US Physical Therapy Inc 17th Annual Midwest IDEAS Conference

All right, great. Well, first off, thank you everyone for joining us today. My name's Joe Noyons. I'm with Three Part Advisors. Up next, we have one of our investor relations clients, U.S. Physical Therapy, which is traded under the symbol USPH on the New York Stock Exchange. USPH has several growth drivers in place, but one that's particularly interesting is our new hospital alliances initiative. That's been worked on this year. I think it's going to meaningfully increase patient volumes and expand margins as we go forward. Presenting on behalf of the company is the Chief Executive Officer, Chris Reading.

Chris? Thanks, Joe. Morning, everyone.

Again, my name's Chris Reading. I serve as Chairman and CEO. I've been with the company now 23 years. My background is, one, as a clinician. I had a long career in sports medicine, orthopedic rehabilitation before I got to the company in 2003 as Chief Operating Officer and took over in 2004. We operate around the country in 45 states, just under 800 locations. We're largely orthopedic in nature, musculoskeletal broadly, sprains, strains, fractures, dislocations, post-surgical, anything musculoskeletal, joint replacements, et cetera. We have a diversified payer mix. Only about a third of our business is Medicare. We're in a, what you would consider a fragmented market from a competitive standpoint. Favorable growth dynamics across the sector. My team has been with me, most of them, several decades. We have a great group of people. We have a great reputation in the market.

Our model is a little bit different than everyone else's. We do have large competitors. They're largely PE-backed, wholly owned entities. We're a group of partnerships, so across our 800 locations, we have about 120 partnerships. Our partnerships range in size from about 80 locations at our largest down to as small as just a few. Our partners have an equity interest in the business along with us. When we buy into an entity, like one that we just recently did just a month or so ago, 10 or 12 clinics in the middle part of the country. Our partners kept a 35% equity interest in that business. We have the balance. We're the managing partner. But our partners run day-to-day operations locally, and we give them ground-up support for all the many things that need to happen to run a healthcare business today.

That's what the footprint looks like across the country. Joe talked about our hospital business, which we're going to spend some time at. We recently entered New York a little more than a year ago, and we have now one of our exciting large partnerships with NYU Langone Health in New York. We're based in Texas, where I live. I used to work in Virginia, which has become a big state, but we're around the country. We're a few places we're not. California. You'll note a few other places. Usually, that's a combination of reimbursement and regulatory burden in one way, shape, or form. This is a big market. It's a really big market. It's highly fragmented. Most of the people that we compete with, most of the other entities are mom and pop, one to three clinic entities.

There are tens of thousands of those across the country, which make for an interesting backdrop to grow, both on a competitive front and through acquisition. We typically open 25 to 30 organic openings a year, and then we may buy anywhere from 30 to 70 clinics a year through structured acquisitions where we're paying single digit multiple on trailing 12 months actual EBITDA, not pro forma adjusted forward, made-up EBITDA. It's actual EBITDA. Our partners, one of the other ways that we're different is we distribute cash in our partnership every month. Like clockwork, at a certain day every month, everything that's in the bank gets recorded, and we reconcile everything, and then we distribute to us and to our partner available cash. Every other competitive entity that we deal with, particularly the private equity-backed entities, are so leveraged that there's no equity distributions.

When we're competing with a PE group for an acquisition, it's really a night and day difference in terms of what they get with us, which is a massive amount of embedded support that's been there for more than three decades. Cash flow on a regular basis within the entity that they keep an ownership interest in, and a guaranteed exit at a point of their choosing when they leave the business at the then updated EBITDA on the business times the multiple that we paid up front. Our partners typically stay with us for decades, and that stability gives us the ability to push off and to grow and to scale these businesses. Most people understand that physical therapy is a value driver in the system. We get people out of the hospital, we get people better quicker from surgery with less complications.

We avoid a lot of surgeries in many cases, or unnecessary imaging or other things. Again, it's a value driver. We've talked about the competitive landscape. When we buy into an entity, we help them grow through a number of different ways. Typically, I have a very seasoned commercial contracting team, so our contracts are typically better than what somebody can obtain on their own by themselves in the local market, our payer contracts. We help them add programs and services. We help them open new clinics. We have both resources, technology, and infrastructure designed to help with that. The last thing on here, which is a newer thing, is we help create arrangements, alliances, quasi-partnerships with hospital entities like we have with NYU Langone Health and with another hospital on the Gulf Coast and with others that we're working on currently. Our partners don't leave. They stay with us until they retire.

We're a very clinician-centric, we're a very patient-centric company. We're here to change lives and impact lives in a meaningful way. We've talked about some of the early differentiators in our company. We cash flow really well. Again, that gives us the ability to make good choices and keep our partners happy and grow and invest and do the things we need to do. These are just some, a list of many of the things that we do for our partners. The way to really think about this is, you guys, if you've either invested or participated in the healthcare system in some way, either as a patient or an investor, you know the complexities around running a healthcare company.

A lot of things have regulatory burden, or associated complexities that clinical folks, doctors, physical therapists, other clinical type people, they're not trained on necessarily. Think of it this way: the care occurs locally. Everything else that is needed to run that business, we do centrally, and then we oversee all of it, because we're very, very familiar with everything from the care to all these other back office things. What that does is that helps free our partner up and gives them more time to focus on growth, and local mentoring of their team, which enables us to grow people up, to open new clinics and to tuck in acquisitions and to do hospital relationships like the ones that we're going to talk about a little bit. When I had gotten with the company, the company had never done an acquisition. It grew only organically. The leadership and ownership there didn't believe acquisitions could work.

I happened to come from Encompass Health Corporation, and so we did lots of acquisitions and were successful with that, even with a slightly different model that wasn't quite as attractive at the time. This model, very attractive. We began to do acquisitions the year that I took over. We've done a little more than 50 now. They've ranged in size from small clinics to very significant acquisitions like the one that we recently did in New York, which now 60 clinics and partnered with NYU Langone Health. They're all very accretive. They're mostly single-digit multiples. The blended average over time on the multiple, probably across these 50, is somewhere in the seven something range. We trade at significantly more than that. Our partners stay with us, like I said, for decades.

One of the other unique elements of our company is U.S. Physical Therapy, Inc., which is a brand that I'm proud of. It's really a public company brand. Locally, we operate under identifiable local brands in these markets. When we acquire a company like the ones that we recently did in Nebraska, we keep their brand, we grow with that brand. U.S. Physical Therapy, Inc. doesn't become part of the brand. It's not disruptive. We don't lose any people in these transactions, so they're not wildly synergized. In fact, we look to keep everybody intact. It's much more stable. Gives us the ability to push off and begin to grow. Billing collections continues to happen, for the most part, within these brands, unless there's an issue. Sometimes there is. We have some central billing that we have around the country, regionalized and in Houston, where we can insource things, or we can bring things in over time.

That's grown over time. Many of these large partnerships have billing collections within their entities, which we oversee as well. These are pretty common sense things that we bring and create a case for why consolidation makes sense. Again, our revenue mix, about a third of it's federal, most of it's commercial, 10% plus or minus is workers' compensation, which is a really good payer for us. Very little is self-pay, and that is not no pay, but true self-pay. Our blended average net reimbursement is just a little under $110 a visit, $107.59, I think, last quarter, and growing. Our visits per clinic per day have grown sequentially over the last 24 months.

I think we're 14 of the last 16 quarters that that's grown, and it's grown on a year-to-year basis, really for the last 23 years. We think we can continue to grow the business and get busier at the same time. Again, this is kind of a standard slide. Clinic growth, visits per clinic per day growth, and visits over time. We have a little bit of a quarterly seasonal progression. First quarter, winter quarter for us, weather, little bit slower, new patient deductibles which have only a temporary impact. Everybody thinks they're not going to use healthcare in the coming year, and then they do, and that kind of goes down out the window pretty quickly. Q2 is usually one of our busiest quarters. Spring comes, people get busy, get outside, get hurt, begin to do things that they haven't done through the winter.