Blackrock, Smile Direct Bankrupt, Interest Rates to Make Decisions

The following transcription was from the Bulletproof Youtube channel. Here is the https://www.youtube.com/watch?v=h5AG6VxnEek&t=532s

Peter Boulden
0:00:00
Well, we are live.

Trey Tippit
0:00:11
I'm literally writing you an email right now.

Peter Boulden
0:00:12
You should have seen my breakdown with Trey, just being, just calling you guys all sorts of names, being like, these motherfuckers.

Trey Tippit
0:00:18
I got, I got, I puckered up a little bit.

Trey Tippit
0:00:20
It made me very uncomfortable.

Dwight Peccora
0:00:21
That's how he likes it.

Peter Boulden
0:00:23
That's my love language though, right? If I dog cuss you, it means I love you. Yeah, how's that working for you, Pete? That's how people get away with it.

Peter Boulden
0:00:28
You're right, Craig.

Trey Tippit
0:00:29
That's not working so well in my life.

Dwight Peccora
0:00:30
It's not working so well.

Trey Tippit
0:00:31
All these people I love are leaving my life.

Peter Boulden
0:00:32
I wonder what I'm doing wrong. Well, I've only got the bandwidth for like five friends anyway.

Trey Tippit
0:00:34
True, true. Is that all you have? You can count your friends on five. What? Peter, what type of shirt is that? I like that shirt. It's got flamingos on it. You're getting ready for the cobwebs. It's awesome. Getting ready for the Cobblestone. It's good work. You look good, bud. Look at you, Trey, all polished with a gold watch. Every time you show up in this podcast, like a new Trey. You got one more item of clothing. Soon I'm going to have brand new underwear, no holes, that shit's going to be real. I know. I mean, imagine if you look that way, everything you're wearing but the shirt was actually ironed and not look like you run it out from a… This is fucking cleaners. No, it's not Rogetta. I undid it from the plastic. Get close to the camera.

Peter Boulden
0:01:24
That's a great video.

Dwight Peccora
0:01:25
Okay, it looks okay. It's an Oxford, Craig.

Trey Tippit
0:01:28
You need to learn your fabrics.

Dwight Peccora
0:01:30
No, I don't know.

Peter Boulden
0:01:31
It's thicker.

Trey Tippit
0:01:32
You know it's almost as good as a fresh shirt. Actually, you know it's a little bit better than a fresh shirt.

Peter Boulden
0:01:37
Here we go.

Craig Spodak
0:01:38
Ready?

Peter Boulden
0:01:39
What?

Trey Tippit
0:01:40
Warm undies from the dryer. I'd take a warm towel over warm undies. I agree on the warm towel. Warm undies will make you take a leap.

Dwight Peccora
0:02:06
I work in the tropics, man. I don't want warm undies.

Trey Tippit
0:02:01
True.

Craig Spodak
0:02:02
That is very true.

Trey Tippit
0:02:03
You don't really have a lot of seasons.

Dwight Peccora
0:02:06
We're excited because right now it's, I don't know, what's the temperature right now? What do we got?

Dwight Peccora
0:02:11
It's cold.

Dwight Peccora
0:02:12
It's going to get cold. It's going to go down into the 70s.

Trey Tippit
0:02:16
That's what we call fall.

Dwight Peccora
0:02:17
That's why I wore a long sleeve shirt to prepare.

Peter Boulden
0:02:21
That's right.

Trey Tippit
0:02:22
Well, in Florida we got two seasons. We got January and summer. That's all we got here. We're excited 87. It's cold as hell here

Peter Boulden
0:02:30
Hey, Jay Cal you got interest today or no? I do I do you want me to roll?

Dwight Peccora
0:02:34
You're gonna roll with music or we're just gonna kill. No. No the link Nazi doesn't want to do it

Trey Tippit
0:02:38
Welcome everybody to the Bulletproof Dental Practice Podcast, the whole name that is,

Dwight Peccora
0:02:44
where we have consent that we have paid our debts in creating quality dental practices and we have the scars to prove it. So let's get started with the fearsome three that are joining me today. We're going to get going. So Halloween is upon us, but the only thing he fears is being irrelevant. He should run for office, but he has too many skeletons in his closet. This gas-guzzling, gun-toting defender of private practice keeps us all safe. Even if his conversations about our practice vision makes us chafe, you can always expect the unexpected as he always finds a way to boast, even about this roast. His social interactions to you makes you never feel alone, but know if you're in his presence, you'll always be second to his phone.

Dwight Peccora
0:03:35
He blazes trails for a living and knows no bounds to his giving please help me welcome Craig

Dwight Peccora
0:03:42
Spodek is a pod

Trey Tippit
0:03:44
It's all good, but man, it's all good and in my other one makes me feel like you don't like me right now

Dwight Peccora
0:03:49
You better hug me, buddy. I will I'll see you in Houston as we fly together. No need for a big intro, but let's tiptoe around his crypto since selling to him is whack and he definitely didn't want to listen to his friend Spodak. He is the enterpriser with an insatiable desire where arbitrage is his game, so don't expect him to remain the same. Once the opportunity is depleted, you can expect his equity to be unseeded. A private DSO may be his dream, but expect him not to be seen. He's the quiet CEO whose dentistry is long past, but he builds your operations to be steadfast. He's the practice generator and the profits allocator. Please give a warm welcome to the dictator, Peter Boulding.

Trey Tippit
0:04:46
That was so kind, Dwight. Pencils down. Pencils down.

Peter Boulden
0:04:49
That was so kind.

Peter Boulden
0:04:50
Pencils down.

Dwight Peccora
0:04:51
Pencils down was good.

Trey Tippit
0:04:53
Hold on.

Craig Spodak
0:04:54
Hold on.

Dwight Peccora
0:04:55
And lastly, but of course, the risk taker and bar breaker with the disgust for detail with enough practices to be considered for retail. When scaling his efficiency, he makes no concessions, which is why he's the safest in a recession. His calm makes you wonder if he's even awake or if his agreeable comments are just simply fake. The truth is he's just bored with you, but too much of a Texas gentleman to tell you

Trey Tippit
0:05:21
to.

Dwight Peccora
0:05:22
His practice is a family episode of the succession, but his Rocky Balboa video will make you consider his ganja possession. From Brenham to Cyprus to Belleville to Houston, his practices are steady. So if you're selling in Texas, the Rainmaker is ready with a good deal. Give him a year and the practice, the purchase will look like a steal. He's our Rainmaker, our handshaker, our Tito's drinker. Please welcome Trey Tippett to the pod.

Trey Tippit
0:05:48
Who knew?

Trey Tippit
0:05:49
I just got so surprised by this.

Craig Spodak
0:05:52
That's awesome.

Peter Boulden
0:05:53
Oh, man.

Dwight Peccora
0:05:54
So with that being said, we've got to prep and start it because all in went all out. So we're going to add something to it right here. So be prepared for when Pete gives the term full stop, which means to him that his mic just dropped. Craig will yell pencils down so we will know it's the end of the round. And Trey, the agreeable, will follow with the term. That's well said, even if it's some crazy idea from Craig. As for me, I'm the moderator who can barely get us to land the plane especially since I think we're all insane culture index I should we should never put these four together But our energy units will make us talk forever the truth is that Pete started the pod and Craig gave Pete a heart and Dwight brought in CI and Trey shows us the ROI where the fearsome for and if there's anything we can underscore It's that we hope that this pod helps you build scale and more so welcome to the pod, everyone.

Trey Tippit
0:06:51
Wow.

Dwight Peccora
0:06:51
That was good.

Trey Tippit
0:06:52
Beautiful.

Peter Boulden
0:06:52
I feel like we can just shut down at this point.

Trey Tippit
0:06:54
Yeah, we should end this one.

Peter Boulden
0:06:56
We're done.

Craig Spodak
0:06:56
We're done.

Craig Spodak
0:06:57
We're done.

Peter Boulden
0:06:57
It's only going to be a letdown from here.

Dwight Peccora
0:06:59
It's true.

Trey Tippit
0:07:00
If you're listening, you might want to just tune out now.

Dwight Peccora
0:07:02
We've got some good topics. We've got some good stuff planned. There's got to be a little production in this process, so let's roll. All right, so first on the list, we've got an interesting topic. I can give a little quick summary so everybody feels like we've got an intro on the topic, but it relates to the one and only BlackRock getting into oral health slash dental. That's the top of our list. For those who don't know, BlackRock is considered a, well, it's a risk management company, it's a fixed income institutional asset manager. It's now considered the world's largest asset manager. Ten trillion currently in its portfolio as of July of 2022. So needless to say, we're talking about a pretty significant involvement and interaction. So I would say what's interesting about this is-

Peter Boulden
0:07:51
Is this it right here, Dwight? The BlackRock purchases Paradigm?

Dwight Peccora
0:07:54
That's right.

Trey Tippit
0:07:55
So BlackRock- You got to give them who they purchased in dental to appeal, right?

Peter Boulden
0:07:58
Well that is dental. Paradigm Oral Health.

Dwight Peccora
0:08:01
Paradigm Oral Health is the parent company that goes along with that. Now I will say, if you want some background on this, so it was started with David Rallis, who is a, he did his DDS in 2004, his MD in 2008 from the Mayo, oral surgery guy. We'll fast forward a little bit, but needless to say, he established a pretty nice EBITDA, three offices, EBITDA of 4.35 million. Initially got partnered with Intandem, which is another smaller private equity group that basically Intandem got them to this point where this acquisition is being considered at nearly, I'm not joking, $1 billion, $900 million. $900 million, yeah. Holy shit. So it's a tech company too. So you've got, what happened was, it seemed like 4.35 in EBITDA. They got a 12X from Tandem for the first three offices. They only sold 50.1%. And then they took about three bites of the apple. They went from, and hear this, three to 75 offices in 36 months in oral surgery through acquisition, each time doing stock deals for equity. So they went 50-50 split, 60-40 split, 70-30 split, and now BlackRock has considered them for majority shareholdership at 18.3x multiple for just over $900 million.

Craig Spodak
0:09:32
Good Lord.

Dwight Peccora
0:09:34
Now 18.3. Now I want to explain something. First thing I would say, just my personal opinion, a group like BlackRock doesn't just get involved to buy practices, right? There's a platform that we're talking about here. There's Paragon, which is early on, David, who's still helping run the company.

Trey Tippit
0:09:53
Paragon or Paradigm?

Peter Boulden
0:09:54
Paradigm.

Dwight Peccora
0:09:55
Paradigm is the piece of software that they also created that helps run. It's a practice management software that they've scaled. So these types of groups love SAS companies, and that's really where they see the scale. So I think when you listen to these multiples, you're not talking about just buying practices. You're talking about buying a whole platform at which that scales, not only oral surgery, but other things. They have a whole consulting platform that coaches.

Trey Tippit
0:10:20
So in terms of verticals,

Peter Boulden
0:10:21
I mean, obviously you're coming off of this.

Dwight Peccora
0:10:23
Yeah, yeah, yeah. But it's interesting. I mean, obviously 36 months of scale is pretty astronomical, but I thought it was worth discussing because I think there's a lot of thoughts that get caught up in somebody saying, someone's got bought out for a billion. And so I figured we'd talk about verticals. We talked about kind of how this impacts the industry. So let's throw down some thoughts. What do y'all got on this one? I remember when Heartland got bought by the Canadian Teachers Union for a billion, and

Trey Tippit
0:10:48
it was all over the headlines. Everyone was talking about it in the industry. How far we've come, that I've never heard of this until you brought it up the other day, Dwight. You didn't know that because Deca was acquired by Blackstone. Well, I'm just saying, I didn't know about the billion dollar oral surgery deal that's like half tech and half. I'm just saying, like the deals you were starting to get numb versus versus like remember the teachers union bought that it flipped dentistry on its head. I remember hearing about it being like, holy shit, here it comes. You know, but BlackRock, you know, as we all know, even in the downturn of the well, let me say even in covid member BlackRock was being kind of scrutinized for buying all of the private homes, right? They're trying to buy real estate and just gobble up all real estate. And everyone was saying, you know, the goal is to let you own nothing and be happy. You know, you're going to be a renter forever because we're going to price you out of homeownership. So to see some to see what's BlackRock's AUM, assets under management, I think it's

Dwight Peccora
0:11:58
10 trillion.

Craig Spodak
0:11:59
Oh, gee.

Dwight Peccora
0:11:59
Ten trillion. Ten trillion with a T.

Peter Boulden
0:12:03
Yeah.

Peter Boulden
0:12:03
So when they so here's what here's what's a little bit frightening about that. When someone who has that kind of clout, you know, they one billion ain't no thing. The economy is not run by the government. The economy is run by Morgan Stanley, BlackRock and things like this. Right. And so the clout, the clout that they can bestow on an industry. So if they wet their beak on this, and they all of a sudden like, this seems pretty good. Dentistry seems like something we wanna jump into. It could be, I don't know what it could be, honestly.

Trey Tippit
0:12:36
As I said earlier.

Trey Tippit
0:12:37
Well, it'll just speed up the consolidation pathway by a major factor.

Peter Boulden
0:12:40
Right, but does it create a feeding frenzy, Craig? Or do you think it's just, it's an open market? Obviously, the more suitors that are in the market, the higher, the more demand, the higher the price. But there's a limit. When you start getting into 18s, that's tough to validate in terms of an EBITDA play.

Trey Tippit
0:13:03
I think too, you've got fears of a recession. Obviously, we're heading that way or in it. You've got tech companies, big tech companies, which were always amazing performers, like repositioning themselves to say, we're going to be a slower growing company now. We don't expect these ridiculous consistent double-digit quarter-over-quarter returns. So I think it focuses people like BlackRock and SmarterMoney to say, okay, well, if it's not that sexy anymore to go tech, what can we do? If there's going to be stable returns on a tech company, why not go stable returns on dental as well? So I think there's a reset of expectations from the big financial powerhouses. Yeah, to return to health care. Stability.

Peter Boulden
0:13:45
Right.

Craig Spodak
0:13:46
Yeah.

Dwight Peccora
0:13:47
You know, I was listening to something about with,

Peter Boulden
0:13:48
you know, Michael Burry, who tweets a fair amount, and you know, he was obviously the big short, the movie was, the big short was made about him, and he was basically saying how, you know, it's crazy that we have these companies that are worth $100 billion in the free market, he's talking tech and SaaS, yet they've yet to ever have profits, right? He's like, this inversion of like value versus actually production of accretive value is just, he's like, it will not last, this will end badly is what he's saying. And so, Craig, to your point.

Trey Tippit
0:14:21
Well, it's already ending, I mean, Facebook and Amazon and Apple, they're all laying people off and, you know, positioning to their investors that expect more modest returns, no more ice skating rinks in your corporate headquarters and free lunches and all that stuff. I mean, that put pressure on all of us. There's, you know, there's definitely a more sobering time coming in.

Trey Tippit
0:14:40
Yeah, it's crazy.

Trey Tippit
0:14:41
It's crazy. But I think that bodes well for us because, you know. You mean because it's a shift back, like where tech was the sexy beast in the room, so to speak, now it's going back to,

Peter Boulden
0:14:53
let's get back to base hits and businesses that actually make something.

Trey Tippit
0:14:57
Yeah, well, if you have the Amazons of the world saying, hey, we're going to be a base hit company going forward, now it's all of a sudden, these other people that are smarter than all of us are just like, well, if it's going to be base hits, let's go to healthcare because it's a little bit more immune to consumer trends and prices and stuff like that.

Dwight Peccora
0:15:15
I like that comment you just said about smarter than us. I'm always amazed, because you'll hear some of these incredible individuals that are out there selling, right? Some of the greatest entrepreneurs in the world, you know, Elon Musk, and they're out there, and when they're selling, people are like, nah, nah, I'm gonna hold on, I'm going to do this, I'm going to do that. And it's almost as if for some reason, even within our own industry, this type of news can come up and we act like, oh, well, that that never will affect me here or never affect me here in Houston or affect me in Texas or somewhere else. And I think we have to have our eyes open to understand that consolidate is happening and it's going to happen at different rates, but there are different ways to look at this. I mean, this is not a simple turnkey acquisition. Nobody should quote somebody got an 18.3 multiple for dentistry, that's just not what it is. Now I do agree that they're looking more at us and saying, hey, here's some bread and butter industries that are looking sexier because they're more stable, they survived well through COVID because there's a necessity, there's a healthcare necessity. So it stabilizes their portfolio in a lot of different ways, which is why I think it's going to create some attractivity to our industry. But do I think that it's sped up as far as when we talk about application to the listener right now? I would say, yeah. Do I think that if before we were thinking seven years out for a significant percentage of the industry or 50% or 40% of the industry being consolidated, this might speed up?

Trey Tippit
0:16:50
You think this speeds up the timeline for consolidation is what you're saying?

Dwight Peccora
0:16:53
I think so.

Trey Tippit
0:16:54
So, netting that, do you think it's a positive? Why do you think that happens?

Peter Boulden
0:16:57
Yeah, I'm curious.

Trey Tippit
0:16:58
I mean, what makes you think that? I agree with him, by the way.

Dwight Peccora
0:17:01
I think because when people start realizing that you've got inflationary money, you've got large groups that are really struggling, the one we're going to talk about here, this next step, that relates to the fact that they have way too much variable interest rate debt and those things start collapsing, more consolidation is going to happen with some of these groups. And some of them are also these large ESOs. They're struggling as well in the same way because they created their whole business model in a zero interest rate environment. And it was a significant component. You've got to realize that's not just going to go away. And so in my opinion, do I think that it's sped that up? Yes. I mean, do I think it's going to go to 100? No. 100%? No. But do I think that it's going to speed up the process of what everybody kept quoting was the next seven years, seven, eight years?

Trey Tippit
0:17:54
I think it would be more like five when the big models like this get in. Let me ask you a question, Dwight. So let's just pick apart that one thing you said. So if you build your business model and it only works because of zero interest rates and using debt, why does that not collapse things from inside? So why not, why is it speeding things up? Why don't you think it would take some of the big players out?

Dwight Peccora
0:18:14
I think it takes the big players out, but big players within our industry. Meaning some of the DSOs that did it and focused on building their models in that mindset created a lot of variable rates. I'm just talking about DSOs.

Trey Tippit
0:18:33
I think when you bring in Small Direct Club, there's a whole other set of challenges why they failed. I don't think interest rate had to do anything with it.

Dwight Peccora
0:18:41
Well, my question there is that a lot of their debt is variable interest rates as far as DSOs. Therefore, if people like groups like BlackRock are getting involved at this point in time, it's because it's going to get more savory as we go along. And I think that now that they show their interest, there's other people that are going to be considering this.

Trey Tippit
0:18:59
I agree with all that. I'm just concerned. I agree with all that. I'm just concerned about are there DSOs out there, large DSOs that their debt ratios are so high and it all worked at zero, but it doesn't work at three, four, five, six, seven seven of interest rate. And then what happens to those and why does that not slow the consolidation train down?

Dwight Peccora
0:19:18
It won't slow the consolidation down because there's always a bigger fish eating. To eat them is what you're saying.

Trey Tippit
0:19:24
Correct.

Dwight Peccora
0:19:25
Yeah, until there's not.

Peter Boulden
0:19:26
It was musical chairs at that point.

Trey Tippit
0:19:28
I mean, that's all that recaps are of the trade, right?

Peter Boulden
0:19:32
Yeah, exactly. You buy something in hopes that, you know, it's the greater full theory almost. It's just like crypto, right? You buy it in hopes that someone else is going to buy your bag for more than you paid for it. You know, that's what it is. I mean, I don't think that's the thing exactly with crypto because there's obviously some merit around it, but like that's the arbitrage we're talking about here. I mean, that's the whole reason that anyone would do this. It's not because they have this fascination with dentistry. It's that they see leverage. They see arbitrage opportunities, and our industry is ripe because of the lack of consolidation because of the fragmentation in the industry. What's the newest data? Do any of you know about what percentage of our industry

Trey Tippit
0:20:13
is consolidated? I know it's hard to find that number, but do you guys know an approximation? I think it's around 40%. That's where I'm going right now in my head. The data on Julie Craig is lagged, right? So by the time you see the data, it's probably in 2020 or 2021. And like, I haven't seen current data. So if someone has that, that they know it, put it in the comments or something or ping us just so we could know, or they can send us the article. Because my God, and I don't know where I heard this from, and Dwight, you're kind of echoing the same sentiment, is that it's around 40% now. But I think that might be a little high, guys.

Peter Boulden
0:20:53
That seems high.

Dwight Peccora
0:20:54
I'm, my guess is that we're still in the 30s, but that would be my, I think that,

Trey Tippit
0:21:00
So when do we define it as consolidated? I mean, what's the number that you think it's gonna hit? The majority has to be consolidated in order for you to say it's, I would say. I mean, that doesn't mean that there's no more runway left, but I think it's 55 or 60% consolidated, meaning part of a DSO or larger group. Then you say, I would say the industry's been consolidated, but there's still plenty of runway. I'd say 80%. Isn't DERM like 80% consolidated? The tipping point is where the, yes, it's 80%.

Peter Boulden
0:21:27
It's the tipping point's already met, been met.

Dwight Peccora
0:21:30
It's just that we're surviving.

Trey Tippit
0:21:31
The tipping point in the definition, fragmented versus consolidated is what I'm saying.

Dwight Peccora
0:21:41
Yeah, you're talking about two different things. So the tipping point as far as when we within the industry or across the board start to sense it or know about it is earlier, like you said, 20, 21 to 22%. But he's talking about the tipping point of when we consider like, that is the default is consolidation. He thinks it's closer to 80% or something to the vast majority. So a super majority is what you're saying, Peter.

Trey Tippit
0:22:05
Yes. Yeah, and is there any force that you can think of that stops this? No. Nothing?

Peter Boulden
0:22:12
Nothing. Nothing stops us. Us bellyaching, us saying we won't do it, there's nothing that can stop it, it's inevitable. The what, all we can do in my opinion, this is this place is make sure we're shepherding good stewards of it, meaning that it's not just run by people who are trying to drive down profits. I think that's where you can really lay. If you say, we're not doing it, you may be the lat, like to Trey's point, you may be musical chairs and they're giving me no chair, potentially. I'm not saying that everyone needs to do it. I'm just saying, Craig, we can't avoid this. There's too much power in the financial system.

Trey Tippit
0:22:44
Well, I mean, controlling the reimbursement rates of the insurance companies, controlling the supply costs and your, you know, your goods that we've, we all use. I mean, the economic factors are just too compelling.

Dwight Peccora
0:22:56
There's just, I'm going to, I'm going to read something real quick just in response to this because your question made me remember. There was a Rutgers article that got put out just recently discussing kind of the impact of these variable rates and carrying most of your debt for these, for several organizations throughout multiple industries. Long story short, I'll read a chunk of it. It says, this is a section that discusses high bankruptcy risk. It goes like this, it says the burden of high interest payments is expected to lead more companies filing for bankruptcies. Moody's projects that 3.7% of companies with junk rated debt will fall for bankruptcy in August 2023, up from 2.1% the year earlier. Among highly indebted companies facing this bankruptcy risk are healthcare provider surgery center holdings, dentistry operator Heartland Dental, energy infrastructure service.

Trey Tippit
0:23:56
They actually call it Heartland Dental in that article? Yeah, specifically.

Dwight Peccora
0:23:59
Wanda New Co. 3 according to movies. So even when I'm looking at it, I'm like, I'm looking at all these reps and all these discussions, it specifically discusses them because it wasn't too long ago that their acquisition model was so massive, but it was taking advantage of those rates. I'm not saying that they don't have a methodology to try and curve this, but there are several

Peter Boulden
0:24:23
groups that are pulling this. You're saying when rates are zero, Dwight, it's a lot easier to propel your model, right?

Dwight Peccora
0:24:29
Yes. Not to mention, you know, everybody sat in that boardroom and said, now's the time, you know? I mean, let's make it happen. Let's acquire. Let's go, go, go, go, go. The problem is, is did they taper that off fast enough? It's unlikely. Let's take a layer back, like specifically Heartland. You know, when I get those mailers, like I'm sure everyone in this list that's listening gets this one as well, the marketing position for Heartland, and at least maybe I have a certain demographic, they're hitting with special marketing, so maybe you can comment what you're getting, but I'm getting a postcard where the guy is dressed half in scrubs and

Trey Tippit
0:25:04
half with a fishing rod.

Peter Boulden
0:25:05
Same.

Trey Tippit
0:25:06
And it's like, you're getting that? Same. Well, maybe we're old men, so what are you getting? Are you getting that flyer too? It's basically this marketing position of like, do you hate your life? Do you want to quit your business and fish more? So like what business would the four of us acquire where the producer, the main talent, like, oh, you want to just disappear? Great, I'll buy your pizza store. You're the most renowned pizza maker ever. You want to go fishing? Great, I'll buy the dough and the sauce. And you go off and fish. So like, does Heartland really have just a rate problem or do they have a strategy wherein they just figure if they keep acquiring, they'll do well. But they don't have to worry about the people that they've acquired long-term. Like the shrimp grow well. But you're saying once that acquisition stops, it's like a shark that has to keep swimming. What I would be concerned about, if you're trying to buy me and encouraging me to leave and go fish in your marketing, I'd be concerned about your business. It's so true, Craig. Let's just get fundamental. It's stuck to the point. Forget rates and forget Moody's and all this bullshit we're talking about.

Trey Tippit
0:26:10
We're like, it's not going to get bad and blah, blah, blah.

Peter Boulden
0:26:12
Instead it should be a postcard. It's like, hey, do you want to kick ass with us for the next 10 years?

Peter Boulden
0:26:16
Like let's do this.

Trey Tippit
0:26:17
Are you frustrated about your business systems? Do you think you could extract more profit out of your practice? Are you frustrated about your supply costs going up? Are you upset about the clear line of cost you have to pay? Join us. We'll use economies of scale and we'll crush your market together. Let's go. Instead of, oh, you want to retire. Great. You want to get out of here. We'll buy your shit. We'll leave whatever's left over when you take off. I can't wait. Honestly, the goal of this podcast is going to be a deceased cyst one day. Well, if that didn't do it, I don't know what did. Listen, I love it. It's going to be a formal letter.

Trey Tippit
0:26:53
Oh yeah.

Trey Tippit
0:26:54
I'm not allowed to comment on that.

Dwight Peccora
0:26:55
I'm in arbitration.

Trey Tippit
0:26:56
I'll post it everywhere. Oh, jeez. Well, listen, it's just, I'm just saying, I'm getting that marketing. Maybe they could take this podcast and actually change their marketing. It would help their company a lot. If you got a postcard from Heartland that said those types of things, wouldn't you be more inclined? I mean, maybe we're in our own echo chambers and we're different types of dentists. But like, I don't want to buy your business if you want to bolt from it.

Peter Boulden
0:27:17
Yeah, the the avatar, if we go back to marketing for a second, right. Everyone talks like, well, who's your target market? And if you're a target, if that's your target market, the avatar of someone who's got one foot out the door as the primary producer in the business that the cash flow is predicated on, the business you're trying to buy, that seems flawed to me. I agree. Right.

Trey Tippit
0:27:34
Yeah. You've been working for 25 years. You kicked ass. We're going to put a brand new D22 student in your place. Go fishing. He'll figure it all out.

Trey Tippit
0:27:46
You know what happens? Let's roll over.

Craig Spodak
0:27:48
All right.

Dwight Peccora
0:27:49
See some desist.

Trey Tippit
0:27:50
I love it. I think it's amazing.

Dwight Peccora
0:27:52
But, I mean, it's worth discussing.

Dwight Peccora
0:27:53
All right.

Dwight Peccora
0:27:54
So, we got Small Direct Club. That's a Wall Street Journal.

Trey Tippit
0:28:03
The Wall Street Journal.

Trey Tippit
0:28:04
Smile Direct Club doesn't have this.

Trey Tippit
0:28:06
Can we call this episode cease and desist? What are we doing here guys? Let's do it. What are we doing?

Trey Tippit
0:28:12
My favorite, my favorite.

Peter Boulden
0:28:13
We're just kicking a bunch of beehives.

Dwight Peccora
0:28:14
Well, I think these are the topics that get, that hit a lot of us in dentistry just on our phone. Or someone pings us and is like, oh, have you seen this? Hey, look at this. I mean, the title of what's on here, in case you're just listening and not watching us, Small Direct Club doesn't have much time to straighten itself out.

Trey Tippit
0:28:36
Great.

Dwight Peccora
0:28:37
From Wall Street Journal, which is kind of interesting. So, the demand for the company's teeth straightening falls.

Peter Boulden
0:28:41
They're burning cash. They're burning cash. They just raised $225 million in April. And, like, the burn rate, so much so that Wall Street Journal, their recommendation is sell, but they IPO'd it over $20, and now their price right now is around 1.62 at the time of this writing, August 22nd. Who knows, I wonder what it is now. I've been asking. It's under a dollar right now. Is it really, Trey?

Trey Tippit
0:29:08
I wanna say I looked it up last night,

Peter Boulden
0:29:09
it's right at 80 cents. So in the time between August 22nd, it was 162 and then today it's gone that much.

Peter Boulden
0:29:17
So here's why.

Trey Tippit
0:29:18
88 cents.

Peter Boulden
0:29:19
Here's why guys. I found this balance sheet. Can you guys see it?

Craig Spodak
0:29:23
That's fine.

Peter Boulden
0:29:24
Go ahead. Well, basically it goes year by year. This is in millions, of course, and so this is the losses in millions per quarter. There's only been one profitable quarter and that was in 2019. Every one has been-

Trey Tippit
0:29:40
Year-over-year down 27.78% in revenue, 20% in net income, and net profit margin down 66.56%.

Peter Boulden
0:29:50
The adjusted EBITDA in Q3 of 2021 was negative 70 million. And to endorse that cease and desist concept,

Dwight Peccora
0:29:57
I think this is why Reddit is getting so pressed to short this stock to go after it. Oh really? Yeah so it's a big push right now. It's not like one of the Wall Street play like you know the Wall Street. The GameStop and yeah it's going down that direction now. Oh wow. Well then you may want to buy it. Exactly. So that's what you're looking at. We got to short it. If it becomes a… We got to short it. See you movie theater again? Again talk about see-sit-assist.

Peter Boulden
0:30:24
But you might want to buy the long option then.

Trey Tippit
0:30:27
That's right. Let's not get into this domain of financial advice.

Trey Tippit
0:30:30
Let's not pretend that we are.

Dwight Peccora
0:30:31
Listen to this. It says, despite $377 million in cash and equipment, the company also has over $716 million in long-term debt on which they need to pay more than $50 million a year in interest

Trey Tippit
0:30:47
expense.

Dwight Peccora
0:30:48
A loan. Here's the variable component once again. As the economy heads into a rising interest rate environment, paying a high percentage of gross profits and interest expenses implies significant bottom line issues for this company. So for the third quarter, the firm is forecasting shipments of 83,000 to 87,000 aligners, orders, right? So representing an increase in 49%. This is what they're forecasting, not what their expectations, what the real is. From the second quarter, Small Directs Club price to sale and price to book stands at 3.1 and 10 times respectively. So according to this, it says, based on the latest financial disclosures, Small Direct Club has a probability of bankruptcy of 77%. 1.87% higher than that of the healthcare sector and 112% higher than that of medical instruments and supply industry.

Peter Boulden
0:31:43
Meanwhile, and this is just facts, not opinion, meanwhile Invisalign is posting higher profitability than ever because they are involving the doctor, in my opinion, right? Well listen, we're going down this rabbit hole

Trey Tippit
0:31:58
of looking at interest rates again and how the macroeconomics affect this company. But when SmileDirect came around, I was very intrigued because I was surprised that patients would be willing to have no doctor in their process. So naturally, I would go on their Instagram page and look at things and see how things were going. For my purview, all I could see was really upset people. So I was seeing a lot of, and again, it might be selection bias because people don't come to us and be like, look at the result I got with Smile and Direct Collaborate, with the clear aligners at home. They come to us because they're having a problem. So we're not really seeing the true scope of it's great or if it's not. But so we have observational biases because they're coming back. But I am not surprised, based on what limited information I had about it, that they're not doing well. Then you compound it with a higher interest rate and an aggressive growth strategy and all that stuff. That makes sense to me. Are you guys surprised? I mean, if we would have talked two years ago, would you have thought that SBC is going to be a great company? Take your ego out. Take your like you're hurt out. You can't think like a doctor on that. Don't think like a doctor. I'm just coming at it as a consumer. Forget about like, oh, I can't believe they don't want me to supervise your clinch.

Dwight Peccora
0:33:22
I remember years ago having a conversation with both Pete and Craig on this topic. It wasn't about, oh, obviously there was a generational demand. They want simplicity. They don't want to have to go through all these other things, which I, we got, but all of us said the same thing, which was like, but is that a good longterm strategy? Like that's where it is. And at the end of the day, most of our businesses are like, when we add certain things, it's like a quick fix for a quote, September, a quick fix for this and that. All we talked about in that previous podcast was build longstanding solutions with good business models that, you know, make sense for the care of your patients and the longevity of your business. There was nothing in this that made longevity.

Trey Tippit
0:34:05
Dwight, that's really naive to say that because we don't have investor pressure. SDC has investor pressure. So we sit here from the really privileged position to say like we have our coffers, our finances, we can afford to make long-term great decisions. When you have private equity or investor pressure, they don't care about what you're planning to do in 36 months. All the shit we buy is like, oh, next year that'll be great or two years from now, I'll buy a new CVCT and not thinking about how it's going to affect my bottom line for next quarter.

Dwight Peccora
0:34:36
I know it's not. Yeah, but they have to diversify their business model to have some level of longevity because to double down on something that eventually needs to be fixed by a doctor, eventually

Trey Tippit
0:34:45
those generational gaps don't last forever. Let me tell you what I think the silver lining of an SDC is, and I'm just using an SDC as a placeholder for all direct-to-consumer clear aligners, it made us dinosaur dentists say, you know what, we are making our patients go through a lot of freaking hoops here. A hundred percent. And why are we bringing them in every freaking four weeks to check their aligner progress, and why do we make them go through all this stuff? People don't want that.

Dwight Peccora
0:35:11
What are you doing, Peter?

29
0:35:12
I'm taking a little selfie of us.

Trey Tippit
0:35:13
No, he was doing a selfie.

Trey Tippit
0:35:15
He was coming back.

Trey Tippit
0:35:16
No, that's really fucking distracting. So, it's, I don't know, I just think it was a net positive on dentistry. I agree, it made us better. It made us better, but I just think that, you know, having patients taking their own impressions. I know the first hundred impressions I took as a trained dentist were clinically unacceptable.

Dwight Peccora
0:35:36
But I'm gonna extend that a little further because I want to make sure that everybody's listening understands how our businesses changed due to direct to consumer influences. So a good example, I know you talk about all the time is now you see your patients a whole lot less because there's not this friction of necessity to see them all the time. Right. That's something that you talk about. We did the same. We implemented that a long time ago, but it made a big difference. And you don't need to always have that patient constantly coming in. And there was almost this expectation, this almost doctor pride, like I need to see you to make sure it's, and you hand them the next set of aligners, they move on. And it's just kind of an awkward scenario, or they're just seeing your assistant, you're like, well, why can't they have them for a month, two months, right? I mean, when it first started, the idea was to have it even more frequently. What else are you all seeing that we've done, you know, in all our practices, that was an influence of

Trey Tippit
0:36:30
direct to consumer marketing? I think virtual consultations like Peter's doing. I think virtual dentistry, Zoom calls, you know, FaceTiming, I'm doing all that. I mean, COVID plus DTC really made the patient experience more favorable for them. I realized how many things were just out of my own ego, like my doctor ego saying like, I got to make sure they're tracking and blah, blah, blah. Like you can do that over zoom call. And you know, we, we say it's a five minute appointment or a 10 minute appointment, but think about it for the patient. They may live 25 minutes. They had to get a babysitter, you know, it's an hour and a half.

Dwight Peccora
0:37:04
Yeah.

Trey Tippit
0:37:05
Super inconvenient.

Dwight Peccora
0:37:06
I would also add to that the concept of a digital scans, which was a huge push, right? They weren't going in, you know, realized, hey, you could come in, and now it's expected. Better fit, better digital scanning, things like that. That was another piece that a lot of practices took on.

Peter Boulden
0:37:24
So going back to, you know, as I dug into this topic a little bit, they are kind of pinning their hopes on this scanning. You know, because right now you go in and get scanned at a center, a small direct center. So they've got new tech coming out, which is kind of like their Hail Mary is using your phone potentially. Wow. For the scan. So if that works. Can that work?

Trey Tippit
0:37:42
You know, Greg, who knows?

Peter Boulden
0:37:43
We'll find out.

Trey Tippit
0:37:44
We'll find out.

Peter Boulden
0:37:45
But I mean, on the high end side of it. The probability, you know, it's still, to me, it's a Hail Mary. And if it works, like, kudos to them. I love when people innovate. You know, everyone loves an underdog.

Trey Tippit
0:37:56
But right now, as it sits, it's a tough situation.

Dwight Peccora
0:38:05
Yeah, what was quoted from the CFO, Kyle Wales, the short-term headwinds from residual impacts after the April cyber attack, which by the way, they had a massive cyber attack. Oh, shit. The lasting economic effects from COVID on our target demographic and the slower scaling of some of our new international markets due to COVID prevented us from achieving our anticipated second quarter results. The international component I think is an interesting part. They just made a massive switch to their enterprise efforts. Small Direct Club will halt operations in Mexico and in several other countries such as Germany, Spain, and New Zealand. It said it will continue to operate and grow in the US, Canada, and as well as Australia, France, Ireland, and the UK expansion, so their countries are halted for now, it says.

Peter Boulden
0:38:56
Yeah.

Peter Boulden
0:38:58
Oh well.

Trey Tippit
0:38:59
Very interesting review strategy on Smile Direct Club, by the way, I'm just perusing the reviews. They've got really great reviews. So my local one here has 1,083 reviews, all at 4.9. And I mean, this is anecdotal, I'm just perusing through it, but the first appointment is like, oh my god, I'm so excited, five stars. You know, Monica was so great, so excited to begin my journey. You see a lot of those. And then it's smattered in. So they're winning on the patient experience at the up front. So that's another thing to wow people at that level. That is actually, creates a lot of headwind for the journey. Yeah, the social optics look like, okay, this is good then. But that's great, that's a great takeaway for all of us. Imagine if your first experience is so awesome, it kind of creates a halo effect for all further experiences.

Craig Spodak
0:39:45
That's huge.

Dwight Peccora
0:39:46
Yep.

Peter Boulden
0:39:46
Okay, we got one other item. Who are we going after next, Disney?

Dwight Peccora
0:39:50
Disney?

Peter Boulden
0:39:51
Pick one, let's go.

Trey Tippit
0:39:53
This was born, you know, what we're about to talk about next

Peter Boulden
0:39:56
was born in an interesting discussion on our last, on our long mastermind call. That's right. Where one of the masterminds was talking about like, hey, I like this practice, I wanna buy it. I really feel like I should because my interest lock is going to expire. And everyone, we all just like, whoa, whoa, whoa, time out, pump the brakes, what, what, what? Like that was the redeeming thing. And so I thought it was an interesting, Trey and I commented a lot, I feel like, on that. And I thought it was an interesting dilemma that if you're basing your decision on what the interest rate is, then it's probably, like if that's the, it's like Craig's story with his dad, I love this story. Like, I heard this new assistant, Craig, she's awesome. You're like, why is she great? I like Craig's story with his dad.

Trey Tippit
0:40:44
I love this story.

Peter Boulden
0:40:45
I hired this new assistant, Craig. She's awesome. You're like, why is he great? She's like, I don't know. She's great. Why do you really love her? He's like, well, she's $12 an hour. She's really cheap, and that's why she's so great. You're like, wait, dad, that doesn't make a great assistant. That's not a great hire. You just sold a warm body. What this poor guy was doing, and I think we saw his way through it, he's like, I'm going to marry this girl.

Trey Tippit
0:41:03
Well, why? Because in April, I have a reservation to reserve a hotel for a wedding ball, a wedding room, and it's a non-refundable $20,000 deposit. Well, how long are you going to own her? Well, I mean, only six weeks, but the wedding's coming up. It's like, you know, don't put the horse… And that's kind of what we…

Peter Boulden
0:41:24
It's just, look, we all get in our way. The guy who brought this up is, I know him very well. He's a genius. He's a genius mind, right? But sometimes you get in your own echo chamber of like, I think I should just do it, and like this timeline is tick, tick, ticking, and then you hear the news that interest rates are rising and these are the best. So I don't know.

Trey Tippit
0:41:41
It's an…

Trey Tippit
0:41:42
Well, it's like the brain works, Peter, like you attach to the destination and then you get all evidence to support your decision. Like you get conformational bias. Yeah, it's a conformational bias. So all he did was say, I got a great interest rate, I should buy this practice. And then from then on in, he put blinders on. And then we started poking away during the mastermind. His logic, we realized at the crux of it, he's just like, I just got good cheap money.

Trey Tippit
0:42:04
Yeah, yeah, yeah.

Trey Tippit
0:42:05
They've got good cheap money. There's so many assets to buy with cheap money.

Dwight Peccora
0:42:08
But I think that's a great conversation. How is it what we put into our minds from news and media and what surrounds us literally decides how we run our business? Because you're right. The concept here is that interest rates at their current state and what they're looking like are making people think it's going to get worse. Therefore, I, you know, well it goes both ways. Some people are like, oh I'm just gonna wait, I'm gonna wait, and they're scared to death and they don't realize. Wait until it goes back down? Right, right, to some degree. Where on the other end, it's kind of like, I gotta do it now, I gotta do it now, and come to find out, even in this case scenario when we dug deep, it's not only a completely different business model, and yes, there's multiple models within dentistry. Just because it's a dental office doesn't mean it's the same as the one you built. They're very, very different. A Medicaid office in pediatrics is very, very different than an oral surgery office, very different from general bread and butter dentistry, so a PPO office, I mean.

Trey Tippit
0:43:07
I respected him going through the model, right? And look, there is a point in where it is concerning because there's only so much, even a well-run practice, there's only so much profitability built in, right? And if your debt service starts exceeding and being very erosive to that profitability, it becomes like, well, I may wait. I don't know. Right, but it's better to buy an asset at the right price with a high interest rate, as we said on the call, than a poor asset with a low interest rate. Because once you pay the price, you can always refinance later. You can always refinance debt later. But if he overpays, and really, when we boiled this down more, there's another layer why he's doing this. It was for his wife. So he's buying her a job because she's driving too far. And now you're saddling your wife with all the traditional duties that she's got, and now she's got to run a practice. So it's just very important to have good people around, whether it's your friends or the mastermind, to just kind of challenge it.

Peter Boulden
0:44:12
And then the other context was like, hey, should I, well, but I've got space to expand my current office, like maybe should I just do that? And we were like, what?

Peter Boulden
0:44:18
Yeah, yeah.

Peter Boulden
0:44:19
Like start swinging the hammer after this call.

Trey Tippit
0:44:22
Yeah, we literally said, go knock a wall down just while you're doing it.

Peter Boulden
0:44:25
Pushing it, just right now, go push it down. Did you guys watch the…

Dwight Peccora
0:44:30
Yeah, do you want to play the clip?

Peter Boulden
0:44:31
I mean, I don't know if it'll come through. Are you guys seeing this?

Craig Spodak
0:44:34
Yeah, just play it now.

Dwight Peccora
0:44:35
The audio will be fine.

Peter Boulden
0:44:36
I don't know.

Peter Boulden
0:44:37
Can you hear that?

Peter Boulden
0:44:38
No.

Trey Tippit
0:44:39
No.

Dwight Peccora
0:44:40
You cannot hear that.

Peter Boulden
0:44:41
You have to put it on the actual screen even though it'll be split.

Trey Tippit
0:44:44
I have to put it on the screen?

Craig Spodak
0:44:46
Yeah, the way you did earlier.

Trey Tippit
0:44:48
Share your screen.

Peter Boulden
0:44:50
Okay, Dwight. I have to add to the screen.

Peter Boulden
0:44:52
Let's see. I won't call you what you called me for using the wrong name. Well, you know what?

Dwight Peccora
0:44:55
It's tough to be- I'll call you.

Peter Boulden
0:44:56
He called you numbnuts when he saw that. He literally just sent a link between Dwight and I, like with a link saying, go to this

Trey Tippit
0:44:58
link.

Trey Tippit
0:44:59
And then we clicked on it, and now somehow we're the numbnuts. Well, somehow Trey Tippett was in the right place at the right time. Trey Tippett had some- He had Morgan come in there and put that shit on. Let's see. I'm a technological genius. Who's a technical genius. I'm a technological genius. I'm a technical genius. I'm a technical genius. I'm a technical genius. I'm a technical genius.

Peter Boulden
0:45:10
I'm a technical genius. I'm a technical genius.

Craig Spodak
0:45:12
I'm a technical genius.

Trey Tippit
0:45:13
I'm a technical genius. I'm a technical genius.

Trey Tippit
0:45:15
I'm a technical genius.

Trey Tippit
0:45:16
I'm a technological genius. You guys are genius in general.

Dwight Peccora
0:45:19
All right, let's listen to it, go.

Peter Boulden
0:45:20
Can you hear that?

Craig Spodak
0:45:21
No.

Dwight Peccora
0:45:23
It's not starting there.

Peter Boulden
0:45:24
No? No. That's why we can't have nice things, man.

Peter Boulden
0:45:27
Okay.

Trey Tippit
0:45:28
So, I'm gonna post the video. Are we gonna reenact this?

Peter Boulden
0:45:33
No, but it's actually, it was sent to me by a past masterminder, Andy Letcher, who, again, a very genius mind. So he's like, hey, watch this video. And I had no context. But basically, you know, Craig, I've been getting into kind of learning more about, you know, you had to educate me on kind of the war. I really was kind of oblivious to the potential of war and the potential of, you know, the consequences globally of what this would do, not just to the political, geopolitical stuff, but like the pipeline and interest rates and all these things, right? And the flight to safety for people to go into dollars. So I don't usually like, you know, when I saw this video in Andy's Senate, I was like a Rotary Club video, like I am not watching this, like not watching this.

Peter Boulden
0:46:13
And this guy-

Trey Tippit
0:46:13
Another C-Synthesis.

Dwight Peccora
0:46:16
What do you think we said about you when you sent it to us?

Peter Boulden
0:46:18
Right, that's what I'm saying. Like usually not the most stimulating, but this guy's name is Peter Zeehan and he kind of went through and was just describing all the collateral damage that could happen, the probabilities and all this. It was fascinating.

Trey Tippit
0:46:30
And I am not.

Peter Boulden
0:46:31
I mean, honestly, I don't want to, I feel like I will do it an injustice, Craig, of trying to describe it because I understand the consequences in my head. I have a hard time articulating.

Trey Tippit
0:46:40
I know, but what's the subject we're talking about?

Craig Spodak
0:46:42
Because I never watched it.

Dwight Peccora
0:46:43
It related to a lot of components on interest rates. So the question was.

Trey Tippit
0:46:47
Oh, so it wasn't about the war.

Craig Spodak
0:46:49
It wasn't about the war.

Dwight Peccora
0:46:49
Well, it was about the war.

Craig Spodak
0:46:51
It's in there.

Peter Boulden
0:46:52
Yeah. It was basically, Craig, is that nothing lives by itself, right? Everything is connected. And so, look, he went so far as to say, like, the war and then the Ukraine and then these pipelines and then Russia and then the winner and then all these things, right, only to then say, like, then went into China and started talking about China and Taiwan. China's on the brink of collapse and then, you know, that everyone now can be flighting to America to fight to

Trey Tippit
0:47:17
safety from the US dollar. I think these conversations are so funny by the way because what is unfortunately happening, you know, we sent 80 billion to Ukraine and you know Biden saying things about the one China policy which we've always said we're doing in the Ukraine is literally like interest rate won't matter because that's like Armageddon and no one's talking about this, which is even crazier. I feel like this is the craziest time where Rotary Club is like, there'll be a flight to safety and you might want to diversify in gold. That's not the result of this conflict. It either escalates or it goes away. But if it escalates and they're talking about interest rates and crap like that, Peter, are you frozen?

Dwight Peccora
0:48:08
Peter froze.

Trey Tippit
0:48:09
I was like, wow, he's wizard. He's not frozen.

Dwight Peccora
0:48:11
He's just frozen.

Trey Tippit
0:48:12
Yeah, I thought his screen was frozen. But I do, it's just amazing that we're on such an escalatory path for a nuclear conflict and no one talks about that. But they're talking about like, no, they'll be like, it'll be a cold winter and like and then New York has like these public service announcements were like the smiling lady like you know saying like okay so there's been a nuclear attack here's what you need to do stay inside go to your basement like and she's smiling like like somehow it's not gonna be like it's manageable like there's some sort of and and there's no discourse on this the media is not talking about no one's talking about it but there's like secondary conversations about economic impact, which I just find incredibly strange to me. So that's why this is surreal to hear people talking about. I don't even know what it is, but I know it's about like, here's how to manage your portfolio when World War III happens. Fuck your portfolio.

Dwight Peccora
0:49:09
There's nothing. I think the other interesting part, this was actually brought up in the All In podcast was the difficulty of obviously there's inflammatory, there's bipolarity right now going on throughout the parties. And we've transferred parties from Democratic to Republican seven times in our history. And that's part of what's going on right now. And he brings this up in this video as well, where there's just this, you know, such extremes that there's not a lot of practicality and there's warmongers that that are pushing along the process.

Trey Tippit
0:49:38
Yeah, on both sides.

Dwight Peccora
0:49:39
On both sides. What's interesting about it is in the end to fund these wars, this massive inflationary problem and these massive variable interest rates are going to make it difficult to fund

Trey Tippit
0:49:50
the actual wars.

Dwight Peccora
0:49:51
Right, but the problem is, Dwight, is the escalation is happening faster than the interest rate's going to catch up. So we're having Biden say things and the White House walks it back, but like who is the White House? I thought by like who is like when Biden says something like yeah we're going to intervene militarily with China you that's poking a barrel. Are you saying we're writing blank checks to Ukraine? I think I think that relates to every last inch is there. But in this video he specifically points that concept out and he talks about interest because they ask. Rotary clubs there are a bunch of business owners are like okay What is it that we should be looking at and his comment was simple and clear and I wrote a little snippet when I when? I listened to it in case if we went over this and said he said some long lines of Credit will not be this low in our lifetime And I thought that was a massive impact right now when I was thank you for landing the plane Dwight Yeah, because I'm trying that was part of my So we have not gotten to an average credit cost for the next 40 years, it says. He noted, need to look at your balance sheets and if you need to borrow three years from now, it may be too late. The only exception is capital income that's coming out from the US and then he goes into these other issues where a lot of productivity, so production and equipment and supplies that are built outside of the US, Canada, and Mexico, you can expect supplies from Germany to start drying up because of the complex that they're dealing with in the next 18 months, and China in the next 36. So it'll be harder to build more supply.

Dwight Peccora
0:51:25
I thought it was enough.

Peter Boulden
0:51:26
He's like, if you want a Beamer, get it now, because there won't be any more ever.

Dwight Peccora
0:51:28
Right, but there may not be parts to fix your Beamer later.

Dwight Peccora
0:51:31
Right, right.

Peter Boulden
0:51:33
It's funny, Craig and I talked about this years ago in our mastermind, I don't know if you guys remember, it was like, look, if you guys need capital and you want to refinance, like now's the time to do it because that's when we were, it was post COVID and I was like, refinance your house.

Trey Tippit
0:51:45
We were telling mastermind, refinance, recalify. I told everyone, like even Erica bought a car and her car rate was like 2.2%. I was like, please take your cash. She's like, no, I don't want a big payment. Like people just have such an aversion towards debt. I think there's so many David Ramsey types that are like, you know, debt is bad at all costs. My point of bringing all this up and then trying to share this video was drawing the context of the mastermind comment of the interest rate is that we all assume that we're going back to the norm of what we grew up in. We have this 50 years of just… That's the era that we grew up in. It's like money's free, money's cheap, debt is cheap. And he's saying like that it may never get, it may never be as cheap as it is currently right now. And if it's not, how are you recalibrating that based on current market data? And that's, I just think it's important to just be aware of these things, right? Pick your head up out of the sand is what I always say to people. Like, you know, even in, and they use that in crypto, but just kind of be aware of what's going on around you. And not that these are fulfilling prophecies with certainty, but it would be nice to just draw your own Monte Carlo scenarios of saying, if this happens, what will I do? If this happens, what will I do? If this happens, should I expand? If this happens, should I not expand? I am constantly having conversations with myself in my own head about the contingencies of things.

Dwight Peccora
0:53:10
Lots of conversations in this book.

Trey Tippit
0:53:11
Lots of conversations.

Trey Tippit
0:53:12
Well, yeah.

Trey Tippit
0:53:15
Do you answer yourself back though?

Peter Boulden
0:53:17
Not, yes.

Dwight Peccora
0:53:18
He moves to the other chair though.

Trey Tippit
0:53:20
That makes it less weird if you jump from chair to chair.

Dwight Peccora
0:53:23
Jump from chair to chair, it's okay.

Trey Tippit
0:53:25
But I just, sorry I went off on my rant.

Peter Boulden
0:53:28
No, no, no, no.

Peter Boulden
0:53:29
It's okay, you went off on a rant for something that you had not watched the video I sent and therefore wasted a bunch of time.

Trey Tippit
0:53:33
So we apologize. No, but you talked about the war, you said the war. And like I think these conversations.

Peter Boulden
0:53:38
No, you asked me what the video was about.

Trey Tippit
0:53:39
I told you it started with this and it was going all the way through. And you just wanted to pontificate. No, Trey, this is his first word. He's out of here. No, so the idea of me being quiet is if I chime in with my opinion, we'll have no podcast, period.

Trey Tippit
0:53:53
Oh, no.

Dwight Peccora
0:53:57
Go for it. A lot of conflict.

Trey Tippit
0:53:58
Well, I'll just go on. Who am I talking over each other.

Dwight Peccora
0:54:02
What I liked about the video is that most people are sitting around with this mentality, which I think is really interesting to discuss because a lot of the docs that are attracted to this podcast or listen or things to that degree are younger docs that have also lived through a time, every time you do that I feel like I gotta lean up.

Trey Tippit
0:54:23
Yeah, I know.

Dwight Peccora
0:54:24
It's a time.

Peter Boulden
0:54:25
We've got to wear our COVID mask.

Dwight Peccora
0:54:26
It's covering my mouth.

Trey Tippit
0:54:27
It's masking me.

Trey Tippit
0:54:28
He wants me to stop talking.

Dwight Peccora
0:54:29
But I, you know, these docs, you have to realize a lot of us have grown in zero interest rate

Peter Boulden
0:54:38
lifestyles.

Craig Spodak
0:54:39
Life environments.

Dwight Peccora
0:54:40
Lifestyle is personal, meaning I want to make this really personal. And when it was bad, it got better. Mentality. You get what I'm saying? And so it's everybody's like, hey, bullish, bullish, bullish, because then the truth is, well, bailouts, bailouts, you're saying, right? When it was bad, 2008, the government stepped in. When it got bad with COVID, guess what happened? The government stepped in. Yeah, right. But we haven't really, essentially, an up and to the right mentality that you think it always continues that way. Well,

Trey Tippit
0:55:07
2008 was never really fully addressed. It was just kicked down the line a bit.

Dwight Peccora
0:55:11
Yeah, government pays out. So I found it interesting. So I one last comment because it's a good summary is last night I saw a quick recording of the IMF release just kind of a global perspective for 2023 when they released. I thought that was interesting. So global growth for 2022 they're projecting will remain at 3.2 percent while the projection for 2023 is now considerably considerably forecast to be lowered to 2.7%. The 2023 slowdown will be broad-based. The three largest economies, the US, China, and the European area, will continue to stall. In short, the worst is yet to come. Global growth can come down to nearly 2%, which is the lowest historical worldwide global growth in our history, and then since tract, I'm sure. And most of this comes from the European market. Due to the war impact, global inflation is expected to peak at 9.5% in the third quarter of 2022, and we saw, and then before decelerating to 4.1% by 2024, which goes back to those 18 months that we've been talking about in this pod several times before, and kind of the expectation. I mean, what do we do as practices? We rely on being consistently connected to our patients. The same thing that's made us successful will continue to make us successful. Call your patients at the end of the day, keep an eye on your KPIs, do good morning huddles, follow through. It sounds crazy for me to take global all the way down to the individual practice, but that's what we've got to understand.

Dwight Peccora
0:56:51
This is the understanding.

Trey Tippit
0:56:52
It's the only thing you have control over.

Dwight Peccora
0:56:54
Yes. What do you have control over? That's what we need to focus on when we're talking about these big picture items because if not, they're too overwhelming.

Peter Boulden
0:57:02
I like that.

Trey Tippit
0:57:03
I like that.

Peter Boulden
0:57:04
Craig, you've talked enough.

Trey Tippit
0:57:05
I'd rather, well, let me just say one thing. I'd rather be a dentist in those types of times than a jewelry salesperson. Teeth are really, really important. When you're in pain, you still take care of this. We're a little bit more immune, but Trey, please. I'm sorry. It's about your healthcare mentality. I agree with that, with what Dwight said. And I think that what you have to always remember is that it's why you don't write a vision for five, 10 years out, because you don't know what's gonna happen. So all this stuff that happens now, and one of the things you always hear at this point is this is unprecedented. Or, you know, oh, I've been through a lot in my life, never seen anything like this. But I bet if you go back at any given downturn, someone's saying this is unprecedented. There's always something brand new, something unprecedented, something that's gonna, you know, rock the boat at a level we've never seen before. And we always solve our own problems. And so, I mean, granted, we won't. Five to 10 year plans, Trey, might not be a bad idea, but you can't put it on a shelf for 10 years and expect it. So you may have to revisit it every year. Yeah, I mean, do it at a very, very high level if you're going to do it. Yeah, I like that. You couldn't have seen COVID.

Peter Boulden
0:58:15
You can't predict the world.

Peter Boulden
0:58:16
Yeah.

Trey Tippit
0:58:16
All right.

Trey Tippit
0:58:16
J. Cal, should we wrap?

Peter Boulden
0:58:18
J. Cal?

Dwight Peccora
0:58:18
I thought that was a great pod.

Dwight Peccora
0:58:20
I think it's nice to hear general thoughts that are hitting everybody today. And I was relatively nice. But most important, we will get to hang out again in Cabo this next week and get to be with the Masterminders, which will give us a lot of fun stuff to talk about for the next pod. So we're going to do one from Cabo, correct? Yes, yes. It might be under the influence of tequila, just in case. By might? That's more predictable than anything in the recording. I did that way back in the day I'm not sure. Oh, we remember that how did it turn out? I don't remember. I don't think it's good for me

Trey Tippit
0:59:00
I think I think alcohol. Yeah, you were losing your train of thought like yeah, I do remember that like you're like

Peter Boulden
0:59:06
What was I saying?

Trey Tippit
0:59:07
I would say people drink to feel like I do normally because I'm just uninhibited and don't give a crap But then you get alcohol on me. I turned to a total different person. Like a zombie. Yeah, like literally we only had like two or three beers and it was like halfway through I'm like oh shit I can't even comment.

Dwight Peccora
0:59:22
Yeah, weren't y'all at like, where was that? I think we were at the Lake House, right? And I remember the podcast because it was just a slurry of who knows what was going

Peter Boulden
0:59:30
on.

Trey Tippit
0:59:31
Yeah, it was a long day. Let's do a tequila one.

Peter Boulden
0:59:34
Alright everybody, we'll catch you guys next time. Alright everybody, we'll catch you guys next time.

Peter Boulden
0:59:36
time

Transcribed with Cockatoo