US Physical Therapy Inc (USPH) 2004 Q4 法說會逐字稿

Good morning, and welcome to the U.S. Physical Therapy fourth-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 floor over to Mr. Chris Reading. Sir, you may begin.

Thank you. Good morning, everyone. This is Chris Reading, U.S. Physical Therapy's Chief Executive Officer. We are very pleased to have you participate in our quarter 4 and year-end earnings conference call. With me today in Houston is Larry McAfee, our Executive Vice President and Chief Financial Officer; Glenn McDowell, our Chief Operating Officer; and our Controller, David Richardson.

Before we proceed, I would ask David Richardson to read a brief statement. And we will follow that with Larry McAfee, our Chief Financial Officer, reviewing the financial highlights for the fourth quarter and the year. David?

Yes, this presentation contains forward-looking statements, which involve certain risk and uncertainties. The forward-looking statements are based on the Company's current views and assumptions, and the Company's actual results can differ materially from those anticipated. Please see the Company's filings with the Securities and Exchange Commission for more information.

Thanks, David. Today we reported net earnings for the fourth quarter of 2004 of 1.8 million or 15 cents per share. Results for the year were net earnings of 6.7 million or 54 cents. These figures are after charges of 1.2 million. Additionally, on February 7, the SEC issued a letter clarifying their interpretation of certain accounting principles relating to operating leases. In accordance with that interpretation, we booked in the fourth quarter an accumulated accrual for straight-line rents for the combined years of 2001 through 2004 of $157,000. Excluding charges, net earnings for 2004 would have been 7.8 million, or approximately 63 cents per share. A schedule detailing these reconciling items is included in the news release.

I'd like to just talk briefly about the fourth-quarter results on a comparative basis with 2003. In the fourth quarter, net revenue rose 11.8 percent to just under 30 million due to an 8.6 percent increase in patient visits combined with a 3.6 percent increase from $93.34 to 96.67 in net patient revenues per visit. So for the year, we realized over a $3 increase in net rate. Clinic operating costs decreased to 72.5 percent of net revenue compared to 73.5 percent in Q4 '03. Clinic salary costs were reduced from 52.6 percent to 50.3 percent of revenues, evidencing efficiencies we realized through the staffing changes we made earlier in the year and the positive effect of the net rate increase.

Operating margin pre-clinic closure costs and corporate expense were 27 percent which, although an improvement from a year earlier, still indicates that we have a way to go to get back up to a 30-plus percent level in terms of operating margins. Corporate costs as a percentage of net revenues were 13.6 percent in both quarters.

Operating income increased in the fourth quarter by 18 percent to 4.2 million. Net income for the quarter increased to 27 percent to 1.8 million, as EPS increased from 12 cents to 15 cents.

As per the release, during the fall, we repurchased over 373,000 of our shares at an average price of $14.95 per share. As of year end, we had an additional 445,000 shares available for purchase under the Company's repurchase plan. Even after using 5.6 million for stock purchases, cash and cash equivalents increased 22 percent during the year and totaled over 20 million at year-end, or roughly $1.65 in cash per share.

Thank you, Larry. As many of you know, 2004 was a year of transition for our Company, when Livingston Kosberg, U.S. Physical Therapy's founder, returned this past summer as interim CEO. Livingston both allowed and encouraged our return to the Company's roots -- that is, the formation of true partnerships with very talented physical and occupational therapists who possess abundant referral relationships in their individual markets and around whom we can build a very successful partner practice. Concurrent with that focus was a step away from opening what we were previously calling Company stores, or more simply, facilities without partners.

As we closed out the fourth quarter of 2004, we opened 11 new facilities. Of these, 6 were either equity, or what we consider partner deals, and 5 were satellites of existing partner facilities. For the year, we opened 35 clinic, closed 12 underperforming centers, sold 1, and finished the year with 265 facilities.

Over the quarter, we saw same-store visits for clinics open at least a year improve 3.4 percent. Our net rate per visit for those clinics also improved, with continued focus on clinical efficiencies as well as the renegotiation of managed care contracts, resulting in a same-store revenue increase of 6.9 percent.

Looking forward, we will continue to work on developing our partner pipeline, with a focus on improving the ratio of true partners to satellites, both of which have been highly predictable and successful. We have further refined our benchmarking of key performance measures, raising the bar in some cases due to our improved performance over the course of the past year.

We have just initiated an internal ranking of every facility for each key indicator metric that we measure and that we push out to the partners in the form of a scorecard. This will allow every partner to know exactly where they stand against their peer group throughout the entire Company for every important metric. We believe that this will continue to assist our partners as they work within their facilities and as they tend to be competitive to try to improve their facility's performance over the course of the year.

In addition, we will continue to focus on our clinical productivity with Glenn McDowell and the VPs working to drive those efficiencies, as well as our service delivery with the introduction of a broader array of clinical equipment and services designed to continue our net revenue improvement, and along with that, our continued focus on managed care, recontracting, and net rate development.

We need to continue to focus on expanding our partner pipeline, which will take a little time. But we are moving in the right direction. Recently, we have completed a new partner ad campaign which we will begin to roll out very soon. And we are in the final stages of completing a new website which we will integrate with our campaign. And that web site will be OwnYourOwnClinic.com.

Along with this, recently, we've done a release indicating that we've added a new Board member, Clayton Trier, a very distinguished Houston businessman, former CEO of U.S. Delivery Systems. So we continue to focus on all the core elements of our business. And we appreciate your support and the Board's support during this past year.

With that, we'll open it up for questions.

(OPERATOR INSTRUCTIONS). Jackie Waterman, Jesup and Lamont.

I'm wondering if you could provide the number for your new partner backlog -- give us some sense of what is in the queue?

Right now in terms -- it is difficult to say. In terms of our new partner backlog for the first quarter, we expect to be roughly somewhere in the 40 to 50 percent of the new facilities that we opened for the quarter. Mike Lang and his team, plus the senior --

40 to 50 percent partners?

40 to 50 percent new partners. And that's really -- we are trying to get to about a 50-50 mix over the course of the year, with 2 new partners to satellites. Satellites are still highly desirable. But we want to continue to increase that new partner flow, as new partners over time will beget more satellites.

But it is going to take us a little time to fully fill the pipeline. We have recently added another partner recruiter. And we continue to focus on that whole development end.

So now do you have 4 full-time recruiters?

We have 4 recruiters currently. That is correct.

I'm sorry if I missed this; I joined the call a little bit late. But what is your target number of new clinics openings for 2005?

We are not going to give guidance, either on earnings or clinics openings. But we would expect to increase the number of clinics that we open as compared to 2004.

Okay. Any sense of how many closings?

No, we don't anticipate a lot. We built into our budget closing a clinic or 2 a quarter. So it wouldn't surprise me if we had 5 to 8 this year.

Okay. Also, could you provide your payer mix for the quarter, please, and for the year -- whatever you might have on hand?

Yes, I have got it for both. For the quarter, the payer mix was as follows -- private was 27.8 percent; managed care was 31 percent; workers comp was 15.9; Medicare, 21.1; and other, 4.2. And for the year -- these are small numbers -- for the year, private was 28; managed care was 30.6; workers comp was 16.1; Medicare, 21; and the rest was other.

Okay. Great. And also, what was the impact of Sarbanes-Oxley in the fourth quarter and for 2004?

Jackie, you are asking all the questions. You are not leaving any.

Okay, sorry. (laughter)

I would tell you, I don't know about the quarter. It's a lot. I will tell you now, I think I'd given an estimate before of at least 0.5 million for Sarbanes-Oxley. That number is probably closer to 0.75 million which, for a company our size, it works out to like 4 cents per share. I think -- I read yesterday -- probably a lot of you all saw the article in the Wall Street Journal where the FBI (ph) had its members give what they're spending on Sarbanes. And I think to everybody's amazement, the costs just keep going up.

Any sense of what the ongoing expense might be for 2005 and thereout?

I would hope it would be less.

That's a safe answer. (laughter)

I would hope it would be less. But I can't really give you a number.

Ryan Kilstein, Marathon Partners.

Quick question. Just want to understand a little more about the process on deciding to build out a satellite -- any kind of hurdle rates as far as visits that are in place? And also, I know you guys put out a scorecard to kind of measure the clinics against themselves. Does that same kind of scorecard go out to potential therapists that might have a satellite in the making and knowing they are shooting for a certain number to kind of compare what they would need to advance their ownership?

Right. Let me answer both those questions. In terms of our satellite development, we expect the same level of performance out of our satellites, if not slightly better, in terms of a fairly fast ramp up. It somewhat depends on the market and the size of the market. And what we do is we work with our partners to identify -- we do a due diligence trip. Typically, they already have the physician relationships. And so it is a matter of finding the site, identifying where the relationships are and the magnitude of those. We create a pro forma with the partner that the management team signs off on. And then we elected go forward. And most of the time, these are fairly predictable.

In terms of the metrics and the scorecard elements related to potential satellite, our partners over the course of the year have gotten very familiar with the key metrics and the key measures that are important to us and concurrently important to them. They understand, as do we, that when you open a satellite, there is a certain ramp period. And the metrics are going to be slightly different for that satellite in the course of the first year.

But we really look by the end of the year to have the metrics in line. Some of the indicators, like gross rate and net rate and some of the things that are really related to the patient volume that we see, regardless of the amount of the volume, should be stable right from the get-go. Other things like productivity and efficiencies that drive off of the volume will come into the line at the end of the first year, the end of 18 months or so, out.

But again, we are doing a pro forma with them hand in glove. Everybody knows the expectations going forward. And that his how we pull it all together.

One of the things we have recently developed is a new partner manual which all the departments at corporate contributed to. And in that, we tell them what our expectations are pursuant to our scorecard in terms of productivity levels and all the other metrics we have on the scorecard. So even before we open shop with them, they know what the expectations are.

Balaji Gandhi, Pacific Growth.

I just had a question -- one about volume and one about pricing. With the visits in the quarter, I was a little surprised to see how high they came in, given the holidays. And looking at the sequential and year-over-year trend, is there something kind of onetime that was stronger than you expected?

Let me take that, Balaji. I think there were a couple things contributed to that. We actually saw for the quarter a progression that improved from October through December which was different then the Company had exhibited in terms of a pattern previously.

I think that was a result of a number of things. We changed how we handle our vacation time. When Larry and I got here, everybody had a vacation renewal period that ended at year end, and so it was a "use it or lose it" policy. We changed that around so that it would be based on the anniversary date of that employee. And so it is spread throughout the year. So we did not have the year end push to take time off. I think we got a beneficial impact for where the holidays fell this year. If you remember last year, we wiped out a number of good potential operating days based on where the holidays hit. So we got a beneficial impact on that.

And I think overall, our partners in the course of the year have understood and have responded to a number the things we have done. They were very encouraged. And we saw some very strong performance out of our partners as the year continued. So all those things combined helped to make for a strong finish.

Okay. And moving over to pricing -- you mentioned 6.9 percent same-store growth in revenue per visit. Was that right?

That is correct.

So what is that as a number? I don't have last year's number in front of me?

Well, we were at -- for the fourth quarter last year, we averaged 93.34 a visit. And that was up to 96.67. It was a combination of visit increases and the rate increase that get us to the 6.9 percent same-store revenue increase.

Right, so the same-store number is higher than 96.67 -- is that safe to say?

Well, yes -- no, well, not necessarily. The same-store wouldn't -- the 96.67 includes all clinics. Same-store only includes clinics open for 1 year or more.

Right. So would that number have been higher or lower than --

Probably about the same. As Chris said, the rate doesn't change much. Newer clinics wouldn't necessarily have a lower net rate than older clinics.

But you know, I don't know that we have it measured here for the purpose of this call. But I agree with Larry -- it should be fairly close.

Okay -- because the only reason I'm asking is because then if you just looked at the consolidated number, I have for last year 93.56 for the fourth quarter, then 96.67. So that's why I was just thinking -- if it was 6.9 same-store, it would have been higher, but --

It could be. And I will be honest with you -- we didn't analyze it that way, Balaji. But I will take a look at it.

Mitra Ramgopal, Sidoti.

Just a couple of questions. First if you could comment in terms of use of cash -- I know you bought back quite a bit of stock in the fourth quarter. But going forward, in terms of using it for further share repurchases or potential acquisitions, maybe you could comment on that? And also in terms of the revenue trends -- clearly, the fourth quarter increase year-over-year was very nice. And I don't know what your thoughts are for '05.

In terms the use of cash, one of the things we laid out when we presented our plan to the Board in the fall is that we needed to reinvest the money in our business. There were 3 things we are going to do to do that. 1, we are going to ramp up development, so that will use some cash. But as you know, we throw off more cash seemingly than we can reinvest in new clinics. So we are going to continue to buy back shares. And we are also going to do some acquisitions.

So I think the combination of those things, though, will never be -- I always think we'll be probably an underlevered company, as compared to a lot of other players. We will use more of our cash. And Mitra, what was the second part of --

In terms of the revenue per visit, I think it was 3.6 percent we saw in the fourth quarter. As you look out to '05, in terms of the kind of increases we can expect on that front --?

We haven't given any absolute guidance, Mitra, but we expect to see -- I think historically over the course of the Company's history, the Company got about $1 a year. Obviously, we were able to do much better than that last year. I still think there's some room -- $1.50 to $2.00, maybe -- in our net rate. There's obviously probably a limit to the elasticity on that. I don't think we'll see as much as we saw last year.

But what we have begun to do is we've begun a ranking and graphing all of our facilities by region, looking at the bottom-performing 20 percent. And it is interesting -- the bottom-performing facilities still have a pretty significant gap between the remaining 70 or 80 percent of our clinics. And so we're focused on improving those facilities. Glenn and his team of vice presidents are working very hard on that. They have begun to make some nice improvement. So I think in time, we will see an impact in that as a result of those efforts.

And just a follow-up on that -- in terms of the payer mix, are you seeing any particular shifts in terms of the revenue you're getting?

Yes, if you look over the last 5 years, workers comp has declined. And you see all the things that the states are doing -- it wouldn't surprise me if it declined a little further. Other than that, I'm not -- we're not seeing -- a few years ago, HMO was increasing. That is probably neutral to down now. You are seeing more and more PPO. Other than that, our fluctuations between any 1 category are like 1 or 2 percent a year. It's not like they move around much.

Will Lyons, Westminster Securities.

Good morning. The --

Will, are you there? Operator, I think we lost him.

Derek Dobecki, Ironwood Capital Management.

Larry, could you restate your expectations as it relates to the number of clinics you expect to close this year?

At this point, I can't give you an exact number. But I would guess we will close 1 or 2 a quarter, probably, on average. So that would be, say, 5 to 8, something like that.

Okay. And then as it relates to the acquisition environment -- how would you describe kind of what you are looking for from a type or size? Are you looking to acquire partners, essentially, or practices? What I am trying to get a sense of is whether or not your acquisitions -- these people are going to be more or less assuming the same type of partnership model that you have instilled at all your other clinics.

Yes -- the answer to that is yes. First of all, I'd be amazed if you saw us announce we're buying 20 clinics from somebody or something like that. We're talking about tuck-in acquisitions, 2 to 5 clinics in select markets. We would only buy those clinics if the current PTs or OTs running the clinics are willing to stay. We're not looking to do retirement planning for anybody in the industry. We would make sure that they retained an equity interest, probably anywhere from 20 to 35 percent. And we would structure it as close as we could to our existing partnerships. We want people to have a vested interest such that if they win, we win. And frankly, right now, it is a pretty favorable time to be buying clinics. Especially when you are picking off smaller groups like that, you can buy them at very favorable multiples.

And you expect to -- for currency, use cash?

We will probably use a combination of cash, notes, and stock -- not because we don't have lots of cash, but because the notes and stock bind the sellers tighter to us over an extended period of time.

And then -- this might be more to Chris -- when you look at kind of the business and the financial model going forward, what are some of the key kind of issues, be it expense or other, that you are clearly focused on to drive higher operating margins?

Right. Well, one of the things that we've got to continue to make some improvement on -- we made some improvement last year, we need to make more improvement this year -- our clinical efficiencies, or our productivity efficiencies. We measure that by visits per clinical FTE. That will help to drive the margins. That will help to reduce our cost.

Again, in this particular market, we have seen some vertical pressure in terms of salaries. And we need to be responding to that by improving efficiencies, which we should be able to do. The typical physical therapist in the industry sees 12 or somewhere north of 12 in terms of average daily visits. Our number is less than that. And that is an area that we have got to continue to impact.

Beyond that, we continue to look at the design of our facilities and how we equip those. I think that will have less of an impact in cost, but potentially more of an impact on the type of programs that we are able to deliver which, ultimately, I think, will help to support our net rate. So we are looking to make sure the equipment that we buy gives us the availability to have very extensive exercise and other programs so that we can have better outcomes and we can also support a very high net rate.

Anecdotal on that is we had -- Thursday is typically our partner days, where we have existing partners come in for additional training and meetings. And I was talking to partner this morning, and they had started doing FCEs I think last May, which they had not done before. And they had done like 22 of them. But these are higher-rate -- you can get anywhere from $700 to 13 or $1,400 on an FCE. So it's obviously much higher than our average net rate. But he was telling me, it's not just the FCEs. He's talking about the related businesses they got today. And that clinic is up to something like 40 a day.

Now, again, that's only anecdotal. But expanding your services can enhance your revenue stream.

Okay. So as it relates to operating margins as we look in '05 and '06 -- clearly, you're looking to grow them off of where we're at in '04?

That's correct.

And I know you're not giving formal guidance, but what are some of your longer-term goals as it relates to operating margins?

Well, we have said in the past that if you are looking before corporate costs, the Company historically had operating margins of 30 plus percent. And we think we can get back to that. And we achieved it. And if you look back at last summer, we got back up to that. But we need to do it on an annualized basis. So we were 27 percent in the most recent periods. That's a 3 percent gap. That's something we're looking to close.

Jonathan Moreland, Insider Asset Management.

Actually, all my questions were answered. But if I could trouble you to repeat the payer mix for full year. I think (multiple speakers)

Okay, for the full year, managed care was 28 percent -- I'm sorry, private was 28 percent; managed care was 30.6; workers comp, 16.1; Medicare, 21. And then the other would be -- what was that, 4.4, something like that.

And just a final aside. Is this the first time you guys have used these scorecard?

No, we started the scorecards in January of last year, right after Chris and I got here.

What we've done is we've made a slight modification to the scorecards in a couple of areas. We have raised the bar. And we've put a ranking on each and every measure so that the facility can see where it falls against all the other facilities in the Company.

So the rankings are the new thing?

The rankings are the new thing. The scorecard has been in place for a little more than a year now.

Right. The rankings, I think, should be wake-up calls to some of the underperforming -- good move.

Well, we have a pretty competitive partner group. So we're hope that competition results in some improvement performance, both on the bottom and the top.

Eric Varasta (ph), Pacific Growth.

Just had a couple of quick housekeeping questions. The first one on depreciation and amortization -- it looks like it was a little higher in the quarter. Just wanted to double check my math and see what was behind that.

It would be the lease accounting -- or fixed assets related to leasehold improvements affect --

It was all pushed into the fourth quarter -- the additional amortizations. That might be what it --

Yes, what happened as part of this accounting rule change -- and David, you jump in here if I'm not stating it correctly. But part of that was that you needed to gross up leasehold improvements. And that would increase your depreciation and amortization.

That's correct.

Okay. Is that something we should run rate? Or will that return more --

Well, it would have all gone through for the quarter, so it wouldn't have that effect on an annualized basis -- I mean not on a quarterly basis. That was basically an annual catch-up number.

The real impact is going forward, obviously.

Yes, and we'll have more disclosure about that in the K when we file it week after next. So I can't give you numbers today. Well, I've got them, but I don't have them in front of me. But I think the K will give you more information on that and make it easier to model.

Okay, great. And just another quick question on the top line, on the other revenues line for the full year -- was something netted against the charge there, because I'm just looking at the third quarter results, and it looks like that was about 163,000 year to date at the end of the third quarter in other revenues. And then, for the full year it was about 45,000?

What we did there was we had -- our interest income was reported in that line. And it more appropriately belonged down below against the interest expense. So we have moved it -- up above and moved it down below against interest expense.

Just net it.

Yes, netted against your interest expense now, whereas before it was reported up in the revenue section.

You also had -- it is not in the other income line, but you had a gain on the sale of those clinics during the summer (multiple speakers) separate line.

Jason Crawshaw (ph), Bright Specialized Funds (ph).

Just a couple of quick questions here. The first would be on the clinics that you have closed in the past, and the ones you sort of forecast to close for '05, are those primarily bad locations or are they bad therapists? If they are just bad locations, do you relocate those to another area if the therapist is good? What would the general mix look like there?

Yes, the mix of the clinics that we closed -- oftentimes, those were facilities in small markets where, for one reason or another, we had lost a partner even due to a life circumstance or due to underperformance or some thing, and the facility continued to languish. We will have a certain percentage of facilities that as we open, we feel like we have an opportunity with. And occasionally will have a couple of those not perform over time, or the market dynamic will change. And we tend to be very patient with those. And oftentimes, we're able to turn those around, which may involve changing out a partner -- although again, we like to give people a good opportunity to be successful. And that's been our pattern, and will continue to be.

I think in the earlier days of the Company, the Company was much more resistant to close facilities. Livingston, when he came back, encouraged us to go ahead and kind of wipe the slate as clean as we could get it. We still have some facilities that aren't performing to expectations that are really on a very tight watchlist. Some of those we think we can fix. Others may result in a future closure. It's kind of a mix of things.

Next question would be -- clearly, you have certainly refocused the use of cash to the share buyback program. And obviously, you were very active in Q4. I believe there's -- I've got 400,000 left on that program. I'm not sure what the pace will be going forward, but if it continues to be a focus, I imagine you'll have to increase the authorization at some point. Is that a fair assessment?

Well, we did that in December, actually. We had an existing program and went back in December to get an additional authorization. So we are not hesitant to go ask for more. I don't know that we will at this point. We still have a pretty good amount of room. That's something that we'll look at all the time.

And then just lastly, I know you are not providing guidance, but as we've discussed, 2004 was really a transition year. If we look into 2005, is it a fair assessment or assumption to assume that bottom-line earnings will grow faster than revenues? Or would we have a period of greater investment in '05, as well?

No, I would expect the bottom-line percentage-wise to grow faster than the top line. If we are getting any efficiencies or doing any of the things we're talking about, that's what would happen under any model.

Mike Petusky, Thompson Davis.

Do you guys have cancellation of appointment statistics for either the quarter or the year?

We've got them. We're looking for them.

And then I guess when you find those, if you could talk about where they are now versus what a good goal might be over the next year or 2 --

Sure. Let me tell you where we ended up the year --

Is that just for the month?

That's for the month.

That is a high cancellation month.

Yes -- what we did, Mike, when we got here, we were running in the low teens in terms of cancellation rate. For the majority of the time -- let me get it here; I've got it graphed. And then I'm going to let Glenn talk about what we're doing to improve on that.

We got cancellation rate down substantially under 10 percent for the majority of the year. And then as typical, we saw a little bit of an increase in December around the holidays. And that continued really modestly into January, just with the weather and some other things. But Glenn, do you talk about some the things we're focused on?

Sure, Mike. Basically, we're looking at a number things we can do in the clinic. Some of this is looking at scheduling patterns where we see higher cancellations take place and making changes in how we do things to make sure we can impact that from that standpoint. Another piece of it is really looking at the training we do with our business office personnel and how they manage people from a customer service standpoint to make sure that we continue to control that piece of it. But we think that there's a number of things we can do internally that will continue to drive that down to that 10 percent goal or below.

Well, let me ask you this. Unlike where essentially the net patient revenue per visit is basically the same in the mature clinics and the newer clinics, is it fair to say that the cancellation rate would be quite a bit higher in new clinics, where maybe your office manager is new to the job, etc.?

Not typically. We don't normally see a higher cancellation rate in new clinics. Typically, we see it more related to weather, illness, those kinds of things. Most of the time, when we start a clinic up, we do a very thorough training with our business office manager and with our partners on how to control that piece. So where we see cancellation go up and down it tends to be more of a cyclic thing based upon different patterns than it does just because of a new clinic opening up.

Yes, if anything, we're spending more time and money now to train both the business office managers and to work with the partners early on, which is actually a short-term cost for us. But we think long-term, things like cancellation rate, it will benefit.

So for the year, you finished just under 10 percent -- is that about right?

I don't have the year totaled. I have that (multiple speakers) on a month to month basis.

We are looking at a graph that shows month to month.

Yes, we are probably -- I would say 9.8 to 10, where we had been running probably 11 or 12 before.

And actually, the target that we have in the scorecards is a couple points below that.

Yes, the target is 8. And we have facilities that run at that level or below. Where we get hurt is, for instance, this past week in the Northeast, we got hit really pretty hard with the weather from North Carolina all the way up through Maine. And as a result, we had some facilities closed and other things. And our cancellation rate -- and there isn't anything we can do about that -- our cancellation rate will go up during this week, and will impact the month. So those are kind of some things. We can't control the weather. But we can control what happens afterward to get those patients back and on the schedule.

And one other question -- you guys talked about acquisitions. But what about potential complementary businesses? Are there any complementary businesses out there right now that look attractive? Or is kind of being the pure play in outpatient rehab -- is there still enough to do there, and is it still advantageous for you guys to be in that position?

Larry and I -- we've talked about this a little bit. Back in the early fall, the Board had asked us to put together a 5-year plan. And in that plan, they ask us to evaluate the potential opportunities that might exist for complementary businesses -- things like ambulatory surgery centers, orthotics and prosthetic facilities, and other things. When we looked at that, we looked at the use of cash. We looked at the predictability. And what we came to the overwhelming conclusion was that we are going to stay with what we do very well, which is to continue to focus on physical and occupational therapy facilities; to accelerate our openings; to repurchase our shares, as Larry has discussed; and to do some tuck-in acquisitions.

So to answer your question, we think that the industry still is very unconsolidated. And we think there's still a lot of opportunity out there for us just staying with what we do very well right now.

(OPERATOR INSTRUCTIONS). Patrick Flavin, Flavin Blake & Co.

I have 2 financial questions please. The first is on your receivables. With higher receivables, you've got a lower doubtful account allowance. Can you discuss that? And then secondly, in terms of free cash usage, given your model and given the free cash that you do throw off on your fine balance sheet, do you have an aversion to dividend payments?

As relates to doubtful accounts, part of that is kind of an attitude change on how you treat them. When I got here, we had a very large doubtful accounts allowance, but we never wrote anything off. So it looked good in terms of in theory having some kind of cushion.

Well, it didn't make a lot of sense. If you look over the last year, we have been much more aggressive about writing stuff off and not diluting ourselves and just leaving it on the balance sheet in perpetuity. So that's a reason it is lower as a percentage of total receivables.

In terms of the amount we expense, or additional reserves we took in the fourth quarter, I think it ran about 1 percent of revenues, which is what I would expect it to do. And in fact, let me just -- yes, it was 0.9 percent, or just under 1 percent in fourth quarter '04. And in the fourth quarter '03, it was 0.85. So it was pretty consistent between the 2 periods.

In terms of a dividend -- dividend is something else that we also considered and did some analysis and talked to the Board about. Rightly or wrongly, I think a lot of companies when they start paying dividends, if they are substantive, it's perceived that they may be a mature company. I don't think there's anything wrong with dividends, but we believe we can get a higher return rate by continuing to develop new clinics, back buying back our shares, in effect (ph) reinvesting in the business and doing some acquisitions. And we might pay a dividend at some point in the future, but we don't have any immediate plans to.

Will Lyons, Westminster Securities.

You may have covered this already, but let me ask anyway. You mentioned there was a 3.6 percent increase in net patient revenue per visit. Why that increase? Is that just a pass-along of additional costs? Or is there some additional margin in there, as well?

No, it's not -- you don't get to pass anything along in this business. (laughter)

No, I understand that. But you raise your (multiple speakers) -- you raise your prices because you costs go up. Anybody does that. That's my question.

(multiple speakers) Well, no, we are not in a cost-based reimbursement system anymore. Really, where that comes in, Will, is training at the clinical level, enhanced clinical programs, as Larry mentioned earlier, things like FCE programs, making sure that we have appropriate scheduling in the facilities so that we have adequate time to spend with our patient -- and to be honest, renegotiation or negotiation of payer contracts.

When we first got here, we really had a little bit of a pass/fail mentality on payer contracts. If it met a threshold, we signed the contract. If it didn't meet the threshold, we kicked it back. Now we have a group that actively looks to renegotiate our existing contracts and to always negotiate any contracts that we are presented with. And those combination of factors has resulted in a net per visit increase.

Excellent. On the drop in average daily visits per clinics -- why did that happen?

Actually if you look back to 2002 and 2003, average daily business had declined from about the 22 level, if I remember right, down to 18 or so. But that appears to have plateaued. 4 out of last 5 quarters, we have averaged 18.7 visit per quarter. So that's actually good news.

Thanks very much. Sounds like 2005 is going to be a nice year for you.

Sir, at this time, I'm showing no further questions.

Okay. I just want to thank everyone for taking the time to call in today. We appreciate your time. And again, thank you for your continued support.

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