US Physical Therapy Inc (USPH) 2005 Q3 法說會逐字稿

Good morning ladies and gentlemen and welcome to the U.S. Physical Therapy Third Quarter 2005 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. [OPERATOR INSTRUCTIONS].

It is now my pleasure to introduce your host, Mr. Chris Reading. Sir, you may begin your conference.

Good morning everyone, this is Chris Reading speaking. Thank you for joining us this morning as we discuss the third quarter 2005 earnings results. With me today are Larry McAfee, EVP and CFO; Glenn McDowell, COO; David Richardson, VP and Controller. Before Larry begins, I would like to ask David to read a brief statement.

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.

This is Larry McAfee. U.S. Physical's net earnings for the third quarter of 2005 were 2.4 million or $0.20 per diluted share as compared to $0.08 in EPS reported for the third quarter 2004 or $0.14 for last year's third quarter as suggested for one-time items. The $0.20 we earned for the third quarter exceeded the analysts' consensus estimate of $0.18. For the nine-months ended September 30, net earnings were 7.2 million or $0.59 per share. We reported $0.40 for the comparable period last year and had adjusted EPS for that period of $0.48.

I would like to speak for a moment about the third quarter year-over-year comparisons. Net revenue rose 15% to over 34 million from 29.6 million due to a solid 14% increase in patient visits and an increase of $0.58 in net patient revenue per visit. There was improvement in both clinic operating costs and corporate costs as measured as a percentage of revenue. And net income for the quarter increased 125%, that's compared to the reported figure for last year or 31% versus the adjusted number. Same-store visits and the net rate per visit improved resulting in same-store revenue increase of 3.7%.

For the nine-months ended September compared to the same period in 2004, net revenue rose 11% to 98.6 million due to 11% increase in patient visits to over 1 million patient visits, coupled with an increase of $0.38 and net patient revenue per visit. Clinic operating costs for the two periods were comparable. The corporate costs were reduced to 12.4% of revenue versus 14.4 in the prior year. Net income as reported increased 47% to 7.2 million from 4.9 million or by 21% as adjusted. Same-store visits and net rate per visits both grew resulting in the same-store revenue increase for the nine-months to 4.7%.

We estimate that the Hurricanes, Katrina and Rita, cost us approximately 2000 visits with 200,000 in lost revenue for the quarter. We closed the quarter with 18.5 million in cash and investments or approximately $1.51 in net cash per share. We continued the purchase of company's common stock and open market transactions under our share repurchase program. Year-to-date, we have acquired over 487,000 shares, prices ranging from $13.58 to $18.45 for an average price of $16.30. Since the buyback program was initiated in September last year, we have now acquired some 860,000 shares or approximately 7% of the Company's previously outstanding total.

Thanks Larry.

I want to start off today by thanking our entire team for their efforts and more importantly for the results they delivered this quarter. Comparatively, revenues rose at a greater rate than any prior quarter this year, up 15.3% on strong visits increase and a modest improvement in net rate. Same-store visits and revenue came in at an improvement of 2.8 to 3.7% respectively, despite the challenges we continue to face with some of the extreme weather we've had this Hurricane season.

I believe that our success in volume, revenue, and profit growth is a result of the combined effort on behalf of our partners to grow their business and move market share and also due to the addition of some very strong new facilities, which have contributed nicely early on. Openings totaled 21 so far which is a little behind where we would have liked to be this year. However, a pipeline of new openings looks very strong right now and according to people that we've been signing up, it's outstanding. Our partner recruiters, several of whom started six to nine months ago, have really come on strong here these past few months. They are finding some great people for us and I am encouraged with how things are looking right now in that department.

With respect to our pipeline, we see that continuing to strengthen and we expect that that will occur as the year finishes, which will give us a strong position as we start 2006. As we continue with our operations plan to grow the Company, you will continue to find us delivering on all aspects of our previously announced plan including acquisitions, share repurchase, management agreement, as well as continued focus on operational improvement.

To further address the operational side of things, let me turn over to Glenn McDowell, our COO.

Thanks Chris.

We have continued with the strategic growth of our sales force in key geographic markets. Their focus continues to be strengthening relationships with current referral sources and in uncovering and developing new referral sources. We now have 19 sales reps covering 107 locations nationally. We have six markets where we've had a sales rep for six months or greater. In those markets, we have seen an average increase in new patient referral to 14%, leading to an 18% increase in visits and a 13% in clinic net income. While there are certainly other operational factors impacting these numbers, we believe our sales force played an important role in expanding our referral base. We continue to look at additional markets where the use of a sales rep will have a positive impact on our referral relationships in core business.

We continue to work with our partners on making positive changes to our internal operational communicators. We believe this continues to drive the efficiency we look for in clinical productivity, visit capture, and net revenue production.

Thanks Glenn.

With that, I think we will open up for some questions. Operator?

[OPERATOR INSTRUCTIONS] Mike Petusky, Thompson David and Co.

Did you guys give a break-out on your revenues, (indiscernible) mix?

No, I can do that. Private was about 27.8%, managed care 31.1, workers comp 14.8, Medicare 22.5, and other 3.8. Speaking of Medicare, the outpatient reimbursement rate under Medicare for 2006 has been posted and it should result in approximately a $1 or 1.2% reduction in our reimbursement rate. As many of you know, the Medicare reimbursement rates for outpatient physical therapy typically go up or down by about $1 each year at least for the last few years, and that's the case for 2006. Likewise, they are scheduled to be 1,750 cap in place on outpatient rehab and that's scheduled beyond January 1 after several of moratorium. But the recent bill that came out of the Senate Finance Committee, I guess it was last week, proposes to extend that moratorium on the cap for another year. So, we will just have to wait and see what's going to happen with that.

So, 1,750 now is the number, that's up from, what was it 1,600 or something like that?

Originally like 1,500. And again, we don't own up the cap, we can be there or not. I think it's good news for us that the bill that came out of the finance committee proposes to extend the moratorium again.

If they don't extend it, 1,750, I mean, what percentage of your patients would actually be affected by that?

Well, the direct impact would be less than 2% of our business. We ran an analysis. It's 20 or more times based on our average Medicare reimbursement rate. There might be a bigger effect in that, that's from the standpoint, that in theory I guess, a person under Medicare could want to in effect save some of that cap later in the year if they were going for treatment or really (indiscernible) what happens with the cash.

Have you guys, and I apologize, I could have gone in and looked at it myself, but FAS 123, what's the effect that will have on you guys for '06?

You are talking about expensing of stock options?

Yep.

In our Q and our K, we have numbers used in the (indiscernible) model, but we have actually hired a third-party consultant who works with us and then also will be in discussions with our external auditors in terms of what method we are going to use to account for expensing of options. I can't give you a figure now, but we should have one before the end of the year that we will make available to people.

And last question, I think on the last call you had said that eventually you hoped, as many as half of your facilities would be covered by sales reps. Is that still a reasonable expectation or has that changed at all?

We continue to look at markets. We are going to continue to add sales reps, but we are doing it on a market-by-market basis. There's some time factors into finding the right person that we are bringing on board, but we expect to continue to grow and we do feel that at some point, close to half of the Company will be covered by sales reps.

I think the figure you used today, was 100 --

We have 107 locations at this point in time.

107 covers and we have 285 locations now. Half of that would be 142. We are getting there.

I think the thing that - we are trying to make sure that we do -- I mean, we've got a spreadsheet of all of these groups in terms of how long the sales and marketing person has been there. We are looking at every thing from visits to new patients and also clinic income. And we are trying to make sure that we continue to have the right mix of the number of facilities covered, the right kind of people, the right partner interaction with these folks. So far, the numbers are pretty encouraging. But we continue to watch it closely and we continue to expand markets where we feel like we can get a good impact.

Mitra Ramgopal, Sidoti & Co.

How many shares you have left remaining under the repurchase?

What was it David, you remember? 620,000.

And given the cash bills you have right now, obviously you might continue to repurchase, but if you could touch a little on the acquisition strategy going forward?

I don't think we have 600,000 left.

Yes, we do. We have 620,000 left.

In terms of the acquisition strategy and the use of cash, we are doing a number of things to get the physical therapy community back to the notion of us doing acquisitions. So, we are doing some direct mailing to the private practice community. We continue to be more active than we ever have been in state meetings, from the physical therapy association side of things, and we continue to network with brokers and we continue to call directly into those target markets where we would like to be, where the rate is beneficial and where we have private practices. So, although we didn't complete one this quarter, you will continue to see us work that plan.

Year-to-date, we use $5 million for acquisition, as we step up that program, we will use more and more cash. You will see a little note in the Q, we actually entered into a $5 million credit facility also this quarter, not that we need the cash, obviously we don't but we want to have, still be in place where we will have access to capital as we continue to grow. So, I think you will see us use a substantial, if not all of that cash balance, which frankly I think would be a benefit to our shareholders, the fact that we don't have any leverage. It's probably not the right thing from a financial structuring standpoint to the Company.

Could you give us an update in terms of the management contract revenue? I think it's slightly down versus the year ago.

It was down -- for the nine months, I think it was actually up.

For the quarter, it was up 32% on a Q3 comparative quarter.

Remember, last year we had a pretty good-sized contract business in Mississippi we sold. So, that kind of skews the nine-month numbers.

I guess, if we have to look at just a quarter, is there about a penny in there that really should be, probably non-recurring?

There were a couple of things that happened in the quarter. This is not an excuse. We had an excellent quarter. Two things happened, the Hurricanes cost us about 200,000 in revenue. I think we had like 60,000 or 65,000 business interruption insurance offsetting that, but that still means that net, it cost us probably at least a penny a share in lost earnings on the Hurricane. And then we wrote-off the goodwill associated with clinic that we bought years ago. David, what was that charge?

140,000.

I mean, we are going to close clinics from time to time. We will have write-down in assets that are not, so I guess you could call it non-recurring. I think the thing that I like -- we are able to produce these kinds of earnings even when we have those types of expenses.

Probably a $0.21 quarter then, which is pretty strong. Okay, thanks.

[OPERATOR INSTRUCTIONS] Balaji Gandhi, Pacific Growth Equities.

I just had a question about, just trying to think about volume trends in the fourth quarter with all of your, just recruitment and development. Just going back a couple of years, it looks like, I mean, last year we had the Hurricane, but it looks like, I mean with the seasonality in the business, you get a little bit of a pick-up maybe in the fourth quarter. Is that?

Are you talking about new clinic openings now?

I am trying to strip that out. I am just thinking about your, kind of your organic growth which is, you would have some kind of --

The fourth quarter, it's because of the holidays, that's normally our slowest quarter.

Right. And I have heard you say that in the past, but it's like, if I look back, it looks like -- I mean, was that the last year because the Hurricanes negatively --

What happened last year, well, two years ago I guess it was when the holiday or the Christmas fell on the new week -- New Year, and that kills us. This year, when is Christmas?

Christmas is on Sunday I think, it's on the weekend. So, it's well placed as we could expect it to be.

But there's no question. You get some -- compared to other quarters in the year, there's seasonal slowdown and the week of Thanksgiving is not a good week for us either. So, I don't think the holiday effect will be as severe as it was two years ago. Fourth quarter last year as compared to the fourth quarter of the year before probably looked pretty good. You are not going to have, I think that kind of impact based on the timing of the holidays this year.

With the holidays, is it really just those days or is it kind of something that, you know, that whole period?

I think -- I mean, you have the placement for Christmas and New Year and then you have the fact that people are just wrapped up and busy.

Or traveling.

There's not a lot of elective surgery that people are looking to get, you know, the second, third week of December.

Doctors take vacations, which means you don't get the same referrals.

Any changes you are seeing on benefit design or you expect maybe come January, co-paid, deductibles, that kind of stuff?

Not a lot of activity right now. Not at all. I mean, Larry mentioned the Medicare - potential Medicare impact, but on the managed care side, I think it's pretty steady.

Great. Thanks.

Thank you. There appears to be no further questions at this time. I will turn the floor back over to you for any further or closing remarks.

Thank you everybody. I appreciate you taking the time to get on the call with us today. We look forward to talking to you at another time. Take care. Bye bye.

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