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We continued to grow in international markets and achieved significant growth for our affiliated practices, confirming the consistency and validity of our strong business model. We also continued to apply time-tested principles and innovative approaches to enhance the productivity and profitability of our affiliated practices—finding new ways to build business and increase operating efficiencies for them. I continue to believe that our success boils down to a few key factors—superior execution, sound discipline and a winning economic model.
Given our strong internal growth and acquisition of OrthAlliance, Inc., we exceeded expectations for the year. We are pleased to be able to continue to provide favorable results for our shareholders at a time when many companies are feeling the effects of the economic downturn. With our continuing emphasis on internal growth and our expansion into international markets, we are excited about our future prospects.
2001 Financial Results
We had an excellent year in 2001. We achieved record earnings per share for the year of $1.21, up 26% from the prior year results before cumulative effect of a change in accounting principle. In addition, we achieved record fee revenue of $351.0 million for the year, up 30.5% from the prior year and reflecting strong results from our growth initiatives. At $640.4 million, new patient contracts for our affiliated practices for the year 2001 increased 29.6% over 2000. Our EBITDA margin, at 35.3% for 2001, continued to be outstanding.
We continued to add value for our affiliated practices, which achieved significant growth in 2001. Record patient case starts of 200,281 for the year were up 24.7% from 2000 levels. Comparable center fee revenue was up 22.1% for the year, reflecting strong internal growth. Patient interval days increased to 45.9 days in 2001 from 43.6 days in 2000, reflecting continued improvement in productivity and scheduling efficiencies. The number of patients under treatment by affiliated practices increased 41% to about 484,000 at December 31, 2001, compared to about 343,000 at year-end 2000.
The OrthAlliance Merger
OrthAlliance, Inc. became our wholly-owned subsidiary in a merger completed on November 9, 2001. OrthAlliance was a leading provider of business management and consulting services for orthodontists and pediatric dentists practicing throughout the United States. The merger extended our integrated business services to an additional 118 orthodontic and pediatric dental practices as of the end of 2001.
At year-end, we had begun the process of integrating these practices into OCA’s suite of services, and some of these affiliated practices had already begun benefiting from them. For the early adopters of OCA’s services, we saw a combined 8.1% improvement in practice operating profits in a little over two months. At the outset, we recognized that cost efficiencies associated with the merger were achievable. We identified more than $14 million in overhead savings, downsized OrthAlliance’s headquarters and reduced expenses as we brought some of the OrthAlliance affiliated practitioners online using our efficient Internet business systems.
The merger increased the number of practitioners affiliated with OCA to over 600. We have been impressed with the high level of professionalism and the commitment to quality of OrthAlliance’s outstanding affiliated practitioners. In addition, we added a number of pediatric dentists to our ranks through the merger. There is a natural synergy between pediatric dentistry and orthodontics, and we look forward to building on that synergy.
Board of Directors and Executive Appointments
Over the course of 2001, we added several new directors who strengthen our Board of Directors. In October, we announced the appointments of Dr. Dennis J.L. Buchman, Dr. Hector M. Bush and Dr. Jack P. Devereux, Jr. to the Board. These successful professionals bring a superior mix of practical clinical and business experience to our Board that we believe will extend our ability to be responsive and sensitive to the clinical dimensions of the orthodontic profession. Dr. Buchman has been affiliated with OCA since 1990, Dr. Bush has been affiliated with OCA since 1994, and Dr. Devereux has been affiliated with OCA since 1996.
In December 2001, we announced the appointment of W. Dennis Summers and David W. Vignes to the Board. Denny Summers is an attorney and the former Chairman of OrthAlliance, Inc., where he also served as its interim President and CEO. His experience and industry leadership will be invaluable to OCA. David Vignes is a managing partner of a business and tax accounting firm. A seasoned and highly regarded tax specialist, he brings an exceptional level of business acumen and extensive finance and accounting experience to OCA’s Board.
We also announced two key executive appointments in 2001. John C. Glover was named Chief Financial Officer and Bartholomew F. Palmisano, Jr. was named Chief Operating Officer. John had been Vice President of Investor Relations since 1998, where he was responsible for shareholder relationship management, corporate development and strategic planning matters. His ability to analyze and execute sound business decisions and experience with complex capital markets will be an invaluable asset. Bart has been with the company since 1992, serving as Chief Financial Officer and Secretary since 1998. His expertise in management information systems and singular knowledge of OCA’s business from the ground up will play a fundamental role in shaping value-added services to our affiliated centers going forward.
In 2001, we also consolidated our headquarters into a single location in the New Orleans area, which meant cost savings, a unified management team and a more clearly defined corporate culture.
Opportunities for Growth
We remain confident in our ability to pursue three key avenues for growth. The first, internal growth, involves helping our affiliated practices to build their business. The second, external growth, relates to growth through acquisitions, the addition of new affiliated practices and de novo development of new centers. The third key avenue is international growth. All three of these growth strategies are further addressed in this annual report.
At present, we believe that our affiliated practices as a whole are operating at approximately 40% of their capacity to serve patients. We assist our affiliated practices in building increased capacity utilization by concentrating on the basics of our business, the things we do best. That includes helping our affiliated practices to increase patient volume through advertising and decrease their overall costs and maintain low price points for their services. Our affiliated practices also achieve internal growth by extending patient intervals, leveraging orthodontic specialist services through the use of general dentist assistants and associates, and adding the services of pediatric dentists. Our affiliated practitioners maintain control over their practices—and the services we provide have consistently helped them achieve increased growth, efficiency and patient satisfaction and we believe will continue to do so in the future.
Technology plays a key role in this process. Our sophisticated proprietary software, web-based services and corporate intranet provide an avenue for dramatic improvements in operating efficiencies and economies of scale for our affiliated practices. We continue to innovate in the area of technology, giving our affiliated practices the tools they need to improve productivity.
In the area of external growth, we will do what we have historically done—be patient and seize the right acquisition opportunities. The OrthAlliance merger is just one example of that.
Finally, our measured and careful approach to entering new international markets has proven successful. At the end of 2001, we had 34 affiliated centers in Japan. We are preparing to expand our presence in Mexico, and have taken the first steps toward establishing ourselves in Europe with the opening of two offices in Spain in 2001. Our international experience has demonstrated that our business model is transportable. Our technology facilitates international communication. We have encountered tremendous demand for our services, and we see few competitors internationally. The field of orthodontics represents an estimated $50 billion world market, and we see enormous potential for growth opportunities.
In closing, we are pleased with our 2001 performance. Our company has demonstrated extraordinary resilience in periods of economic downturn. We have found that the demand for orthodontic services, which are viewed as services that often cannot be postponed, does not generally decline in negative economic cycles. This is particularly true for practices, such as most of our affiliated practices, that stress the value of their services. So, although it is difficult to predict the depth and length of the current economic slowdown, we expect sustained demand for our services and continued growth in the year ahead. OCA has a strong future. I look forward to keeping you apprised of our progress as we move into that future.
Sincerely,
Bartholomew F. Palmisano, Sr.
Chairman, President and Chief Executive Officer