Q2 2020 U.S. Physical Therapy Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the U.S. physical therapy, Q2, 2020 earnings conference call.
At this time, all participants are in listen only mode.
Good day Speaker presentation, there will be a question answer session to ask a question. During this session you any to press star one of your telephone.
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Now my to hand, the conference over to your Speaker today, Mr., Chris Redding, Chief Executive Officer. Please go ahead Sir.
Thank you and good morning, and welcome everyone to U.S. physical therapy second quarter and year to date earnings review for 2020.
With me include Larry Mcafee, our executive Vice President and Chief Financial Officer, Grim re even Glenn Mcdowell, our chief operating officers East and West Rick Binstein, Our Vice President General Counsel, Jon Bates Vice President controller.
Before we get before we begin to discuss our results for the quarter year to date, we need to cover brief disclosure statement, John if your workforce. 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. The company actual results can vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information.
Thanks, John.
So what I'd like to do gears quickly take you through the actions are team took for the quarter I like some milestones along the way that I think will be important you don't understand and touch briefly on the outcome of those early actions and finally to provide a very brief update where we are beyond the second quarter.
A few key area.
I want to begin however, with a heartfelt. Thank you to our entire team there was never a great team effort that stretch to every knocking corner of our company over the past four month. This was that we had so many people taking quick action early on.
Making what we're extremely tough and emotional decisions tough because of the magnitude that I will share with you in just a minute emotional as well because of the difficult human impact the magnitude of the sacrifices made by our employees partners and our support team the sacrifices that continue in order that we might.
This pandemic at some point in a very healthy position.
Commend our team and those were directly impacted or as a result of this pandemic for the way you back to the we've consistently responded and carry yourselves lives this unique and very stressful environment.
I could not be proud of that I am through part of the screen.
Immediately when this pandemic limits pandemic in the U.S. began to be better understood in and around the second half of March we made some very significant costs related changes across the entire company. We took out an estimated 38%.
Of our people related costs by way of salary reductions time reductions furloughs and other methods and all those were sacrifices that were made quickly without objection where teams around the country.
Sure our people really really stepped up.
Over the course of the second quarter, we also had partners as well as our development and legal departments working on rent abatements deferrals.
Second quarter that amount was approximately one point sixmillion.
Well the week of April 11th we have hit bottom at approximately 45% of our pre covert volume.
From there things stabilized and working locally with our tremendous network of partners and staff, we were able to climb forward once again.
Tele health early on was an important bridge to many of our patients who could not we're afraid to come into our facilities for their normal hands on care.
At the peak this amounted to approximately 3000 telehealth visits per week.
Volumes have continued to pick up which is good the tele health numbers have perceive. It. However, tele health will remain an important part of our care offering for those patients stay connected be progress.
When they are unable to come.
In may our volumes increase from the 50% since sixtyv.
And even with that low volume, we were able to eke out a small profit in may and June volumes further increase from the sixties into the seventies compared to our pre covert volume we produced a very strong finish in June to solidify the quarter. Once again, my my sincere appreciation to our partners office.
I mean, the entirety of our corporate support teams working together to produce what I feel like was an outstanding result.
And in July visit to further improve from the seventies into the mid eightys by month than.
Though the rate of forward change has begun to flatten in recent weeks with the increase of the infection rates nationwide I'm hopeful we can continue forward.
For the second quarter, we were able to produce a slightly higher net rate.
Net patient revenue per visit rate as a result of several factors. These include slightly improved units per visit as a result of our ability to spend a little bit more time of patients.
We lower Medicare and Medicaid percentage.
And our payer mix likely as a result of some reticence on the part of older patients come to the clinic or come as often as would be normal.
And continued strong collections combined for an improved what I would consider a more normal net rate compared to the first quarter. This year.
Quarter net rate per visit was one of 697 compared to one of 716 that the prior point last year.
End of the Dave Stoehr strong cost control.
Relative to drive returning volumes resulted in P.T. gross margins of 21.7% for Q2.
And our overall combined gross margin.
At 23.1% and that was buoyed by our industrial injury prevention business, which held up very well despite the covert 19 effect.
What we're calling the peak negative impact of our IP business, we were down about 25%.
And we've been able to coke recover more rapidly due impart to some excellent partner support from Costco.
Voluntarily added additional facilities to help further prevent staff for lows during the height of this health crisis.
That combined with another excellent cost control efforts by our products, helping allowing our gross margins to exceed what we were on a same quarter basis, a year ago up in the second quarter to 32.9%.
Finally, the impact from the paying them.
Total gross profit contribution from the combined Riyadh extreme was up year over year from 3 million.
3.2 million this quarter and up for the six month period to 4.8 million compared to 4.5 million in the same period in 2019.
I'm going to leave the further granular fund financial details to Larry here, just a minute.
To close by saying that we've all been at a great fight over these past four months.
There have been a great many decisions along the way impacting our people and impacting our business without a pandemic playbook of prior experience to lean on once again wants to give our entire team a great big Thank you for their tireless work during this difficult time.
From every level at the clinics to our home office support team in Houston and around the country communication leadership responsiveness to this team has been exemplary.
We're not done fighting we're not that fighting the spike and we hope to continue making progress last week visits increased again, albeit a slower paced in compared to a few months ago. We continue to examine our staffing resources or protections for our patients since that.
And we will do the very best to preserve our opportunity to come through this difficult time, so that our company is well positioned to carry on our mission to serve our existing customers as well to grow with new opportunities.
For our shareholders. We thank you for your trust and support during this period, we don't take our responsibility lightly we're not done working hard on your behalf.
Tour staff and partners, we will continue to do everything in our power to support you to help you to be say informed and well arm for whatever comes next so that you can continue to make a difference in the world.
One patient at a time.
That concludes my prepared remarks, Larry there's still a lot of detailed left to cover.
Yes, Thanks, Chris.
For the second quarter. The Companys net earnings from operating results was 10.9 million or 85 cents, a share including cares relief funds as compared to 10.3 million or 81 cents a year ago without the early signs earnings from operating results was 5 million or 39 cents per share the analyst consensus forecasts.
For the quarter was a loss of 18 cents per share so depending on which way you want to look at at our actual results were anywhere from 57 cents per share to a dollar higher than the street expected.
Revenue in the second quarter was 83.9 million, obviously down substantially because of the pandemic as compared to 126.4 million a year ago revenue from physical therapy operations was approximately 72.3 million versus 113.4 in the second quarter of 19.
Revenue from the industrial injury prevention business was 99.7 million down slightly as compared to 10.3 million in Q2.
19.
I'm now going to talk about cost I mean honestly.
Chris has already talked about the actions our management team took or simply remarkable.
Okay.
In the recent quarter total operating costs.
Excuse me.
Total operating costs, excluding closure costs were 64.5 million or 32% less than the second quarter last year.
Adjusted for the operating costs related to partnerships that were sold in the second quarter 19 reduction was 26.9 million.
Total salaries and related costs, including physical therapy operations and the industrial injury prevention business were 51.8% or revenue as compared to 55.9 in the second quarter last year.
Gross profit for the second quarter, excluding closure costs was 19.3 million. The gross profit percentage was 21.7 as compared to 24.7.
Gross profit on physical therapy management contracts, which, albeit a small part of our business increased to 26.9% in the most recent quarter as compared to 15.4% a year ago I won't go through the PT and Rick Embryotic for industrial injury prevention margins, Chris are already covered them.
In the second quarter. This year corporate office costs were $9 million down two and a half made or 22% as compared to the second quarter 19 operating income for the second quarter was 10.3.
1.3 million.
Operating income as a percentage of revenue.
The decrease was 15.7% a year ago to 12.2% of second quarter. This year I think it's noteworthy that in the second quarter. This year, our operating income as compared to the first quarter increased by 6.2 million or 55%.
As noted in the release included in other income was a gain of me and $1 million in the second quarter, resulting from the sale of seven I'm, sorry, 11, previously closed clinics and a gain of 5.8 million, resulting from the sale of.
And then the other thing was a year ago in the second quarter. There was a gain of 5.8 million from the sale of a partnership that included 30 clinics.
Also included in other income in the most recent period was 7.9 million of non repayable pairs really funds from the federal government.
In terms of other financial measures for the second quarter. The company's adjusted EBITDA was 19 million as compared to 24.9 may into the second quarter last year.
Our adjusted EBITDA, excluding the cares relief funds was 11.1 million as I noted in the press release, our net cash flow has been exceptional.
And borrowings under our $125 million Bank credit line were paid down to 33 million at the end of the quarter. Additionally, as at June Thirtyth. It was 44 million in cash on our balance sheet, Thats 20 million higher than six months ago.
Larry Thanks, a lot with that operator, we're going to go ahead and open it up for questions.
Thank you, ladies and gentlemen, as reminder, in order to ask a question. Please Chris.
So the number one on your telephone keypad to withdraw your question. Please press the pound.
Please standby lobby capacity culinary roster again, that's timeline.
And your first question is from the line as Larry Solow.
Hi, there.
Hey, good morning, guys I hope you doing well.
And then.
So I guess I was guilty as one of those that part of those consensus estimates that totally Miss your profit, but very commendable job in that.
What what kind what did you learn the obviously sort of a pretty herculean effort to rollback costs so rapidly.
I realize so a lot of this hopefully we'll come back as a.
And as.
Volumes improve but perhaps what did you learn with this and especially on the industrial side, where you know gross profit improved a lot and I assume perhaps.
Maybe some of that can actually linger.
Stay on at a good way.
Any thoughts that.
Yes, I mean, I think our we've we've learned a lot.
We rolled out a tele health platform from scratch and in record time.
With wide adoption, we've we've learned that we can mobilize quickly.
And efficiently.
When we need to.
We were stronger than ever I think with our partners and our partners recognize that we all recognize that we probably we're operating with some cost that was was above what we absolutely needed and above what was essential.
You're right some of that cost this is going to come back I mean, we're frankly running people really hard in a little bit fin.
And we've been bringing people back as I talked about when I was at your conference two weeks ago.
No, we're bringing a lot of people back on a on not a full time basis with more part time, and then gradually working them back in and so that's allowed us to help maintain.
A close alignment with volume and cost.
But you know I think we've we've been in a fight and we've learned we can we can trust each other we can trust our partners. We can we can navigate really I feel like just about anything at this point.
Just really proud of our folks and.
On the industrial injury rehab business, we did that business, we entered that space for a reason.
We felt like it would be.
Almost counter cyclical through some of the aspects of our PT business I think that theories held up pretty well.
We have increased margins there I think the team has done just and outstanding job and while we will have some costs come back again.
As volumes grow I think we'll see some margin improvement compared to where we were running pretty cold. So I think the team is excited about that as well so they've been a lot of good things come out of it's been tough, but there have been things that will carry with us forward.
Right. Okay. Good Oh, just on the on the revenue per patient you mentioned, a couple of things that could prove temporary one of the mix shift.
Can you just remind us I guess, a couple of questions that what sort of drove it little bit down to have come down from sequentially over last couple of prior quarters couple box averaged to one or three ish as you mentioned.
Yes, as we said in the first quarter call that was Q1 was kind of an atypical quarter or terms and net rate. It does move around a little bit based on a number of factors.
What caused it to be higher the second quarter. This year is that our Medicare Medicaid percentage went down.
Let's see here.
31.3% to 29% or 2.3% and then our units per visit.
Went from 4.3 to 4.5, so those two items account for more actually than the swing in the period.
Gotcha Gotcha, and then just lastly.
You mentioned ER visits obviously youre or.
Our.
Have improved significantly from their lows and probably seem to be maybe stabilizing a little bit now.
Hey, I guess nobody knows how long call that will last but it does seem like I guess in sort of the new norm I imagine there will be some patients right, maybe never forget that last 5% to 10% or something until there is a vaccine or something is that sort of how you look at it from a high level without giving quantifying.
The what that piece might be that doesn't come back. So fast, yes, you're right, we're not able to predict I think when when societies fully back, particularly the things that are impactful to us or schools and sports clubs sports and the activities that people do and the gym and on the weekend.
And that right no overtime, Fortunately or unfortunately, when you're trying to stay healthy also can get injured and so those activities.
I expected until those come back, we're not going to be a 100% but.
I do think also the team ops team and our partners have done a great job looking at opportunities in local markets to move market share and to move key people and the higher keep people.
And maybe create some new alignment so we'll see where we end up by.
It's early to tell.
Each week made gains.
Ready by and large through this since April 11th those those have slowed somewhat but most recently we've been.
About 85% of pre covert volumes and probably a little higher than that compared to where we were saying month a year ago, because we made some gains last year as well so we're still fighting our way forward.
It it's going to take some time until the settles down.
Okay, great well, thanks to the color appreciate it thanks Larry.
Your next question is been a lot of Mcnamara.
Hey, Matt.
Hey, Good morning. This is Dan Lawler on for Matt will read today. Thanks for taking my questions. Then what one of the follow up on visits in the quarter with visits per day coming down to around 22.
But still below the historical range of 26 to 28 is this a function of some markets coming back online quicker and some other still recovering or might this be a new normal visits per day, given the the need for social distancing or PD.
So the visits per day have nothing to do with you know our need to spread patients out or you know our protective equipment or things like that it's a function of it's a function of I think society being fully open I don't expect this.
No.
Pandemic to be any sort of new normal I expect to get back to where we were before and continue to grow forward, but this is a stop along the way. We've we've increased visits per day sequentially each month through the quarter and.
And since the start of the you know again from April 11th when we bottomed.
At 45% of normal now were 85% on.
No. That's that's the math around visits per day, it's going to take a little bit more time, but we're moving we're moving the ball.
Normally in the summer a year ago, we are averaging about 27 visits per day per clinic right now we're somewhere between 20 to 23, so thats, the 80% to 85% figure.
All right great. Thanks, and then I wanted to ask if you could give us the same store visit growth number in the same store net rate in the quarter and then you have a sense for how elective versus not elective patient mix mix is recovering.
In the quarter.
I don't have the same store it kind of to kind of a relevant for it's apples and oranges I mean, obviously, our volume per clinic was down.
Oh.
Jeez I mean.
For part April were almost close.
And at the end number markets.
I don't have that elective surgeries have picked up I mean.
Yeah, and we don't measure and.
I've explained this on a number of investor related costs. It's a good question. We don't we don't measure elective what's selective from me may not be elective for you.
There's not a bright line and frankly, you know, it's kind of historically been irrelevant to us whether it's the necessary surgery or an elective surgery, but.
Surgeries have picked up in general.
I think even though case volume in this pandemic has grown substantially from where it was in April peoples seeming willingness to go out and pursue things that are more normal has increased along the way as well and so I expect the.
Case volumes will begin to come under some control as states are trying to get the arms around mistakes like Texas, where we are.
I think things will continue to normalize over some period of time.
Also I think theres.
Because I've had this question from a number shareholders I think theres some misconception adds to.
Dr. Stephen elective surgery, it's true that number hospitals.
Have core are now again, the temporarily not doing elective surgeries in the hospital that most in most markets surgery centers remain open in a lot of sports medicine surgeries are done under an outpatient basis.
Well.
Great. Thank you and then shifting quickly over to IP looks like you've been running at around 90% of normal since may but as some folks start to return to work in some areas than others were impacted by the research in July how should we be looking at that ramp towards pretty cold, but maybe back up 2020, Yeah don't know yet.
Honestly I'd be making up but.
Story that I'm, not going to make up to tell you.
What what the coming months are going to look like.
What I can tell you is we're doing more with less.
Then we were before and as we get back to whatever whatever it is that the final normal looks like whether that's 100% or some factor greater or less than where we were before I think we're going to be more profitable. We are more profitable right now and and so I think we're in a good.
Spot.
We've got to focus on sales because a lot of these big.
You know that we used to attend from a sales perspective are no longer happening. So team is working hard on that and I have I have great confidence that we'll continue to flow, we make our way forward, but I can't predict what it's going to look like.
Great. Thanks, a lot.
Your next question, it's been a lot of mix.
That's helpful.
Yes, hi, good morning, Chris Larry again, thanks for taking the questions.
Just a couple from me.
Just wanted to get a sense.
In terms of obviously driving volumes is dependent on.
Situation normalizing, but just curious from a competitive standpoint given.
And how difficult challenging.
It has been for the industry if you have seen.
Maybe some potential benefit from competitor as not being able to.
First of all right well in this environment, Yes, we know one of our competitors, we have lost to competitors different competitors in every market ranges from hospital competitors to smaller mom and pops to larger companies like ours that you know many of whom are PE backed and.
Highly levered so.
Yes, I think at the peak and maybe it's still in some markets that are hot market I think hospitals are focused on job one which is.
There their staffing and there are co vid response.
Probably not so focused on physical therapy, right now and I know that at the peak there were hospitals.
And clinics and many of our markets that workloads.
And we remain open and as you know on the vast majority of our facilities and so I do think that will help us and has helped us recover a little bit more quickly than maybe a little bit more completely. When this is all done because our folks have hung in there and they came in and they make sacrifices and so.
Lets market, it's market by market every markets, a little bit different but I feel like we're we're in a good spot. Obviously there are some regional differences the northeast has been kind of the slowest area to come back.
The Central region has come back really strong Wes.
In many of the other parts of the country.
Our I've made a really nice recovery and so I think more.
See where we end up but.
We've made good progress along the way.
Okay, No that's great.
And then as it relates to obviously things are still evolving but.
You had closed a number of clinics.
And I'll be open some sands you've sold a few et cetera, just curious in terms of as you look at your network today.
If you feel pretty comfortable in terms of.
Where are you are on that front as it relates to.
Potentially shrinking it more.
I will look we acted quickly.
I think we in retrospect.
We acted appropriately those I want to make it clear those sold clinics. They work. In addition to ones. We have closed they were all reflects that we had closed that we were able to sell in post a meaningful gain on.
I think will.
I'm not talking about next month or the month after that but you are in year out we do have some pairing that we do I think that pairing has allowed us to stay focused on.
The the partnerships in the facilities that better than most through and so we'll continue to have that but yeah I think.
For with respect to this pandemic.
Oh gosh, we got what we needed to get out of the road.
And out of the way and we were able to monetize that even a little bit and now.
I think we're in and reasonably good shape, but my guess is we'll have one or two here that come along I would fully expect that's going to happen.
Just as it did before.
30 clinics, we temporarily closed which we noted in 8-K filing.
Most of those are open again now I don't think Theres, a half a dozen that haven't reopened.
Yes, okay.
Hello.
Right no thats, great well again, thanks for taking the questions.
Really nice quarter, given the environment. Thanks Pedro.
Thanks.
Your next question is from a lot of Brian Tanquilut.
Hey, Brian.
Hey, Good morning. This is Jack so I've been on for Brian.
So CMS came out with their proposed subsidization fee schedule for 2021 earlier this week and included a 9% tied to physical therapy.
Could you just talk through kind of impact that's going to have on the business in terms of rate and then also what it might do in terms of opening up potential M&A opportunities further down the line.
Yeah, well on the radius math I mean, you know, it's 9% of what Larry Forney little under 30% of our business.
And so you guys can do the quick math on that.
We have made changes as Larry mentioned in terms of our units.
And we have we havent settled yet for sure, but we have made some changes in our cost structure and so and we're fighting hard in fact, you know the last few months and particularly the last few days that rate came out much later than it normally does.
We have we have.
Bill that we hope gets attached in this relief package, we have port as of last night, we had 14 sponsors.
And people willing to carry to the speaker.
In order to get a two year.
Kind of patch that would forestall any adjustments and miss this adjustment somewhat arbitrary and random and not in keeping with Medpac suggestion. So we're still fighting that fight if it doesn't happen and it comes you know it comes to pass will.
Deal with it as we've dealt with you know with rate adjustments in the past and other challenges like the one that we're currently in so.
I don't I don't see it having.
You know.
We have known about for a while the runways been long enough.
And we're working our way through obviously serious challenges on the M&A front anytime there's a.
The challenge in the industry frankly creates opportunities and.
You know smaller providers just aren't as well equipped to deal with these things sometimes and.
There's a lot of great people out there lot of great providers.
I think we'll we'll continue to do well in that regard.
In 2013, there was a 10% Medicare rate.
And getting that was a weird one because it was announced during the year.
And so we had oh, we have more time to prepare for this if it's going to actually happen.
We had a couple of down quarters in 13 and within three to four quarters were back producing record earnings so.
We'll deal with it.
Great. That's helpful. And then just one more follow up on that front.
They also included a provision to allow maintenance therapy.
For P.T. Ace can you just comment on how that might impact your staffing next or if it would change your kind of service delivery model or how your staffing up each one of the units.
We're going forward, yes, we're not going to tilt our staffing as a result of what Medicare does arbitrarily each and every year, you know and I don't mean that to be particularly sharp, but it is what it is most of our cares provided by license physical therapists.
With some physical therapy assistant support mixed in there as well.
But it won't it won't it doesn't change the outlook that we have our staffing or our staffing mix.
Great. Thanks.
Thank you.
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At this time, Sir there are no further questions.
Okay, well listen thanks, everyone for your time and attention. We appreciate your support in your interest.
Safe and please reach out if you have any additional questions. Thank you.
By now.
Thank you ladies and gentlemen, this concludes today's conference call. We thank you for participating.
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