US Physical Therapy Inc (USPH) 2002 Q4 法說會逐字稿

Good morning ladies and gentlemen. Welcome to U.S. Physical Therapy's quarterly earnings release teleconference. At this time all participants have been placed on a listen only mode and the floor will be open for questions following a presentation. It is now my pleasure to turn the floor over to your host, Chairman and CEO Roy Straplin. Sir you may begin.

Thank you. I'm pleased to have all of you in attendance for our fourth quarter year-end results. Before we get started indulge me for a moment while I read an opening statement.

This conference call 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 in my such statements are those relating to the 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 not limited to general economics, business and regulatory conditions, competition, federal and state regulations, availability in terms of use of capital, availability of skilled therapists to become partners of the company and weather.

Please see the company's filings with the Securities and Exchange Commission for more information on these factors. Management takes no obligation to update any forward-looking statements whether a result of actual results, changes in assumptions, new information, further events or otherwise.

Ending the year of 2002 was very much of a milestone for us from the standpoint with the economics and the economy the way it is that we are able to continue with the double-digit growth achieving a 20 percent plus on our EPS growth even though these economic conditions continue validating our strong business plan and model that we have been able to execute over the years.

Fourth quarter rise in business were due to new clinic openings as well as re-establishment of market share within our older clinics where we have identified maybe a slowdown from our old referring physicians, which we experienced a little bit in the third quarter and whereas when in the four quarter we were developing new relationships and new opportunities for referrals.

Even in the economy that we experienced in 2002 we were able to continue at a 21.8 growth in EPS. As we stated in our guidance for the year in 2002 in the third quarter of 64 to 68 cents we were able to achieve the higher end of that guidance by achieving 87 cents EPS before 2002 giving us 17 cents earnings for the fourth quarter, which I think was quite an achievement and was a growth within the fourth quarter even during the holiday season.

We were able to achieve the high-end of the openings as well as well for 2002 of the 40 facilities. We had initially stated in the beginning of the year that we would open 35 to 40 facilities. And through the development and the ability to backfill in certain markets as well as the new partners that we had been able to identify for new markets we were able to achieve the opening of 40 new facilities. In 2003 we are planning on to open 40 to 45 facilities, which is the continuation of 20 percent growth of the existing facilities.

The openings will be more evenly distributed throughout this year as it was it created a little bit of a problem for us in these third and fourth quarters of last year. But we have been very cognizant of this and we'll have a much more balanced opening system this year. Presently we're slated to open 13 to 16 new facilities in the first quarter. We've already opened five new facilities as of today. And I believe that we're opening another two or three this week. So we'll be on our road to achieving a more balanced opening process for the year rather than having them lumped at the end of the year.

Which brings me to the topic of guidance for 2003 of 17 to 22 percent growth of our EPS for the year. Our Board has adopted a policy of no longer giving quarterly guidance. The dynamics of our business are such that short-term predictability is difficult for us to forecast. We look at long-term trends and reiterate our 17 to 22 percent growth for the year in 2003. As such we will maintain a practice of giving only annual guidance.

The harsh winter weather can impact our business in two ways. It makes it difficult for patients to reach our clinics due to closings and adverse travel conditions. But icing and snowy conditions also caused new injuries that require our therapy services that we have been experiencing of the late.

The company continues to buy back stocks at the level of 245,600 shares in the fourth quarter. The Board has approved that an additional repurchase of 250,000 shares at management discretion for the best use of cash and the ability to take advantage of any decline in the company's stock price.

The company continues to have and execute a model, which is no one has been able to duplicate or been able to emulate from the standpoint that the success that we have with it and the motivation of our partners. That's one reason why I believe that we'll continue to see the kind of growth that we are giving guidance through in 2003.

At this time I'd like to turn over the conference call to Mike Mullin the Chief Financial Officer.

Thanks Roy. Revenues, net income and earnings per share all set new highs in the year 2002. We added 40 new clinics during the year and next year's target is 40 to 45 new clinics.

Net income was 2,058,000 for the quarter and 8,488,000 for the year, which are increases of six percent and 20 percent over the same period last year. Earnings per share increased 13 percent and 22 percent for the quarter and year to 17 cents and 67 cents respectively.

Total patient revenues for the quarter rose 15 percent from last year on a 13 percent increase in patient visits. Patient visits for the quarter were a record 215,000 bringing total patient visits for the year to 1,004,000.

Average patient revenues per visit increased to $92.63 from $90.77 in last year's fourth quarter. For all of 2002 average patient revenues per visit were up to $91.93 from $90.11 for 2001 for a two percent increase.

For the quarter same store sales increased 5.5 percent on a 3.5 percent increase in same store visits to 238,000. Same store sales for the year increased 14 percent on an 11.7 percent increase in same store visits to 972,000.

The 32,000 visits contributed by the clinics opened in 2002 was 10,000 fewer visits than the new 2001 clinics contributed in 2001 due primarily to the number of 2002 clinics, which were opened later in the year. Thus in the clinics in the company's new development, new clinic development process clinics that we opened in 2002 generated a pre-tax loss of $400,000 is compared to $600,000 in pre-tax income, which were produced in 2001 by the new 2001 clinics.

Clinic direct expenses per visit for the year increased to $62.65 per visit from $61.22 cents in 2001 due primarily to the decline in average visits per day per clinic from 22.9 visits per day in 2001 to 22.1 visits per day in 2002. Much of this decline occurred in the second half of the year. It was a combination of visit listings from some of the older clinics combined with the affect of the 26 new clinics later in the year.

In the fourth quarter we made a change in the way we classify profit distributions to clinic-limited partners for clinic partnerships formed after 2000. This change was a result of provisions in DITF 23 and addresses issues relating to whether certain payments to purchase with an interest in profits should be classified as compensation rather than minority interest.

As a result for 2002 we have included $306,000 of expense related to profit distributions to limited partners of the post 2000 clinic partnerships in salaries and related costs rather than minority interest. For the fourth quarter $95,000 of profit distribution expense has been included in salaries and related costs. For 2001 the amounts were immaterial and no reclassifications were made. This change was only a reclassification and did not affect income.

Contribution margin from the clinics for the year declined slightly to 31.9 percent, down from 32.2 percent last year. For the quarter the contribution margin was 30.6 percent down from 32.2 percent in last year's fourth quarter. As a percent of revenues corporate office costs for the year increased to 12 percent from 11.3 percent last year. The biggest part of this expense relates to personnel to support the higher number of clinics.

We repurchased 795,600 shares of common stock during the year of which 245,600 were purchased during the fourth quarter. As of year-end we still had 69,400 shares available for repurchase under the September 2001 Board authorization. And we just received at a recent Board meeting authorization to purchase another 250,000 shares.

Cash flow continues to be strong with EBITDA increasing to 16.5 million for the year, a 15 percent increase over the previous year. Days in accounts receivable had declined to 71 from 79 last year as cash collections increased to 90.8 million from 76.8 million last year.

The company continues to fund all of its operational needs from cash flow with an almost debt free balance sheet and is well positioned for 2003. This concludes my comments. At this time I'd like to turn the conference call back over to Roy.

Thank you Mike. As you can see the concept that we've initiated back in the early 90s has continued to be very fulfilling from the standpoint of having the ability whether its in a good economy or a bad economy able to adjust because of the type of partners we have in the field who are motivated, they're seasoned operators and they're able to adjust to the economy or to whatever is happening within the markets in order to sustain the growth as we have seen for 21.8 EPS growth for 2002.

We again will see a growth in the clinics of 40 to 45 for the year which we feel is very strong as well as looking at a 17 to 22 percent growth on an annualized basis. I would like to open the conference call up for questions. At this time though I would like to ask that everyone to limit their questions to one on the queue. I'd appreciate that thank you. Holly?

Thank you sir. The floor is now open for questions. If you do have a question please press the numbers one followed by four on your touch tone phone. To remove yourself from the queue please dial the pound sign. We do ask that while you pose your question that you please pick up the hand set to provide optimum sound quality. Once again that is one followed by four. Please hold all floor for questions.

Thank you our first question is coming from Lee J. Ramcobol (ph) of Fidelity and Company.

Yes thanks good morning guys. Could you give us a sense of the breakout in terms of what the reimbursement from say worker's comp, managed care, Medicare et cetera looks like?

Yes.

This if for year to date 2002.

Yes.

Private pay is 27.7 percent, managed care is 28.8 percent, worker's comp is 17.5 percent, Medicare is 21.2 percent, personal injury is 3.5 percent and self pay is 1.3 percent.

Thanks.

You're welcome.

Thank you our next question is coming from Gabor Bognar (ph) of Cheyenne Capital.

Hi guys. I'd like to find out whether you have acquired any additional interest in minority partners and also whether any of the clinics in your existing base are underperforming and perhaps subject to closure?

We are we purchased I believe two or three facilities minority interest. A couple of them were small entities that we felt good in the market but the individual was not performing in that particular market at the level we thought so we decided to eliminate or terminate our relationship. There was one other one where we had a transition of a partner in a clinic and they basically were looking at a change in their environment and we purchased theirs but we have already restaffed and will continue on and actually have not felt any dip in that particular location.

As far as closures we have not publicly addressed that we will probably have some this year, I can't give you a number specifically at this point. We do have some that are under performing but you know as any organization you are going to have some that under perform and I would say that our under performers are less than five percent of our total number of clinics.

To clarify on the purchases of minority interests these were in the fourth quarter that you were talking about the two or three?

I can't remember the exact date of closing.

And perhaps if I could ask you on a different note. How should one interpret your weather related comment in relation to guidance?

There is no guidance on the quarter all I can say is that at this point we have you know the weather is bad and we really don't have any guidance as to what the impact I gonna be.

OK thank you.

Thank you. Our next question is coming from Kelly Crowe of Morgan Keegan.

Thanks good morning guys. This is John Wood (ph) for Kelly. Mike just going forward the new classification of salaries in the actual clinic contribution should we assume in 2003 a comparable clinic contribution as in 2-4?

We're not - in Q3 yes I would say it's reasonably comparable.

OK.

Probably reasonably comparable.

On annual.

We're talking about Q3. He's trying to get to Q3 '02.

I noticed how clinic contribution came down sequentially from Q3 to Q4 and I'm assuming that was based on the new classification EIPF (ph) you were talking about to classify some of the partnership interests and clinic expenses and just yes the question was going forward should we assume that same sort of trend in '03.

Yes.

OK thank you.

Thank you. Our next question is coming from Tom Bishop of B.I. Research.

Hi regarding the clinics that opened sort of later in the year was it having less revenue from those clinics that also in large part contributed to G & A percentage being higher relative to previous experience and what are the goals going forward for that? Should we tick with something over 12 percent or is that a little abnormality as I just tried to ...

The expenses that we incur at corporate are related to a number of facilities and not actually vivid. And that's what happened to us in the third and fourth quarter is we have to have so many people according to the number of facilities we have open in order for us to take care of the back office systems as we do here.

Going forward we would probably look at 12 percent or possibly less as we go forward.

OK you'd mentioned something that there was 10,000 few or something or other and I didn't quite catch what that was.

The - in our new clinic openings the clinic that we opened in - two - the new clinics that were opened in 2002 contributed about 10,000 fewer visits than the new clinics that we opened in 2001 because of the late openings.

Is that all it was? I think what I'm really getting at is are new clinics still opening you know if they open late are you still opening on the same ramp up?

Right. Our model still is as we have said before the model still sticks in looking at the ramp up. It's just that the facilities were opened so late in the year they didn't have the time in order to deliver the number of visits that we had the previous year.

I'm sure I can affect (ph) all your ratios unfavorably.

Right it did and that's one reason why you'll see a much more balanced opening process this year and the year and the first quarter we're demonstrating that by you know the 13 to 16 facilities we feel will open.

Good OK well thank you.

Thank you our next question is coming from Jeffrey Nixon of MCM.

Good morning. My question is regarding the Medicare cap, the $1,500 cap that I guess was meant to onto in place January 1 I guess is being put out to July 1. I just wondered what that impact on you was directly what your thoughts about that cap actually going into place and is there a sort of potential secondary impact on you even if it doesn't affect you so much that it will create a strict capacity in your industry that could be you know kind of a nursery (ph) ?

Right now the cap is 1,590 they moved it up the $90 ...

OK.

We feel as though that the Medicare cap which goes in effect July 1 will have a minimal impact on the company we have not - we, we're still in the processes of evaluating the impact because there are a lot of things that we can do to play this to an advantage for us and that's in the process. We really at this point are not that concerned about the cap.

We have done preliminary evaluations and we believe that we have properly factored any impact into the guidance. The annual guidance we've given.

So do you think that it will have some impact on you?

I think it will be minimum.

What about on the industry do you think it might create capacity elsewhere that it might end up affecting you? Cause there are some - there plus right (ph) that are much more kind of you know into doing strike victims and other kinds of like it match more long term users of physical therapy that would be affected.

Right well you got to remember that our business even now we don't really get into a lot of neurological where mainly our business is the muscle and skeletal soft tissue. It may have an impact on other companies because of the diagnosis that they see but our particular diagnosis is more geared toward the functional level you know your - even in your age and population we're seeing people have knee problems and back problems. We do see some strokes but it's very minimal.

Our basic population is between 25 and 55 years cause we're into the high level functional mobility kinds of patients.

OK great thank you very much.

Thank you our next question is coming from Walter Ramsley of Walrus Partners.

Good morning. Congratulations. On the 3rd quarter's call you reported that the mature facilities experienced a year to year decline in patients visits. You have that figure for the fourth quarter?

I don't have that Walter right in front of me.

Was the ....

It was the - you know we did not have - overall we had a good increase in the fourth quarter visits. I don't have - I don't have the information for the over three year old facilities right in front of me.

OK thank you.

Thank you our next question is coming from Larry Rader of LAR Management.

Hi. Good quarter again, guys. Real quick, I think you touched on it. You were going to front end load the openings this year. How many leases or how many deals are basically in process of the 40 to 45? What's the opening schedule? Is it 60 percent front end, 40 back end roughly?

We're looking at anticipating openings of probably 25 to 30 in the first half of the year is our anticipated goal. We really are not anticipating opening anything in the fourth quarter of the year, so that we have -- we achieved our 40 to 45 by the end of the third quarter is our anticipated goal.

OK.

And, like I said, we were to have 13 to 16 that we for sure -- 13 for sure we will have open in the first quarter and possibly 16 is depending on construction. And we have the pipeline filled up enough to achieve, if everything goes accordingly, the first half of the year, like I said.

Keep it up.

Thank you.

Thank you. Our next question is a follow-up coming from Mitra Ramgopal of Sidoti & Company.

Yes. Hi. Good morning, guys. Just two quick questions. In terms of the guidance for 2003, the 17 to 22 percent, are you assuming any further increases in terms of the revenue that you saw in 2002? And if you could comment specifically in terms of any of the areas worker's comp, managed care, if you were seeing any pricing issues.

We're really -- when we looked at the number, the 17 to 22 for the year, we didn't make any changes in the way we conduct business in the fourth quarter. We didn't look at any upgrade or downgrade in our net. We really are not seeing any dramatic changes in any -- in comp reimbursement.

Thanks.

Thank you. Our next question is coming from Edwin Fowler of the "Small Cap Report".

Yes. Great quarter. Very impressive. But could you comment on your average charge per overall patient when you mentioned the 1590 with the cap of Medicare? Where are you averaging with your average patient? Are you $500, $600 below that cap?

The duration's across the board for the company run -- I think we're averaging between 10 and 11 visits per referral, which we feel as though that's about $858 on a per referral. We feel as though you need to get closer to the 16 to 18 visits on a referral before you max your cap.

OK. And is there anything going on in -- that we don't know about that worries you relative to Medicare, worker's comp or other insurance payments?

No, there's nothing. I mean other than just the usual tweaking that goes on, which is normal course of business, we really don't see anything that has a significant impact. The only one that came out was the 1590, and everybody's fully aware of the 1590. And we've done some investigation into that and what our impact is going to be and how we're going to deal with it. And we -- after going through a pretty good analysis of it all, we really feel, as I had indicated before, minimal, if any, impact.

Thanks very much.

Once again, to ask a question you may dial the numbers one followed by four on your touch-tone phone at this time.

Our next question is a follow-up coming from Gabor Bognar of Cheyne Capital. Mr. Bognar, your line is live.

Sorry, I was -- yes, there's two things I would like to ask you. One is you mentioned the decline in visits per day as a result of the new clinic opening schedule. Can you perhaps address the visits per day issue for clinics that have been in operation for more than a year?

And then the second thing I'd like to ask you is are you finding a good supply of partners and nursing staff, or do you see a change recently in the conditions there?

As far as finding new partners and identifying directors for our existing facilities, we're really not having any difficulty continuing to attract the very high level of quality therapists that what's really generated and driven our business over the years. We don't utilize nurses. We're strictly in a physical therapy arena, so we use physical and occupational therapists.

As far as our visits, in our older clinics we have had a small decline in them from maybe about 39 visits on a per average day to maybe about 37 or so. So, you only have like one or two visit drop-offs in these facilities. But the thing about it is when you take 200 and some facilities it adds up a little bit. So, what we have to do is we instituted an evaluation of, OK, why did we lose the visit. Well, it may be that you have a cancellation, no-show. And we instill those programs or implement those programs we're able to pick that one visit back up a day in each of the facilities. So, it's not something that is insurmountable in correcting. It's a matter of going back and being disciplined. And that's the kind of partners that we have are individuals who are seasoned operators on these individual sides who will step up and do the things they need to do in order to recapture that visit.

This drop off, this 37 from 39, that's the year on year comp or a sequential comp?

That's a year over year. The thing about it is in 2000 it was 37. In 2001 it went to 39 and in 2002 it went to 37. So, you know, it's a little bit of cyclic -- cycles in businesses and that kind of thing. So, it's not something that's alarming to us, just something that we have to focus in on and manage our business as it is. And it's nothing that we can't correct.

Thank you.

Thank you. Our next question is a follow-up coming from Tom Bishop of BI Research.

I just wanted to clarify on that $1,590 cap, that's an annual cap of course, right? Or was it...

That's a annual.

It is, but for 2003, Tom, it's only going to be in effect for six months.

So, it really won't be an issue in 2003?

Correct.

Two thousand and four it becomes an annual cap effectively.

OK. If somebody started visiting you every week in the third quarter, really he could go away beyond 16 visits because the new limit would go into effect on January one, right?

Well, no. In 2002 -- 2003, if he started on July one and he maxed his cap, he would be done for the year, regardless.

I know, but...

And they'd start over again in January one.

When the new year comes, it starts again, or is it $1,590 per...

It's annual. It's annual, not diagnosis. In other words, every year he has $1,590 even though it may be the same injury.

This is only really an issue for injuries that happen in the first part of the year, because in the second part of the year the time he uses up his limited, it's likely to be replenished in any event with the new year.

You're very perceptive. You're right. Normally it's going to take at least two months to run through a cap, a minimum. I mean, it may be closer to three months. So, if a cap -- if there's somebody who's injured in October, it's going to be almost impossible for them to hit the cap in the normal treatment protocol.

One of the things you have to remember is that you're dealing with -- when they max the cap, with those injuries that are at the far end of the bell curve, because the majority of the diagnosis are going to be treated within the allotted amount.

And, more importantly, we're only talking, aren't we, about 21.2 percent of your revenue base.

That is correct. So, you take the 21.2 and then you drill it down even further, so then the percentage becomes even smaller.

So, this is just getting to be pretty insignificant, I think, for all the above reasons. That was all I had. Thank you.

Once again, to ask a question you may dial the numbers one followed by four on your touch-tone phone at this time.

Our next question is a follow-up coming from Walter Ramsley of Walrus Partners.

Hello again. As far as the 40 new locations that went in last year, do you have a breakdown as to how many were new therapists and how many were satellites?

We -- actually for the whole year we opened 15 new partners and 25 satellites.

Thanks. And as far as the year ahead, do you have idea of how that'll break down?

We actually have hired two new recruiters to increase our new partner hopefuls. And we would like to see an increase in new partners, but we're going to go under the same auspice that we're going to do about 15 to 18 new partners and the rest will be satellites.

OK. And just one last thing. When you open a satellite do you pay the profit sharing based on the starting 20 percent or do you just give them wherever he was on his earlier one?

Wherever he was.

OK, thank you.

Thank you. Our next question is a follow-up coming from Jeffrey Nixon of MCM.

Yes. I just was interested in the board's decision not to give quarterly guidance. I look at your numbers and they seem like they're pretty consistent. You have kind of an everyday kind of business based on -- driven by injuries and other random things. I just wondered is there some change in the business that makes them feel that your business is getting more unpredictable?

No. It comes back to all the things that are happening with Sarbanes-Oxley and all the other things that are going on right now. And their comfort level with that kind of -- putting out information like that and with the FD rulings and everything, they just felt as though we should take that position for right now with everything that's going on.

OK, great. Thanks.

Thank you. Our next question is a follow-up coming from Kelly Crowe of Morgan Keegan.

Hey, thanks, guys. It's John (ph) again. Really quickly, we were under the impression that with the congress reversal on physician's de-cut (ph) schedule aren't you all going to take a 3.6 percent price increase in Medicare?

That is correct.

OK, thanks.

Gentlemen, there are no further questions. Do you have any closing comments?

Yes, thank you. We appreciate everybody attending the meeting today. We look forward to having a good year, as we have indicated. And we appreciate your attendance. Thank you.

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