How 1 CFO approaches the economic challenges facing today's dental industry

Despite several economic challenges facing the dental and oral health industries, Henry Moomaw does not find it difficult to remain optimistic.

Mr. Moomaw is the CFO of Irving, Texas-based U.S. Oral Surgery Management, a management services organization supporting oral surgery practices in 24 states. He has more than 25 years of financial leadership experience working with public and private companies. 

Mr. Moomaw recently spoke with Becker's about the economic challenges facing dental practitioners, how businesses can remain financially stable and his outlook for the industry.

Editor's note: Responses were lightly edited for clarity and length.

Question: What are some of the greatest financial challenges facing the industry today?

Henry Moomaw: The past year is really when it began and we all saw it in terms of inflation. We saw the feds raising the interest rates, one of the key indicators there to try and keep up with the inflation. Where we've specifically seen it at our company and in the oral surgery sector is the increased labor cost. As a result of that, we have to take action to make sure we keep our good team of employees and make sure we're proactive there because we have a lot of employees at the lower levels that will leave for what we would consider pretty small amounts of money or pumps in their compensation. They will leave to go get it because it is available to them. The market's very tight for good labor and companies have to be very proactive and make sure they treat the employees well, develop them and do their best to retain them. So that's created a good bit of labor increases we've experienced over the past year. 

Along with that, the interest rate increases for the world of private equity. Most companies have a good bit of debt on the balance sheet and those interest rates increasing certainly have created a little more of a burden for those companies than in prior years. So it's really important to have a good balance sheet and good standing with your lenders. Otherwise, you may run out of capital to continue to grow. We've heard of some competitors in our space and in other specialties in the dental world that have run into challenges continuing their M&A growth because they've literally run out of dry powder. We are in a situation that is not that way. We've got a tremendous relationship with our lenders and have continued to grow and achieve results. Our lenders are very supportive and we have a lot of dry powder to continue the M&A growth, but we know we're a little unique in that way. We hear others have challenges and had to cut back on some of those efforts.

Q: How do these economic challenges affect private practices differently than corporate dental groups?

HM: Particularly in the practice, it is those labor challenges. Previously, they might have been able to pay $22 an hour for surgical tech or office staff and now they can't keep them. They're having to bump up the pay, which is just cutting into the profits at the individual practice. We've tried to support our teams in the field who recently put in place a temporary inflation adjustment, which basically puts a 3 percent temporary increase in place for all non-equity employees of the company as long as the consumer price index exceeds 5 percent. So it's a 3 percent bump in their pay [that] stays in place until the CPI drops below 5 percent, which has not happened yet. We expect at some point this year it will do that and that'll go away, but this has been very successful thus far. We've seen our turnover rates drop a good bit since the implementation of this program at the start of this year.

Q: What are some other methods dental and oral health businesses can implement to remain financially stable and continue growth?

HM: The key one is to invest in your teams. It's shortsighted to think, "Well, I'm not going to pay them that extra dollar, $2 here or give them that temporary increase to fight inflation." They're going to lose good staff and I think there's a lot more cost to that in most cases if you lose your good team of individuals. With the doctors, that's going to hurt you more in the long run. You're going to possibly have to defer patients on the schedule, losing that revenue completely because you can't service them. Or worst case scenario, the patient care levels go down if you don't have a strong staff. So if you have good patient care and a good team, we think it's a little better to go ahead and overpay them a little bit just to make sure you are keeping them employed and performing well at your practice.

Q: Do you have an estimate on when dental practices could see some relief from these economic challenges?

HM: As the feds kind of indicated, they expect to have a couple more [interest rate] increases this year and hopefully mid-year we'll start settling down. We're certainly hopeful of that as well. I guess on the good side we're seeing forecasts that the global dental market is expected to have very steady growth between now and the next five years. There's increasing adoption of technology, a lot of growth as a result of that, a lot of resiliency and growth in the dental practice. They're our referral base. They do well, we do well. So that's a good outlook for the next five years. 

Q: What are some of the key decisions you are faced with daily as a CFO in today's industry?

HM: It is continuing to manage in this inflationary space [and] trying to keep ahead of it, trying to be proactive. A lot of the rumored things related to supply chain interruptions we haven't experienced. Other industries have, [but] we have not seen it in our world. For example, implants are a very important part of our business. We've had to watch very carefully and make sure our suppliers have adequate supplies and can supply us with the implants as ordered and we haven't seen any disruption. You've probably seen that in other industries all over the U.S. You order a product and it's like, "Well thank you for your order. We'll deliver your product in six months." That would not work for us. We've not seen that supply chain disruption, but it's something we're constantly watching. And again, we're trying to be proactive on the employee front with the labor rate inflation, trying to get ahead of that and make sure we keep our good employees by staying ahead of it with very creative policies that our HR team has helped get implemented with this temporary inflation adjustment.

Q: Do you find it difficult to remain optimistic as a CFO having to deal with these challenges?

HM: No, I think we look at it as a kind of short-term pain. We do the necessary proactive things to manage the short term but always have the long-term horizon and focus. It's the way we manage the company. We don't manage the company like a short-term private company. We're looking for the long-term investor welfare of the company. We certainly have the resources, balance sheet and support of our equity backer and our lenders to get through any short-term challenges that may occur and the long term is really our focus.

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