SOURCE: American Dental Partners, Inc.

July 31, 2006 16:06 ET

American Dental Partners Reports Second Quarter and First Half 2006 Financial Results

WAKEFIELD, MA -- (MARKET WIRE) -- July 31, 2006 -- American Dental Partners, Inc. (NASDAQ: ADPI) announced financial results today for the quarter and six month period ended June 30, 2006.

Comparing the second quarter of 2006 with the second quarter of 2005:

--  Net revenue was $55,078,000 as compared to $49,427,000, an increase of
    11%.
--  Earnings from operations were $5,723,000 as compared to $5,280,000, an
    increase of 8%. Excluding stock-based compensation expense from 2006
    results (discussed below), earnings from operations increased 15%.
--  Net earnings were $3,183,000 as compared to $2,954,000, an increase of
    8%. Excluding stock-based compensation expense from 2006 results (discussed
    below), net earnings increased 15%.
--  Diluted net earnings per share were $0.25, as compared to $0.23, an
    increase of 9%. Excluding stock-based compensation expense from 2006
    results (discussed below), diluted earnings per share increased 17%.
--  Diluted cash net earnings per share were $0.31 as compared to $0.29,
    an increase of 7%. Excluding stock-based compensation expense from 2006
    results (discussed below), diluted cash net earnings per share increased
    14%.
    
Comparing the first six months of 2006 with the first six months of 2005:
--  Net revenue was $109,144,000 as compared to $97,572,000, an increase
    of 12%.
--  Earnings from operations were $10,811,000 as compared to $9,865,000,
    an increase of 10%. Excluding stock-based compensation expense from 2006
    results (discussed below), earnings from operations increased 16%.
--  Net earnings were $5,974,000 as compared to $5,463,000, an increase of
    9%. Excluding stock-based compensation expense from 2006 results (discussed
    below), net earnings increased 17%.
--  Diluted net earnings per share were $0.46 as compared to $0.43, an
    increase of 7%. Excluding stock-based compensation expense from 2006
    (discussed below), diluted net earnings per share increased 16%.
--  Diluted cash net earnings per share were $0.59 as compared to $0.55,
    an increase of 7%. Excluding stock-based compensation expense from 2006
    (discussed below), diluted cash net earnings per share increased 13%.
    
Patient revenue of the Company's affiliated dental group practices, which is not consolidated with the Company's financial results and is a non-GAAP financial measure, was $84,047,000 for the quarter as compared to $75,821,000 for the prior year's same quarter, an increase of 11%. Same market revenue growth for the Company's affiliated dental group practices as measured by patient revenue was 10% for the quarter.

For the quarter, cash flow from operations was $6,678,000, capital expenditures were $1,368,000 and amounts paid for affiliations, including contingent payments and affiliation costs, amounted to $3,690,000. The Company expanded two dental facilities and completed four practice affiliations which were combined with its existing affiliated dental group practices in Arizona, New York, Texas and Wisconsin. The Company also completed one platform affiliation with Deerwood Orthodontics and entered into a Service Agreement with a professional association in Minnesota with the intention of developing two de novo practices. The Company intends to operate this affiliation separate from its existing Minnesota affiliates.

The Company's debt to total capitalization stood at 19% at June 30, 2006, compared to 24% at December 31, 2005. The Company achieved an annualized cash return on committed capital of 21% for the quarter and cash return on equity of 15% for the quarter.

The Company adopted Statement of Financial Accounting Standards No. 123 (R) "Share-Based Payment," effective January 1, 2006. As a result, the Company recognized $374,000 in stock-based compensation expense, $227,000 net of tax or $.02 per diluted share, during the second quarter and $677,000 in stock-based compensation expense, $411,000 net of tax or $.03 per diluted share, during the six months ended June 30, 2006.

During the second quarter, the Company incurred approximately $370,000 in legal fees related to the previously announced litigation between the Company's Minnesota subsidiary, PDHC, Ltd., and PDG, P.A., the affiliated practice at Park Dental. The Company has been made aware that PDG, P.A. is no longer accredited by the Accreditation Association for Ambulatory Health Care.

Cash net earnings and cash earnings from operations are non-GAAP financial measures. In accordance with the requirement of SEC Regulation G, please see the attached financial tables for a presentation of the most comparable GAAP measures and the reconciliation to the nearest GAAP measure and all additional reconciliations required by Regulation G.

For further discussion of these events and a comprehensive review of the second quarter ended June 30, 2006, the Company will host its previously announced conference call on Tuesday, August 1, 2006 at 10:00 a.m. EDT, which will be broadcast live over the Internet at www.amdpi.com. The call will be hosted by Gregory A. Serrao, Chairman, President and Chief Executive Officer. To access the webcast, participants should visit the Investor Relations section of the website at least fifteen minutes prior to the start of the conference call to download and install any necessary audio software. A replay of the webcast will be available at www.amdpi.com and www.streetevents.com approximately two hours after the call through 6:00 p.m. EDT Tuesday, August 8, 2006.

American Dental Partners is one of the nation's leading business partners to dental group practices. The Company is affiliated with 20 dental group practices which have 200 dental facilities with approximately 1,873 operatories located in 18 states.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: With the exception of the historical information contained in this news release, the matters described herein contain "forward-looking" statements that involve risk and uncertainties that may individually or collectively impact the matters herein described, including but not limited to the possibility that we may not realize the benefits expected from our acquisition and affiliation strategy, economic, regulatory and/or other factors outside the control of the Company, which are detailed from time to time in the "Risk Factors" section of the Company's SEC reports, including the annual report on Form 10-K for the year ended December 31, 2005.

                      AMERICAN DENTAL PARTNERS, INC.
                           FINANCIAL HIGHLIGHTS
                 (in thousands, except per share amounts)
                                (unaudited)

                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                    ------------------- -------------------
                                      2006      2005      2006      2005
                                    --------- --------- --------- ---------

Net revenue                         $  55,078 $  49,427 $ 109,144 $  97,572
Operating expenses:
     Salaries and benefits             22,396    20,595    44,936    40,977
     Lab fees and dental supplies       8,971     7,976    17,682    15,610
     Office occupancy expenses          6,482     5,498    12,817    11,028
     Other operating expenses           4,850     4,565     9,668     9,127
     General corporate expenses         3,378     2,602     6,730     5,200
     Depreciation expense               1,939     1,669     3,851     3,314
     Amortization of intangible
      assets                            1,339     1,242     2,649     2,451
                                    --------- --------- --------- ---------
          Total operating expenses     49,355    44,147    98,333    87,707
                                    --------- --------- --------- ---------
Earnings from operations                5,723     5,280    10,811     9,865
     Interest expense, net                470       392       954       822
                                    --------- --------- --------- ---------
Earnings before income taxes            5,253     4,888     9,857     9,043
     Income taxes                       2,070     1,934     3,883     3,580
                                    --------- --------- --------- ---------
Net earnings                        $   3,183 $   2,954 $   5,974 $   5,463
                                    ========= ========= ========= =========

Net earnings per common share:
     Basic                          $    0.26 $    0.25 $    0.49 $    0.46
                                    ========= ========= ========= =========
     Diluted                        $    0.25 $    0.23 $    0.46 $    0.43
                                    ========= ========= ========= =========
Weighted average common shares
 outstanding:
     Basic                             12,280    11,960    12,275    11,915
                                    ========= ========= ========= =========
     Diluted                           12,848    12,635    12,850    12,585
                                    ========= ========= ========= =========



                      AMERICAN DENTAL PARTNERS, INC.
                           FINANCIAL HIGHLIGHTS
                              (in thousands)
                                (unaudited)


                                                   June 30,   December 31,
                                                     2006         2005
                                                 ------------ ------------
ASSETS
Current assets:
     Cash and cash equivalents                   $      2,081 $        592
     Receivables due from affiliated dental
      group practices                                  14,415       14,751
     Other current assets                               7,362        6,966
                                                 ------------ ------------
          Total current assets                         23,858       22,309
                                                 ------------ ------------

Property and equipment, net                            44,682       45,184
                                                 ------------ ------------
Other non-current assets:
     Goodwill                                           5,095        5,095
     Intangible assets, net                            98,789       97,260
     Other assets                                         612          798
                                                 ------------ ------------
          Total non-current assets                    104,496      103,153
                                                 ------------ ------------
          Total assets                           $    173,036 $    170,646
                                                 ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable and accrued expenses       $     21,632 $     20,131
     Current maturities of debt                           123          123
                                                 ------------ ------------
          Total current liabilities                    21,755       20,254
                                                 ------------ ------------
Non-current liabilities:
     Long-term debt                                    26,108       32,039
     Other liabilities                                 16,269       16,458
                                                 ------------ ------------
          Total non-current liabilities                42,377       48,497
                                                 ------------ ------------
          Total liabilities                            64,132       68,751
                                                 ------------ ------------

Commitments and contingencies
Stockholders' equity                                  108,904      101,895
                                                 ------------ ------------
          Total liabilities and stockholders'
           equity                                $    173,036 $    170,646
                                                 ============ ============



                      AMERICAN DENTAL PARTNERS, INC.
                        Supplemental Operating Data
                              (in thousands)
                                (unaudited)

    Reconciliation of GAAP earnings, as reported, to cash net earnings


                                             Three Months     Six Months
                                                Ended           Ended
                                               June 30,        June 30,
                                            --------------- ---------------
                                             2006    2005    2006    2005
                                            ------- ------- ------- -------


Net earnings (as reported)                  $ 3,183 $ 2,954 $ 5,974 $ 5,463
Add: Amortization of intangible assets, net
 of tax                                         811     750   1,605   1,480
                                            ------- ------- ------- -------
Cash net earnings (1)                       $ 3,994 $ 3,704 $ 7,579 $ 6,943
                                            ======= ======= ======= =======


Weighted average common shares outstanding   12,848  12,635  12,850  12,585
                                            ======= ======= ======= =======
Diluted net earnings per share              $  0.25 $  0.23 $  0.46 $  0.43
                                            ======= ======= ======= =======
Diluted cash net earnings per share (1)     $  0.31 $  0.29 $  0.59 $  0.55
                                            ======= ======= ======= =======



Calculation of cash return on committed capital and cash return on equity
      for the three and six months ended June 30, 2006 and 2005

                                 Three Months Ended     Six Months Ended
                                      June 30,              June 30,
                                --------------------  --------------------
                                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------

Earnings from operations        $   5,723  $   5,280  $  10,811  $   9,865
Add back:  Amortization of
 intangible assets                  1,339      1,242      2,649      2,451
                                ---------  ---------  ---------  ---------
Cash earnings from operations
 (2)                            $   7,062  $   6,522  $  13,460  $  12,316
                                =========  =========  =========  =========
Annualized cash earnings from
 operations                     $  28,248  $  26,088  $  26,920  $  24,632
                                =========  =========  =========  =========

Average committed capital (3)   $ 133,902  $ 122,693  $ 134,596  $ 120,041

Cash return on committed
 capital (2)                           21%        21%        20%        21%

Net earnings                    $   3,183  $   2,954  $   5,974  $   5,463
Add back:  Amortization of
 intangible assets, net of
 taxes                                811        750      1,605      1,480
                                ---------  ---------  ---------  ---------
Cash net earnings (1)           $   3,994  $   3,704  $   7,579  $   6,943
                                =========  =========  =========  =========
Annualized cash net earnings    $  15,976  $  14,816  $  15,158  $  13,886
                                =========  =========  =========  =========

Average stockholders' equity
 (3)                            $ 107,078  $  92,280  $ 105,400  $  90,535

Cash return on equity (2)              15%        16%        14%        15%


                      AMERICAN DENTAL PARTNERS, INC.
                        Supplemental Operating Data
                              (in thousands)
                                (unaudited)

       Patient revenue of the affiliated dental group practices (4)



                Three Months Ended              Six Months Ended
                     June 30,           %           June 30,         %
                -------------------           --------- ---------
                  2006      2005     Change     2006      2005     Change
                --------- --------- --------  --------- --------- --------
Patient revenue
 - affiliated
 practices:
  Platform
   dental
   groups
   affiliated
   with the
   Company in
   both periods
   of
   comparison
   (5)          $  83,519 $  75,821       10% $ 161,899 $ 145,555       11%
  Platform
   dental
   groups that
   affiliated
   with the
   Company
   during
   periods of
   comparison         528         -      N/A      6,434     3,808       69%
                --------- --------- --------  --------- --------- --------
Total patient
 revenue           84,047    75,821       11%   168,333   149,363       13%
Amounts due to
 the Company
 under service
 agreements        53,832    48,148       12%   106,808    95,063       12%
                --------- --------- --------  --------- --------- --------
Amounts
 retained by
 affiliated
 practices      $  30,215 $  27,673        9% $  61,525 $  54,300       13%
                ========= ========= ========  ========= ========= ========
(1) Cash net earnings and diluted cash net earnings per share are not measures of financial performance under GAAP. Cash net earnings excludes amortization expense related to intangible assets, net of tax. The Company incurs significant amortization expense related to its service agreements while many companies, both in the same industry and other industries, no longer amortize a significant portion of their intangible assets pursuant to Statement of Financial Accounting Standards No. 142 - Goodwill and Other Intangible Assets. The Company believes that cash net earnings and diluted cash net earnings per share are important financial measures for understanding its relative financial performance.

(2) Cash earnings from operations is not a measure of financial performance under GAAP. The Company believes that cash return on committed capital and cash return on equity are useful financial measures for understanding its financial performance.

(3) Average committed capital calculated as average of beginning of quarter and end of quarter debt, including current portion, plus stockholders' equity. Average stockholders' equity calculated as average of beginning of quarter and end of quarter stockholders' equity.

(4) Patient revenue of the affiliated dental group practices is not consolidated with the Company's financial statements.

(5) Same market patient revenue excludes new platform affiliations that occurred during the periods of comparison in which a new service agreement was entered into.

Contact Information

  • Contacts:
    Gregory A. Serrao
    Chairman, President and
    Chief Executive Officer
    781-224-0880

    Breht T. Feigh
    Executive Vice President,
    Chief Financial Officer and Treasurer
    781-224-0880

    American Dental Partners, Inc.
    201 Edgewater Drive, Suite 285
    Wakefield, MA 01880
    Phone: 781/224-0880
    Fax: 781/224-4216