. Look, we think that the backdrop of higher rates should be constructive around valuation in terms of reducing headline valuations. Remember, the majority of practices that trade hands in the Canadian market and here too is from one dentist to another. Typically, you know, a purchasing dentist, typically an associate in a practice will buy from the incumbent dentist using leverage. So we think that those higher rates obviously have a cooling effect as it relates to our business. You know, we have such strong free cash flow. Our free cash flow per share grew in Q2 by, I think, 25%-30% plus. It's not a material impact at the end of the day. You know, we feel good about participating in the market and continuing to acquire over the next 18-24 months. When you think about new acquisitions, the integration of these newly acquired businesses, you've got DC Engage, hellodent, specialty service mix you touched on earlier. Yeah. Like Envista, Align. Can you talk about how that integration works and how that layers in? Yeah. Yeah. Absolutely. If we start from really the signing of the LOI, what's allowed us to really scale our acquisitions, and we completed 70 practice location integrations in the first six months of the year, is that process contiguous with our closing process from LOI to funding. Generally 45-60 days whereby we're able to work with the vendor and their teams to educate them on our platforms like DC Engage, like DC Market and hellodent, such that on day one of closing, they're fully apprised as to our operating model. They understand how to correspond with our technologies, which ultimately allows us to drive that value day one. They're now ordering all their supplies day one through DC M arket, where they're able to avail themselves of 35,000 SKUs of prenegotiated contracts with all the major suppliers, both north and south of the border, and really drive again and avail themselves of all that we are to offer. If we fast-forward then six to 12 months, that's really when we start working with them on marketing best practices and bringing their teams into the education process around our insourcing initiatives, specifically driving our Orthodontics Acceleration Program through our partnership with Align, as well as our new implant insourcing program with Envista and mainly Nobel. Which allows us, again, not only to help them drive efficiencies on the cost side of things, but also to really drive and supercharge that organic growth. I just wanna overlay that, as Nate said, day one, we're able to immediately derive cost savings, such that within six months, we see margin expansion of anywhere between 5%-15%, primarily through cost savings on the supply side and some labor efficiencies we're able to garner by applying our technology stack to the back office of that practice and relieving some labor inefficiencies. Then into the broader insourcing agenda, marketing agenda, talent agenda, which drives that sustained 3%-4%+ same store comps. Hitting on that same store growth point, I wanna shift to growth as a whole, primarily I guess on organic growth. Yeah. When you talk about this 3% medium term kind of overall organic growth profile, what levers do you have at your disposal to achieve that? Right. It's everything from price to driving volume of visits, which is generally underpinned by net patient growth. Mm-hmm. Also driving frequency of visits through optimizing hygiene programs, optimizing recall, and leveraging our technology stack to get patients coming back more often on a sustained basis. Okay. Yeah. Just to build on the frequency side, you mentioned DC Engage, which is our proprietary tool, which is technology driven to bring our existing patients back more often. hellodent really allows us to get the network advantage and ensure that patients, if they are switching a dentist, 'cause the largest attrition that happens is a patient either moves where they live or where they work, and that's where they seek a new dentist. They love their experience in network, and they're able to find that new dentist that is either if they're in Toronto, they're moving to Calgary, they're gonna find a new dentist in network, which ultimately allows us to keep that patient and. Minimize that attrition. From a frequency perspective, when we partner with a clinic, on average, a patient comes to the dentist 2.1 times on an annual basis. What's important to note here is the dental clinician is probably the most frequently visited health practitioner that any one of us sees on an annual basis. You're not going to your doctor 2+ times a year, hopefully not. We're able to drive that forward from 2.1 to 2.4, which is a 25% increase through our engagement tools and technology. Thanks for that. Shifting over to the cost side and the operating levers you have there. You referenced a 75%-80% practice level variable cost, so the variability of that is interesting to me and those levers you have to pull. Can you spend a little bit of time on that? If you look at our revenue and what drives our revenue, there's really two main drivers. One is the dentist revenue, and one is the hygiene drivers. Dentists, by and large, and that's 70% of our total revenue, are paid on a commission basis, and that's not unique to Dentalcorp. That's a standard across the dental industry in Canada, which is roughly 40% of their personal net collections. That, by and large, they're immediately now the largest portion of our provider cost is a percentage. Irrespective of what's happening on the revenue line, we're now protected from that front. Same on the hygiene side. These are all hourly workers. Depending on the volume throughput in the practice, given our scheduling and labor and employment methodologies, we're able to flex based upon, again, the amount of hygiene volumes in the practice. Our total cost of goods that sits in that line item is fully variable. As we go down further, our consumable costs are directly correlated to the volume of business and volume of procedures that are being put through the practice. If you really distill it down, the only real fixed cost that's in the practice is truly that administrative team, which is a very small portion, as well as the fixed real estate costs of operations. Everything else is truly variable in nature. When you think about revenue, and particularly revenue visibility, you've got 85% recurring revenue or patient visits is what you've publicly announced. To me, that's day one, you've got a high line of sight into about 85% of your revenue stream day one at the start of every year. Can you talk a little bit about that, how that helps you from a forecasting perspective when you think about expansion? I mean. Yeah. On that. Look, it really helps in terms of trying to quantify how we drive and the levers we need to push and pull to get to that 3%-4%+ dental comps. 85% recurring. We know the plug number of people that in that 85%, that are movers, how we recapture them, the cost to do that, and then it's simply an exercise in applying marketing ROIs and cost of acquisition to plug the gap to get back to 104%, not only through acquiring new patients, net new patients to the network, but also increasing the frequency of visit of those 85%. You know, to Nate's point, we shouldn't gloss over it. When we buy a practice, the average practice has their patients visiting them 2.2 times a year. We're able to increase that to between 2.4 and 2.5 times. Like, that's a significant increase in frequency of visits, which offsets any, you know, fluctuations in gross headline patient numbers. Mm-hmm. We've got visibility. We know how to plug the gap. We know how to go out and acquire from a marketing perspective, new patients, and then it just becomes frequency and a better price and mix. I just got to say that 85% is just patients that visited us in that last twelve months. Yeah. There's also patients. If you look at our total patient chart count across our network, it's significantly larger than that 12-month patient. You have those that came 18 months ago, and they only come when there's a toothache or something along those lines, and they continue to maintain that relationship with their dentist. Mm-hmm. That gap of real true predictability and line of sight is actually much greater than that 85%. Impressive. When you think about total addressable market, kinda coming back to the market expansion, opportunity, when you think about verticals, new markets, can you spend a little time on that, of areas of focus. I'm sure you have your hands pretty busy right now in the Canadian market, but when you think about other areas? Yeah. Touch on that. Look, we speak about vertical expansion into other private pay healthcare sectors in the Canadian context. We also talk about U.S. expansion potentially down the road. What we continually reinforce is the fact that the macro opportunity for us in the Canadian market is to acquire, you know, CAD 40 million+ of EBITDA on an annual basis. That's on a GAAP basis. Continue to grow the business, expand margins, both through the variability of cost at the practice level, but also our corporate infrastructure, which is substantially built out, and the incremental costs are truly now incremental, at a lower rate of reinvestment than the rate of growth in revenues. That's where we get our margin expansion. That's how, right about it, that's where we're gonna focus and double and triple our business over the next four to seven years. Other private pay healthcare verticals, to the extent that we believe it drives a better patient journey and better patient experience and higher patient retention and more share of private pay healthcare dollars, we will look at transactions. We've looked at several. We've passed on all of them. You know, we're pretty rigorous around that analysis and that work. Again, nothing will detract from our execution of the Canadian dental play over the next four to seven years plus. Thanks for that. I wanna ask on leverage. Debt plays a big piece, I'd imagine, in some of the acquisition. Yeah The story here, and your long-term leverage kind of thought process there. How should we think about it from a capital allocation perspective of, you know, your uses of your cash flow? Our base business today, if we did no acquisitions, would de-leverage to a one handle of leverage of debt to EBITDA in the next 36 months. Like, we've run those numbers six ways to Sunday, and that's the math. We've made decisions to obviously reinvest that capital, that free cash flow into our M&A agenda. If you look at the business today, about 40% and change and growing, and over the next three years, we will achieve cash flow self-sufficiency, just as we said we would at time of IPO. About 40% of our acquisition cost is funded from that free cash flow. Mm-hmm. 40% from incremental debt borrowings, but not necessarily incremental leverage per se, and then 20% from the issuance of equity to dentists, both as a financing tool, but most importantly to align them with the overall growth of Dentalcorp and drive some retention. That's the playbook. In three years from now, about 60%-80% will come from free cash flow, the balance from equity and a little bit from incremental borrowings, but not leverage. The business, as we see it, should de-leverage to something with a high two leverage handle on it in the next 36 months. For a business which is so highly resilient, that's been proven over the last eight, 11 years with high margins, we think that is a reasonable level of leverage and playbook to execute on, again, consistent with when we went public, over the next 36 months. Shifting back to acquisitions, when you think about an acquisition target that gets you excited? Yeah I'm just trying to think of kind of what a typical acquisition looks like. I'm more on the smaller end, the one to three or kind of the mid-level is kind of where I'm leaning toward. How many locations? What's the average age of that dentist? What's their experience level? What's the size of that practice? What, when you think about it, combing the landscape, what kind of makes you dig in? Right. Our target, I'll let Nate expand on it because he runs M&A and has for the last eight years. Look, the headline is it remains consistent with where we were 10 years ago. It's at least two dentists in each practice, so we can deal with succession risk or something awful that happens to one or the other dentist. CAD 2.2 million-CAD 2.3 million of revenue, 20%-22% EBITDA margins, in a good location with a good reputation and one that we can support in growing apropos the growth playbook that we spoke about earlier. Mm-hmm. That's our bread and butter. We don't vary a lot from it. I'd say less than 5% of our locations have only one dentist in it, and that's primarily because they belong to a group. No group or individual location on its own has less than two dentists. We really focus on making sure that we have stability in that revenue base, a good hygiene program that we can then optimize, and that's our bread and butter. We'll go into most locations, most towns and cities in Canada, but we won't go into very rural areas where attracting talent is gonna be a problem. Mm-hmm. Right? Those practices are actually more profitable, lower costs, lower imports, particularly on the labor side and on the rent side. You know, if there's a dentist retirement, you can't replace them. Yeah. Yeah. I think that covers it from what our target is. I think it would be important just to stop here and talk about what our acquisition structure is, and how we approach the market. Sometimes the word partnership can get confusing. We do own 100% of every practice within the network. What's allowed us to scale our acquisitions is really the consistency in which we approach our structure. Frankly, since day one when the business was founded until today, that structure has been one and the same. That purchase price that we do pay for the practice is a combination of both cash and equity in Dentalcorp, and that's roughly 70%-80% in cash and 20%-30% in Dentalcorp equity. The vending dentist does have to hold a meaningful portion of that equity through the duration of their term. Those terms that they do sign on with us are five to seven years. They're joining us in their mid-40s, so that five to seven years, our renewal rate after that initial term does expire is 96%. They continue on for many, many years with us. From an alignment perspective, they're aligned with Topco through that ownership and the equity, but they're also aligned in the four walls of their practice above the underwritten EBITDA. Average practice is doing call it CAD 2.2 million-CAD 2.3 million of revenue, CAD 400,000 of EBITDA. Above that CAD 400,000, they're going to earn 20% of that growth. In the following years of the practice is doing CAD 600,000 of EBITDA, they're getting 20% of that incremental growth, and that continues through the duration of the relationship. What's important to note as well is on the downside, that first 10% of decline in performance, they would be responsible for that. In the following years, if the practice only does CAD 460,000, CAD 360,000 of EBITDA, their compensation would be adjusted in the following years. They're aligned in the overall Topco, they're aligned to the growth, and they're aligned to the downside, and that's where the partnership comes into play. Thanks for that. We've only got a couple minutes left. If anyone has questions in the audience, we have a microphone, if you could just raise your hand. I think we have a question. Yeah. Just a question on the insourcing. You bring in aligners or implants to a practice. How profitable are those procedures and what uplift do they provide to the bottom line as, you know, they, you know, as the practice starts to perform them under dentalcorp? Right. The incremental margins are somewhere between 25% and 30%, fully loaded cost-wise. But remember, it's on a bigger dollar item, right? An implant is a CAD 2,000-CAD 3,000 item. An Invisalign treatment is CAD 5,500-CAD 6,500 item. You know, for a dentist that has some incremental hours or time in a day or extra days to allocate, the flow-through is very strong on a dollar basis. Margins isn't gonna move the needle much at the practice level. Yep, no, absolutely. Important to know, again, our practices are far from anywhere close to capacity. Right Both from a full utilization of operatories and hours perspective. As we're bringing in more services, it's to those existing patients, there's a significant amount of capacity in order to be able to service them. I guess a question from me. Can we spend a minute on the current labor inflationary environment, what you're seeing out there? Is there anything you've been able to do from a staffing perspective or automation perspective that you help navigate this environment that we're in right now? Nate'll add more color, but you know, we talk about a network effect and you know, at the beginning of all this, I was saying to myself like, "Well, what's the benefit of throwing a whole bunch of practices together?" Right? The network effect is on the patient side in terms of being able to deliver a network solution to patients as they move around the country. We spoke about that earlier, and then the same thing applies on the labor side. We're starting to garner efficiencies in the labor market, which is tight, around being able to use staff and move them around from one practice to another. A lot of the time there'll be, for example, a hygienist who wants four days of work, but in the practice that they've been working, there's only three days available. They put up their hand, and we're able to transport them somewhere else. Dentists alike, you know, an associate dentist may be working three days a week in one of our practices, two days a week somewhere else out of network. We're able to bring them into network. We're starting to see the benefit of that network effect on the laborers, on the labor side, which obviously drives efficiencies. Yeah, I think if we look at the overall dynamic, again, labor is a small portion of the total cost structure in a dental practice. On an annual basis, ultimately, as the business grows from both the frequency as well as price, even if labor on a hygienist goes up by 5%, they represent a small portion of the total cost basis. As we grow the top line, it becomes less and less meaningful. Ultimately, the drop-through is still quite positive despite some of the increases. Again, we're not insulated from it, but given our ability to provide them with a very positive experience, to be able to optimize their schedules and ensure that they're well supported, we haven't felt that same impact as an individual practice does, because if there is a vacancy on a hygienist or a vacancy on an assistant, they don't have a practice that's down the street that they can share those staff with. Both from a planning perspective as well as through an economic perspective, we've been rather insulated. I wanna talk a little about repeatability when you think about acquiring a practice, what it kinda looks like from LOI to integration. What are some of the incremental things you can do to drive volume from a cost structure perspective? Anything from a margin perspective? Just, yeah, that general playbook, if you could suss that out a little. Yeah. I think from a signing of an LOI to closing, we have an integration team that's gonna work directly with the practice, and ensure that they're able to access, again, all of the trainings on how to order, all of the trainings on how to schedule and work with the staff and avail themselves of all the support, that's within the network. Going back to the example on consumables and driving those cost synergies, if we come back to consumables alone, a practice on average, operated independently, is gonna be running somewhere in the neighborhood of 7%-7.5% as a percentage of total revenue as their cost of consumables. In our network, it's gonna be approximately 5.7%. Purely as a result of availing themselves of DC Market, which again is our proprietary ordering platform, day one, there's that 140, 150 basis point margin expansion that starts coming through the numbers immediately. That's not factoring in office expense cost savings, janitorial cost savings, and so forth. That's really in that first year where you're able to drive that 10%-15% plus margin expansion. Again, on an average margin of, call it 20%-22%, purely that 150 basis points of expansion drives that alone. Significant opportunity on the cost side. When you overlay the supercharging of the organic growth through the insourcing, that's where we're able to drive even further in that 24-month outlook. Well, we are out of time. Thank you both for coming today. Absolutely. We appreciate it. Appreciate it. Thanks for having us. Great chatting. Thanks.