US Physical Therapy Inc (USPH) 2009 Q1 法說會逐字稿

Good morning. My name is Julianne, 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 2009 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 session. (Operator instructions.)

I would now like to turn the conference over to Mr. Chris Reading, Chief Executive Officer. Sir, you may begin.

Thanks, operator. Good morning, everyone, and welcome to U.S. Physical Therapy's first quarter 2009 earnings call. With me here in Houston, I have Larry McAfee, our Executive Vice President, Chief Financial Officer; Glenn, McDowell, our chief operating officer; and Jon Bates, Vice President and Controller. Before we begin a review of our performance for the quarter, I'll ask Jon to read a brief disclosure statement.

This presentation contains forward-looking statements which involve certain risks and uncertainties. And these 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, Jon. For the past several quarters, we've been working hard to improve a number of operating metrics, including our net rate as well as our cost per visit. In the fourth quarter, we saw our net rate grow to $98.68 as a result of focused recontracting and service line improvements. For the year 2008, we finished just above $98 a visit. And for this first quarter, as a result of the work done by our partners in our operations team to expand our service model, we pushed the net rate above $100 for the first time ever in a quarter. This work focused on improving and expanding our service model, and what we are calling internally our value proposition has resulted in improvements in our units per visit, our durations, our net rate as well as a reduction in our cancellation rate. We believe that there is more opportunity yet to improve our rate and increase our efficiencies.

This quarter, our salary cost as a percentage of revenue decreased 60 basis points, and our gross margin increased 24.6%. In the quarter, we worked to reduce a number of cost items both in Houston and in the field. Those items include taking out a considerable amount of lease costs. We have a number of lease renegotiation projects in the works which we expect to help reduce our costs in the field at a number of locations. We reworked, recontracted and focused on a number of opportunities in purchasing both in corporate and the field that we expect to continue to reduce our costs. In addition, we have continued focus on our salary cost per visit.

While we started the quarter a little bit slow in terms of productivity, because of the lighter volumes, which we'll discuss in a minute, we finished the quarter in much better shape overall, and we expect to continue to make improvements in those areas. These changes and improvements, along with growth delivered by our newer facilities and our acquisitions created solid improvement in our net rate -- in our net income, I'm sorry, of 15.5% and an improvement in EPS from $0.20 to $0.23 for the quarter.

This improvement was encouraging for a few reasons. First, we started the year in January much slower than normal. We attribute much of this change, which has produced a drag in our same store revenues which decreased 2.4% for the quarter, to the employment market and the overall economy. While we continue to see some patients foregoing elective care, we do believe that we have the ability to impact our patient volume positively as the year progresses, through continued expansion of product offerings and aggressive sales and marketing efforts, including a newer emphasis on community-based marketing which has proven to be very successful in our OA centers model currently located in Florida.

Relative to our OA centers and related acquisition of RMG, we are seeing volume improvements in OA, and we expect profitability of our first center sometime this year. We recently opened our second center nearby in Jupiter, Florida. And that center has started out solidly. We were able to open this facility without increasing our staff. And we expect to make good progress again toward profitability of these centers in the coming months. For the next few quarters, we will remain very focused on cost control and volume development. The latter, we expect to improve, although we have felt some dampening from the overall economy. But we have seen improvement sequentially as the year has progressed.

I would now like to ask Larry to review the financials in a little bit more detail.

Thanks, Chris. In the first quarter, net revenue increased 6.4% to $48.2 million due to a 1.9% increase in patient visits and an increase in our average net patient revenue per visit of $3.55 to $100.80. Same store revenues for de novo and acquired clinics opened for a year or more decreased 2.4%. Same store visits decreased 5.4% while the average net rate per visit increased by 3.2%. As Chris mentioned, our gross margin improved in the quarter to 24.6% from 23.9% a year earlier.

Clinic operating costs were 75.4% of net revenue as compared to 76.1%. Clinic salaries and related costs were reduced to 52.7% for the first quarter of 2009 versus 53.3% in 2008. Rent, clinic supplies, contract labor and other costs were constant for both quarters at 21.2%. The provision for doubtful accounts is 1.5% of net revenue in the first quarter of 2009 versus 1.7%. Corporate office costs were 11.2% of revenue for both periods. Our operating income increased by $720,000 to $6,457,000. The operating income margin percentage of 13.4% was a 70 basis points improvement as compared to the first quarter of 2008. Net income rose 15.5% to $2,754,000. Diluted earnings per share increased to $0.23. The analyst consensus estimate for Q1 was $0.20. Despite the strong first quarter performance, the company is not, at this time, revising its 2009 annual earnings guidance.

During the first quarter, we opened six new clinics. The company produced very strong cash flow in the period. Despite the six clinic openings and purchasing more than $2.6 million of common stock, the company's net debt increased by only $159,000 from year end. The company's days sales outstanding for accounts receivable were reduced to 48 days at March 31 compared to 57 days and 51 days at the end of the first quarter last year and year end respectively. Adjusted EBITDA for the first quarter was $6.5 million and for the 12-month ended March, it was $25.1 million.

Thanks, Larry. In summary, let me say that while the current environment presents some challenges, our team has been able to work to offset those challenges and produce solid growth in revenue and earnings. We expect that this market will cull a number of competitors over time and lead to opportunities for additional and continued market expansion. Our balance sheet is very strong which gives us great flexibility to invest in our future. With that, Operator, I know we have some questions, so let's open up the line.

Thank you. (Operator instructions.) Your first question is from the line of Larry Solow with CJS Securities.

Hi, Larry.

Oh, good morning, Chris and Larry. How are you doing? Just a couple questions. Could you maybe talk a little bit about the visits through the quarter? I know they kind of got off to a slow start, and I imagine that had something to do with the economy and also maybe some severe weather year over year, and how they kind of progressed through the quarter and how they looked in April.

Yeah. As everyone will remember, we've got a little bit of a seasonal effect. And I will tell you that January, typically every year, is a little bit slower just, I think, attributable to deductibles and to weather and whatnot. It's hard for us to really look at year-over-year weather changes because we always have some severe weather in the first quarter early on. I think January, in general, started out slower than average for us. We got sequential improvement in February and considerable improvement in March. And we've seen that improvement carry forward into April.

Now, we do have a seasonal element, and the second quarter usually is a good quarter for us, so we expect some improvement anyway relative to whether that is because of the economy or reaction to it or now a more orderly progression in terms of seasonality. I'm not sure that I'm able to completely separate all of those factors, but we have seen improvement through the year.

Right. And then in terms of your average net rate which is up a nice 3.2%, and I think you expressed on the Q4 call that you did believe it was going to be up and kind of the patient visits was more of the question marks there.

Right.

Did this number kind of even exceed your expectations or -- and it's a pretty nice number, and it sounds like it's sustainable and sounds like the growth trajectory has more legs to it.

Well, for me, no, it didn't exceed my expectations. I don't think it exceeded the team's expectations. This is something we've been working on for a while. We've gotten good traction with our partners on some of the service offerings that we've initiated this year. And as Larry mentioned, our cash has been very, very strong. And I think it -- we haven't wrung out all the opportunity just yet. I don't know that we'll be north of $100 every quarter, but I think we will see good progression this year over last year. And so it's doing what we expected it to do.

Okay. And then just in terms -- do you have the numbers for your -- the productivity measures, your billable units per patient and visits per therapist?

Yeah, I have those. From a unit standpoint, for the first quarter of '09, we were at 4.19 units which was up from Q1 of '08 of 4.09. Visit per FTE basis for Q1 '09, we were at 10.84 which is down slightly from Q4 of '08, and we were at 11.05. We have seen some increases in visit per FTE, though, over the last several months. The lower visit per FTEs for the first quarter were because we started slow in January, February, but we're seeing very good visit per FTE increases in March and in April.

Okay, great. Thank you very much.

Thanks, Larry.

Your next question is from the line of David Bachman with Longbow Research.

Good morning, and congratulations on a nice quarter. Question just a little bit more on the units and the revenue per visit. Can you just sort of remind us of that process there, beyond just sort of the blocking and tackling and how -- what leverage you really have to pull to increase that revenue per visit in terms of unit growth. And are there sorts of capital investments that can happen at the center level that can help with the offerings there?

Yeah. We've made a number of capital investments strategically over the year, particularly to bring in new services, some -- much of which is product specific balance and fall programs, other things, testing and things that drive additional revenue. We've tried to couple that with a community-based marketing approach to combine traditional physician referrals to more of a community outreach perspective. We've seen some early solid response from that. So there is some capital investment but it really isn't, I think, at a rate that's outside of our norm. It's just been very focused in terms of how we rolled out these programs.

In terms of the units, we've seen under the value proposition an improvement in that area, particularly of units that are of what we would consider a higher quality and result in a better service model for our patient. You will recall that most of our contracts are on a -- really on a per-unit basis. We do have some contracts that are fixed fee per visit, but a lesser number of those. And so as we deliver our care, and as we get slight incremental improvements in units, we see a similar impact in our net rate per visit.

And when you're offering additional units or different service offerings, there's a preauthorization process that's involved, or how does that piece of the business work?

It really comes down to trying to deliver across the board what the patient needs. There's some companies generically that require a preauthorization for care, and there's some companies that put cap on the number of units. And that really hasn't changed much over the period. But generally speaking, you're not preauthorizing each and every unit ever. You're just preauthorizing the care of the patient. And it's up to us to get somebody better and to do that with great care and service.

Okay. So you're developing the plan of care, and then as you see best fit. Okay. And then just, you mentioned that this environment maybe putting some pressure on some other players, and there could be maybe some consolidation or opportunity for some expansion. Can you just maybe talk about sort of what you've seen on that front over the past few months? And beyond sort of corporate overhead, what are some of the other scale and scope advantages of growing larger beyond just top line growth?

Right. Yeah, we've seen some competitors in some markets go out of business. There have been a number in Texas. And ironically, Texas is a very good market for us, very strong market and an economic market that hasn't been as hard hit as a number of areas in the country. So as a number of those have occurred, particularly in a few of our partners -- we had a dinner with a number of different of our Texas partners a few weeks ago. And in a nearby facility where one of these competitors went out of business, we immediately picked up eight to ten visits a day.

I know hospitals across the board are under duress from a financial perspective, many. And I know that in some cases, people are cutting costs by cutting headcount and pulling back on different service offerings. So I expect the economy to begin to improve as the year progresses. I think we're still probably looking at the early part of 2010 before things really get going.

But I think as we look at this as a mom-and-pop industry, I think it will take out some providers. I think we've already seen that. And I think that'll give us an opportunity to move some market share. We're in a very good financial position. We have a great working capital line with B of A. And we'll be very opportunistic but selective, as we have been in the past, in terms of how we grow the company. So I think the market, although it's challenging, will create some opportunity for us.

Okay, great. And then just one last question if I can, on the community-based marketing side, it sounds like -- you mentioned this last quarter as well, but believe that there's some good opportunity there. And is some of what you're alluding to -- I think we've seen surgery softness, and so you're probably seeing some softness on the -- related to elective care. But is there an opportunity to really sort of get the message out there of sort of as an alternative -- similar to on the OA side, just an alternative lower cost intervention that you can offer with a message that might get traction in this kind of economy?

Yeah, I think it's less from a generic perspective, less from if you use physical therapy, and this is a lower cost alternative. What we've seen in OA that's been very good and very specific is, when it's driven around a niche program, it's a problem that people have that they're not sure how to address effectively. That will bring people out. We do that sometimes in combination with physicians and other times independent of physicians. But we've seen the ability to capture patients directly from those interactions on a group basis, drive patients back into doctors where they need to be seen before they can get a referral, in some cases, see patients directly as a result of that interaction. So we're going to continue to expand that. We think there's an opportunity in there to pick up some additional market share and maybe jump out of line a little bit from our traditional physician to physical therapy referral order, particularly as more and more states have direct access laws that vary but that give us the ability to see people directly.

Okay, great. Very good quarter. I'll jump off. Thanks.

Thank you.

(Operator instructions.) Your next question is from the line of Rob Hawkins with Stifel Nicolaus.

Good morning. Another question about growth. The sequential growth you're saying is picking up. I guess, is that rate of growth picking up faster than last year and what does the trend kind of tell you, if anything, about potential demand? Is it coming sooner? You mentioned, is it still kind of more of a 2010 type of thing as you just kind of indicated? Am I thinking about these things right?

Yeah. Well, but I think our challenge this year, which we're trying to meet head on by dealing with what we can affect directly is going to be same store. I think that's going to be the challenge for the year. Now, I think -- and we're going to work very hard to improve it from where it is. And it's -- we have seen volume improve through the progressive months, but we would normally see that. And I can't honestly tell you whether I know that it's better directly than the volume improvement we saw sequentially last year. And really, we need to go back and look at that.

But I think same store is our challenge for the year. I think to offset that, we're going to have to be more efficient. I think we'll be more creative in our marketing opportunity, and I think that will help us when people begin to not keep the purse strings quite as tight as the economy improves in general and as people begin to go back and get their elective procedures done because they're back in a job or they have insurance or they're no longer as worried as they were. But for the time being, I think that's what we've got to focus on the most.

It's kind of interesting that with same store being soft and what's generally happening in the economy and delinquency rates and bad debt experience, that our collections have been as strong as they have been. This is the first quarter ever we've run under 50 days, on average, on our AR. Our copay collections even have been good as well as the deductible. And so our liaisons and operations team has made a huge focus on cash over the last really 15 months. And it's paid off with exceptionally strong cash flow.

I know our days -- our AR days over 120 has continued to come down.

We've reduced it by like 17% as -- so it's a pretty dramatic decrease in old receivables. And the early indications were that April was just as good as March, and March was a record month.

All right. I don't -- we're seeing that also in some of the hospitals, and it's got everybody a little bit puzzled. And it's actually -- it is pretty astonishing, particularly with where the headlines are. But kind of more along not so much about growth, I'm just curious, though -- and you mentioned how you have to be creative. Are your partners -- are they asking, are they demanding kind of different services from you or kind of higher amount kind of in this downturn to kind of -- to go with that? How is that kind of dynamic changing with the way you support these clinics and what's happening out in the regions?

Yeah, let me make a comment, then I'll ask Glenn to comment as well. I think the thing that's happened in this economy is that we have probably better alignment -- we've had good alignment with our partners for years. We probably have the best alignment with our partners than I've seen maybe since we got here five and a half years ago. I think people understand -- we've explained why we're doing certain things. There hasn't -- no, to be specific, we haven't seen them demand new or more things. We've seen the things that we have offered be adopted readily because our partners understand that they need tools to go out and overcome some of these market challenges. And the synergies actually seem to be very good.

Yeah, just to jump in. I agree with Chris. The partners haven't demanded anything more. I think we have a very good communication line with our partners and what's going on out there, especially when we've offered them our different creative ideas on how they need to look at the economy and their market and their referral sources and what they need to do to impact and grow their business. It's our belief that people are looking for value for their dollar which is why we focused on that piece. And from a marketing standpoint, we believe that going to the community is a good way to go from an exposure standpoint. It may open up some lines of business and referrals that we haven't had before. And in this environment, our partners have been very open to that, and we're seeing some very good early success with many of the plans that we've given to them to put into place.

And we view that there are partners -- we have a number of -- we have a lot of strong partnerships. But our partners have been very interested in sharing the things that are working for them, particularly our biggest partnerships with the other partners. And that exchange has gone very well. And so, again, we're trying to take our team which is strong, strengths in different areas, and spread that information across the whole partnership. And people have been very open about it, so it's been good.

All right, and then you -- kind of along this kind of same line of questioning, with all the marketers you guys have out there, and physician offices are down, too. Is it making access easier, more difficult? Are they being pulled different ways from different partners given you've got people kind of covering multiple sites?

Yeah, well, the multiple sites coverage hasn't changed. I think the fact that the doctors, particularly on the specialty side, the orthopedic guys are lower. Their elective procedure volume is down some. That has a downstream impact on us. But in terms of our access to offices, I haven't heard anything that would lead me to believe that we're having a harder time getting in to see people as compared to before.

Yes, this is Glenn. I mean, from a sales standpoint, from a focus standpoint, we're not having any more challenges getting into offices than we've ever had. We have a very strong sales team. But as Chris has talked about, many physicians, especially the orthopedists and some of the elective surgery pieces have impacted business. And so it's been a matter of us broadening our referral horizon and looking at primary care docs and growing other pieces of our business.

I'm going to jump back in the queue, but if there's time, I might ask a followup.

(Operator instructions.) There are no further questions at this time.

Okay. Thank you, Operator. Listen, everybody, Larry and I and Glenn and the rest of the team will be around all day today. And if you have additional questions, Rob, if you have an additional question, just give us a shout. We'll be happy to talk to you. We appreciate your time, and we appreciate your continued support. Thanks, and have a great day.

Thank you all for participating in today's conference call. You may now disconnect.