US Physical Therapy Inc (USPH) 2004 Q1 法說會逐字稿

Good morning ladies and gentleman, and welcome to the US Physical Therapy First Quarter 2004 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions following the presentation. It is now my pleasure to turn the phone over to your host, Mr. Roy Spradlin. Sir, you may begin.

Thank you. Good morning. I'm pleased to have you in attendance for our first quarter 2004 result. Before we start, I need to read the following. This conference call contains forward-looking statements, which involve numerous risks and uncertainties. The forward-looking statements are based on the company's current views and assumption, and the company's actual results could differ materially from those anticipated. Please see the company's filings with the Security and Exchange Commission for more information. Despite the fact, we're emerging from a difficult operating environment. US Physical therapy remains strong and sound, and the company continues to produce excellent cash flow and high return. In the first quarter of 2004 for the month of January to March, we realized a ramp up in patient visit to 17% as compared to an 8% increase in the period of 2003, indicating the success today as some of our recent initiatives in order to recruit new physicians and also re-stimulate the referrals from our older physicians. Chris Reading, our new COO has been spending a great deal of time in conjunction with the Vice President of Operation. We're going to our partners to advance our capabilities as operators, as managers, and as well as the business developers in a particular market. Full-time dedicated sales forces in selective markets are generating incremental increases in referrals and patient visits. As compared to the fourth quarter, this sales effort had delivered increases in the following states. We've seen an increase of 4% for the first quarter in Austin, Texas. We've seen a 15% increase in visits in Houston market and the Kansas City market, we've seen a 50% increase for the first quarter of 2004. The Kansas City market actually our first true company's store market that we have gone into with fervor and have been very successful. This market continues to show huge opportunities and we'll continue to explore the opportunities and particularly the market with the development of our company store side. The partners and directors in association with this sales force have increased their call of our physician, case managers, and industry. Operating expenses at the clinical level are an issue. Part of the year-over-year increase we experienced in the first quarter were due to one closer in the cost of two facilities, slight increase in benefits, and despite a significant improvement, we realized in our visit, we have a staffing to visit ratios are higher than our clean target performance and we are currently addressing this issue. The company's growth strategy to grow through partners, satellites, and satellites of the backfills within particular markets where we have existing partners, or company stores where we look at we can have a dominant in that particular area and we also fund all the factors favorable for us to be successful within those particular markets. We also at the same time are evaluating the necessity and the need for sales forces in these particular markets to help us enhance the success of those facilities. And the identification of company store markets will continue position us for the future. In the first quarter four new facilities were opened and two closed, bringing the total operating facilities to 244 as of the end of the first quarter. A number of the facility that was expected to open in the first quarter was delayed due to lease negotiations and permuting issues. The continuation of growth will be accomplished by having the right therapist and incentives through bonuses and profit sharing. And today we have not seen any indication of a reduction in interest from professionals who we are recruiting. And in fact at present time, we have for 2004, 79 leads that we are following up on and investigating. Approximately 15% of those coming from health staff, another 40% cost coming from Hospitals, so arithmetically I have another 5%, private practices we have 21%, physician 6%, Benchmark 10%. Of the potential 45 to 50 clinics that we are going open in 2000, and we've already identified, at this point and had the potential for opening before the year end. 8% having come from Health Staff, 16% having come from Hospital, 6% come from Select Medical, 2% from Benchmark, and 68% are them are coming from satellite opportunities that we've identified within our company store market, within our existing partnerships, and we look to backfill the particular markets and take advantages of situations we are aware, we created at present. We plan to continue financing all our internal growth and see no present need for any raise in any capital. At this time I'd like to turn the conference call over to Larry McAfee, our Chief Financial Officer.

Thank you, Roy. I like to go over our first quarter 2004 as compared to the first quarter of last year and also to the fourth quarter. Net revenues were as 13.2% compared to last year at a $28.3m. This was due to 9% increase in patient business combined with $3.20 increase to 9.49% in net patient revenues per visit. Earnings were $0.13 for the quarter, which is consistent with the estimates of $0.12 to $0.13. Clinic operating gross increased to 74.2% of net revenues compared to 71%. This was to some degree a portion of the average daily visits being done year-over-year. Although the operating margin declined the total amount of operating income actually increased slightly. The 18.7 average daily visit per clinic in Q1 was flat as compared to the fourth quarter. So, it would appear that the current visits have bottom down. The corporate office cost as a percentage of net revenue was 12.8% for the first quarter of 2004 versus 12.7% this time last year. Corporate cost though as a percentage of revenue was reduced from 13.6% in the first quarter to 12.8% in the most recent quarter. Same-store visits for all clinics opened one year or more up approximately 1%. The net rate per visit to those clinics increased 3%, such that same-store revenues increased 4%. Performance from our more matured facilities improved somewhat as the clinics opened in 1999, 2000, and 2001, realized year-over-year increases in revenues in Q1 versus a decline in the preceding quarter. AR days outstanding were reduced in the first quarter to 64 days as of the end March as compared to 68 days at year-end 2003. Our cash and investments balance increased 10% in the first quarter to 18.4m, that's the equivalent of $1.60 per share based on outstanding shares or $1.50 per share on a diluted basis.

Thank you Larry. US Physical Therapy is positioned for the future in anticipation for economic environment to return to normal. At this time we will open up the Q&A, and please only ask one question per queue.

Thank you.

Thank you. The floor is now open for questions. If you have a question please press star one on your touchtone telephone at this time. If at any point your answered has been answered you may remove yourself from the queue by pressing the pound key. Once again that is star one on your touch-tone telephone at this time. Your first question is coming from Ross of Medwood . Please pose your question.

Good morning and a good quarter guys. Larry can you just give us a little color about the operating margin and what we should expect to sort of see as the long run, operating margin goal and to some extent is the weakness of function of a lot of back half clinic openings?

Well we are not giving you a projection obviously. Just to work our operating margins ran closer to 30%, and while we jump in here but I think that's achievable again to get our margins back up.

As we had grown the top line in on the visit we had indicated we had some increase in payroll cost is primarily where the cost on per visit are lying. In the past we had exceeded 30%. And I see no issue or problem achieving that going forward.

If you look on a per visit basis our operating costs are up $4 -$5. Part of that is the average visits per day per clinic are down. So to some degree it's a function of volume you rent to the clinic to get the margin up. The other thing is and its not a significant impact yet but it will be vigorous as we go forward because of the change in the accounting rules you have minorities interest consideration or what historically what run through minority interest more and more that will run through payroll or compensation which is an operating cost. That will affect a percent or two going forward. But I think mainly its a function of what we had talked about in the press release staff the volume levels, and that's something that what we are working on right now.

One other thing we had seen at the first of the year, and we don't want a knee jerk on the payroll component of it, is how the volume was going to pick up as we got into the first quarter. And we've each month January, February, March we've seen a decline on a per visit. On the payroll component of it it's not that we haven't been aware that it is higher than what our target is for our facilities but same time we didn't want to have a knee jerk where we come up short which can have just as bad an effect on you as having too much staff. And in fact in March it got closer to where we think our payroll on per visit basis should be and we are continuing to focus in on that so that we can get our cost further down.

Okay. Thanks. I will get back in queue.

Thank you. Our next question is coming from Jackie Waterman with Jesup & Lamont.

Hi, good morning gentlemen. My question is regarding your salaries and related expenses too. I guess on an absolute basis we saw a pretty significant jump from the fourth quarter into the first quarter. I understand the factors you just stated. Can you comment on, do you think we've achieved a relative stabilization in the increase that means we should start to see us go down from here as revenues go up on a percentage basis?

On a percentage basis it should decline Jackie. I don't know the absolute dollars will decline because we'll have a significant increase in clinics that will open in the second quarter as compared to the first and that will impact the gross dollars, but yes the way to get our margin up is really higher volume and in its select plans we are going to reduce staff that probably in terms of the gross dollars will be offset by the new clinic opening.

It's a combination of both visits and managing the payroll. As we have done inputting the initiatives in places is the reason why our visits have gone up and why in March we have seen a drop in a per visit on our payroll. So your absolute dollars will probably not drop off we'll see as because of the volume increases. We'll see the cost come down on a per visit basis.

The two biggest items that caused the increase for the quarter we had well over $300,000 in increased health insurance and other benefit costs. That is something that we've already addressed. We are actually changing third party administrators and have changed networks and planned effective May 1. So we hope to hold the line there not realize some savings. The only thing is we had over $100,000 of this week last that I was talking about from minority interest to compensation expense. So that's the big, two single biggest items that affected the year-over-year and even from fourth quarter to first quarter.

Then, should we expect to see a decline in minority expense, minority interest?

You won't, I don't know if it will decline immediately, actually I hope it does because that shows that our older clinics are doing better. But yes, over the time, you'll see a decrease.

Okay, and then finally, how many salespeople are you planning on adding during the year, you had mentioned, I think, three or four previously?

How many salespeople, yes, we are going to add this year, do you think?

We'll probably, you know, that is just real guess because identification of markets and we'll probably add anywhere from three to five salespeople through the course of the year in different markets. I mean there is a couple of other companies store markets that we are looking at and part of our model is that when we may do company stores, that we have a concentration in sales personnel an adjunct to those particular areas.

Okay, thank you.

Thank you.

Thank you. Our next question is coming from Mark Chekanow with Sidoti & Company, LLC. Please pose your question.

Yes, hi, good morning guys. If you could comment a little in terms of the increase in revenue it was pretty significant and maybe, give us a sense of what you think will continue going forward and Roy, also if you can quickly recap on mission numbers you gave in terms of the revenue mix for the quarter and the number of clinic openings.

Okay. We opened four clinics and we closed two. The pay or mix we, I don't believe.

It was the same as last quarter, it's the same, I don't haven't in front of me but what's posted on our website in our investor presentation, it was no, I mean the changes were like one-tenth of 1%. So it's basically the same mix.

Okay.

Actually, I have it here. Somebody just handed it to me. Let me read it out to you. Private was 27.8%, Managed care was 30.8, workers' comp 17%, Medicare 19.8%, personal injury three and a half, self-pay 1.2%.

Thanks.

Once again, ladies and gentlemen, if you have a question, please press star one on your touch-tone telephone at this time. Your next question is a follow up from Ross Demon of Medwood Capital. Please go ahead.

Just a quick question. You noted that it looks like the reduction in visits at the mature stores has bottomed out and your definition of mature store is stuff older than a year. But since we know there is a fair amount of maturation still in the, sorry, in the location and your 2 and 3, I mean in the real core stuff that's been around, say three plus years, are we still seeing a decline?

Yes. That's the reason I called out the 99, 2000 and 2001 years. Those were actually down in the fourth quarter, they improved in the first quarter. We are still seeing some softness in the clinics before earlier 98, earlier, but at least it's, I wouldn't say that we are out of the woods yet but we are definitely seeing improvement and the fact that those three years that have been down were older clinics that are now up I think, is a good sign.

Okay. Yes, that is exactly what I was looking for. Thank you.

Thank you. Our next question is a follow up from Jackie Waterman with Jesup &Lamont. Please pose your question.

Hi. I am just wondering how many clinics should we assume you guys are going to close for the year? Is two a safe number to use for each quarter or might that go down?

We had internally planned on five.

Thank you.

Thank you. Our next question is a follow-up from Mark Chekanow with Sidoti & Company. Please go ahead.

Hi guys, just following back up on the revenue per visit in terms of the, almost 4% that you saw given that the pay mix didn't change much. What do you think is driving it and give us a sense of what you expect going forward.

Well, as we've gone through and we've worked with the partners in each of their areas to assure that we are actually charging for the services that we are providing. That has been and also we have updated our fee schedules in our particular locations combination of all factors is not one single thing has created it. It's just better, as we work on it - as it is indicated. Chris working with the partners, making the directors and partners, better managers, and operators of the facilities and they're working through those particular areas.

I think we had talked about -- I know, we even have it in our investor presentation, that we spent. At the end of the fourth quarter,

and for the entire first quarter we spent a lot of time getting our, we call it charge masters; our fee schedule is updated. We also got some I think is favorable adjustment and few of the contracts that came up for renewal. So Chris and the VPs of our office as well as our reimbursement people here at corporate offices have spent a lot of time on getting the net rate up over the last few months.

Okay thanks.

Thank you. I am sorry no further questions at this time.

I would like to thank everybody for being in attendance this morning and we appreciate patience. Thank you.

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