The fundamental flaw to your analysis is to assume that practice earnings evaporate once the initial 5-year agreement with the selling dentists expires - this is simply not borne out by even a cursory examination of the facts. You've repeated this criticism ad nauseum over the years and with every year that goes by, you're just getting more wrong i'm afraid.
ONT had 20 practices at the end of 2010 (i.e. roughly 5 years ago), and they generated $4.3m NPAT (this was when the CDDS was in full swing, too). According to your understanding of how the business model works, i should expect those same 20 practices to now be generating next-to-no NPAT to me as an ONT shareholder, because all the dentists have cashed in their chips and left to go elsewhere (i.e. 5 years has passed so those practices should be worthless to ONT because the dentists have up and left).
If i look at the facts, i see ONT now owns 25 practices (it's on their company website) and generated $3.4m NPAT for the first half, so without doing a lot they should earn ~$7m NPAT this year. Now, i have to assume that 20 of those practices owned since 2010 or earlier are now generating almost nothing because that's effectively your thesis, so what you're really telling us is that the 5 practices purchased since 2010 are entirely responsible for ONT's ~$7m 2015 NPAT? Those 5 must be extremely busy practices indeed!
Here's the rub, Kingee - *of course* some dentists disappear after the 5 years and the goodwill vanishes. Holmes would concede that, as would i - it's human nature and unavoidable. Unless ONT reported profits at the individual practice level we'll never know exactly how each practice is performing relative to its post-acquisition cycle but, as is clearly borne out by the facts, the reality for ONT is that the *vast majority* of the practices they acquire remain profitable long after the initial 5 years post acquisition - it's a mathematical impossibility for anything else to be the case. And i would go even further to suggest that, not only do a majority of practices remain substantially profitable long after the initial 5 years is up, but they are *substantially more profitable* to ONT in years 5+ than they were in year 1 at the time of acquisition.
If you have (any) evidence to suggest that the profitability of ONT's practices is, en masse, going to zero post year 5 as senior dentists leave, please post it. Otherwise, your hypotheses tend to come across as shrill carping and don't really add much to the conversation.
ONT Price at posting:
$6.60 Sentiment: Hold Disclosure: Held
