US Physical Therapy Inc (USPH) 2006 Q4 法說會逐字稿

Good afternoon. My name is Elsa and I will be your conference operator today. At this time, I would like to welcome everyone to the U.S. Physical Therapy fourth-quarter 2006 earnings conference call. (OPERATOR INSTRUCTIONS). Thank you.

It is now my pleasure to turn the floor over to your host, Mr. Chris Reading, Chief Executive Officer. Sir, you may begin your conference.

Good afternoon everyone. Thank you for joining us as we discuss our fourth-quarter and year-end 2006 earnings results. With me here in Houston are Larry McAfee, our Executive Vice President and Chief Financial Officer, Glenn McDowell, our Chief Operating Officer, [John Bates], our Vice President and Controller.

Before we begin to discuss our earnings results, let me as John to go ahead and read a brief statement.

Yes. This presentation contains forward-looking statements which involve certain risks and uncertainties. These forward-looking statements are based on the Company's current views and assumptions in the current -- excuse me, 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.

Larry?

Yes, I'll review results of operation and summary for the year and in more detail for the quarter. U.S. Physical Therapy's earnings from continuing operations were 2.1 million, or 18% -- $0.18 per share in the fourth quarter and 8.2 million or $0.70 per share for the year 2006. Those earnings, including discontinued ops, were 2.1 million or $0.18 for the quarter and 6.3 million or $0.54 for the year.

I will now review the recent quarter in more detail. In the fourth quarter, net revenue from continuing operations increased to 33.9 million from 32.3 million due to a 5.7% increase in patient visits and a $0.19 increase in average net revenue per visit.

Gross margin for both the fourth quarters of 2005 and 2006 were 26%. This figure is after reclassification of all minority partner distributions to the minority interest expense line. You will recall that with the issuance of the accounting rule EITF 23 in 2001, the Company began reporting minority interest for new clinics in salary and related costs, but continue to report minority partner distributions for old partnerships in minority interest expense. The reporting of life expense on two different lines in the income statement seemed illogical. In February, we approached our auditors and the SEC about doing a reclassification with all-minority partners distribution to be reported minority interest expense. We've made this change in the current and prior periods. This change did not affect the net income. For additional information pertaining to the reclassification, please see Pages 43 and 44 in the Company's 2006 10-K, which was filed Friday.

Moving on, corporate office costs were reduced to 4.1 million in the fourth quarter 2006, or 12.1% of net revenue, versus 4.2 million or 12.9% of revenue in the fourth quarter of 2005. The 2006 quarter figure includes 301,000 of equity come expense. There was no equity comp expense recorded in the year-earlier quarter, as the Company adopted SFAS 123R beginning in 2006. If you exclude the equity comp expense, which is a non-cash charge, the corporate cost reduction was 348,000 or 8.4% fourth quarter to fourth quarter.

Net income from continuing operations increased to 2.1 million in the recent quarter from 1.8 million a year earlier. Earnings from continuing operations per diluted share of $0.18 compares to $0.15 a year earlier. The analysts consensus estimate for the fourth quarter was $0.15, and the range was $0.14 to $0.16. So our actual results substantially exceeded the top of the range.

During the fourth quarter of 2006, U.S. Physical Therapy opened three clinics, acquired eight and sold one for a net addition of ten clinics, bringing our total number of clinics at year end to 292. Also in the fourth quarter, the Company acquired 100,000 shares of its common stock through an open market purchase (indiscernible) [11.70] per share. This essentially completes a share repurchase authorization. Since the inception of the share repurchase program, the Company has now acquired 1.268 million shares or approximately 10% of the previously outstanding total shares.

Chris?

Thanks, Larry. 2006 was a challenging year for us as well as much of the outpatient rehab industry. Many the largest companies in the sector saw revenue and profit declines precipitated by a variety of things, including physician competition, Medicare rule and reimbursement changes, and rising labor costs. We faced those very same challenges.

What I'd like to do is just cover some of the main things that we did this year to address those challenges, much of the things we accomplished that contribute to a strong fourth quarter. I guess in the third quarter this year, we trimmed a number of unprofitable centers in small markets where we felt like there wasn't going to be continued opportunity for prolonged term probability. We downsized our corporate staff while maintaining a strict eye on our service and response times as well as our ability to continue to develop and grow our company. We fought our way through the Medicare rule changes that created some earlier difficulty in terms of patient durations. To the hard work of our partners and their staff as well as our operations team, we were able to get those -- that key statistic back to near the pre-cap levels by year end, which was a substantial improvement from where we began the year.

In an effort to better align our clinicians, we implemented a new clinical bonus program as well as a productivity tracking system. Our clinicians and our partners have responded and continue to respond. For Q1 of 2006, with many of the Medicare challenges, we saw our productivity rate fall to approximately 9.6 visits per clinician. With focused effort in solving but the scheduling issues surrounding the cap, as well as with our new incentive system, we saw efficiencies rises sequentially each quarter in 2006. By the fourth quarter, we averaged 10.7 visits per licensed clinician. In the year end, we had for the first time ever two out of the three regions across the 11 visit threshold for several pay periods. I believe we can continue to make progress in this key area.

In 2006, as Larry mentioned, we added 30 new locations while making some mid-course adjustments and trimming deals that we believed would be too risky in the current environment. We opened a record number of new partner facilities in 2006 at 20. In the fourth quarter, we added eight locations in a terrific new market with a great partner through acquisition. In fact, since that deal closed, we've already opened one new facility and we're actively pursuing additional expansion in that market.

In 2006, we posted same-store volume growth of 3.6% and same-store revenue growth of 3.9% in a year when the market was very challenged. Our cash collections increased, our AR days were reduced, and our corporate overhead, excluding equity comp expense to allow for similar year-over-year comparison, improved markedly.

In the fourth quarter, we were able to stabilize clinic operating costs while seeing some improvement in our net rate per visit compared with 2005. As a result, of all of these -- as a result of all these things, we produced solid earnings growth. We were able to finish the year in strong fashion, as Larry outlined earlier.

As we look forward, we have a number of key areas we will focus on for the coming period. These will include focusing on our same-store growth. To more effectively fuel the competitive landscape we're expanding our sales force, revamping our sales, as well as our partner training, and rolling out a number of new programs across our partnerships throughout the country. Beginning this first quarter of 2007, we (indiscernible) several large training sessions bringing in our biggest partnerships to reinvigorate this growth, introduced train or roll out new products programs to as well as to give our partners new tools and strategies with which to expand their market share and run their businesses more efficiently and effectively.

Another area of focus is our cash-based program of development. We must get better at developing products and services which will be accessed by the general public as well as our patients in a cash base fashion. This is traditionally not something that therapists are especially good at, but we believe that we must get better at delivering cash-based services in order to better control our destiny going forward.

Finally, we have to continue to grow our base through the efficient and effective start-up of new facilities, as well as to lever our clean balance sheet by doing acquisitions with rehab companies and providers who continue to believe in this industry as much as we do.

With that, operator, I will ask you to open up the line for questions.

Thank you. The floor is now open for questions. (OPERATOR INSTRUCTIONS). Bill McKeever, Merrill Lynch.

I have a big picture question, and that is that the docs were taking course therapy in-house. Have you seen any change in that trend as you exited '06, and now in the early part of 2007? Is that trend -- has it worked its way through, or is it still continuing to weigh on you guys in the industry?

Bill, I don't have any good statistical data for you, because there's really not anything out there I don't think. But I will tell you that I don't think the trend has changed or reversed itself at all. We continue to feel it. I think we are engaged with a variety of the biggest companies in the country, like us, to dialogue on how to effectively deal with this. I think we've taken the position that is here and we need to quit fussing about it and we need to go out and move the market share that otherwise is movable. I haven't seen any big changes, though, in the last quarter. I think maybe our (indiscernible), our ability to deal with it maybe is a little bit better, but I think the environment is pretty static right now in that regard.

From a legislative standpoint, is there anything in Washington or anything building up at state levels that would address the docs getting into this business, which some might argue is beyond what they should be doing? Anything in Congress that they might be taking a look at?

No. We're current with our legislations out there right now. There isn't anything proposed at this time. I think there is some sentiment that we would like to see CMS beginning to differentiate site of service as part of some of the data they collect on the Medicare patients, which I think would be beneficial to us and to the industry. But that hasn't occurred yet.

Then last question, I'll let somebody else ask a question. You talked about new programs. Can you get me some examples, or is that proprietary?

It's something I would rather stay away from to a great extent. We're doing a number of things. We're trying to use our facilities more efficiently; we're doing some after care programs, some sports conditioning, bringing in massage therapy, Pilates. There's some other programs that I think we're on the front edge of that I would rather not talk about as much, we're beginning to get some traction with, but just a variety of different things. Many of our partners come to us with one particular niche, a hand niche or a sports niche. We're trying to actively and aggressively expand their horizon a little bit by bringing in additional talent, by providing some additional training, and trying to expand their base a bit.

Okay. Do you have an idea of your same-store growth in '07?

We haven't put any numbers out, and don't intend to right now.

We do really give forecasts on visits or revenues.

Okay. Thanks very much, guys.

(OPERATOR INSTRUCTIONS). There appear to be no further questions. I'll turn the floor back over to you.

Okay, quick call. Listen, thank you for taking the time to join us today for the call. If you have any additional questions, Larry or I or Glenn are available, so just give us a shout. Have a great day.

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