Good morning, ladies and gentlemen. My name is Vanessa and I will be your conference operator today. At this time, I would like to welcome everyone to the U.S. Physical Therapy second quarter 2008 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 period. (Operator instructions) It is now my pleasure to turn the floor over to your host Chris Reading. Sir, you may begin you conference.

Thank you, operator. Good morning, everyone. This is Chris Reading. I would like to thank you for joining us here this morning for U.S. Physical Therapy second quarter 2008 earnings conference call. With me here in Houston, I have Larry McAfee, our Executive Vice President and Chief Financial Officer, Glenn McDowell, our Chief Operating Officer, and Johnny Blanchard [ph], our Assistant Vice President and Controller. Johnny sitting in for Jon Bates, who couldn't be with us this morning because he is traveling. So before we begin I would like to ask Johnny to read a brief disclosure statement.

Thanks, Chris. This presentation contains forward-looking statements which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions. The company's actual results can differ materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information.

Thanks, Johnny. Larry, do you want to do the honors and review our financial performance for the quarter.

Yes, sure. Thanks, Chris. I will now review the company's second quarter results. Net revenues from continuing operations increased 34% to $47.4 million due to a 28% increase in patient visit and increase in average net patient revenue per visit of approximately 3%. Clinic operating costs increased by (inaudible) to 74.7% revenue because of business mix change associated with acquisition and start-up costs for the first OsteoArthritis Center. The provision for doubtful accounts was 1.6% of revenues in the recent quarter and 1.1% in the comparable period of 2007. Corporate office costs were $5.4 million in the second quarter 2008 or 11.5% of net revenues versus $4.1 million or 11.7% of net revenues in the second quarter of 2007. Although corporate costs are down year-over-year as a percentage of revenue our Q2 costs were up from Q1 of this year due to three factors. The first was because of a corporate staff addition and other costs related to start-up OsteoArthritis Centers of America. The second item was legal and other professional fees which we expensed relating to two potential acquisitions which we now do not anticipate closing. And third, an accrual was booked for the long-term incentive plan which is now in the money. Net income rose 24% in the second quarter, just under $2.9 million. Earnings per share of $0.24 was a $0.01 higher than the consensus estimate. Same-store revenues for de novo and acquired clinics opened for one year or more, increased 6.4%. Same-store visits increased 2.9% while the average net rate per visit increased by 3.2%. We had a good development quarter. During the period, the company opened seven facilities, acquired nine, and closed three, for net addition of 13 clinics. I will now go over the year-to-date results. Net revenues have increased approximately 32% to roughly $93 million due to 27% increase in patient visit, an increase in net patient revenue per visit of 2%. Clinic operating costs were 75.4% of net revenues as compared to 74.3%. The provision for doubtful accounts was 1.6% of revenues compared to 1.5%. Corporate office costs were 11.3% of revenue year-to-date versus 12.1% of revenues in the first half of last year. Net income has risen 27% to $5.2 million. Earnings per share has increased to $0.44 from $0.36. Same-store revenue for de novo and acquired clinics open for one year or more increased 5.8%. Same-store visits increased 2.1% while the average net rate per visit increased by 3.6%. In the first half of 2008, the company opened 11 facilities, acquired 10, and closed 6, for a net addition of 15 clinics. We closed the period with $17.2 million of borrowings and $8.1 million of cash, yielding a net debt balance of less than $10 million despite the recent acquisition closed in June.

Thanks, Larry. The second quarter was quarter marked by great deal of activity operational and development focus as well as significant event in the opening of our first OsteoArthritis Centers in Wellington, Florida. I suspect that we will have a fair amount of questions on the OA Centers. I am going to cover that in detail in a minute and then we will handle the additional questions in the Q&A period. As most of you are aware, Congress acted somewhat late to forestall the 10.1% physician fee schedule reduction as well as to put in place legislation for the next 18 months, continuing the exception process which had been set to expire as well under the Medicare cap system. We applaud Congress's actions and although it came late and gave us a little heartburn we felt this was the right thing to do for a senior population. We made a decision however based upon our prior experience in 2006, to continue to see all those Medicare patients in that interim period, ignore the temporary legislative gap that occurred, thus preserving visits revenue and most importantly, the continuity in the needed care of our elderly patients. Thus, as things turned out, we think it was the right thing to do. So now we would look forward and what we feel is a slightly positive environment over the next 18 months to carry on our business plan. Also, notable in the quarter was our development which produced the nice balance of new partner and de novo openings along with the previously announced acquisition of a very strong practice with nine locations based in Maryland and Pennsylvania. The preparation for this deal and others that we expect to add. We increased our credit facility with Bank of America from $30 million to $50…

(Operator instructions) Your first question is coming from Larry Solow of CJS Securities. Please go ahead.

Hey, good morning, Larry. Larry Solow – CJS Securities: Good morning, guys. Congratulations. Excellent quarter. Actually, the revenue per patient over $98 is magnificent, especially in light of I know STAR has a considerably lower rate, or a modestly lower rate. Can you maybe just talk about do you think it's sustainable to keep rising? And secondly, maybe go over your productivity measures, units billed per visit and daily visits per therapist?

I guess to answer your first question, is it sustainable, I'm not going to give you a target although we have some internal, we have some internal goals we set. Toward the end of last year, I think we will get there. Safe to say we're not quite there yet. STAR's net rate is in the mid to upper $89 of visit range, that's a slight improvement over where they were. They're working hard on improving that. I think that will improve and that alone will help our net rate because that gap will close. So, yes, I think in the short-term we can continue to move that. We've seen, and I'm pleased – we met with the managed care group again yesterday, and they had couple more nice success stories. So I think they're making some progress across the country. And so I think at least in the near-term we can continue to see some positive motion in that. I don't know that we will have absolute quarter-over-quarter, positive motion, but I think in the next few quarters we'll see that number pick up a little bit. In terms of some of the program things, really things we've been working on over the last year, the interesting thing about our clinical partners is that they usually come with a particular clinical specialty and then we add to that over time. So things like cancer related fatigue and some of the balance of (inaudible) prevention things we worked on most recently in the cash based program. We don't have a systematic deployment of those throughout the whole company and as we bring in these groups and they attach themselves to one of the other these programs, that gives us a little boost and some growth. And I think there is still a lot of opportunity to continue to benefit from that right now. Larry Solow – CJS Securities: And then could you talk about – for the OsteoArthritis program centers that they have similar type start-up costs – would you expect there possibility to maybe better than once they are often running and you have any particular growth plan that you could share with us as far as how many centers you expect to open over the next two or three years? I don't know how you look at it, but –

Couple of things. In terms of start-up costs, the footprint is a little bit bigger, we've got a procedure room embedded in these facilities where we do our fluoroscopic procedures, both on the spine and on the peripheral joints. Our first center we have, and in many of our centers we expect to have physical therapy on site, and so when that's the case, the footprint will be a little bit bigger somewhere in the 3,500, probably to 4,000 square foot range as compared maybe just to the 2,500 square feet for traditional physical therapy. With the cost is a little bit greater, somewhere in the 140 to 170 range including some of the x-ray equipment that will have their and some of the other macro equipment, but not dramatically different. And in terms of the total contribution we expect that once it's through its ramp-up period the contribution will be more significant than a standalone physical therapy facility. Now – I don't want to get stuck just right now, and I know it makes little bit hard for you on a model basis, I don't want to get stuck even in absolutely number. We expect to do one or two more this year. We have a couple that we're working on right now. We're looking at our next to market. We expect to do several more in 2009 – I don't want to throw the number out, but we're in discussions with number of payers, who are very intrigued by this model and the results that it's getting. Those discussions may influence a little bit our rate. We're still working to kinks up although the early results have been good, and we have been very pleased and I think it's probably a little earlier to say how many we'll have in the next three years. So we think that we will add in kind of a progressive systematic, steady kind of a way. And if that changes we'll give you an update when that occurs.

Yes, I wouldn't put in your model yet an earnings contribution certainly for this year when the business is just getting going. It's going to be a while before it's a significant earnings contributor. But the early results have been very positive. Larry Solow – CJS Securities: Great. And then just last question. The breakdown between new and satellite partnerships for the seven new openings. Do you have that?

I don't know that, didn't bring it in with me off the top of my head.

For this quarter we had three new partnerships and four satellite. Larry Solow – CJS Securities: Got it. Great. Excellent. Thanks a lot and we will look forward to seeing you guys next week at our conference. Thanks.

Your next question is coming from David Bachman of Longbow Research. Please go ahead.

Hi, Dave. Bonnie Cybulko – Longbow Research: Hi, this is actually Bonnie Cybulko in for David Bachman.

Good morning. Bonnie Cybulko – Longbow Research: Good morning. Just a couple of quick questions. I don't believe – did you give your productivity numbers for the quarter, your – ?

Glenn, why don't you – no, I don't think I don't think we mentioned any absolute numbers.

Yes, our productivity on our visits per FTE, Q2 of '08 we improved 11.10, up from 10.88, Q1 of '08. Visits per FTE. Bonnie Cybulko – Longbow Research: One more housekeeping. On your payer mix for the quarter?

Yes. The payers were as follows. The mix was private 26%; managed care 34%; workers comp 16%; Medicare 20% and other was 4%. Bonnie Cybulko – Longbow Research: Great. I'd like to just ask a follow-up here on some of your same-store growth. It looks like particularly at the same-store your revenue per visit saw a lot of improvement this quarter sequentially. Anything particularly behind that? Can you give us a little color on that?

Yes. I think that really goes down to our service offering focus in terms of program development. Some of the educational things that we have done in terms of adding products and services that have solid reimbursement and renewed and persistent focus on managed care contracting. So really isn't anything new. Just the things that we've been working on that – are beginning to take hold that we expected – it's no different. We're about in the position that I expected we will be in mid-year basis, looking forward this time a year ago. So we're making the progress that I expected to make. Bonnie Cybulko – Longbow Research: Great. Just one final question in terms of your, your regional footprint. Have you been experiencing any particular softness in any markets given the economy? You mentioned some of your opening remarks. Is there anywhere that you're little bit concerned in terms of economic conditions maybe having an impact on some of these service offerings or repeat visits? Anything like that that you could comment on?

No that it's did it – look on an isolated basis. I think we've paid attention to what's going on, paid attention to the country and trying to keep the pulse. We've had particular attention on Michigan with some of their troubles. Although I will say to the credit of our partners the Michigan market continues to be very steady. I just mentioned that we just signed on for the second year with our Ford deal. We were able to get a pricing increase on that deal as well. But no, I think anecdotally we have partners talking about patients who are struggling with gas prices and other things. And that's been going on now for really in the last six months and yet we've continued to make progress. So I don't know what the economy is going to do. I just know that we've got certain things that we can control the economy not being one of the things and we have to control what we can control to try to move the ball forward. So, we're just focused on those things right now. Bonnie Cybulko – Longbow Research: Great. That's it my questions. Thanks very much and great quarter.

Thank you.

Your next question is coming from Rob Hawkins of Stifel Nicolaus. Please go ahead.

Hey Rob. Rob Hawkins – Stifel Nicolaus: Hey, good morning. I apologize I had to jump from another call. So I missed all you comments. And I apologize if I ask you to repeat something you've said.

That's okay. Rob Hawkins – Stifel Nicolaus: Just a couple of things. On the margins, the numbers look really great here. Should we be thinking about this kind of a good quarter and the margins maybe kind of fallen back or just kind of like a new plateau you guys are reaching because of new deals, et cetera?

We went through if you listen to the – Rob Hawkins – Stifel Nicolaus: I can listen to the replay.

We mentioned several items. There were costs, both in clinic operating costs, and corporate costs relating to the start-up of OsteoArthritis Centers of America. We expensed – there were two in terms of corporate costs, two acquisitions we have been working on and at this point we don't anticipate closing those two deals, so we had previously capitalized them, went ahead and expensed the legal and other professional fees related to those two transactions. And then third thing was long-term incentive plan based on current stock prices now in the money so we took an accrual related to that. So there is a little bit of contraction, but obviously more than offset that with the revenue enhancement and the earnings were better than expected.

To add to that, just remember that we have some seasonal flux and the second quarter usually is a pretty strong quarter from the volume standpoint, obviously that gives us some overhead spread too. So – but in general, I think it was – we had some additional costs, I think it was solid quarter, I think as long as we can keep our net up and keep our costs at bay, and the Ops team’s focused on that right now. I think the next reasonable – reasonably foreseeable period we should be able to do pretty well. Rob Hawkins – Stifel Nicolaus: And some detailed color on the Osteo program. Are you – what kind of doctors are you targeting? Does this involve infusion drugs related to chronic inflammation procedure-wise or bone densitometers? Are those some of the kind of things we should be kind of thinking about related to this?

Yes. The two doc subspecialties will be physical medicine and rehabilitation and osteopathic physicians, board and osteopathic doctors. The first center is with the PM&R doctor, very accomplished young lady. The procedures – I don't know that I would characterize them as being infusion-based – the procedure that we're doing a lot of in addition to facet blocks and injections and other things are the synovial replacement procedures that are fluoroscopically guided. And those involve, obviously, synovial replacement drugs (inaudible) others. And then just to a gamut of muscular skeletal services, we don't have right now bone densitometry plan in these centers. That's something that we have discussed, will evaluate, but it's not in the mix right now. I think there is adequate generally serviceable before that. But a broad gamut including electro diagnostic testing and other things, all of which spin off a fair amount of muscular skeletal physical therapy. Rob Hawkins – Stifel Nicolaus: And then I guess one final question, kind of bigger picture. You guys have been doing little more acquisition work than de novo and it seems to be working out really well for you. Any kind of challenges that you're seeing that maybe hadn't foreseen before, related to some of the acquisitions versus de novos that we that we should think about or I should – or maybe even opportunities too?

I don't know I'll – let me give my answer now and I will ask the guys what they think I mean I think in general, we're not – as you have seen in the past we are not allowed not on acquisitions. We've tried to be very careful in terms of the people that we selected to work with in and what those businesses look like. As Larry mentioned, we had a couple that we had to expense, because as we've gone through due diligence there've been some things. And some of it is just the business has changed a little bit in those. So we have not moved forward. We'll continue to be very selective. I think the market is such right now that it's a challenging market for a lot of people who're doing okay. And I think generally we're doing pretty well. I think we continue to attractive home for some of these folks, but I'll think that discipline that you've seen so far will change. I'll think the pace will change dramatically. I think the market will continue to be difficult enough that people will look for a long-term stable home with a partner they can bring them some resources and added benefits. . Aside from that, I really don't think much has changed in the last six months.

No, I mean, we're not a roll-up. We still have good internal de novo growth. We supplement that with acquisitions. We're not a kind of deal of the month club. We have done couple really small ones this year. We'll probably do another one I would suspect. The integration has not been materially different from deal to deal other than with STAR because they were larger. It's taken us a little longer, but I'll be honest with you, I haven't really had any significant surprises in terms of the integration.

Things have gone about as expected. So and I think we continue to see opportunity and synergies working together and sharing practice ideas that will benefit not only the acquisitions but our company as a whole. So I think more of the same. Rob Hawkins – Stifel Nicolaus: Thank you. I will jump back in the queue.

Thanks, Rob.

Your next question is coming from Mike Petusky of Noble Research. Please go ahead.

Hey, Mike. Mike Petusky – Noble Research: Certainly not normal. Good morning and great quarter. One housekeeping – did you guys by any chance have the sales rep and facility coverage numbers handy? Chris Reading Yes we do. Sure. For Q2 we had 44 sales reps. Those included the sales reps from STAR and from Life Fitness. They cover 232 locations – that's up slightly from Q1 when we had 41 sales reps with 223 locations. Mike Petusky – Noble Research: And Larry, can you quantify the whatever we're calling them, unusual or one-time expenses related to the acquisitions that didn't happen, the accrual and –

Several of those items are broken out in the Q, which we'll file either tomorrow or Monday rather than just do selective disclosure, I think it's better for you to look at the Q and if you want to call me and follow-up and ask specific questions. They weren't huge costs, but it's several $100,000. And so it definitely affected corporate and to a lesser extent operating costs. If you see that data in the Q, we tried to provide significant amount of detail about it, but even after that comes out if you want to follow-up with me give me a holler.

Several of those items are broken out in the Q, which we'll file either tomorrow or Monday rather than just do selective disclosure, I think it's better for you to look at the Q and if you want to call me and follow-up and ask specific questions. They weren't huge costs, but it's several $100,000. And so it definitely affected corporate and to a lesser extent operating costs. If you see that data in the Q, we tried to provide significant amount of detail about it, but even after that comes out if you want to follow-up with me give me a holler. Mike Petusky – Noble Research: That's great. And since you guys happen to mention I guess you renewed with Ford. Is that annual renewal is that how that works?

Yes. It is annual renewal, we'll have to go through the same process August 1, 2009. Mike Petusky – Noble Research: Just one last question – I'm just I guess I think kind of curious about this. In a somewhat related field pricing has gotten quite a bit better in the orthotics and prosthetics area and I know that benchmark at least in the past had kind of married up orthotics and prosthetics, and PT and hand therapy, that's certainly basically, they had both going on. I was just wondering, have you guys at least recently considered trying to do anything in orthotics and prosthetics?

I guess the short answer would be no. It doesn't fit in with where we think our strategy and resources need to be focused right now. Just as a point of clarification, we do have a number of centers that offer hand therapy. We do have centers that also deliver, create, and fit a variety of different simple orthotic devices, not many prosthetics quite honestly. But in terms of doing something like hanger like product line not at this time, Mike. I'm not saying it's not good for somebody. It's just not what we're focused on right now. Mike Petusky – Noble Research: Just had a curiosity. As long as I have been around you guys I don't think I've never fully understood why Q2 does have that seasonality. Is it just simply a function of there not any major holidays and people are – and kids are still in school, so people aren’t traveling. Is that basically it?

Well, I think you have a few things. People are outside now after being, at least in a significant part of the country. Kind of holed up for the winter. They begin to become more active with more activity comes more things to happen. You're in school. You don't have the vacation pressure that you have during the summer time onward with doctors particularly on vacations. And as long as I've been in the business which is more than 20 years, it's been a pretty consistent seasonal pattern company to company and year to year. It really hasn't changed that much so.

There are some months two of which fall in the second quarter, March, April, May historically are good months and then in the fall, September, October, good months. So it just depends on where those months fall. Mike Petusky – Noble Research: Got you. Great job. Terrific execution. Thanks, guys.

(Operator instructions) Your next question is coming from Mitra Ramgopal of Sidoti. Please go ahead. Mitra Ramgopal – Sidoti: Hey, good morning, guys. Just a few questions. Again, you had really nice same-store growth and it clearly seems like the investment in the sales force is paying off. Should we continue to expect additions going forward in light of the results you're getting?

We're looking to add a few sales positions but honesty, I don't think our sales force will grow much beyond where is that now. We pretty much got sales coverage in the market density areas that we need to have it. After that it becomes somewhat problematic for resource standpoint due to the fact that you have single clinics out in rural areas. But – we'll probably add few reps but I don't believe that we're going to add a lot more.

Mitra, I think it will be proportional to where we are from the facility count perspective. I think as we add facilities we add new companies, that rep – that reps number will grow. We expect to have sales reps as we go into new markets with our OA centers product. So it's not that we will – as Glenn said it's not that you will see the exponential growth from here, but it'll be relative to our facility density and the number of facilities we have on board. So you'll see some growth, but it won't be necessarily dramatic. Mitra Ramgopal – Sidoti: And again if you can give us an update on the STAR and mid-Atlantic acquisitions. Are they both fully integrated now?

The one that we just did in Baltimore we're just on the very front end of that although we expect that to happen. We've done in terms of all the back office integration much quicker than we initially planned with STAR. STAR has gone as planned. We're in the final processes of the payroll in the AP and the IT conversion which will be done and wrapped as we close summer. And I think both of those are as planned and on schedule. Larry, would you say –

Most of the work has been done in terms of payroll and payables for both those deals this month, and we've already got STAR's payroll on line here. And we'll be putting Life Fitness's on shortly.

Most of the work has been done in terms of payroll and payables for both those deals this month, and we've already got STAR's payroll on line here. And we'll be putting Life Fitness's on shortly.

Yes, we made a decision when we did the STAR acquisition and not and we made that with them – not fool with anything initially, to leave it intact as it was. We've made – we expected over the first year or so, that we would integrate a lot of those support back office function. We've made that decision collectively together. And I think that was the right decision and so the timing has really been as expected. On the Life Fitness deal we expected to get out of the box and make that integration happen, really from the get going, and that's been the process, that's been orderly, and I expect to be closed out in another month or so, so far so good. Mitra Ramgopal – Sidoti: And then just coming back to the OA strategy. If you can give us a little sense for the kind of market and how competitive it is, sort of reimbursement outlook there? And again would it prove a distraction or slope in any way your clinic growth on the patient rehab side?

It's a great question. Let me handle the last one first in terms of will it be a distraction. The quick answer and the right answer is we will not absolutely be a distraction. This is something we have been working on for a while. It's been a methodical thought for process. We brought in a partner who has experience with this, and we hired the infrastructure in terms of leadership who – these folks are very capable of carrying this forward under our existing structure, reports up through Glenn on the operations side. But we got good group of people in place right now. So no distraction. I think we will learn from this. One of the things expects that we will learn is how to go direct to public more effectively. We'll make some revisions, but I think it will be steady. Mitra, help me, the other part of your question? Mitra Ramgopal – Sidoti: Reimbursement.

The reimbursement. It's largely federally reimbursed although we certainly see a subset of the population that are my age and but pre-Medicare – my age and older up to Medicare that are active that are beginning to have joint problems, pain restricted functions that benefit from this kind of care absolutely. We've got good long term result to show that. I would guess somewhere in the 60% to 75% range will be Medicare, however, until you've got that reimbursement, the rest will be private HMO and commercial-based payers. In terms of competition, it's interesting, the orthopedists, are probably the biggest single group that deliver these kinds of services, but they don't want to. It's kind of a necessary evil in order to get past the hurdles, they have to get past, to get to the joint replacement, which is what they're concerned about. The primary care doctors don't do this kind of things. They are looking for typically a non-surgical alternative for the patients which is what the patients ultimately want, surgery as a last resort. And so, I think my early assessment is there is a market for this and some demand on the payer side particularly with the Medicare replacement plan, Medicare advantage plans, to direct patients into what would be a surgery delaying or surgery eliminating opportunity. But we're just on the front end of this so, we learn too.

The cost of the IAJP program in particular is a fraction of the joint replacement cost. So to the extent that the patient and ultimately the payers can either defer or put off the joint replacement they save significant dollars. Mitra Ramgopal – Sidoti: And I'm assuming again the approach here initially will be a de novo approach as opposed to looking to make acquisitions to grow faster?

I don't know that there are acquisitions to make necessarily at that (inaudible) in the subset. This will be a de novo approach strategy. Mitra Ramgopal – Sidoti: And finally, are there any sort of strategies we can expect from this in terms of cross referrals or sales force making the same or similar calls?

Yes, absolutely. We're rolling out – we've rolled out some of these programs that we're able to offer and we've offered toward sales force some of the electrodiagnostic study things that we think will, again, help us to partner more effectively with doctors in various markets across the country where we go into a market where we have existing facilities we expect that there will be a synergistic referral pattern both from the OA center to our facilities potentially for ease of access and convenience sake, as well as from the facilities who have patients who are struggling with various aspects of their recovery, looking to avoid joint replacement surgery or needing other diagnostic studies. And we think that will be a referral source as well. So we think the synergies make sense. And as we add to our facilities, which we expect to do in the coming quarters, we will have a better sense of what that looks like. Mitra Ramgopal – Sidoti: Thanks again, guys.

Thanks, Mitra.

There appears to be no further questions at this time. I would now like to turn the floor back to Chris Reading for any closing comments.

Thanks everybody. We appreciate your time this morning. Larry and I are available over the next few days. If you have existing follow up questions –as Larry said we will have some additional filings in the next day or so, take a look at those. And again, we appreciate your time and always your support. Thanks and have a great day.

Thank you. This concludes today's U.S. Physical Therapy second quarter 2008 earnings conference call. You may now disconnect and have a great day.