American Dental Partners, Inc. (ADPI)

Q2 2010 Earnings Call Transcript

July 27, 2010 9:00 am ET


Greg Serrao – Chairman, President and CEO

Breht Feigh – EVP, CFO and Treasurer


Brooks O'Neil – Dougherty & Company

Graeme Rein – Bares Capital

Mitra Ramgopal – Sidoti

Alex Silverman – Special Situations Fund

Jeff Johnson – Robert W. Baird

Tyras Bookman – Park West



Good morning. Welcome to American Dental Partners reports second quarter and first half 2010 financial results conference call. All participants will be able to listen only until the question-and-answer session. (Operator instructions) I would now like to turn the call over to Mr. Greg Serrao. Sir, you may begin.

Greg Serrao

Thank you, Kathy. Good morning and thanks for joining us. I'm joined by Breht Feigh, the company's Chief Financial Officer, and Mark Vargo, the company's Chief Accounting Officer. I'd like to begin this conference call by reading a brief but important disclaimer. During the course of this conference call, we may make forward-looking statements regarding the future financial performance or business trends of American Dental Partners or other future events affecting the company within the meaning of the Private Securities Litigation Reform Act of 1995.

The words believe, expect, anticipate, project, intend and similar expressions among others identify forward-looking statements. We caution you that such statements are only predictions and that actual results might differ materially from those projected in the forward-looking statements.

Certain factors that might cause such a difference include among others the company's risks associated with overall and regional economic conditions, dependence up on affiliated practices, contracts the affiliated practices have with third-party payers, dependence upon service agreements, the impact of any termination or potential termination of such agreements, government regulation of the dental industry, and the company's acquisition and affiliation strategy.

For a detailed discussion of the factors that could cause such a difference and other risk factors and uncertainties that could materially affect the company's business and financial results, please refer to our annual report on Form 10-K and the quarterly reports on Form 10-Q filed with the Securities and Exchange Commission.

In our call today, we will discuss certain financial measures that are not in accordance with generally accepted accounting principles. Please see our press release, which is available on our website, for a presentation of the most comparable GAAP measures and a reconciliation of these non-GAAP measures.

Breht and I will discuss financial and operational highlights and then take questions from participants after our prepared remarks. Before turning the call over to Breht for the financial review, I would like to mention a few highlights as it was very (inaudible) quarter.

We refinanced our senior indebtedness on very favorable terms relative to our prior credit facility, as Breht will describe in greater detail later in his prepared remarks. We affiliated with Cincinnati Dental Services on June 1st, which expanded our presence in Cincinnati and Northern Kentucky.

The continued high level of unemployment continues to present revenue challenges to our affiliated dental groups. But despite a decline in same market revenue growth, we managed to grow earnings during the quarter. Excluding the one-time expenses associated with refinancing our indebtedness and the affiliation with Cincinnati Dental Services, earnings from operations increased 9.5% and net earnings increased 19.7% over the second quarter of 2009. And finally, we continued to expand Texas Tooth Doctor for Kids, completing two additional de novos during the quarter.

I will now turn the call over to Breht to discuss our financial results for the quarter.

Breht Feigh

Thanks, Greg. This morning we will be reviewing our second quarter results. I'd like to begin, as I always do, by referring to the table in the press release entitled Patient Revenue and Same Market Patient Revenue Growth. Patient Revenue with affiliated practices increased 4.5% from $111.9 million in the second quarter from $107.0 million in the same period last year, driven largely by the Christie Dental and Cincinnati Dental platform affiliations.

Same market patient revenue growth by contrast decreased 2.1% year-over-year. In calculating same market patient revenue growth, we exclude the contribution of new platform affiliations completed in either period of comparison. As a result, we are comparing like-for-like platform affiliates.

The components of same market growth for the quarter were 2.3% fewer provider hours, 1.9% improvement in productivity per hour, offset by 1.8% deterioration due to reimbursement rates. This was another quarter in which productivity per hour increased less than the blended full fee increase of our affiliated dental groups, thus indicating a drop in real productivity per hour. Greg will provide comments on continuing revenue softness during his prepared remarks.

Beginning last quarter, we are now providing an additional table entitled Components of Same Market Patient Revenue Growth, which breaks down same market growth into existing practices, de novo or newly constructed practices, expanded or relocated practices, and acquired practices. We have added this information given the increasing number of de novo facilities we are developing. The last three categories of the table require capital investment while the existing practices require no capital investment beyond maintenance capital expenditures.

Excluding the contribution of end market practice acquisitions to our platform affiliates, same market patient revenue declined 2.4% year-over-year in the second quarter. Excluding the facilities that received capital investment during the quarter, existing practices experienced a negative growth of 3.2%, which is a slight improvement from the first quarter of this year.

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