Good day and thank you for standing by. Welcome to the U.S. Physical Therapy’s Second Quarter 2021 Earnings conference call. 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 includes 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 down 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 incredibly 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 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 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 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 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 worked 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 and 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. And together, we find ways to overcome challenges as we have in the past, allowing us to forge ahead. Some quick highlights on the quarter. We are reporting $0.96 for operating results, which is an all-time high for us, comparing favorably to the strong quarter two we had pre-pandemically in 2019 at $0.81. In spite of some closed and sold clinics, our revenues were ahead of 2019 and our operating profit and EBITDA were well ahead on a pre-pandemic basis. Our margins have stayed healthy. Our gross profit margin for our company in quarter two was 27%. Our physical therapy margins were 27.3%, and our injury prevention margins were 25.3%; both continuing to perform very well. All of that helped to push our operating income up 116% compared to a heavily impacted Q2 of last year. Additionally, we increased our operating income margin to 17.5%. Other highlights in the quarter include the announced acquisition of a great group of partners and an 8-clinic practice. These guys are a great fit for us. They are highly motivated to grow and we are excited about helping them do just that to expand their already prominent sports medicine related services. As a result of management’s outlook for the remainder of the year, we are increasing our operating results guidance for the full year 2021 to between $3.05 to $3.15 per diluted share. In addition, our Board has voted to increase the company’s quarterly dividend from $0.35 per share per quarter to $0.38, which will be paid on September 17, 2021 to shareholders of record as of August 20. In closing, let me say that I am happy to see the increased attention to our space. Physical therapy on a very pure basis is one of the last health professions where we truly get to know and spend quality time with our patients, while at the same time, helping them to move and to function again so they can enjoy their lives. Being part of my profession for the past 36 years has been one of the great blessings in my life and I am truly thankful that I get to work with so many friends and beloved colleagues across our many partnerships, as well as within our home office team. While we will always have challenges, whether they come in the form of reimbursement, staffing or even a pandemic, this team will continue to focus on doing things the right way internally for staff and patients. And when that happens, as it should, we know that our shareholders will be well cared for also. Externally, we will continue to work with our group, a growing group of member companies within APTQI as well as collaboratively with the APTA in the private practice section who represent smaller practices in order to make progress with CMS as well as to help our lawmakers understand the huge embedded value in physical therapy at the primary care of musculoskeletal health. We will continue to do our best to reflect the good, worthy and worthwhile attributes of the profession, while at the same time, following our own path with our partners and our team to further grow our company while creating shareholder and stakeholder value. Thanks so much for your continued support. It means a lot to all of us. Now I’d like to turn things over to Carey to walk through the financials in greater detail. Go ahead, Carey.

Thank you, Chris and good morning everyone. As Chris noted and as outlined in our earnings release today, our financial performance in the second quarter of 2021 and through the first six 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 comparisons 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. 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 relief 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 the second quarter of 2019 to $21.8 million in the second quarter of 2021. Revenues in the second quarter of 2021 were $126.9 million, another record high for the company. They were $43.1 million higher than the second quarter of 2020 and $0.6 million or 0.4% higher than the second quarter of 2019 revenues, even though we had 21 fewer clinics open on average in the second quarter of this year due to sales and closures of underperforming clinics that we completed at the onset of the pandemic. Our physical therapy patient volumes per day per clinic were a record high 30.0 in the second quarter of 2021. Our previous high was 28.2, which was in the second quarter of 2019, which we beat by 6.4%. Our volumes per day per clinic were 58.7% higher than our 18.9 average visits per day per clinic in the second quarter of 2020. We noted on our first quarter earnings call that we had record high volumes in March of this year at 29.3, our April volumes were slightly higher than March at 29.4, and then May and June were both above 30 at 30.4 and 30.2 respectively. Our net rate for our physical therapy operations was $104.46 in the second quarter of 2021, which was consistent with the $104.72 we reported for the first quarter of 2021. Our rates held up well, considering the 3.5% Medicare rate adjustment that went into effect in January of 2021; our rate was down only 1.3% in the second quarter compared to the 2020 full year rate of $105.66. Physical therapy revenues were $113.2 million in the second quarter of 2021, an increase of 56.7% from the $72.3 million we reported in the second quarter of 2020. The $113.2 million in the second quarter of 2021 is only slightly less than the $113.4 million that we had in physical therapy revenues in the second quarter of 2019, again despite having 21 fewer clinics open on average this quarter versus the second quarter of 2019. Revenues for the industrial injury prevention business were $10 million in the second quarter of 2021, which was a 3.9% increase over the second quarter of 2020 revenues of $9.7 million. Our team also continues to do a great job managing our cost and keeping our cost increases aligned with our growth in volumes and revenue. Our operating costs, excluding closure costs, were $92.6 million in the second quarter of 2021; or 73.0% of net revenues. This was an improvement of 390 basis points as a percentage of revenue over the second quarter of 2020, which was at 76.9%, and it was 210 basis points better than the second quarter of 2019, which was at 75.1%. Our 73.0% in the second quarter of 2021 also compares favorably to the first quarter of this year when operating costs, excluding closure costs, were 76.9% of revenues. Looking specifically at salaries and related costs, they were 54.3% of revenues in the second quarter of 2021 versus 51.8% for the second quarter of 2020, which was lower due to lower than normal salary reductions and furloughs put in place as a result of COVID. And the 54.3% this quarter was 160 basis points better than the second quarter of 2019’s 55.9%. Salaries as a percentage of revenue in the second quarter of 2021 were also 250 basis points better than the first quarter of 2021, which was at 56.8%. Our gross profit increased $15 million or 77.9% in the second quarter of 2021 compared to the second quarter of 2020. Our gross profit in the second quarter of 2021 was also higher than the second quarter of 2019 by $2.9 million, or 9.2%. And as Chris noted, our gross profit margin was a very healthy 27.0% in the second quarter of 2021; 400 basis points better than our gross profit margin of 23.0% in the second quarter of 2020, and it’s 210 basis points better than our gross profit margin of 24.9% in the second quarter of 2019. Our corporate office costs were $12.1 million in the second quarter of 2021 as compared to $9 million in the second quarter of 2020, which, again, was lower due to salary reductions and furloughs related to COVID. Corporate office costs were $11.5 million in the second quarter of 2019. As a percentage of revenue, our corporate costs were 9.5% of revenues in the second quarter of 2021, which compares to 9.1% in the second quarter of 2019 and then 9.4% for the full year of 2019. Interest expense on our debt was $237,000 in the second quarter of 2021, which is down from $653,000 in the second quarter of 2020 due to reduced borrowings under our credit line, and our weighted average interest rate in the second quarter of 2021 was 2.37%. The portion of our gross profit attributable to non-controlling interest was $5 million or 14.7% in the second quarter of 2021. Our balance sheet remains in an excellent position and our cash generation remains strong. We ended the second quarter with $38 million drawn on our $125 million revolving credit facility, which includes $10 million that was drawn on June 30 to fund our 8-clinic acquisition on that date and we had $20.4 million of cash at June 30, 2021. Our net debt at June 30, 2021, was $27.8 million, which includes the $38 million on our line of credit, $8.3 million in the payroll taxes that were deferred in 2020 under the CARES Act and $1.8 million in notes payable net of our $20.4 million in cash. Our net debt position at December 31, 2020, was $11.0 million. So this year, we have funded acquisitions totaling approximately $22 million, paid back $14.1 million in Medicare advance payments that we received last year, purchased non-controlling interest from our partners of $9.5 million, paid dividends of $9 million and paid off $3.7 million in notes payable, but our net debt position has increased by less than $17 million, with $10 million of that coming right on June 30 due to the acquisition. Our low leverage and our strong cash generation provide us with tremendous flexibility and sufficient capacity for the right growth opportunities. Our financial performance in the second quarter of 2021 was strong, and our management team is confident in the ability of our team to continue to perform well through the end of 2021 and forward as signaled by the raising of our full year 2021 guidance range for the second time this year and the interim increase in our quarterly dividend rate. Our people and our operations have proven to be engaged and resilient over the last year plus. And our partners are clearly focused on the continued growth and success of their business and ours as evidenced in our results, which has and will result in increased shareholder value. Now, Chris, I will turn the call back to you.

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.

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 is really impressive. Can you maybe share — it’s hard to gauge — but there is really strong rebound. I don’t know if there is any sort of recovery or make-up for lost time, right? So this seems like it’s probably — I don’t know if you can really catch up in physical therapy. Any feel for that, any feel for mix or are there still groups and 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, a 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 a lot of pent-up demand. But naturally, as sports and things come back, as 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 and July in the summer months, people take vacations and that certainly is happening now, but 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. The one group that hasn’t come back yet fully is the workers' comp group. The injury prevention business has been impacted; 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 has probably been some pressure on salaries and whatnot. So, just trying to parse those things out and maybe you guys also became 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. I do expect that we will see some salary pressure potentially. I know our recruiting department is working hard. We have some open positions, and we’re working to fill those. They have been doing a great job there. But I think we can hang on to a lot of this margin improvement. Carey shared 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 is quite eye-popping, so I’m wondering what your business has the capacity to process, 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 rethink how you flow patients through visits each day?

Yes. So we’re not changing our care model, Stephanie. Our facilities do have the capacity to see more patients; the vast majority do, but we have to hire more people to do that. We’ve been working on that. Over the last three or four months — April, May, June and into July — we’ve hired more people, actually nearly double the number of people compared to the ones that we’ve lost. But we are still in a deficit. We’ve staffed up our recruiting department and we’re working hard locally. In fact, I’m here in one of our facilities in Richmond, Virginia and they are interviewing some people here today. I talked with our partner when I got here this morning and he was walking into an interview with a 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 the 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: considering 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 and 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 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 add practices into the company to hype short-term earnings if they are going to be a bad long-term fit. The stuff we do 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 open with our strongest partnerships. By and large, those partnerships are doing a great job with their staffing and have people ready to go. So our de novo flow this year has been good and I don’t expect that to change. Frankly, I think the staffing issue 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.

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, have you touched on just your initial take on 2022 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. 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. When they initially published their rates for 2022, they had physical therapy at a minus 2% reduction. We had our folks do the modeling and we came up with a different number. Then we conferred with others in the APTQI group and with other companies and everyone came up with about a 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 — a rate reduction if PT Assistants are involved in care that’s been on the books for three or four years, that becomes effective in 2022. We will work to staff around that so PT Assistants don’t get involved in the care of Medicare patients to the extent possible. But that’s what we face right now. 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: at some point, does CMS risk access to care issues in your view with this recent behavior the last couple of years around pricing? Obviously, Medicare is not one of the better-paying groups now and it's 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 they risk access to care. I think they risk not recognizing that physical therapy really should be considered the primary care provider for musculoskeletal issues. We know from studies that people who with spine problems who access physical therapy first have lower downstream spend over the next year or two. The reason is that exercise and mobility have a broad beneficial impact. We’ve got to continue to advocate for that. CMS is sometimes slow to adopt these perspectives, but we are spending more time with key congressional champions and building those relationships. It will be a multi-pronged approach. I continue to be hopeful that we can get there because I see every day the benefit and the savings we create in the system. It just takes time.

Just one quick question on the Delta variant: obviously you guys being based in Texas and Texas being one of the states most impacted. Have you gotten any sense, July data or anecdotally, that patient flow has dissipated in places like Texas where there is spread of the Delta variant?

I’m going to kick that over to Graham. When we look at our aggregate volume, I’m not seeing an aggregate degradation. Graham, any 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.

Hi, good morning. I wanted to ask about IIP. You mentioned last quarter that a number of pipeline discussions had taken a pause with COVID. Just curious if those have reengaged. Obviously, revenue at $10 million hasn’t necessarily accelerated, but what are you hearing from folks in terms of interest or willingness to re-engage in those discussions?

Yes. We’re definitely having some good discussions and getting things done. The challenge has been that many leads historically came through big events and trade shows, and those haven’t come back yet. We’re beginning to see conferences scheduled in the fourth quarter. We’ve adjusted our sales cycle and it’s been effective. Right now companies are trying to hire people, so certain parts of our business — like post-offer testing — are extremely busy, while some other prevention business is a bit slower. I think this year was always going to be a rebuild year for that sales pipeline. We also have opportunities to grow outside of organic growth in this space and we’re looking at some of those right now. I don’t know whether they’ll all happen, but my sense is we will get something done.

Okay. Thanks, Chris. And then last one for me: staffing and labor issues are in focus broadly. Specifically within physical therapy, is there anything about your staffing or compensation model that distinguishes the company from competitors? It might be interesting to get that perspective now.

I love the model we have: partners who aren’t just hired hands but are local owners who live in the community, go to local events and are engaged on the sidelines of high school sports. That connection makes a difference. Our directors and partners are tied into the business through incentives and ownership. We don’t open de novos unless we have the right people ready to go, so we’re not forced to hire leaders who are inexperienced to staff a new center. As a result, our visits per clinic are where they are. I think having people at all levels tied into the business through incentives and ownership makes a difference.

Makes a lot of sense. Thanks, Chris.

Thank you.

Your next question is from Mitra Ramgopal with Sidoti.

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

Yes. We have a fragmented industry, Mitra. It’s hard to tell exactly where patients are shifting. My sense is that many more patients are accessing care via direct access, and we’re often easier to reach than a hospital campus. We have more resources than many small competitors and deep support for partners. When owners have to do everything themselves it’s challenging, and partners who get support tend to grow quicker. It likely contributes to the volumes we’re seeing, but it’s almost impossible to parse exactly where each patient would have gone previously.

That’s fair and appreciate the color. Slightly related to the labor market, more specifically on sales reps: last quarter you added about 14. Do you need to make more investments in that area or are you comfortable with the coverage you have now?

I think reps will continue to be important, but more and more people access care directly through referrals, social media and patient reviews. It will be a combination. Graham, do you want to speak to our rep level right now?

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 at this time. We add them when we need to, and we’re using them in various ways.

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

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

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

Sure. As Chris talked about, workers' comp was a little less this quarter. So workers' comp decreased as a percentage of the total mix, and both commercial and Medicare picked up a little bit.

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.

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 me, and we will be sure to circle back. Have a great day. Goodbye.

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