ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. For more information about such statements, please see “Special Note About Forward Looking Statements,” above. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in “Risk Factors.” In accordance with factors for consolidation under generally accepted accounting principles in the United States, we consolidate the net assets and results of operations of the affiliated dental practices operating under long-term business service agreements with us. As a result, references to our revenues, our expenses and similar items relating to our results of operations and net assets includes the revenues, expenses and similar items of our affiliated dental practices and all transactions between the affiliated dental practices and us, such as the management fees we charge, are eliminated in consolidation.
Overview
As a dental resource organization (“DRO”) operating through Park Dental Partners, Inc. we provide administrative business support services including clinical team members, administrative personnel, facilities and equipment to our affiliated general and multi-specialty dental practices in Minnesota, Wisconsin and Arizona. Our network of affiliated dental practices employs 214 dentists, and consists of 990 hygienists, dental assistants, and patient care coordinators that support affiliated dentists in operating our dental practices across 86 locations. Our network of affiliated dental practices has been operating for over fifty years, beginning with the establishment of the general dentistry group in 1972. The mission of our affiliated dental practices since inception, and which continues through today, has been to ensure patients enjoy the benefits of a lifetime of good oral health.
Business Model
We provide support services on an exclusive basis to dental groups operating in the United States. We operate under long term Administrative Resources Agreements with affiliated dental practices pursuant to which we provide business support services, non-clinical personnel, facilities and equipment. In exchange for providing these services, we receive a
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management fee plus reimbursement of certain costs incurred by us in connection with fulfilling our responsibilities under these services agreements.
Our Administrative Resources Agreements are long-term agreements between the affiliated dental practice and the DRO, and a single designated doctor who is the sole holder of the equity of the respective affiliated dental practice. The agreements outline the terms under which we provide administrative, business, and operational support services to the affiliated dental practices. Effective October 1, 2023, each agreement establishes the DRO as the exclusive provider of non-clinical services — such as billing, collections, staffing, marketing, compliance, and facilities management — allowing the affiliated dental practice to focus solely on delivering professional dental services. The agreements ensure compliance with state laws prohibiting the unlicensed practice of dentistry, clearly delineating that all clinical decisions remain under the affiliated dental practice’s control and the practices’ dentists. Each agreement includes detailed provisions on financial arrangements, including a management fee based on a percentage of net collections, confidentiality, indemnification, and termination rights. The agreements are effective for 30 years with automatic five-year renewals, unless another termination date is mutually agreed upon. The agreements also include restrictive covenants and HIPAA compliance obligations.
Under each long-term Administrative Resources Agreement, the affiliated dental practice agrees to pay the DRO a monthly management fee equal to approximately 15% – 18% of the affiliated dental group’s net collections. Net collections are defined as the actual cash receipts collected by the affiliated dental practice, minus any patient or payor refunds, adjustments, and payments made to third-party collection agencies. As a result of our exclusive, long-term Administrative Resource Agreements with our affiliated dental practices, we have a variable interest and are the primary beneficiary in those affiliated dental practices. Accordingly, our consolidated financial results include the consolidated results of the affiliated dental practices in which we do not hold an equity interest. See further description under Note 16, Variable Interest Entities, of the Consolidated Financial Statements presented elsewhere in this Annual Report.
The agreements also stipulate that the management fee will automatically increase by 5% annually unless both parties agree in writing to a different arrangement. Additionally, each affiliated dental practice is responsible for fully reimbursing the DRO, without any markup, for all costs, expenses, and liabilities incurred in connection with the services rendered under the agreements or related to the operation and maintenance of the affiliated dental practice’s business.
Stock transfer restrictions exist between the DRO, the affiliated dental practice and the single designated doctor who is the sole holder of the nominal equity of the respective affiliated dental practice. The restrictions ensure continuity and compliance with legal and operational standards. Transfers are only permitted under specific conditions, such as the designated doctor’s death, disability, or disqualification, and must be made to a designated transferee approved by the DRO. The restrictions outline procedures for such transfers, including automatic resignation from company roles and payment terms. The agreement also includes provisions for arbitration, enforcement, and confidentiality, as governed by Minnesota law.
Park Dental Partners, Inc has a controlling financial interest in the affiliated dental practices operating under the administrative resources agreements which provide the DRO the right to receive a significant majority of profits generated by the affiliated dental practices. Accordingly, the assets and liabilities and results of operations of the affiliated dental practices are included in our consolidated financial statements and all transactions between the affiliated dental practices and us, such as the management fees we charge, have been eliminated.
Our network of affiliated dental practices provides both general and specialty dental services, including oral surgery, periodontics, pediatric dentistry, prosthodontics, endodontics, and orthodontics, under long-term agreements with initial terms of 30 years, with automatic 5-year renewals. We have established a significant footprint and brand awareness in our current markets. Our revenues, derived primarily from our affiliated dental practices’ provision of dental services, were $244.5 million and $229.8 million for the years ended December 31, 2025 and 2024, respectively. As a result of our exclusive, long-term agreements with our affiliated dental practices, our consolidated financial results include the consolidated results of the affiliated dental practices, in which we do not hold an equity interest.
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Our material revenues are comprised of dental services, which includes the consolidated revenues of our affiliated dental practices. Dental services are provided to patients, who typically pay for services out-of-pocket, through private insurance plans, or through government insurance plans. Approximately 92% of total revenues for each of the years ended December 31, 2025 and 2024, were derived from patients with private insurance or government sponsored plans. Our revenues have increased over the past several years, driven primarily by acquisitions, growth in new and existing patients, increased dentist and hygienist productivity, the expansion of specialty services, increased volume of hygiene services and the hiring of additional dentists and hygienists.
We intend to grow our revenues primarily through expansion of our existing affiliated practices by hiring additional dentists and hygienists, expansion of specialty services, increased productivity and patient appointment volume. We also intend to leverage our strong brand names to expand through acquisition and de novo practices in our existing and new markets. We supported the acquisition of three and two dental practices in the years ended December 31, 2025 and 2024, respectively. We opened one and zero de novo practices in the years ended December 31, 2025 and 2024, respectively.
Absent the impact and timing of acquisitions, our total revenues have historically been lower in the third quarter of the year due to fluctuations in patient volumes, which are primarily impacted by the timing of holidays and the school year calendar.
Our cost of services consists of clinical team member costs and benefits, dental supplies and laboratory fees, office occupancy, depreciation associated with practice assets, share based compensation, and other practice expenses. In addition, advertising costs with activities at the practice level are charged to cost of services. Our cost of services expenses are directly associated with operating the dental facilities. Clinical team member expenses and benefits consist principally of affiliated dentist compensation, clinical team member compensation and associated benefit costs. Dental supplies and laboratory fees consists of variable costs associated with our affiliated dental practices providing dental services. Office occupancy expenses include lease costs and other practice physical location expenses. Other practice expenses include MinnesotaCare provider taxes, software and subscription costs, repairs and maintenance costs, recruiting, travel and entertainment, insurance and other operating costs. Depreciation expenses are related to our investments in long-lived assets such as dental equipment, and practice location leasehold improvements.
General and administrative expenses consist of management expenses, the costs of our centralized billing offices and call-centers, marketing and advertising expenses, executive and senior management, share based compensation, and centralized functions, such as accounting, finance, team member relations, information technology, operations, real estate and other similar functions.
Depreciation and amortization expenses are related to our non-practice related investments in resource support center long-lived assets such as computer equipment, furniture and fixtures, and amortization of intangible assets.
Our costs have increased over the last several years as we have grown our business. However, when excluding the impact of share based compensation and restructuring costs related to our IPO, our general and administrative costs as a percentage of total revenues have remained consistent. We strive to improve our cost structure and gain operating cost efficiency by (i) streamlining our business processes to optimize their effectiveness and minimize their cost, and (ii) leveraging our purchasing volumes to obtain favorable pricing from vendors for products and services. We believe our business model has allowed affiliated dentists and hygienists to increase productivity as a result of their ability to expand service offerings and treat an increased volume of patients. We expect to gain additional leverage over our operating cost structure in the future by leveraging our centralized infrastructure to support our expected growth and expansion.
In 2024, we refinanced a revolving line of credit into long-term debt, increasing the amount of our outstanding long-term debt by approximately $10.2 million but decreasing the applicable interest rate. With normal course long term debt required payments throughout 2024 and 2025, and lower borrowings on the revolving line of credit resulting from lower dividend payments, we have experienced lower interest expense. We expect interest expense will continue at a similar rate over the next twelve months unless we make significant acquisitions or otherwise utilize our revolving loan facility.
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Our primary sources of liquidity are cash provided by operations and available borrowings under our credit facilities. The management fees we receive from affiliated dental practices and their reimbursements of certain costs we incur on their behalf are our primary source of cash from operations. To the extent the affiliated dental groups do not generate sufficient revenues to pay a significant portion of our management fee, after paying for their expenses and reimbursing us for our costs, we may not have sufficient cash to meet our debt obligations. In December 2025, we also generated $20 million in gross proceeds ($18.4 million net proceeds) from the sale of shares of our Common Stock through our initial public offering.
In accordance with generally accepted accounting principles in the United States, or GAAP, we consolidate the operating results and net assets of affiliated dental practices with our financial statements. Assets of our affiliated dental practices are subject to the first priority lien securing our indebtedness under our credit facilities. The primary assets of affiliated dental practices are cash and receivables from patients and third-party payors and their primary liabilities are payables for their direct expenses, such as payables for salaries of dental professionals and payables due to us, which are eliminated through consolidation.
Results of Operations
The following table sets forth, for the periods indicated, our consolidated statements of operations and certain other information. Amounts may not add to the totals due to rounding.
Years Ended December 31,
(in thousands)
Consolidated Statements of Operations:
REVENUE
COST OF SERVICES
Salaries and benefits
Dental supplies and Laboratory fees
Office occupancy
Other practice expenses
Depreciation
TOTAL COST OF SERVICES
GROSS MARGIN
General and administrative expenses
Depreciation and amortization
OPERATING INCOME
INTEREST EXPENSE - NET
INCOME (LOSS) BEFORE TAX
PROVISION/(BENEFIT) FOR INCOME TAX
NET INCOME (LOSS)
Revenues
Total revenues for the year ended December 31, 2025, increased $14.7 million, or 6.4%, to $244.5 million from $229.8 million for the year ended December 31, 2024. General Dentistry revenue increased $8.2 million and multi-specialty dentistry revenue was higher by $6.5 million. Same Practice Revenue Growth, as defined as dental practice locations that have been operating for at least 13 full months prior to the end of a given period and which have not been closed, or sold during such periods, increased approximately 5.8%, or $13.2 million from the prior year, reflecting increased fee and reimbursement growth, increased patient visits driven by higher doctor count and increased clinical hours, and the effect of acquired practices. The increase in revenue from acquisitions in the last 12 months totaled approximately $1.5 million.
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Cost of Services
Salaries and Benefits. Salaries and benefits consist principally of affiliated dentist compensation, clinical team member compensation and related benefit costs. Salaries and benefits for the year ended December 31, 2025, was $155.2 million, an increase of $14.5 million, or 10.3%, from $140.7 million for the year ended December 31, 2024. The cost increase is largely attributable to the recognition of approximately $6.7 million in share based compensation expense for the year ended December 31, 2025. For the year ended December 31, 2024, no stock compensation expense was recorded in cost of services. The remaining increase of $7.8 million primarily relates to higher salaries and benefits aligned with revenue growth, including increased headcount, higher incentive compensation, and increased contractor support.
Dental supplies and Laboratory Fees. Dental supplies and laboratory fees consist of variable costs associated with our affiliated dental practices providing dental services. Dental supplies and laboratory fees expense for the year ended December 31, 2025, was $17.2 million, an increase of $0.1 million, or 0.6%, from $17.1 million for the year ended December 31, 2024.
Office occupancy expenses. Office occupancy expenses include lease costs and other physical practice location expenses. Office occupancy expense for the year ended December 31, 2025 was $16.2 million, an increase of $0.7 million, or 4.3%, from $15.5 million for the year ended December 31, 2024, attributable to higher leasing costs, based on renewals, and expanded locations, and higher associated property taxes.
Other practice expenses. Other practice expenses include MinnesotaCare provider taxes, software and subscription costs, repairs and maintenance costs, recruiting, travel and entertainments, insurance and other operating costs. Other practice expense for the year ended December 31, 2025 was $14.4 million, an increase of $0.9 million, or 6.6%, from $13.5 million for the year ended December 31, 2024, higher as a result of a $0.7 million increase in software licensing and subscription costs, a $0.3 million increase in revenue related provider tax, offset in part by $0.2 million lower recruiting expenditures.
Cost of Services Depreciation expense. Cost of Services Depreciation expenses encompass depreciation associated with practice related assets such as dental equipment, and leasehold improvements, furniture and fixtures and computer equipment. Practice depreciation expense for the year ended December 31, 2025 was $7.9 million, an increase of $0.6 million, or 7.8%, from $7.3 million for the year ended December 31, 2024, attributable to increased capital investments in expanded production capacity, and capital investments within our existing dental practices.
General and Administrative
General and administrative expenses consist of costs of our centralized billing offices and call-centers, marketing and advertising expenses, regional management expenses, executive and senior management, and centralized functions, such as accounting, finance, team member relations, information technology, operations, real estate and other similar functions. General and administrative expense for the year ended December 31, 2025 was $31.9 million, an increase of $6.4 million, or 25.3%, from $25.5 million for the year ended December 31, 2024. The increase in cost is primarily attributable to $3.5 million related higher salaries and benefits for administrative personnel, including the recognition of approximately $1.6 million increased share based compensation expense, and increases due to annual compensation increases, higher performance based incentive compensation, and higher headcount. In addition, the Company incurred approximately $2.7 million costs to support and position the organization through our transition to a public company.
Depreciation and Amortization
Depreciation and amortization expenses are related to our non-practice related investments in long- lived assets such as computer equipment, furniture and fixtures, and amortization of intangible assets. Depreciation and amortization expense for the year ended December 31, 2025 was $1.5 million, flat to the $1.5 million depreciation expense for the year ended December 31, 2024.
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Interest Expense, net
Interest expense, net, for the year ended December 31, 2025 decreased $0.2 million, or (19.3%), to $1.2 million for the year ended December 31, 2025, from $1.4 million for the year ended December 31, 2024. This decrease was driven by a decrease in total interest-bearing debt under our term loan and usage of line of credit over the year, offset in part by a change in market interest rates.
Provision (Benefit) for Income Taxes
Income tax benefit for the year ended December 31, 2025 was ($0.6) million compared to $2.9 million income tax expense for the year ended December 31, 2024. The 2025 tax benefit was derived from permanent benefits related to cash surrender value of life insurance policies and share based compensation, net of nondeductible transaction costs, and 162(m) executive officer compensation. The 2024 income tax provision included one-time items related to the initial recognition of deferred tax assets upon the conversion of certain legal entities from partnerships to C-Corporations as part of our reorganization, resulting in a tax benefit and an increase in deferred tax assets. These 2024 tax items did not occur in 2025 and are not expected to recur in future periods.
Key Financial Measures, Performance Indicators, and Non-GAAP Financial Measures
In assessing the performance of our business, we consider a variety of financial measures and performance indicators that directly or indirectly impact our revenue and profitability. The key financial and Non-GAAP financial measures and performance indicators we use are set forth below, as of and for the years ended December 31, 2025 and 2024:
Years Ended December 31,
(in thousands, except per share amounts, percentages, patient visits, and doctor count)
Increase/ (Decrease)
% Increase/ (Decrease)
Key Financial Measures
Revenue
Gross Margin
Net Income (Loss)
Diluted EPS
Patient Visits
Same Practice Revenue Growth
Patient Retention Rate
Doctor Count
Non-GAAP Measures (1)
Adjusted EBITDA
Adjusted EBITDA Percentage
Adjusted Gross Margin
Adjusted Gross Margin Percentage
Adjusted Diluted EPS
General and Administrative Expense Percentage
(1) Non-GAAP Measures are defined in the “ Non-GAAP Financial Measures Definitions” section. For a reconciliation of Adjusted EBITDA to net income, Adjusted Gross Margin to Gross Margin, and Adjusted Diluted EPS to Diluted EPS, to the most directly comparable GAAP measures, see the “Non-GAAP Financial Measures” section.
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Revenue Related Financial Measures and Performance Indicators
Patient Visits. A patient visit is counted when service is provided to a patient at one of our affiliated dental general dentistry practices. Measuring the year-over-year change in patient visits helps us to evaluate how the affiliated dental practices are performing. It also helps with evaluating demand for services which influences decision-making relating to matters such as appropriate staffing levels and recruiting needs. In addition, it influences decision-making processes relating to our marketing, sales and advertising strategies and helps us with evaluating the effectiveness of those strategies. Further, with respect to continuing care patient count, it allows us to evaluate the ability of affiliated dentists to encourage patients to complete their diagnosed dental treatment plans.
Patient visits for the year ended December 31, 2025 were 719,295, an increase of 0.9% from 713,112 for the year ended December 31, 2024 even though one fewer business day existed during the year ended December 31, 2025, compared to the year ended December 31, 2024.
Same Practice Revenue Growth. Same practice revenues represent total revenues for same dental practice locations that have been operating for at least 13 full months prior to the end of a given period and which have not been closed, or sold during such period. Measuring the year-over-year change in same practice revenues allows us to evaluate how affiliated dental practices are performing. We believe various factors affect comparable practice revenues, including patient demand for dental services, economic trends, dentist and hygienist staffing levels, availability of dentists and hygienists, pricing, competition, visibility and accessibility of the dental practices, quality of the tenants surrounding the dental practices, clinical hours and the level of patient service provided inside and outside of the dental practices.
Same Practice Revenue growth for the year ended December 31, 2025 was 5.8%, or 4.2% higher than the 1.6% Same Practice Revenue growth for the year ended December 31, 2024 driven by increased fee and reimbursement growth, higher doctor count, and increased clinical hours. Same dental practice locations included in Same Practice Revenue for the year ended December 31, 2025, and 2024, totaled 80 and 78, respectively.
Patient Retention Rate . Patient retention rate is calculated by counting patients that remain active at the beginning and end of a twelve-month period. Active patients are defined as general dentistry patients having been seen by our affiliated dental practices within the past 36 months, or last 18 months for patients under the age of 18. Patients who have not been seen by our affiliated dental practices within these time periods are removed from our active patient lists. This methodology is aligned with ADA clinical procedure codes, and is consistent with treatment protocols for new patients, before being considered an active patient again. Measuring the year-over-year and quarter-over-quarter change in patient retention allows us to evaluate the recurring nature of patient visits at the dental practices and affiliated dentists which influences decision-making around matters such as appropriate levels of staffing, recruiting, advertising and facility expansion opportunities.
Patient retention was stable with the retention rate for the year ended December 31, 2025 at 89.9%, an increase of 0.7% from 89.2% for the year ended December 31, 2024.
Doctor Count. Dentists operating in one of our affiliated dental practices are included in this calculation, which includes both full and part-time dentists. Measuring the year-over-year and quarter-over- quarter change in dentist count allows us to evaluate the production capacity of affiliated dental practices. It also influences decision-making relating to matters such as appropriate staffing levels and recruiting needs.
Doctor count as of December 31, 2025 was 214, eight higher than the December 31, 2024 doctor count of 206.
Non-GAAP Financial Measures
This report contains “non-GAAP financial measures” that are financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Specifically, we make use of the non-GAAP financial measures “Adjusted EBITDA,” “Adjusted EBITDA Percentage,” “Adjusted Gross Margin,”
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“Adjusted Gross Margin Percentage,” “Adjusted Diluted EPS,” and “General and Administrative Expense Percentage,” collectively known as “the Non-GAAP Financial Measures”.
We present the Non-GAAP Financial Measures as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We believe these non-GAAP measures assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our operating performance. Management believes the Non-GAAP Financial Measures are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate, and capital investments. Management uses the Non-GAAP Financial Measures to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone provide.
The Non-GAAP Financial Measures are not recognized terms under GAAP and should not be considered as alternatives to net income (loss) or gross margin as measures of financial performance or cash provided by operating activities as measures of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, these measures are not intended to be measures of free cash flow available for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments, and debt service requirements. Because not all companies use identical calculations, the presentation of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company. All measurements are provided with a reconciliation from a GAAP measurement.
Non-GAAP Financial Measures Definitions
“Adjusted EBITDA” is defined as net income (loss) adjusted to exclude interest expense (income), net, provision for (benefit from) income taxes, depreciation and amortization, share based compensation, discretionary shareholder bonuses, non-qualified deferred compensation expenses, and restructuring costs.
“Adjusted EBITDA Percentage” is defined as Adjusted EBITDA as a percentage of consolidated revenue.
“Adjusted Gross Margin” is defined as Gross Margin excluding depreciation expense, share based compensation, discretionary shareholder bonuses, non-qualified deferred compensation expenses, and restructuring costs.
“Adjusted Gross Margin Percentage” is defined as Adjusted Gross Margin as a percentage of consolidated revenue.
“Adjusted Diluted EPS” is defined as Diluted EPS adjusted to exclude share based compensation, restructuring costs, non-qualified deferred compensation expenses, and the income tax effect of those adjustments at our estimated long-term annual effective tax rate.
“General and Administrative Expense Percentage” is defined as General and Administrative expenses as a percentage of consolidated revenue.
Non-GAAP Financial Measures for the year ended December 31, 2025 and 2024
The following table contains a reconciliation of our net income (loss) attributable to Park Dental Partners, Inc. determined in accordance with GAAP to Adjusted EBITDA:
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For the Years Ended
Net Income (Loss) to Adjusted EBITDA
December 31,
(in thousands)
Net income (loss) attributable to Park Dental Partners, Inc.
Addback:
Provision/(Benefit) for income taxes
Interest expense, net
Depreciation and amortization
EBITDA
Adjustments:
Share based compensation
Restructuring costs
Deferred compensation
Adjusted EBITDA
Adjusted EBITDA Percentage
Adjusted EBITDA. Adjusted EBITDA for the year ended December 31, 2025 was $22.0 million, an increase of $2.6 million from the $19.4 million Adjusted EBITDA for the year ended December 31, 2024, primarily due to increased revenue and the resulting $5.2 million increased Adjusted Gross margin, partially offset by higher General and Administrative expenses related to increased annual compensation, higher performance based incentive compensation, and higher headcount. Measuring the year-over-year change in Adjusted EBITDA allows us to evaluate the overall operating performance of affiliated dental practices on a consistent basis. It also influences our decision-making process on allocation of resources and helps us evaluate the effectiveness of our strategies.
Adjusted EBITDA Percentage. Adjusted EBITDA Percentage for the year ended December 31, 2025 was 9.0%, a 60 basis point increase from 8.4% for the year ended December 31, 2024, attributable primarily due to an increase in the Adjusted Gross Margin Percentage.
The following table contains a reconciliation of our Gross Margin determined in accordance with GAAP to Adjusted Gross Margin:
For the Years Ended
Gross Margin to Adjusted Gross Margin
December 31,
(in thousands)
Gross Margin
Addback:
Share based compensation
Restructuring costs
Deferred compensation
Depreciation
Adjusted Gross Margin
Adjusted Gross Margin Percentage
Adjusted Gross Margin. Adjusted Gross Margin for the year ended December 31, 2025 was $49.3 million, an increase of $5.2 million, or 11.9%, from $44.0 million for the year ended December 31, 2024, attributable to increased revenue and from leverage on dental supplies and laboratory fees, and occupancy costs. Measuring the year-over-year change in Adjusted Gross Margin allows us to evaluate the profitability of affiliated dental practices and their performance. It also influences our decision-making process related to cost management strategies and helps us evaluate the effectiveness of those strategies.
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Adjusted Gross Margin Percentage. Adjusted Gross Margin Percentage for the year ended December 31, 2025 was 20.1%, a 90 basis point increase from 19.2% for the year ended December 31, 2024, primarily reflecting an increase in revenue, and from leverage on dental supplies and laboratory fees.
The following table contains a reconciliation of our Diluted EPS determined in accordance with GAAP to Adjusted Diluted EPS:
For the Years Ended
Diluted EPS to Adjusted Diluted EPS
December 31,
(in thousands, except share and per share amounts)
EARNINGS (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS:
Adjustments:
Share based compensation
Restructuring costs
Deferred compensation
Income tax effect of the Adjustments (1)
ADJUSTED NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
Adjusted Weighted Average Diluted Shares - Reconciliation
WEIGHTED-AVERAGE SHARES USED IN COMPUTING GAAP NET LOSS PER SHARE, DILUTED
ADJUSTED WEIGHTED AVERAGE DILUTED SHARES USED IN COMPUTING ADJUSTED EARNINGS PER SHARE, DILUTED (2)
ADJUSTED DILUTED EARNINGS PER SHARE:
(1) Income tax effect is based on an estimated long-term annual effective tax rate of 28% tax rate for the period ended 2025 and 2024. The Company's estimated long-term annual effective tax rate excludes certain non-cash items such as share based compensation arrangements, and is used in order to provide consistency across periods.
(2) Includes an additional 1,566,926 of weighted average dilutive securities for the year ended December 31, 2025, that are excluded from a GAAP perspective due to the Company's net loss in that reporting period.
Adjusted Diluted EPS. Adjusted Diluted EPS for the year ended December 31, 2025 was $2.44, a $0.73 decrease from $3.17 for the year ended December 31, 2024, primarily due to an increase in the dilutive securities used in computing adjusted diluted earnings per share due to the Company’s IPO in December 2025.
General and Administrative Expense Percentage. General and Administrative Expense Percentage for the year ended December 31, 2025 was 13.0%, a 190 basis point increase from 11.1% for the year ended December 31, 2024. This increase is attributable to higher share based compensation and restructuring costs related to becoming a publicly-traded company in 2025.
Liquidity and Capital Resources
We historically have financed our operations and growth through a combination of cash provided by operating activities and borrowings under our revolving loan facility, and most recently through an initial public offering (“IPO”). In December 2025 we completed our IPO, pursuant to which we issued and sold an aggregate of 1.54 million shares of our common stock. The aggregate net proceeds received by us from the IPO was $18.4 million, after deducting underwriting discounts and commissions, and other offering costs of $1.6 million. Cash and cash equivalents were $25.2 million and $2.7 million at December 31, 2025 and 2024 respectively. Unused availability under our line of credit was $15 million at December 31, 2025.
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We believe that our existing cash and our expected cash flows from operations will be sufficient to meet our cash needs for at least the next 12 months. Over the longer term, our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our dental services expenditures, the continuing market acceptance of our offerings, and any investments or acquisitions we may choose to pursue in the future. In the event that we need to borrow funds or issue additional equity, we cannot assure you that any such additional financing will be available on terms acceptable to us, if at all. In addition, any future borrowings may result in additional restrictions on our business and any issuance of additional equity would result in dilution to investors. If we are unable to raise additional capital when desired and on terms acceptable to us, our business, results of operations, and financial condition could be materially and adversely affected.
Cash flows from operating activities
Cash flows provided by operating activities were $17.6 million for the year ended December 31, 2025, compared to $16.5 million for the year ended December 31, 2024. The $1.1 million increase in cash flows from operations was primarily as a result of $2.5 million higher net income after adjusting for non cash items such as depreciation, partially offset by changes in operating assets and liabilities that generated $1.4 million less cash from operations in the prior year.
Cash flows from investing activities
Our investing activities are primarily related to capital expenditures for practice growth and expansion, capital improvements in existing facilities and technology related projects. Cash flows used in investing activities were $10.6 million and $7.7 million for the years ending December 31, 2025 and 2024, respectively, higher by $3.0 million, due to $1.2 million increased investments in property and equipment, increased life insurance premiums and distributions of $1.0 million due primarily to higher distributions to participants, net of contributions in the non-qualified deferred compensation plan, and $0.8 million of increased consideration paid for business acquisitions due to the increased number of acquired practices.
Cash flows from financing activities
Cash flows from financing activities primarily reflect our borrowings and repayments under our current and prior credit facilities which were refinanced in March 2024. Cash flows from financing activities for the year ended December 31, 2025, were $15.5 million compared to cash used in financing activities of $6.7 million for the year ended December 31, 2024, a net change of $22.2 million. The change was due to $18.4 million net proceeds from the initial public offering completed in December 2025, $6.7 million lower dividend payments, and a $10.3 million net decline in the net borrowings and repayments under our line of credit. These impacts were partially offset by $13.0 million lower proceeds from our term loan.
Outstanding indebtedness
At December 31, 2025 and 2024, respectively, we had $9.8 million and $11.6 million outstanding under our respective term loans. At both December 31, 2025 and 2024, we had no outstanding balance under the line of credit.
On March 27, 2024, we entered into a new credit agreement which amended the existing agreement and provided for a new $13.0 million term loan and amended the line of credit to $15.0 million from the prior $23 million. The term loan matures in March 2029 and carries an interest rate equal to the one-month SOFR rate plus 2.10%. The amended agreement also allows for an accordion right to increase the term loan by an additional $10 million. The amended line of credit extended the maturity from March 2024 to March 2027 and carries an interest rate equal to the one-month SOFR rate plus 2.00%.
The agreement requires, among other things, that we comply with a minimum fixed charge coverage ratio and a total cash flow leverage ratio. In addition, the agreement contains standard negative covenants that, among other things, limit our ability to undertake individual business combinations in excess of specified limits; incur and pay certain indebtedness; create, incur, or assume certain liens and negative pledges; sell, lease, convey, transfer or otherwise
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dispose of certain assets; liquidate or dissolve any of our subsidiaries; make certain loans and investments; make certain dividends and redemptions; and substantially change the nature of our business.
Proceeds from the term loan were used to pay off the line of credit. We were in compliance with all covenants specified in the credit agreement at December 31, 2025 and 2024 including the fixed charge coverage and cash flow leverage ratios. We believe, based on our current financial forecasts and trends, that we will remain compliant with all covenants for the foreseeable future.
Our obligations under the credit facilities are secured by a first priority lien on substantially all of our tangible and intangible assets and the tangible and intangible business assets of the affiliated dental practices.
In addition to the aforementioned credit facilities, we have secured notes payable of $2.2 million due to certain current and former shareholders and related parties. The principal is due at maturity through October 1, 2037 and interest is due quarterly. Interest is equal to the greater of 14% of the principal balance or an amount based on a formula using average dentist compensation or a formula based on total revenue. The effective interest rate for 2025 and 2024 was 25.7% and 28.0%, respectively. The notes are secured by all of our business assets and the affiliated dental practices and are subordinated to the bank note payable and the line of credit. These secured notes have significant prepayment restrictions whereby lender approval is required for any prepayment to occur, except for notes representing approximately 25% of the outstanding value may be prepaid by the Company upon the death of the holder.
Our primary sources of liquidity are cash provided by operations and available borrowings under our revolving loan facility. The management fees we receive from affiliated dental practices and their reimbursement to us of certain costs we incur on their behalf are our primary source of cash from operations. We do not, however, have direct recourse to the assets of affiliated dental practices, which consist primarily of cash and receivables from patients and third party payors. To the extent the affiliated dental practices do not generate sufficient revenues to pay a significant portion of our management fee, after paying for their expenses and reimbursing us for our costs, we may not have sufficient cash to meet our debt obligations.
Deferred Compensation — Our deferred compensation obligation, including current and non-current obligations was $70.6 million on December 31, 2025 and $69.1 million on December 31, 2024 and primarily consisted of active non-qualified deferred compensation plans and other inactive other deferred compensation plans.
Non-qualified Deferred Compensation Plans — We and our affiliated dental practices utilize non-qualified deferred compensation plans that provide participants the opportunity to defer compensation on a pretax basis. Benefit payments to participants are available upon termination of employment, disability, death, unforeseeable emergencies, a change-in-control event, as defined, or qualified planned in-service distributions. The agreement provides eligible participants the option to receive payment in a lump sum distribution or up to five annual installments. Participants are immediately 100% vested in their voluntary deferred compensation contributions. Participants are fully vested in employer credits after five years of service. Participant accounts are credited with deferred compensation contributions and earnings thereon, as defined. At December 31, 2025 and 2024, the total deferred compensation liability related to the non-qualified deferred compensation plan was $23.0 million and $20.2 million, respectively.
Deferred Compensation Plans - Other — Our affiliated dental practices have profession and executive deferred compensation plans, and have executed employment agreements with certain dentists, executives and professional employees. These agreements provided for the creation of deferred compensation balances for eligible employees in the event of separation from service. These plans were frozen prior to January 1, 2024. At December 31, 2025 and 2024, the total of these other deferred compensation plans were $47.6 million and $48.9 million, respectively. This deferred compensation value is fixed and non-interest bearing. The deferred compensation balances are generally to be paid over a period of five years from the date of the participants separation from the groups, subject to certain limitation. One plan, comprising the significant majority of the balance has an annual maximum amount we will be required to pay in each year is capped at 2% of the respective Company’s annual adjusted gross revenue, as defined in the agreements.
Finance Leases — We entered into a finance lease agreement in 2020 to fund the acquisition of furniture and fixtures and equipment. The cost of furniture and fixtures and equipment is included in property and equipment on the
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consolidated balance sheet and was approximately $0.2 million on December 31, 2025 and December 31, 2024. Accumulated amortization on the furniture and fixtures and equipment at December 31, 2025 and 2024, was approximately $0.2 million and $0.1 million. respectively. Amortization of assets under finance leases is included in depreciation within cost of services, and depreciation and amortization expense. The lease is secured by the furniture and fixtures and equipment. The effective interest rate of this lease is 2.38%.
Critical Accounting Estimates
This discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. To prepare our financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses in the reporting period. Our actual results may differ from these estimates. We have provided a summary of our significant accounting policies in our consolidated financial statements included elsewhere in this Annual Report. We describe below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial condition and results of operations. Our management evaluates these estimates on an ongoing basis, based upon information currently available and on various assumptions management believes are reasonable as of the date on the front cover of this Annual Report.
Accounts Receivable and Revenue Recognition. Accounts receivable include amounts due from patients and third-party payors, including indemnity and preferred provider organizations, and government plans. Most accounts, other than for orthodontic treatments, are due as services are provided. We estimate and typically collect patient payments at the time of service based on the insurance plan fee schedule, deductible provisions and list of covered benefits for each plan. If the proper patient payment amount is not fully collected at the time of service, the patient will be directly billed for the difference. Fees for any services not collected same-day are setup as an account receivable and established on such date of service. Patient accounts receivable are uncollateralized patient obligations that are stated at the amount we expect to collect from outstanding balances. These obligations are primarily from patients, most of whom are insured under third-party payor agreements. Park Dental Partners, Inc. provides billing and collection services on behalf of the affiliated dental practices. We typically bill third-party payors on the patients’ behalf, or if a patient is uninsured, the patient is billed directly. Once claims are settled with the third-party payors, patients are billed for the remaining balance or reimbursed if overpayment was received. Payments on accounts receivable are applied to the specific claim identified on the remittance advice or statement. Park Dental Partners, Inc has the right to apply finance charges on patient past due accounts 90 days or older.
Dental services revenue is generally recognized as services are provided and reported at estimated net realizable amounts due from patients, third party payors and others for services rendered. Through our billing system, we record and report dental service revenue for each patient at rates that reflect the amount expected to be collected, based on unique fee schedules for each insurance plan which include pre-determined contractual rates with the insurance providers and co-payments and deductibles to be received from patients.
Our affiliated dental practices have agreements with third-party payors that typically provide for payments at amounts less than our established charges. Payment arrangements with major third-party payors consist of the following: (1) Medicaid: services are generally paid at prospectively determined rates per charge, per occasion of service, or per covered member and (2) Commercial insurance: payment agreements with certain insurance carriers provide for payment using prospectively agreed contractual rates per charge, discounts from established charges, and fee schedules.
We bill third party payors at our usual and customary rates and record an estimated allowance for price concessions and to align the net receivables presented to our best estimate of contractual rates to adjust for amounts that we expect will not be collected based on the contracts with the third party payors.
The process of estimating the ultimate amount of revenue to be collected is subjective and requires the application of judgment based on many factors, including contractual reimbursement rates, the determination of covered and uncovered benefits under the insurance plans and other relevant information. As a result of the inherent complexity of these calculations, our actual revenues, net income, and accounts receivable could vary from the amounts reported. For
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fiscal 2025, a one percent change in contractual allowances, with no offsetting changes to billings or procedure mix, would impact revenue by approximately 20 basis points.
Accounts receivable are presented net, and are reduced by contractual allowances and implicit price concessions that reflect our best estimate of the amounts that will not be collected. We calculate revenue and associated receivables utilizing contractual terms of third-party payer reimbursement agreements. In addition, we estimate uncollectible amounts, primarily for uninsured patients and amounts patients are personally responsible for, through a reduction in revenue and accounts receivable based on our assessment of historical collection experience, trends for each of its major payor sources of revenue, and the current status of the aging of individual accounts. Balances that are still outstanding after we have used reasonable collection efforts are written off. Write-offs have historically trended less than one (1%) percent of revenue. For fiscal 2025, a one percent change in write-offs would impact gross profit by less than $0.1 million.
Receivables are presented in the accompanying consolidated balance sheet, net of allowances for contractual adjustments, concessions, and reserve for uncollectible accounts. At December 31, 2025 net accounts receivable were $7.0 million, after contractual allowances, concessions, and reserves for uncollectible accounts of $4.9 million. At December 31, 2024 net accounts receivable were $7.4 million, after contractual allowances, concessions, and reserves for uncollectible accounts of $6.7 million. The contractual allowance and reserve for uncollectible accounts represents 41.0% and 47.7% of gross accounts receivable, at December 31, 2025 and 2024, respectively.
The overall decrease in the allowance at December 31, 2025 is primarily attributable to resolving issues that had been caused by our transition to a new dental practice management and billing system in 2024, which had reduced automation functionality for applying contractual allowances to clear the remaining billing, and for providing monthly statements and overdue collection notices. We estimate the allowance for these delayed-billing receivables by applying our historical collection rates for receivables with similar aging characteristics.
Goodwill is assessed for impairment annually as of October 1, and more frequently if events or changes in circumstances indicate that the asset might be impaired such as a when experiencing a sustained decline in the Company’s stock price, or prolonged negative industry or economic trends. The impairment test is performed at the reporting unit level, which has been determined to be the consolidated entity level. When testing goodwill for impairment, the Company may first assess qualitative factors to determine if it is more likely than not the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, the Company considers the impact of changes, if any, to the following factors: macroeconomic, industry and market factors; cost factors; changes in overall financial performance; and any other relevant events and uncertainties impacting a reporting unit. If the qualitative assessment indicates goodwill impairment is more likely than not, additional quantitative analysis is performed. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing.
We performed a qualitative assessment of our single reporting unit during 2025, which included the evaluation of macroeconomic conditions, industry and market factors, and entity-specific events including our financial performance. Based on our assessment, we concluded that it was more likely than not that the estimated fair value of our reporting unit was in excess of its carrying value, including goodwill, and concluded no impairment existed.
We performed a quantitative analysis of our single reporting unit during 2024, which included a test measuring the fair value of the reporting unit and comparing it to the carrying value, including goodwill. We estimate the fair value of our reporting unit using a discounted cash flow method which includes assumptions about a wide variety of internal and external factors. Assumptions used in the discounted cash flow method included financial projections of free cash flow, including revenue trends, terminal growth trends, and discount rates. Based on our analysis, we determined no impairment existed.
Equity-Based Compensation Plans. The 2023 Restricted Stock Plan, and 2023 Equity Incentive Plan allow us to grant equity-based awards to certain employees, consultants and directors. We granted our employees equity-based incentive awards in the form of restricted shares. Prior to our initial public offering, we measured equity-based compensation expense for equity-based awards based on the estimated fair value of those awards on the date of grant determined using market information, as discussed further below.
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Restricted stock awards granted prior to December 4, 2025 vested 25% upon the closing of our initial public offering of our Common Stock with the remaining grant vesting at the rate of 6.25% on each subsequent calendar quarter for the following 12 quarters. In the event of a change in control, the restricted shares vest immediately upon the date of the change of control. In addition, certain of these restricted stock awards contain provisions that allow for accelerated vesting in circumstances, such as proper notice of voluntary retirement, in accordance with the terms of the applicable award agreements. Share based compensation cost to employees and doctors employed by our affiliates is measured at the date of grant, based on the calculated fair value of the share based award, and will be recognized as expense over the requisite service period (generally the vesting period of the award). The 2023 Restricted Stock Plan was terminated with respect to future awards effective April 23, 2025. Restricted stock awards granted after December 4, 2025 vest annually over four years, with 25% vesting on each of the first four anniversaries of the grant date.
Prior to the completion of our IPO, the fair value of our equity-based awards was determined by our Board, with input from management and third-party valuations, as there was no public market for our Common Stock. In the absence of a public trading market of our Common Stock, our Board considered numerous objective and subjective factors to determine the best estimate of the fair value of our Common Stock at each incentive unit grant date, including:
Independent third-party valuation of our shares
the lack of marketability of our shares
In valuing our shares, the Board determined the value using the income, market and cost approach valuation methods.
The income approach estimates value based on the present worth of future economic benefits to be derived from ownership. Value indications were developed by discounting expected future net cash flows to their present worth at market-based rates of return. The market approach estimates value based on applying valuation multiples derived from an analysis of recent comparable sales or offerings and applying similar ratios to our financial results. The cost approach estimates value based on the summation of the fair market values of the organization’s net assets.
In the valuation of shares, the income, market and cost approach were considered and weighted, as applicable, based on their appropriateness considering relevant facts and circumstances.
We also considered an appropriate discount adjustment to recognize the lack of marketability and liquidity due to the fact that owners of private companies do not have access to trading markets similar to shareholders of public companies. The discount for marketability was determined using the quantitative marketability discount model.
Application of these approaches involves the use of estimates, judgments, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, discount for lack of marketability, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our restricted shares.
For equity award valuations after the completion of our IPO, the fair value of each share of underlying common stock is based on the closing price of our common stock as reported on the date of grant on the Nasdaq stock exchange. We recognize the impact of forfeitures in equity-based compensation expense when they occur.
Recently Adopted Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities with a single reportable segment to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within the reported measure(s) of a segment’s profit or loss, the amount and composition of any other segment items, the title and position of the CODM, and how the CODM uses the reported measure(s) of a segment’s profit or loss to assess
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performance and decide how to allocate resources. The guidance is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024, applied retrospectively with early adoption permitted. We adopted the standard effective January 1, 2024.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, on either a prospective or retrospective basis, with early adoption permitted. We adopted the standard effective January 1, 2025.
Other Recent Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires the disaggregation, in the notes to the financial statements, of certain cost and expense captions presented on the face of the Company’s Statement of Operations, to provide enhanced transparency to investors. The update may be applied either prospectively or retrospectively. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the impact ASU 2024-03 will have on our disclosures.
