US Physical Therapy Inc (USPH) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Natasha and I will be your conference operator today. At this time I would like to welcome everyone to the U.S. Physical Therapy First Quarter 2007 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). Thank you.

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

Thanks, Natasha. Good morning everyone, thank you for joining us as we discuss our first quarter 2007 earnings results. With me here in Houston are Larry McAfee, our Executive Vice President and Chief Financial Officer; Glenn McDowell, our Chief Operating Officer; Jon Bates, our Vice President and Controller.

Before we begin I would like to ask Jon to read a brief statement.

Thanks, Chris. 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 and that 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, Jon. Larry, please go ahead and review our results for the quarter.

Okay, thank you. U.S. Physical Therapy's net earnings were $1.8 million or $0.16 per share in the first quarter of 2007, as compared to $1.5 million or $0.12 per share in the first quarter of 2006. For the quarter net revenue from continuing operations increased to $34.6 million due to a 6% increase in patient visits, which was partially offset by a decrease in average net patient revenue per visit of 1.7%.

Effective January 1, the reimbursement rate by Medicare for outpatient rehab was cut by approximately 6% and Medicare comprised 19% of the Company's gross charges in this year's first quarter.

Clinic salaries and related costs as a percentage of net revenue were 52% for the recent quarter as well as the year earlier period. As the result of productivity improvement the average clinic salary and benefit cost per visit was reduced from $51.04 to $49.90. Corporate office costs were reduced to $4.4 million in the first quarter of '07, or 12.6% of net revenue, versus $4.5 million, or 13.5% of revenue in the first quarter of '06.

Net income from continuing operations increased by 8.1% to $1.8 million. Net income, after discontinued ops, increased by 23% to $1.8 million from $1.5 million. Earnings per share rose to $0.16 from $0.12. The analyst consensus estimate for the quarter was $0.15.

Same-store revenues for clinics open or acquired for one year or more decreased by 3.1% as visits declined by less than 1% and the average net rate per visit decreased by about 2.2%. The slight visits decline was attributable to the downtrend in Michigan as the rest of the Company's operations achieved an increase in same-store visits.

The Company ended the quarter with $14.6 million in cash and investments, net of $1.2 million of acquired clinic seller notes, the adjusted net cash balance was $13.4 million or $1.16 per share. The $13.4 million cash balance is an increase of $3.3 million or 32% as compared to year end in 2006.

Thanks, Larry. I think the key takeaway from these past couple of quarters is that U.S. Physical Therapy is making progress in many areas which has been a challenge for 2006 not only for us but for the industry.

Clinical productivity which for our company has been in the more conservative side historically has increased about 10% over the past year. Salary cost per visit has come down from approximately $51.04 in 2006 to under $50 to $49.90 in 2007. This is a result of a lot of effort focus and plain old hard work on the part of our partners and our operations team. I think it also underscores a better understanding and realization in the environment that we are in and the part of our partners. Change while difficult can be necessary I think our people understand that creating these efficiencies is necessary to offset some of the cost pressures we've been seeing and we'll continue to see in the marketplace.

Additionally, we've worked to eliminate some of the cost here at the corporate office in Houston, our people have done a good job in negotiating rates, creating relationships with vendors in many different areas in company which have helped us realize savings.

Revenues grew this quarter although were dampened slightly by weather which cost us about 3,000 business and also by some aggregate decline in Michigan which is at least partly attributable to the state of the economy up there. We continue to work to offset these challenges through a variety of different measures including; and we've talked about this a number of times, continuing to increase our sales team.

Currently we are up to approximately 36 sales reps covering about 175 locations with several open positions left to fill. We continue to experience greater same-stores sales where we've had sales reps for at least six-months on the ground experience compared to an uncovered facility. We expect to have approximately two-thirds of our total facilities covered in the very near future.

Additional areas of focus have been in overhauling our partner training programs carried out here in Houston with a very strong bend toward aggregating larger groups and combining experienced partners with new partners and new partnerships to create meaningful exchange, networking opportunities and possibly some additional perspective while reinforcing our initiatives from Houston. Coupled with this training, which has been multi-faceted has been a strong element of new program and product development. This has enabled us to add a variety of different service lines across a greater number of facilities more consistently with the more robust toolkit for the partners at greater speed than we have done previously.

Also recently, we have initiated a creative partnership of sorts with the physician practice management and consulting group on an osteoarthritis program that we expect to bring to our non-surgical doctors in an effort to strengthen our relationships with these physicians, drive additional business to our partner facilities and enhance our outcomes for osteoarthritis patients.

Finally, on the development side, although we didn't announce any deals in Q1, we have been very active in looking at private practices and creating relationships that over time will lead to an increased number of facilities done in partnership coming by way of M&A activity. We think we have a lot to offer these small, medium and regional companies in terms of capital structure, development support and resources to assist in growth and scalability. We remain selective and active in our de novo side of development with three new openings this quarter. We expect to be backend loaded this year, however, and we expect to do slightly less in terms of de novo openings than we saw in 2006.

Finally, with respect to the overall market we have seen some easing in terms of therapists' availability overall. This is evidenced by nearly 40% drop in contract labor costs for therapist, in Q1 '07 versus prior year. We expect the market to remain competitive but given our orthosports patient population preferred by many therapists, our excellent patient/therapists ratios, our incentives and our overall work environment, we expect to remain very competitive and to make continued strides toward improving our overall labor situation.

In closing let me say that I am proud of our team in the field with our partners and our directors as well as the team here with me in Huston. We've worked through a number of challenges facing our industry, and I believe we will continue to make progress on these fronts as we work to create not only a great care environment for our patients and their families, but a terrific business opportunity for our partners as well.

Thank you for your support as we work hard to execute our strategy for the coming period. Operator, we'd like to open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS). Your first question comes from Patrick Grant.

Yes sir, I had a question about seasonal opportunities. Do you expect the increase in number of clients or customers due to sports injuries over the summer months or is that greater over the winter months?

Yeah, what we see, Patrick, we saw a pretty consistent seasonal pattern. The early part of the year particularly in January and February we see that time of the year to be little bit slower. We tend to get busiest in the spring and in the fall. In the spring with people becoming active as the weather improves; in the fall with fall sports, particularly contact sports like football and other things. We tend to lighten also a little bit in the summer as doctors take vacation and then December depending upon how the holidays fall is always kind of a roll of the dice. So spring and fall tend to be busiest; summer tends to be steady but a little bit lighter and then we kind of round out January and February falling around the holidays and with some weather issues. Does that help?

Yes. That was perfect, thank you.

Okay.

Thank you. Your next question comes from Mitra Ramqopal of Sidoti.

Hey Mitra.

Yes, hi good morning guys. Just couple of questions, first I believe you mentioned the same-store visits declined largely due to Michigan. I don't know if you can give a sense if you had to sort of back that out. What it would haven been?

We would have an increase, if it weren't for Michigan. Michigan has same-store decline. So it would have been up (multiple speakers) with a couple of percent.

Two percent.

Okay. And with regards to the sales force expansion, I think you are up to 36 sales reps right now and the plan I guess is to add some more. Is there sort of an optimum level where you feel you have enough of a sales force?

Yes, I think we are getting closer, Mitra, and I think we will continue to add sales people. I mean and in this market which is a competitive market where the orthopedic guys have taken business in-house. It's important for us to touch a greater number of doctors. I think we are at the point where we are adding more part-time sales people now. Probably, we will continue to do that. We continue to aggregate facilities where we can.

Where we are probably not going to need sales people at least initially are in those new facilities that are going through a normal ramp-up phase, where the partner has available time to go out and market sufficiently. So, Glenn, any other perspective on that?

No, I believe Chris is correct. I mean, we will probably grow a little bit more. But based upon density and geographic location, we'll add a few more reps but I think we're getting close to where we will be from a sales standpoint.

And of course, as we add facilities, as we add and continue with our M&A activity and those kind of things, we will add sales force as we grow. But I think we are getting to the point where we're covering the facilities that we feel like we need to cover in the current period.

Okay. And I'm just touching on the M&A activities. It seems like you are leaning more in '07 towards doing maybe small tuck-ins. I don't know if you can give us a sense in terms of what was the pricing, if it's more favorable for you now versus what it was say a year ago?

I don't know if I'd describe them as tuck-ins. We are looking at multi-clinic groups. In terms of pricing, I don't think price has changed from a year ago.

I don't think it's down any, Mitra. I think there is interest in this sector. I still think it's at a price that's good for sellers as well as buyers and I expect there to be some activity this year in the industry in general.

Okay and finally, I noticed the bad debts provision picked up a little. Anything there?

No. If you look over the last, really six or seven quarters, bad debt has been slightly higher. Historically, we ran at 1% to 1.5% of revenues. This last quarter was 1.8. I don't expect that to decline. I think you'll probably see a normal range now that runs somewhere between; oh at least for the foreseeable future 1.5 to 2. I mean its up maybe a 0.5% on average.

Okay. Thanks again, guys.

Thanks, Mitra.

Thank you. Your next question comes from Rob Hawkins of Stifel Nicolaus.

Hi, Rob.

Hi. I missed the first 10 minutes of the call, if you don't mind repeating for me. I know I think you and Larry just talked about the salary costs per visit were down roughly almost 10% from like 54 to roughly 50.

No, the salary cost per visit meaning the clinical salary cost and benefits.

Yeah.

It went from $51.04 to $49.90.

We got a 10% improvement in clinical productivity.

Okay, that's what I was getting to, so the productivity levels. And what is that? I think you've been running 10.7.

In Q1 last year it was 9.6 (multiple speakers). We've got the season effect --

Yeah, seasonality.

So what we see right now -- we saw Q1 come in at 10.5 or a little better which was considerably better than Q1 last year. Typically what we see is a progression of that over the year. In the most recent pay period for the first time in the company we've cracked 11. And it's going to bounce around a little bit depending upon vacation coverage and seasonality, but we are moving in the right direction.

Yes, I think we ran -- a year ago we were at 9.6, Glenn.

9.6.

In the first quarter, this quarter we were at 10.5. We were slightly higher than that in the fourth quarter. But, I think most of the difference between - I think it was 10.7 in Q4 if I remember right, 10.5 was really because of a bit of a time period, January. And then also, as Chris mentioned earlier, we lost 3,000 visits during the quarter to weather and we continue to pay our people even when we have the clinics closed. So, that affects your productivity as well. But like Chris mentioned in the most recent pay period we were running north of 11 for the first time ever.

Thanks. In terms of the new programs you guys are looking at, the partner training program, the physician practice management, the osteoarthritis programs. First of all, what is the osteo--? Could you go a little bit further into the osteoarthritis program and then maybe between all of these kind of new things? Like I know you're kind of in an experimentation phase but can you give me a sense of how that might play out say over the next couple of years?

I don't know that I would qualify it as experimentation. I mean, some of these are pretty mainstream. They're just because of how our partners are setup and their structure we get somebody that has a historic bend toward a particular area. They may be a sports guys, they may be a spine person, and they may be a hand person. And then over time we try to help them layer in other mainstream products. So, we continue to do that. We're trying to do that in a very focused and accelerated pace.

The osteoarthritis program and partnership with this company on the East Coast. They've come up with an algorithm with a very good system that assists -- essentially its a physician program that assists docs in delivering very site specific; it's a visco-supplementation. So, like a Hyalgan or Synvisc, which is a synovial fluid replacement that's been found to decrease inflammation and kind of stave off some of the effects of osteoarthritis so that people can either avoid joint replacement or certainly prolong that.

There is a heavy component on the physical therapy side. This company has not historically been able to deliver this therapy. We're going to partner with them to do that across their existing physician base. And also help them roll this out to physicians, non-surgical docs, primarily primary care PMO and pain docs, such that we will be their recipient of the downstream rehab referral. So it's kind of a two-fold thing, part of it's a sales and marketing component. Again assisting our docs where we have relationships in driving this program and seeing the benefit in terms of referrals.

So, we are working on that. We're working on some cash based things which are just small niche based add-ons. They are easy to do without cost and without a lot of time involved. And we continue to think that we've got to create some diversity; drive additional patients into our facility, additional people, who may not yet be patients but who could be patients later. Particularly, if they are exposed to a great facility with good people. So, we continue to work on that pretty diligently.

So, It's like a pre-packaged program that involves not only the synovial replacement part that comes with the partner but it's also like and you should follow-up with x amount of therapy visits. Is that correct?

Yes, there is a therapy algorithm. There is an outcome tracking process that goes along with that. There is a whole marketing program that we expect to rollout. This is something that we are finishing up. We'll have the training elements in place sometime over the next few weeks this is probably a third or fourth quarter focus for us, I think practically speaking.

The alpha test there or beta test there are you still training on it. Are you doing any ahead of time to see how it might work in few clinics?

We've worked with this company over the last few months and we've seen it work. We've talked with the docs. We've talked to the clinics that we are working with currently. We've talked to our best and biggest partners about this. They are excited about it. And again it gives us something that we can bring to our physicians and gives us another reason to be in the office and create dialogue and we think it will create some business.

That's all [my] questions.

Thank you. (OPERATOR INSTRUCTIONS). Your next question is a follow-up from Mitra Ramqopal of Sidoti.

Yes, hi guys. Larry, I am not sure if I missed it but could you give us the [peer] mix in the quarter?

Yes, it's measured by charges. Private was 28.9%, managed care was 32.7%, worker's comp 15.4%, Medicare 19.4% and other was 3.6%.

Okay. Thanks.

There are no further questions.

Okay, thank you operator. Thanks everyone, we appreciate you for joining us today. Larry and I and the rest of the team are available for calls, should there be a need after the conference call. Have a great day.

Thank you. This concludes today's conference call. You may now disconnect.