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

Q3 2010 Earnings Call Transcript

November 4, 2010 10:30 am ET


Chris Reading – President and CEO

Jon Bates – VP and Controller

Larry McAfee – EVP and CFO

Glenn McDowell – COO


Brian Tanquilut – Jefferies & Company

Mitra Ramgopal – Sidoti & Company

Larry Solow – CJS Securities



Ladies and gentlemen, thank you for standing by, and welcome to the U.S. Physical Therapy Q3 2010 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, President and CEO. Please go ahead, sir.

Chris Reading

Thank you operator. Good morning everyone. Thank you for joining us as we prepare to discuss our third quarter and year-to-date earnings performance. With me here in Houston, 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, I will ask Jon to cover our brief disclosure. 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. On our last quarterly call, you might remember that I went off script a little bit and spent a lot of time discussing the reasons behind our strong performance this year with special attention in store partners around many of our largest markets who have really done well making the necessary changes that have allowed us to navigate in an otherwise very challenging economic market over the past two years quite successfully. I am not going to revisit that discussion. I do want to highlight and explain our progress in a variety of areas and the underpinnings of that and to explain the challenges that we expect to overcome.

First, let me discuss our net rate, which for the quarter grew to $107.11, up from the prior-year quarter of $103.42. At little under a 4% improvement, it was accomplished in a very thoughtful and systematic way. One of the things we have set out to do most recently was systematically create a meaningful shift in our payor mix by adding a very robust product offering which we refer to as Fit2Work program, designed to deliver a number of industrial and work comp friendly programs, services and resources, which we believe would be very marketable to industry and which will assist us in growing additional value in revenue impacting our net rate per visit along with our payor mix as we have got more and more traction with this program.

That has happened and will continue to unfold in a very meaningful and beneficial way for us and for our company. We have tracked our percent work comp mix across all four regions systematically over the last few months, and it’s seen improvement across each of these regions sequentially over these past months. The initiative which is driving new business as well as volume generally comes at an incrementally higher rate than our average visits across the rest of the company. It is one that will continue to be important as we look to further expand our revenues.

Also notable for the quarter was another 180 basis points improvement in our gross margins, now up to 27.2% for the quarter. You might recall on top of a very strong margin improvement for the year ending 2009, I mentioned in our last quarterly earnings call that we were always striving to pull out all the stocks and have everything exactly where we would like to be and recognize that in our current environment, with persistent and high unemployment, weak job market and lower than usual consumer confidence, that a quarter with net income growth of 25%, 21% for the year, a large net rate increase, significant margin expansion and 25% improvement in EPS is pretty strong improvement in this environment. So, what’s left?

Right now, that continues to be creating greater volume development, which I continue to believe we can do through Fit2Work and other internal initiatives designed to enhance a volume in growth through our partnerships, while beneficially improving our payor mix. Additionally, we will continue to add to our sales team with an eye toward further expansion of our resources, with special attention to some of our largest markets where we already have existing sales in place with room for more complete geographic coverage.

On the development front, we have opened 13 de novo facilities at the end of the quarter, several more recently, and a number to complete before year-end. We have discussed our continued focus on acquisition-related growth and after completing our East Coast deal in the spring this year, while I won’t get into too much detail, we will say that you can expect us to continue to do what we say we will do in these areas and all the other areas related to the growth and development of our company.

On the reimbursement front, let me say this. Year in, year out, we have worked as a team very deliberately to move forward. There has been lot of attention over the past few months relating to possible pending reimbursement changes by CMS, the most recent which came as a surprise announcement this summer, which we refer to as MPPR, or Multi Procedure Payment Reduction plan. After significant dialog and comment with CMS regarding what we and the rest of the industry believe, came about through flawed analysis and application, final policy was released two days ago in an approximately 2,000-page document covering a wide landscape of reimbursement and rule updates by CMS across the entire healthcare landscape.

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