US Physical Therapy Inc (USPH) 2011 Q2 法說會逐字稿

Good morning. My name is Misty, and I will be your conference operator, today. At this time, I would like to welcome everyone to the US Physical Therapy Second Quarter 2011 Earnings Release.

All lines have been placed on mute, to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press *, then the number 1 on your telephone keypad.

If you would like to withdraw your question, press the # key. Thank you.

Mr. Chris Reading, Chief Executive Officer, you may begin your conference.

Thank you, Operator. Good morning.

I'm here on the call today remotely from one of our partner facilities in Richmond, Virginia. Just down the road from my original clinic, where I began my clinical career now more than 25 years ago.

With me on the call, Larry McAfee, our executive vice-president and CFO; Glenn McDowell, our chief operating officer; John Bates, our vice-president and controller; a new member of our senior-management team, Rick Binstein, our vice-president and general counsel.

Rick, this his first earnings call. He brings a wealth of healthcare experience and M&A experience, as well. He's been with us about three months, helping on a recently announced acquisition. Working diligently on opportunities within our core business, as well as our physician-services business. It's good to have him here for this first earnings call.

Before we begin, I'd like to ask Jon Bates to read a brief disclosure statement. Jon?

Thanks, Chris.

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 vary materially from those anticipated.

Please see the Company's filings with the Securities & Exchange Commission for more information.

Thanks, Jon.

Larry, I'd like to ask you to kick us off with a review of our financials for the quarter and the year. And then I'll add a little color, following your overview.

Okay. First I'll discuss the second-quarter results, and then speak about the six months.

For the quarter, net revenue increased 10.7%, to just under $60 million, due to an increase in patient visits of 8.7%, offset by a slight decrease in our average net-revenue-per-visit of $0.35 per visit.

Other revenues included a $1.3 million year-over-year quarterly increase in phone services revenues. This business continues to ramp up.

Our gross margin for the quarter was 28.2%. Our provision for doubtful accounts as a percentage of net revenue was 0.08% versus 1.4% in the year-earlier period. The provision for the quarter and year-to-date is somewhat lower than normal. However, our average days outstanding is 48 days, which is excellent.

Our over-120-receivables has actually come down. And our total bad-debt reserve as of June 30th has increased 19%, from year-end 2010. So we believe that the bad-debt accrual is in very good shape.

Our corporate office costs were approximately 10% of revenue in the quarter. Our operating income increased in the second quarter of 2011 to $10.882 million from $9.990 million. The operating-income margin percentage was 18.2%.

Net income attributable to our common shareholders in the second quarter rose 10.1%, to $4.9 million. Diluted earnings per share increased to $0.41, which was in line with the consensus estimate. It was a record earnings quarter, and the first time that USPH has exceeded or has reported $0.40 or more in any quarter.

Now I'll talk about the six-months' results.

Net revenue increased 11.6%, to $116.7 million, due to an increase in patient visits of 9.3%. And a slight increase in our average net-revenue-per-visit of about $0.05.

Other revenues included a $2.4 million increase in phone services.

Gross margin increased to 27.5% in the first six months of 2011, as compared to 26.8% in the 2010 period.

Our corporate office costs were approximately 11% of revenue in both periods.

Our operating income increased in the first six months of 2011 to $19.6 million, from $16.7 million in the 2010 period. The operating-income margin percentage was 16.8% in the first six months of 2011, as compared to 15.9% a year ago.

Other income in the first six months of 2010 included a pretax gain of $578,000 from the sale of a 5-clinic joint-venture. So actual results on an apples-to-apples basis were even better than reported.

Net income attributable to common shareholders in the first six months of 2011 rose to $8.6 million. Including the gain from the joint-venture sale in 2010, EPS increased by 18%, from adjusted $0.61 in 2010 to $0.72 in 2011.

In the first six months of 2011, we've opened eight de novo clinics, and closed two clinics. We ended the quarter with 398 clinics. But of course we announced a 20-clinic acquisition after that, so our total's now higher.

Also, the Company announced that a quarterly dividend of $0.08 per share will be paid on September 2nd to shareholders of record as of August 19th.

Chris?

Thanks, Larry.

First I'll start with the Company as a whole. As Larry mentioned, this is the first time we've broken the $0.40 barrier for a quarter in the history of the Company. And we fully expected to do it this quarter.

But it's a demonstration of just how much progress we've made in the past couple of years. It's not that long ago that $0.40 or $0.41 in earnings would've been a great midpoint for the year.

On the year, our top line has grown solidly, off of near-double-digit-volume growth -- which has been aided by the two great acquisitions we completed late in 2010. That revenue provision is up very slightly this year.

We've seen for the first time a dampening in the growth of our net rate, due to some pricing changes enacted by Medicare at the start of this year. Even with that, we have seen a 70-basis point gross-margin improvement for the year. Although, a very slight, comparative reduction in the second quarter of this year.

Likewise, we've experienced improved operating margins in the first half of the year, up nine basis points over the same period last year.

Remember this. As we do acquisitions and we roll acquisitions into our portfolio, like the one that Larry mentioned and I'll talk about here a little bit more in a minute. We could have some subtle shifts in our overall margins.

Remember also that we tend not to be particularly focused on the margins of these acquired companies at the point of acquisition. Because we're paying for them on a trailing 12-months' EBITDA basis.

In fact, sometimes the lower margin begets more opportunity for improvement as we move forward.

Also creating some movement for the good, generally, is our physician-services business. In Quarter 2 of this year, we made the decision for the further protection of our OsteoArthritis Centers of America Brand. Franchise paperwork across our network of states -- our very rapidly-growing network of states.

This filing, which has now occurred, caused us a slight positive in the growth of our new-client base in the second quarter. Even so, our year-over-year revenue growth within that segment had been very strong. And now with these filings behind us, we have turned our attention back to helping our clients roll out their new centers, as well as to continue to develop and process a strong demand of new clients and new markets in that service line.

These are all good things to be excited about.

Our acquisitions, with another great deal completed just a couple of weeks ago, and a great new market with a lot of forward opportunity. As well as the growth of the other aspects of our business, like phone services, which is currently a small but quickly-growing part of our offering.

In order to handle the current demand, we've added a couple of team members in our physician-services business. Working with our corporate team to further assist in our training and implementation of our rapidly-growing new-client centers, which are now coming online weekly.

Shifting focus back to our core business, we are very excited about our recent acquisition. 20 new locations and several more startups in the works from that relationship.

We have some great partners who are very excited about growing that business. And we look forward to helping them as they move forward.

Organic development, which may have appeared light in the quarter, is still on track for the year, we previously discussed.

Internally, we are working on volume development, as well as keeping a close eye on cost control. Volume this year as well as last year is not quite yet returned to pre-recession levels. And while it's not off very much, it remains a focus, as well, for further opportunity for us to realize and work toward.

Fit2Work helps in that regard, and we continue to see strong demand for those Fit2Work services that have proven to be so needed and wanted in this current market-by-industry.

Sales and marketing continues to drive same-store referrals in a positive direction. But on the flip side of that, we are missing a very small fraction of a visit in the form of our average duration-of-care. The only way to make that up in a tough-jobs economy is to drive more referrals and remain diligent in customer service, care and patient-management areas.

Additionally, we recognize the need to improve our clinical efficiencies, which have seemed to stall a little bit over the past year. And we expect a renewed operations focus on scheduling FTE management to head us back in the right direction.

Overall, I remain very encouraged at what we've been able to accomplish in an otherwise challenging environment. However, I will convey to you that not just me, but the entire operations group, our management team in conjunction with our very strong partnership groups, are keyed into the opportunity to further advance and improve our core business.

That will be a big focus of our ops team for the remainder of this year, or until we see significant forward motion in a few of these key-metric areas.

On the development front, we continue to have a variety of practice-acquisition opportunities, in discussion at various points. And we expect to have a solid second half of the year for organic openings, as well.

As you know, we expanded our credit facility with BofA a few months ago, and we did that for the express purpose of growing our company further.

On the physician-services side, we have invested in additional resources which will assist us in handling the growth that we are seeing in that segment of our business. Of the approximately 100-plus markets now under contract at this point, there are approximately 25 or so actual facilities open today, but with a strong ramp-up between now and year-end for facility openings, and continued strong demand for new markets.

As always, I know you have additional questions. So with that, I'll ask the operator to please open it up for those questions. Operator?

At this time, I would like to remind everyone, in order to ask a question, please press *, then the number 1, on your telephone keypad. We will pause for just a moment to compile the q-and-a roster.

Your first question comes from the line of Larry Solow with CJS Securities.

Hey, Larry. Good morning.

Good morning, guys. How are you doing?

Quick question. Just on sort of volume trends and anecdotally or whatever. Do you see anything like in the last 6 to 12 months of the economy, sort of? Or the lack of drugs' recovery sort of extends itself out and people maybe come off COBRA?

Or anything that maybe just anecdotally that, you know, put more pressure on you in terms of volume? Or anything, any color there?

Are trends sort of status quo?

Yes. Let me say a few words, and then I'll ask Glenn to chime in, too, if he wants to add anything.

I don't know that I see anything new. I don't know that I would attribute it to what we're experiencing. What we've been experiencing, as a COBRA trail-off.

I do think it continues to be a tough environment. I think that's evident in the market right now. People are still a little bit nervous. And I think we see that in the broad market end, as well, and the jobs market.

So our slight compression in visits is very slight. I mean we're talking about a fraction of a visit-per-clinic-per-day.

Right.

And when you average 20 or 22 visits-per-clinic-per-day and you go down a few tenths, it doesn't -- it may not even show up or register that much on an individual-clinic basis. But we feel it as a company, and we're still feeling that. And we're still working on that.

Now on a positive front, we've gotten referrals into the positive same-store growth area, and that ever-slight reduction that we continue to see on a same-store volume basis is a result of just again a fraction of a reduction in the average duration of our patient.

Now I expect that as things hopefully improve forward, I don't know whether it'll be this year or whether it'll be into next year, that we'll get that back. But we've continued to see some of that.

This is Glenn, just to jump in. I mean I agree with Chris.

I don't think there's any more pressure now than there was a year or a year and a half ago.

Yes.

I think there's still opportunity that's out there for us to go after. We have seen positive growth on the referral side.

The impact of dollars and co-pay and value are impacting our visits, as Chris said, by about a half a visit. And we think there are ways to overcome that.

So we're focused on doing that, moving forward.

And the referral. The improvement in referral trends. Do you attribute some of that to sort of your increased sales exposure? Or more focus on that?

It's a combination of a number of things. It's more increasing our sales program. We have to focus by our partners and directors to go out there and build referrals.

And that's something we think that there's still additional opportunity for us to do.

Yes. And actually I also just think some of that's coming through Fit2Work, too. I mean we're accessing a different kind of customer base on a more regular basis than we have before.

If you actually look at some of the macro stats for physicians, their businesses are down. In most cases, more than (inaudible)

A lot more. You guys have done a pretty damned good job holding up.

Just the last question. You mentioned the efficiency ratios. And I know maybe in the last 12 months, they've sort of been flat. But they did have a nice run on the 2 or 3 years prior to that.

I mean do you think it's just sort of a function of the -- you head a nice run? And it's just taking a breather? And maybe you've hit a wall or --

Go ahead.

Whatever you want to call it, the place that we've hit is not a wall that we can't get over.

Our partners recognize the need not to do anything dramatically different, but to continue to raise the bar and look for opportunities to be more efficient.

We have hit what seems like a little bit of a sticking point. And I think we've identified some things that we can do internally that the operations team, Glenn and his team, are very focused on.

And that can unstuck where we are. We recognize the need to do that. I think you see a little bit of that in the quarter. And in a very, very slight margin compression, in what's an otherwise somewhat flat net-rate environment right now.

So everybody's been working on it hard. And we're going to stay after it until it moves in the right direction.

Got it. Okay. Great. Thanks a lot.

Your next question comes from the line of Mitra Ramgopal with Sidoti.

Hey Mitra!

Hey! Good morning, guys. Just a few questions.

First, on the physician-service revenue, we have seen a significant increase in the first half of this year versus last year. I wonder if you can share with us what's really driving that, and how we should look at it, going forward.

Yes. Interestingly, what's driving that is, we're seeing people. We haven't advertised nationally for that, yet. We're in the process of redoing our website to make it more patient-friendly and interactive, and also to add really an advertising component for potential new franchisees or open markets.

But it's come through word of mouth. It's come by people coming across the advertising that our existing customers are doing. It's come from talking to existing customers with parties that have healthcare experience that are looking for a new opportunity.

And it's really been quite passive so far. And that's kept us really very busy to date.

So we're expecting sometime in the next six months or so to do some more nationally-based ad work that will pick us up. We've resourced, up-staffed slightly our support group, in order to deal with what we've got right now. And demand continues to be strong.

So, so far so good.

Okay, then. That's good!

And just if you could comment on the hourly reimbursement or pricing environment. I know you've had a few years of real nice increases in terms of the revenue-per-visit. And then the first quarter was a little flat. And now this quarter's slight decline.

If you could just comment on what you're seeing there.

Yes. You know, yes, I think we're seeing what we kind of expected to see this year. Which was a flatter year in reimbursement. I think this year it's going to be probably a flat year.

You know, MPPR has taken a little bit of a hit. As we get further into the recession, companies are looking for ways.

We haven't seen really any big companies make any big shifts in reimbursement. But we did expect to see some reimbursement pressure this year. We're actually on track with what we'd budgeted on a general basis.

And we're working to shift our payer mix, to shift that a little bit.

The other moving part in that, which I referred to in my earlier comments, has to do with when we bring on new companies. It may not be a big swing, but both of the companies that we added at year-end had a lower net rate. Pretty significantly lower than we did, on average.

Now as you remember, with STAR, when we added them in 2007, their rate was significantly less, too. Now their rate is equal to our rate nationally, which was about a $17 forward movement for them.

So sometimes we have other things that will swing that rate around a little bit. But generally speaking, I expect this year to be somewhat flat in our net-rate-per-visit.

Okay.

And just as you mentioned STAR, it brings me to my next question on acquisitions. You recently announced probably the biggest acquisition since STAR. I don't know if you could comment in terms of the attraction regarding that deal, and the pipeline going forward?

Yes.

Great guys. Two really good, good, good guys who've been in this business a long time. Went to college together. Good friends.

They developed the model which looks a lot like our model. Where they went out and found the strongest people in a variety of these markets. And they became -- they brought them in as minority partners.

And so we bought into that business. It's 20 clinics. We announced it last week.

It's in a market which is dense population, high economic area and lots of room for continued growth, and good reimbursement. So we're just very excited.

We're just starting the process. We initially contacted these guys. We laughed about it on a call earlier this week. I initially sent them an initial letter and a follow-up now four years ago.

We've stayed in touch. They weren't for sale. They really were never for sale. The reason they kept a big stake in the business was their choice, because they believe they've got a lot of room to grow. And they think with our help that they can do that and press the gas a little bit.

So just a lot of real positive things from that deal, we expect, going forward.

In terms of the pipeline, Larry can say what he always says. We don't have a pipeline. We're talking to a number of people. And we'll see what happens. Larry?

We don't have a pipeline.

But we are, I think as we do more and more transactions, we've got a reputation now where we see a good number of opportunities. So that continues to be the case. And I'll be surprised if we don't do something between now and year-end.

And in terms of valuations you're seeing out there, is it pretty much the same from, say, a year ago?

Yes. For deals that are in our size category, they still tend to trade for 5- to 7-times EBITDA. And if it's at 7, it's got to have a very rapid growth rate.

There are other transactions that've been done that are some of the big players. Like the Number-4 player in the industry recently sold. They went for a higher multiple than that.

But that's really the exception. The kinds of companies we're looking at that have anywhere from 5 or 6 locations up to 20 are going to go in that 5 to 7 range, normally.

Okay. Thanks again.

Your next question comes from the line of Brian Tanquilut with Jefferies & Company.

Hey, good morning, guys.

Chris, just on the industry. And I know you're obviously one of the largest guys. But what are you guys hearing anecdotally in terms of volumes?

It seems like overall healthcare volumes are struggling. Is the PT market seeing greater decline? Or less of a decline relative to other areas in healthcare?

And I guess what I'm trying to drill down on is, are you gaining a lot of market share from your competitors, larger or smaller?

I don't know on a macro basis. Because I look at your reports that come out, and others that report on healthcare. It seems like in some of the segments, there's a little bit more headwind maybe than we individually as a company have faced.

We continue to do well in what I would constitute as otherwise struggling states or struggling economic markets, and have to believe in those markets, that we're moving market share.

That said, I think there's still opportunity for us out there to do better, and to regain the fraction of the visits that we've lost due to our own challenges of the economy and some of the other things that we need to focus on.

So I think there's still opportunity. I don't know that PT's been hit any harder than any other area, necessarily. But honestly, I'm really just focused on what our Company's doing, and what I think we're capable of. Not really what everybody else is doing lately.

Yes. And you guys are doing a good job.

But just to that comment. What's driving the average duration down?

Well, I mean it's not a science, necessarily, where it's a DNA test. But in my view, and again, it's a fraction of a visit -- in some markets it may be a higher co-pay. In some places it may be just that people are really mindful of their spend rates.

You know, I know I talked to somebody who I'm very close with yesterday, whose daughter dislocated her kneecap. And they're not going to therapy right now. Their individual situation, just because they have a high deductible and it's bad timing for them.

So there's some of that out there. I just think it's the overall sentiment in the marketplace. It's just a little bit more conservative than it has been.

Conversely, we're not seeing companies put caps on visit limits or other things that are preventing people from going. It's just been a very, very slight shift.

Gotcha.

And then it's nice to see that your referral flows are accelerating. So is that a function of the sales investments that you guys have made in the last few years? And is that something that you're trying to push further?

Because I know you guys have done quite a good job bolstering the sales force.

I think it's a combination of good sales force, great training; we have awesome trainers who just continue to do a phenomenal job. We've changed recently in the last number of months our ranking system for these folks. And it gives us, interestingly, for me at least, a lot better transparency in their performance over time.

And I don't think that we had a great ranking system that was objective, before. And so this system now lets us see how these salespeople function against each other on a same-store basis, over a period of years, marked by quarters. And it ranks them into quartiles, now.

So Glenn and myself and our other part of our sales operation team that interface with sales are able to see these people now. See when they improve. See when they begin to decline. So that we can jump in more effectively and earlier.

And also, maybe make some changes with people earlier than we were before. And I think the net result of that is net-positive.

Chris, last question for you, before I turn it to Larry.

In terms of de novos and potential new partners, what do you see? I know you don't have an acquisition pipeline. But I know you have a de novo pipeline or a new-partner pipeline.

Yes.

What does that look like right now?

You'll see good, strong openings in the third quarter. Our openings, again -- sometimes we miss a quarter by a week. And so I really don't want to get caught into reporting on interim periods.

It's about like it was last year, quite honestly. And it really hasn't changed a lot. We're seeing good people. We're seeing people actually get up to speed pretty quickly in this market, still, which is very encouraging.

But it really hasn't changed a lot. It's done a lot better, and it's not any worse. We just happen to have a little wider quarter, spacing-wise, than normal. But the year looks about exactly where we expected.

So the hits on the "Own your own practice," website are still tracking basically flattish?

No, actually, they've generally been going up. If you look at from where they were a year ago, they're up.

We did a social-media event, kind of live-streaming thing a couple months ago. That always picks it up.

We continue to do the same kinds of things that we've been doing. But the volume on that side is steady-to-up-slightly.

Okay.

And then Larry, overhead. Corporate overhead now at 10%.

I know in the past, you'd talked about 10 being sort of the target. So is that the run rate that I should be thinking of, going forward? Or is that -- was that the low for the quarter? And if that's the case, how should we think about how much opportunity you have left in managing corporate overhead?

Yes.

Well, this was seasonally, excluding acquisitions. The second quarter is normally going to be your best quarter in terms of visits and revenue.

So even if your overhead stays flat, it's going to be a lower percentage of revenue. So that's why we got to 10% this quarter.

I don't think the overhead costs will go up a lot. But they'll probably go up in terms of dollars. But they will go up in the third and fourth quarter as a percentage of revenue, just because they're lower-volume quarters seasonally for the business.

Okay.

I think we're, as you know, as we continue to add acquisitions, we added this acquisition last week. We may have to add one or two people, as a result.

But I still think we'll be able to grow the top line faster, and ultimately get to 10% on a run rate basis.

Okay.

And then I saw that your cash flow statement shows $60 million in acquisition spend. Is that for the deal that you announced earlier this week? Or is that for something else?

No. That was a minority-interest purchase.

Okay. Got it.

Primarily that we did. Because the acquisition was a subsequent event. It was after the quarter end.

Yes. That's what I thought.

And then last one.

I know you broke down your same-store qualitatively. Just wondering if you can share with us what the breakdown between visits on the net rate same-store?

I did it percentage-wise. I'm not sure if we've got it in there, Brian, how much was revenue and how much was visits. I'm not sure.

We'll take it offline. Yes. Not a problem.

All right. Well, thank you, guys. Congratulations, again.

Your next question comes from the line of Brooks O'Neil with Dougherty & Company.

Hey, Brooks.

Well, good morning and congratulations on a great quarter, you guys. I have a couple questions.

One is, you mentioned that you have 100 position regions signed up, but only 25 markets where you're active.

Could you just refresh our memory how the money flows to you guys? Would we expect to see a nice growth in fee income going forward, as you open up that additional 75 markets?

Yes. Glenn, I don't know if you want to speak to that or you want me to.

But we have a front-loaded initial fee that's training-based. And then once the facility's open, typically then we have a more modest monthly fee that then becomes persistent for a long period of time.

So Glenn, you want to walk through that?

Yes.

Typically, what happens when we sign up a franchisee, it's for a single market. They will pay us an upfront fee, which is a significant amount. That covers the training and franchise documents and everything else related to that.

On a monthly basis after that, they start paying a lower monthly fee, which is stable and consistent across the month, for a 5-year period. So as we open up additional locations, those management fees will start to build up.

Right now, as Chris said, we have 25 franchise locations that are open. We expect to open another 14 between now and year-end. And we've got a fairly good pipeline on top of that that should continue to grow, from that standpoint.

So Brooks, it's like 40 upfront. I think. Right, Glenn? And then it's 4,000 a month once the facility's open.

That's correct. Actually, it's 45 upfront. And then it's about $4,300 a month from a management-fee standpoint, monthly basis.

There you go.

Good.

And just so I understand, would it be accurate to say you've already collected the 45 from the 100 that have signed up?

Correct.

Okay.

And then I get questions from people regarding sort of the general question of why a very successful, high-growth, 20-unit private PT practice would see value in what you're offering.

I know that's kind of a general question, but maybe you could just run through sort of the basic rationale again for what you bring to the party for a successful group like you acquired this week.

Sure. I try not to have my feelings hurt too much, Brooks. Just kidding.

You know, I think what they see is a partner that brings significant resources. I'll give you with this deal that we just closed, a real-life story.

They were in Houston for one of their visits. One of their several visits, as we were going through this process on, "to do or not to do." And whether they wanted to continue to go their own way or not.

In part of the day, what I did was, I called together an impromptu meeting that involved everybody on our development team. Those people who function to assist our partners to open new facilities.

We called a meeting within five minutes, and 17 people showed up. And we put them all in the boardroom.

We went around the table and everybody introduced themselves and told what they do to help in the process of opening a facility. And really, about 20 different things. Significant things that have to happen.

And I think the light went off with these guys. It's that they have a great infrastructure. They've got good people. They could benefit from some more infrastructure, but they'd really benefit from what we bring from a development-expertise standpoint, in terms of additional resources.

And the world doesn't change dramatically. They continue to run the show locally. They continue to manage their folks. The name doesn't change. They're not gobbled up by some big corporate monster. Their life continues to be as they've envisioned it, but now with a lot more support.

So, long story short, it takes a while to get these deals to come. Oftentimes because as you mentioned, they really weren't for sale. And they probably didn't have to do anything. In fact, they didn't.

But these guys, to them, it made sense. It just so happened that we got along great and it was a good fit otherwise, as well.

Yes. Well, that's fantastic. Thanks for that. Again, congratulations on a good quarter.

Thanks, Brooks.

Your next question comes from the line of Mike Petusky with Noble Finance.

Hi, Mike.

Good morning, guys.

You know, I never caught up with Larry, and I haven't or I don't think I've heard it on this call. But the new business that you guys acquired; where is it located?

We haven't and we won't mention where it's located.

And so I will tell you a couple of things. It's a great med-rate area. It's a relatively new state for us; meaning we really didn't have much of any presence there. Absent a very slight bit of business.

And for competitive reasons, really, we're not going to mention it and it really shouldn't matter all that much.

Yes. Let me just expand on that. What we found in our acquisitions when we did disclose where they were or say who they were, the competitors in the market would say, "Oh, you know, so-and-so has been bought by a big company."

And so people try to use it against us. And in fact, that's not the way we even operate, but that's what they say in the market.

So we found if we just announce the size of the deal and not get into the name of the practice or specific locations, then the competition can't use the "big company," ploy against us.

Right. But you guys don't even change the branding. I mean.

Yes.

So management stays with the deal. We won't do a deal where management won't stay. We don't change their brand. Personnel changes are normally none.

There's very little operationally that we do internally. And especially on the clinical side.

There is no really change or day-to-day change in what they do and how they operate.

In terms of the actual clinical practice, now, obviously we integrate the back office, and normally we can get some efficiencies doing that. But that's not really relevant to a patient.

Right.

Hey, and I can't remember how you guys do this, but did the deal close essentially the day or somewhere close to the day that you guys announced it?

Well, we didn't announce it until it closed.

Right. But it had closed maybe just shortly before that?

Right. The day before.

The day before.

I think we announced it on a Monday.

Yes.

Yes. It closed on a Friday; we announced it on a Monday.

Yes. We closed it on a Friday and announced it on Monday.

Gotcha. Okay.

And actually, Larry, in terms of the bad debt going forward, I heard your commentary around DSO and all that.

But in terms of that, I mean, is that instead of kind of your historical roughly 1.5%? I mean is that more like a 1% number, going forward, do you think?

I think short-term, it'll run at the 1 to 1.5% range. I still, long-term, would use 1.5%.

At least I've been here eight years now, and it's run anywhere from about 1% to 2%. That's the normal range. It bounces around a little bit quarter-to-quarter. But right now, I think 1 to 1.5% is probably where we're going to run the second half of the year.

And could you guys just comment on I guess the labor markets for therapists?

I think you all know my wife's a therapist, and I intercepted the call the other day where they were offering her just a ridiculous amount of money on a contract basis.

I mean can you guys talk about that?

Yes. This is Glenn.

We've actually seen the therapy market loosen up probably in the last six to nine months, relative to what it used to be. A year and a half, two years ago, we saw therapists being offered ridiculous amounts of money and sign-on bonuses. That has, at least for where we're at and where we're looking for people, we have not had to do that and are not dealing with that.

So we've seen the labor market actually loosen up from our standpoint, and currently don't have any outstanding positions where we're looking for directors to take over satellite clinics or otherwise that normally might've gone dark a year and a half ago.

So we see the labor market right now as actually being somewhat favorable from where it's been in the past year and a half.

We track statistics like open positions, number of fills, average time-to-fill. A need our average time-to-fill I think is the lowest I can ever remember it.

It's gone down significantly. So we're doing actually quite well for us.

We've seen the market loosen up relatively a lot, compared to where it used to be.

Gotcha.

Mike, it sounds like a good thing for you, though.

Well, it was a rural facility, which I would imagine would involve quite a bit of driving. But the number, frankly, made me (inaudible)

For contract-labor therapists, for PRN therapists, for traveling therapists, that's still significantly higher. But for the average full-time staff therapist, part-time therapist that we're looking for, we've found that that market has loosened up significantly.

Mike, I think it inverts necessarily to the -- if you were in -- whether it be an outpatient or an inpatient facility that's light and bright, and pretty straightforward, right now, the market's great. If you're in a market that's challenged or that has a high drive time or difficult patients or difficult environment, then those people are still in a difficult market, and they have to pay more.

I guess can I get some of those housekeeping items? The payer mix and the sales reps and coverage that I typically ask for?

Okay. Yes. You want to go through those?

Sure.

Sales reps, right now, we have 76 total sales reps in the Company. Covering 323 locations.

Our current units are at 4.2, which is running consistently with where we had been.

And our visit-per-FTE in the second quarter was 10.98, which is down slightly from 11.2 in the prior quarter.

Prior quarter -- Sequentially or year-ago?

Sequentially.

Okay. What about year-ago?

Year-ago, we were at 11.2, also. So we're down slightly compared to where we would've been running.

And that ties out to -- we were talking about our visits -- were a little lower in the month of June. Our average-visits-per-day-per-clinic were off 3/10 of a visit from a year ago. So these numbers are all pretty consistent.

Larry, what about payer mix?

Payer mix, in terms of charges, private was 25.3%. Managed-care, 32.3. Workers comp, 14.2. Medicare, 22.5. And then the balance is, "other."

Okay. And then I guess in terms of -- and I understand the commentary around pipeline. But just the people that you're talking to. Are there other deals of similar size or close to similar size of the one you guys just closed? Or are they mostly considerably smaller deals?

Well, they range. I mean again, most of the time, we look at groups that range from a couple of clinics to 15. Something like what we just did that had 20 is a little bit larger than normal.

Yes. Mike, you'd think about -- 1 to 3 million is in that range. That's kind of the typical range of the people that we've been talking to and we are talking to, now.

$1 million to $3 million in EBITDA.

In EBITDA.

Your next question comes from the line of Brian Tanquilut, with Jefferies & Company.

Hey, guys. Thanks for taking this follow-up.

Chris, just want to hear your thoughts on the physician-fee proposal that came out of PMS several weeks back.

Just wondering what your read is for the PT business, or for your Company in general. Assuming we get a docfix (ph) later this year.

Yes. You know, I don't know. I've quit trying to predict what the guys in Washington are going to do. Because I don't think it's particularly predictable. I don't think we'll see a big reduction.

I think over the long-term, there's continued pressure to find a meaningful debt solution. And whether some of that comes there Medicare or not, I think remains to be seen.

I think we're still not the nail sticking up as compared to a lot of other sectors. But I don't know. I really don't know.

As proposed, it was neutral to slightly positive for us.

But who knows what the final rule's going to look like?

Right. Right. Okay. So, neutral to slightly positive at least for now.

Larry -- last question.

I'm looking at salaries and related costs and rent. And I know you guys have done a good job trying to renegotiate your rent contracts in the past.

What explains (inaudible) salaries? I mean 80 basis points year-over-year on salaries, and around 10 basis points on the rent?

Yes. I don't think 10 basis points.

Yes. I think that's been --

Statistically significant.

(inaudible) salaries.

Yes. The operating costs, again, the volume was a little lighter than we expected. We probably have some room for improvement there.

And operationally, we're going back at this point. I mean volume wasn't quite where we expected it to be. So salaries were up relatively compared to that. And we're in the process of going back and making what modifications and changes that we need to to get our salaries in line with where we have our visit expectations.

Okay. Got it. Thanks.

Again, if you would like to ask a question, please press *, then the number 1, on your telephone keypad.

At this time, there are no further questions.

Okay. Thank you, Operator.

Listen, everybody. Thank you so much for your participation. You had a lot of great questions. We appreciate your interest in the Company. And just rest assured, we're working hard to continue to move forward.

So thanks and have a great day!

This concludes today's US Physical Therapy 2nd Quarter 2011 Earnings Release. You may now disconnect.