U S PHYSICAL THERAPY INC /NV Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Visit Volume and Net Rate: First visit volume remained strong, with Q3 patient visits increasing 6% and visits per clinic per day hitting an all-time high. Net rate climbed to $105.65 year-over-year.
• Facility Closures and Growth: Closed underperforming facilities in secondary markets, now operating 750 locations in 43 states. Added 8 clinics in the northeast and opened/acquired 20 de novo/aqua novo facilities.
• Cost Management: Addressed cost per visit increase by remapping clinics and pruning costs; gross profit excluding closure cost increased 14.5%, and PT gross margin improved by 90 basis points.
• Acquisitions: Disciplined deployment of capital raised, with partnerships acquired strengthening the IIP and PT businesses, including the Metro PT acquisition in New York.

Segment Performance

• Physical Therapy:
  • Revenue: $142.7 million in Q3 2024, up 9.3% from Q3 2023. Patient visits increased 6%, with visits per clinic per day reaching an all-time high of 30.1 in Q3. Net rate was $105.65, up from $102.37 in the prior year quarter. Gross profit excluding closure cost increased 14.5% from the prior year's third quarter, and PT gross margin was 18.9% (up 90 basis points). Operating costs were $119.2 million, including $3.4 million closure costs; excluding closures, expenses were up 8.2% due to more clinics.
• Injury Prevention (IIP):
  • Revenue: Up $5.8 million or almost 30% year-over-year. Income was up $1.2 million or 27.1% year-over-year. Excluding the year's IIP acquisition, net revenues were still up 12.9%, gross profit up 13.2%, and IIP margin was 22.2%.

Guidance

• EBITDA: Still expects EBITDA to fall within the range of $80 million to $85 million.
• Metro Acquisition: Metro will be consolidated into all metrics, with 12 months of contribution in 2025.
• Rate Lift: Hopeful for continued net rate increases from key contracts and growth in work comp, with expectations of rate lift from ongoing contract negotiations.

Risks

• Medicare Rate Pressure: Continues to face sequential rate pressure from Medicare, though expecting the last year of significant cuts.
• Political Uncertainty: Uncertainty around congressional action on Medicare reimbursement cuts, especially with potential changes in political control affecting deficit and government focus.

Question and Answer

• **Q: Flow-through impact of facility closures and labor initiatives?

A: Chris discussed freeing up operations team time for better growth opportunities, emphasizing a disciplined pruning process for underperforming facilities.**

• **Q: Metro acquisition consolidation and appetite for future deals?

A: Carey confirmed Metro will be consolidated into all metrics, and Chris stated the focus is on finding the right fit, with resources available for suitable acquisitions.**

• **Q: EBITDA guidance and Metro inclusion?

A: Carey confirmed EBITDA guidance remains unchanged, with Metro included in the $80 million to $85 million range.**

• **Q: Payer mix breakdown and injury prevention growth?

A: Carey provided payer mix details (commercial 47%, Medicare 33%, workers' comp 10.4%, etc.), and Chris discussed new business and deeper relationships driving IIP's double-digit growth ex-acquisition.**

• **Q: Election impact on Medicare cuts?

A: Chris discussed political uncertainty, noting preparedness for announced Medicare cuts and hopefulness for mitigation despite potential changes in congressional control.**