US Physical Therapy Inc (USPH) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the year-end and fourth-quarter 2011 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) Thank you. I would now like to turn the conference over to Mr. Chris Reading, Chief Executive Officer. Sir, you can begin your conference.

Thanks, Paula. Good morning, everyone. Welcome to U.S. Physical Therapy's year-end 2011 and fourth-quarter conference call. With me here in Houston is Larry McAfee, our Executive Vice President and Chief Financial Officer; Glenn McDowell, our Chief Operating Officer; Rick Binstein, our Vice President and general counsel; and Jon Bates, our Vice President and controller. Before we begin our call today I'll ask Jon to cover a brief disclosure. 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 and Exchange Commission for more information.

Thanks, Jon. Let me start by saying that I'm very happy to report that we're going to cover in detail a number of very positive things that occurred for our Company in this fourth quarter and 2011 year. Before we do that, in order to better understand our results and because of some of the unique circumstances, I'm going to ask Larry to go ahead and cover the financials and some of the circumstances in greater detail and then I'll add color to the operating results following Larry's discussion.

Right. First I'll go over the Company's annual results. Net revenue increased 12.2% to $237 million due to a 12.3% increase in patient visits, which was partially offset by a decrease in our average net revenue per visit of about $1.20 because of last-year's Medicare rate cut. Other revenue included a $2.5 million increase in physician services. Our total clinic operating costs ran at 74.4% of revenue. Our provision for doubtful accounts for the year was 1.6% as compared to 1.5% the year before. Our corporate office costs as percentage of revenue were reduced to 10.4% in 2011 as compared to 10.8% in 2010. Our operating income for the year $35.9 million.

In 2011 interest and other income included a pretax gain of $5.4 million related to a purchase price settlement of an outpatient physical therapy group that we acquired in, I believe, March of 2010. As required by current accounting standards, since this reduction in purchase price past the 1-year anniversary date and thus outside the adjust period this amount was recorded as a gain rather than as a reduction of goodwill. In 2010, the year before, we had other income of $578,000 from the sale of a five-clinic joint venture. Our provision for income taxes as a percentage of income was 34.6% in 2011 versus 36.1% in 2010. For the 2011 period, $3.8 million of that $5.4 million gain was non-taxable. Our reported net income attributable to shareholders increased 34% to approximately $21 million and earnings per share increased to $1.75 from $1.32.

The 2011 gain had an impact of $0.40 per share and positive adjustments in 2010 had a positive adjustment effect of $0.10 per share. So if you exclude those items, which are really unusual or non-recurring, our diluted earnings per share would have been $1.35 in 2011 as compared to $1.22 in 2010. Management's earnings guidance had been in a range of $1.31 to $1.35, so we finished at the high end of the range and we did slightly better than the analyst consensus estimate of $1.34. Same-store revenue for de novo and acquired clinics open for one year or more increased by 1.7%. Our average net rate per visit increased slightly while same-store visits increased by 1.5%. This was the Company's first annual increase in same-store visits since the onset of the recession in 2008. During 2011 we opened or acquired 41 clinics and closed 17 clinics, ending the year with 416.

Now I'll go over the quarterly results. Net revenue increased 13.8% due to increase in patient visits of 16.9%, offset by a decrease in the average net revenue per visit. Total clinic operating costs ran at 75.6% of revenue. Corporate office costs $7.088 million, the increase primarily due to higher accrued incentive costs in the quarter and an anticipated legal settlement reserve. Our operating income for the quarter was $7.7 million. Other income included the gain of $5.4 million related to the purchase price settlement. Reported net income for the quarter was $8.2 million compared to $4.1 million in the fourth quarter of 2010. Earnings per share were $0.69 versus $0.39. Excluding the purchase price gain EPS would have been $0.29. The analyst consensus estimate was $0.28.

Same-store visit increased 3% while the average net rate per visit decreased 2.9%. This was the Company's first quarterly increase in same-store visits since the third quarter of 2008. Our adjusted EBITDA for the year-ended 2011 increased 15.3% to $35.2 million. During the year, the Company purchased approximately 255 million shares at an average price of $18.28. We announced today that we've increased our dividend. The quarterly dividend was raised by 12.5% from $0.08 to $0.09 per quarter. Also, we gave primarily earnings guidance for the year. We expect earnings at this point for the year 2012 to be in the range of $17.1 million to $18.1 million in net income and $1.43 to $1.41 diluted earnings per share. That represents our earnings from existing operations and, as the norm, as we do acquisitions if they are significant then we will adjust guidance accordingly.

Thanks, Larry. So let's talk about and provide some color to the operations and we'll touch on a few things. First, in simple terms, the Company finished the year much stronger than we started it. Of note, as Larry mentioned, for quarter we were able to deliver 3% positive same-store growth, the first same-store growth that we've produced in a number of years, and that was enough to tip us into positive same-store growth territory for the year on a visit basis. That, coupled with our solidly-performing acquisitions, helped to deliver for the quarter 6.9% growth in revenue, muted slightly by a rate reduction that occurred with an earlier-in-the-year Medicaid change beginning in 2011. The good news is that for 2012 Medicare's provided us with a slight rate boost for the year and the president recently signed off on the payroll tax bill, which included some very positive elements with respect to having a [known] rate for us for 2012. Also as we look at our final quarter's performance in 2011, this was our best net rate quarter of the year, the best clinic visit volume of the year and the best total volume in revenue quarter of the quarter, with a significantly-stronger December than we've experienced in years past.

For the year adjusted net income before those items that Larry explained earlier was approximately 12%, net revenue increased over 12% and physician services revenue grew by over $2.5 million for the year. Also of note, in the fourth quarter we were able to reduce some salary cost as a percentage of revenue 80-basis points from the prior-year period, which had been a significant focus and effort for the operations team in the later part of the year. Additionally, we continue to make good progress with our Fit-to-Work program. The team has been incredibly busy and we are seeing good results from that program with a growing list of new customers spanning a variety of industries, including heavy manufacturing, chemical companies, supermarkets, steel fabricator's, municipalities and food-related industries and companies. With respect to our Osteoarthritis Centers of America franchise, we've rolled out an expanded GPO, or group purchase offering, providing significant discounts to our customers. We have put the third-quarter franchisee default fully behind us with the unencumbered ability to resell that territory. We have rolled out an advertising campaign in the Southwest Air magazine, with alternating months focused on patient-related information followed by franchise opportunity information. We look forward to that part of our Company growing as we further expand our support and service offerings within that brand.

Finally, let's talk a little bit about deployment of cash over the past through years. Recently for a board meeting we gathered some statistics on our cash usage for acquisitions, repurchase of minority interest in stock and the stock buy-back program. In the past 2 years we have completed four acquisitions adding approximately 45 locations initially, not including the organic growth that has occurred post transaction. These deals deployed over $29 million in cash. Adding to that was over $21 million in minority interest repurchase, mostly fractional interests in earlier-acquired deals, and over $6 million in share repurchase in the last 2 years, for a total of about $55 million in cash deployed to further grow the Company. At the same time we initiated a dividend in 2010 and today with our earlier release and announcement, we've increased the dividend to 12 -- by 12.5%. We still have a good deal of room under our current credit facility and we expand -- and we expect to use that room to further grow our Company in similar very creative deals as compared to those we've done in the past.

All in all, through the twists and turns that the economy presented us over the last few years I'm very proud of our entire team here and across the many partnerships throughout the Company. Both at the clinical level, the partnership level, the management team and the corporate support, they've found a way to focus on areas that they can make a difference in for the benefit of our patients and our partnerships and ultimately for the benefit of our shareholders. We continue to work hard to deploy capital. We continue to work hard through program development and resource allocation to grow the Company and we expect, with a neutral to slightly positive reimbursement year, that this will be a good year for the Company. We appreciate your continued support.

And with that, operator, we'll open it up for questions.

(Operator Instructions) Your first question comes from the line of Brooks O'Neil of Dougherty & Company.

Hey, Brooks.

Good morning, guys, and congratulations on a terrific year in a tough environment. I'm just curious. I know you don't want to provide a lot of guidance for 2012, but could you say whether the December strength in volume has continued into the new year?

We've seen the December volume continue. We've been blessed with good weather throughout most of the country for the most part, with just a few exceptions, and so far so good.

Great. And Chris, I don't know if there's any big explanation for why you're seeing the rebound beyond all the many good things you're doing to drive the Company's performance, but is there anything you'd point out besides weather, besides modest improvement in the overall US economic picture that might account for the volume strength?

We've done a number of things. I think -- honestly, I think it's a combination of things. I think that the general sentiment in the economy has improved. I think the fear that was there has ratcheted down to a certain extent. Jobs numbers have improved modestly, hopefully will continue to do that over some period of time.

On our end we've further expanded the sales team getting deeper and deeper and in some cases doubling sales forces in larger markets. Fit2Work has added a nice revenue stream. Although it hasn't been -- made a huge difference in our payer mix, which I'm sure we'll cover in a minute, it has added significant revenue to the Company through this tough period.

We continue to get a lot of traction with that, we continue to have high demand and I continue to believe we're just scratching the surface. So, again, everybody's been very focused on trying to get to a positive same-store result. The operations team and the support staff here, the partners, the clinicians, through their marketing efforts, and then coupled with that, I think the environment has begun to improve a little bit, too.

Yes, that's great. I'll ask just one more then hop back into the queue. You mentioned the osteoarthritis. Can you give us any more color on where you're at with that, and what we might expect in 2012?

Yes. In terms of the OA program itself, we've got -- what are we, about 80 licensed locations?

We've got 18 franchisees, we've got 71 clinical locations that have been bought, and we've got basically 32 clinics have opened so far, with four more to open in the next couple of months.

So we've got -- Brooks, the way it works is we get a front-end fee for training and then there's a skip period that typically averages about six months to give the clinics time to get open. And so, out of the 70 some that we have -- markets that we have sold, we have not quite half that number open today, so there'll be a continued progression of openings.

We continue to work on the sales cycle to expand into new markets. We continue to look at products and services. We've had some interesting meetings in the last few months with some additional companies. We've expanded the GPO offering, which give our franchisee the ability, through us, to purchase goods and services and the drugs, the devices that are injected into these joints that provide the relief. And so, we expect to continue to grow it going forward. We're looking at some other things that we prefer not to talk about just yet, but so far so good and we expect continued growth over the next few years.

Great. Thank you very much.

(Operator Instructions) Your next question comes from the line of Larry Solow of CJS Securities.

Thanks. Good morning, guys. Just a quick -- if I could think out loud for a second. Your qualitative comments seem pretty enthusiastic. Just curious, if we add back the $0.05 or $0.06 that the default had at the impact and I look at your lower end of your EPS range, I would think it would be higher than that, because essentially your low end of your range is almost flat with what this year would have been excluding the default, but yet it sounds like things are pretty -- a lot better certainly than they were a year ago. Any thoughts on that?

Hopefully we're being conservative. We -- our intent is not to low ball the number.

Right, right.

If you look at our history we've repeatedly beat our guidance.

Yes, understood.

But by the same token, just coming out of the chute we wanted to have some number that we have to come back later in the year --

Okay, that's fair enough. Do you expect -- it sounds like in terms of pricing your outlook, at least from the government side, is virtually flat and --?

Actually the government going to have -- yes, it's going to increase and we'll have additional disclosure about this in the 10-K, which will be filed tomorrow. But it's a 4% to 6% increase, the way it worked out.

And I'd like to comment on your earlier mention of the default, which was about $0.06. I don't expect that -- just to add a little color to that, that default involved a single franchisee purchasing and attempting to license -- we had, what, 40 plus 20, 60 total locations with one franchisee. I think to look at that, that was a one-time event. I don't expect us to have another franchisee where we would even allow them to purchase that many markets up front.

Right.

So, I'm not sure you can necessarily add that back and then add that to the go-forward look. It was kind of a unique circumstance, we learned from it, we've adapted some things here, but I don't expect another 60-person group to jump out in this year or next year or any other year.

And then we've had very good growth, even with that default in physician services. It accounted for only 8% of our after-tax income last year.

Right, right.

So I don't want to -- that default was huge for that part of the business. And so, we're not saying that -- I think what happened, frankly, is unfortunately earlier in the year, the first few quarters when we thought that was good revenue and earnings and overstated.

Right. So maybe part of that -- do you see some of that physician revenue not repeating itself as you (inaudible)?

I think it'll grow this year from last year, but just to assume that it's going to triple or something, I don't think that's a good assumption. Again, as we do acquisitions, as we normally do, we'll revise the guidance then.

And if I just may -- just on the rate then I'll move on. Since -- say you have mid single digit on the government side, is your pricing assumption on private flat, or do you care to share that with us?

Yes, I think pricing on private is, hopefully, flat.

Okay. So, if it's down a little bit, net of it all, is it a fair assum -- is a safe assumption flat year-over-year, all in on your revenue per patient, is that a fair --?

I'd say flat to up slightly, is what we're working toward right now.

Got you. And can you just disclose the -- or just give a little color. What was the legal settlement?

Well, it's early on in the process. We put a reserve aside and it was about $0.5 million.

Okay.

So, as it unfolds we'll have more disclosure. We just wanted to make sure that we had it reserved.

Okay. So that was based -- that was obviously in your -- in the corporate office costs, correct?

Correct.

Right. And then any other reason for the doubtful accounts sort of jumped sequentially?

We did a bunch of cleanup at year end.

Okay.

For the year we ended up at 1.6% versus 1.5% the prior year. The quarter, I acknowledge, was a little higher than normal but it was really just cleaning up stuff at year end.

Got you, great. Okay, thanks, again.

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

Hey, Mike.

Good morning, fellows. Okay. Can you disclose maybe just a little bit more around -- forgive me, I missed about the first five minutes of this so if you've said it forgive me -- but your assumptions around net rate and the same-store visits in your 2012 guidance?

I don't know that we've guided on a same-store basis, but I will tell you that same-store for the fourth quarter was positive 3% on volume. For the year that put us in positive territory at 1.5%. We haven't guided 2012 on a same-store basis, although we did anecdotally say that with December, which was incrementally a much more positive month for us than it is normally with the holidays and other things, that whether it be weather, a combination of some of the things that we're doing here and improving economy, volumes continue to be on par with what they look like in that last quarter. They've been positive thus far, we hope we can continue that.

Chris mentioned -- I don't know if you were on the phone yet, Mike -- that January and February we had good patient volume and we've had good weather.

Okay. Could I ask, on the other revenue isn't there a small part of that that's not related to the physician services?

Yes, you have management contract. What else do we have?

Yes, we have about 15 locations worth of management contracts in various stores.

Okay. So what percentage of that other revenue is the Physician Services business?

I don't know what percent. Do you know what it is?

It's the vast maj -- it's the majority of Physician Services.

Jon's saying it's 80% to 90%. It's most of it.

Okay. And then I guess my next question is, of that revenue how much of that in 2011 was attached to the front-end fees --?

Most of it would be the front-end fees, because as you sign up, you get a large payment up front when you do the training and then once the clinics are open you get a management fee monthly for five years, so most of it would be up-front fees. So, what's going to happen is that early on the revenues and the profits were kind of lumpy and as the Business continues to grow and you have more and more open and up and running clinics, it's going to smooth out the revenue and earnings, so it will continue to grow.

Okay. So on the 70 -- I think 71 markets that you've sold, although they haven't been opened, you've received the front-end fees on those?

Correct.

Correct.

Okay. Do you have any guidance in terms of how many additional markets you hope to open in physician services in 2012.

I don't know that we're going to prepare -- I don't know that we're prepared to discuss what we expect for the year at this point.

There's a much longer sales cycle to this than there is with what we do on the outpatient side. So I agree with Chris, I'm not ready to --

And to be honest, just a year into this we've been a little lumpy. We've been through periods where we've gone and gone great guns and we've been through other periods where it's been a little bit more modest, and it's continuing to go forward. I don't have a number that I'm ready to throw out at this point.

Yes. Hey, I just was looking at our actual numbers. I think we may have overstated the percentage. The physician services was $5.6 million of revenues in 2011 out of $10.4 million.

Just a little more than half.

Yes.

But the percentage that the front-end fees make up is what, 80%, 90% of that?

Maybe three quarters.

Yes, 75% is what Jon's saying.

All right.

And again, you have to remember a lot of those clinics that Glenn was talking about don't open for six months, so this year you'll have more and more clinics throwing off the monthly fees.

All right. Okay, all right. And I'm going to publicly confess some ignorance on this issue, in terms of government pricing in your core business. I think I had assumed -- no, I know I assumed that when I saw essentially the flat adjustment that roughly -- it would be roughly flat for you guys. Can you walk me through, and maybe a few other ignorant people on the call, what makes up that 4% to 6% you are looking for there?

Yes, essentially with Medicare what you're looking at is, besides the net rate that -- or the reimbursement rate that CMS comes out with is, on a year basis there are changes and modifications based upon geographic price indexes throughout the country. So, different areas of the country have different statistical analysis put to them, which either lowers or increases the pricing that Medicare puts out. So, depending upon whether you're urban or rural, there are analyses that you have to go through that will affect your overall pricing. So, when you look at the, what we call the GPCI index impact across the board, generally speaking in most of our markets it was slightly positive, which is where we think we'll see a slight increase over the set fee.

And we have some additional disclosure related to that that will be in the 10-K.

Okay. And I hear you right when you said you thought you'd actually get a 4% to 6% bump?

That is what the calculation was.

That's great. Okay, all right. I guess a couple of housekeeping items that I keep regularly track of. Sales force numbers and how many facilities covered?

Yes, currently at the end of the fourth quarter we had 77 total sales reps covering a total of 318 locations. Most of those were full-time or part-time traditional sales reps. We still have five commission-only sales reps that are out there. If you look at our visit productivity -- visit per FTE numbers for the fourth quarter, it was 11.04, our units per visit for the fourth quarter was 4.23, and our average visit per referral or durations, which is the average number of times we see a patient from evaluation to discharge, was 10.5 in the fourth quarter.

What does those comp -- what do those comp against versus the same period in the previous year?

If you look at visit per FTEs, Q4 of 2010 we were at 10.71, so we were up slightly. Units in the Q4 of 2010 we were at 4.21, so again, up slightly. And durations or visits per referral in Q4 of 2010 we were 11.02, so our durations dropped slightly in the fourth quarter of last year.

Okay, all right. Then do you guys have the pair mix that you normally have?

Yes, the combination of private and managed care was 53% -- these stats were for the fourth quarter -- workers' comp was 17%, Medicare and Medicaid combined was 24%, and then other was 6%.

All right. And then the last question and I'll let somebody else get a shot here. Can you guys just talk about -- because to me it seems like I would agree with the previous person that was essentially saying maybe you guys are being conservative and I think you guys basically conceded that point.

But to me it seems like the thing that can move the needle outside of the range potentially to the up side -- beyond the up side of the range is M&A activity. Could you guys just talk about -- I know you're always looking at things and all the rest, but are there needle-moving deals out there that you are actually having at least some level of discussion about?

Well, we don't know how you define the needle-moving deal, Mike.

We don't do deals that aren't accretive.

Right. No, no, absolutely, absolutely.

And if you look at -- for example, we closed a single clinic acquisition in January. Well, that wasn't big enough to announce and I -- frankly, I didn't adjust the numbers for it. Typically, if we do a group that has five or 10 or more clinics, you'll have enough earnings contribution and we'll add at least several cents, if not more, when we revise guidance.

I guess just randomly saying, are there deals out there 20 to 40 clinics where you're in discussions?

I don't think we ought to get into that.

No, I'm not -- I don't want to either. I think we're -- some companies preannounce as soon as they have a handshake and then that puts a lot of pressure on getting things closed.

And it reduces your ability to negotiate with a seller.

Yes, you're going to have to rely on how we've done it historically, which is to announce once we get something closed, then we update and we provide color at that point.

Yes, to put additional perspective on the guidance, because of that default, which came out of nowhere, frankly, or out of the blue, we had a lower guidance in the middle of the year. We've never had to do that before. We don't like doing that. The market doesn't like us doing that. So, maybe we're being overly conservative but by the same token I think we're a little gun shy right now.

Yes, and that's fair enough. On the M&A front you guys have been excellent, A-plus, in terms of integrating these deals and doing the deals and the rest of it. I guess that's why I'm anxious to hear that there are other things out there. All right, that's all I've got. Thank you.

Yes, Mike, just to your point. There are other things out there like we've done in the past, and we'll continue to be active. We're just not going to get too descriptive.

All right, fair enough. Thanks, guys.

Thanks.

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

Yes. Hi, good morning, just a few questions. First, Chris, you talked about one of the reasons you saw some nice growth was the sales force expansion, and I believe you certainly invested in that strategy a lot over the years. As we look out to 2012 now with the guidance, et cetera, should we assume you are going to continue to look to add bodies, or is this just a question of leveraging your existing base?

Yes. Well, I'll tell you where we're adding bodies recently is really in two areas, and Glenn can talk about this a little bit more. It's in markets where we've had somebody for a while and we've continued to grow in those markets, so some of our bigger markets.

It's been in the work comp area and it's been with our newly-acquired relationships, our new partners through acquisition, maybe that hasn't had a defined sales force, at least as we look at it in the past. And so those things as we continue to grow the Company will continue to grow, I think.

Right, and I would agree with Chris. You may not see the number of locations increase significantly, but I do think we're looking at markets where we already have existing sales, looking to add additional sales there because we have geographic density from both the location and from a population of physician base. And then there is some opportunity with the new acquired partners that we've got on board to get them to look at sales the way that we do, and that always takes a little bit of time, but we're seeing some positive things from that standpoint, also.

Okay, thanks. And again, just coming back on the clinic expansion. I believe if you look back at 2011, absent the acquisition, and you probably opened about four clinics net on a net basis, should we expect an acceleration this year?

Well, we opened 21 clinics last year, we opened 19 the year before and 18 the year before that, so it's been pretty consistent.

But what I meant was, for example you closed 17.

People are always saying the ones we closed are those that we opened. Oftentimes we're also closing clinics for -- that have been acquired. So it's not just -- you can't just compare the de novos to the closures. Some of those closures are of acquired clinics.

And they're not equal. The clinics we're closing are either not contributing anything, or a drain, or have been a drain for a particular period of time. Some of those have been dark and we've been unable to find a suitable person to put in there. Clinics that we're opening, obviously, contribute in fairly short order and there's a life cycle to some of these. So, Mitra, I would say we're going to continue to do as many as we can do that would be up to the quality that we look for and demand and we'll continue to grow through acquiring clinics, and there will be a attrition between those two groups to a certain extent.

Yes, if you look at the last two years -- let's just look back and look at these numbers -- this is in a schedule at the end of the press release. But in 2010 we opened 19 clinics, w acquired 25, we sold five in a joint venture -- which is unusual, we hardly ever sell clinics -- and we closed 15. So if you want to look at it on -- as we said before, we typically, the norm has been the last two years to open 20, acquire at least 20 and close around 15. That's -- again, the closure costs are minimal and I think, Jon, weren't they less than $100,000 last year? So, we closed 17 clinics and it cost us less than $100,000.

But the savings we got from the earnings strain on those --

And not only that, these clinics that are dark are not reporting well and taking an inordinate amount of management time. It's so one of the ways we've been able to reduce our corporate cost as a percentage of revenue by, frankly, having few poor performers around.

RIght. No, again, I know the guidance had assumed new acquisitions so I wasn't sure if that meant you were going to be more aggressive on the de novos versus acquiring?

It's just a matter of finding the right people, and at a point when they're ready to go.

Right, great. Okay. No, that's great. And finally again, Larry, I know you bought back some shares in the quarter and you probably have about under $3 million remaining given the current authorization, is that correct?

I don't remember. Is that right, Jon?

I don't know.

I don't remember, but it's -- again, I know it's a separate footnote in the K. I apologize, I just don't have it in front of me.

No, that's okay.

We do have some room left to buy back more shares.

Right, that was -- and I guess if you use it, the authorization, it's fair to assume you will probably put in a new one.

Yes, if we make the decision to buy more than that, and we went to Bank of America I'm sure they would accommodate us. That provision was put in there several -- a while back.

Okay, thanks, again.

Thanks, Mitra.

(Operator Instructions) Your next question comes from the line of Gregory Macosko of Lord Abbett.

Yes, thank you. I may have missed it in the discussion, but with regard to the fourth-quarter corporate costs, those were up, maybe you could -- and I think it was regarding reimbursement, et cetera. Could you give us color on that?

Yes, it wasn't reimbursement, Greg. What it was is incentive comp accrual was higher, and then we had that legal reserve of just over $0.5 million.

And the reason incentive comp accrual was higher, we dumped a lot in the third quarter following that franchisee default. In the fourth quarter we actually finished operationally with a bit of a rally, and so we were able to swing some of that back in, so just a little a quarter-to-quarter --

And if you look at the proxy, the executive team's incentive comp is tied to earnings per share, so once we got to the cert -- we got back to certain levels, we ended up at the high end of the range, it required us to book more incentive comp.

I see, fine. And so if I look at it -- well, even on an annualized basis, the 11.7% versus 10.7%, I guess that includes -- the legal cost, et cetera, is included in that piece.

Well, for the year, the corporate costs ran at, I think -- wasn't it 10.4% versus 10.8% and, in fact, it did include that legal accrual, so it would have been even lower. As we stated before, our objective is eventually to get corporate costs down to 10% or less of revenue.

Okay. And then if I look at the de novo -- the same-store revenue growth for de novo plus acquired clinics was relatively flat. I'm assuming then that the de novos are the downside of that and the acquired are the upside, or how could -- could you just give it the ones that were open for a year, could you give us a feeling for those two groups in terms of their growth?

Well, we actually had -- whether it's -- same store is any clinic that we owned that's been open a year or more, whether it's a de novo or an acquired clinic.

I understand.

And, in fact, our de novos did better. Not that the acquired clinics did poorly but we really saw consistent growth across the board for the first time since the recession onset in 2008.

And so, Greg, from a Business perspective we saw growth. From a revenue perspective it was a little bit flat because of that Medicare reduction in 2011. It was a little bit lumpy on a quarterly basis. When you look at it for the year it was about $1.20. For the quarter it was a little more than that even though our fourth quarter had a slightly higher net rate than the other quarters. But, going forward we should have a fairly stable revenue -- net revenue per visit base to go from.

And then if I just look at the rate pieces of that total going forward looking out, basically what we're saying is the Medicare side of things should get better, obviously, as you've said. Any -- Medicaid, I know it's small, but is there -- from that standpoint is there much -- is there anything there that looks positive/negative relative to the rate structure?

Medicaid is less than 2% of our revenue, so it doesn't really make any difference.

Okay. And then -- so the big piece, obviously, then is the private pay, et cetera. Anything with regard to your discussions with people that would suggest any shift or change in either direction in that regard?

I think the shift of change is not necessarily in this year. We've seen a couple of payers late in 2011 announce that they were going to follow Medicare's MPPR reduction that occurred the year prior, but that's a small part of our Business. I expect a fairly neutral environment this year for commercial, unless something changes that hasn't happened yet.

The commercial payers, though, don't piggy back off the Medicare rate, unlike they do in other healthcare sectors. What they were saying is that they were going to make some cuts that were similar in terms of the formula to the MPPR cut. But the commercial payers typically on average pay more than Medicare still.

Okay. And then is there any color you can give us on coding, has there been any pressure on the part of the payers or the government or anything, in terms of how the coding is being done and do you expect any changes there?

No, not at this point. Basically CPT coding for 2011 was essentially unchanged on the outpatient rehab side compared to 2010, so no impact.

If I may go back to the point about the front end -- the openings of the -- in the other revenues of physician services, did you have any sign ons of those 71 in the fourth quarter and were there any in January or February?

No, we did not have any new franchisee sign up in January and February of this year.

And none in the fourth quarter either?

I believe we had some in the fourth quarter. I don't have those in front of me right now, Greg. We can --

Modest in other words. Most of them were done earlier in the year, is that the point.

Correct.

Okay. And then, finally -- I know I've asked a lot, excuse me. The dividend, clearly this is the second round on the dividend. Is there any policy, or can you give us any color as to how the board looks at the dividend and any background to the increase in the dividend. Is it based --?

When we initiated the dividend one of the things we talked about on the board was that we wanted it to be -- to increase it annually, and we don't have a targeted yield -- sometimes you'll see companies that say they're trying to have an X-amount of yield on their stock -- but the dividend is something we want to continue to increase over the years.

But payout ratio or anything like that? As a range, or anything like that?

We don't have a payout ratio, it's not like a utility or a pass-through of an LT or something.

Yes. And the majority of our funds we're going to use to grow the Company, grow our volume, grow our revenues, acquisitions and other things. We just throw off enough cash we're able to do this, as well.

We're really in a unique position where we can continue to do acquisitions and they've practically been self funding. We do de novos, start ups, they are self funding. We've been able to buy-back shares and pay for it with pretty much our own cash flow and we had cash left over, so we decided to pay a dividend.

Okay. But if I -- if we look at the buy back and the dividend, is that by the board looked at as a one piece?

No.

No.

No, they're viewed separately. Again, the best use of funds in terms of returns are startup, second best use is in acquisition. You can argue which is better depending on how you want to look at it between dividends and share buy backs.

We look at share backs -- share buy backs the way we've looked at acquisitions as a multiple of EBITDA at certain trading ranges and we've looked at cash deployment opportunities.

We bought back our shares at less than seven times EBITDA. We pay five to seven typically for acquisitions.

Okay. And can I -- and in the quarter, did you say how much you bought?

Yes, it's in the release. We bought 129,000 shares in the quarter and 255,000 for the year.

And about $6 million worth over the last two years.

And the 129,000, how much did you -- give me an idea of the price?

Well, it's in the release. It's $18.39 in the fourth quarter and then for the year was $18.28, average price. Obviously we bought it higher and lower than that.

Sorry my preparation for the call wasn't better. Thank you. (laughter)

Thanks, Greg.

At this time there are no further questions.

Okay. Thank you, operator. We're available if you have other questions after the call. We appreciate your time and attention this morning and we hope you have a great day. Thank you.

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