Good day and thank you for standing by. Welcome to the U.S. Physical Therapy’s Second Quarter 2021 Earnings conference call. [Operator Instructions] I would now like to hand the conference over to Chris Reading, President and CEO. Thank you. Please go ahead.

Good morning and thanks everybody. Welcome to U.S. Physical Therapy’s second quarter 2021 earnings call. With me on the call today include Carey Hendrickson, our CFO; Graham Reeve and Eric Williams, our Co-COOs, Rick Binstein, our General Counsel, Jon Bates, our Controller; and importantly, Glenn McDowell, who is winding up an incredible 18 years with our company, the vast majority of that time as a Chief Operating Officer. I want to thank Glenn for his incredible faithful service. Glenn helped us to achieve a lot over the many years he was with us. And I know he is going to enjoy his much improved view trading out the Houston Beltway for the beautiful mountains in Colorado right outside his new front door. I also want to welcome Eric Williams to his first call as COO East. Eric was able to attend our last Board meeting as a guest and he started officially on July 1. Having known Eric for over 25 years, I know he is going to be a great addition and great leader for our company. And he, Graham and Glenn have been working seamlessly together to allow this transition to proceed smoothly without missing a beat. Before I start with an overview of a very good news quarter, I will ask Jon to cover a brief disclosure. Jon, if you would?

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. I want to start this morning by thanking our entire team for the work throughout the entirety of this pandemic, our partners and our clinical staff in particular, who donned with PPE through the second hot summer, are doing a fantastic job with our patients as evidenced this quarter by a record visits per clinic per day coming in for the quarter at 30. I am also very proud of all of them driving visits back up over this – back up over pre-pandemic levels, with more than a 60% improvement compared to where we were this time last year. I also want to thank our sales and marketing teams and our home office staff who support and guide them. They have helped to drive record new patients into our facilities allowing even more lives to be positively impacted as a result of our clinicians’ great care. I want to thank our home office support departments and teams who have largely worked remotely this past year and a half, but working very effectively in support of our partners’ efforts on the ground and the many communities we serve around the country. And special mention to our clinical services and compliance teams, you have worked tirelessly to keep our staff on our patients safe and up-to-date with constantly evolving trends and issues surrounding this pandemic, ultimately keeping facilities open and very productive while serving the needs of our patients, employers and families. The end result of all that great work is a record earnings quarter for our company and on track for a record year. Again, in spite of rate reductions, pandemic challenges, including those that impact job seekers and employers alike. Our team has been together a long time. Our partners stay with us for the long haul.…

Thank you, Chris and good morning everyone. As Chris noted and is outlined in our earnings release today, our financial performance in the second quarter of 2021 and through the first 6 months of the year has been very strong. We reported record highs in many of our most important metrics in the second quarter, including volumes per clinic per day, total revenues, adjusted EBITDA and operating results per share. As Chris noted, we reported second quarter 2021 operating results per share of $0.96, a record high for the company. The $0.96 per share is $0.57 higher than the $0.39 per share we reported in the second quarter of 2020 without relief funds and $0.22 higher than the $0.74 for the second quarter of 2020, including relief funds. It’s also $0.15 or 18.5%, higher than the $0.81 we reported in the second quarter of 2019. You will note in the release that in addition to comparison to 2020, we provided comparisons of our key metrics to pre-pandemic periods in 2019 and we will continue to do that through the remainder of this year since 2020 metrics are skewed by the impact of COVID. Our adjusted EBITDA of $21.8 million for the second quarter of 2021 was also a record high for the company, excluding relief funds in the fourth quarter of 2020. The $21.8 million was $2.8 million or 14.5% higher than the adjusted EBITDA of $19 million, including relief funds for the second quarter of 2020 and was $10.7 million or 97.1% higher than the second quarter of 2020, excluding release funds. Compared to the second quarter of 2019, our second quarter 2021 adjusted EBITDA increased $2.7 million or 14.1% from $19.1 million in second quarter of 2019 to $21.8 million in the second quarter of 2021. Revenues in…

Great. With that, that concludes our prepared comments. We would like to – I am sure we will have a lot of questions. We would like to go ahead, operator and open it up for questions.

[Operator Instructions] Your first question comes from the line of Larry Solow with CJS Securities.

Hey, Larry.

Good morning, Chris. Good morning, Carey. Thanks for taking my questions. Congratulations on a really strong quarter. The business per day, really impressive, just – can you maybe just share with us maybe hard to gauge, but there is really strong rebound. And I don’t know if there is any really sort of recovery or makeup for lost time, right? So this seems like it’s probably – I don’t know you can really catch up in physical therapy, right, so any feel for that, any feel for mix or are there still groups and the older folks who are not coming back as rapidly or do you think you are really back to normal? And then the follow-up question is, in your guidance, without – I know there is some seasonality, but are you sort of building in this strength or are you assuming that we tail off a little bit from these record numbers in terms of volume?

So, few things. One, I think our partners have done a phenomenal job taking care of folks, turning out great, happy patients, good results, which creates more opportunity. I think we are probably moving market share. I don’t know that there is – and I have been saying this for a while. I don’t know that there is a lot of pent-up demand. But naturally, as sports and things come back, I think that’s fall school comes back and recreational sports, that will help us as well. So, we kind of feel like we can continue to do this, I will note one thing. We typically drop-off in June, July in the summer months, people take vacations and that certainly is happening now, but volume from – volume has continued to be very strong. We haven’t seen yet the normal seasonal ebb that occurs in the summertime. And so what we have built in on the guidance is a little conservatism. I think maybe relative to this COVID wave that we’re seeing right now, and that is really built in, in the fourth quarter. But it’s minor, it’s not a lot. So we think these numbers that we put out are definitely doable, and we’re doing everything we can. The team has done a fantastic job to get this quarter back under our belt and continue to build from here. So I don’t know if that hit all your points, Larry?

Yes.

The one group that hasn’t come back yet fully is the work comp group. Industry continues. It really is evidenced by the fact that it’s going – as we said it would, it’s going to take a little longer time to rebuild the momentum within the injury prevention business. The comp visits are still slower than they have been historically, and we expect as companies are able to find and hire people that, that will improve over time, but that’s been affected a bit to date.

Okay. And then just shifting gears real quickly, on the cost side, it’s interesting. If you look back to 2019, you’re sort of at a similar patient revenue and total revenue number. And obviously, your margins are somewhat better. Is it – and there is obviously a lot of moving parts there. First and foremost, I guess, you certainly closed, I think, 20 or so clinics, and perhaps they were underperforming. So that was probably a plus for you guys. But also I know there is probably been some pressure on salaries and whatnot. So, just trying to parse those things out and maybe you guys also become more efficient post COVID, so any thoughts on that as we look out?

Sure, I think we have, for sure. I think we’ve become more efficient. I think our partners are doing an exemplary job keeping staff and volume dialed in, our ops team working with them to keep a good handle on things. And so I do expect that we will see some salary pressure potentially. I know we’re – I know the recruiting department is working hard, and I have some commentary on that when the time is right. But we have some open positions, and we’re working to fill those. They have been doing a great job there. And – but I think we can hang on to a lot of this margin improvement. I mean Carey shared with you the numbers since 2019, we have made some pretty good progress, and the team has done a good job to hang on to it so far.

Okay, great. I appreciate the thoughts and color. Thanks guys.

Thank you.

Your next question comes from the line of Steph Wissink with Jefferies.

Thank you. Good morning everyone. I wanted to just follow-up on the question regarding patient volumes per day. Just seeing those record numbers quite eye popping, so I’m wondering what your business has the capacity to process, just given your current labor model, how should we think about the ceiling on that number? And is there anything that you’re doing to raise the ceiling or kind of rethink about how you flow patients through your visits each day?

Yes. So we’re not changing our care model, Stephanie, in our facilities do physically, they certainly do have the capacity to see more patients, the vast majority do, we’ve got to hire more people to do that. And we’ve been working on that. The last 3 or 4 months, April, May, June and into July, we’ve hired more people actually not quite double the number of people compared to the ones that we’ve lost. But we are still in a deficit. And so we’re looking to – we’ve staffed up our recruiting department. We’re working hard locally. In fact, I’m here in one of our facilities in Richmond, Virginia they are interviewing some people here today. I talked about our partner when I got here this morning and he was walking into an interview nice young lady just out of school. So we’re looking for key people. We’re hopeful that once the subsidies to not work go away, hopefully this fall, that things will get a little bit easier. But team has done a great job to date in staffing and keeping people engaged and productive, and that’s what’s allowed us to deliver the volume that we’ve delivered this quarter.

That’s really helpful. Thank you. And then just a follow-up question on your growth plans, so just considering that there might be some constraints on labor, how should we be thinking about acquisitions versus de novos and maybe anything that you’re seeing in the pipeline of potential acquisitions? The last few you’ve done have been really high-quality in a multi-unit. So just curious what you’re seeing in the pipeline? Thank you.

Yes. The pipeline is good. We’re as busy as we’ve ever been. It’s a little crazy out there right now with a lot of different people representing companies in the market, many of whom haven’t done physical therapy in the past. So maybe on one hand, it’s taken a little bit longer to sort through some of it. We will only do high-quality things. We’re not in a race just to chunk things into the company just to hype short-term earnings if they are going to be a bad long-term fit. So stuff we do, which I’m sure will get done here this year and next year, it will be high quality. There are a lot of good opportunities out there right now. It’s competitive as ever, with a lot of companies interested in this space. But we’ve got room to grow, and we continue to attract a lot of good people. In terms of de novo versus acquired, it doesn’t change our strategy at all. Our de novos, we opened with our strongest partnerships. By and large, those partnerships are doing a great job with their staffing and have people ready to go. And so our de novo flow this year has been good. And I don’t expect that to change. And frankly, I think the staffing thing is hopefully more short-term. But we’ve held up well, and it won’t affect our interest in acquisitions either. We’re just looking for the right people, good people.

Thank you very much.

Thank you.

Your next question is from Mike Petusky with Barrington.

Hi, Mike.

Hi guys. I missed just a tiny bit of the call, so forgive if you touched on this. But Chris, can – have you touched on just your initial take on ‘22 reimbursement? I know there was a little bit of confusion within the industry maybe exactly how to read some of that. Can you talk about that at all? Thanks.

Yes. There – so what’s – so what Mike refers to is in about the third week in July, normally, beginning of July, CMS comes out with its proposed rules, and it’s 1,800 pages of stuff across all of healthcare. And we’re certainly part of that. When they initially published their rates for 2022, they had physical therapy at a minus 2% reduction. We had our folks do the modeling, the math, and we came up with a different number. And then we’re in the APTQI group with all these other big companies and everybody else did the same thing, and we came up with about 3.5% reduction. We then conferred with CMS, who admittedly didn’t do their own math properly and mispublished the overall rate hit at 2%, it’s really more like 3.5%. So look, it’s early. I just got back from a meeting last week with the APTA and the private practice section and our APTQI colleagues. We’re very focused on this for next year. We think it’s very shortsighted to hit physical therapy at all, let alone, again. There is also on the books, and it’s been on the books for a while, although there may be some sentiment growing to forestall it, but there is a rate reduction if PT assistance are involved in care that’s been on the books for 3 or 4 years, that becomes effective in 2022. We will work to staff around that. So PTAs don’t get involved in the care and Medicare patients to the extent possible. But that’s what we face right now. Again, going back more than a year, a year ago, we faced a 9.5% reduction. We were able to beat that back. We’re able to grow through that this year. I don’t know what the end result will be yet for 2022, but we will figure it out and we will find a way.

Chris, can I just follow-up on that and ask, I mean, at some point, does the CMS risk sort of access to care issues in your view with sort of this sort of recent behavior the last couple of years around pricing. I mean, obviously, Medicare is not one of the better price payer group now and getting worse. I am just curious if you have any thoughts on that?

Yes. No, I think they risk a lot of things. I think the risk access to care. I think they risk not recognizing that physical therapy really should be considered the primary care provider for musculoskeletal injuries. We know from a study perspective that people who with spine problems who access physical therapy first have – for the next year or 2, the entirety of their healthcare spend goes down. And the reason is, is because we know the impact that exercise and mobility has on people, it’s helpful for so many different health-related areas. And so we’ve got to continue to beat that drum. CMS, I think, is a little slow on the uptake sometimes, unfortunately, but we are spending more and more time with key congressional champions and building those champions, and it’s going to have to be a multi-pronged approach. But I continue to be hopeful that we can get there because I see every day the benefit in the savings that we create in the system. And so it’s just like anything else, it takes time.

Just one quick question on the Delta variant, obviously, you guys being based in Texas and one of Texas being one of the states, it seems like it’s being most impacted. Have you guys either through data, July data, or even anecdotally gotten any sense that patients have – patient flow has dissipated in a place like Texas, where, obviously, there is some spread of the Delta variant.

I’m going to kick this over to Graham and give him a second to prepare. But when we look at our aggregation in terms of our volume, I’m not seeing an aggregate. Graham, what are your thoughts on Texas?

No, Chris, we have not seen a degradation in patient volumes in Texas at all.

Okay, fair enough. Thanks guys.

Thanks Mike.

Your next question is from Matt Larew with William Blair.

Yes. Hi, good morning. I just wanted to ask you about IIP. You mentioned last quarter that I would say a number of kind of pipeline discussions had taken a pause with COVID. Just curious if those – obviously, the revenue at $10 million, hasn’t necessarily accelerate that, but just curious what you’re hearing from folks in terms of interest or willingness to reengage in those discussions.

Yes. We’re definitely having some good discussions. And we’re getting things done, Matt. The challenge has been, historically, a lot of these leads came through big events, national meetings, Chicago, Las Vegas, wherever they might be held around different industry verticals. And so those haven’t come back yet. We’re beginning to see those being scheduled in the fourth quarter. And so we’ve approached our sales cycle a little bit differently, and it’s being effective. I think the main thing is, it’s like anything else. It just takes time, and these companies have different priorities. Right now, they are trying to hire people. And so a certain part of our business on the post-offer testing part, it’s going crazy, really busy. And some of the other prevention business is a little bit slower than – slower than it has been but hasn’t built as much as we have been seeing normally. But I think that will come back as well. I told people at the beginning of this, this was going to be a rebuild year for that sales pipeline. Now interestingly, we have opportunities to continue to grow outside of just organic growth in this space, and we’re looking at some of those right now and they are good opportunities. And I don’t know whether they’ll all happen or none will happen. But my sense is we will get something done.

Okay. Thanks, Chris. And then last one for me then I’ll jump off is, obviously, staffing and kind of labor issues is in focus broadly in the services space, but I guess, specifically within physical therapy as well, I think, based on some of the peer commentary. So maybe is there anything that you would highlight in terms of either your staffing or compensation model that you think really distinguishes the company from the partners. It might be interesting to get that perspective now.

Yes. It’s no secret that I love the model that we have, having partners who aren’t just hired guns in these local markets who live there, who go to church there, who are high scope boosters who are on the sidelines of the high school sports games. And honestly, I think that makes a difference. And our directors, they are – we don’t have to – at least in our model, we don’t feel like we’ve got to throw open de novos at a certain rate or pace, we do them when and where we have the right people ready to go, and that’s how we’ve always done it. And so those people, when they are ready, we open centers. And so we’re not having to go out and hire somebody who’s never been an employee before to go lead a new center. And so as a result, our visits per clinic are where they are. And so again, I think having people at all levels tied into the business through incentives, through ownership, I just – I think it makes a difference.

Yes. Makes a lot of sense. Thanks, Chris.

Thank you.

[Operator Instructions] Your next question is from Mitra Ramgopal with Sidoti.

Hi, Mitra.

Hi, Chris. Hi, thanks for taking the question. Just a couple for me. I just wanted to get a little more sense maybe on the volume. As we look at pent-up demand, obviously a lot of electric procedures coming back, helping to drive some of that. Also, maybe curious if from a competitive standpoint, COVID may be hurting a lot of your smaller mom-and-pop competitors. If that’s also maybe something that could be driving the volumes you’re seeing?

Yes. Yes, we have such a fragmented industry, Mitra. My honest answer is it’s hard to tell. It really is. And I could give you some supposition. I think, I mean, it’s certainly not been ever hospital’s first priority. I think it’s become evident to patients. So many more of our patients come to us through direct access than ever before. And I think we’re so much easier than hitting a hospital campus and parking and trying to navigate that situation. I think we have more resources than many of our small competitors and we’re very resilient. And we have experts in certain areas and support. I think when you have an owner or ownership group, and they have to do everything, they have to negotiate benefits and payroll and they have to pay the bills, and they have to treat patients every day. And there aren’t enough hours in the day, some days, to do that. Many people do it really well. And I don’t take anything away from them. They are great folks, and they do an awesome job. But it’s hard to do everything without having that really deep support. And so the deals that we’ve done and the partners we brought on, by and large, they begin to grow quicker because they have those resources. And so again, I think it does make a difference. But exactly how to parse that and knowing exactly where one patient comes and might have gone previous, it’s almost impossible to do.

No, that’s fair. Definitely appreciate the color there. And then slightly related to the labor market as more specifically on sales reps. I know last quarter, you added about 14, just curious if you think you need to make more investments on that front or are you – or you feel pretty comfortable with the coverage you have right now?

Guys, I don’t know Glenn and Graham, and Eric, if you’d like to speak to that at all. I think in general, our industry is moving not away from sales reps because I think reps are going to continue to be important for us. More and more people access our care directly. And so that happens through a variety of different mediums. And as a result of their friends and family, hearing about great care on social media and other reviews and posts. But I think it will be a combination. Guys, what do you think in terms of our rep level right now where we are?

Chris, this is Graham. I think we have 72 reps total around the country right now. They are distributed through our regions. And we think we have the right number of reps right now. We add them when we need to, and we’re using them in various ways. But we think we have the right number of reps.

Mitra, what that means to me is as we grow as a company and, for instance, as we acquire a partner with these companies like we did a few times this year and late in 2020. Often in those they don’t have reps. And so we’re adding in those opportunities to accelerate their growth as we go forward. So – but to Graham’s point, the team feels like we’re well positioned right now.

Okay, thanks for taking the questions and congrats on a great quarter.

Yes, thank you.

You do have an additional question in queue from Mike Petusky with Barrington.

Yes. On the good revenue per visit figure, was that driven – was there a shift towards workers comp. Carey, can you just sort of give a sense of the payer mix, and if there was sort of a sort of a positive mix shift there?

Sure. Yes. And as Chris talked about, we did – workers’ comp is a little bit less this quarter. So workers’ comp did – yes, workers’ comp decreased a little as a percentage of the total mix. And then both commercial and Medicare is where that picked up a little bit. So – and as Chris talked about, we expect those workers’ comp visits to come back in the back half of the year as the businesses staff up and then – higher.

What was Medicare for the quarter and what was workers’ comp?

Medicare was 31%, and workers’ comp was about 10.5%.

Alright. And I did actually mean to say this earlier. Congratulations to Glenn. You were a huge part of creating a lot of shareholder value here over the last many, many years and congratulations on a well-deserved retirement. Thanks.

Thank you.

Thanks Mike.

And there are no further questions at this time. I’ll turn the call back over to management for closing remarks.

Terrific. Well, thanks, everybody. I know this is a busy day. We have calls scheduled after this release. If you have follow-up questions, feel free to reach out to Carey or I, and we will be sure to circle back up. And have a great day. Bye now.

This concludes today’s conference call. Thank you for participating. You may now disconnect.