Good day and thank you for being here. Welcome to the U.S. Physical Therapy Fourth Quarter 2022 and Year-End Earnings Conference Call. I would now like to hand the call over to Chris Reading, President and CEO. Please proceed.

Thank you, Gretchen. Good morning, and welcome, everyone, to U.S. Physical Therapy's Fourth Quarter and Full Year Earnings Call. With me on the call this morning are Carey Hendrickson, our Chief Financial Officer; Eric Williams and Graham Reeve, our co-COOs; Jake Martinez, our Senior Vice President and Controller; and Rick Binstein, our Executive Vice President and General Counsel. Before we begin to discuss our results here this morning, we need to cover a brief disclosure statement. Jake, if you would, please.

Thank you, 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's actual results may vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information. Thanks.

Thanks, Jake. So, we have a lot to cover this morning. I'll start by discussing demand. As we look at volumes, which finished the year really in a nice fashion. We were steady in the quarter with October and November, coming in at 29.4 visits per clinic per day for both of those months. Then we started December averaging just above 30 visits per clinic per day for the first two and a half weeks. As you might recall, the country got hit with an extreme polar temperature and weather event just before Christmas that put a little damper on volume going into the holidays. But otherwise, we looked very good throughout the quarter. We finished December with 20.6 visits per day, which brought the quarter to 29.1 and overall for the year at 28.7. These were the second-best volume per clinic per day numbers in our company's history for both the fourth quarter and the year. Considering staffing challenges this year along with everything else, I am very proud of our partners, clinical teams, and all the many people who worked to ensure our patients get taken care of and have a tremendous experience. They've worked extraordinarily hard these past few years under difficult conditions and continue to produce incredible results with nearly four and a half million visits this year. I'll just mention that volume out of the gate starting this year has been ahead of expectations and it's been nice. Shifting gears on the injury prevention side of the business, we had another strong growth year, with revenue up more than 75% on the year and 37.6% for the fourth quarter. Despite these strong results, we were impacted throughout the year with open positions that were difficult to fill in some markets due to a general employee scarcity this past year. That seems to have begun to improve, with more recent months seeing open positions filled at a greater rate, allowing us to get to revenue and profit generation in a better overall timeframe. For some positions—which is a comment meant to be across the board for all parts of our company—we are finally seeing a greater number of qualified applicants across our portfolio partnerships, which feels like a good trend. While this has improved in recent months, we are not yet close to being in what I would call a normal hiring environment, although we've made progress as the year unfolded and we will continue to work diligently on that as we start this new year. Another bright spot that we expect to continue to help us as we go forward has been our net rate and our related contract renegotiations, which will continue throughout our 2023 year. Our net rate improved to 104.28 in the fourth quarter of 2022, up sequentially from 103.53 in the final quarter of 2021, despite the Medicare rate change, PTA reimbursement change, and the sequester relief phase-out in 2022; our contracting and OPS teams have worked hard to overcome some of these headwinds, and that hard work is definitely paying off. A rate progression quarterly this year went as follows: 103 in Q1, slightly to 103.18 in Q2, more traction in Q3 up to 104.01, and finally to finish the year at 104.28 in the fourth quarter. While we are pleased to make some progress through the year, we have much more work to do before we are done. One of the things we've decided as part of our overall strategy is to begin dropping payers. We will not acknowledge the value that our care provides. Offering substandard contracts is neither fair nor in keeping with a low-cost, high-value, return-to-function equation that physical therapy offers its patients today. A completed course of physical therapy results in a statistically healthier patient over the course of the next 12 to 24 months with lower overall healthcare spending. It’s time that this is recognized, and we as providers must refuse to accept low-margin contracts from payers. We are in the process of some very frank discussions with some of these payers. We've given notice to some of those same payers that if we cannot get a reasonably fair rate, we will opt out of those contracts. To date, this has begun to bear some fruit. We plan to continue those negotiations and discussions as we work our way through an extremely large portfolio of contracts. Our other challenge, particularly in the second half of 2022, surrounded the rapidly escalating inflationary environment, which impacted our costs across the board. For the final quarter of 2022, physical therapy total operating costs decreased slightly from our cost per visit in the third quarter. PT salaries and related costs also decreased slightly, about 1.6% from the prior quarter, although this was an increase of 1.4% from the prior year’s fourth quarter. All things considered, I think that's a pretty good job. Our turnover for clinicians on a percentage basis has remained relatively steady throughout this whole time, while the profession in general has seen a considerable outflow. I’m very proud of our clinicians and partners in our recruiting teams who worked together to fill open positions so that we can drive the second-highest visit volume on a per clinic basis in the history of the company during a supremely challenging period. The bright spot for us in 2022 is in the area of development. We had five acquisitions and a nice stable of De Novo and Tuck-In facilities added throughout the year, bringing our total facilities owned at year-end to 640. Development discussions and opportunities continue to be strong. We expect another good development year as things unfold. Furthermore, we expect that pricing will come down with the current interest rate environment impacting buyers across the board. We expect to see other deals not always get over the finish line due to the leverage situation of some of those buyers as rates continue to rise. Fortunately, we have completed all of the deals we set out to complete, and we expect that to continue as we begin the new year, which further sets us apart from many others in our industry, who have much higher leverage and much less balance sheet flexibility. One final note before I turn this over to Carey: the past couple of years, we have bought in minority interests with mostly discretionary, partial buyouts of a portion of our partners' interest and key strong partnerships across the country. These amounts totaled over $20 million in 2020, $31 million in 2021, and over $13 million in 2022. Additionally, we continue bringing in new, younger partners into these top partnerships to ensure stable, ongoing leadership into the future. We're able to do these purchases in aggregate and at an extremely efficient multiple overall throughout those three years. We are encouraged by our progress in some key areas as I mentioned, as we work hard to deliver for our patients, staff, and shareholders in this coming year. That concludes my prepared comments. I know, Carey has a lot of detail that he wants to cover, so I'm going to turn it over to you, Carey.

Great. Thank you, Chris. Appreciate it. And good morning, everyone. We noted in our earnings release that we're still evaluating our income tax expense. I just wanted to address that here. Our financial statements as presented represent where we currently believe they will land. There was a matter that came to our attention late in our valuation of tax that we had to consider, and we simply need a little more time to fully evaluate it. We expect to have that vetting process completed shortly, certainly by the time we file our 10-K next week. Now turning to our results, we reported adjusted EBITDA for the fourth quarter of $17.9 million, which was an increase of 2.8% over the $17.4 million that we reported on a comparable basis in 2021. Our full-year adjusted EBITDA was basically flat with the prior year. Our operating results, which include the impact of higher interest expense, was $0.58 per share in the fourth quarter, and it was $2.70 for the full year of 2022. Our total company revenue increased 11.7% this year, growing from $495 million in 2021 to $553.1 million in 2022. Like all companies, we're continuing to deal with some inflationary cost pressures, but our volumes remain strong, and our team is focused as always on finding ways to become even more efficient to produce the best possible results for all of our stakeholders. Our physical therapy patient volumes per clinic per day finished at 29.1 as Chris noted for the quarter, which was the second-highest per day volume in the fourth quarter in our company's history, bested only by the fourth quarter of 2021. By month, our average visits per clinic per day were 29.4 in both October and November, and then 28.6 in December, which is typically the lowest month in the fourth quarter due to the holidays. Additionally, there was a weather issue that Chris also noted. Our net rate for our physical therapy operations was $104.28 in the fourth quarter of 2022, which was a $0.75 per visit increase over the fourth quarter of 2021. That's particularly notable considering that the fourth quarter of 2021 had the 2% sequestration relief, which was no longer there in the fourth quarter of 2022, and that the fourth quarter of 2022 included the 0.75% Medicare rate reduction that took effect at the beginning of 2022, as well as the PTA reimbursement change. We had a rate increase in each quarter in 2022, moving from $103 in the first quarter, $103.18 in the second quarter, to $104.01 in the third, and then to $104.28 in the fourth quarter. Again, this is despite the pressures on Medicare rates from reductions put in place at the beginning of the year and the phase-out of sequestration relief. We’ve seen some nice commercial rate increases this year, due to the hard work of our contracting team, resulting in our average commercial rates increasing each quarter in 2022. Our average commercial rate in the fourth quarter of 2022 was 3.4% higher than it was in the fourth quarter of 2021. We still have much work to do on this front, but we're making progress, and we expect that progress to continue. As Chris noted, we're going to renegotiate or terminate contracts that reimburse us at a rate less than what it costs us to serve our patients, which relates primarily to a subset of our Medicare Advantage contracts. Physical Therapy revenues were $121 million in the fourth quarter of 2022, an increase of $6.8 million, or 6%, from the fourth quarter of 2021. Our physical therapy operating costs were $96.8 million, compared to $90.2 million in the prior year. Our physical therapy operating costs on a per visit basis were down slightly in the fourth quarter, which was a decrease of $1.09 per visit from the third quarter of 2022. We're pleased to see that per visit cost come down in the fourth quarter compared to the third quarter. Our Physical Therapy margin also improved in the fourth quarter—it was 20.0%. While this is less than the fourth quarter of 2021 when it was 21%, it is up from 18.7% in the third quarter of 2022. Revenue from our industrial injury prevention business was $18.9 million in the fourth quarter, which was a $5 million, or 37.6% increase over the previous year. Expenses in the industrial injury prevention business increased $4.5 million, so we ended up with operating income of $3.3 million in the fourth quarter of 2022, which was 19.4% greater than the prior year. For the full year of 2022, our IIP revenue increased 75.5%, with our operating income up 49.3%. On a same-store basis, our industrial injury prevention revenue was up 9.1% in the fourth quarter versus the previous year, and for the full year, it was up 20.7%. Our corporate office costs were $11.9 million in the fourth quarter of 2022, which was 8.4% of revenues, virtually the same as it was in the fourth quarter of 2021, when they were 8.3% of revenue. For the full year, our corporate costs were 8.3% of revenue, down from 9.4% of revenue in 2021. You'll note in the release we recorded a $9.1 million impairment related to our November 2021 industrial injury prevention acquisition made in the fourth quarter of 2021. While we recorded that impairment in the fourth quarter of this year, the impairment analysis was initially triggered by the sellers not achieving their earn-out. Our assessment of the expected future performance of the acquisition hasn't changed; its projected cash flows over time are similar to those at the time of the acquisition. However, we used a higher discount rate when discounting those cash flows to present value now compared to when we determined the value at the time of acquisition, and that higher discount rate was the source of the majority of that impairment amount. Our interest expense increased from $191,000 in the fourth quarter of 2021 to $2.2 million in the fourth quarter of 2022, due to an increase in our debt, primarily related to acquisitions we've closed during and since the fourth quarter of last year, as well as significantly higher interest rates in the fourth quarter of this year compared to last year. Overall, our balance sheet remains in an excellent position. We have a $150 million term loan with a five-year swap agreement in place that fixes the one-month term SOFR rate on that $150 million at 2.815%. Including a clickable margin based on our leverage ratio, the all-in rate on that $150 million of debt was 4.665% in the fourth quarter. In our segment of comprehensive income, you'll note that our swap agreement currently has a mark-to-market value of $5.4 million, meaning the current expectation is that we will pay $5.4 million less in interest expense over the remaining term of our five-year swap agreement than we would have paid without the swap at a variable interest rate. We estimate that the swap agreement saved us approximately $700,000 in interest expense in the second half of 2022. We also have a $175 million revolving credit facility, of which $31 million was drawn down at December 31, and we had a cash balance of $31.6 million at that time. Borrowings on our revolver are at a variable rate, with the weighted average variable interest rate on the debt in the facility in the fourth quarter approximately 5.75%. We also noted in the release that we increased our quarterly dividend rate from $0.41 per share to $0.43 per share effective with the first quarter of 2022. We're pleased to increase that again as we have each year since the initiation of the dividend in 2011. Our volumes in January and the first couple of weeks of February have been very strong compared to the same month in past years. While inflation pressures remain, our cost on a per visit basis stabilized in the fourth quarter of 2022 compared to the third quarter of 2022. We believe the progress we've made with commercial rates in 2022, and that we expect to continue in 2023, will enable us to offset the headwinds related to the 2% Medicare rate reduction effective January 1, as well as the full-year impact of the phase-out of sequestration relief, which occurred during 2022, together representing an impact on our revenue in 2023 of approximately $44.3 million. With expected continued strong volume momentum in our rate negotiations and the continued excellent focus of our operating team on making our operations as efficient as possible, we estimate our adjusted EBITDA will be in the range of $75 million to $80 million in 2023, excluding the potential impact of acquisitions in the same year. Contributions from our acquisitions would be additive to our adjusted EBITDA. Our guidance for 2023 and 2024 will focus on adjusted EBITDA while we continue to provide operating results and operating results per share in our earnings reports. We'll also provide information related to our debt interest rate so that you can project our interest expense accurately. For 2023, we expect the rate on our $150 million term loan to be 4.915%, based on our leverage pricing grid. The debt on our line of credit, which was $31 million at the end of 2022, will be at a variable rate of 1-month term SOFR plus a spread based on the leverage grid. Currently, our all-in variable rate is approximately 6.65%, including the January increase in the Fed funds rate. That rate is expected to move in tandem with any changes in the Fed funds rate going forward. In closing, we're in a good position as we start 2023, and we look forward to producing strong results for all of our stakeholders. With that, Chris, I'll turn the call back to you.

Yes, thank you, Carey. Great job. Operator, we're going to go ahead and open it up for questions now.

We'll take our first question from Brian Tanquilut from Jefferies.

Good morning. Chris, maybe the first question for you, as we think about the environment in the physical therapy space. Some of your bigger competitors are clearly struggling with over-levered balance sheets and tough operations, high turnover rates of clinicians. As I think about market share opportunities from some of those disruptions or distractions, and then M&A opportunities, how are you thinking about what’s in front of you and what you can do to potentially gain market share as a result?

I appreciate the question, Brian. Broadly speaking, anytime there's a tough operating environment, it affects certain providers more than others. Because we do have a strong balance sheet overall, even as interest rates are up, we started with a great balance sheet, so we have more flexibility. We've already seen—and I don't want to be too specific—but we've already moved some key people from distressed assets. We've seen opportunities to pick up some clinics, and we've done that. We have a strong development plan for our top 30 to 35 partnerships, which make up basically about 80% of our overall earnings, and those include De Novo and Tuck-in acquisitions of smaller practices in existing strong markets. Although I'd love for the market to have a great tailwind for all of us, it’s not that way right now. For us, there will be some opportunity on the development front, for sure.

That makes a lot of sense. Carey, you called out how your cost per visit is down slightly, but as I think about the labor market, I know in your case, the challenges last year were more in the lower end of the labor or the skilled spectrum. Any color you can share with us on what that looks like right now?

Yes, as our total operating cost did, our salaries and related costs also came down in the fourth quarter compared to the third. Chris talked about how we're seeing more success in finding and hiring qualified candidates. While there will continue to be some labor pressure for sure, we feel much better positioned as we begin 2023 compared to mid-2022.

Brian, we're not seeing rates come down yet. We will continue to test that. I'll let Graham or Eric discuss the rollout of some automation at the front desk for a moment.

Yes, Chris, this is Eric. I'll add a couple of comments here. Rates for clinical staff or front office staff have not come down yet for replacing positions. However, it was a bit easier in Q4 in terms of hiring people, which shortened the time to fill open positions. Without a doubt, the biggest challenge we saw last year from a rate side was on the non-clinical side, where the environment has been very competitive. Those individuals have the opportunity to work anywhere besides healthcare. We realized that we needed to bring automation into our environment to help address these challenges. Last year, we upgraded our EMR system and databases to take advantage of the automated functionality available on the platform. This will help us on the front office side. Examples of this automated functionality include appointment reminders, on-demand messaging, and check-in kiosks for patients to allow them to check themselves in and complete forms. We're currently rolling that out with our largest partnerships and will gain significant traction over the year, allowing us to leverage our front office costs.

Awesome. Thank you, guys.

Our next question comes from Larry Solow from CJS Securities.

Good morning, Christopher. Thanks for taking the question. Looking at same-store sales volumes, we had very good results at the end of the year and started strong this year. However, last year some staffing issues and perhaps a pullback from COVID may have hurt results. What’s your outlook for the back half of the year and how should we view 2023? Do you believe volumes should grow or will there still be factors holding you back, even before we discuss pricing?

I can say we're out of the gate pretty well. That month and a half or two months doesn't make for a year yet, but our plan for the year is indeed to increase volumes. As you mentioned, last year we were impacted on several fronts. While COVID is in the rearview mirror for everybody, what happened last year was that people hadn’t taken vacations for a long time, combined with just a really tight labor market affecting our time to fill. We saw a slight pullback from a record year, which was 2021. However, we are working hard to deliver a good year, and we hope to do that through the year. We've made improvements in staffing, and it’s beginning to feel better.

Understood. It sounds like you are optimistic regarding pricing as well. It seems you may be looking at better results in the near term, with the increase in commercial rates potentially offsetting government compensation challenges. How do you see the pricing trajectory moving?

That's the goal, Larry. This is long overdue. In the past, we accepted contracts that we should have pushed back on, but we're no longer willing to do that. Our team has worked hard, and I believe we can offset some of the Medicare pricing challenges for this year as we continue to move forward.

If I could squeeze one more question in regarding acquisitions, you seem to be in a better position than your competitors in that regard. What’s your perspective on leveraging higher than your current level considering your cash flow generation?

Carey, do you want to start with that and then I can jump in if needed?

Certainly, Larry. Our leverage ratio at the end of the year is 2.0 times. We would be comfortable moving that higher; it just has to be for the right deal at the right price. We have plenty of capacity for deals in the pipeline, and we plan to evaluate them individually to ensure we make wise investments.

I don’t have much else to add, except we are trying to be smart about how we deploy capital. We expect to continue to pursue deals and hope to complete them at pricing that makes sense.

We'll take our next question from Matt Larew from William Blair.

Good morning.

Hi, Matt.

I wanted to return to the contract issue. Could you size up what a passing contract looks like as a percentage of your revenue? Also, have you given hard dates for when you expect payers to compensate you appropriately? Finally, do you sense that other operators are beginning to take a similar approach, given the distressed nature of some assets?

I won’t get into too much detail regarding the sensitive discussions around our contracts, but the percentage of our reimbursement tied to lower contracts is low single-digits. We have many contracts being renegotiated across the commercial spectrum that are much higher-paying. In some cases, we've already given notice to terminate, and the reaction to that varies based on the contract terms. As for other providers, I encourage them to consider the value of physical therapy and to push back against contracts that cost them money.

Switching to the industrial injury prevention business, what do you see for the same-store outlook in that segment this year compared to prior years? Are there opportunities given potential distress in over-levered operators?

We have a very good organic opportunity in injury prevention. This business has natural expansion opportunities, but there are fewer providers, so it's a bit more competitive for acquisitions. We have calls scheduled to consider similar and potentially adjacent opportunities. We’re hopeful for a good year, but we are approaching it conservatively, especially with the economic climate being what it is.

Got it. Thank you for the insight.

We're currently rolling out some automation at our largest partnership and receiving strong feedback from both the front desk and patients. We expect this rollout to happen smoothly as we learn from our implementation experiences.

Good morning, Mike.

Good morning. Have you given any updates on the progress with the GPO and how partners are either driving traction with that or not so much?

Graham, do you want to take that?

It's been well received, and we will go live on February 27th. We're rolling it out at 180 locations, with efforts being made to stock required items in warehouses adjacent to those practices.

Great. How many partnerships does that represent?

I don’t know the exact number but it’s probably around 30. We wanted to ensure geographic diversity with this rollout, and we will expand to other partnerships after this first group goes live.

Great. That's meaningful progress. Now, Chris, regarding the contract negotiations, is there a chance some payers may not respond to your demands realistically?

While I can’t say that everything happens uniformly, we are prepared for some payers to walk away. Interestingly, in one of our major partnerships, after they initially said they wouldn't budge, they came back two months later with a very meaningful increase. We can replace the lost business easily if needed, so we’re willing to push back.

One more quick question, Carey, about borrowing capacity. You’re currently at about 2.0 times leverage; could you consider going up higher for the right deal?

Yes, at the end of the year, our covenant is at three times. We could approach our banks about increasing leverage for a right deal, though I wouldn’t be comfortable being much above three for long. We’ll need to maintain flexibility.

Makes sense. Thanks, guys. I appreciate it.

Thanks, Mike.

Thank you.

It seems there are no more questions at this moment. I will now hand the program back to our speakers for any final comments or closing thoughts.

Thanks, Gretchen. I want to thank everyone for the questions and for your time today. We greatly appreciate your ongoing support. We have some follow-up calls scheduled with some of you and for those we don’t speak to, I hope you have a great day. That concludes our conference call this morning. Thank you.

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