Dental Patient Care America, Inc. (DPAT)

Dental Patient Care America, Inc. (DPAT) is a Utah-based dental cooperative that helps independent dentists reduce operating costs for their practices.

Member dentists pay a monthly fee to access the following services:

* Bulk supply discounts

* Negotiated insurance rates

* Payment processing solutions

* Outsourced HR services

* Financing relationships

* Practice transition assistance

The cooperative model allows dentists to remain autonomous while gaining the advantages of scale typically available only to large corporate dental groups.

The business has steadily grown over the past 20 years, and now has 750 members across 9 states.

The company has a long operating history, being founded in 1998 and listing on the OTC in 2001. At the time, it both operated as a cooperative and acquired dental practices to run themselves.

The company entered bankruptcy in 2009 after struggling to service debt incurred from practice acquisitions. As a result, it sold non-core operations to focus exclusively on the cooperative model.

After this point the company dropped to the pink sheets and ceased SEC reporting. They have continued operating in obscurity, ending all communication with investors and publishing once-yearly financial disclosures.

Despite its very small size, the company operates a durable and attractive business model.

Firstly there is a clear demand for this structure. Independent practice ownership has declined dramatically since the early 2000s when 70% of practices were independent, compared to only 30% today.

This decline in independent practices has coincided with the rise of Dental Service Organizations (DSOs), which provide administrative and operational support so dentists can focus on patient care.

As running a small practice has become more complex and costly, many dentists have joined DSOs or large corporate practices.

The drawback is that DSOs effectively turn dentists into employees of their own practices, resulting in loss of autonomy and forced revenue sharing.

Cooperatives serve the niche of dentists who want to retain independence while still gaining the efficiencies and cost savings of a larger network.

Because the cooperative’s value comes from from vendor relationships and member purchasing power, this business requires virtually no capital to operate. Gross margins are 100%, and the only company expenses are employee salaries and leased office space.

The company also produces consistent operating results, with memberships slowly rising over time. Dentists only join after determining the value exceeds the cost of membership, which keeps churn low.

Like most cooperatives, DPAT generally operates near break-even, as its main goal is membership growth rather than profit maximization. Because of this member fees are usually limited to cover operating expenses.

However, membership is sticky and there is implicit pricing power as the company would likely be able to modestly increase membership dues without experiencing much churn. This makes the model more attractive than the financials might initially suggest.

In 2022, DPAT formed a subsidiary, ERC Dental Associates LLC,to help dentists file for the Employee Retention Credit (ERC). This was a refundable payroll tax credit created under the CARES Act to help businesses retain employees during COVID.

This subsidiary assisted dentists with the filing process and charged a fee based on the credit obtained. This proved to be a major windfall for the company, doubling revenue and generating ~$2 million in cash flow across 2022 and 2023.

Although this was clearly a short-term source of revenue and has largely wound down, this segment still accounted for 18% of FY24 revenue.

The success of this subsidiary materially strengthened the company’s balance sheet, leaving them with a cash pile that dwarfs the current market cap.

* _Price: $.0247_

* _Market cap: $595K_

* _Net cash: $2.04M_

* _FY24 Net Income: $256K_

* _P/E: 2.3x_

At today’s price, investors can buy the company for just 29% of its cash balance.

A company trading at such a discount to their cash holdings usually implies a dying business.

But the opposite is actually happening here. This is a stable, utility-like business and the core membership revenues continue to grow.