Good morning. My name is Laurie and I will be your conference operator. At this time, I'd like to welcome everyone to the U.S. Physical Therapy Fourth Quarter and Year-End 2008 Earnings Release 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 will now turn the call over to Chris Reading, Chief Executive Officer. Please go ahead sir.

Good morning everyone. This is Chris Reading, President and CEO of U.S. Physical Therapy. I'd like to welcome you this morning to our fourth quarter and year-end earnings release call. With me here in Houston, I have Larry McAfee, our Executive Vice President and Chief Financial Officer; Glenn McDowell, Chief Operating Officer; and Jon Bates, our Vice President and Controller. Before we begin today, I would like to ask Jon to cover a brief disclosure. Jon? All right. We're going to do the disclosure again momentarily. Before, I ask Larry to cover the financials in detail, I would like to spend a few minutes talking about where we have come for the year. I will discuss the most recent quarter and then we'll look ahead to what we see for our company in 2009. First for the year, 2009 in spite of the difficulties faced in the second half of the year by many companies, 2009 was a very good year for us, in fact a record year. Let me share with you some of the highlights. Our volume grew by 20% this year fueled through most of the year by strong same-store growth. Our revenues grew 23.7% or over 36 million, but that revenue growth was assisted by a very solid net rate per visit improvement over $98 a visit. Another driving factor in our growth came through our development focus. For the year we added a very nice complement of facilities completing four acquisitions, which have performed very well for us. Additionally and importantly our de novo program brought an additional 16 facilities to our growing network of partnership based facilities. Earlier this week in a Board meeting we discussed and reviewed the performance of all of our deals to-date. Christmas (ph) selection process, where we look to…

How about Jon, before we proceed, why don't you go ahead and read the disclaimer?

Sure. Thanks, Larry. This presentation contains forward-looking statements which involve certain risks and uncertainties. And these forward-looking statements are based on the current, 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. I'll go ahead and go over our 2008 annual results as well as for the fourth quarter. For the year of 2008, net revenue increased 24% to 188 million due to a 20% increase in patient visits, and an increase in our average net rate per visit of just under 2% or $98.05. Total clinic operating cost from continuing operations were 76.5% in net revenues compared to 75.4 in the previous year. Clinic salaries and related costs as a percentage of revenues were 53.4% in 2008 versus 52.2 in 2007. Rent, clinic supplies, contract labor, and other costs from continuing operations as a percentage of revenues declined to 21.2% from 21.5. Our provision for doubtful accounts was 1.6% of revenue in 2008, as compared to 1.7 in 2007. In 2008, the company incurred closure costs totaling 432,000 pre-tax. Our corporate office costs were 10.8% of revenue in 2008 versus 11.4 in 2007. As Chris mentioned, our adjusted EBITDA that amount tripled to USPH and net of minority interest increased 20% in 2008 to $24.5 million. Net income rose 14.5% from 8.7 million in 2007 to over 10 million in 2008, and our earnings per share increased to $0.83 from $0.75. For the year, our same-store revenues increased 4.6%. That includes the same-store visit increase, as well as an increase in our average net rate per visit. During 2008, the company opened 16 new de novo facilities, acquired 14 clinics, closed 18, and sold one for a net addition of real fit (ph) clinics bringing our total up to 360 clinics as of year-end 2008. I'll now review the fourth quarter. Net revenues from continuing operations increased 8% to 48 million due to a 6% increase in patient visits and an increase in average net revenue per visit of…

Thanks Larry. I think at this point operator We'll go ahead and I am sure we have a number of people that have specific questions. So let's open up the line and we'll be happy to handle those questions.

(Operators Instructions). Your first question comes from the line of Larry Solow of CJS Securities.

Hi, Larry.

Hi, guys, how is it going. Just a question, first of all on the Q4 would it be fair to say that visits would have been nearly flat if we kind of exclude the weather impact and I believe there was also one to two less business days in 2008 versus 2007?

In terms of the business days, let me just check here... December--

There is no question we had more severe weather in the fourth quarter than we had in '07, that was certainly an impact, and we tried to quantify that number.

Okay. And then--

On the business days question Larry, I think had we not had, hadn't this early winter storm, which hit us in the central part of the country where we have some really big partnerships. We did come in at I think at consensus.

Yeah.

You're right. And then, it's actually nice to see that your revenue per visit actually went up sequentially despite the environment. Just looking out into 2009 and I don't expect an exact answer, but do you kind of expect in your guidance, does that kind of imply that visits and revenue per patient visit kind of remain kind of where they are at right now or any more color on that?

Yeah, I'll give you a little bit color. In terms of visits where they're at, I think visits will continue to grow. I think we will see some potential blunting. Part of the guidance is really related to the uncertainty that we expect just given the progression of the economy.

Right.

We have discussed in the past and past releases that we really hadn't felt any effect. I think we began to feel some effect late in the fourth quarter. We don't know whether that will be stable, or whether there is a potential for that to accelerate. I think that in terms of what we've been working on in preparation for some of these things. I'm pretty sure. I might stop sort of saying I'm certain, but I'm very sure that we'll be able to get some net revenue per visit expansion this year. But there are a number of things the team has been working on hard, and we've gotten traction with those and we've seen some early good or early results. In terms of what the visits will do, what same-store looks like, I'm not sure.

Right. Okay, and then just looking at, and I would say reimbursement is somewhat of an issue. What do you think, I guess in 2009, you're pretty well locked up on the Medicare side, but you have any comments on what the new regime in Washington, and the stimulus package, and some people are worried that Obama will come harder on healthcare reimbursement, and do you have any thoughts on that?

Yeah, I'll give you a few and they are personal views more than anything and I still need to study some of the things that have just recently come out over the last week or so. But I think in general what we're hearing, and what I believe is that the statutory adjustment it's in place for 2010 and will happen. I don't think the government can afford to take particularly at the level of family practice, and the stability, or instability that exists today on the family practice. Side of things where much of healthcare is delivered as an entry point. I don't think that sector can take a big hit right now. And I think that would kick things into more of an unstable fashion, will put more pressure on hospitals and ERs and I don't think... I think the administration recognizes that. We expect in '10 is more of a flat pricing environment. Honestly right now--

Okay.

I'll like to change.

Okay, that's fine. And then just last question and I'll move on. It sounds like your de novo development outlook it actually looks very strong. What do you see on the acquisition front. You guys still I know been talking to a lot of partners, potential partners and have things slowed or things kind of remained steady. How to look at it?

We continue to talk to a lot of people. I think that this craziness that we're all going through right now in the world has caused everybody to try to take a little a pause and figure out, what it means for them short and long-term. So I would tell you that I don't have anything that's imminent to close anytime in the next few months. We're in discussion with a number of people. We're going to be very deliberate about what we do in terms of making sure that if we do anything its very high quality with predictable growth even in a tough environment. So we'll just have to see how the year progresses.

Yeah, I mean we've never had a acquisition pipeline per se. We've been opportunistic, always in discussions with a number of groups. When there is an opportunity, we pursue it. Certainly multiples being paid for acquisitions have come down. Our acquisitions have actually outperformed their pro formas and a cash flow, as you can see from our debt balances, they have been excellent.

Okay. And do you have a number for or kind of expectations for de novo. All the more do you expect it to be higher in '09 and '08 or similar?

Yeah, I'll expect it to be modestly higher.

Okay, great.

We'll actually have a good start to the year right now in terms of what we have on the books potentially not all those are open yet, but we're off to a good running start so far for the year with some really good folks.

Great, excellent. Okay, thanks a lot.

Thank you.

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

Hey, Rob.

Hi. Good morning, folks. On the guidance, I'm still little fuzzy, so if maybe I could say back and you guys correct me where I've got it based on what you're seeing Larry is you're seeing that you are showing some growth in volumes. Are you expecting some growth in volumes but it to be blunted, which maybe I should take as kind of flat, or showed very low growth and that you kind of expect kind of flat pricing. Am I thinking about that right?

I think we have modest growth in visits not as much as normal and then our--

I think in pricing we expect to be up a little bit.

Yeah, but we didn't really, probably honestly we didn't put a lot of that in the budget.

Yeah.

Okay.

And I'll tell you year-to-date and that rate is running ahead of what we budgeted.

You just took my next question I was thinking, how you're doing. What metrics do you have to share so far. I mean are the volumes picking up a little bit so far in 2009?

In January, we got hurt by some more storms, but February turned out pretty good.

Yes, February has been a solid month with the visits progressing week-to-week through the months of February and February ended up looking like it was very solid.

And that seems to jive with what I'm hearing from other folks. One just kind of administrative question. The ten clinics and how you accounted for that this quarter. It sounds to me like most of the charge was in the bad debt line. I'm just trying to make sure, how to normalize some of your expense in those margins?

No, it's our interest in bad debt.

Yeah, separate lines for clinic closure cost and most of it relates to writing off lease hold improvements and that kind of stuff.

Was it in a separate line?

Yeah, a separate line item.

Yeah, I'm sorry.

Those were costs.

Okay. But I guess I thought that was, I thought I guess I'm confused. I thought there was 435 not 280.

Annual number and there is a quarterly number, but our closure costs normally involve things like what's the remaining rent due on a lease, unamortized leasehold improvements that you have to write off. Certainly sometimes--

Any severance or separations.

Yeah, severance, separations. Certainly sometimes you write-off the receivables. Well, we do that every month, whether it's an open or closed clinic, we're constantly evaluating the receivables.

And, but there was some usual pieces to it or?

We just closed more clinics. We factored a budget and looked at the economy and we said where we have some clinics or maybe close one clinic that was profitable and we said some of these clinics are on the margin, their leases are coming up for renewal in 2009. They're small, there is not lot of upside, they were singles, most of them were single location partnerships. While we threw them, with them in this kind of an economic environment.

No, I completely understand and I'm not second guessing anything you guys have done here. Just trying to understand maybe what a normalized margin run-rate is as you've been running a little bit higher, the fourth quarter is a bit of a dip. I'm suspecting there will be some recovery here coming forward. Am I thinking about that, right?

Well, the fourth quarter is a slower quarter for us. So you're going to see on average a lower number of patients per day per clinic in the fourth quarter. That is automatically going to affect your margins, because you're going to have less revenue per person. We also did some, we did do some cost cutting in some of those, some of that expenses in--

All right. And then the second quarter I know is usually probably one of your best quarters, because you kind of get back to the weakened warriors in the spring so forth. Then just kind of shifting gears, can you give us a little more color on the direct marketing program. I know you've taken some of this stuff from the OsteoArthritis Centers of America, but how is that going. How do you envision that rolling out over the next few quarters?

Yeah, let me just touch on it briefly and then I'll ask Glenn to comment. The group that we're working with our partners in the OA center, the guys at RMG, they have done this around the country for a while, it's new to us or it has been new to us until recently. Our OA centers is we do the traditional doctor-to-doctor marketing that we do it all of our other PT related facilities. In addition to that we do a direct-to-consumer marketing or we advertise for and then subsequently host a seminar related to a particular service offering in the case of our OA centers obviously it has to do with typically a specific joint knee or shoulder osteoarthritis. You know current treatment updates and new emerging thing and the way we have done this in a very systematic way as we have created a program that looks to track every single aspect, the warranties that we do and measure those results. And I'll just give you some rough numbers a typical ad that we'll run will turn out anywhere from 50 to 100 people if we have an offsite venue, a smaller number but more of them if we do it on an onsite venue, 20 to 30 people and we have a capture rate of somewhere between 20 and 40% of those people will become patient. We began to roll this out to our PT centers, we're in the front-end of that, our partners have decided about it. And we think it's a way that kind of jump ahead a little bit and it maybe help to offset some of the economic drags that we expect that we may feel. Glenn, any other things you want to say about that?

Just to add to it. I mean essentially what we have done is taken what we have learnt how to do in the osteoarthritis side, we have modified it for a smaller venue in our outpatient rehab clinics. We've rolled it out to our partners and in the process of implementing a number of these steps with the templates that we've created. If we were probably to take the first and second quarter for us to get it out there, get it implemented and have people start using it to see how we need to tweak it. But we have high expectations for how it will work and there is a lot of enthusiasm forward.

Of that the newspapers, doctors' offices, or offshore (ph) how is that--?

Typically, most of these will be done through new paper advertisings which will then create a community based seminar. Some of this is done through physician offices on a smaller scale but that's how the majority gets done is from a newspaper standpoint in small local communities. But we expect it to be able to bring in some key positions to kind of co-brand and co-market this which we think will help to continue strengthen relationships and drive business not only to us but to give them an opportunity as well which we think will have a downstream effect.

Yeah, as Glenn mentioned we're in the early states of this so we're not saying it's going to be a big pick up with volume in Q1or Q2.

As you track and measured I mean you got any sense of what the IR is or payback on the expense outlaid for the ads and people to do this seminar and all that kind of stuff?

Yeah, we can tell you what it is for the OA side. I mean typically on the osteoarthritis side we'll get a return from a percentage standpoint about 30 to 40% because the cost outlay is very minimal when you look at the number of patients that we get from that standpoint. So we get a very good return on the investment from advertising and running a seminar. We'd have... we don't have enough experience in the outpatient rehab side yet to be all to give you any kind of return.

All right, that's helpful; it's good to hear. All right, I'll jump back in the queue. Thank you.

Thanks Rob.

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

Hey, Mike.

Hey, good morning. A couple of quick housekeeping, payer mix, sales reps and coverage; visits per FTE, you guys have some of that?

Yeah, the payer mix was as follows private pay was 25%, managed care 34%, workers comp side 15%, Medicare 22%, and other 4%.

On the sales reps side we've increased the number of sales reps to 57 total for the company covering 230 locations we've added a number of part-time reps to, in markets where we have increased density to see we've enough, we can impact from that standpoint, visit per FTE we actually jumped up in the fourth quarter of '08 to 11.05; which is a nice improvement and we hope to you all keep it there.

And just in terms of I guess all it's going on and including in that I guess the stock price any change Larry and how you guys are thinking about your use of free cash I know your guidance excludes acquisition on share repurchase but any change in your thinking there?

No, as we said we remain opportunistic in terms of looking at acquisitions. We just had Board meetings for last two days. We discussed at length a possible share repurchase, our present credit agreement precludes that we would have to amend it but at certain place then we'll consider.

Okay. So should I take that as there hasn't been a change or because in last couple--

No change yet because we couldn't do it if we wanted to. Our credit agreement preclude share repurchases so we would have to amend the credit agreement first.

I think what you'll look at, what you'll see Mike is we'll take an opportunity to invest in the company because we believe that there is plenty of opportunity and we'll get back to you when we have specifics of that.

Do you guys in terms of your guidance have you actually made an assumption as far as unemployment or where that peaks out or do you guys not drill down to that level in terms of providing guidance?

No we have seen solid settlements. I think there has been a lot that's gone into this, I mean that--

We don't have an economist on this staff. We present the economy would be poor this year, that it would have some impact on us. We kind of looked at what's happened in the past. We present this slower growth rate, we think we're going to have increased earnings this year despite but the markets doing today, we're actually fairly bullish.

All right, okay. I think that's all I have got. Thanks.

Okay, Mike.

Your next question comes from the line of Mitra Ramgopal of Sidoti.

Yes, hi, good morning, guys. As you look to cut cost with that sort of flow in also and how aggressive you are with regards to hiring sales reps?

No, actually the cost cutting and the sales reps probably kind of balanced each other. We think that the sales reps will obviously help to drive referrals and ultimately volume. The cost cutting that we've done has been. We've done a number of cost cutting programs here at the corporate office with some fairly good cost savings that we expect through the year. We continue to do a quarter-to-quarter review of our facility performance, our staffing particularly in an area of non-licensed, and other costs. We've gone to our vendors. We're viewing leases and we've been aggressive about lease renegotiations, so we have a number of different areas. We don't expect to cut sales reps though.

And when we look at sales reps, you have to keep in mind that again in our models with sales reps we have a very low base. They make most of their money in commission. So for us to add additional sales reps is not a huge salary impact. Basically even if they would kill us or if they do well, they can make money, if they don't, it doesn't cost us a lot.

Okay. And coming back to the guidance. It seems like you expect something from the OA venture in the second half of the year, or is it more of 2010 story?

Now, we projected that for the year the first '08 clinic would be possible, it's still right in there, its volumes have picked up nicely recently. So we expect, sometimes in the second and third quarter, the first clinic will pass over to a breakeven level. But the OA group as a whole will report a loss as we open additional clinics just like with our PT clinics they tend to lose money in the first six to 12 months.

Okay. And would you reporting that as a separate line item?

I mean is a fraction of our business. Its very, very small, still on the experimental stage. Its not a separate business.

Okay. And with regards to the ten clinics that were closed I know if you could give us a sense of the average each of those clinics or if they are around back when you say when you had a big closure in late '06?

I think, Mitra it's a range how hard we average age (ph) with this right now. I think we had some--

I would guess probably in the five or six year range almost all the clinics that we closed leases were coming out for renewal which means they would have been in the five year range or greater probably so--

And we had few clinics for our partners had made the decision to... because of the challenges they were having and lack of additional profitability that was coming to do other thing. So like most of our closures it was very... but I think it was the right decision.

Okay. And with regards to the share repurchases what's the current authorization in terms of buyback?

It doesn't matter because we can't do any under our credit agreement we have like 50,000 under our programs from several years ago. But we would have to go back to the Board get authorization for a new share repurchase program. If we were to do it we'd have to amend the credit agreement, if we could do it and then we would make an announcement as to how much we were authorized to repurchase. So when and if we do a share repurchase program its helped and that we'll put out there to the whole world.

Okay, thanks. And finally, coming back with the recession and as it relates to the workers comp area, are you seeing any particular softness there or it's just been holding up?

Obviously, on the employment side there is some concern but we haven't seen any particular change in our payer mix, our payer mix system is very steady.

It was... while maybe declined 1% from 16% in Q1 and Q2 to 15% in Q3 and Q4. But not really a major shift in terms of visit surcharges.

And I will agree with that I mean where it will continue to soft and based upon the lay-offs that are going on that possibly could happen but right now we are not seeing any significant change in our work comp mix.

Okay. Thanks again guys.

Your next question comes from the line of Zonnie Zebecca (ph) of Longbow Research.

Good morning. And thank you for taking my question. First, I'd like to ask is a little bit more color if you would about some of the things per metrics for fourth quarter. Do you find any change in terms of visits per patients will that fall in full year to same-store level or was it a mix of on an overall patients visiting the clinic are you seeing patients refraining from coming in for prescription for therapy?

In the fourth quarter we didn't really see any significant impact in durations or visit for referral as of yet. We do think that, that maybe a essential factor moving forward just based upon where the economy is and peoples looking at discretionary cash. But we are hopeful with the clinical focus that we are putting out there and trying to bring value to patient care that will be a minimal factor for us moving forward.

Okay. Are you planning to be... have you seen any pressure from any repairs, if example, workers comp or in Medicaid in some of the states where Medicaid budgets are being a little bit pensioned (ph) is that having an impact at all in terms of patients not being able to coming for as many visits as they require?

No, impact at all on either workers comp or Medicaid. You have to remember that Medicaid is a very, very, very small part of our business; I'd say less than 1%. So there's been little to no impact.

Okay. Thank you. It's very helpful. Next I want to ask about your contract with Ford, have you seen any changes in some of the expectations for that?

No, I mean we continue to... it continues to underperform based upon what our original projections were. But we haven't seen any significant changes in the volumes that we've been having in the fourth quarter versus the second and third quarter. So at this point we expect it continue to run about where its been running.

That said Michigan has been very strong for us over the last couple of years.

Well the number of visits we get from Ford as a total... as a percentage of our total visits it's de minimis, it's not a big percentage.

Okay. And then you are going to set up, entertain that's coming here in terms of providing additional volumes for Michigan do you?

No, it's not a significant factor to our volumes in Michigan. So no, I don't expect to see any significant changes with it.

Okay. And then finally, on the ten clinics that you closed was there a sort of regional impact there in terms of where they were located or is that across the portfolio?

Across the portfolio.

Okay. Okay, then just one final question on the guidance you use said that osteoarthritis clinics you are not expecting to have any profitability there really as a group and so 2010 and beyond so your guidance do that include any additional extension of your osteoarthritis clinics in terms of cost to opening new centers; anything on those lines?

Yes, all the above.

All the above. Okay, great. Thank you very much.

(Operator Instructions). Your next question comes from the line of Robert Verdi of Sykler Capital (ph).

Hi, good morning.

Good morning.

Quick clarification on your guidance; if you would I believe you said that you expect total visits to grow in '09 but could you sort of explain what the range of assumptions for same-store visits that you're thinking about are?

We only look at that way to be honest. We looked at... same-store visits are visits at a clinic that are say year older. In our total visits you are including the new clinics we opened in 2008.

As well as acquired facility--

We look at it as total visits whether it's same-store or clinic that's ramping up because it was opened the previous year. So I'll be answering we all measure on an historical basis but we don't project it, we look at total visits.

Okay, thanks.

At this time there are no further questions. Mr. Reading are there any final remark?

Yes, thank you all for listening. Thank you for tuning in this morning. Larry and I are available today and for the reminder of the week to answer any additional questions that you may have. We appreciate your support and have a very best of the week. Thank you.

Thank you. This does conclude today's U.S. Physical Therapy fourth quarter and year 2008 earnings release conference call. You may now disconnect.