U.S. Physical Therapy, Inc. (USPH)

Q1 2010 Earnings Call Transcript

May 6, 2010 10:30 am ET

Executives

Chris Reading – President and CEO

Jon Bates – VP and Controller

Larry McAfee – EVP and CFO

Glenn McDowell – COO

Analysts

Larry Solow – CJS Securities

Rob Hawkins – Stifel Nicolaus

Mitra Ramgopal – Sidoti & Company

Adam Deland – Moore Capital

Mike Petusky – Noble Research

Presentation

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the U.S. Physical Therapy first quarter 2010 earnings 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, President and CEO of U.S. Physical Therapy. Sir, you may begin your conference.

Chris Reading

Thank you. Good morning and welcome everyone, to U.S. Physical Therapy's first quarter 2010 earnings release call. With me here in the office today 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 today's review, I will ask Jon to read a brief disclosure statement. Jon?

Jon Bates

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.

Chris Reading

Thanks, Jon. We started this year with high expectations for growth and expansion and we continue to have those expectations looking ahead. That said, we got off to what was a slower than normal start to the year with a fairly significant, much more significant than normal impact from severe weather that hurt us in places as far South as Dallas, Texas.

With everything though, there is a season so we say, thank goodness for spring. March came in very strong with a significant referral flow and a marked improvement in volume, allowing us to finish the quarter in very strong fashion.

Net revenue increased a little less than 5% from the comparable 2009 quarter with more than a $3 per visit increase in net rate per visit. Also in the quarter in March, we closed a very nice, five location facility in the east forming a partnership with a great group, who is already focused on expanding into several additional locations.

Overall development activity has improved significantly since last year. We've a number of active discussions and our organic activity has picked up as a result of the adjustments that we have made in our advertising in social media events and publications.

To date, we have approximately a dozen approved, although not all yet opened sites so far that we'll roll in at various points this year. And that excludes our acquisition. Also in our results this quarter was a sale of a five clinic Texas joint venture, which produced a pre-tax gain of approximately $578,000 or about $0.03 in EPS for the quarter. This helped to offset the $0.05 impact from the weather and the $0.01 expense associated with closing our first quarter acquisition that one expense under the new accounting rules effective this year.

Volumes have been solid for the past two months and we expect to continue to make progress in the plans discussed in our shareholder letter, including driving additional volume through our Fit-to-Work initiatives, as well as growing our company organically and through acquisitions.

With that, I'd like to ask Larry to review our financial performance in greater detail before we open it up for questions.

Larry McAfee

Thanks, Chris. Net income for the quarter ended March 31 was $3.2 million or $0.27 per share as compared to $2.8 million or $0.23 per share in the first quarter of 2009. As Chris mentioned, included in the recent period is an after-tax gain of $0.03 per share related to the sale of an interest -- a joint-venture interest. Additionally, the company incurred legal costs of approximately $0.01 per share in conjunction with the acquisition.

Excluding the gain and acquisition costs, the company's adjusted earnings from operations was $0.25, which is rather exceptional considering that this was achieved despite unusually severe weather in January and February that adversely impacted our earnings by about a nickel.

Net revenue increased 4.6% in Q1 to $50.4 million due to an increase in our average net rate per visit of $3.28 and an increase in patient visits of 1.2%. Our gross margin increased slightly to 24.7%. Our corporate office costs were $5.8 million or 11.5% of revenues. However, included in those costs are the legal fees and other acquisition costs.

Our operating income increased to $6.7 million. Our other income in the first quarter includes the gain from the joint venture sale. Net income was $3.2 million and EPS $0.27. Same-store revenues for de novo and acquired clinics opened for a year or more increased 1.7%. That figure would have been better both in terms of dollars and volume had we not had the weather impact.

Receivables collections in the first quarter we excellent. Despite the financing for the acquisition, we ended the first quarter with less than $1 million in debt net of our cash position.

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