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US Physical Therapy Inc  (NYSE:USPH)
Q1 2019 Earnings Call
May. 02, 2019, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, my name is. Siya (ph) and I'll be the conference operator today. At this time, I would like to welcome everyone to the US Physical Therapy 2019, First Quarter Earnings Conference. (Operator Instructions). Thank you. At this time, I would like to turn the conference over to Chris Reading , President and Chief Executive Officer. Please go ahead, sir.

Christopher J. Reading -- Chief Executive Officer

Thank you. Good morning and welcome to US Physical Therapy's First Quarter 2019 Earnings Call. With me today, Larry MacAfee our Executive Vice President, Chief Financial Officer. Glenn McDowell and Graham Reeve, our Chief Operating Officers West and East who has been Senior Vice President, General Counsel. Jon Bates our Vice President and Controller.

Before we begin to discuss our results for this quarter, we'll have Jon read a brief disclosure statement Jon?

Jon Bates -- Vice President of Accounting and Controller

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.

Christopher J. Reading -- Chief Executive Officer

Thanks. Jon. I want to make some brief color based statements on the business and then have Larry review the financials in more detail. Our core physical therapy business as well as our industrial injury prevention services partnership performed very well for the quarter. Despite some persistently crazy weather and record cold across much of the country this quarter, our same-store revenue in volumes were both very good, volumes at 3.6% against the tough comp a year ago and with a net rate increase that combined to produce a 4.7% increase in same-store revenue and physical therapy. Also, notable positive for the quarter, our gross profit percentage for PT improved the 120 basis points compared to last year. PT management contracts improved 470 basis points and our industrial injury prevention business increased 650 basis points compared to our 2018 Q1.

This large margin increase in our industrial injury prevention business was driven in combination by the growth of the business and also by a greater percentage of our prevention services being delivered now by athletic trainers who along with our physical therapists are doing a terrific job for a client base companies. As we discussed earlier, margin expansion and cost controls is going to be big focus and I just want to give a shout-out to our partners and our team, they're doing a really good job right now. As you know, we have also added to that segment, this is to the industrial injury prevention segment again, most recently with the great acquisition just a couple of weeks ago, terrific team who shares our vision for prevention while adding to our (inaudible) partnership complement of services. We believe in time there will be a significant cross sales opportunity within our portfolio of client companies.

So before Larry covers financials in greater detail, I would like to say that we feel very good coming out of what is typically or seasonally weakest quarter with as good footing as we have right now in a long time. The investments we've made in people resources and in our acquired in legacy partnerships with so many exceptional peoples paying off. Our partners and their staff along with their sales teams have definitely continue to deliver great care and service and results which ultimately drive peripheral volume and visits. Additionally, we feel better about the margin expansion, cost control efforts which are through. So that concludes my brief overview. Larry, if you would go ahead and view the financials for the quarter.

Lawrance W. McAfee -- Chief Financial Officer

Okay, thanks. Revenue increased 7.3% in the first quarter to $116.2 million. Revenues from PT operations increased 6.1% to $106.7 million due to an increase of patients, 4.7% to over 1 million for the quarter and an average and increase our average net rate per visit to $106.49 from a $105.15. The majority of the increase came from mature clinics so that's noteworthy. Average visits per day clinic increased by 4.7% from 25.7 in the first quarter last year to 26.9 in the most recent period. Revenue from the industrial injury prevention business increased 42% to 6.9 million, though we did an acquisition last year most of that was from internal growth.

Total operating costs were 77% of revenue, a reduction from 78.6 a year ago. Chris went through the gross profit percentages, so I won't do that but the gross profit overall grew by 15.1% in the quarter. Corporate office costs were 9.7% of revenue in the first quarter of this year as compared to 9.4 last year. Operating income increased to 18.2% to $15.4 million, operating income as a percentage of revenue increased by 130 basis points from 12% in the 2018 period to 13.3% in the recent quarter.

The provision for income taxes was 24.3% in the first quarter this year versus 25.8 last year. Our operating results increased 18.6% to 8.4 million or $0.66 per diluted share as compared to $0.56 this time last year. Same-store revenue for de novo and acquired clinics that Chris hit on but again in total, they increased 4.7%. In terms of other financial measures, for the first quarter of 2019, the Company's adjusted EBITDA grew by 11.7% to $15.6 million to $14 million.

Also noteworthy is that adjusted EBITDA as a percentage of net revenue increased by 50 basis points from 12.9% to 13.4%. As I noted in the press release, we had exceptional net cash flow during the quarter which enabled us to pay down the credit line to the lowest level in six years. Our second quarter dividend of $0.27 will be paid on June 14th.

Christopher J. Reading -- Chief Executive Officer

Thanks, Larry. That concludes our prepared comments. Operator, if you're going to go ahead and open it up and we'll have some questions?

Questions and Answers:

Operator

(Operator Instructions) The first question will come from Larry Solow with CJS Securities, please go ahead.

Larry Solow -- CJS Securities -- Analyst

Hey guys, congratulations good start to the year.

The same-store sales growth actually was a pretty solid number and it has been running a little bit above historical averages for last couple of years. And I think this quarter was, I think whether was sort of not great, right? So it was seems like--it's never great but it wasn't like it was better than last year and were easy your comp. So, pretty good number and that's somewhat above your, I guess, full-year outlook. Any thoughts on that?

Jon Bates -- Vice President of Accounting and Controller

Yes ,I think that's right on all counts. So between the snow and the crazy call particularly in parts of the Midwest and in the East Coast, weather wasn't great and in spite of that our partners, did a really good job. So as I said, we're encouraged that the star we're out of the weather period now thankfully and we look forward to hopefully being able to continue to perform (inaudible)

Larry Solow -- CJS Securities -- Analyst

And pricing was again, not a huge hue but it maybe a slightly more than I thought and I don't know if that's just a rounding error sort of some pluses and minuses there?

Jon Bates -- Vice President of Accounting and Controller

Now the net rate was higher than we budgeted.

Larry Solow -- CJS Securities -- Analyst

Okay. So anything in particular that, you think that trend can hold hard to really say?

Jon Bates -- Vice President of Accounting and Controller

Well, it moves around a little bit from quarter to quarter . But I think it's, at a probably a reasonable level in terms of future periods.

Larry Solow -- CJS Securities -- Analyst

And you've done a nice job obviously, improving the margins to acquire industrial businesses. Over the long run, would you expect these margins be a little bit better than what we see in PT?

Jon Bates -- Vice President of Accounting and Controller

Yes I think so. I mean, we've not had a real static period since we started this a little over two years ago and so that influenced a little bit as well but yes I expect that we will settle may be a little bit higher than PT.

Larry Solow -- CJS Securities -- Analyst

Okay and then just lastly, corporate office a little higher than I thought as a percentage of revenue and on absolute basis, I was trying to maybe get a little bit ahead of last sort of the crew performance or anything that's driving the number little higher?

Jon Bates -- Vice President of Accounting and Controller

Yes, Incentive comp was higher than the first quarter last year.

Christopher J. Reading -- Chief Executive Officer

That's pretty much, I mean everybody, Graham (ph) started 1st March last year and so, he was out in the first couple of months on a comparable basis but relatively speaking this seem, the team additions we made last year, they are all here now and so we're pretty settled.

Larry Solow -- CJS Securities -- Analyst

Got it, great. Okay, thanks very much. I appreciate it.

Operator

The next question will come from Matt Larew with William Blair, please go ahead.

Matt Larew -- William Blair -- Analyst

Hi, good morning. I wanted to ask about when (inaudible) which was down one from the 4th quarter and clinic growth over the last 4 quarters has slowed a little bit, you referenced in the press release obviously cash flow strengthening results in reduction and borrowings. So just maybe give us a sense obviously you have plenty of capacity for what your pipeline looks like, and how you expect maybe credit growth to trend, maybe just been a timing issue in terms of some of the partnerships recently but if you just give us the sense for why clinic growth is slow here in the last few quarters and how you expect it to maybe change in the next several quarters?

Christopher J. Reading -- Chief Executive Officer

I think when you look overall, our new clinic openings for the year combined with some little tuck-in that you guys don't hear about because we don't announce some --that's been in 20s, low to mid-20s in combination. So that's been pretty steady. We have some timing elements throughout the year in terms of when we do the openings and then we continue to pay our clinics and on the acquired clinic side, we continue to be active in the market. We expect to get things done. We're not chasing per se an openings number which quite honestly, you know before we got here the Company used to do. So we're trying to do meaningful things that are going to be a long-term benefit and we'll continue to do that but to your point, we have plenty of capacity and we'll continue to do things that we think are going to be a benefit over the long run.

Jon Bates -- Vice President of Accounting and Controller

In the first quarter, we opened three clinics, but we closed four. We closed more clinics last year than we ever have in most of the time when we close clinics their single locations in their legacy clinics from years ago and they just don't, you know it's not the upside rhythm (ph) that you have with groups that have no more density.

Matt Larew -- William Blair -- Analyst

That's helpful and then I wanted to maybe touch again on industry injury prevention business and just maybe reference to potential cross-sell opportunity. So can you just give us a sense for how that might unfold over time and what that process will look like relative to maybe what the businesses are doing independently today?

Christopher J. Reading -- Chief Executive Officer

So, it's good question. So, for the first year after we acquired the first partnership which is (inaudible) partnership, effectively we introduced both sides of the company and that was the reason behind that you know some general concern that we were buying the first injury prevention company maybe just scoop people into physical therapy operation and those folks do a great job on prevention, they actually prevent a lot of injuries. So those curtains is artificial curtains have been removed, we are beginning to get leads now from our partners in the fields and interaction between both sides of the company. Now the company just acquired because they offer some different products and services and actually the majority of those products and services are delivered by a network of physical therapy providers around the country. So we expect over time that our clinics will have an absolute net benefit from that program.

Now, I just want to say we've had a lot of great other companies who perform those services before and now continue to get business just as they have, they have been very reliable network for us but we expect to grow that business and we expect that our clinics will benefit over a period of time. We're just getting started with that integration obviously that deal just closed couple weeks ago. So we're very early but we're very excited about it.

Matt Larew -- William Blair -- Analyst

And then the final one would be just in terms of cost per visit flattish and you have mentioned at the end of '18 that you've loosened up some costs in response to bigger legacy partnership, obviously saw bunch of openings in Q4 and maybe that was obscuring some of your underlying cost reduction work. So just maybe to get a sense for what are some of the key areas you're focused on here on the efficiency side and how should we expect cost per visit to trend throughout the year.

Christopher J. Reading -- Chief Executive Officer

Okay, I think we have two competing, we have a push pull on one side, we have a little bit inflation on the labor market and on the other side, we have our continued opportunity/challenge which is to manage our part-time staff, really down to the hour across a broad network of facilities. So as I mentioned, we've got the right people on Board. I think we have more effective and real time transparency input but we still have our challenges, you know our acquired partners tend to run a little bit higher and that tends to change over time and that has changed and it's improved and we've gotten some margin expansion.

So, I'm encouraged right now. I don't expect that we're going to see any massive dramatic movement with respect to our cost. We have some regulatory kind of boundaries that keep us and pretty narrow range and then we have to manage as effectively as we can within those and think we're doing that right now and if that can continue, I'll be happy.

Jon Bates -- Vice President of Accounting and Controller

That I mean really the way typically we see cost go down is by increasing your visits per day per therapist which (inaudible) do you have the, what the quarter-over-quarter was?

Christopher J. Reading -- Chief Executive Officer

Yes. In Q4 of '18 we ran at 10.61 on a visits per therapist basis, in Q1 of '19, we ran at 10.51 and that number was impacted slightly by the weather and loss of business that we had.

Jon Bates -- Vice President of Accounting and Controller

But in the first quarter last year we ran at 10.41. So there was a 10th of visit improvement, if you're looking at apples to apples. So and again like Glenn said the weather had been better. Frankly, our margins would have been, well our margins were very good. We have never seen that kind of improvement really on 130 basis points. That's a big swing but they would have been even better if we hadn't happened severe weather.

Matt Larew -- William Blair -- Analyst

Okay, thanks for all the detail.

Operator

once again, (Operator instructions), the next question will come from Mike Petusky with Barrington Research. Please go ahead.

Mike Petusky -- Barrington Research Associates -- Analyst

Hey, good morning guys. So Larry, I want to drill down on the release from a few weeks ago where you guys announced the acquisition in conjunction with that increase EPS guidance for the year was essentially because it's not --to me it's not clear in the language, was that essentially the increase in EPS guidance, was that just a reflection of the accretion that you guys assumed with the acquisition or did you already have a good sense of the quarter at that point or what actually went into that guidance?

Lawrance W. McAfee -- Chief Financial Officer

That increase in guidance was solely based on the accretion in this year which is obviously now full year results from that acquisition and we look at guidance regulate next time, we do a deal or maybe after the end of the second quarter, we could possibly revised guidance at the end.

Christopher J. Reading -- Chief Executive Officer

Larry, we had at that point in time we have. January and February.

Lawrance W. McAfee -- Chief Financial Officer

We didn't have March results and March was super month so we could have probably -I don't want to have to revise guidance every quarter (multiple speakers) it's not unusual for us to do a couple of times a year.

Mike Petusky -- Barrington Research Associates -- Analyst

Right. Well, that essentially is what I was getting at It, it feels like the current guidance range, particularly at the low end it feels conservative, it feels like you guys could have been really tempted to have revised.

Lawrance W. McAfee -- Chief Financial Officer

Mike, it doesn't matter. Your number is always higher than the range anyway.

Mike Petusky -- Barrington Research Associates -- Analyst

Fair enough. Okay. So moving on Larry, what's the assumed tax rate in your guidance for the year. Obviously effective tax rate was a little lower than expense.

Lawrance W. McAfee -- Chief Financial Officer

Okay. We used to, John just said we used to -- I think it was 26.5%. Now in the first quarter, it's lower because you have a lot of restricted shares vest and if the price at the time is higher than what it was at the grant date, you get a bigger tax benefit.

Christopher J. Reading -- Chief Executive Officer

That makes sense?

Mike Petusky -- Barrington Research Associates -- Analyst

Yeah. No, absolutely, absolutely. And then just a quick question, CapEx was a little a little higher than normal anything to call out there or any sense for what the year (inaudible)

Lawrance W. McAfee -- Chief Financial Officer

Honestly, I didn't notice that so.

Mike Petusky -- Barrington Research Associates -- Analyst

Okay and just last question payer mix for the quarter? Anything about that?

Lawrance W. McAfee -- Chief Financial Officer

Yes, I guess payer mix here, private and managed care basically the insurance companies was 46.4%, workers comp was 15.5%, Medicare and Medicaid combined was 29.4% and then other was 8.6%.

Mike Petusky -- Barrington Research Associates -- Analyst

All right. Thanks guys.

Christopher J. Reading -- Chief Executive Officer

Thanks Mike.

Operator

The next question is from Mitra Ramgopal with Sidoti. Please go ahead.

Mitra Ramgopal -- Sidoti and Company -- Analyst

Hey, good morning guys. Just couple of questions for us. Again, same-store numbers in the quarter really solid and I was just wondering if there's anything in particular that might have been driving visits in terms of salary initiatives you might be implementing .

Christopher J. Reading -- Chief Executive Officer

Yes, just good partners to good work and management team and the sales and marketing support and our sales teams just doing a really good job. So I think it starts with good care at the facility and relationships to get created and people are focused on, I give credit to our partners on that. I think they are doing a terrific job.

Mitra Ramgopal -- Sidoti and Company -- Analyst

Okay. Now, that's great. And Chris as you look at over the remainder of the year and next as you continue to bail out the IPP business, is there any significant investments you need to make on that front that is on sales force or technology, anything along those lines?

Christopher J. Reading -- Chief Executive Officer

Yes. So we continue and it won't be just one big lockstep. So we continue to invest in that business we talked a little bit about it last year that we got to a point where we needed to make some investment. So for instance, we are bringing on some more folks in the accounting area or probably we are going to bring some additional resources, not probably we are in the technology area as well and at the same time, we're seeing a lot of, a lot of opportunity, our pipeline looks really good there in terms of potential clients and people that we're in discussion with we've started the year, I think, on really good footing. So, we will need to continue to add to that team but all of the major building blocks are in place and now we need to scale. I don't see any massive technology switches or changes that are going to be monumental it's just bringing on the right folks to help us continue to grow in scale.

Mitra Ramgopal -- Sidoti and Company -- Analyst

Okay. No, that's great. And again, as it relates to the revenue per visit that's up nicely, probably it's I guess, how do you see that going forward? I know reimbursement can always be a wildcard data but it seems like it's just been really steady for you guys over the last, or number of years now?

Christopher J. Reading -- Chief Executive Officer

So, I'll tell you what I told everybody when I spoke at our conference. So just a little bit ago and I've been telling people for the last couple of years that we're in a relatively flat environment right now, we're making some progress and we're getting some things and net-net that's been my general expectation and it's been truthful. We've done a little better than that and -- we continue to do better than that, we've got some really good people and the deals that we've done. We have gotten some pretty nice increases in helping our client partners move that number a little bit, but I think it's about where it's going to be for a while and that's what I've been saying and if we can do a little better than that, I'll be really happy.

Mitra Ramgopal -- Sidoti and Company -- Analyst

OK. No, that's great. Thanks again for taking the questions.

Christopher J. Reading -- Chief Executive Officer

Thanks Mitra.

Operator

The next question is from Dana Hambly with Stephens. Please go ahead.

Dana Hambly -- Stephens -- Analyst

Hey, good morning. Chris, you mentioned in your prepared comments about the jump in the gross profit margin in the industrial injury prevention. You talked about prevention services being perform more by athletic trainers, I just wonder if you could flush that out and just help me to understand the nuance of why that would drive such a big jump in the gross margin.

Christopher J. Reading -- Chief Executive Officer

It's a good question. I appreciate you asking it . So about a year ago, we did our second industrial injury prevention acquisition rolled that into Briotix partnership and that's been a great addition. At Briotix when we first started, the vast majority of our prevention based services we done by physical therapists and it just so happens that based on demand and educational background and other things that physical therapists are a bit more expensive than athletic trainers. In that business, virtually are sole expenses as people expense, we don't have, for the most part clinics. We don't have a lot of equipment but we do have people. When we acquired company number two, they almost exclusively used in athletic trainer model in their prevention business works very well. It;s not just to what athletic trainers do, taking care of a team whether it would be college or pro, we're taking care of a team which is happened to be in the business. And so we're cost clients want or where we need for particular reasons to deliver with physical therapy, they do a great job and we'll continue to do that but a greater percentage, I think of our portfolio and will be I think a growing percentage will be delivered on the prevention side by athletic trainers and it's just a little bit of a cost differential there.

Dana Hambly -- Stephens -- Analyst

All right.

Lawrance W. McAfee -- Chief Financial Officer

Another thing is there. As you grow the business, Briotix has a separate corporate and administrative staff and to the extent you grow revenue you're going to grow margins because you're going to spread that, you're not going to grow your corporate costs for that business as rapidly as you're growing the top line. So just like US Physical Therapy.

Dana Hambly -- Stephens -- Analyst

Sure. All right. That makes sense. And can you compare and contrast the BTE acquisition with with the Briotix's business?

Christopher J. Reading -- Chief Executive Officer

In what ways?

Dana Hambly -- Stephens -- Analyst

I mean is it a different. I mean, is it a very similar product offering? Are you bringing in some new capabilities with the BTE?

Lawrance W. McAfee -- Chief Financial Officer

It's mostly new capabilities in fact that overlap was pretty minimal. It really very little overlap. So this is what made it such in addition to having just a great team with the BTE guys really, really strong team which we're really excited about, just almost totally different product offering, so deep, post after testing and screening they have onsite medical clinic capabilities which they've rolled out for some of their client companies which is impressive which is new for us. We didn't have a post after testing products to speak up and they have a very robust one, it has done a great job for their client companies.

So those two elements are really new puzzle pieces for us that we're really excited about.

Dana Hambly -- Stephens -- Analyst

Okay and then Chris, you mentioned last quarter about your therapist, could be a lot more efficient if not for all the regulatory burdens versus what you talked about last quarter, any reason for optimism or pessimism this year on the regulatory burden front?

Christopher J. Reading -- Chief Executive Officer

Yes, I am like sort of black and say I have much optimism as they do on the political front to shine every day. So, it's kind of gridlock for a reason. Now we do meet with CMS on Linde Baltimore on Monday to meet with CMS. We are going to talk to them and have a serious discussion with them about eliminating the necessity of an additional sign/plan of care which the doctor has to do and then which we have to get back and that's after the patients been referred and diagnosed and sent to physical therapy this is for a course for Medicare patients but in terms of what period of time that happens over that's not going to affect our therapists as much, as it affects our administrative staff and others who chase those things down but we're going to try to peel the onion overtime but now it's not going to be quick.

Dana Hambly -- Stephens -- Analyst

Okay. And then last one from me, Larry, with the BTE acquisition, were there any transaction costs that were significant enough to call out?

Lawrance W. McAfee -- Chief Financial Officer

Yes there was actually about $0.02 worth, we didn't make a big deal of it because of essentially good quarter just like we did, we probably lost a penny or two due to the weather as well.

Dana Hambly -- Stephens -- Analyst

Okay, thanks very much.

Christopher J. Reading -- Chief Executive Officer

We have more cost in this field, just because of the complexity of the structure than normal.

Dana Hambly -- Stephens -- Analyst

Okay and do you say it was about $0.02 drag?

Lawrance W. McAfee -- Chief Financial Officer

That was $0.02 in transaction costs and $0.01 to $0.02 for weather.

Dana Hambly -- Stephens -- Analyst

Okay, thanks very much.

Christopher J. Reading -- Chief Executive Officer

Thank you.

Operator

And at this time there are no further questions.

Christopher J. Reading -- Chief Executive Officer

Alright guys. Thank you for all the good questions and have an awesome day.

Operator

Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.

Duration: 29 minutes

Call participants:

Christopher J. Reading -- Chief Executive Officer

Jon Bates -- Vice President of Accounting and Controller

Lawrance W. McAfee -- Chief Financial Officer

Larry Solow -- CJS Securities -- Analyst

Matt Larew -- William Blair -- Analyst

Mike Petusky -- Barrington Research Associates -- Analyst

Mitra Ramgopal -- Sidoti and Company -- Analyst

Dana Hambly -- Stephens -- Analyst

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