Good day and thank you for standing by. Welcome to the U.S. Physical Therapy Third Quarter 2021 Earnings Conference Call. [Operator Instructions] I’d now like to turn the call over to Chris Reading, President and CEO. Please go ahead, sir.

Thanks, Priscilla. Good morning, and welcome, everyone, to our U.S. Physical Therapy third quarter earnings call. With me today on the line include Carey Hendrickson, our Chief Financial Officer; Graham Reeve and Eric Williams, our Chief Operating Officers; Rick Binstein, our General Counsel; Jon Bates, our Controller. Before we start our discussion around our earnings and operating performance this quarter and year-to-date, we need to cover a brief disclosure. Jon, if you would please.

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.

Thank you, Jon. We are going to change things up a little bit from how we typically do them rather than we start out providing select point of performance and color. I’m going to ask Carey to walk through the entirety of the financials in detail. And now we have the complexities as a result of this pandemic and some of the related secondary issues where we feel like we need to spend 3 years in order for you to have the clearest possible picture, which is certainly what we want to have. I will say, I think Carey and the team have done a wonderful job trying to present this information in a cohesive way that provides the most clarity and really in the linear continuity so that you can see how we did on a pre-pandemic basis in 2019 right through the current period. And then following Carey’s review, I’ll provide some brief comments related to our performance along with maybe a few key points of interest that I think you want to hear about. So with that, I am going to turn it over to Carey.

Great. Thank you, Chris. Good morning, everyone. Our financial performance in the third quarter of 2021 and through the first 9 months of the year has been very strong, as outlined in today’s earnings release. We reported third quarter 2021 operating results per share of $0.85, which was 21.4% higher than the $0.71 we reported for the pre-pandemic third quarter of 2019, and it also equaled our record high third quarter operating results per share of $0.85 in the third quarter of 2020, excluding relief funds, which, as we noted in the release, it benefited from significantly reduced costs related to the COVID-19 pandemic. Due to the impact of the pandemic on all of our 2020 results, I will provide comparisons of our key metrics to pre-pandemic periods in 2019 in addition to comparisons to 2020 periods. We reported adjusted EBITDA of $19.9 million for the third quarter of 2021, which was $300,000 higher than the $19.6 million, excluding relief funds that we reported in the third quarter of 2020, and it was $3 million or 17.6% higher than the pre-pandemic third quarter of 2019. Revenues in the third quarter of 2021 were $125.9 million, which was an increase of $17 million or 15.6% from the third quarter of 2020. Our third quarter 2021 revenues were $8.6 million or 7.4% higher than the third quarter of 2019. Our physical therapy patient volumes per day per clinic were 29.5% in the third quarter of 2021, which is the second-highest volume level in the company’s history, vested only by the 30 that we reported last quarter. And it’s also a record high third quarter volume level for the company. Our previous third quarter high was 27.5% in the third quarter of 2019, which we beat this year by 7.3%. Our volumes per…

Thanks, Carey. Great job with that. I am going to make some candid comments and go off script a little bit. I think you guys deserve that. I think also, I hope some of our partners and our staff will listen to this call at some point. For those of you who followed the company for a long time, you know that we follow historically at least a pretty distinct seasonal pattern. We have winter storms. And so January with new deductibles, we started out a little slow. Second quarter really beginning in March and continuing through early to mid-June, which I understand spans both quarters. But beginning in March, we see a rather distinct pickup as spring comes and people get outside. And that continues until about school is out and then things slow down a little bit in the summertime. People take vacations and doctors take vacations and school is out. And we, for every year that I’ve been here, which is 18 years, we’ve slowed down in the summer. This year, that didn’t happen. In fact, we delivered, again, Carey mentioned for the quarter, a record third quarter for us, even in spite in some of these markets in the summer, in fact, in some big markets like Nashville, where we had hospitals who had put off elective surgery again just because of the COVID push. Despite of that, we delivered 29.5 visits per clinic per day, which is just a fraction of a visit off our all-time record, which was Q2. And in spite of a few hurricanes that heavily affected us hitting Louisiana with our new acquisition partners there who are doing a great job, by the way, and all the way up the coast. So, in spite of that, the best third quarter in…

[Operator Instructions] And we will take our first question from Larry Solow from CJS Securities. Your line is open.

Good morning, guys. Thanks for taking the questions. Perhaps we will start with the labor and the headcount. And Chris, you mentioned more inflow than outflow and, obviously, you had some big furloughs in 2020. And it looks like you haven’t brought everybody back, some of these margin gains or ability to sort of keep your margin in line where others are struggling. Are you able to – have you learned an ability to do more with less, just be more efficient? Because I imagine some of your salaries are higher. So what do you attribute towards – you still – your revenue doesn’t seem to have suffered at all with a little bit less headcount and your margins are obviously even higher. So just trying to get a little bit more color on that?

Yes. I think 2020 was a great learning experience for all of us. And I think our partners, particularly, but really across the board, we’ve learned like any other semi-crisis that you go through, you learned to focus on what’s important and you get rid of the rest. And when I say get rid of the rest, I’m not talking about people. People are always important, but you learn what you can live with and what you can’t live with. And we’re still adjusting, Larry. We’re still in some of our corporate support departments. We’ve added staff – added more staff in the areas to support some of the programs and initiatives that we have that we are investing in. And so there is been some of that for sure. I think there is been a much tighter control locally in terms of managing not big FTE changes, but very small FTE changes that do add up over the course of 600-odd facilities. And so I think it’s that combination. Margins were a little tighter this quarter, and our net rate was down ever so slightly from where it was previously. But a cost per visit, as I mentioned, or salary-related cost per visit, has stayed pretty steady. And so I just think it’s all those things working together in small increments that have added up to where we are right now. And we’re still making some adjustments. This isn’t do one thing and you’ve done kind of a process, but we’re working our way through.

Great. And how about on the – just on the volume trends, really strong, even since as you mentioned, a little bit of seasonal slowness, 29.5% per day? I think like for that magic number, 30 visits per day, is that like – I know that’s sort of what everybody strives for, but could this go above that or do you kind of reach some – these therapists reach sort of capacity constraints above a certain number?

Well, therapists do reach capacity constraints but clinics have generally flexibility. And so what I mean by that is there are arguable points when a therapist gets busy enough or so busy. They can’t see more patients unless they add more hours, and I’m sure there is some of that happening just to cover the volume because business is good. Clinics, however, and that’s that number, it’s a clinic number, not a therapist number. And so the clinics can go above 30%, I think, certainly on average. Now there are some clinics that in that mix that are capped out relatively so probably. And we go through in any given year, a number of expansions and relocations that we do in order to grow those facilities just because of the chaos factor in some of our biggest facilities get to a point where it gets a little high. And so you need more footprint, but I don’t think that 30% is the be all, and all. Now it’s a good number and it’s the highest number we’ve ever delivered. And so I’m not suggesting that becomes an easy number to get to or to sustain. But as Carey mentioned, we’ve stayed above 29 now every month this year, and I’m hoping that’s the new watermark. We will see as time goes on. But I don’t think 30 is a ceiling either and I think we can, over time, slowly grow through that. That would be my hope, at least.

Right. Okay. And just last question, if I may, just on the industrial injury prevention business. You mentioned a pretty good quarter this quarter. And I don’t expect to get back to the rapid growth we saw in ‘18 and ‘19. I know that was – some of that was inorganic. But in order to drive considerable growth, I guess, my understanding is you kind of – a lot of these new contracts are garnered at trade shows and whatnot. Is that sort of the hindering factor? And once trade shows start get going again, you can start seeing picking up some growth?

Yes. I mean, the team – the sales team there, Bob Patterson, and the rest of the sales team, they have done a great job in what is otherwise very challenging circumstances, as you mentioned, with no trade shows to speak of this last 1.5 years. And I do think that will be a little tailwind that we haven’t experienced yet, but it’s not like they are not working at this point to try to create opportunities otherwise, they are, and we’re seeing that happen. It’s just a little harder, frankly, because it’s harder to get face-to-face. And some of these companies, people are still working remotely, and so you’re dealing with that as well. And so it is going to take a little time, as you mentioned earlier in 2019, for instance, we did the BTE deal. And I will mention that, that deal we brought on, it had what we thought would be a heavy kind of countercyclical program in our employment testing, post-offer testing, that business is on fire right now. And so that’s helped the rest of the business kind of stabilize where some of the ergonomics testing business, which is heavily done on-site is down at the moment. But I expect it will come back as things further normalize. And so – as we mentioned, we did a small deal at the end of the quarter. We continue to look for opportunities in that space. We expect to get more done in this space. And I expect that you’ll see that play out over the coming year as well.

Got it. Great. I appreciate the color, guys. Thanks so much.

Thank you.

And we will go next to Stephanie Wissink from Jefferies. Your line is open.

Hi, Steph.

Good morning.

Hi. Thanks, guys. [Technical Difficulty] on for Steph. I appreciate all the incremental clarity. It’s definitely helpful and congrats on the strong quarter. I wanted to touch on the strong volumes. Are you gaining those volumes from a greater pool of more referral sources? So are you seeing that contribute to kind of these elevated levels? Maybe just talk about what you’re hearing from referral sources and maybe anything incremental from sales reps that are maybe suggesting that new referral sources are more heavily contributing to this mix? But really, I guess, at the end of the day, there really just a greater number of referrals from existing sources.

Yes, that’s a great question. It’s a little bit hard for me to answer just because of how we aggregate this information. And I’m not sure that I have the complete color or transparency around that in detail to be able to give you an absolute final answer. But we’re always working on new referral sources and our sales team does a great job at that. I would tell you that I think it’s a broadening of referral sources. And it’s a broadening of our ability to go direct to consumer and not have to rely exclusively on referral sources. And then I think, thirdly, it’s probably moving some market share from less focused, less capable, whether it’s small local providers or hospitals who are focused on other things right now or don’t have the resources devoted to this. And so I think it’s a smattering of things. What I don’t think it is – and it’s my belief is that suddenly our finite group of referral sources who’ve always been with us are busier than they have ever been. I think that industry-related stats around that would suggest otherwise. So I do think it’s a broadening. I do think it’s direct consumer and do think we’re moving some market share across a growing referral base is how I report it.

Yes, that’s great color. And then I got to ask just a final one on Medicare and recognizing there is still potential for things to change, how do you think about that and the relationship between kind of Medicare rates versus kind of the pricing in your commercial book moving forward? And kind of as you look through those contracts, what’s the anticipation for commercial rates to more kind of indexed towards Medicare? And then the last one on that would be anything else in your commercial contracts that can move price one way or another on an annual basis on fitting things like inflation adjustments or annual escalators.

Yes. So if – as I answer these, if I missed something, please redirect me. So first of all, I was disappointed, but not surprised when Medicare came out with their final rule update on Tuesday. I think with CMS, it’s kind of the path of least resistance. I know that they got a massive outpouring from the communities that we serve and from therapists and general practices around the country, we lead a group called APTQI, Alliance for Physical Therapy Quality and Innovation. We’ve been very, very active, both in messaging and directing communication to CMS as well with our congressional constituents. We represent now or 14,000. I think that’s the number of facilities across the country and in virtually every state. And so we’ve been – and I’ve been personally on a number of these and so have all of our CEO, Board members, each week, we have congressional calls. And so I think – I still think there is opportunity as we did last year to get some congressional overrule on this. I think it’s shortsighted and long-headed to deliver a cut like this to a subset of the physician fee schedule and physical therapy, which we know through studies that we’ve commissioned independent studies done by Beltway Analytics groups that indicate that when somebody comes to physical therapy early, for instance, for a low back pain, their entire downstream costs for their health care spend, not just for that issue, but for all their issues is less in its – and the reason behind that, I believe, is because we get people moving again, and when you move, you can exercise, you can be active, you can garden, you can walk, you can do the things that cause other health issues to improve diabetes, obesity. Even…

Yes. Definitely agree with you saying really solid color. Congrats again.

Thank you.

[Operator Instructions] We will go next to Mike Petusky with Barrington Research. Your line is open.

Good morning.

Hi Mike.

Hi Chris. Just to clarify, in terms of the final reimbursement. I know there was some initial confusion around, was it 2%, was it 3.5%? What do you all and the industry judge the final rule impact to be in ‘22 at this point?

We are still working through some modeling or some increases on the initial evaluation, some decreases on some other codes. Really, a lot of it comes down to code combination and selection. But we think at this point, Mike, it’s around 3.75%, we think, is a percent reduction.

And Carey, I may have missed this earlier, forgive if I did or if I missed it in the press release, but have you commented on the EPS guidance from Q2. Have you affirmed that or in any way talked about that? I may have missed it earlier, sorry.

Yes. No, we did not mention it here. We have kept the guidance where it was at the end of the second quarter. Now Chris, you may want to add some color to that, but…

Yes. No, Mike, I think – listen, I am really, really happy with how the teams performed all year long. And volume has continued to be strong through October. And so – but I would tell you that it’s been a tough year to predict exactly how we are going to go. You know where we started at the beginning of the year. I think we have outperformed at least even compared to some of our early expectations. But it’s been another crazy year. And we typically don’t update unless we feel like we are going to be meaningfully outside the range, one direction or another. So, we think the best thing right now is for us, just given some of the uncertainties is to stay put where we are with the range that we have, and we will see how we do.

And just on the really good color on the inflow versus outflow on clinicians, which was terrific. Are you seeing any difference just in terms of sort of full-time versus PRN in terms of recruiting? I would suspect maybe PRN it’s tougher, but can you just speak to that?

Yes. I don’t know if PRN is tougher. I know full time is tougher. And so in some cases, I will make two specific – or a few specific comments around the color. Number one, we are seeing and experiencing less involuntary terminations than we did. Let’s go back to 2019. And so translated, that means we might have somebody who is a little bit weaker, we feel highly confident we can replace that person, and we separate from somebody. So, those are down. The interpretation that I would provide for that, and I am interpreting, but we are probably hanging on to people a little bit longer than we might normally and otherwise, more balanced labor market. And we will see if we can add the right person later and then separate. So, involuntary terminations are down. And although we are filling a good number of full-time positions, I know that even when we have full time, if we can get a part-time person, we will take a part-time person and continue looking. The other thing I will tell you, our recruiting department is doing a fantastic job. I was really – we have some new people, newer people, who I didn’t know as well. And I am really impressed with the call that I had with them earlier within the last week. But we will fill a position, which is the position that we had open, but we will keep that hiring slot open because, number one, we are growing, and we feel like if we can get the people, we can grow. And number two, it is a tough market. And so we continue to look just in case. So, they are busy, they are really busy, and it is a tough market, but they are doing a really what I think is a really good job overall. And I don’t mean to minimize it in any way because it’s different than it was pre-pandemic for sure, in terms of the difficulty. But I think the team has adjusted pretty well and I think it shows up in our numbers.

And just sort of on, I guess, semi-breaking news, the Biden administration, I guess put something out today essentially saying, hey, we want large companies and healthcare workers to be vaccinated within the next month or two months. Do you feel like you guys have – well, first of all, would you – I am assuming you guys would fall under that? And then I guess, secondly, if you do, I mean do you feel like you have many therapists, clinicians at this point aren’t vaccinated?

Yes and yes. So, a little color. So yes, I do feel like we will fall under that. I didn’t see it specifically this morning, but I was aware that it’s been coming. I think it’s going to be heavily – and look, I – my personal belief is, I think we should all be vaccinated. I think it’s in space, I do think it’s smart. Having said that, I know we have a percentage of people who push comes to shove, don’t want to be vaccinated for one reason or another. And I am not even going to go into the reasons. The reality is I don’t think that changes anything for any of us, because I think we will see because we are dealing with this on a state basis. In some cases, we have a handful of states. So, it’s been mandatory for a while. And what – and whether this is – be careful of what I say, but what happens, the people who don’t want to be vaccinated, many of them will lay down a religious exemption card and say it’s because of their personally held religious beliefs. And when that happens, at least to-date, what we have to do, document that, go through it. And then there is usually a testing element that comes into play where they have to be tested on a certain frequency pattern. And so we think that, that’s probably – again, I didn’t see what came out this morning because I was preparing for this call and whether there is any nuances from where we were before. But I think that’s still going to be an exemption on the religious side. And I think it’s going to be hard to work around. And therefore, I think the alternative is we are going to be testing these folks on a pretty regular basis and administratively, having to keep up with that, which I don’t look forward to, but I think that’s going to be everybody’s reality.

Do you know approximately what percentage of your clinicians are in fact, like is it a third? Do you have any sense of that?

Yes, but not on – what I feel like is completely or highly accurate basis. We have a learning management tool where we have asked people to upload first and second vaccinations in the rest. And we know that the vast majority of people have done that. We also know there is a subset that don’t want to do that and don’t want that to be recorded as part of the record for the company, again, for whatever reason. And so we think the vaccination rate compared to the reported rate, now it is higher. I think it’s somewhere in the 20% to 30% range, if you are asking me what I think. I think the unvaccinated rate actually for the non-licensed people is the highest. And again, I think clinicians with a science background are more inclined to do it for themselves and their own exposure as well as the patients. And then our non-licensed folks may be a little bit less so. But I would say, in aggregate, it’s probably in the 30% range, still not vaccinated.

Thanks guys. Again, a great progress. Thanks.

Thank you.

Thanks Mike.

And I am showing that we have no further questions at this time. I will turn the call back to management for any additional or closing remarks today.

Okay. Well, listen, thanks, everybody. Again, we appreciate your time. Carey and I are available if you have follow-up questions. I know with some of you, we have already got that scheduled. Thank you for your time and attention today. And we hope you have a great day. Stay safe and thanks for your support. Bye now.

This does conclude today’s program. Thank you for your participation. You may disconnect at any time.