By Phil Boeyen, ShareChat Business News Editor
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Friday 16th March 2001 |
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It's also likely very few people have ever considered what it takes for a dental service to run efficiently. How hard can it be to send out a reminder card for a checkup, after all?
But dental software can't be so easily dismissed - especially when a company which makes the stuff has forecast it will double revenue in the next two years.
The name Software of Excellence (NZSE: SOE) barely registers on the creative scale. Nor does it indicate what the stock is about.
Even the company's product names - Exact, Examine, Exhance, Exdoc, Expend - give the appearance that someone went to one page in the dictionary and couldn't be bothered going any further.
Forget about the names, though, and check out the figures.
Although the Auckland-based company is forecasting a loss in 2001 of $845,000, its prospectus claims that the following year it will turn a $2.4 million profit, and almost double that in 2003 to $4.6 million.
Whether it can reach these goals will depend on reaching sales targets and that will depend on how well the company does overseas, where it expects to earn 85% of income.
Of particular importance is the United Kingdom, where the company has been operating since 1995 and employs more than 40 staff.
The UK subsidiary is the main contributor to the company's revenue and profitability, and revenue there is forecast to grow by 51% next year and a further 17% the year after.
The UK business received a boost recently when the company took spent around $800,000 of the $5 million it raised in its December IPO to buy a rival dental software business.
The move is reminiscent of what the company did in New Zealand in 1998, when it purchased its main competitor here and switched the new clients to its own software.
By buying one of its UK competitors the company doubled its customer-base overnight to more than 1,300 dental practices and also strengthened its sales force.
SOE has indicated it expects many of the customers will switch to its software, although CEO Paul Weatherly says in the meantime the company is earning more than $100,000 a month simply from supporting its former rival's software.
"There's good money in support," he says.
"Although the software products were running at a loss for the previous company, that's because of the marketing costs that were involved.
"Because we aren't putting any money into promotion or marketing - just support - it has immediately become a cash-flow positive purchase".
But how did a company in New Zealand end up with a leading product for the UK in the first place?
For a start, the software is based on a clinical model, and apparently New Zealand is ahead of the rest of the world in this regard. SOE's product is used in around 250 dental practices here and has 90% of the local market for dental management software.
By clinical, this means the stuff that happens in the dentist's chair. The software allows dentists to store check-up and treatment details, and even x-rays and dental imaging, on a PC.
Further development means the software can also be used for services such as patient education and appointment booking and provide billing solutions - including sorting out how and what to bill third parties such as government health services.
That's a vital tool for markets like the UK, where a system for funding dental care is run by the government under the National Health Service, and most dentists there must work through a complex bureaucratic process in order to get paid for some or all of their services.
What's more, because the government subsidies and process are open to change, the money paid for system updates provides a significant and ongoing source of revenue.
The largest revenue stream, however, is from the issue of new software licences and the customising, installation, training and set up work associated with those licenses. The UK offers plenty of scope for growth here as well.
Although SOE is already the largest supplier of dental software in the UK with its 1,300 client-base, it estimates that there are around 8,000 dental practices in the UK, and half currently use dental software systems.
UK sales growth is also forecast to come from an increase in the number of "dental chain stores".
This means that what companies like OPSM have done to the optometry business in Australia and New Zealand is also happening to dental care, where dental practices can join together as a branded dental care provider.
SOE says branded chains of dental practices need systems for enhanced patient contact, and tools for measuring dentist productivity and effectiveness - which is where its products fit in.
The move in the UK is being led by pharmacy retail giant Boots, which is establishing a national corporate chain of dental practices alongside its pharmacy business and aims to have the first 50 in a chain of 200 up and running by the end of this month. All will use SOE's software.
SOE has also branched into a few other fields for Boots, rejigging its software so the chain can use it for chiropody and laser treatment services.
However Paul Weatherly discounts those as future options for growth.
"We're not interested in moving outside our specialist sector because a key attraction for our customers is that we focus on dental care exclusively.
"In the past, customers in the UK have been let down by other companies who promised specialist ongoing support but didn't deliver. Operating in just one area is a strength for us because we can promise that our service and support won't be diluted".
The company says it is also in discussion with another corporate entity planning to set up a chain of dental practices and there will be other opportunities as the concept expands to countries outside the UK.
Aside from private dental practices, the other target market for the company's software is dental institutions such as dental schools or large-scale dental care providers.
A new division called Enterprise has been formed to sell software to these clients and is run from New Zealand with 15 staff.
While the sales to institutions make money in their own right, they also provide a valuable marketing function because the company hopes that dentists who use their software in training will become a champion for the brand once they head into the workforce.
In terms of markets outside the UK, SOE is currently focusing on Australia and Singapore.
At present only around only around 120 dental practices in Australia are using the company's software, and it has plans to expand its presence there this year. It is also planning to open an office in Singapore within the next month or so and is currently negotiating an institutional contract there.
The market that offers perhaps the best potential for growth is the US. Unfortunately, it is also the toughest.
Like their UK counterparts, US dentists need to work through a complex bureaucratic process for dental claims, and many dental software programmes offered in the US are designed primarily to make paper and electronic claims rather than having a clinical focus.
But Paul Weatherly says while his company believes it has a superior product to offer, trying to convince dental professionals to make the switch could be costly.
"When we went into the UK market eight years ago, we had an edge in that we were offering a Windows-based product while many competitors were still DOS-based
"In the US there are already some very established competitors with Windows-based systems with strong market penetration, and the costs for us to try to crack that market may be too high."
Mr Weatherly says the company may eventually decide not to enter the US market at all with its professional product, although the US is being targeted for its institutional potential.
Just this week SOE announced its first deal with a US group for its Enterprise dental software, selling the concept to Minnesota-based HealthPartners.
HealthPartners is a group of health care organizations that provides health care services, insurance and health maintenance coverage to around 650,000 people, including a group practice of more than 55 dentists.
SOE says HealthPartners will initially be installing the software at one practice with plans to install it at another 17 sites.
As to the future potential of the company, Paul Weatherly believes that, if anything, the company has so far been fairly conservative in its growth estimates.
"The software industry is a very hard one to forecast, but we believe there is the potential to exceed our targets, depending on a number of factors."
SOE is due to report its full-year earnings to the end of March by the middle of the year.
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