US Physical Therapy Inc (USPH) 2003 Q2 法說會逐字稿

Good morning and welcome to the U.S. Physical Therapy second quarter earnings release conference call. At this time, all parties have been placed in a listen-only mode and the floor will be opened for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Roy Spradline, Chairman and CEO. Sir, the floor is yours.

Thank you. We're pleased to have you in attendance at our second quarter results. Before we start, indulge me for a minute while I read an opening statement.

This conference call contains "forward-looking statements" often using words such as believe, expect, intend, planned, appear, should and similar words which involve numerous risks and uncertainties. Included among such statements are those relating to opening of new clinics, the 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 economic, business and regulatory conditions, competition, federal and state regulations, availability, terms and use of capital, availability of skilled physical 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 undertakes no obligation to update any forward-looking statements whether as a result of actual results, changes in assumptions, new information, future events or otherwise.

Again, thank you for attending our conference call. We are coming off a record revenue and visits quarter. With the climate changing, or stabilizing, in most of the markets that we're in, we're able to sustain significant improvements through the quarter, not only from the standpoint of those facilities that we've opened in the second half of last year, but also the ones we opened in the first part of this year, as well as making sure that we have everything under our operational control.

The visits in the second quarter rose to 285,000 visits, which is an all-time high. There were 29,000 visits more than the second quarter of last year and we've performed 266,000 visits in the first quarter of this year. New clinic openings for the first half of this year, as well as the second half of last year, have contributed to the increase in visits as well as the revenues we've experienced.

We continue to plan on opening 20+ openings this year. In fact, we are changing our guidance from 40 to 45 new clinics for 2003 to 47+ for the year. Even the distribution of the openings for this year have been key to the fact that we're going forward and producing the revenues as well as the profits that we've been incurring. In the first quarter, we opened 13 facilities. In the second quarter, we opened nine facilities. Year-to-date, we've opened 22, compared to 14 this time last year.

We closed four clinics in the second quarter of this year, bringing to a total of seven for the year. The reason for that is that the partnerships had not developed according to our model. During this time it is important for us to make sure that we're under total operational control and that the facilities that we do have open are positively contributing towards the success of the company.

Our model continues to prove itself in conjunction with the success that we've incurred. We plan on opening 18-20 new facilities in the third quarter and 6-8 facilities in the latter part of the fourth quarter in order to achieve the 47+ openings for the year.

In the first half of the year, we had indicated that we were having a little bit of a problem with our recruiting on the [Antrel] aspect. We have corrected this problem and it's been resolved and is reflecting in the fact that we have recruited key positions where we have been able to generate the revenues and locations, as well as that it has helped us drive the volume and revenues up. We do not feel that there are a shortage of therapists at this time.

Our new initiative of opening company stores is pretty much along the lines of the model that we had as far as the incentive to the therapists, the [directors] and the facility. It is just that we're taking a little bit stronger approach to the market that we want to be in, in a market where we have felt had potential but, yet, we had not had a candidate or partner surface. We have gone after those markets and we are very positive in the outcome of this process.

The expenses on a per visit basis have decreased over the first quarter. In fact, $1.46 is exactly how much they have come down in the second quarter as compared to the first quarter. This is due to the efficiency of the staffing, which has decreased our salaries, and with the increased visits, it has diluted our fixed expenses.

Our same store sales has been relatively flat at .5 percent in growth, which really is a positive from the standpoint that we have gotten ourselves under operational control. We're sustaining ourselves. As the environment goes forward and the economy changes, we will be well positioned and more poised to take advantage of that opportunity as we go forward.

The corporate expenses have decreased .3 percent over the first quarter and based on our percentage of revenues - the increased cost in corporate is associated, primarily, due to the fact of the increase in our D&O insurance, as well as just the expenses of requirements that are required of us by the Sarbanes-Oxley and all the other things where initiatives have been put forward.

Our cash continues to increase and it is at an all-time high right now. We're at $12.6m in excess cash.

Our Board has adopted a policy of no longer giving quarterly guidance. We will continue to give annual guidance. We will continue on with the trend, or the guidance, that we had given previously, which was 10-17 percent growth, but we have changed the number of facilities we had in our guidance for the year, 40-45 to 47+. As such, we will maintain a practice of only giving annual guidance.

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

Thank you, Roy. We finished the 2003 second quarter with 217 clinics as compared to 176 clinics at the end of the 2002 second quarter. Revenues increased 12 percent to a record $27m in the quarter, from $24.1m in the same quarter last year.

Second quarter visits increased 7.1 percent to a record 285,000, from 266,000 in the first quarter of 2003 and increased 11.3 percent, from 256,000 visits in the second quarter of last year. Patient revenues per visit were $92.64 for the quarter as compared to $91.53 for the same quarter last year.

Net income was $2.2m for the quarter, a slight decline from the $2.3m in the second quarter of last year, but a 24 percent increase from $1.8m in the first quarter of 2003. For the second quarter, same store sales increased one-half percent as a result of an increase in net patient revenues per visit.

Clinic operating costs per visit increased to $65.46 in the current quarter, from $62.43 in 2002's second quarter, but were down from $66.87 in the first quarter of 2003.

Bad debt expense was 1.6 percent of revenues for the quarter as compared to 2.1 percent in last year's second quarter. The reserve for bad debts is a percent of total accounts receivable and was 24.2 percent at June 30, 2003, and 23.4 percent at June 30, 2002.

Gross days in accounts receivable declined to 65 days at June 30, 2003 from 72 days at June 30, 2002, and declined from 68 days at March 31, 2003.

At 31 percent, the contribution margin from the clinics in the second quarter was lower than last year's 33.5 percent, but exceeded the first quarter contribution margin of 29 percent. Changes in the contribution margin from the clinics tracked closely with changes in average daily visits per clinic. Average daily visits per clinic were 20.7 for the second quarter of 2003 as compared to 23.4 percent in the second quarter of 2002, but up from 20.5 percent for the first quarter ended March 31, 2003.

Corporate office costs increased to 12.4 percent of revenues for the quarter as compared to 11.9 percent last year, but were down from 12.7 percent of revenues in the first quarter of 2003. Corporate office costs increased, not only as a result of the need to support additional clinics, but we also experienced significant increases in D&O insurance premiums and consulting fees relating to the general business climate and the resulting regulatory requirements. Corporate costs per average clinic opened during the second quarter of 2003 was $15,600, a reduction from the $16,700 per average clinic opened in the second quarter of 2002.

Cash increased $2.4m during the quarter to $12.6m at quarter end. That means that the company has approximately $1.00 per share in cash. We did not repurchase any shares during the quarter, but decided instead to let cash build in the current economic environment.

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

Thank you, Mike. As we go forward and the environment stabilizes, which we have been observing, and, in fact, in most markets we've seen a slight increase in growth in particular markets. We've been able to achieve the stabilization of our operations of our older clinics, as well as the increase of openings of our new facilities. The model we have is working. It is on track. The adjustments to the operations of the clinics have allowed us to have a decrease in the cost per visit. It has increased our cash to $12.6m and we have maintained a strong net per visit. We are positioned for the future in anticipation for the environment to return to it's normalcy at which time USPH will be able to take it's lead for positive growth.

At this time, I'd like to open it up for Q and A, but I would please request that you only have one question per Q.

Ladies and gentlemen, we will now begin our question and answer session. If you have a question, please press the one followed by the four on your push-button phone. If your question has been answered, please press the pound key to remove yourself from the queue. We also ask that while posing your question you would pick up your handset to provide optimum sound quality. Once again, that's one followed by the four for any questions or comments you may have. Please hold for our first question.

Our first question comes from Larry Rodart [ph] with LAR Management.

Thank you. Good quarter given the conditions. Question. As you go out into 2004 are you likely to open 50+ units or will it be more like 60 or who knows?

I would anticipate that as we go forward into 2004 that we will probably do the 50+. We are really accelerating and we're finding a significant number of opportunities. In fact, the list of potential candidates as we go forward has probably doubled or tripled from what we've experienced in past years.

All right. Given that, the immature clinics, the ones you open in 2004 relative to the openings in 2003, will not have the same material difference as 2003 did to 2002, therefore, you should get some positive leveraging next year, I assume?

That would be the anticipation. By having a significantly more balanced opening process as we have experienced this year, then we'll have more of a positive rather than having a month like we did last year where we took a little bit of a hit.

Right. Thank you.

Our next question comes from Mitchra Ramcapol [ph] with Sodoti.

Yes Hi, Good morning guys. Roy if you could just give us a sense of your expectations for same store sales in the second half of the year and also, if you could just give us a sense of what the payor mix was at the end of the quarter?

We're actually anticipating an improvement in same store sales as those clinics that we opened in the second half of last year become categorized in what we call same store sales. We'll look for, most likely, a positive up tick in the second half of the year on same store sales. As far as the payer mix is concerned, we're pretty mix are staying flat to what our payer mix grouping was from last year, but I'd probably let Mike give you the details on that particular item.

Thank you Roy. For the second quarter, our payer mix was as follows: private insurance, 27.1 percent; managed care, 29.7 percent; workers comp, 16.9 percent; Medicare, 21.9 percent; personal injury, 3.4 percent and self-pay, .9 percent.

Thanks.

Our next question comes from Ken Heller with Canal Capital.

Thank you. Good morning. Could you give us an update on the reimbursement environment and potential effects going forward?

In reference to the Medicare?

Yes.

At this time, there is a moratorium and it's been put on the Medicare until September 1st. There really hasn't been any additional information coming out about what will happen. If it comes to play as we had anticipated, or had the potential, it will be no different than what we have stated in the past about what the impact would be. There is a potential that it could go away. If it does go away, we have already, in our guidance for the year, taken that into account for this year. Next year we would have to re-evaluate the guidance for the year according to what comes out from CMS.

Just to clarify, for this year you have assumed that it will or will not go away?

In the 10-17 percent, we, basically, looked at it and forecasted on the guidance that if it went away, we would be in the higher end, if it stayed, we would potentially be in the longer. We took that into account and that's one of the reasons why we had such a broad spread from 10-17. It's because we really didn't know what CMS was going to do, so we just, basically, gave ourselves some brackets to work within so, if it one way or the other, we were covered.

OK. Thank you.

Once again, if you have a question or a comment, please press the numbers one followed by four on your touch-tone phone. Our next question comes from Robert Rabbits [ph] from David J. Green and Company.

With all of the step-up in the new facilities and your comment that the list of potentials has exponentially grown, to what degree is this a reflection of the problems at Health South? People leaving Health South or, etc., I wonder if you could comment on that?

I think that a good portion of them are surfacing because of that. We're also looking at it as an opportunity within certain markets that we haven't been in before where we will be seeing a significant control and we think there's an opportunity for us at this time. It's a timing issue. We feel though that because of the establishment of USPH and what we provide for the therapists that we will have an increased interest in working [inaudible] as we go forward, especially in the therapist's careers. It gives them an opportunity.

OK. Thank you.

Our next question comes from Jeffrey Nixen from MCM.

Good morning. I guess, with the cap being moved now to start on, I guess, September 1st?

That's correct.

Does that mean now that the guidance is now just based on that? I mean, because of the way it works, does that pretty much make it - - even if it does come in on September 1st - - that it's not going to affect you this year, right, because of the number of visits that they have to squeeze in between now and the end of the year?

I just think that the guidance that we gave of between the 10 and 17 percent is where we we’ll come in. Either way, we do feel like it will have minimal.

What I'm saying, though, is that since it has been deferred, does that mean that the guidance now really is more towards the high-end of that range?

Probably somewhere in the middle.

OK. Great. Thanks.

Our next question is a follow-up question coming from Larry Rodart with LAR Management.

Given the accounting rule change on minority interests, in this quarter did you have any of that in salaries, or it's all on that line still?

No. We did have what we would have called minority interest in the past, reclassified in salaries. In fact, in the second quarter of 2003, we had a reclassification of $42,930 in salaries that were related to - -

OK. So it's not a material number?

It is not substantial.

Thank you.

Once again, if you have a question or comment, please press the numbers one followed by four on your touch-tone phone. We have a follow-up question coming from Ken Heller with Canal Capital.

It's a follow-up regarding the same store sales attribution. You made reference, Roy, to the issues you had with the more mature locations and how those affected the comps toward the end of last year and, I think, a little bit into the first quarter of this year. I was wondering if you could give some breakout in terms of the attribution of the same store sales for the quarter, mature versus the immature locations, and, maybe, what changes you've made to try to improve the more mature locations and what effect that's had so far?

I'll let Mike field the question concerning the first stage of your question and then I'll take the second part.

On the same store sales, we feel that over the rest of the year that our 40 2003 clinics, many of which were open near the end of the year, fall into the same store sales category. We should, in the second and third quarters, realize same store sales somewhere between the 5 and 10 percent range. We do expect a significant increase in same store sales in the second half of the year, most of it resulting from 2003 clinics. We're not expecting significant increases in the over three-year old clinics, so we are assuming that they will remain at relatively the same levels where they currently are.

As far as the changes that we've done within the facilities, one of the things we've done was gone back and analyzed everyone of the facilities and determined that some staffing changes needed to be made in those markets where, possibly, the economy had taken a bigger dip than some of the other markets. And not being more prudent on utilizing PRN rather than just go high staff, which has allowed us to decrease our payroll on a per visit basis. Also, the clinics that actually were opened in the second half of last year have come about and started materializing and following along with the model so that there staffing efficiencies have become better. Those are the main things. Most of our fixed costs are pretty stable. There's not a whole lot you can do to tweak those and squeeze that, so it really comes down to driving volume, managing our payroll and making sure that we're getting paid for the services that we're providing.

OK. Thank you.

Our next question comes from Ed Fowler with "The Small Capital Report".

Great quarter. Right on target. Thank you very much. I just wonder if you could give us an indication of what is going on in July here, since the month is almost over? Could you comment on your pricing of your product as to your ability to raise your prices?

As far as the visits for July, they were as expected. As far as the net revenue on a per visit basis, I think, by the training and the focus that we have on collecting our AR, which is indicated by dropping AR days and the increasing cash, that we are able to justify the net that we have, that we believe that collecting money across the counter on your co-pays, that has established the net we have. Plus, our payer mix is such as we have always been very disciplined on the kinds of contracts we take and that has paid off for us.

Is your co-pay business a big part of every visit?

You have to remember all the percentages that Mike gave you earlier on the private insurance, as well as on the managed care product line that we have. The majority of the people do have co-pays with any insurance, whether it be 20 percent, whether it be $10 per visit, whatever. That's just a discipline that we've been able to be focused in on over the last year and we're getting significant dividends from that.

Could you just comment on any government changes relative to what's going on in Washington now?

No more than what I earlier stated about the Medicare. We hope it goes away but we have no information other than what I already indicated that says it will or it won't.

Thank you.

Once again, as a reminder, please press the numbers one followed by four for any questions or comments you might have. Gentlemen, there appears to be no further questions at this time.

I want to thank everybody for attending the conference today. Again, I want to reiterate the guidance that we have for the year that is between 10 and 17 percent and the facilities that we’ll be opening for this year will be 47+. I do thank you for your attendance.

Thank you very much.

Thank you for joining today's U.S. Physical Therapy conference call. You may disconnect your lines and have a wonderful day.