Good day and thank you for standing by. Welcome to the U.S. Physical Therapy Q1 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Reading, Chief Executive Officer. Please go ahead.

Thanks, Chelan. Good morning. And welcome everyone to our first quarter of 2021 earnings call. With me in the office or on the call today are Carey Hendrickson, our CFO; Graham Reeve and Glenn McDowell, our COOs; Rick Binstein, our General Counsel; Jon Bates, our Vice President and Controller. As we typically do, Carey and I have some prepared remarks ahead of taking your questions. Jon, will you start by covering our brief disclosure?

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. Okay. This morning I am going to have Carey cover the meat of the release, but I do want to start out with some overall color on the quarter, along with some important key aspects of how we are doing and how we look at the year ahead at this point. First of all, I can’t say enough about the fight in our team. They fought through last year with the unknowns of COVID, keeping patients and each other safe, as we worked our way through a difficult time, driving volume back with their great care, great work, while creating a safe, clean, and upbeat environment for the care of our patients. Those efforts resulted in a meaningful recovery by year’s end. Not quite the pre-COVID levels, but certainly within spitting distance. As we entered the New Year in January, volume, as it often does in January, was slower, although throughout the month, we continued to gain steam. By the end of January, we finished the month at 26.1 visits per clinic per day. February started strong and was progressing nicely when we got hit with that southern storm that had us idle in Texas and most of Tennessee for a full week, and that was a very big impact for us, but the team bounced back strong. We finished the month with a nice volume pickup and despite that setback, which had a major impact on visits, we finished February at 25.6 visits per clinic per day. March and since have been on a par. Really strong volumes of new patients and visits produced a record month for us in March for operating earnings, revenue, visits per clinic per day, where we finished at 29.3, which is an all-time high for us, and I am betting that record visits level lasts. The team continues to do a great job in our facilities and our patient volumes remained strong in spite of the world not being fully upside right yet. Very solid volumes for the quarter, coupled with continued excellent expense control produced some really nice results as well. Total combined salaries in both parts of our business were 56.8% of net revenues in this first quarter. It’s been a pretty long time under normal circumstances when we have been that low. That combined with the volume drove our gross profit for the quarter to 33.4%. Our overall gross margin was 23.1% for the quarter, up 590 basis points compared to Q1 2020. Gross margin for PT clinics, excluding closure cost, was 22.9%, a 560-basis-point improvement, and gross margin for our injury prevention business, which has performed very well throughout this time, came in at 27.2%, up over 1,000 basis points compared to 16.8% in Q1 a year ago. A few other highlights for the quarter before I review updated guidance. Our team has been successful renegotiating a number of our lease contracts and they have been working on that for some time with good fruit coming to bear. Additionally, our payer contracting team has secured a number of positive pricing adjustments, with, we believe, more good things to come in this area. The combination of those efforts will certainly help us for the remainder of this year and for years to come. As a result of a number of positive factors, management is raising guidance for the year as follows. The guidance is increasing from a previously stated range of $2.40 to $2.52 to a range of $2.68 to $2.78 for operating results per share for 2021. The increase to our guidance is primarily attributable to three items. First, our performance in the first quarter was better-than-expected when we initially provided our guidance. Our patient volumes and revenues increased significantly as the quarter progressed, with March finishing as the strongest month in the company’s history from a volume, revenue and operating income standpoint, and volume continues to be very strong along with terrific cost control. Second, we added a five-clinic physical therapy practice at the end of the first quarter that we expect to add $0.03 to $0.04 to our operating results per share in the final three quarters of the year. And finally, the 2% sequestration relief on Medicare payments that was scheduled to end at the end of March 2021 has been extended through December 31st, which we expect to add $2 million to revenue and which equates to approximately $0.10 per share on that basis. As per our usual practice, this updated guidance range does not include any additional acquisitions that we expect to make in 2021. On that topic, speaking of acquisitions, the partnerships that we have acquired recently, as well as previously, have done incredibly well through this difficult period. We have been supremely blessed with incredibly bright, talented, hard working, dedicated individuals of extremely high character. We continue to attract similarly committed individuals who we expect will join our company as our current deal flow progresses. We have a clean balance sheet and in spite of some materially large outlays in this quarter that Carey will cover, our cash flow this quarter was excellent and our borrowings under our credit facility were unchanged. We have a lot of dry powder at the moment. With our activity thus far, we expect to get a lot of good things done as we move through the year. In closing, I just want to thank our team again for the yeoman’s work they have done this past year since COVID-19 came to our front door. They have been exemplary in all respects and we know with the hearts and resolve that we have within our group that we will continue to fight forward through the remainder of the year. Thank you for your time and attention this morning, as well as your support and belief in our team throughout this past year. It means a lot to all of us. With that, I’ll turn things over to Carey to cover our results in a little bit more granular detail.

Great. Thank you, Chris, and good morning, everyone. Today we reported first quarter 2021 operating results per share of $0.64, which was $0.34 higher than the $0.30 per share that we reported in the first quarter of 2020. As Chris noted, our February volumes bounced back quickly after the significant weather-related event we had in February, primarily in our two largest states of Texas and Tennessee, and our operations team finished the first quarter very strong, producing record high results in the month of March and important key metrics of average visits per clinic per day which were at 29.3, physical therapy revenue which was $40.3 million, total revenue which was $43.9 million, and operating income at $8.6 million. Our adjusted EBITDA was $15.6 million for the first quarter of 2021, which was up $7.6 million from our adjusted EBITDA of $8.0 million in the first quarter of 2020. Revenues in the first quarter of 2021 were $112.4 million, which was down only slightly from the first quarter of 2020, even though we had one less business day in the first quarter of 2021 than we had in the first quarter of 2020 and we also had 24 fewer clinics open on average in the first quarter of 2021 due to the sales and closures of clinics that we completed at the onset of the pandemic in early 2020. Our physical therapy patient volumes per day per clinic were 27.1 in the first quarter of 2021, which was higher than both the first quarter of 2020, which was 26.2, and the first quarter of 2019, which was 26.9. That’s particularly remarkable given the weather event in February, where we basically lost a full week of visits in our two largest states. Monthly visits per clinic per day were 26.1 in January, 25.6 in February, which was impacted by the weather-related event, and then it increased to 29.3 in March of 2021. Our net rate for our physical therapy operations was $104.72 in the first quarter of 2021, which was up 1.6% from $103.11 in the first quarter of 2020. The first quarter 2021 rate was 0.9% less than the full year 2020 rate of $105.66, reflecting the Medicare rate reduction of approximately 3.5% that went into effect in January of 2021. Our physical therapy revenues were $102.4 million in the first quarter of 2021, which is a decline of only 0.5% as compared to the first quarter of 2020. The slight decline again was the result of having one less business day in the first quarter of 2021 than in the first quarter of 2020 and also having 24 fewer clinics open on average in the first quarter of 2021, as I noted earlier. On a same-day basis, our physical therapy revenue was up approximately 1%. Revenues for the industrial injury prevention business were $10.0 million in the first quarter of 2021, a 1.3% increase over the first quarter of 2020 revenues of $9.9 million. As Chris noted, our team continues to do a great job managing our operating costs; excluding closure costs, operating costs declined to $86.4 million in the first quarter of 2021 from $93.3 million in the first quarter of 2020, which was a decrease of 7.3%. Our costs were 76.9% of net revenues in the first quarter of 2021, compared to 82.8% in the first quarter of 2020. Our gross profit increased $6.5 million in the first quarter of 2021 when compared to the first quarter of 2020. Our gross profit margin was 23.1% in the first quarter, which was up 590 basis points from the gross profit margin of 17.2% in the first quarter of 2020. In the first quarter of this year, our corporate costs were also lower. They were $800,000 lower than the first quarter of 2020, which was a decrease of 6.9%. And as a percent of revenues, our corporate costs were 9.7% in the first quarter of 2021, which is down from 10.4% as a percent of revenues in the first quarter of 2020. Interest expense on our debt was $246,000 in the first quarter of 2021, which is down from $427,000 in the first quarter of 2020 due to reduced borrowings under our credit line. Our weighted average interest rate in the first quarter of 2021 was 2.95% all-in. Portion of our gross profit attributable to non-controlling interest was $3.7 million or 14.3% in the first quarter of 2021. Our balance sheet remains in an excellent position and our cash generation remains strong. We began and ended the first quarter with $16.0 million drawn on our $125.0 million revolving credit facility and we had cash of approximately $18.0 million at March 31, 2021, giving us a net cash position of about $2.0 million at quarter end. During the first quarter, we paid back $14.1 million in Medicare advance payments we received last year. We had previously noted our intent to pay that back and we did so in the first quarter. We also funded our first quarter 2021 acquisition at $11.7 million. As a reminder, we deferred $8.3 million in payroll taxes in 2020 under the CARES Act and will repay half of that balance by the end of 2021 and the other half is due by the end of 2022. In closing, our people and operations have proven to be resilient over the last year plus and they are clearly focused on the continued growth and success of our business, as evidenced in our first quarter results, which we know will result in increased shareholder value going forward. We are pleased with the positive momentum in our business and we look forward to continued strong performance in 2021. Now, Chris, I’ll turn the call back to you.

Yeah. Operator, if you would go ahead and open up the lines for questions.

Okay. Thank you. Your first question comes from the line of Larry Solow from CJS Securities.

Hey, Larry.

Hi. Great. Thanks. Okay. Good morning, Chris. Good morning, Carey. Good morning, guys. Thanks for taking the questions. I guess first question just from a high level, if we just look at the visits per day, it almost looks like you are back to pre-COVID levels at least on an absolute basis. But I suppose there are still some pockets of the population that you see where you are not fully back and perhaps those are just a little bit of absolute growth on top of some good numbers there. So maybe you can just give us your thoughts on where we stand in terms of COVID impacting volumes and/or maybe not so much?

Yeah. No. I think COVID still impacts our volumes. First, if we look at the numbers, we are back ahead of where we were on a pre-COVID basis. Now that said, COVID still impacts our volumes. We still have people in quarantine on a weekly basis. We still have activities, gyms and some sports, and certain recreational sports that due to timing and where we are in the COVID process haven’t come back yet. We expect they’ll be back fully by fall, we hope. But we are driving a really good volume right now. The team’s done a great job and we think the restoration of some of those normal activities will continue to be a tailwind for us given where we are currently.

And just sticking with the COVID theme—obviously it proved your ability to hunker down and roll back variable and some costs that we at one time thought were fixed. You took out a lot of costs. But you have come back a lot on the volume side and yet your gross margins are up close to 600 basis points. Just trying to figure out what you learned and whether your ability to be more effective and do more with less is sustainable. Can you talk to the sustainability of some of this efficiency improvement?

Right. We don’t want to waste a good crisis. Everybody—our partners, our staff—dug deep last year and we tried to remove costs that we thought were unnecessary, and we have learned to operate without some of them. Some things will come back. For example, Graham did a road trip this week to see some of our largest partners; travel was largely cut out last year and some of that will return, maybe not to the full extent because we can use technology and we’ve all gotten comfortable with that. On the people side, we are still pretty lean as we drive volume. Where needed, we’ll incrementally add people as we normally would. One thing to remember on a quarter basis is that last year we took many salary reductions in addition to people reductions, particularly in the second and third quarters. So on a quarter-to-quarter comparative basis, you won’t see the same basis point differential for the rest of the year as you saw in this first quarter. I think you saw this first quarter benefit, but we should hold on to a good portion of the cost savings overall.

Yeah. No. Absolutely. And then, just last question on the injury prevention business, which held its own during the pandemic—how do you feel about that business today in this macro environment? Did you lose momentum last year in gaining new clients, is there pent-up demand, how’s the outlook?

No. If we dial back to 2019, we still think that business has a ton of room to grow organically and through acquisition. It’s a great business and it does what it’s supposed to do in terms of keeping people healthy and safe. We moved sideways in 2020; it was a pretty good place to be and we actually finished the year up for that business. Some potential clients pressed pause in 2020 while evaluating COVID impacts, but we are seeing development activity pick up. Our development team has done a wonderful job. We had some contracts that were set to go in 2020 that got paused and we think we’ll get some of those back. Different industries experienced different levels of impact, so we still feel some COVID impact, but it’s definitely getting better.

Got you. Great. Thanks, guys. I appreciate all the color.

Yeah. Thanks.

Thank you.

Okay. Your next question comes from the line of Matt Larew from William Blair.

Hey. Good morning, guys. Just wanted to get a sense for as visits picked up in February and March, anything to share in terms of the mix of those patients or areas bouncing back faster than others? Do you have any sense for how much of that is snapback and pent-up demand versus potentially taking some share if smaller or under-scaled competitors closed and you picked up those referrals?

I don’t have a clear way to measure smaller competitors coming and going. A lot of those competitors got PPP money last year, which helped bridge them. In terms of mix, it’s really across the country. Some areas are more impacted; it often comes down to the state level. States like Oregon are still dealing with some issues and dialing back openings at times due to virus upticks. But there are fewer of those areas now and many places where business is really strong. Regarding snapback versus market share, it’s a bit tough to measure. People paused nonessential activities but as vaccinations increase—about half the population has had a first dose or a little more—people are beginning to resume activities. I don’t think there’s a big pent-up surgery demand, but we are likely taking some market share, probably from smaller competitors and from hospital campuses where patients prefer not to go to a hospital. Our facilities are more efficient and convenient, and we are focused on moving that business into our doors rather than letting it go elsewhere.

That makes sense. And then, follow-up on industrial injury prevention—the sales cycle was longer and paused in 2020. What has new business development activity looked like in the last month or two as vaccines roll out and cases come down?

Our team has done a really good job and we are seeing activity pick up and deals get done. We expect a good year this year for that business, which contributed to our guidance update.

Got it. And on the M&A pipeline, with the Medicare cut and PPP funds last year, has inbound activity changed? Any partners from 2019 or 2020 that said it wasn’t the right time now coming back? What’s the activity level?

Activity is brisk right now. It’s different than people might expect—these aren't severely distressed sellers; many did reasonably well. We are seeing more broker activity lately, sometimes with incomplete or sloppy information where financials reflect 2019 rather than 2020, so we evaluate carefully. We’ll keep making contacts and expect to get good things done. We’re not bottom-feeders; we look for partners who think like we do, want to be around long-term, and grow while moving market share.

Makes sense. Thanks.

Yeah. You bet. Thanks, Matt.

Okay. Your next question comes from the line of Brian Tanquilut from Jefferies.

Hey. Good morning.

Hey, Brian.

Good morning, guys. Chris, I’ll follow-up to one comment you made about pricing bumps from negotiations with payers. That’s a new angle to the story. What’s driving that? Is local density the leverage point for a provider like yourself? Walk us through the pitch to managed care for price increases.

It’s an easy pitch, Brian, for commercial payers. We’re talking non-Medicare. The pitch is that they are paying a hospital three times more than they pay an outpatient provider like us. We are infinitely more efficient, get people to higher functional levels faster, and reduce overall costs. Patients don’t have to navigate hospital campuses; our clinics are more convenient. The differential is large and we’ve been making that point. Coupled with our national market presence and footprint covering about 40 states, we’ve decided to push back and seek better pricing where appropriate.

Does that leverage have to be national scale or is local scale enough to drive negotiating power?

I think it’s more national than local. Many large payers are national and want simplicity and uniformity, which a national footprint provides. Local presence helps with name recognition and relationships, but contracting tends to be more national.

Got you. On acquisitions, would it be accurate that your appetite is greater than in the past? Any willingness for something larger?

Our appetite has always been to find good deals with the right people, and we’re not afraid to do deals of various sizes. We have a good appetite right now. Our criteria around integrity and quality of people has not changed. We want partners who will stay long-term and grow, and we’ll put our balance sheet to work.

And labor costs on clinical and non-clinical—what are you seeing?

It’s a mixed bag. We have some difficulty filling front-office roles—childcare and schooling issues, some people receiving government assistance, and similar factors are in play. On the PT side, we are busy and have open positions, but the team is doing a good job filling them as evidenced by volume pickup. I expect some salary pressure over time depending on government actions and how many people return to the workforce. There are many who need to return, which should help alleviate pressure, but right now we’re still in a transitional state.

Awesome. Thanks, guys.

Thank you.

Your next question comes from the line of Mitra Ramgopal from Sidoti.

Hey, Mitra.

Hey, Chris. How is it going? I wanted to follow-up on a couple of things you talked about—some costs coming back as you get to a more normal environment. I was curious about the furloughed employees you had, I think a few hundred were furloughed. Are they all pretty much back or are you still gradually bringing them back?

I think the people we intended to bring back are now back. Carey has the numbers in front of him and can confirm. As we grow and add people, we’ll add staff for growth but not just to bring back furloughed staff.

Okay. That brings me to my next question on growth—remind us where you are in terms of the sales force and whether you are looking to expand coverage?

I’ll have Graham and Glenn give an update as it’s changed a bit over the period and they have the most current detail.

This is Graham. We currently have 72 sales reps covering over 400 locations and we increased that by about 14 positions in Q1.

Perfect. I missed the number for the impact of the storm for the quarter. Previously you had referenced close to $3 million of lost revenue, about $0.13 a share. Can you confirm the impact?

Yes, those are the right numbers: $2.8 million and $0.13 per share.

Perfect. Finally, on network expansion—did COVID change your perspective on markets or states you wanted to enter?

No real changes. We generally target states that tend to be higher reimbursement and avoid a few with strong corporate practice statutes or high regulatory and tax burdens, like California and New York. COVID did not change our development direction.

Okay. Thanks again for taking the question.

Thanks, Mitra.

Thanks, Mitra.

Your next question comes from the line of Mike Petusky from Barrington Research.

Hi, guys.

Hi, Mike.

I may have missed this earlier, but did you talk about the impact of COVID on therapists being out of work and how that changed from November to February and then to now? I assume there’s been progress—anything you can say on that?

The peak of employees out due to quarantine was in November and December, with some in January, but it scaled back significantly since then. In February, March, and April we are down quite a bit. We have about 40 people out due to quarantine over the month as opposed to the peak in November, which was over 300.

Our quarantines are running much shorter based on updated guidelines and other factors. We’re running about 10 people in quarantine at any given point. We are also trying to increase vaccination among employees—total employees, including part time and PRN—and we are pressing to get above a 60% mark for first-dose vaccination. The clinical side is likely higher than the overall average, but we are not fully at the level we’d like to be yet.

So you meant total employees are below 60% vaccinated, and clinical staff may be higher. Got it. Earlier you mentioned renegotiated leases—any color on how many leases or expected savings?

These adjustments are straight-lined, so I don’t have a yearly run rate in front of me, but we’ve made decent progress. Graham, do you have a round number for overall adjustments?

We are sitting at about $350,000 in overall adjustments.

And roughly what percentage of leases have you renegotiated—closer to 10% or 50%?

It’s a moving number, but it is not as high as 50%.

Okay. Very good. Fantastic momentum—thanks.

Thanks, Mike.

Thank you.

And at this time, there are no further questions.

Okay. Listen, thanks, everyone. Carey and I are available if you have any follow-up questions over the next few days. We appreciate your time this morning and have a great rest of your week. Thank you. Bye.

Thanks.

This concludes today’s conference. You may now disconnect.