Ladies and gentlemen, thank you for standing by, and welcome to the U.S. Physical Therapy Q3 2010 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions). Thank you. I would now like to turn the conference over to Mr. Chris Reading, President and CEO. Please go ahead, sir.

Thank you operator. Good morning everyone. Thank you for joining us as we prepare to discuss our third quarter and year-to-date earnings performance. With me here in Houston, Larry McAfee, our Executive Vice President and Chief Financial Officer; Glenn McDowell, our Chief Operating Officer; and Jon Bates, our Vice President and Controller. Before we begin, I will ask Jon to cover our brief disclosure. Jon?

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.

Thanks Jon. On our last quarterly call, you might remember that I went off script a little bit and spent a lot of time discussing the reasons behind our strong performance this year with special attention in store partners around many of our largest markets who have really done well making the necessary changes that have allowed us to navigate in an otherwise very challenging economic market over the past two years quite successfully. I am not going to revisit that discussion. I do want to highlight and explain our progress in a variety of areas and the underpinnings of that and to explain the challenges that we expect to overcome. First, let me discuss our net rate, which for the quarter grew to $107.11, up from the prior-year quarter of $103.42. At little under a 4% improvement, it was accomplished in a very thoughtful and systematic way. One of the things we have set out to do most recently was systematically create a meaningful shift in our payor mix by adding a very robust product offering which we refer to as Fit2Work program, designed to deliver a number of industrial and work comp friendly programs, services and resources, which we believe would be very marketable to industry and which will assist us in growing additional value in revenue impacting our net rate per visit along with our payor mix as we have got more and more traction with this program. That has happened and will continue to unfold in a very meaningful and beneficial way for us and for our company. We have tracked our percent work comp mix across all four regions systematically over the last few months, and it’s seen improvement across each of these regions sequentially over these past months. The initiative which is driving new…

Thanks Chris. First, I will discuss the quarterly results. For the third quarter, net revenue increased 4.6% to $53.4 million, due to an increase in our average net rate as Chris discussed, of $3.69 and an increase in patient visits from 479,000 a year ago to 483,000 in the recent quarter. That means gross margin improved to 27.2% as compared to 25.4% a year ago. Our provision for doubtful accounts was somewhat lower at 1.3%. That said, our bad debt reserve remains near an all-time high and our collections have been excellent. The average age for our receivables is presently running about 47 days. Corporate office costs were 10.9% of revenue in the recent quarter compared to 11.3% in the same quarter of 2009. Our operating income increased by over 21% to $8.7 million, and our operating income margin improved 230 basis points at 16.4%. As Chris mentioned, net income rose 25% to almost $3.9 million, and our earnings per share increased to $0.33 from $0.26 a year ago. That $0.33 for the quarter is as compared to the analyst consensus estimate of $0.31. Our same-store revenues increased by 3.3%. We have continued to experience some soft volume primarily related to the recession. Same-store visits were off about 3.7, so basically same-store revenues were flat. During the quarter, the company opened five clinics and closed two. Now, about the nine-month period. Net revenue has increased 4.6% to $157.9 million, due to an increase in our average net rate per visit, just under $3.00 and an increase of 1.4% in patients’ visits. Our gross margin for the nine months has improved 90 basis points to just under 27%. Our provision for doubtful accounts for the full nine-month period is 1.6%, which is right in the middle of our historical range. Corporate office costs were 10.8% of revenue for the period. Our operating income increased in the first nine months of 2010 to almost 15% to $25.4 million and our operating income margin improved to 140 basis points. Our net income for the nine months rose over 21% to just under $11.5 million, and our earnings per share increased from a year ago to $0.97 from $0.80. We ended the third quarter with no bank borrowings and less than $5 million [ph] in other indebtedness, and our cash balance as of the end of the quarter was $9.7 million.

Thanks Larry. I know that a number of you have questions and comments. And so with that, operator, we would like to open the lines for questions.

(Operator instructions) Your first question comes from the line of Brian Tanquilut with Jefferies & Company. Brian Tanquilut – Jefferies & Company: Hi guys, good morning. Congratulations.

Hi Brian. Brian Tanquilut – Jefferies & Company: Chris, let me just, by way of clarification, when you talked about MPPR and you mentioned the GPCI or the mitigation, and I was reading your 10-Q here as well, am I right in interpreting that as basically flat Medicare reimbursement for 2011?

It’s only been two days, we are still going through our analysis. This was a huge document, but the original MPPR reduction we feel is around 7% and with the other factors, our early assessment is, is that we think that they, at least partially, mitigate that adjustments. We have got more analysis to do, we spent a lot of time on, but literally it’s been the last day-and-a-half. So, document is publicly available, we will continue to do work on it, but we don’t think that the net reduction is going to be 7%. We think it’s much more favorable than we expect. Brian Tanquilut – Jefferies & Company: Okay.

Again, all this is subject to there not being in a position to schedule which what, Glenn, there is two scheduled, one in December.

Yes. And this month, there is a 26% reduction that will take place in January 1st and those 6% will take place on the SGR. Brian Tanquilut – Jefferies & Company: Right.

As everybody knows in every year since 2002 or 2003, Congress has intervened, and so these reductions haven’t taken place, but it’s all subject to that. So, the question is will the lame duck Congress act or will we have to wait till early next year for it to get corrected if they're going to do so.

And again, SGR covers the entire spectrum of everything that falls under the physician fee schedule. So, it’s not just therapy services related by any means. Brian Tanquilut – Jefferies & Company: Got it. And then Chris, also on the rate improvement, obviously you guys are doing a good job with Fit2Work and the workers’ comp push. How much more opportunity is there? I know you are investing on the new – adding new sales guys, but how much more runway do you have there in workers' comp?

In workers’ comp, we have a lot of runway. There isn’t – I get excited about lot of things that we have going on and that is the one thing that we are just now scratching the surface on. We have a very, very good team in place. It’s a new team here for us. They are very motivated. In fact, we have 25 partners here right now, and we expect a good part of yesterday going through this program again with this group. We have got very, very good traction externally with client companies and insurance companies and internally with our partners, and we are just getting started in that front. In terms of the potential net rate impact, as you know, work comp varies by state. So, of course, we are trying to concentrate our efforts with our biggest partnerships in our most profitable areas to have the biggest net early effect. But we are also looking at where the best opportunities are in aggregate to drive volume, but literally this started, this initiative started after the first of the year and we are just now through training and a lot of work beginning to make some good forward progress. So, I am very encouraged in that regard. Brian Tanquilut – Jefferies & Company: So, the net rate improvement that we saw this past quarter, we should expect more of that going forward?

No, I don’t think I said that. I don’t know what, in terms of net rate. We have had a great last few years where we have worked very, very hard to get our rate up. We have got some movement parts now with some of this recently discussed things regarding CMS, MPPR, physician fee schedule things. We continue to do that analysis, but we continue to be focused on managing where appropriate our ability to enhance our revenue stream, and one of those areas is net rate development. Some of that is programmatically, some of that is through utilization and all the things. I can’t promise that we will have a year in, year out $3 increase. I don’t think that’s probably practical in this environment, but I do think we have things we can work on. Brian Tanquilut – Jefferies & Company: That's fair. And then, Larry, the cash flows were really strong during the quarter. Was there anything unusual with this quarter, or is that something that we should think of as almost a sustainable rate?

Seasonally, the third quarter, second – maybe only to the second quarter, is your best quarter. So, we normally would have good collection cash flow during that period. So, the first and fourth quarters and seasonably softer. So, I wouldn’t take the third quarter and project it out forever.

Other than that, we didn’t have any usual things happen in the quarter that would have stood out in any way. Brian Tanquilut – Jefferies & Company: Okay. And then with the cash flows that you have, I mean, you've paid down your debt, you're sitting on $9 million of cash. Historically, as we look at the acquisitions that you've done, the average that you've put in $10 million of – maybe $20 million of acquisition spent on a given year. I just wanted to hear what your thoughts are in terms of cash and deployment as you build more cash on the balance sheet.

What we said before, really for us, there is for perspective uses of cash. In terms of rate of return payback, the best use is a startup, and we are doing better on startup clinics, de novo clinics. Second best use is acquisition, and we are working on some, and as Chris alluded to, we think some are going to fall here in the not-too-distant future. And then third thing, you can either buy back shares, which we actually did buy back some shares, a modest amount about 1.6 million if I remember right. (inaudible) in the third quarter at an average price of about $16 a share. And then the fourth thing we have talked about in the past, that we are not committed to doing anything necessarily, but is the possibility of paying a dividend or doing something else. So, I don’t think we will change our priorities in terms of how we use cash. Brian Tanquilut – Jefferies & Company: All right. Thank you. I'll let the other guys ask questions. Congrats, again.

Thanks Brian.

(Operator instructions) Your next question comes from the line of Mitra Ramgopal with Sidoti.

Hi Mitra. Mitra Ramgopal – Sidoti & Company: Yes, hi, good morning guys. How are you?

Okay. Mitra Ramgopal – Sidoti & Company: I just wanted to follow up first on the acquisitions. Again, I know you said you're sort of going through the reimbursement potential impact, etcetera. Are you more likely to be aggressive on acquisitions depending on how you see the impact, or is it going to be sort of independent?

I think we will continue to view these as they come through in the same way that we have historically. We are looking for good deals for guys who are going to stay around and keep a significant stake in the business. I don’t know that the rate, the potential rate reduction slowed anything down for us. I think in most of these deals, we have seen upside opportunity in pricing and other things any way. So, I think we continue to look at them as we have in the past understanding that each is unique and each has operational upside and potentially some occasional challenges. And we have talked to a lot of people. These deals always come evenly, but we are talking to some great folks and we expect to get some things done here in the near future as Larry mentioned. Mitra Ramgopal – Sidoti & Company: And as you look at the deals, would you say the valuations are more attractive now than, say, maybe a year ago or pretty much the same?

I think it depends on the deal size and who is at the table. I think valuations aren’t necessarily anymore attractive now than they have been other than for distressed deals which are not the kind of deals that we typically do. I think large deals, the valuation may be up slightly depending upon again who is at the table. On the private equity side, there is some money that’s in the wings, and on the bigger deals who took time to see those guys show up. Most of our deals are singularly sourced, so we're typically the only ones at the table and because somebody wants to stick around and they want a good life after. So, I think it’s a stable environment overall. I don’t think it’s down necessarily.

Yes, there’s quite a bit of disparity between what the larger deals go for, and when I say larger, 40, 50 plus clinic groups, and what the small private level practices go for. And so, I don’t think the range has changed for, say 5 to 20 clinic group size. We are still looking at same levels we have in the past. Mitra Ramgopal – Sidoti & Company: Okay. And I know we saw pretty nice improvement in margins in the quarter. Was there anything in particular that you might have done differently to bring costs down?

We continue to be cost-focused and we have a focus in our facilities to work on, globally to work our pricing opportunities, productivity, utilization, our scheduling and just some very basic blocking and tackling things. We have been able to add facilities and integrate deals without having to change our corporate staff much at all where we have added staff, for instance, in our Fit2Work program, we have seen a fairly immediate impact, and so we have gotten good coverage there. And I think as we continue to grow the company, while we occasionally need to add some folks here, we will see come continued expansion hopefully depending upon what we can do with our net rate. Mitra Ramgopal – Sidoti & Company: Okay. And since you touched on adding some bodies, I think last quarter you mentioned you had a few areas where you thought you could look to hire full or part-time sales reps and there were some markets where you're looking to maybe increase your presence. Could you update us on that?

Yes, this is Glenn. In the sales rep side, we currently have 75 sales reps covering 321 locations, and we are aggressively looking to increase that number in urban markets, and some of our larger partnership areas, even where we already have existing coverage.

Yes, so what you might see is the sales rep number may grow, the location number may grow slightly, we are looking to create some additional density within our top partner markets where we may have existing coverage, where we feel like we could get some additional traction, particularly in our largest markets or more urban markets with some additional values. Mitra Ramgopal – Sidoti & Company: Okay. And as you look to expand the company, could you comment in terms of the ability to sort of recruit therapists, build out the sales force, etcetera, just given the overall market conditions out there?

Yes, I think, and I will let Glenn speak to this in a minute. I think right now, we see market conditions moving in the direction of more favorable as compared to more difficult looking back over the past few years. Things have definitely felt like they have improved. We continue to have an occasional market that’s a challenge, but generally speaking, I think we are seeing as very favorable home, stable home place that’s growing, which for most people is exciting. And I think as some of these changes in healthcare reform continue to play out and the economy and other things and we see other people tighten, I think it’s going to continue to get better.

I will agree with Chris. On the clinical staffing side, we definitely seen the market at least on a national basis, tend to ease up a little bit, so that the therapy shortage is not quite as difficult in filling positions that there has been over the last six to nine months. So, we are seeing that ease up. On the sales rep side, we are actually seeing that tighten up a little bit relative to what it was before the economy improved slightly, but we are still fairly confident that we will be able to aggressively fill the positions that we are looking to do. Mitra Ramgopal – Sidoti & Company: Okay, thanks again guys.

Thanks Mitra.

Your next question comes from the line of Larry Solow with CJS Securities.

Good morning Larry. Larry Solow – CJS Securities: Hi good morning. Most of my questions have been answered. And not to sort of beat a dead horse with a stick, but it sounds like on the revenue per patient, obviously sequentially you're not going to continue getting these type of improvements, but looking out over the next few years, with all the puts and takes, sounds like you think this number will continue to at least grow, whether or not it grows this percentage is hard to guess, obviously.

I think the real question mark that I am not too worried about although we certainly don’t have a control over it. Larry Solow – CJS Securities: Right.

But Congress does in the short term, it doesn’t just affect us, it affects everybody, absent something there that would be negative and I expect it to continue to hopefully to be neutral, but I think we have got some modest upside. Larry Solow – CJS Securities: Got you. And then if you look out at some of your competitors, I mean, obviously I know – I think Select, which is the public competitor, I think they were running at like 105, last I looked, revenue per patient. How do you guys stack up against these other providers? Is there any way to look at that?

Well, I mean, you know who they are as well as we do. Rehab care is in a slightly different revenue model, so the only other public provider is Select. But remember that they were 105, I thought they were 101, but in any event –

Yes, I think we are a little higher than them actually.

I think they release either tonight or tomorrow, and so you can look at them. Anecdotally, you know, with the other private providers, it really depends on whether situated geographically and there’s no global access to that information other than we know what comes casually. I think we are in a pretty good position. Larry Solow – CJS Securities: Got you. That's fair enough. And do you happen to have just the billed units per visit and visits per FTE?

Yes, the visit per FTE for the third quarter was 10.89, and units per visit for the third quarter was 4.21. Larry Solow – CJS Securities: All right. And I guess those are slightly up, I guess, year-over-year?

The units are up slightly, the visit per FTE is down slightly, but not by a large percentage. Larry Solow – CJS Securities: Okay. Okay, great. Thank you.

(Operator instructions) Your next question is a follow-up from Brian Tanquilut with Jefferies & Company. Brian Tanquilut – Jefferies & Company: Hi guys. Just a quick question on the acquisitions. Larry, if you don't mind reminding us, when you normally do these deals, whether it's five locations or 20 locations, how quickly does it ramp up in terms of accretion or profitability?

We won’t do a deal that’s not immediately accretive. Brian Tanquilut – Jefferies & Company: Okay.

Now, you have, at the time you close the acquisition, with the change in the accounting rules, you have to expense legal and other costs, say with the deal, so you get a little hit. But we have not done a deal and all acquisitions we have done have all been accretive immediately. We don’t do turnarounds. Brian Tanquilut – Jefferies & Company: And then what kind of multiples are you seeing in the market right now for anywhere? Let's just talk about 10 to 20 location kind of deals.

For the smaller deals, I would say 15, 20 on down, most of them like 5, 6 right now.

I think it really depends, number of locations is less of a predictive and EBITDA density in significance. And I think that 5 to 6 range, it covers a pretty wide range of facility numbers when you look at it that way.

The multiple we pay is really more a function of not how many locations, but are they having any EBITDA growth. I mean, the differences that are flat, you are not going to pay the same multiple for as one that’s still expanding. Brian Tanquilut – Jefferies & Company: Right. All right. Thank you. That’s all I needed.

(Operator instructions) There are no further questions.

Thank you. This concludes today’s U.S. Physical Therapy Q3 2010 Earnings Conference Call. You may now disconnect.