Good day, everyone and welcome to the U.S. Physical Therapy Fourth Quarter and Year End 2021 Conference Call. . It is now my pleasure to turn today's program over to Chris Reading, CEO.

Thank you. Good morning and thanks, everyone, for joining us for U.S. Physical Therapy fourth quarter and year end 2021 earnings call. Several of our team are on the road this morning working on new opportunities including Eric Williams, our Chief Operating Officer for the Eastern half of the country; Rick Binstein, our Executive Vice President and General Counsel. On the line, we have Carey Hendrickson with me here in Houston, our Chief Financial Officer; Graham Reeve, our COO for the Western half of the company; along with Jon Bates, our Vice President and Controller. Before I provide some color on the year and the quarter, we need to cover a brief disclosure statement. Jon, if you would, please?

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.

Thank you, Jon. So I want to start this morning and cover some highlights on the year. For the year, our operating income increased $18.2 million or 34.8% compared with 2020. Reported revenue increased 17% to $495 million. PT net revenue increased 17.4%. As you're aware, in 2021, we were hit with reduced Medicare pricing, which in turn impacted our net rate, which dropped slightly from $105.66 in 2021 to $103.88 in 2021. Visits were very strong throughout most of the year, up 19.4% in spite of the fact that comparable numbers in the latter part of 2020 were also very strong. Volumes from most of the year, beginning March and continuing through year's end, were at record highs for us exceeding 29 visits per clinic per day for those 10 straight months. Visits from Mature Clinics increased 17.8% for the year, management contract revenue was up 17.2% on the year, and our injury prevention services revenue increased 12% on the year and 38.5% in the fourth quarter. Our total operating costs were impacted in 2021 by inflation along with some labor escalation. In spite of that and in spite of the net rate impact from Medicare, we finished with total operating cost as a percent of revenue at 76.3% versus 76.7% in both 2020 and 2019. Further, our total operating cost per visit decreased slightly in comparison. In 2021, we finished the year at $79.70 per visit and in 2019, again pre-pandemically, we were at $81.38 per visit. The team has worked really hard all year to balance and control the cost equation along with the growth in visits per clinic per day. I think they've done an excellent job. Total salaries and related cost held up well for the majority of the year, although we did experience some…

Thank you, Chris, and Good morning, everyone. We're very pleased with the results our team achieved in 2021. We had significant growth in all of our team metrics, many of which Chris noted in his remarks. Our operating results excluding Relief Funds finished at $3.17 per share for the full year and at $0.72 per share for the fourth quarter both of which were higher than the high end of our guidance that we provided and were higher than analysts' consensus estimates as well. Not included in these numbers is another $4.6 million in CARES Relief Funds that we received and recorded in the fourth quarter of 2021. Our $3.17 of operating results excluding Relief Funds are 32.6% highest we reported on the same basis for 2020 and they're 12.4% higher than the $2.82 we reported for the pre-pandemic year of 2019. Our fourth quarter 2021 operating results excluding Relief Funds of $0.72 per share compares to $0.85 in the fourth quarter of 2020, which benefited which benefited from reduced expense levels due to the pandemic and a slight rate adjustment we had related to earlier 2020 periods and it's 12.5% higher than the $0.64 we reported for the pre-pandemic fourth quarter of 2019. Our adjusted EBITDA, excluding Relief Funds, was $74.3 million for the full year of 2021, which was an increase of 31.5% from full year 2020 and an increase of 2.1% from pre-pandemic 2019. The same measurement was $17 million in the fourth quarter of 2021 compared to $18.3 million in the fourth quarter of 2020, and it was 10.9% higher than the $15.3 million of adjusted EBITDA that we reported for the fourth quarter of 2019. Our full year 2021 revenues increased to $495.0 million as 17% increase over full year 2020 and our fourth quarter…

Yes. Good job, Carey. Thank you. Okay, operator, let's go ahead. I'm sure we have questions. So let's go ahead and open up for questions.

And we'll take our first question from Larry Solow with CJS Securities.

Just quickly on the guidance. I guess, 2 questions on the guidance. Maybe just some high level. Can you just give us a high-level sort of same -- what are you sort of thinking about same-store sales volumes? And then in terms of margin just directionally, if you can give us any thoughts on that? And then, the part-B of that question is sort of, I know you don't guide quarterly, but how should we think a cadence, I missed the first couple of minutes of the call but Q1, obviously there's especially early in the quarter, a big flurry of COVID and we all know if somebody, if not our self, who without for 5 days was -- their brother had it or their wife had it or we had it, so trying to figure out how that -- your maybe employees situation in the first quarter might be worse than the rest of the year, so just any thoughts on the cadence would be great there.

Yes. Let me talk, let me do the cadence part and I'll kick it over to Carey on the other. So for the cadence, I think you're exactly right. For the first quarter, between Omicron, COVID, and the weather, which we always have in the first quarter, yes, first quarter's going to be the lighter quarter for the whole year, no doubt. I will tell you on a positive note, while we were heavily in January with COVID, and you're right, a lot of people were infected and shorter quarantines and shorter out periods as a result of updated CDC guidance, but a lot of folks out combined with weather. But the COVID thing has begun to dramatically improve over the last couple of weeks. So we've seen a big drop-off there. Drop-off being an improvement, and now we just got to get through the rest of it. We're getting some weather again this week but we're just going to get through the rest of the weather and then it'll work.

And, Larry, as far as the Mature Clinics and the growth expected in 2022, within -- inside the guidance is built in about a 2% to 3% increase in volume for Mature Clinics, and then the net rate, with all things considered, it's going to be down about 1% or a little bit north of 1%. So that's the pieces of that from Mature Clinics. And then from a margin standpoint, I think you should probably expect something like what we had in the fourth quarter going forward in 2022.

Okay. And in terms of price, obviously, we know the government pricing. So it sounds like Medicare, you're assuming private pay commercial pay is about flat, it seems like, right?

Yes. Well, yes. Yes, we've assumed that in the budget on some very capable shoulders here. We've placed an enormous focus around contracting this year and then aside from just straight contracting with commercial payers, it's something that I can't go into a great detail yet but we're about to kick off a program that we think will help to fill in some of the dirt that we're losing as a result of the Medicare cut. And so that's we're on the cusp of that as well. So we're working on it and it will be a focus all year for sure.

And I would think, maybe not in the immediate term, but over the mid-term, we just kind of inflation, right, I mean your cost of care is -- you got some leverage. I mean I'm sure the payers are going to always push back but I would think you have some leverage there against them on that, right?

Yes. I don't know if it's leverage, but it certainly rational response would seem to be that payers are going to have to understand that everybody's cost is going up and if rates don't go up, that's a problem.

Right. And then just last question on the turnover. So it sounds like it's not really a clinician issue for you guys. It's more back-office admin staff and stuff like that, I guess, right?

Yes, and I will say even with that, I will tell you, and Carey can maybe speak to it. Our revenue cycle group has done a great job for the year, just hats off to them, and they have in some cases struggled to replace people quickly. But even with that, I got to tell you our people really stepped up this year and not just this year but the last couple of years in so many ways, and so, Carey, I don't know if you have any.

That's -- they were --despite all the number of employees we had throughout the year, the team just worked incredibly hard to keep our -- I mean our billing and our collections well in line with where they've been in previous years, certainly with pre-pandemic 2019. And we were able to close a few of our central billing offices and move them in more profitable ones and that kind of things. We made some headway this year.

Yes. We did a great job.

Our next question comes from Steph Wissink with Jefferies.

Thank you for all of the information, everybody. I do have another follow-up question just on the cadence. I just want to make sure we're hearing you correctly in terms of how you expect sequentially the business to kind of build back. And as you think about the acquisitions that you completed last year, plugging those into the productivity wheel, how we should be thinking about the organic nature of the contribution of growth from those kind of late-stage acquisitions in '21.

Well, the ones we did late in the year will -- certainly will have the benefit through the entirety of this year. So the cadence, we had one in June, we had one I think in March, end of March, we had a small injury prevention deal in September then a big injury prevention at the end of November, and then a small deal right at -- a PT deal right at the end of the year. So all those will layer in accordingly for sure for the first quarter. My mention on cadence had more to do with just the environment coming out of the gate in January between weather and COVID. January or maybe the first week of February or so with COVID and weather. And so, therefore, I think we'll see some forward weighting and not equal weighting through the quarters, which is really our typical cadence more than anything but you will see that again this year.

Q1 is always lower for us as kind of getting started out of the gates, and because of weather issues and the kinds of things we're having this year, just like we normally do. The second quarter, typically in March or April is when volumes really begin to pick up and that was the case last year for sure and it continued from that point for the rest of the year. But the second quarter is -- the second quarter and the fourth quarter typically are higher quarters. And then the third quarter is, has a little bit of a lull because of summer and people being off and so that's typically the pattern. And I think that would hold into 2022 as well. And the acquisitions, the largest one of course is the one that we did in November -- on November and I would expect that to perhaps start off a little bit slower in the first part of the year and grow as the year goes along, is what I would expect from that one.

And then just my follow up is on the waves of COVID that we've seen. I'm hoping you can kind of compare and contrast Delta versus Omicron. It sounds a little bit like your Omicron impact was a bit more intense but over a shorter period of time. Is that a fair assessment or how would you kind of help us think through what you're observing in your business in terms of recovery post-wave?

Yes. Definitely fair assessment. Omicron was -- I actually think we had more people out with Omicron than we did even with Delta, but the out-time was shorter and the drop off has been pretty precipitous since things have settled down and so fingers crossed that there is not another Greek alphabet letter come waiting for us but it's right now we're doing better.

Okay. We're with you on that hope. Last one for us is just on ability to recruit and retain any changes in the labor environment that you'd want to flag for us or considerations as you're thinking about your underlying de novo growth and then staffing up into some of the acquisitions that you've completed.

Yes. Let me kick that over to my COOs to Eric and Graham. They're front lining, so I'll let them comment.

Yes, Chris, this is Eric. Yes. From a recruiting perspective, as you had mentioned earlier. I mean, we're down about 3 percentage points from our turnover rates pre-pandemic in 2019. And in terms of recruiting, the additional investments that we made in the recruiting department adding additional staff there made a huge difference in terms of our ability to backfill open positions. The biggest challenge for us again, not clinically is just the turnover rate's very competitive out there for front office and admin staff, but we're having success there as well. But turnover rates still continue to be high.

Graham, if you could speak to how that impacts or de novo and what the de novo pipeline looks like for both East and West for this year since we just finished the Board meeting. Graham you there. Eric, you want to speak to de novo and staffing and overall pipeline?

Yes. So the de novo pipeline is really, really strong but we did see a delay. We actually expected open up more facilities in 2021, but as a result of, again a competitive environment out there from staffing had slowed it down. The bigger piece really on the de novo front, Chris, was related to the ability to get contractors and permits on a timely basis. That was actually an even bigger impact for us in staffing. But de novo pipeline, very, very strong here for 2022 as well.

Does that answer? Okay.

It does.

Our next question comes from Matt Larew with William Blair.

Hi. This is Madeline Mollman, on for Matt Larew. I just want to touch on the Industrial Injury Prevention segment. We are just wondering when do you expect trade shows for that segment to be in the sort of restart? And have you -- now that Omicron is kind of declining, have you started to have conversations around acquiring new clients for that segment? And then as a follow-up, do you think that the current labor environment and the currently employee pressures will lead to greater interest in industrial injury prevention services? Do you think that's going to be a catalyst for growth there?

Yes. So let me unpack that. So first trade shows. While we haven't, I don't think yet I've attended many trade shows. I do, I am hopeful. I think the team is hopeful that those will come back sometime this year sooner than later. I think most everybody is very anxious to kind of get back to if not normal directionally headed that way. Our ability, we're talking to new opportunities all the time. We're signing new opportunities as we go. I think certainly the ability to get face to face will help that and accelerate that opportunity that's been some of the impact that we felt. In spite of that, I think the team has done a wonderful job. I'm trying to remember if there was another. The labor environment -- the labor environment. The labor environment currently does impact our ability, we signed a new opportunity and then we've got a, we've got to find staff to do this. So different than the clinics where we may take one person or sometimes 2 people from an existing staff to go seed a satellite opportunities, we don't always have that ability geographically to pull from somewhere else. So we have to find these people kind of from scratch. They have to be recruited and onboarded taking a little bit longer than normal. So that's been some of our impact but I'm hopeful that as we go forward. Since we have been able to track good clinicians that will also improve as the year unfolds.

And then just one quick question on M&A. Given some of the unfavorable reimbursement moves this last year, do you think that's been pressuring non-providers? Have you seen an uptick in inbound related to M&A?

We're busy right now. We have more scheduled calls than we've had in some time now. I don't -- I'm always cautious that people don't get too far ahead because inbound calls don't always immediately translate to close deals, but it's active. I do think the environment -- look our partners, the kind of partners that we attract by and large, and I'm talking about acquisitions and not necessarily tuck-ins, which are much smaller, but our partners are not afraid. Our potential partners are people we're talking to. They're not afraid. What they are in many cases is seeing opportunities to do tuck-ins and to move market share in their markets but maybe they need some resources to do that, capital resources or infrastructure resources, and maybe they just want to take some chips off the table and benefit from the additional resources to continue to grow. But yes, I think any time, there are storms that are lengthy and we've certainly have been a series of lengthy storms I think that creates -- I think that causes people to look for a little bigger boat to ride it up the next time in. So I think it will be helpful.

And our next question comes from Mitra Ramgopal with Sidoti.

Tell you what, Mitra is always good about asking questions. Why don't you go to the next person and maybe we can come back to him in a minute. Is that possible?

There are no further questions.

Okay. All right. Mitra, give us a call. Sorry for the technical difficulty, I'm not sure but Carey and I are available immediately following this call on through the rest of the day. We appreciate your interest and your time, everyone. We thank you for the time this morning. I thank my team for all the work that they've done as well, and have a great day. Thank you, all.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.