Morning, everyone. I'm Chris Brustuen, Managing Director, Morgan Stanley Healthcare Investment Banking team. Before we get started, I want to read a disclaimer. "For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative." Thank you all for joining today. I'm joined with Nick Xiang from Dentalcorp. Before we get started, I'll just pass it over to you, Nick, for kind of intros and then just general comments you have before we jump into the questions. Absolutely. Thanks for. Is the mic working okay? Thanks for having me, Chris, and Morgan Stanley, for putting on this event. So my name's Nick Xiang. I've been at Dentalcorp for about three years. I lead the corporate finance and capital markets functions, and part of that is the investor relations role as well. Dentalcorp, for those that don't know, is the largest aggregator of dental practices in Canada, or called a DSO, a dental service organization. We've been around for about 13 years, and we continue to grow at a double-digit clip as we have in every year since our inception. So great, great to be here, and thanks for tuning in. All right. So I guess to get started, can you spend a minute walking through the Canadian dental market? How much white space do you see in that market? What's the reimbursement like in that market? Just a little bit of an overview for us would be helpful. Yeah, great place to start. So I imagine the people here are American and you may not be as familiar with the Canadian dental market. So the Canadian dental market is, if you think about the end service, similar to the U.S., but there are a few nuances about the market that are different. So I think the thing I'd start with is fragmentation. So if you think about the Canadian dental market, we are about 7-ish% consolidated. So we have 15-16 thousand practices, of which, give or take, 1,000 of them are DSO-owned. If you contrast that to the U.S., it's generally multiples of that, depending on how you slice it, it's 15, 20, 25%. So a lot more white space in terms of percentage to go after in the Canadian market. As it relates to reimbursement, that's another key difference. So if you think about it, in Canada, we are almost 100% cash pay, so pay at time of service. We don't have relationships with insurance companies. We collect payment from ultimately the client or the patient at time of service, and so there's no need for us to go back and collect that. Whereas in the U.S., obviously, you have to have you know an RCM team and collect that revenue back after the fact. So cash pay, upfront, a less fragmented market. In terms of the size, it's a CAD 22 billion market. There are a few DSOs in the market. We are the largest by a wide margin, and we are about as large as almost every other aggregator combined, to give you a sense of how big we are in the Canadian market. So that's kind of the overview. We have you know a large fragmented market in Canada with very favorable payer dynamics. Thank you. Shifting gears a little bit to M&A, can you walk us through what a typical practice goes through from LOI all the way through to the integration phase? What are some of the key areas that you focus on to drive some of that incremental volume growth, cost reductions, margin expansion? Can you just go into some detail on that? Yeah, absolutely. So this obviously is our bread and butter when it relates to kind of M&A and our development program. I'll actually go a bit further back before the LOI phase and give you a sense of how we actually source the deals and how we develop the relationships. So we have an in-house corporate development team and a business development team. So the BD team, the business development team, boots on the ground in every single province in Canada. You know, they're forming relationships with dentists. They're going to conferences, they're going to trade shows. They're really building this network of, we'll call it, close-knit relationships over many months or years. And they are the biggest funnel, call it roughly two-thirds of our pipeline is from our business development team and our own business development efforts. They bring in those relationships and those partners that we want to eventually partner with, and they pass it on to the corporate development team. These are. Think of the M&A power in our engine here. So they're doing the diligence, they're looking at QofE, they're assessing the financial feasibility of this acquisition target, and they're the ones executing on the deal. So we have, call it, 20-ish people between those two functions that kind of run like a very well-oiled machine. Once it gets to the LOI phase, which is to answer your question, Chris, we start the integration process pretty much when that is signed, so between LOI and closing, there's probably about 45-90 days, depending on how quickly the target can close and the complexities of the deal. In that timeframe, so between LOI and that 45-90 days, we are onboarding staff, we are onboarding the technology systems, we are onboarding the back-end financial softwares and the financial reporting programs. We are doing things to make sure that as soon as the deal is closed, it is a very smooth transition. There's no lumpiness in, you know, that closure and then the day one of being a Dentalcorp practice. It is very smooth, and in fact, as both a patient or as a provider or someone that works there, you wouldn't really know when that day occurred. It's really just a formality in signing things up. In terms of the post-LOI, or sorry, the post-close and some of the levers that we pull to drive better performance, it's a few things. So on the revenue side, which takes a little bit longer, it's not as immediate as the cost. The biggest driver that we have is increasing visits. Mm-hmm. If you think about the average Dentalcorp practice, pre-Dentalcorp, the patients were visiting about 2.1 times per year. Post-Dentalcorp, we bring that number up to about 2.4 times per year, and that usually takes 12-18 months. Mm. Some very simple things you can think of, right? Just patient recall systems, making sure that patients are maximizing the use of their benefit dollars, making sure that patients understand, you know, the optimal, treatment plan, things of that nature, you know, some SEO and some marketing. So that's kind of the top line, drivers, if you will. And then on the cost side, these are more immediate in nature. So the biggest one I would point you to, is on our consumables. So when we have, purchasing of kind of our one-time use items, think chemicals, masks, PPE, things of that nature. Typically speaking, a pre-Dentalcorp practice is running about 7% of sales as a cost item. Dentalcorp, and again, this is on day one. We change all the purchasing over to our own internal software. That gets dropped to about 5% of revenue. So you get about 200 basis points of pickup, which flows directly to the bottom line, and that is, call it, a day one synergy. So there's other couple of smaller ones, but that's kind of the biggest revenue and the biggest cost synergy that we can pull. Thank you. That's very helpful. Shifting to leverage, how do you think about long-term leverage? How should we think about capital allocation, how you'd use your free cash flow? Yeah. Yeah, it's a really good question. I think we really wanna focus on a few things when it comes to leverage. So I'd say if you asked this question a year or two years ago, I think leverage was one of the most pressing things that investors brought up. I think that's kind of toned down a little bit, given you know, we've shown that we can consistently delever, so we've delevered in each of the last three quarters. In terms of use of free cash flow, the best use is to do more M&A, is to grow the business, as we've always done. You know, you can model it out a hundred different ways, but it's M&A. This year, we expect to do kind of a 15% year-over-year growth on our free cash flow per share, and we expect to fund all of our acquisition program, or almost all, but substantially all of it, with our free cash flow on hand. Previous years and previous quarters, we were using leverage when we saw those opportunistic deals, and especially some of the chunkier ones that we saw in 2022. But we're trying to live within our free cash flow yield. Our free cash flow dollars, which will yield you kind of that CAD 20 million- CAD 25 million of acquired EBITDA, in 2024. Thank you. So when we think about organic growth, how do you envision achieving that 4% plus medium-term target that you highlight for organic growth? And then what levers do you have at your disposal to drive that? Yeah, absolutely. Great question. And organic growth is a very important piece of our business. There's two parts. It's price and volume and insourcing. So when it comes to price, I'll give you a bit of overview and context in the Canadian market. So each of the provinces in Canada have their own governing body as it relates to dentistry. What they do typically is they hire consultants or an economic advisor, and they say, "Okay, take a look at what the figures were." And they typically do this around this time of the year. What they do is they survey dental practices across the country, and they say, "Okay, how much have your costs increased in this calendar year, such that I know how much I want to increase the Fee Guide for next year?" And the Fee Guide is essentially a recommendation by each of these governing bodies to the dentists themselves that say, "Okay, you know, based on inflationary or other, you know, you should increase prices of this code and this code and this code by a certain percentage, 1%, 2%, 3%, whatever it is." That gets passed down to the dentist, and then, generally speaking, we are in line with the Fee Guide across all our practices. So we're very much a passive player in that sense. We don't drive any decisions. We're not, you know, we're not charging above or below the Fee Guide. And so that typically, of that 4%, that's gonna get you about 2.5%-3%. If you think about it from a long-term historical perspective, it's been that, call it 2-ish% range, and I'm talking about a 20, 30, 40-year look back, and it's been very consistently growing at that clip. What we can control is our volume and our insourcing. So of that remaining, call it 1-1.5%, of that 4% plus target in same practice sales growth, that is driven by, you know, some of the volume initiatives I told you. So patient recalling, patient education, making sure that the optimal care plan is established, making sure that you know the patients are utilizing you know their benefits- Mm-hmm. which 75%-80% of them have, making sure they get the best care. In addition, we have our insourcing initiatives, and so these are things that we are doing to bring the patient back for other procedures. The biggest one I'd point to is our orthodontics program, which is essentially our Invisalign program. Patients can come into our practices, they can get hooked up on one of our iTero machines, do a mouth scan, develop a treatment plan pretty quickly for orthodontics and Invisalign, and do that at our general GP practices. That drives another incremental, you know, call it... It's still in the early days today. Just about half our practices have that in them. Nonetheless, it's something that we expect. That, along with our implant programs, is something that we expect to generate a little more same practice revenue growth. Again, early stages, I expect that to really pick up, call it, you know, in the next couple of years. But that's another opportunity that, you know, when you think about the rest of the market as a whole in Canada, which is, as I mentioned at the top, you know, 90% plus mom-and-pops or independents, for the most part, A, they're not doing that, and B, if you think about the market as a whole, same practice volume growth is actually about 0%. So we do have volume growth in the market. That's from new practices coming online. So we're able to drive that, call it 1%-1.5%, in excess of what the market is doing, to achieve that 4% plus same practice figure. Thank you. Can you spend a minute on operating leverage and costs, so historically, you've referenced roughly a 75%-80% practice level variable cost structure. It'd be interesting to hear a little bit more about what the degree of variability that you have there and the levers you have to play with. Yeah, absolutely. It's a good question, and it's, you know, in times of good, in times of bad, depending on how you look at it, it can be thought of differently. So, we are mostly variable, 75%-80% variable, as you mentioned. Most of those costs, as you would expect, are driven by the actual staff costs that we have. So the biggest driver of our costs is dental draw, which is the compensation that we pay to dentists for the work actually performed. And in Canada, you know, depending on the province and the unique situation, but generally speaking, you're within a very tight band of around 40% of what dentists actually do. So if they bill, you know, CAD 1,000, they're gonna collect 40% of that, and that's their compensation. And that's with Dentalcorp, without Dentalcorp, in this province or that province, it's generally very similar to that. So that's obviously our biggest expense. Our second biggest expense is the wages paid to our hygienists. These are typically hourly workers, for the most part, and, you know, in a sense, they're variable as well, right? If you don't have patients, you don't schedule them. If you have more patients, you schedule them more. So the two biggest costs there are mostly variable, which is good in times of bad and not as great in times of good, if you think about it that way, right? You're not gonna get much operating leverage from the fact that they're mostly variable, but at the same time, you know, your margins aren't gonna erode in a downturn or recession. So it's kind of always been that way. It will be that way, given that we're, you know, very much a people-oriented business. You have some costs that you can get a little bit of operating leverage on, so that 20%-25%, that's not variable, you know, are things like rent, insurance, utilities, things of that nature that you can get a little bit on. But for the most part, we will continue to be a variable-based business. So yeah. Thank you. That's helpful. As it relates to revenue visibility, you have a unique platform with a high degree of revenue visibility. That's, that's always been interesting to me. In particular, you referenced that you've got a 92% recurring patient visit. Can you discuss how this impacts your forecasting, your expansion opportunities, and any important factors at play there that we should think about? Sure. Yeah, we're very proud of the fact that we have such high recurring revenues. You know, to your point, it gives us great visibility into future planning. You know, I'm sure you or anyone else has kind of looked at our quarterly guidance for the last few quarters. Certainly very tight band, right? We're not talking about wide swings. We're talking about a pretty narrow, you know, guide towards 1%-2% growth in terms of the between the low end and the high end. So it's a very tight band, and that is due to the fact that we do have such a high recurring patient count or patient base, rather. We're very proud of that. We've worked very hard on that. We have, you know, very good reviews at our practices that, generally speaking, bring patients back. It does help, right? It does help. We can understand quarterly trends, we can understand monthly trends, we can understand, and I'm sure we'll talk about the CDCP later, but we can understand kind of how practices are affected by minor things, and have a good understanding of how to plan the next week, month, quarter afterwards. That 90% figure has been consistent since the time of IPO. I think we might have gone down to about 89% at one point. Now we're at 92%. But consistently, we kind of expect that to average 90% plus. Another reason why that is is just the high oral compliance in Canada, so we have the highest oral IQ in the world. Don't ask me why that's the case, but we are very compliant with our oral health, and the fact that over three-quarters of us have some sort of coverage for oral health makes it a lot easier for you to keep coming back, you know, as you need on a quarterly or just an annual basis. Thank you. Shifting back to M&A, any concerns about the rising acquisition multiples, and when you think about the competitive landscape, have you seen this presenting as an issue at all, with processes or kind of broadly? Yeah, I'll. It's a good question. I'll answer it by kind of giving you the overview of who's doing M&A in Canada. So if you think about the number of practices that change hands in Canada every year, it's about 400-500 practices are sold and purchased every single year. If you think about how much we're acquiring, so call it CAD 20 million-CAD 25 million of EBITDA, that's give or take 40-50 practices, right? Using call it CAD 500,000 per practice. So 40-50 practices from us, as I mentioned at the top, we're kind of as large as almost every other aggregator in Canada combined, or every other DSO in Canada combined. So if you sum the two up, you're looking at give or take, a hundred practices acquired by DSOs, which means the majority, call it the other few hundred practices, are acquired not by DSOs and by other dentists themselves. Typically speaking, it's a dentist-to-dentist transaction. You know, let's say you've worked at a dental practice for ten years. Someone wants, you know, your partner, you know, wants to retire, wants to slow down, wants to leave the practice, you want to take over. That happens a lot more frequently than DSO acquiring dentists. That market has been, it's been tough for that type of transaction to occur, given the rising interest rates and kind of the lending environment. You know, if you were to go back five, 10 years, you can knock on RBC, TD, you know, pick your Canadian bank and say, "Hey, I need a loan. I'm a 32-year-old dentist. I need a loan for CAD 3 million. I want to buy this practice." And they say, "No problem. Here's the check. Here's actually take a little bit more and go buy, you know, go upgrade your inventory, upgrade working capital, and upgrade your practice." Now, it's, you know, you knock on their doors, and they say, "Hmm, I need you to put X hundreds of thousands of dollars down. And by the way, here are the interest rates." And it becomes a lot more economically feasible for someone to do that today than it was in the past. It's a long-winded way of saying, you know, in terms of acquisition multiples, we feel very confident about where they currently are. They've been sub seven for the last couple of quarters. We don't expect that to continue. We kind of model it in around that seven to seven and a half range. But for the most part, they've stayed consistent for the last, call it four to six quarters. We saw a blip in 2022, where everything was up, and we bought some chunkier acquisitions. But yeah, for the most part, in and around that seven to seven and a half times range is where we're comfortable and where we expect multiples to be for the next few quarters. Thank you. So when you think of a typical acquisition, what does that look like? How many locations? What's the age of the dentist? What's the size of the practice? Can you just give a little detail there? Yeah, absolutely. Again, our bread and butter is our M&A machine. You know, we've perfected that over many years. We have a typical target, and then we have a non-typical target. I'll tell you what the typical one is first, as that one's typically easier. Multiple dentists, so we don't try to target single dentist providers. Obviously, that provides key person risk. If you lose that person, you know, the practice will suffer. So multiple dentists, multiple hygienists. We're looking for practices that are generally larger. So on average, the revenue is about CAD 2 million-CAD 2.3 million. We're looking for tier one or tier two regions. So we'll do most regions. I'd say there's probably about 10% of the market where, they're just in, you know, very tertiary regions that we can't really feel good about from a staffing perspective. You know, you don't want to recruit... you don't want to, you know, partner with a dentist, and then if he or she, can't perform anymore and you can't fill it, then that, that's not great, right? So, but for that 10%, we can pretty much serve every other region. So larger practices, multiple provider practices, across dentistry and hygiene, A-plus operatories, to give you a sense of kind of the size of the rooms that we're dealing with. In general speaking, that translates to about CAD 500,000 of EBITDA, as I previously mentioned. So that probably represents about half the Canadian dental market, six to eight thousand, we'll call it, locations that are in that strike zone. The other thing that we do is kind of called our Tuck-under program. So these are typically practices that are smaller in nature, so maybe they only do have one dentist, or maybe they only have a couple hygienists, and maybe they're, you know, CAD 1.5 million of revenue instead of two million plus. And what we do is, we can tuck them into an existing practice, so we have coverage across the Canadian. We're We're the only national provider. We're in every single province. We're within twenty kilometers of, or about, you know, thirteen miles of eighty percent of the Canadian population, so we have very good national coverage. If there is a single practitioner in a market that we are currently in, which generally is the case for most cases, we can tuck them into an existing practice. So, you know, let's say they don't fit that ideal profile, we can say, "Okay, after X number of months or years, let's shift you over slowly into one of our bigger practices. Mm-hmm. You know, get some operating leverage on, you know, the existing infrastructure and the existing rent and everything there, and just move your patients down the street, a hundred meters, two hundred meters, whatever it is. So, so really, when you, when you add the kind of the, the traditional or the typical target and the tuck-in program, we're pretty well covered across the Canadian dental sector as a whole. Like I said, there's probably about 10% of practices that don't fit either of those profiles, but for the most part, we have a, we have a net that can capture, you know, 90% of the, the remaining practices out there in Canada on a, on a market that's still 93% fragmented. Thank you. So I want to spend a minute on the Canadian Dental Care Plan, the CDCP, as you, as you'd referenced before. Who is currently eligible? What's the impact that that has on your business? And then how should we think about CDCP versus non-CDCP practices, comparing them against each other? Yeah, it's, it's a good question. It's the hot topic of the day in Canada right now is the CDCP. So I'll, I'll give you a bit of context. The CDCP or the Canadian Dental Care Plan was a plan that was put in place by our current government to essentially provide additional dental coverage or dental care for lower income citizens of Canada. So there's a few criteria that you have to hit. I won't rattle all of them off, but you have to hit a certain, you know, under certain amounts of household income for various levels of eligibility. You have to be uninsured previously, so you can't be with an employer-backed insurance plan. You have to be a Canadian citizen, you'd have to file taxes, so on and so forth. They think that they're quoting, and we can kinda confirm this, is roughly seven to nine million Canadians, at some point, at the full maturity of the program, will have some sort of eligibility and coverage under the program. The program was rolled out. The first patient came in in May. So the program has been up and running for four months now at this point. The age groups currently eligible are over 65 and under 18. So the biggest chunk of the market, which is 19 to 64, won't come online until 2025, we believe early 2025. And we're starting to see those patients come in and starting some care. At the start, it was a little bit confusing. There was some administrative burden. Some patients were confused on what coverage they had, some providers were confused on, you know, how to do billing, things of that nature. I think we've since ironed out almost all those kinks. We're very pleased with kind of how the CDCP has performed, and also we're pleased to see, you know, the Canadians that otherwise haven't been at the dentist in months, or years, or even decades, start to get that coverage that they so desperately needed. Overall, as in terms of a long-term plan, we see it as a net neutral to positive for us. It's not a, you know, it's not a full maturity and full ramped program yet. Like I said, the larger cohort's not gonna be online until next year. But we're starting to see kind of the CDCP-enrolled practices, which is, at this point, over 80% of our practices, outperform those that are, call it non-CDCP, you know, to the tune of, you know, a couple hundred basis points on same-practice revenue growth. So very meaningful, and, you know, we see it as beneficial. Overall, we see the CDCP as beneficial to, you know, the patients, the providers, and the overall oral health sector in Canada. Thank you. It's very helpful. I have one more question on my end, and then I'll open it up to the audience for questions. Can you please spend a minute talking about, from a priority perspective, how we should think about capital allocation? How do we... You think about prioritizing M&A, share repurchases, increased key hiring, kind of running through the capital allocation? Yeah. Yeah, absolutely. Great, great way to close it off. So when we think about capital allocation, and I know I kind of touched upon this earlier in saying M&A is our bread and butter, it really is. So I'll touch on a few of those points that you mentioned. So when it comes to kind of upgrading the team or the key hires, as you mentioned, we have the team that we have in place, that we need, currently in place. If you go back and look at kind of our 2023 financials, and even a little bit of 2022, we made very significant investments into our corporate teams and systems. So we upgraded our HRIS system to Workday, we upgraded our ERP system to Oracle. You know, these are, these are things that you don't do every single year. They're massive implementations. They take a lot of time and effort and a lot of money, but the good thing is you don't have to do them every year. So you're gonna have that going forward for many years to come. We made a lot of key hires and a lot of personnel additions in the last two years as well. So we think that the teams and the systems that we have in place today, you know, obviously growing at an inflationary rate, can sustain and doubling the business in the next X number of years. So we're very comfortable on that front. There's not any significant investments to make. On the share repurchase side, so we had an NCIB in place that expired four months ago. We bought back a nominal amount of shares towards the tail end of last year, so Q3, Q4, mostly Q4, just to support our share price and to support the stock, but if you saw in the last week, we renewed our NCIB. Just there to really support the stock and be opportunistic. It's not something we anticipate using actively, and it's not something that we are using actively or have used actively for nine months now at this point, but something, you know, to have there. In terms of paying down debt, so we paid down about CAD 25 million-CAD 30 million of debt in Q4 last year with some excess cash on hand. We don't have plans to continuously pay down debt. We will de-leverage, given that we're not drawing on debt and our EBITDA continues to grow with our M&A program. But, as I mentioned earlier, bread and butter is M&A. Use free cash flow to partner with good practices and continue to drive that double-digit growth is something that we continue to expect to do. Thank you. Very helpful. Well, maybe I'll open it up. Any questions from anyone? Maybe just one question. Oh, we got a microphone. I think there's a mic there. Sorry, one second. Sorry. You spoke about M&A being your bread and butter, so... And you targeting Tier One and Tier Two cities. What's kind of the opportunity in Canada in the Tier One and Tier Two cities? And how do you-- You said CAD 2 million- CAD 3 million in revenue, but, like, how do you typically think about which dentist to... practice to acquire? Yeah, absolutely. So when, when I say Tier One, Tier Two, it's really just to give you a sense of, you know, we have to feel confident about the staffing. So but for that last, call it, the 10% that I mentioned, we're very confident in every other geography that we're in. One thing I should have mentioned, which is a good point, is when you think about the average age of our dentists at time of acquisition, they're in their early forties. The average age of our dentists today, and our practice as a whole, is in their mid-forties. So very long runway for growth. You know, these are not retiring dentists. These are not dentists that are, you know, looking to phase out in the next, two or three years. We sign them up to a five-year contract, and they are very much aligned with kind of the financial performance of the business. We think there's about 6,000-8,000 more practices in that strike range of the profile that I mentioned. So, we're sitting at 550 practices today, so long runway to go. Any other questions from the audience? Well, if not, maybe I'll pass it back to you, Nick, for any closing remarks. Yeah. No, absolutely. You know, thanks for having us here. This is, you know, it's great to chat with everyone. I think, you know, we're poised for a very strong finish to 2024 and beyond. We feel very good about what we've delivered year to date thus far. We delivered our highest quarter ever of revenues and EBITDA in Q2. We continue to de-leverage, we continue to expand margins. You know, we expect margins to expand by 20 basis points year over year this year. Free cash flow per share growth of 15% plus. We expect to bring leverage to at or below four times. So a very positive first half of the year, we expect to continue for the second half of the year, and into twenty twenty-five and beyond. So thanks for coming. Appreciate the time, and always good to chat. Thank you.