US Physical Therapy Inc (USPH) 2002 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the U.S. Physical Therapy first quarter 2002 results conference call. At this time all participants have been placed on a listen-only mode, and the floor will be open for your questions after the presentation. It is now my pleasure to introduce today's host, Mr. Roy Spradlin, Chairman, President and CEO. Sir, the floor is yours.

Thank you. I appreciate everybody tuning in this morning to listen to the first quarter results for 2002. But before we get into that, let me read some information that we need to before each of the quarterly conference calls.

This press release contains forward-looking statements, often using words such as believes, expects, intends, plans, appears, should and similar words, which involve numerous risks and uncertainties. Included amongst those statements are those relating to opening of new clinics availability of personnel and reimbursement environment. The forward-looking statements are based on the company's current views and assumptions, and the company's actual results could differ materially from those anticipated in such forward-looking statements. As a result of certain risks, uncertainties, and factors which include, but are not limited to, general economics, business and regulatory conditions, competition, federal and state regulations, availability, terms and use of capital, and weather. Please see the company's filings with the Securities and Exchange Commission for more information on these factors.

Management undertakes no obligation to update any forward-looking statement whether a result of the actual results, change in assumptions, new information, future events, or otherwise.

Good morning, thank you again for joining us. The first quarter of 2002 was on track as anticipated with the earnings of 16 cents on a per share basis. The - we had an unusual quarter from the standpoint of how the visits ramped up, achieving the anticipated goal of visits by the end of the quarter. But through the month of January, as in some years, you hear us say that we had bad weather, so the patients weren't able to get in. Unfortunately this year, the weather in the - in the country was so remarkable people were less involved in their outdoor activities, thus not able to incur the things that we do, and that is treat injuries.

But as the year got on - or the quarter got on, we have begun to experience an see those individuals starting to appear in our facilities, thus we are experiencing record numbers of visits on a per day basis through the month of March and April. And which are giving more rise to the growth of 20 percent plus as we go forward, and that's what our anticipation is for the second quarter, and we're well on track to that.

The visit growth, year-over-year, was 15 and a half percent, even for the first quarter, even though we did not have the weather that would incur the injuries that we are expecting. The net visit in the - in the net revenue from the standpoint of we went from 9,077 to 9,141 over the fourth quarter of this last year we just finished up, with an average for 2001 of $9.11. Which is about a - less than one percent growth, but as we had indicated in numerous conversations that our anticipated growth in the - in the net reimbursement piece here was only going to be about one and a half percent.

Just having that much of an increase in one quarter is laying the ground work for what we feel will be achieved by the end of the year as we're going forward to one and a half. And there's a potential that we'll probably even exceed that one and a half percent with the things that we're seeing. The ability for us to continue with this growth to be one of the highest in the industry is due to the fact that we continue with the training, we continue with our diligence in reviewing contracts, and only accepting those contracts for which we feel we have good reimbursement, and that are strong for our particular environment.

Each of our facilities is very tuned to this, and thus we have little, to no capitation because of that type of reimbursement and dealing with that particular payer mix. The training of our staff as we come on, and we have really stepped up and ramped up the amount of training that we do with our staff. Not only from the standpoint of understanding what reimbursement is, but also from the aspect of understanding the company, what we are about, and where we're headed over - as time goes forward. It's important for everybody to be on board of what the goals and achievements the company are as we go forward.

We did have a slight increase in the costs on a per visit basis, and this is primarily in the payroll arena. And that was because as we were going through January, we began staffing up for the anticipated growth which we did achieve. It came a couple of weeks later than we anticipated, and we are looking forward to a reduction in the cost per visit as we go forward due to the fact that visits are now there and we're experiencing and have experienced them through the month of March and April. And we're exceeding what we had anticipated from that standpoint on the visits per day.

In fact, in March we had a 17 percent growth year-over-year on an average per day on a per visit. In April we're at 19 percent, and that's why we're so comfortable with the fact that in the second quarter - excuse me - we will have a 20 percent plus growth in a number of visits. This will all have contributed to dilution of the costs on a per visit basis as well as achieving the forecast that has been - that has been written about us, and conveyed to the outside world by Sidoti. And I'm touching on that note, we have had other analysts who have written about us who we have had no contact with in conferring with them as far as their concept of where our growth potential is. Thus the only individual that we - the CFO and myself have had contact with and are comfortable with their numbers are those that are produced by Sidoti at this time. Hopefully as we go forward we will continue to have more coverage and an increase in that particular area.

The development, as you had noted in the press release, we are well on track to achieving our number of opens for this year. And in fact we're also looking at possibly exceeding the numbers that we have posted out there for the public, the 35 to 40. We at the same time - one of our problems that we're running into is that we need to add another person or so within the development of the department in order to accelerate the processing of the - of the leases, and as well as the facilities. Thus we are trying to manage our costs on a corporate level, in which we'll be below 11.5 percent. This last quarter it did rise one percent from 11.2 to 11.3, but that is - will be taken care of as we go through the year.

At this time I'd like to turn the conference call over to Mike Mullin, the CFO.

Thank you, Roy. The first quarter was the best date in the company's history as net income of $2,076,000 set a new record, exceeding the previous record of $1,947,000 set in 2001's fourth quarter.

Revenues and earnings per share also set new heights. Net income for the quarter increased 37.3 percent over the same period last year, while earnings per share increased 33 percent to 16 cents a share.

Total patient revenues for the quarter rose 18 percent from last year on a 15 percent increase in patient visits. Patient visits for the quarter were a record 237,000. Patient visit - the patient visit comparison is affected by the fact that there was one more working day in the first quarter of 2001 than the first quarter of 2002. One additional working day in our quarter - in the second quarter of 2002 would have added about 3,800 visits to the quarter.

Patient visits in March increased substantially over January and February, with over 82,000 visits. And April has set a new record for visits in a month, with over 87,000 visits. Assuming continuation of the April visit trends, the second quarter visit growth should be 20 plus percent over quarter two of 2001. Average patient revenues per visit increased $2.04 to $91.41 from $89.37 in last year's first quarter. And up $1.30 from the $90.11 for all of last year.

Same store sales increased 6.6 percent for the quarter on same store visit increases of 3.7 percent. Clinic direct expenses per visit for the quarter increased to $62.09 from $61.49 in 2001. The primary reason for the increase was due to additions to clinical staff to meet anticipated higher patient visits. The increase is expected to be temporary, and should decline as a result of higher patient visits in the second quarter.

Corporate office costs increased slightly to 11.3 percent of revenues for the quarter, as compared to 11.2 percent last year as the company builds additional corporate infrastructure to manage the higher number of clinics. Our goal is to hold corporate office costs below 11.5 percent of revenues for all of 2002. Minority interest as a percent of clinic income declined to 17.2 percent from 21.3 percent in the first quarter of last year. The decline in minority interest as a percent of clinic income is primarily the result of the buyout of certain minority partners. These purchase minority interests contributed approximately $200,000 to the company's pre-tax income in the first quarter.

Effective January 31, the company purchased the 10 percent minority interest of a limited partner and four Michigan clinics, for total cash consideration of approximately $500,000. Including $65,000 in undistributed earnings. The purchase price was approximately 4.2 times the annual pre-tax income related to the minority interest.

This concludes my comments. At this time I'd like to turn the conference call back over to Roy.

Thank you, Mike. At this time we'd like to open up the conference call for questions.

Thank you. The floor is now open for your questions. If you do have a question, you may press the number one followed by four on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask that while you pose your question to please utilize your handset to provide optimum sound quality. Once again, that is one followed by four on your touch-tone telephone at this time.

Our first question is coming from from . Your line is live.

Congratulations on another great quarter. Question is from what Mike has said and you've indicated in the press release, is there opportunity for even more leveraging the second half of the year than you'll experience in the first?

Right, by leveraging, , are you talking about - are you talking ...

You know, getting the earnings going ...

Oh, I think - I think there's no - there's no question there's an opportunity for more leveraging, . I mean as we - as we - as we increase - as we increase our visits and revenues, we don't anticipate that we're going to be increasing our expenses at near - at near the rate. And ...

Yes, and you're saying you expect the expenses per visit to decline?

Yes, absolutely.

Yes.

True statement.

Alright, very good job.

Thank you, .

Thank you, .

Our next question is coming from of . Your line is live.

Morning, gentlemen. In your press release for the first time you spoke about the different stages of opening a clinic, and where your pipeline was with regard to the number of clinics at these stages. My question is to get a little bit of a sense of how long each stage lasts, I - how long is the approval process typically? How long is typically the post approval period during which you are speaking location? How long is the process of negotiating leases once location is identified? How long is the construction phase? I think it would be quite interesting to hear some information on each stage length.

No problem. The actual takes about six to seven months from the - from the initial contact of identifying a partner until we actually get a facility opened. At the point where we get into the actual site development, normally it'll take 90 to 120 days. The - and the reason for that is the leasing component of it will take anywhere from four to six weeks on the average. The other part of it is it takes about six weeks - six to eight weeks for the actual construction, because what we're doing is while we're doing a lease, we are actually getting contractors to give us bids on the facility.

What we've run into a little bit, and the reason why we broke it out so detailed this last time was because I was little - I was a little bit - I would prefer to open more facilities in the first quarter. But we ran into a couple of permitting where it takes some of these markets that we went into - it takes maybe two to three weeks in the permitting, and there's no way to rush it because it is a political. And we've also run into a few locations where we're dealing with management companies that own it who maybe their legal firm is somewhere else and it takes just a little - it's a little bit more difficult to get the speed of it to go through. So those are some of the reasons for it.

So on the average I would say once we identify a location, say OK, we're going to go there, until we actually get the doors open, you're probably talking 90 to 120 days on the average. Did that answer your question?

Yes, thank you, it does. Can I ask one more, please?

Sure.

In - I understand that there are some other branches of medicine which are not very capital intensive, such as - I mean in a sense similar to physical therapy. And where the reimbursement process or the insurance coverage may be improving in the near term. I'm referring, of course, to mental health. And I'm wondering if you have ever considered branching into other fields of medicine with perhaps similar operating characteristics to physical therapy.

We have - we're constantly evaluating the opportunities in the direction of the company. And at this point we have not come to any juncture in the road where we are comfortable entering into another business other than keeping the focus on what we're doing. We still feel as though that our growth has a huge upside to it, and that for us to take on another endeavor would distract us from what our main focus is and we have proven our success as.

Thank you.

Our next question is coming from of Sidoti. Your line is live.

Yes, hi, good morning guys. I believe in the first quarter you mentioned same store sales was about 6.6 percent, and you're off to a very good start in the second quarter. How do you see same store shaping up for 2002? And also in terms of buying back minority interests in terms of partners, any more in the pipeline?

I'll talk about same store sales a little bit, . Same store sales was lower than we would have liked in the first quarter because of the slower start that we got off to in January and February. We expect that it's going to pick up dramatically beginning in the second quarter. And so for the full year we certainly expect our same store sales to be well into the double digits. In terms of the purchase of minority interest, I'll let Roy respond to that.

Thank you, Mike. At this point we have no one that we are discussing the acquisition internally of their minority interest. We've - we did two last year, those were very strategic for us we felt, and at this point we don't feel as though there's the opportunity strategically for us to do another one as a minority interest. Now that does not say that at some time through the years down the road that if the opportunity does present itself, that we won't act on it. But at this time we don't.

OK, thanks.

Our next question is coming from of . Your line is live.

Good morning, gentlemen. Mike, could you - or Roy, could you kind of go over again for us just why the patient visits were less than expected in the quarter? You kind of attributed to good weather, and you know, I've felt a lot of rehab companies over the years, and generally it's because of bad weather, and people don't make their appointments because they have trouble or they are - they're reluctant to get out in the rain or snow, et cetera. Could - to just what - could you go over again what happened exactly?

Well what we were looking at, especially you know if the volume kicks up, you know in the - in the wintertime your volume will kick up in the southern states, as well as the northern states. But what happened this year, and - was that they didn't have the snow. So we - I started going around to the clinics, and seeing the partners and that kind of thing, and talking to the doctors. And we're saying, you know, why is it slow? And they said, my waiting room's slow, too. And that's because no snow mobile accidents, you're not having car accidents, you're not having the ski accidents and those kinds of things, and a lot of the safer we are. Because once - and that was the reason. Now as people got out and got more active, then the injuries began to incur again, and that's what's happened as we got into the latter part of February and then in - and then we have just really taken off through March and April.

Well then, with regard to outpatient rehab, generally because of winter conditions, there are more ski, snow and snow mobile accidents. But if the weather gets too bad, then those would diminish just because people don't get active. But on the other hand, good weather would - if the weather is too good, that would also affect it. So there's kind of a normal winter, and if you get either really severely worse than normal weather, or much better than normal weather, then you have an effect on the business. Is that - is that a good summation of how the business is affected by or by weather conditions?

That is a very good analysis, , thank you.

OK, thanks, fellows.

Our next question is coming from of . Your line is live.

Thank you. Question is, have you received any inquiries from either the Department of Justice or from state attorney generals, or from, you know, quick time suits such as HealthSouth is going through because of alleged irregularities in billing?

No. We emphatically say, no, we have not received anything along that line. The way we conduct ourselves, we are very diligent from a corporate compliance and a regulatory, and in fact to this point where we have actually created an independent audit team for each of our regions so that we can make sure that all of our partnerships are in total compliance with all of it. The situation with Health South was basically the overseeing of a tech. And each and every state is different as far as what their state allows within their practice act. The federal government for Medicare basically is that you can use a tech as long as they are supervised 100 percent by a physical therapist on site, as long as it is compliance with the state regulatory component. So I am not totally familiar with the situation for Health South, so I can not say one way or the other whether Health South was right or wrong.

OK, thank you.

Our next question is coming from of Partners. Your line is live.

Thank you. Congratulations and a couple of questions. Could you give us the break down by the different payers for the quarter?

Yes I can, . Was private insurance was 28.7 percent. Managed care was 27.8 percent. Workers comp was 19.6 percent. Medicare was 18.8 percent. And other - or excuse me, personal injury was 3.8 percent, and other was 1.2 percent, .

OK, does that represent material change compared to earlier quarters? I don't have the other ones ...

No, I've got - not compared to the previous quarter. Usually the payer mixes change over a longer period of time. But it's - it is - it is - it is not materially different, .

OK. And then the number of locations that were added, could you break down how many of those were new ones and how many were satellites?

I don't have that information with me. I - but I would - I would probably say that there were - I think there were two new partners, and there were four satellites in the first quarter. And we will - as we've indicated in the past, we will run about 15 new partners for the year. We have added a new recruiter to find more new partners. And the satellites are materializing quite nicely for the year, and we - that's why we're so comfortable with the openings that we'll do for the year.

OK. So there weren't any closed during the quarter, right?

No.

Are there any that are likely to be closed, do you think?

At this time I don't have any that I am anticipating on closing. That does not mean that something won't - an event won't occur through the year that would cause me to make that decision. And it's purely from what is best, if I can't make it happen or turn it around, then I will do what I need to do.

OK. Just one last thing, on the units that were repurchased, those minority interests, did they achieve the same kind of same still - same store sales?

No. Little bit down, . But those were mainly Michigan clinics, and - in fact they were totally Michigan clinics. And our Michigan clinics were among the group of clinics that didn't do quite as well in January and February as we would have hoped. So we do - we do expect those clinics to at least achieve the numbers that they've achieved in the past.

They are back on track for March and April.

OK. OK, great, thank you.

Once again, if there are any questions at this time, you may press the number one followed by four on your touch-tone telephone.

Our next question is coming from of . Your line is live.

Hi. That was a very good quarter, you guys make it look easier than I'm sure it is. But I wanted to ask - I wanted to just - wanted to make one comment that I think the company, as you say, met its estimates of 16 cents. Unfortunately the consensus ended up being 17 cents because I think you had a loose cannon out there with an 18 cent estimate, which would have represented 50 percent growth. So I think that one should have been discounted or rained in or, I don't know if you know who that was. But it's unfortunate that he was out there.

What was the cash flow from operations in Q1?

It was - it was around four million - a little over - a little over four million, - . I don't - I don't have the exact number right here with me, I calculated this morning before I walked in. It was a little over four million. And that excludes the exercise of options, OK?

OK.

So ...

That's just from operations?

Yes.

OK, and that - it's cost about what, like 200,000 to get a facility opened as I recall, something like that?

It does if you include the working capital, . Typical facility takes about $110,000 in working capital before it starts cash flowing. And normally we have hard capital expenditures of right around $90,000 or so.

OK. And I suspect with your format the sky's sort of the limit here. But have you ever kind of tried to come to grips with how big - how many units you could have in a - over time?

No, we really feel the way that we're structured that we have the ability to accommodate to control growth to any size.

I mean there really don't seem to be any limits to your ability to grow any time in the ...

No, what I - what I ...

... the next five to 10 years that I can see. I mean it seems - how many - how many physical therapy units are there in the country right now? Do you know that number?

I would say there's probably 20,000.

Twenty thousand.

That's just a real - I mean that is a guess.

Right. That includes in hospitals, or ...

No, I'm talking strictly outpatient.

Freestanding outpatient. OK, great, thank you.

Thank you.

Our next question is a follow-up from of . Your line is live.

Just to fight actual detail, your press release says that patient visits were up 15 percent. And I - the little table I had in the first quarter last year of 200,000, and this year ...

They were - we may have - there were actually 205,000 last year, .

Is that right?

Yes, Q1 may - it may have been that you and I may have at some point in time talked - and I may have thrown out 200,000 just rounded it. But the exact number was 205,000.

OK, because I made it 18.5, but I can see it really is 50 percent. OK, thanks.

You're welcome.

Our next question is a follow-up from of . Your line is live.

I would like to ask you about your cap ex for the quarter. I mean we know what's happened to a number of clinics, but we haven't - I don't think we have heard a cap ex number in dollars. And also I would like you to discuss a little bit how your management systems, such as accounting and you know, compliance and such, if you like, back office operational set up. How much growth it is able to take before it requires for the significance for the reinvestment.

Very good. We - in terms of cap ex's for the first quarter, we added almost a million - there was almost a million dollars in cap ex's for the - for the first quarter, actual hard additions to the leaseholds and equipment. Part - actually part of that is - relates to upgrading what we call our back office infrastructure. So with - you know, there's a couple of ways we - that we make sure that we can manage the clinics efficiently. One way is we try to cookie cutter them to the - to the extent that we can. And certainly we do cookie cutter them with regard to systems. So out in the field in terms of billing and collections and things that relate to running the actual clinics, the - throughout every clinic we've got identical systems. Up here at the corporate level we need to continually upgrade our systems to make sure that - we don't want to be on the cutting edge of systems.

On the other hand we want to be able to get information quickly enough to effectively manage the clinics. We've - last year we completely and totally upgraded our HR and payroll systems. And we're in - we're in the process right now of upgrading our basic accounting systems. Now when I - when I say upgrade, that's exactly what I mean because basically what we're - what we're doing is we're going from one great plains accounting system to a higher level great plains accounting system called e-enterprise. So that cut over should occur in the month - in the month of August. So, you know, and then in addition to that, and I may let Roy talk about this a little bit more, and it doesn't have so much to do with accounting systems, but just in terms of infrastructure up here, we - you know, we've got four regions that we organized last year. And each one of the regions contains a number of personnel that are responsible for managing groups of clinics on a geographic basis.

Each of the units - even in our support systems here in the office, we have set numbers, and we hit certain numbers then we add personnel. So the - that's why the question earlier about how far we could go, we have it pretty well mapped out at certain junctures. Everything has where we add it. You get a certain number you add - whether it's an clerk, or you had - add another marketing person to a unit, or you expand a unit, and supply the operational component that we need in each of those facilities. So through all the transitioning, we're keeping up with the systems and the ability to manage these as we go forward. When you have - we have preset criteria at junctures where we add personnel.

Thank you.

Our next question is coming from of . Your line is live.

o'hara: Hi.

Hello.

o'hara: Two questions. First one was - you know, you described pretty well why the injuries that were out there, the amount, or the visits were down January, February. Now March, April do you get people sort of cycle off of winter sports? I'm just curious why it came back and it appears to be strong now. I mean is it that people got really back to winter sports, or it's a different type of thing, spring sports injuries, or ...

You're exactly right. The people, you know, they kind of get their winter toys out and then there's no snow, then they aren't out participating in there. You know, it's kind of like yourself, when the weather gets good, you start playing basketball and then you get those injuries. And we experience that - what happened was in February the weather stayed like it was, people started going back out and started doing other activities and were starting to get the injuries.

o'hara: Yes.

That's why kind of, you know, in July it slows down a little bit for us just because people start taking vacations. And then it starts ramping back up again in August when schools are back in session. So you have all these - I mean coming off of the Christmas holidays, you know, you have that period of time when all the colleges are out, and you go home, and the high schools, you know, take their vacations, and the whole families take vacations at that period of time.

o'hara: Right. Any difference in the type of injuries or, you know, it's knees and ankles and ...

Right, no, that's why we pretty much stick to the soft tissue musculoskeletal injuries that we treat now. Because we feel as though that has the biggest parameter of injury, you know, occurrence. And that's the market we go after.

o'hara: Right. Second question, you may have already explained this. The net revenue per visit was up 2.3 percent. You had sort of been talking about it ought to be up one percent, you know, over the year or on a quarter-by-quarter basis.

Right, actually ...

Well there's 2.3 was year-over-quarter - was the first quarter of last year over the first quarter of this year.

Well it was actually dollars, it was up - I think I said, , that it was up $2.04 as opposed to percent.

o'hara: Right, but I think if I did the calculation - I'm doing 9,141 over 8,937.

Right.

o'hara: OK, but I'm just wondering is that a mix issue, or is that - you're getting a little more pricing strength than you thought you would get?

We're getting ...

o'hara: Or it ...

... good price - we're getting good pricing strength from the contracts. The contracts that we've been reviewing have changed. We're not getting the $40, $50, $60 contracts which we deny, we're starting - we're - the contracts we're getting are more $80, $90 on a per visit basis. And that is what is helping us, plus there was one or two changes within our Medicare reimbursement that cost us a minimal or basically stayed the same there. So we were able to feel the positive impact from it.

But we're not, you know, we've said this before and we'll say it again, I mean in our internal projections we are still looking at that percent and a half for this year. I mean one quarter does not - does not make a year. And ...

o'hara: No, I understand that.

OK.

o'hara: So you're looking roughly 1.5 percent ...

Right.

o'hara: ... for the year? OK, thank you.

Gentlemen, there appears to be no further questions at this time.

We'd like to thank everyone today for attending the conference call, and we look forward to second quarter. Thank you.

Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.

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