Specialist
Former executive at Benevis
Agenda
- Recent trends and developments in the US DSO (dental service organisation) market
- Macroeconomic inflationary impact on supplier relationships and equipment prices
- Consolidation dynamics, practice multiple trends, revenue synergies from scale, payer negotiation and referral networks
- Vertical integration opportunities in DSO service lines and higher-margin adjacencies such as orthodontics and implants
- 2022 outlook, highlighting technology innovation, organic market growth clip and unconsolidated regions of opportunity
Questions
1.
What key trends and drivers have you been following in the US DSO [dental service organisation] market over the past 6-9 months or so?
2.
Could you quantify any increases in materials costs we’re seeing from supply chain disruptions or inflation for dental equipment and supplies? How detrimental are these to a DSO or single clinic’s bottom line?
3.
What’s the trickle-down effect on some of the wholesaler-distributor relationships? Has the negotiation leverage shifted in the DSOs’ favour in the sourcing arrangements?
4.
We’ve seen on earnings calls and management commentary from Henry Schein and Patterson that they’re trying to pass on some of the inflation-induced price increases to DSOs. How are DSOs responding to those price hikes? Are they accepting the higher prices or are they utilising other measures to offset that margin erosion?
5.
Do you see DSOs looking to source their own products directly and cut out the distributors over the longer term? What are the pros and cons of direct-sourcing vs utilising a wholesaler or distributor?
6.
How aggressive do you think the larger conglomerates will be in expanding their footprints inorganically given the current macroeconomic backdrop?
7.
How do you think the makeup of DSOs will shift by size? In your opening remarks, you said medium-sized DSOs will continue acquiring smaller ones, larger ones will expand their footprints rapidly and independent dentists will try to create small DSOs of their own. Do you see any room for the smaller regional players to coexist or will the larger practices gobble them all up? How might that materialise?
8.
What are your thoughts on the increasing prevalence of multi-speciality practices vs pure-play dental clinics? How are clinics reshaping their procedural focuses to optimise volume mixes and maximise margin accretion?
9.
On the valuation side, how are clinic multiples trending? I appreciate this may vary substantially by geography and practice size, but how are you viewing multiple trends for multi-speciality practices and pure-play dental clinics respectively?
10.
What’s the approximate margin profile breakdown within a specific practice across speciality offerings? How does profitability compare between orthodontics, endodontics, implants and other speciality procedures?
11.
Which geographies do you think are most ripe for further penetration? How are DSOs evaluating state reimbursement dynamics, patient populations and other factors when looking at new market expansion opportunities?
12.
What are the main synergies on the cost side that can be targeted to make clinics more margin-accretive post-consolidation?
13.
Do you have any sense of how much of a boost, perhaps in terms of practice EBITDA, can be realised from some of the training mechanisms – better reimbursement from payers and other revenue synergies? Could you quantify any uptick in terms of EBITDA per practice?
14.
How do you assess Heartland, Aspen, Pacific and Western Dental’s relative business models and management styles? Who do you think has an advantage in terms of geographic makeup, speciality mix, brand reputation, ability to integrate and so on?
15.
Could you break down the current supply and demand dynamics for labour in the US DSO market? What shortages are we seeing for clinical and non-clinical staff, respectively?
16.
To what extent are the labour shortages reducing clinic volumes per day? How much of a revenue hit is there from lost visits?
17.
Are there any levers that could be pulled to help mitigate staffing issues? What are DSOs doing to recruit and retain qualified staff?
18.
Are you noticing any changes in patient buying behaviour around higher-cost procedures in terms of utilising financing vs out-of-pocket payment? How might this shift in a recessionary environment?
19.
What’s your near-term outlook for the US DSO market organic growth clip amid a lot of the factors we’ve discussed?
20.
What innovative potential are you excited about in terms of dental practice management software? How are new technologies such as AI being utilised to create efficiencies for practices?
21.
What needs to be done on the integration side technology-wise considering appointment scheduling, payment processing and patient record technology to streamline tech infrastructure to realise efficiencies?
22.
How do you see the US regulatory landscape evolving for DSOs over the mid-to-longer term? What increased scrutiny could we see around PE involvement in dentistry in general? How much of a headwind on the regulatory front do you see over the next several years?
23.
Is there anything we didn’t touch on that might be especially important to highlight or is underappreciated about the US DSO market?
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