Park Dental Partners Reports 2026 Third-Quarter Results - PARK DENTAL PARTNERS INC

Good morning, and welcome to PARC Dental Partners' 3rd Quarter 2026 Earnings Conference Call. Today's call is being recorded, and at this time, all participants are in listen-only mode. Following the prepared remarks, management will open the call for questions from its analysts. Certain statements made during the call today constitute forward-looking statements made pursuant to, and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainty are described in the company's earnings press release issued yesterday and in the company's filings with the SEC. The forward-looking statements made today are as of the date of this call, and the company does not undertake any obligation to update the forward-lookings statements. Please note the terms company, we, our, and us refers to Park Dental Partners, Inc., and its affiliated dental practices. Today's call will also include certain non-GAAP measurements. Please see the company's earnings press release for a reconciliation of those non-GAP financial measures. The press release is available on the company. The company's website. I will now turn the call over to Pete Swenson, Chief Executive Officer and Chair of the Board for Park Dental Partners, Inc. Good morning, everyone, and thank you for joining Park Dental Partners' third quarter 2026 earnings call. Joining me today is our CFO, CJ Bernander. Before discussing our results, I want to begin by thanking our doctors and team members across the organization, including our newest doctors and teams. and team numbers in North Carolina. Every day, thousands of patients place their trust in us. We earn that trust one patient at a time through the clinical excellence, dedication, and professionalism of our people. That commitment is reflected in the three priorities that continue to guide our organization. That is our focus on our patients, our people, and our performance. These priorities are closely connected. Delivering high-quality care and a great patient experience requires talented and engaged people. And when we consistently deliver in these areas, strong and sustainable financial performance follows. A significant milestone for our organization occurred this past week with the closing of our Village family dental transaction. Village brings 47 doctors across 12 practices into Park Dental Partners and expands our reach into our fourth state, North Carolina. While this transaction meaningfully increases our scale, what makes it particularly compelling is the alignment between our two organizations. Village has built an outstanding culture with a long-standing reputation for high-quality clinical care, strong doctor leadership, and a commitment to the communities it serves. These are values that closely mirror our own. We are honored that Village Families, doctor partners, and leadership selected Park Dental Partners to help steward the next chapter of their organization. Our responsibility is to preserve the strengths that have made Village Families successful while providing the resources infrastructure and support to help its doctors and team members continue to thrive our integration efforts are underway with an immediate emphasis on keeping patient schedules full to finish the year strong support local leadership and establishing the operational relationships and processes that will support long-term success. Over time, we see meaningful opportunities to share best practices, leverage our combined resources, and support continued growth across the organization. As we have said before, our growth strategy is more than just about adding practices. It's about bringing together people with shared values, strong clinical leadership and the potential to create lasting value village family dental represents an important step forward in that strategy CJ will provide additional details regarding the transaction and its impact on our updated full-year outlook turning to the third quarter our results reflect continued progress and executing on our long-term growth strategy we grew revenue expanded our affiliated doctor base and continued investing in clinical capacity to serve more patients third quarter revenue increased 6% year over year including same practice revenue growth of 3.2% patient retention remained above 90% and with village family we now have 272 affiliated doctors. We also expanded our footprint in Arizona through the acquisition of Sapphire Dental in September. Importantly, our third quarter top-line results remain consistent with our expectations. We continue to believe the combination of consistent organic growth, disciplined investment, and increasing scale positions Park Dental partners well for the years ahead. From an operational perspective we continued to make progress expanding our clinical capacity during the quarter recruiting and retaining talented doctors and team members remains a central priority because our ability to grow organically depends on having the clinical resources available to meet patient demand of note we've increased our team of hygienists by over 8% in the third quarter our team saw a market opportunity and capitalized on hiring and hiring initiative that will drive increased capacity for 2027 there will be some additional cost in the second half of this year to onboard and ramp up these new team members but we view these investments in capacity as an important foundation for future growth as newly added doctors and hygienists build their patient schedules and increased production, we expect to benefit from improved utilization of our existing facilities and infrastructure. Our focus is on converting that additional capacity into revenue growth and stronger operating margins. Looking ahead, our long-term growth strategy remains unchanged. We intend to grow organically by expanding clinical capacity and improving productivity within our existing practices, while complementing that growth through affiliations with high-quality dental practices, selective de novo development, and thoughtful geographic expansion. Our acquisition pipeline remains strong from single practice targets to large dental groups, and we will selectively add practices and doctors that align with our values. The addition of Village Family Dental is a meaningful example of that strategy in action. We will remain focused on disciplined execution and integration, thoughtful capital allocation, and building an organization that creates long-term value for all stakeholders, our patients, our people, and our shareholders. Our foundation continues to be a patient-first culture, a commitment to doctors and leadership, in both governance and management of the organization and a long-term commitment to clinical excellence. We believe those attributes distinguish Park Dental partners and provide a strong foundation for continued growth. With that, I'll turn the call over to CJ for a more detailed review of our financial results and outlook. Thanks, Pete. Good morning, everyone. We were pleased with third quarter revenue as the quarter was in line with our expected growth, totaling $64.9 million, an increase of 6% over the prior year period. Revenue growth was primarily driven by favorable reimbursement trends, acquisitions completed in the past 12 months, and growth in clinical hours. Acquisitions completed during the trailing 12 months contributed approximately $1.2 million of revenue in the quarter. In practice, revenue growth was 3.2% for the quarter, which was a slight acceleration from the second quarter. Patient visits were approximately 181,000 during the quarter and patient retention was 90.2%. We ended the quarter with 225 affiliated doctors across 88 practice locations. With a village transaction, we now have 272 doctors and 100 practices. Turning to profitability, gross margin was $8.2 million for the third quarter, with adjusted gross margin of $12.1 million, or 18.6% of revenue. The decline in gross margin is primarily driven by higher salaries and benefits expense, including doctor share-based compensation associated with our transition to a public company. Adjusted gross margin increased modestly in dollars, but declined 80 basis points as a percentage of revenue. Third quarter net income was 1.7 million or 27 cents per diluted share reflecting our share count increase from our December IPO. Adjusted EBITDA was 5 million or 7.7 percent of revenue compared with 5.3 million or 8.7 percent of the revenue. A couple of things impacted our adjusted EBIT in the third quarter. One, as Pete mentioned, we invested in our team of hygienists with a goal of seeing increased production in the future. We are pleased with what we are seeing so far and expect to drive increased production in 2027. The other was a $500,000 impact related to the cybersecurity event that we had earlier in the quarter. Although all indications are that the disruption was minimal, we estimate the $500,000 impact by factoring in temporary production disruption for a few days and professional fees related to the event. While this event affected our third quarter results, it has not changed the underlying fundamentals of the business. Adjusted diluted earnings per share was $0.57 compared to $1.19 in the prior year period. As has been the case all year, we are seeing the impact of EPS of becoming a public reporting company in December 2025. We look forward to more meaningful comparisons next year. Overall, we're pleased with our performance during the quarter. At September 30th, we had $23.2 million of cash and cash equivalents and approximately $10.6 million of total debt. Our $15 million revolving credit facility was undrawn at quarter end. Operating cash flows were $12 million in the first nine months of 2026, compared with $16.8 million in a prior year period. The year-over-year change is primarily driven by the timing of working capital, and year-to-date capital investments were $7.6 million. After quarter end, we utilized a portion of cash on hand, and part of our existing credit facility to close the Village family transaction. For some additional context on Village, let me start by reiterating what Pete said earlier. We are pleased to bring on such a quality organization. Village generated approximately $45 million of revenue in 2024 and $50 million in 2025, with historical adjusted EBITDA margins of approximately 10%. We think that provides a useful perspective on the historical scale and financial profile of the business. We view Village as an attractive business on a standalone basis, and our acquisition thesis does not depend on achieving significant synergies. We do, however, see opportunities over time to leverage the combined organization's scale, capabilities, and resources to create additional value. We also expect Village to create additional M&A opportunities in North Carolina, as Village has had a strong brand in that state and has acquisition experience of their own over the past few years. Since the transaction did not close until last week, there is no impact from Village included in our third quarter financial performance. Our updated full year 2026 outlook does include the expected contribution from the closing date of November 6th through December 31st. To briefly summarize the transaction, it included $39.1 million of base consideration plus $6.9 million of contingent consideration. The $39 million base was funded with a mix of cash, our existing credit facility, and stock. We issued 475,000 shares as a component of that, representing approximately 24% of the consideration. We also amended our credit facility to expand the line of credit from $15 million to $25 million in conjunction with the closing. The contingent consideration is based on adjusted EBITDA targets and doctor retention and will be paid in cash if achieved in future periods. Turning to guidance, based on our performance through the first nine months of 2026, OUR CURRENT EXPECTATIONS FOR THE REMAINDER OF THE YEAR AND THE POST-CLOSING CONTRIBUTION FROM VILLAGE FAMILY WE ARE UPDATING OUR FULL YEAR 2026 OUTLOOK REVENUE OF 262 TO 265 MILLION COMPARED WITH PRIOR OUTLOOC OF 256 TO 260 MILLION ADJUSTED EBITDA 21.2 MILLION TO 22.2 million, compared with prior outlook of 21 to 23 million, and adjusted EBITDA margins of 8.1 to 8.4 percent. The updated outlook incorporates our current assumptions for patient demand, clinical capacity, and operating costs. It also includes village family projections from November 9th through the end of the year, investment in hygiene hiring, which we expect to yield additional volume in 2027, and also the third quarter cyber event. We expect to provide our full year 2027 outlook in connection with our fourth quarter and full year 2026 results tentatively planned for early March 2027. In summary, we were pleased with the third-quarter revenue and same practice growth and we remain confident and our full-year outlook. We have added clinical capacity, completed an important acquisition, and maintained financial flexibility. As we grow and add more practices and doctors, we expect scale, improved utilization, and operating leverage to support expanding, earnings conversion, and margins over time. With that, I'll turn the call back to Pete. Thank you, CJ. As мы конклют our prepared remarks, I want to again extend a warm welcome to the doctors and team members of Village Family Dental. We recognize the responsibility that comes with bringing our organizations together, and we are committed to preserving the strong clinical culture and local leadership that have contributed to Village Family's success. Before we open the call for questions, I want to recognize two special milestones that reflect the strength of our people and our organization. Yesterday, our CFO, CJ Bernander, was recognized by the Minneapolis St. Paul Business Journal as a CFO of the Year. This is a well-deserved honor, and I want to personally congratulate CJ on this recognition. We also recently held our annual Legacy Club event, at which we recognized over 300 individuals who have dedicated 20 or more years of service to Park Dental Partners. This was a remarkable group including 28 current doctors, 217 current team members, and 61 retirees. These milestones speak to something we value deeply at Park D dental Partners. Talented people, enduring relationships, and a culture built on long-term commitment. As we look ahead, our priorities remain clear, delivering great care to our patients, investing in our people, successfully integrating Village Family Dental, and leveraging our growing scale to drive sustainable revenue growth and improve financial performance over time. We are excited about the opportunities ahead and remain focused on building long-term value for our patients, our people, and our shareholders. Thank you for your continued interest in Park Dental Partners. With that, we'll be happy to open it up for questions. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Mike Grondahl with Northland. Your line is open. Hey, guys. Thank you. My first question, on the investment in clinical capacity, I think that was primarily hygienists. But could you talk about, I don't know, what that investment was in dollars or sort of how many FTEs that picks up in hygienists or doctors? Right, this is CJ. Thanks for your question. Yeah, we're excited about our continuing growth in our clinical capacity, both from a doctor and a team member perspective. As Pete said on the call, we grew in the quarter our team of hygienists by 8%. While we don't still publish the exact numbers of that, we saw that as a meaningful opportunity to increase the clinical capacity for what we're seeing is the solid patient demand, both with our existing patients and new. So if you think about it from a full year perspective, how we like to think about is that it's a modest investment in a little bit in Q3, a little bit in q4 here as we onboard and bring those people up to their operating capacity and we expect it's going to help us continue to drive patient access and production growth as we head into 2027 got it and so did you say 8% hygienists were up the count of hygienist were up 8% year-over-year is is that the right way to think about it quarter over quarter mike quarter over a quarter okay got it so from june to september yeah got it and then um you you mentioned the 475 000 shares as part of the acquisition and the the 39 million dollar base but can you can you say how much cash you used and what you specifically pulled down on the line Yeah, so we used cash on the balance sheet, Mike, and we had a small draw on the line. I think it was around $5 million, but we actually ended the week here last week with, I think, $5 or $6 million. So we actually had enough cash fully on hand to cover the cash component of that. So, if you factor out contingent consideration, which will be paid in the future upon achieving those milestones in the stock, the right way to think about it is we have enough ample cash on hand to cover the cash components with a very modest dip into the line, just for working capital purposes. Got it. um and then just lastly how would you describe the acquisition pipeline discussions you're having um you know I know that ebbs and flows but where is that today yeah Mike this is Pete thanks for the question first I just like to acknowledge the recent closing of the village family deal yeah we had been working on that one for quite some time pretty deep relationships with the doctors and and leadership and that that group so really excited about that one I would say continuation from what we discussed last quarter in terms of the pipeline we're going to be continuing to see a nice balance of smaller and larger opportunities in the pipeline and village actually village family given that they've been operating in North Carolina for 40 years has a lot of nice relationships around the state they also have a history of growing through acquisition and so we'll be leveraging that as well that capability and looking forward to more growth in North Caroline and our other markets sounds good thanks guys thank you Mike thank you our next question comes from Matt Hewitt with Craig Hallam Capital Group your line is open good morning and congratulations on the progress um maybe first up regarding the the additions of new hygienists obviously that's a leader right you need them to when the patients first sit down But does there create a pinch point when you reach maybe a greater capacity with a hygienist that you ultimately will need to add more doctors? Or can those be managed? Like, do you feel like the doctors maybe weren't being fully utilized? Yeah, Matt, this is Pete. I'd say it was a mix. We had some doctors who were looking to replace hygienists that they had lost, and then we have additional doctors that were added this year. So we needed to build out those teams around them, their assistants hygienists so it's a mix and be a good problem to have if all of our hygienist are completely at capacity and our doctors through those exams are identifying operative care that our patients might need we'll be looking to to forecast that that utilization reaching a point where we need to be considering adding more hygiene more doctor time in each of the practices got it and then yep go ahead I'd add to that you heard us talk in past quarters about our organic growth strategies and that we believe that we've got capacity in our current practices to continue to grow and this really represents a growth opportunity within that. Okay, that makes complete sense. Shifting gears a little bit, you noted the cybersecurity event, unfortunate $500,000 cost. Is that cost above and beyond what I assume would be an insurance payment to at least cover a portion of that? Or do you anticipate obtaining, you know, some type of reimbursement that might cover some or all of that $500,000. Matt, when you think about that in our remarks, we positioned it and would like you to think about it as a combination of two things. The first is when we had that event, we did have some temporary production disruption for about a day and a half and we had a number of patients which we just had to cancel a few appointments for as we we had some system issues the so it's a combination of that sort of temporary production loss plus the we do have cybersecurity insurance and it's the initial amount that would run up to our uh, our policy limits, uh, that, that we've incurred. So think about it that way. Got it. And then maybe last one, and this might be just more of a reminder when you initially acquire. So in the case of village family, obviously, and they were a very well-run business, but there's some investments that you're going to be making over the very near term to kind of get them on board with the Park Dental program. And that typically weighs on gross margins and EBITDA margins over a shorter period. But is that still the case with someone like Village Family who is being run extremely profitably for a long time? Or maybe you don't see that initial impact to margins? Thank you. Matt, you're spot on. We think that it's a great business. We're excited to be partnering with them, and as we've thought about moving forward, it's a little bit different than the integrations of the smaller practices that we have that might be a one or two-doctor practice, but encouragingly, they do run on the same practice management system that we operate as well, Dennecon, and there will be some coordinations and help in the integration with that. I think our team is focused on making sure first and foremost that the patient experience remains the same across Village. And as we move forward, we'll look to leverage best practices across both organizations into 2027. We do anticipate we'll have some integration costs as we work together to bring them fully into the fold. But we do expect that, you know, Our plan is to support them in their growth and continuing operating efficiency as they move forward. Got it. All right. Congratulations on the progress. Thank you. Thank you, Matt. Thank you for your time. This concludes the question and answer session. I would now like to turn it back to C.J. Bernander for closing remarks. Thank you everyone for attending our earnings call this morning. and we appreciate your interest in Park Dental Partners. Looking forward to our next interactions with you. Before we wrap, we do have several opportunities to engage with investors over the coming weeks. On November 23rd, we'll be participating in the U.S. Bank Corp. VTIG tech-enabled healthcare platform. On December 10th, we will be holding a virtual Craig Hallam non-deal roadshow. And on December 16th, we'll have the Northland Securities Winter Conference. We appreciate your continued interest in Park Dental Partners and look forward to meeting with investors at these events. Have a great rest of your day. This concludes today's conference call. Thank you for participating. You may now disconnect.