US Physical Therapy Inc (USPH) 2009 Q2 法說會逐字稿

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the U.S. Physical Therapy second 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 call over to Chris Reading, Chief Executive Officer. Mr. Reading, you may begin your conference.

Thanks. Good morning everyone. I want to welcome you to U.S. Physical Therapy's second quarter 2009 earnings call. With me here in Houston are Larry McAfee, our Executive Vice President and Chief Financial Officer; Glenn McDowell, our Chief Operating Officer; and Jon Bates, our Vice President and Controller.

Before we begin discussing our results for the quarter and the year, we have a brief disclosure statement that we need to cover. Jon, would you please do the honors?

No problem. This presentation contains forward-looking statements which involve certain risks and uncertainties. And these forward-looking statements are based on the company's views and assumptions, and the company's actual results can vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information.

Thanks, Jon. Before I ask Larry to cover the financials in detail, I'd like to review and explain our progress for the quarter as well as the year. We'll look at what has improved as well as where our opportunities lie, providing a little color relating to the results for the quarter. Finally, I'd like to discuss what we need to do to continue to grow our company in the future. For those of you that have been on the calls before, I'm going to do this a little bit differently than normal, so just kind of bear with me. I'm going to do this in kind of a story format more than anything.

About a year and a half ago, really early, I guess late in the first quarter of 2008, a friend, who's significant in this business, well-known, invited me to a CEO conference. And while I wanted to see him -- and we actually had a business deal that we were working on together, which did come to fruition -- I really didn't want to go to this conference. And part of the reason was the key note speaker in this conference, who was going to speak for several hours, was an economist. And I wasn't sure that with everything that I had to do at that point in time, that I wanted to sit through that.

In any event, there was a more compelling reason to see this gentleman than there was not to go, so I went. What I got out of that, after listening to this respected, well-known economist talk about their company's, their research institute's, predictions for the coming years, not only the economy for this country but around the world. And he did it in such an incredibly detailed, understandable and compelling way, predicting much -- with startling detail, much of what's happened to us, beginning in August and September last year and continuing through this year.

I came back from that, and we talked about it, and we made some fairly material adjustments, anticipating if the things that were predicted come to fruition, that we would have some challenges this year that, in fact, we have had and the industry's had and the country has had. In an effort to try to get ahead of those, which we believed would be more difficulty generating significant volume and potentially significantly tighter purse strings among our clientele and other things, we kind of laid out a program that we began to work on early summer of last year, that it really has had a fairly significant, positive impact for us this year. And so I want to cover those.

In an effort to try to get ahead of the curve, we set some internal goals relative to a variety of different things, one of those being trying to enhance the value proposition of what it is that we do for our patients in our referral sources and in all of our customers. So we set out talking first with our biggest partnerships and then subsequently with all of our partnerships about a series of programmatic improvements, service offerings, communication differences, emulating our most successful partnerships in the company and making some material changes in how we do things.

One of the other things that we did was we set out to materially increase our net rate per visit through contract enhancements, service offering and programmatic enhancements and expansions. And we were able to do that as well. And in a period of what has turned out to be fairly significant economic stress, we've been able to see the fruit produced through these actions.

As the economy has played out, one of the things that we -- one of the things that this economist predicted was that unemployment would get somewhere over the 10% range. In anticipation of that late last year, that began to play out. We made some changes, some fairly significant changes, in our sales and marketing program. And I'm not going to go into exactly what those changes were, but safe to say that it has allowed us, in a very cost efficient, cost effective way, to enhance and expand our sales program.

And as recently as the latter part of this most recent quarter, we added approximately 20 additional sales reps. And in a very short period of time, being able to track those reps specifically, they had a very significant impact on our business in June, the month following when the majority of these reps came on. And that impact has continued during a period, as many of you know, in the summer when we typically slow down, and doctors and staff and patients alike go on vacation and turn their interests to other areas other than elective surgery and procedures. That's had a very significant impact for us. We expect to continue to add a very solid number of reps through the remaining part of the year, particularly as unemployment continues to be where it is so that we can continue to try to move market share disproportionately.

Now, many of you have asked, in the past, about Michigan. We have a significant concentration of facilities in Michigan. And as everyone knows, the economy in Michigan is probably in worse shape than any other place in the country. Last year, in 2008, was a record year for us in Michigan from an overall income standpoint. We have a significant number of long-tenured partners in Michigan. I will -- kudos to them. They do an unbelievable job. We expected, although we didn't talk about, that we might have a little bit of a difficult time in Michigan this year. I'm very pleased to say that as a result of our partners' efforts, a number of the changes and adaptations that we have made, that our Michigan facilities, through the current period, and continuing through the second quarter, are ahead of where they were even last year, which was a very, very solid year for us.

So while there are still many, many challenges in Michigan and around the country, so far, we've been able to stay a little bit ahead of those and adjust where we needed to adjust. We've been able to increase our net rate to over $103 per visit, where this time last year it was in the $97 to $98 range. We've been able to continue to take out cost without impacting care. We've done that through a variety of very creative programs, focused on lease renegotiation, vendor -- various vendor programs. We've been able to consolidate resources in other areas. And as a result, our costs, which Larry will go over in some detail, has begun to come down. And it's allowed to expand our margin, our gross margins and our net operating margins fairly considerably.

Again, these changes, for the quarter, helped us to grow our operating income by nearly $2 million, or 29.4% compared to the 2008 quarter. Our operating income margin increased approximately 260 basis points to 16.4% for the quarter. Net income rose approximately 27%, and diluted earnings per share increased from $0.24 to $0.31 in the comparable quarters.

We continue to see some challenge on the same store side. Although we did see improvement in the second quarter, we were able to get same store revenues into positive territory with some continued slight pressure on visits offset by an average rate improvement of approximately 5%. Cash flow continues to be very strong for the company. And this has allowed us to pay down additional debt for the quarter while at the same time buying in our own shares under the share repurchase program. Development for the year through June has produced nine de novo centers, including three for the quarter.

General M&A activity, which was considerably more quiet earlier in the year, seems to be picking up. You can expect us to continue to add partners and partnerships through acquisition, selectively as we have done in the past. The deals that we have done, we've looked at very closely. They're in a variety of markets that have been hit to different extents in this economy. And they have held up very, very well. We have been able to grow the majority of the new partnerships organically, in most cases, add significant metric improvement along the way.

Shifting gears a bit, I will say that I think that we've got great opportunity as we look forward. We have -- as you do, continue to question about what some of the healthcare impacts policy -- some of the policy impact will have on us. And that's going to have to continue to play out. We've been able to make the necessary changes along the way in order to allow the company to continue to grow and thrive in an otherwise difficult market. And we expect to be able to continue to do that.

With that, I would like to ask Larry to please cover the financials in more detail.

Thanks, Chris. I'll go over the second quarter results, and then for the full six months year to date. In the second quarter, revenues increased 9.3% to $51.8 million due to a 3.5% increase in patient visits, coupled with an increase in our average net rate of $5.07 which is 5.2%. Our gross margin increased 310 basis points to 28.4%. Clinic operating costs were 71.6% versus 74.7% a year earlier. Likewise, clinic salaries and related costs fell to 51% versus 52.4%. And then rent clinic supplies, contract labor and other costs were reduced as well to 18.8% from 20.6%. The provision for doubtful accounts was pretty consistent between the two periods.

Corporate office costs were 12% of revenue for the 2009 quarter versus 11.5% a year earlier. This is further described in detail today in the 10-Q. The higher corporate cost was partially attributable to increased incentive comp accrual. Our operating income, as Chris mentioned, was up substantially, increasing 29% or just under $2 million to $8.5 million. The operating income margin increased by 260 basis points to 16.4%. Net income attributable to common shareholders rose by just under 27% to $3.6 million. And diluted EPS was $0.31 versus $0.24. Same store revenues increased slightly. Our same store visit decreased by 3.4% which was less than the decline in the first quarter when the average net rate increased by 4.8%. During the second quarter, we opened three de novo clinics and closed two so we ended the period with a total of 366 clinics.

Now, for the first half results. For the six months ended June 2009, netted revenue increased by just under 8% to approximately $100 million due to a 2.7% increase in patient visits and an increase in our average net rate of $4.33 or 4.4%. Our gross margin improved by a couple hundred basis points to 26.6%. And clinic operating costs, clinic salaries and related costs, rent, clinic supplies, et cetera, were all reduced as a percentage of revenue. The provision for doubtful accounts was consistent between the two periods. Corporate office costs for the six months were 11.6% versus 11.3% a year earlier. Operating income increased by 21.5% or $2.6 million, to just under $15 million. The operating margin percentage of 15% was 170-basis-point improvement over 2008.

For the six months, net income attributable to common shareholders rose by 21.7% to $6.4 million. And our EPS increased to $0.54 from $0.44. Same store revenues were flat. The volume decline was offset by the revenue or rate increase. During the first half of 2009, the company, as Chris mentioned, has opened nine clinics and closed three for a net addition of six clinics year to date.

We've produced extremely strong cash flow in the first six months of 2009. Our adjusted EBITDA for the quarter was a record $7.9 million, a 20% improvement from the second quarter of last year. Our adjusted EBITDA for the first six months was $14.4 million. Our net debt year to date has been reduced by $1.7 million despite nine new clinic openings and purchasing approximately $5.6 million in common stock. The company's day sales outstanding for accounts receivable have been reduced to 45 days as of the end of June, as compared to 51 days at the end of 2008.

Thanks, Larry. With that, I think we'll go ahead and open it up to questions. And again, we appreciate your participation.

(Operator instructions.) Our first question comes from Larry Solow with CJS Securities.

Hey, Larry.

Hi. Good morning, guys. Could you maybe discuss a little bit more, it seems like your efficiency rates likely improved based on the revenue rate per patient. Can you maybe discuss the units per visit, and the visits per -- daily visits per therapist, how those are trending?

Units per visit have continued to trend up modestly, not significantly, but modestly. We've also gotten traction with some contract renegotiations in a number of areas. At STAR, the net rate per visit has gone up from about $88 up into the low to mid-90s. Since we did that acquisition, a lot of that had to do with rate negotiation coupled with units per visit change. And then on the -- Glenn, on the productivity side, you want to cover that?

Yeah, if you look at Q2 this year, we came in at almost 11.4 visits per clinical FTE compared to Q2 of 2008 when we were at 11.04. So we've had a nice increase in visit per FTEs.

And on the rising revenue per patient, do you think, maybe at a -- albeit a slower pace, do you still see more room for growth there?

I don't know that I want to predict. And I think that June, I will say for the quarter, was a very, very good month. I don't know that it will be dramatic. But I think we've got a little room.

Okay.

In terms of what things look like next year, I can't say that.

I mean, said another way, do you think the increase is sustainable, or is it possible that it is a little bit of an aberration? It could even turn back modestly?

I think it's -- I would look for it to be stable through the year.

Yeah. It should be sustainable. And the only wild card would be if there was a change in Medicare pricing.

Right. Which wouldn't -- obviously wouldn't occur until -- any potential change wouldn't be till 2010, right?

Correct.

Correct.

And now, just remind us. On that note, you are -- the industry is scheduled to get a -- right, there is scheduled to be, on the physician fee schedule, I guess, a deduction in 2010?

There's a statutory reduction on the books. And there's been a lot of discussion about whether that's going to happen or not or to what extent. But that's correct.

And that's been rolled back I know the last couple years, right? So -- and as far as now, do you -- what you see, where you stand today in terms of that and just general healthcare reform, I guess are all the balls still up in the air, or any thoughts on that?

I don't think anybody knows. I mean, we were scheduled for a rate reduction this year, and we ended up with a half a percent increase. The fortunate thing for is that Medicare is only approximately 20% of our business.

Right.

And I don't think anybody knows at this point, Larry, honestly.

Right. No, understood. I agree 100%. And then, Larry, in terms of the corporate office expense, I mean, I assume -- and you've mentioned that there is -- you are accruing some of your incentive fee, and I know the dollar earnings per share, I guess, kind of would take it to a threshold where you're -- got 12.5% growth over three years. And I guess there's another leg that kicks in on that $1 per share earning. So are you accruing as if you assume you've reached some of these incentives, and how does that kind of play itself out?

We're not accruing -- assuming we're going to make $1 a share, that's outside of our guidance range.

Right.

Yeah, some of the earnings growth, as far as the long-term incentive plan, looks like it will be in effect this year, so we'd accrue that. And so there was really kind of a catch-up accrual that occurred in the second quarter.

Okay. And then just last question, I know the same store visits are down, while -- or revenues are up a little bit because of your rate. But if I just look at average visits per clinic that you have today, that's actually still rising. Is that because -- I know like the San Antonio clinic you acquired was a bigger, more-volume clinic. Does that come into play, and perhaps some of your closures over the last couple years, is that helping just average visits on a per-clinic basis?

Yeah, I don't think they've changed a lot, really.

Yeah, yeah.

They move around a little bit between quarters. The San Antonio deal was only four locations. And I don't think that would have the ability to move --

Right.

Yeah.

I think what you're seeing is a continued -- and we've done it very, very selectively, you know, paring out of our weak facilities and relative stability across the rest of our portfolio. It hasn't been dramatically -- it hasn't gone dramatically up or down in either direction. It's been pretty stable.

Yeah. I'm just looking -- I don't have it for the quarter. I have it for the month. Year to date through June, so for the six months, we average 20.6 visits per day per clinic, which is actually exactly equal to the same time last year. So the bottom line is we have more clinics than we did a year ago.

Right. But even that 20.6 per clinic is still, I guess, pretty good in this environment, right?

Yeah, uh-huh.

So you're not really losing volume on a per-clinic basis.

That's correct.

Okay. And then just last question, then I'll get back in the queue. I think you kind of discussed it, but it looks -- appears sequentially in the last quarter, things actually were even improving as you exited June. And I don't know if you have any color to add to how July kind of shaped up.

We don't have any -- we don't have financials done on July. I don't know that we want to provide tremendous color, other than things are steady. So --

Yeah.

-- so far so good.

Gotcha. Okay, great. Thanks a lot. Guys.

June, July, August are -- we go into these summer doldrums, as Chris --

Right.

-- was talking about. But I think it's -- actually June was better than we expected.

Right.

Got it.

Our next question comes from David Bachman with Longbow Research.

Hey, good morning. And very nice job this quarter. Just a housekeeping note on kind of following on from that last call, there were 64 working days in the quarter; is that correct?

Hang on. We've got it here. We have 64 compared with -- yeah.

Same year.

[64.4].

That was -- in -- yeah.

Right.

Okay, great. Thanks. And I guessed -- and I know you don't want to give a lot of detail about what's happening on the sales and marketing front. But obviously, you're doing an extremely good job there and sounds like doing some new -- trying some new things and innovative things. I just wondered if there was any additional color that you can provide on that front of what you've been doing that's really been working.

Yeah, I probably can, and don't know that I want to. I -- safe to say that we've added about 20 reps this last quarter. We hope to add that number, maybe a little bit more, between now and the end of the year. We've changed the model a little bit. And it continues to look like it's going to pay dividends, you know, in an otherwise tough economy. So that's about all the color I want to give you at this point in terms of detail.

Okay. Fair enough. And then again, just back on the healthcare reform, I know no one has a crystal ball there. But I'm sure that kind of just looking at the broad strokes there of expanded coverage and so forth, that at least there's a couple of scenarios in your mind of how that -- how that impacts the business, I guess at least in general terms, and just wondered if you have any -- sort of any further comments just on how expanded coverage overall would benefit or what changes could be there for your business.

Yeah. Well, I won't make any predictions because I honestly don't know. I will say that any time you have expanded coverage, particularly in our business, I think that's a good thing. I think in this business, because a lot of what we do see is elective, people without coverage don't come through our facilities. We see extraordinarily low percentage of what you and I would consider to be indigent patients. But so any time you have expanded coverage, I think that potentially is a positive. How it gets paid for and where it comes from and how it all comes together, I don't know at this point.

Okay. And then I guess just maybe following on that, on both of those points, just how -- what is the opportunity to continue to just position on what you and your partners do as a relatively low-cost and effective treatment modality that, in this time of looking at ways of trimming healthcare costs, there's opportunities to be part of a solution versus part of the problem and being able to go to market with that.

Right. We've had some fairly significant dialogue in Washington with some key people. And I think they understand that our company and this sector in general is a low-cost provider that produces some pretty significant, dramatic outcomes in terms of restoring function to people whose other options are really much more expensive and draining to the system. So I think that people understand that.

And I think in terms of us uniquely and individually as a provider, I think one of the things that we have proven to be able to do is to provide a pretty good home to a certain type of therapist that has relationships, that wants to help control his or her destiny and benefit from the work that they -- the body of work that they have built up. So we're still attracting very good people. We're still attracting very good private practices. And I think we'll continue to do that and continue to differentiate ourselves in that regard.

I think we've proven that in a really difficult economic market, that we can continue to go forward. And I think that's attractive for a variety of reasons. It's clear that it's a cheaper alternative than surgery or much more expensive diagnostic workups that may not impact function in the same way.

Okay. That's great. Thank you very much.

Our next questions comes from Rob Hawkins with Stifel Nicolaus.

Hi. Good morning. How are you all? I wanted to kind of get a little bit more into the margin and the cost side of things, or maybe not, depending on how the market played out. So you've got this 310-basis-point improvement in the margin and some nice movement on some of the expense side. As you look at it from a -- first of all, how much of it was same store? Was the margin pretty much the same there? And then how much of it related to the price, or I should say the net revenue per visit? And then how much was it related to the operating costs? And then finally, I couldn't tell how you answered this question. You may have already kind of addressed it. The noncontrolling interests looked like maybe some things went off balance sheet or change there that might have pulled some things out of cost and moved them into the noncontrolling interest line.

Well, there's nothing that went off balance sheet. We don't have anything off balance sheet.

Well, I couldn't -- or maybe when you closed some things, maybe that's went out. I just couldn't tell from the way it was shaking out.

No. We only closed a couple centers --

Yeah.

-- even in the period. There wasn't anything on the balance sheet side. Our minority interest as a percentage has grown a little bit, I mean, on a year-over-year basis.

Yeah, but they're doing better --

It's just because they're more profitable.

Yeah. They're making more money so they're getting --

That's the answer I was hoping to hear.

It's a win-win.

Yeah, there's no --

Good.

There's absolutely no smoke and mirrors, and there's nothing that isn't absolutely consistent from period to period from an accounting perspective.

And if you look at our cash, our cash is even better than our revenue.

Yeah.

So there's nothing funny there whatsoever.

It's been all --

All right. No, I didn't put you on the defensive. I'm not insinuating. You've got a 200-basis-point change in the clinic in supplies, and noncontrolling went up. I thought, well, maybe did it maybe move something to more of a JV or a change in ownership structure. You know, there's a couple little things that could have happened there.

Those are pure savings as a result of --

Now, a lot of that is explained by the revenue increase.

Ah, see. Okay. So revenue is just -- well, first of all, on the same store, was there much difference, Larry?

No. You have to realize same store is going to be the vast majority of our business.

Sure.

Because we haven't opened that many clinics in the last 12 months. So when you see our numbers, the same store is the vast majority of that number.

Yeah, I wouldn't have thought they would have. But your comments were kind of like, hey, these last few ones you've been buying have really -- the metrics have really improved there a lot. So I thought, well, maybe you bought some ones that you were able to kind -- and maybe did something to shift. Maybe the difference would have been 200 instead of 300 or something like that.

No.

No. I mean, keep in mind STAR's around now for -- in another month, it will be two years. And so these are --

No, they're --

They're on the same store numbers as well.

Yeah. We -- the two acquisitions we did in the last 12 months that were PT deals are not that large. And so they didn't have a significant effect on any individual line item.

Yeah. And it's really a pretty homogenous effect across the whole company. It's been pretty consistent.

I mean, there's nothing -- I mean, guys, there's nothing wrong with saying you guys are amazing operators. I mean, it's --

No. We're just trying to be -- we're not saying that. We're just trying to (unintelligible).

Well, no. I mean, it just -- I mean, it looks -- I mean, it just looks really great. I mean, and you guys have managed to do this in a tough economy. Well, then, okay, let's talk then about that revenue piece. And I know you're answering a couple questions related to this. And you said it's sustainable on the revenue per average visit. But I guess two things kind of come to mind. I know one component of it is the ability to get therapists to start thinking about the whole patient, not just maybe what the complaint is. And that leads to taking a stronger look and maybe doing more units per visit, if I'm getting my terminology right.

No, you are. Let's --

And then is there opportunity there rather than just sustainability? Because you guys have been very good about moving best practices across these clinics. But you've got a lot of clinics.

Right.

Let's talk about units per visit. Let's get into some detail.

Yeah.

Because I don't want people to think that something wacky happened.

Well, I mean first -- you know, when I bring it up with folks, yeah, the first thing you think is, oh, well, they're finding stuff to do. And it's not the way it works. I know. I've been on this side of it. I mean, there's a best way of doing things medically. And so I'd just like to hear a little more about that.

Let me tell you just generically, I think. And this goes back to our focus on value. And then I'll ask Glenn to speak, actually, to the metrics. Generically, we've had a very strong focus on improving customer service and enhancing value in the company this year. And I think it's resonated with our folks. And they understand that if you want to get somebody back to all the things that they want to be able to do, you have to treat the whole person, not just that microscopic point of origin in whatever tissue has been affected, because it might have been affected a year ago, and people have adapted and accommodated in what has been a negative way over that period. So yeah, we're trying to make a difference for people, a significant difference. And there's a metric impact to that. But it's been progressive and steady and consistent, not what I would call dramatic. And a few of these improvements, both on the cost side and the revenue side, I think are definitely sustainable. And they've been incremental. Glenn?

Yeah. I mean, I agree with Chris. And we have focused a great deal from a clinical standpoint on what we're doing with patients, especially the last half of their visits, to focus on an aggressive, progressive approach to moving patients along to clinical spectrums. If you look at units, compared to Q2 of 2008, we were at 4.1. In Q2 of 2009, we're at 4.2. A tenth of a unit move for us is a fairly significant impact when you look at it on both a net revenue basis and what we're doing from a patient standpoint.

So the two metrics that really -- but just besides the contract payer rate, the other two metrics that would drive these kind of margin enhancements is visits per therapist, year over year, increased from 11 to 11.4. And you had units per visit increase from 4.1 to 4.2. Those are dramatic percentage changes.

And then you had some costs taken out and variable expenses, rents --

Yeah.

-- leases and a variety of other things. And it's -- we did that in anticipation of a lot of the things that we're in the middle of right now and we got after early enough that it has impact this year.

And the other thing is we've been -- really stepped up our marketing. There's no question that we've probably taken market share in this environment. Unfortunately, there's not a lot of macrodata to prove that. But I think it's a reasonable assumption we've taken significant market share. So that combination of factors, along with sustaining our average visits per day per clinic, has driven a pretty dramatic increase on the bottom line.

Okay. I'd like two followups on that if you don't mind. The first one is, I guess, maybe for Glenn. On the opportunity side, then, I mean, has this message, this best practice -- has it worked its way through all the regions already? Or you're, I don't know, in maybe inning six of nine innings getting there?

We've gotten this message out across in a broad spectrum. We continue to do some what we would call road shows where we're getting in front of people on a clinic-by-clinic regional basis. But there's still some room, I believe, for some growth on the unit side. I don't know that it will be as significant as what we've seen. But I still think there's some opportunity there. On the visit per FTE side, again, the focus is where we're at. I think we still have some continued room in that area. Although typically during the summertime, we see that drop off a little bit just because of vacations and holidays and things that are going on. But again, what we're doing now is sustainable. But I think there's still some room for some growth.

Okay. Now on the market share piece you guys brought up, what's going on with the doctors in this downturn and the guys who are trying to -- the primary care guys or the guys who are trying to put a therapist in their office? As this business turns down, are they going away? Are they getting out of the business? Or are they trenching -- digging into the trenches and working harder for the patients?

Yeah, I don't know that they're -- I can give you my anecdotal view. I think that, first of all, I don't see them going away in any watershed amount. I don't see them necessarily increasing proportionately in this environment because people have to replace income. I think therapists, for most doctors, are still hard to find and hard to keep. And they don't really understand the business as well. I think as they're permitted to, they'll continue to do this, although I think there's -- just like diagnostics has come under scrutiny, I think there have been doctors and companies out there, not ours, but -- and not any of the good companies that you think about, but smaller regional companies that have been very aggressive in trying to recruit those type of situations and maybe have crossed the line. And so I know for a fact that the OIG is looking at the issue closer than ever. Will it come to pass that things change? I don't know. But I haven't really seen a big shift in either direction, either to doing more of this or away from it, necessarily.

I think what we've tried to do with doctors is we've tried to bring other -- through our RMG acquisition that we did a year ago, other ancillary services to doctors in a creative way that have helped their business, and in turn, we've gotten downstream referrals from it. And we've tried to approach it in a more of a partnering fashion and tried to keep physical therapy out of it for them because I think there's some other things that maybe are more central to their business. So we've really taken that approach to try to move market share. And so far, I think, and particularly with the RMG deal, it's really helped us. It's worked out. And we'll continue to look at creative ways to do that.

You need to remember that the physician-owned practices, what we call POPs, are normally confined to multi-doctor orthopedic groups. And to the extent that we've changed our mix of business from five years ago to be 60% orthopedics to probably closer to 40% now, more and more of our referrals are coming from general practitioners, internal medicine, other types of nonspecialized doctors. And though they don't -- they aren't a huge number of referrals per month, they're very steady. And they're normally not a threat to put a therapist on staff.

Oh, great. Okay. Thanks. I appreciate the color, guys. And good quarter.

Of course. Thank you.

(Operator instructions.) Our next question comes from Mitra Ramgopall with Sidoti.

Hey, Mitra.

Hi. Good morning, guys. How are you? Couple questions. First, I believe you mentioned you're expanding your sales force, bringing on about 20-odd and plan to do more by year end. If you can give us an idea of what the number of the sales force were, say, a year ago, because clearly, it seems like this investment has paid off very nicely for you.

Glenn?

Yeah. Compared to a year ago, if you look at Q1 of -- well, even in Q1 of '09, we had 53 reps in 225 locations covered. Now we've got 69 reps covering over 233 locations. Many of the additional reps we brought on have been in existing markets. If you look at the number of reps relative to 2008 second quarter, we're really around the same number of reps except for the last 20 that we brought on in the last quarter. So we're up about 20 or 30 reps from where we were a year ago. And as Chris has said, we're hoping to add another 20 to 30 between now and year end.

Mitra, what we're going to do in markets where we have a significant number of facilities is we're going to end up with multiple reps in a very focused effort, touching more doctors than we could have ever before, just to move market share.

Okay. And if I had to look at this again, the margin improvement was tremendous. Looking at salaries, rent, et cetera, anything in particular that met to the improvement, or just --

Just very focused on all the expense items. I will say the one thing that we didn't do, that has been done in the industry, we didn't cut salaries. We didn't cut talent. We continued to invest in our people, and we continued to create opportunity. And so it didn't come about at the expense of our most important people who are our clinicians. It came about in other areas. And we were able to do that across a broad continuum of things. And the additive effect was material.

And I guess it's fair to assume in this environment, you're probably able to recruit more attractive rates than, say, a year ago.

I don't know that salaries are lower. Our -- if you look at the number of fills we've had recent quarters, they've been higher as a percentage of openings.

We're actually not paying sign-on bonuses or --

Yeah.

-- relocation expense or things like that like we were before.

But that was really more prominent even in 2007 than 2008.

Right. That's right. But I don't think salaries -- honestly, I don't think salaries have come down any.

No, they have not come down. And there's still markets where it's very tough to find clinical staff. In many other markets, it's eased up. But it tends to be a rolling cycle now.

But I will tell you that we've been very stringent about new hires and that we look at it closely on a case-by-case basis before we add staff, make sure that the demand's there. And again, the people are -- have increased their productivity. The visits per FTE have increased slightly.

But I think we're seeing, in the industry, there's a very good home for good people. And they know we're going to be stable. And that gives us a little bit of an edge in the market when we want to hire good people. And good people bring business.

Sure. And I believe you did buy back some stock in the quarter. I don't know if you could share with us the average repurchase price.

Yeah.

Sure. Let's see. To date -- well, we initiated the program around mid-March. And through the end of the second quarter, we had bought 518,000 shares at an average price of $10.74, I think. Some of those shares were bought recently at prices as high as $13.50.

Okay. And coming back on the acquisition front, you've obviously done some transactions. The last figures -- is it fair to assume at least the more recent ones, everything is pretty much integrated. And you're always looking for opportunities. I don't know how prices compare again in this environment versus what you might have been seeing in recent years.

Yeah. I don't know about pricing. We haven't -- obviously, we haven't done anything this year yet. We're talking and looking.

I think it's fair to say, though, in the sector, that the multiples have come down.

Yeah. There's no doubt over the last couple of years. It was, I think, for the -- we're really trying to focus more on established larger operators. And when things were, I guess, at the worst, people didn't necessarily want to jump out, particularly people in good market positions. It seems that things are beginning to thaw a little bit. I won't predict when and if and how many we get done. But we continue to be active, and we'll continue to do deals.

Right. And finally, again, if you look at the first half in terms of the EPS about $0.54, and given the guidance, clearly, we're expecting a slower second half. And again, is that really more due to the seasonality of the business versus anything else?

Yeah. Historically, the second quarter is the strongest quarter seasonally. Summer slows down. There's a pickup when school starts in the fall, and then you get into the holiday season, it slows down again. So the fact that we expect the second half of the year to be slower than the first half is not because we're not doing well from a business perspective, but just the seasonality.

Yeah. And I think there's still some uncertainty about what's going on in the economy between jobless rates and other things. I won't say we're trying to be conservative or we're trying to be right, but the summer is a little bit unpredictable. So far, I think it's held up pretty well, and so we'll keep our fingers crossed. But people are very focused on what they need to do, so we'll see where we end up.

Okay. Thanks again, guys.

Thanks, Mitra.

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

Okay. Listen, I appreciate everybody's time. I know it's a busy earnings release time. If you have additional questions, Larry and I and Glenn and the rest of the team are available throughout the day. And we'll be around next week. We appreciate your attention and your support. Thank you.

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