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TWST: How would you describe PSS World Medical?
Mr. Smith: PSS World Medical is a national specialty distributor of
medical supplies, diagnostic equipment, and pharmaceuticals primarily to
two markets, the office-based physician market and the elder care
market. We are a leader in both markets with very innovative customer-
focused services and the largest consultative and clinically astute
sales force in our industry that combines with a very unique culture of
performance. To describe those two markets a little bit, the doctor
market consists of about 225,000 offices nationally; we are in about
100,000 of those offices with our services. The doctor market is about
$6 billion and the elder care market is about $4 billion, with about
10,000 facilities. Recently, we have also started to grow into the home
care market, targeting hospice and home care agencies, and that is a
very big market, about $12 billion. I'll give you some other statistics:
we have about 3,500 employees; we generate about $1.7 billion in
revenues; we're growing just into the double digits, meaning that we
target about 10% growth a year to 12% on the top line and about 20%
bottom-line growth. That's been true for the last several years and
should continue for the next several years, according to our strategic
plan. It's the result of adding new products, adding new diagnostic
products to the market, in combination with our ability to take
advantage of the growth in our markets. We are growing about twice the
rate of market growth in each segment. So we are taking share as well as
adding new products to the market. That, I think, is a general brief
description. TWST: What is that overall competitive landscape? What are its dynamics
and what ultimately differentiates PSS World?
Mr. Smith: Of the company names you will recognize, McKesson, our
largest competitor, is in second place to us in both of our markets.
They have a division known as General Medical that competes head-to-head
with us. McKesson is a wholesaler of pharmaceuticals to hospitals and
the pharmacy market. Cardinal also is a competitor. They have a division
that competes head-to-head with us. Then probably the third largest
competitor is Henry Schein and they have a division that competes with
us in the doctor market. These are the three large ones. The four of us
in each of the segments have about 40% to 45% of the market. The rest of
it is mom-and-pop-type businesses. There's a real difference between the
business model we have at PSS World Medical and these other companies.
We have built our logistical supply chain and consultative sales and
marketing model based on the needs of the customers in our two markets.
Those other guys have come in from other markets and have taken a model
that fits other markets' needs and services, making the customer fit
into that model, whereas we fit and change our model to fit our
customer. I know that sounds small, but it really is a big difference in
the way we have to service the customer. Doctors are likely to be in a
two- through 10-doctor doctor practice (90% of the market), and they
don't have a place to store product. Moreover, space is very expensive.
And we are the only company that gives next-day service. In other words,
if a doctor calls us today and asks us for a product, we actually
deliver tomorrow morning ' and we can deliver it today, if they have to
have it and that need is very critical. The other thing that's going on
is that technology has really changed the market. Products that were
only sold in the hospital or only used in the hospital five years ago
and 10 years ago are now used and sold in the doctor's office.
Hematology equipment, chemistry equipment, immunodiagnostic equipment,
cardiovascular equipment, bone densitometry, lasers, etc. are now used
prevalently in the doctor's office. Someone has to consult with the
office, and we have the largest sales force doubling each of the other
companies or tripling each of the other company's size. Our salespeople
are very clinically astute, able to help the physician navigate through
the disease states of their patient, the pharmacological treatments for
these patients and the reimbursement for the diagnostic procedures that
they require. They try to pick the best products and the best treatment
regimens for their patients to achieve both customer satisfaction and
disease state management and create cash flow for their practices and
their offices. So we are really geared to attack both sides of the
market: the supply chain side with efficiency, good service and
innovative programs; and with a sales force capable of selling products.
The proof of that concept is that we are growing twice as fast as
anybody in the market and we sell 4 to 5 times more diagnostic products
than anybody else in our market. So we are clearly a leader in both
growth and in product segment ' things like diagnostic products where
you have to have a sales force to sell it. As a result, we have some
exclusive products that no one else has, because we have the sales force
capable of moving those products. The other thing that's affecting the
competitive landscape, or the landscape in general, is GDP growth.
Perhaps in bringing this up I'm moving beyond your initial question on
competition, but it really is an issue. Health care over the past 10
years has grown 7% of GDP, i.e., it had 7% growth from 14.4% to 15.5% of
GDP, and in the next 10 years, the estimates are for 30% growth, from
15.5% to 19.3%. In the next 10 years we are going to see a pretty big
shift of cost because of the aging population and the baby boomers and
all the things you always hear about, but also because of the Internet,
thanks to which people are becoming increasingly knowledgeable about
their bodies, about the diagnostic and pharmacology treatments that are
out there. Because they want to live longer, people are becoming more
active about managing their health. Those two factors, the aging
population and the Internet, I think, have had a fairly big macro impact
on what the CMS (Center for Medicare & Medicaid Services) is saying has
a fairly micro impact for the country. And the biggest growth segment in
there is 25% growth in physician services. So we are pretty well
positioned for market growth for the future. The thing that I really
always tell folks is that you don't have to be greedy in our markets to
be successful. You have to be smart. You have to pick areas where you
can really bring value to the customer. You can really differentiate
yourself with services and with value propositions. Once embedded in
these growing markets, you can grow faster because you are bringing a
differentiated service or a value that allows you to displace
competition while growing with the market. That's what we have been
successfully doing here, focusing on these two markets.
Tickers included in this excerpt: PSSI
For more information call (212) 952 7433. The
Wall Street Transcript does not endorse any of the comments made by interviewees, and does
not make stock recommendations.
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