Good morning. My name is Chrisalle and I will be conference operator today. At this time I would like to welcome everyone to the U.S. Physical Therapy Third 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 session. (Operator instructions) Thank you. Mr. Reading, you may begin you conference.

Thank you, Chrisalle. Good morning, everyone, and thank you for joining us for this morning’s U.S. Physical Therapy third quarter 2008 earnings call. With me this morning in Houston Larry McAfee our Executive Vice President and Chief Financial Officer, Glenn McDowell, our Chief Operating Officer, and Jon Bates, Vice President and Controller. Before we begin, I would like to ask Jon to read a brief disclosure. Jon?

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 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. Larry, please go ahead a review the financial highlights of our Q3 performance.

Okay, I’ll now go over our comparative third quarter 2008 results versus Q3 2007. Net revenues increased 26% to $47.2 million due to a 23% increase in patient visits and our increase in our average net patient revenue per visit from $96.75 to $98.11. Total clinic operating costs were $36.6 million, or 77.5% of net revenues. Clinic salaries and related costs as a percentage of net revenues were 54.3%. Rent, clinic supplies, contract labor, and other costs were 21.6%. Our provision for doubtful accounts was 1.6% of revenue for the quarter. Corporate office costs were $4.7 million in the third quarter of 2008, or 9.9% of revenues, versus $4.2 million, or 11.2% of revenues in the third quarter of 2007. Net income rose 19% to $2,531,000. Diluted earnings per share increased to $0.21 from $0.18. As mentioned in the release, Hurricane Ike cost us an estimated $0.01 in EPS. Same store revenues, for de novo and acquired clinics open for one year or more, increased 3.4%. Same store visits increased slightly while the average net rate per visit increased by 2.8%. During the recent quarter the Company opened three locations, closed two, and sold one. I’ll now go over the nine months comparative figures. Revenues from operations increased 30% to approximately $140 million due to a 26% increase in patient visits and an increase in average net revenue per visit of $1.88 from $95.96 to $97.84. Clinic operating costs were or 76.1% of revenues. Clinic salaries and related costs were 53.3%. Rent, clinic supplies, contract labor, and other costs 21.2%. Provision for doubtful accounts for the first nine months was 1.6% of revenues. Corporate office costs were $15.2 million in the first nine months this year as compared – or 10.8% of revenues, versus $12.7 million last year, or 11.8% of revenue. Net income year-to-date has risen 24.3% to $7.8 million. Diluted earnings per share increased to $0.65 from $0.54. Same store revenues, for clinics open a year or more, increased 5.3%. Same store visits increased 1.8% while the net rate increased by 3.4%. In the 2008 nine month period, the Company has opened 14 facilities, acquired 10, closed eight, and sold one for a net addition of 15 clinics. The Company produced strong net cash flow in the third quarter. Our combined credit line borrowings and notes payable were reduced by $6.4 million or 37%. Our cash balance at the end of the quarter was $9.2 million and the average age of our receivables is 55 days.

Thanks, Larry. This was a very big quarter for us here at U.S. Physical Therapy. As you will remember in (inaudible) June we closed on the acquisition of nine locations in the mid-Atlantic region. Integration of that deal has progressed very well. We knew coming into this relationship that we will quickly transition much of their back office operation on a fairly immediate basis. Much of that transition was completed in the third quarter. We are currently working on new satellite opportunities with these partners and expect they will have – that we will see more from this group in terms of development and continued growth in the months and years to come. We also announced recently the completion of an acquisition that ties into our OsteoArthritis Centers of America Company. In September we completed the 65% purchase of Rehab Management Group, or RMG. The founders are also our partners in our OA Center project. RMG has developed a variety of clinical products and services which will form much of the foundation of the medical side of our OA Center’s model. Additionally and importantly, we have begun to roll out some of these physician oriented (inaudible) programs in a number of our existing PT markets and have seen some early success and synergy created, resulting in stronger relationships with our referral sources and also an opportunity to capture additional PT business as well. We believe these physician oriented programs all of which are musculoskeletal in nature, fit well alongside our OA Centers concept and in conjunction with the many physical therapy partnerships across the country. We are in the process of education our partners and our sales team in these existing products and services and the benefits that we expect will come from across sales opportunity, which we will develop…

Your first question comes from the line of Larry Solow with CJS Securities. Larry Solow – CJS Securities: Hi, good morning guys.

Good morning, Larry, Larry Solow – CJS Securities: Can you – did you see any change in trend at all may be even since the quarter end or in kind of things got – the economy front seems to make a further nose dive certainly in the press and we are – just people aware of what’s going on in the economy. Have you seen any downturn in trends at all and historically how does – you guys more of a leading indicator or a lagging indicator or any indicator?

Yes, I am not sure that currently where we are in terms of the economy we have any great historical point of reference to compare to. Larry Solow – CJS Securities: Right.

I think the Company has been very, very steady thus far and in talking with the partners in select markets we have stories of physician groups particularly specialist orthopedists and other beginning to slow. On a macro level, we’ve remained very steady. Larry Solow – CJS Securities: Okay.

Potentially I think one of the reasons for that is that there is so many businesses so fragmented there is so many providers, there is still an opportunity out there to move market share. There are many markets where we are the sole provider or even potentially the complete dominant provider. So as the market might contract, there is still an opportunity to go out and move business. I am not saying that it won't happen or can't happen, but thus far I think we’ve held up pretty well.

Our patient volumes are consistent with what we (inaudible) and so from that standpoint we haven’t seen any noticeable effect. Larry Solow – CJS Securities: Okay. And then can you just – I don’t know if you have them or if you can get the – easily calculate the performance measure, any units per visit or visits per therapist.

Right. I mean basically visits per FTE Q3 of ’08 was at 10.85, then Q3 of ’07 was 10.86. We’ve dropped back a little bit from where we hoped to be and we’ll be focused on getting that back up above 11 and then continuing toward 11.5. Larry Solow – CJS Securities: Okay. And then I guess units billed per visit was also (inaudible)

Unit per visit in Q3 of ’08 was 4.11 and Q3 of ’07, it was 3.98. So, we’ve made good progress on the gross revenue charge, unit charging basis (inaudible) Larry Solow – CJS Securities: Okay, great. And then I guess just one other question on your drop in corporate office, is that due to kind of a (inaudible) of the stock compensation is that where there carries it.

Yes, actually in the long term incentive plan because the stock price has fallen below the minimum threshold, some amounts we had accrued earlier in the year were reversed. Larry Solow – CJS Securities: Got you. Okay.

Hopefully, that we will have to accrue those to get into the future. Larry Solow – CJS Securities: Yes, absolutely. Okay, great. Thanks a lot.

We are working on it.

Your next question comes from the line of Rob Hawkins with Stifel Nicolaus.

Hey, Rob. Robert Hawkins – Stifel Nicolaus & Company: Hey, good morning. I wondered if you guys could do a couple of things on the acquisition and development outlook. You guys gave some good color on that earlier. I mean it sounds to me like there is a heck of a lot more opportunities for you guys on that in these troubled times. And then also wanted to try to get a sense to – it sound pretty exciting what you are doing with the OsteoArthritis Centers. I was kind of thinking that that was more of specialized centers, but it sounds to me like it’s an add-on service for everything. Could you guys spend a little bit of time fleshing both of those points out?

Sure. On the development side, I think you will see us continue to be very deliberate in terms of what we do. We don’t expect facility go run out there and save a lot of trouble for providers, that’s really not our focus. We are talking to very good people right now and we expect that we’ll continue to break good deals and they will – and I do think that as the economy continues to struggle, as I think it will over the next year or so, I think that there will be good providers who are going to look for good homes. So we’ll have to – we’ll just have to see how that plays out. On the OA Centers side, the OA Centers concept is really center focused where we have physician and physical therapy in the same site. And the products and services that we deliver particularly the medical services that make up the bulk of what we do and expected to in these OA Centers, we have the ability through RMG to roll out in select markets of our choosing to physicians on really a service basis. There are some markets where either by population or reimbursement or other things we don’t expect to have an OA Centers expansion in to those markets, but we can roll out these products and services and then cross sell them and in many cases take advantage of the physical therapy business that spend off. Now I will tell you that we are just at the front end of this. We have 30 partners in today for what has been I think are six to seven major partner meeting where we roll out new progress, new services. We had a great day yesterday and meetings last night and RMG folks were in. And we are getting people oriented to that. So it’s going to take a little time but we think there is some opportunity there to strengthen referral relationship and to drive some additional business over time.

On the – just some more on the M&A side, as noted, we had very cash flow in the third quarter, paid down the credit line significantly. Even after the RMG acquisition we had over $35 million in unused availability on this facility. So we certainly have a very clean balance sheet. We don’t need to do additional acquisitions. We are talking to a number of people. We haven’t changed our philosophy. We’ll only do deals that are accretive. We are not looking to buy turnaround – one thing essentially is most definitely multiples have come down on the acquisition. Robert Hawkins – Stifel Nicolaus & Company: Oh, you already started to see that.

Yes. Well we had seen it I think going back probably five or six months.

I think expectations across the board has come down and I think a lot of people have to do with a fair amount of venture private equity money in the market a year so ago and that had heated up. That’s pretty much gone by the wayside. And for the – at least right now for the people we are talking to they are not talking to anybody else. So it’s not like that we are – we continue to stay away from big wars [ph] and all the same we’ve been (inaudible) very selective. Robert Hawkins – Stifel Nicolaus & Company: Great. And then can you guys refresh the – on the net revenue per visit increases is this kind of more a phenomenon of the newer clinics – the bunch of clinics that you bought last year and kind of bringing up. I thought that’s kind of earlier. Is there may be something more going here because it looks like you are still getting nice pick up there even though the productivities relative was flat.

Yes. You are right. The productivity was flat. We were down. We were a little soft particularly in the beginning of the quarter with volume. Summer for us was a little slow. Our September picked up nicely. So in aggregate for the quarter our productivity didn’t look that good. On the net rate side, you remember that the STAR group really is by the way now very focused on improving their rate going forward following a number of very successful regional partner meetings that they have had with their team but if you can remember they came in considerably less in that rate somewhere in the $80 pp in that dollar visit range and we were – so when you aggregate them and their size with us, we’ve made some pretty good progress this year with net rate much of which has been attributable in combination to our units per visit pick up and then conversely there is some progress we’ve made in some of our markets with some fairly good size fares. So I think the combination of those two things has given us a pretty good pick up this year.

I will agree with Chris. I mean we – from an operational standpoint, we put some major focus on impacting units and the kinds of units that we charge and we’ve seen good response from the sales of that. That has impacted net. We’ve done well on our reimbursement side with renegotiating some contracts. And we’ve done very good in working within or bringing some days down and in focusing on cash collections and those three things in total has impacted net. I men we continue to look for improvement in that area. Robert Hawkins – Stifel Nicolaus & Company: Is – okay, you continue to look for improvement. I mean we should see a kind of tailing off? You’ve had these guys now almost three years. Is most of the bang done or do you think there is still (inaudible)?

Actually I mean I would honestly tell you that the bang is just starting on the STAR Group. I mean they have – the integration has gone well. We’ve kept the entire team intact critically. We have opportunities in the marketplace. They’ve just recently rolled out some initiatives, which I think will create the bang in that rate, and that was something that we knew going in will take a little time to get some traction with and that has begun and we expect to see that really effective that into the next year. Robert Hawkins – Stifel Nicolaus & Company: Great. I will jump back into queue. Thanks so much.

Thanks, Rob.

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

Hey, Mike. Mike Petusky – Noble Research: Hey, good morning, fellows. A couple of quick housekeeping (inaudible) can you guys give the (inaudible) I think if you it handy there.

Yes. Private payers were 26%. Managed care 34%. Workers’ comp 16%. Medicare 20% and other 4%. Mike Petusky – Noble Research: What about the current sales reps and how many facilities they are attached to?

Right now we have 41 sales reps and that includes STAR and Life Fitness. They are covering 224 locations. We have a number of sale reps openings which – when we fill those will take us back up to about 233 locations being covered by sales. Mike Petusky – Noble Research: In terms of the election of a couple of days, does any of this matter in terms of PT reimbursement or I guess the physician fees schedule as we get out beyond 2009. Do you guys – are you guys hearing anything in terms of democratic proposals or leanings on any of these issues?

I guess the short answer is no. I mean we all got up and came into work and it was business as usual. I think that there is certainly a lot to tackle for the new administration. I expect them to work on healthcare although I think that will focus more on looking at the insured and the uninsured population. I don’t necessarily – I really – I can't even begin to speculate what it might mean in 2010 for the physician fee schedule particularly where the country is right now. I can tell you that I can't imagine that the current adjustments that is statutorily on the books will happen because I think it will take family practice doctors clearly under water. And I certainly don’t think that will be good for the country nor the healthcare system. So in terms of what happens in the near term, I think we are steady we guess. In the long term I can't even begin to guess.

I mean the rights are set through the end of 2009.

Right.

So I can’t talk about the 2010 and after issues. Mike Petusky – Noble Research: Right, okay. Larry, two, three, four years, it seemed like you would occasionally have a little bit of seasonally show up in Q4 I think past year Q4 looked awful lot like Q3. And I may be recalling that incorrectly.

No, that’s because (inaudible) the STAR acquisition which closed in September. Mike Petusky – Noble Research: Okay so should we –

Now, of course our results were better because we were bigger – Mike Petusky – Noble Research: Right.

And you are right. Fourth quarter is seasonally very slow, the week of Thanksgiving and from Christmas to New Year’s. It’s hard to get patients to show up.

And guys I will tell you this year if you look at November as being kind of on a work day basis, and understanding that the Friday after Thanksgiving, which is counted as a work day is often a bit of a slow then it – we have 19 work days in November. So October is the big month for the quarter and then we have the shortest month of the year in November in terms of work days. And then we have December, which is generally a roll of the dice. So, we are working hard right now to get some things done, but the fourth quarter is – as Larry mentioned, a little less predictable than some of the other quarters, traditionally. Mike Petusky – Noble Research: In light of that, can you refresh me where your current guidance is?

We don’t give quarterly guidance – Mike Petusky – Noble Research: Right for the year –

$0.83 to $0.89. Mike Petusky – Noble Research: Okay, okay. And last one and I will let somebody else get a shot at you guys. In terms – a few years ago you guys bought back an awful lot of stock – 14, 15, 16 area – and I think it’s probably almost objectively true that you guys are a considerably better company today than you were two, three, four years ago and the stock obviously is at that low end of that range where you guys were buying back stock. I mean is there any temptation given your cash flows and all the – even the borrowing capacity that you guys, I mean is there any temptation to reinitiate the share repurchase program.

No, not at this time. If you look at our highest returns on our investment dollar, the highest return is to open a de novo clinic. Second highest return is to do an accretive acquisition. It’s not that stock buyback can't be accretive, but right now we think there is enough opportunities on the de novo and acquisition side and that’s where we are (inaudible).

And quite frankly I’d drive straight to the market position than just reduce the number of shares outstanding. Mike Petusky – Noble Research: Alright very good. Thanks guys. Really appreciate it.

(Operator instructions) Your next question comes from David Bachman with Longbow Research. David Bachman – Longbow Research: Hi, this is David from Longbow.

Hi, David. David Bachman – Longbow Research: Could you provide a little bit more color on the same store visit growth, may be any variation that you are seeing there geographically? And then perhaps related, can you talk a little bit about the workers’ comp book of business perhaps what you are seeing there or what you saw on the quarter?

Well I think comps stayed pretty consistent. Actually our –

It was actually up.

It was up a percent.

Yes, we’ve been running around 15 normally it was up to 16 –

That fairly was affected right. On a same store basis, as I mentioned, we were a little slower in the summer. We picked up September and that being a pretty good month from a volume perspective.

One of the analysts noted, the 1800 visits we lost to the hurricane were in mature centers. So that affected I think (inaudible) better than they were and they were bad.

Yes. We typically I mean as Larry mentioned in Houston we have some very, very good centers, all of which are very profitable and we had in Houston for the month of September, which was a good strong working day of the month I don’t think we had a single center that was profitable and so that volume is back. Those centers are back and working and the city for the most part I think is largely returned to normal. So you know – I don’t know. Same store for us for the year has been pretty solid. We obviously were a little thinner this quarter. I think due to some easy to explain things we will have to see going forward.

And I will tell you on the work comp side anecdotally we’ve not heard anything from our partners in the field yet. That has been a major impact on work comp business and referrals at least at this point.

And keep in mind, guys, our business gets people back to work typically in 10 or 11 business and in many cases helps to avoid surgery or return from surgery or particularly from injuries, very, very quickly and fairly efficiently from an economic perspective. I don’t expect companies to – they really don’t have any ability to persuade people from attending from a work comp basis. And it will depend certainly on the work force and the labor market, but people have to be able to work and they have to be able to function. So I expect we’ll – we may see some downturn, but I expect this to able to work throughout.

You know if you look back in years past, you have – we’ve never seen a dramatic increase in our workers’ comp business. We’ve seen it move between 14% and 17% of our charges or revenues. But historically fairly steady.

Even if you look at the Ford (inaudible) there hasn’t been any slowdown. While this is not – one of the visits when we predicted when we initially signed the contract over a year ago, we haven’t seen any slowdown in our Ford business as of yet. David Bachman – Longbow Research: Okay, great. That’s very helpful color. And then just on the fourth quarter, you said it’s somewhat unpredictable, but is there any truth to sort of maybe being a little bit of an incremental benefit from people needing deductibles towards the end of the year. I mean just D&B [ph] perhaps they are doing some things with – that would encourage people to be using utilization to pick up a little bit because of the deductibles being met and that kind of thing.

Oh no that will vary this year because of the economy and any of those things. I think typically back to when I was a provider in the clinic all the way through to current, most people don’t want to go into surgery past the first week of December. I mean things for the orthopedic guys will slow down dramatically because people don’t want to be recovering over the holiday. It’s a period of time when people like to spend with families and all those things. So I think predating December certainly. I mean people are looking to get things done now potentially may be rather than in January. Once we get into December though I think that changes.

Yes. We have seen too I mean – health plans are not always on calendar year either. For example our Company isn’t. So the most or a lot are calendar years. We really see the deductible impact in the first quarter. After that most people (inaudible) deductible. If he is spending at orthopedist or he come to see us, probably already mentioned that will – David Bachman – Longbow Research: Okay. And then just one last question and then I will jump back in. on the OA business, in terms of the credit market that we are seeing now you guys are in pretty good shape, but any color on the impact on your partners in that business and how that might have an impact in the next – the next year or so?

I think as I look at it, I don’t look at that business from I guess a landing or a credit basis any different than I look at the rest of our business. I mean usually our partners – I mean we are the majority partner in that deal.

We put out the capital.

We put out the capital.

Yes.

So, this – it’s all the same as far as I am concerned. David Bachman – Longbow Research: Okay. So the OA deal that is structured the same – on the same way as your existing clinics?

Very similar. I mean we’ve got a physician on with some incentives. We’ve got PT with incentives and then we’ve got the guys RMG deal in the partnership but we are the managing partner and we are the capital partner and so it really – shouldn’t look at it any differently I don’t think.

I mean it cost us $175,000 to start up a PT clinic. Probably for an OA Centers $250,000, but the capital requirements are not dramatically different. We’d opened 108 [ph] center today, so we are talking about something that’s (inaudible). David Bachman – Longbow Research: Okay, great. I appreciate all the color. Thanks a lot and nice time navigating through a very busy third quarter for you guys.

Thank you.

(Operator instructions) At this time, we have no further questions.

Okay, everybody listening thank you for joining us. I know this a busy release day. We appreciate your attention and support (inaudible).

This concludes the U.S. Physical Therapy conference call. You may now disconnect.