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Edited Transcript of USPH earnings conference call or presentation 27-Feb-20 3:30pm GMT

Q4 2019 U.S. Physical Therapy Inc Earnings Call

HOUSTON Mar 23, 2020 (Thomson StreetEvents) -- Edited Transcript of U.S. Physical Therapy Inc earnings conference call or presentation Thursday, February 27, 2020 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher J. Reading

U.S. Physical Therapy, Inc. - President, CEO & Director

* Jon C. Bates

U.S. Physical Therapy, Inc. - VP & Corporate Controller

* Lawrance W. McAfee

U.S. Physical Therapy, Inc. - Executive VP, CFO & Director

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Conference Call Participants

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* Jason Michael Plagman

Jefferies LLC, Research Division - VP

* Lalishwar Mitra Ramgopal

Sidoti & Company, LLC - Healthcare Sell Side Analyst

* Lawrence Scott Solow

CJS Securities, Inc. - MD

* Matthew Richard Larew

William Blair & Company L.L.C., Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the U.S. Physical Therapy Q4 Year-End 2019 Earnings Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Chris Reading, Chief Executive Officer. Thank you. Please go ahead, sir.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [2]

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Thank you. Good morning, everyone, and welcome to U.S. Physical Therapy's Fourth Quarter and Year-End 2019 Earnings Call. With me today include Larry McAfee, our Executive Vice President and Chief Financial Officer; Graham Reeve; and Glenn McDowell, our Chief Operating Officers; Rick Binstein, our General Counsel; Jon Bates, our Vice President and Controller. Before I begin my prepared comments, I'll ask Jon to cover a brief disclosure. Jon, if you would?

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Jon C. Bates, U.S. Physical Therapy, Inc. - VP & Corporate Controller [3]

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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.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [4]

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Thanks, Jon. So I'm going to start with some prepared comments, and I'm going to kick it over to Larry, and then I'm going to have some final comments before we open it up for questions. We're going to initially on operating segments. Overall, you will see our various operating segments performed extremely well for the year as well as the quarter. Later in my discussion, I'll also cover a few challenges we encountered in this year, which impacted our overall results, especially later in the year.

First, some highlights on the year. Our gross profit grew by 10.6%. Additionally, and outside of our operating results for the year, we produced a gain on sale of a partnership announced earlier in the year of over $5 million. Our gross margin on the entirety of the business improved 90 basis points to $23.3 million. Our partners in our ops team worked hard to increase our PT gross margins for the year to 23.6%, and we finished the year in strong fashion with our PT gross margins further improving by 290 basis points to 25.4% on continued strong same-store sales and higher visits per clinic per day than the prior year quarter.

Our management contract's gross margin improved for the year by 270 basis points. And in spite of significant integration and infrastructure-related costs, we made excellent forward progress in our industrial injury prevention business, improving margins 200 basis points to 22.4% for the year.

Also, some additional perspective on just how far we've come on our IIP business, that's our injury prevention business, since we started with Briotix in early 2017. That first year, we finished with a 13% margin. So in just a couple, 2.5, almost 3 years, we've gone from a 13% margin in that business now to over 22%. Our entire Briotix team has done a truly exemplary job and continues to create opportunities, which we are all very excited about.

Additional perspective. We started off that first year with just under $15 million in revenue and ended this past 2019 year at just under $38 million in revenue. Our year-over-year change was a very healthy 47%. And there's a lot more opportunity to capture as we look ahead.

Other highlights for the year. Our total company operating income increased 11.8%, and our operating margin improved by 70 basis points in spite of a few meaningfully large out of the ordinary costs for us this year, including a very large health care claims expense overrun for the year.

Moving on, our same-store volume and revenue for the year were what I believe is the best ever result for the current team of 5.8% and 6.3%, respectively. And our visits per clinic per day increased to an all-time high of 27.6% for the year. Hats off to our sales teams, our partners and all of our leaders, who assist in driving and supporting those efforts that enable us to touch and positively impact more lives.

We finished 2019 and our final quarter in a strong fashion as well. Our industrial injury prevention revenue increased over 46%. IIP margins improved a whopping 760 basis points in spite of integration and infrastructure-related costs necessary for the BTE deal integration and all of the growth that has been created over the past few years. Our PT margins improved 290 basis points to 25.4% despite the impact the additional health care costs, especially late in the year. We are addressing that important aspect of our business, and we have moved the pharmacy plan already with embedded and guaranteed cost savings, and we are making further adjustments in our health plan, which will allow us to continue to offer an excellent benefit to our employees and their families while addressing some of the fundamental issues, which worked against us in the 2019 year.

Finally, our management contracts business saw margins improved 660 basis points for the quarter and 270 basis points for the year. I also want to mention that yesterday, we closed and funded what would be an excellent partner-driven acquisition for us with a very special and gifted team we are very excited about. The deal activity has been strong, keeping us very busy. We've invested additional resources in this development area and expect to have a very good year to come in both organic as well as acquired opportunities.

That concludes my prepared comments. Larry will have some additional comments and color, and then I'll make a few other comments, and we'll open it up for questions. Thank you.

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [5]

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Thanks, Chris. I may repeat a few of the highlights that Chris hit, but I'll try not to. First, I want to talk about the year '19 versus '18. Overall, revenue increased 6.2% to just over $482 million. A lot of that was internal growth, as Chris mentioned. It wasn't a particularly robust M&A year, and we also sold an entity. And despite that, we were able to produce increases in total revenue and even PT revenue. PT revenue for the year increased by $15.6 million, despite having sold an entity that contributed $11.6 million in the year before.

Our total company operating costs in 2019 were 76.7%, that was a reduction of 90 basis points. Total salaries and related costs at $56.9 million were reduced by 20 basis points from the prior year. Rent, supplies, contract labor and other costs were reduced by 70 basis points. So in almost every operating area, we saw an improvement in the cost structure.

The gross profit for the year grew by $10.8 million to $112.5 million. The corporate office costs were 9.3% of revenue in '19 versus $9.1 million in '18. As Chris mentioned, included in operating and corporate costs for 2019 was approximately $1.8 million in higher employee health care costs than planned. The after-tax EPS impact from that was $0.105. Operating income for 2019 increased 11.8% to $67.4 million and as a percentage of revenue improved by 70 basis points to 14%. There was a gain of $5.5 million, which is not included in operating results, from the sale of the partnership interest at June 30. The provision for income taxes as a percentage of income was 25.4% in '19 versus 24.6% in '18. And as we get to the quarter, I really want to go into that a little more depth and show you the magnitude of the difference in the tax rate. Same-store revenue for de novo and acquired clinics open for a year more increased 6.3%, as Chris mentioned. Visits increased 5.8%, while the rate -- net rate increased 0.5%.

Now I'll talk about the quarter. Revenue and -- overall total revenue increased 4.1% to $122 million, despite the loss of revenue from the clinics within the partnership that were sold of $5.9 million in the fourth quarter of '18. Patient revenue from physical therapy operations in the fourth quarter of '19 actually grew by $1.1 million. Revenue from physical therapy management contracts is pretty consistent between the 2 quarters. Industrial injury prevention jumped dramatically 46.3% to $10.3 million. Company's total operating costs were 77.9% of revenue in the fourth quarter, an improvement of 60 basis points. Total salaries and related costs were consistent for the 2 quarters, 57.8%, while rent supplies, contract labor and other improved by 50 basis points.

Provision for doubtful accounts was pretty consistent at 1.2% in the fourth quarter of last year versus 1.3% a year earlier. Overall gross profit grew by 6.9% in the fourth quarter to $27 million. The gross profit as a percentage increased by 60 basis points to 22.1%. And as Chris mentioned, the gross profit for physical therapy clinics was pretty amazing at 290 basis points. Management contracts also -- for PT operations also did a lot better, increasing 660 basis points to 14.3%, and the industrial injury prevention jumped by 760 basis points to 18%. Corporate office costs were higher in the fourth quarter of the last year as compared to the year before. We had to do a catch-up on our accrued incentive comp because, frankly, the operations teams were doing such a good job. So though overall incentive comp for 2019 was lower than 2018, it was higher by about $600,000 in the quarter.

In the fourth quarter alone, we incurred more than $1 million in higher employee health care costs than planned. That's about $0.06 hit. So we missed the consensus estimate by $0.04, but honestly, it wasn't from operations, and this is something that we can fix. We've already changed our pharmacy plan effective January 1. The savings from that will be over $1 million. And in May, we will make substantial changes to our health care plan, and I expect 7-figure savings from that as well.

Operating income for the fourth quarter of 2019 increased 3.3% to $15.3 million. And I mentioned the taxes. The provision for income taxes was 23.4% in the fourth quarter of '19 versus 20.2% in the fourth quarter of '18. That's an $800,000 tax differential or $0.06.

Same-store revenue for acquired clinics open for a year or more increased 4.7% in the quarter, mostly on volume increases as the revenue was -- net rate was pretty flat. Our adjusted EBITDA for the year increased 8.5% to $67.3 million. In the release, management provides earning guidance. This is from existing operations and excludes future acquisitions. At the current time, we expect operating results to be in the range of $38.1 million to $39.8 million or $2.90 to $3.10 per share. We increased the quarterly dividend to $0.32 per share. At that quarterly rate, the total dividend expected to be paid for 2020 would be 12.2% higher than what we paid in 2019.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [6]

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Thanks, Larry. Larry hit on some of the comments. And just before we open it up for questions -- some of the comments I was going to make. Before we open up for the questions, I just want to reiterate a couple of things. Our ops team, which extends down to our facilities, extends to our Briotix team, extends to our corporate support folks in this final quarter, and I recognize that it was a bit of a messy quarter, on the surface, a miss. Our ops teams didn't miss across all our segments. They had an outstanding quarter. We had some things on top that were out of ordinary. We had $640,000 kind of quarter-over-quarter additional incentive accrual compared to the year prior, even though our all-in accrual for the year '19 was less than '18. That was an impact.

This health care thing, we've got our arms around it. We've made a huge amount of progress. Jeff Todes, our VP of Administration, and Larry, they've done a really good job in outlining and being able to tweak as we go forward our health plan ever so slightly. Fact of the matter is, it isn't something that we can, in a year, control. We had a bunch of unfortunate, really significant cases, which caused us to bleed at the end, we're able to make some subtle adjustments in the form of benefit adjustment, is already paying off. And so that will impact us. Then the fact that we had, in '18, an artificially low fourth quarter tax rate on a benefit that extended -- the majority of which extended back into the 2017 period. So on a quarter-over-quarter basis, those don't reflect our operating strength in each of our operating divisions, but had -- did impact, obviously, our overall results. So I just think it's important to understand where those issues were, what's addressable, and I think it's all fairly addressable and understandable.

So with that, that concludes my comments. We'll go ahead and open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question is from the line of Brian Tanquilut with Jefferies.

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Jason Michael Plagman, Jefferies LLC, Research Division - VP [2]

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It's Jason Plagman on for Brian. So I just wanted to ask about the strength in the same-store volume. Obviously, as you mentioned, very strong performance, record performance. What would you say is driving that? Is it investments in your sales force? Is it the strong economy? Adding capacity? What would you say are kind of the factors that are allowing you to deliver that performance?

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [3]

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Yes. So I think the economy has been what the economy has been. It's been strong for a while. This is the best-ever performance for us this year. I think it's a combination of factors. In '18, we added -- in the new region, we added some additional resources focused specifically on support of our sales and marketing. We've continued to make investments in those individuals and in training. Our partners are doing a great job. They're doing -- they're also doing a great job in terms of the care. We focus more on our direct-to-consumer marketing and -- from a variety of different fronts. And so we're driving more direct business, directly from the consumer that's not coming through a referral -- doctor referral. So that's helping. So I think it's a combination of those things, good people working hard and making a difference. I think the economy's been great, but it's been great for a few years and we've been able to eat this up. So really pleased. I'm proud of the team for the work they did this year. And we're going to work hard to see if we can keep it going.

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Jason Michael Plagman, Jefferies LLC, Research Division - VP [4]

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Okay. That makes sense. And then 2018 was a little bit slower on the PT M&A. Just wondering the number of conversations you're having with new partners. Is that -- how is that trending directionally? And also, any areas of interest on the IPI (sic) [IIP] side as far as acquisitions? Or are you focused on the integration at this point?

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [5]

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Yes. So 2018 on the space does -- we get credit for what we get closed, right? But 2018, we had some things that we expected to close both earlier in the year and, for instance, the deal we announced yesterday, we originally thought we'd get done...

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Jason Michael Plagman, Jefferies LLC, Research Division - VP [6]

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You mean actually '19.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [7]

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I'm sorry, 2019. The deal that we just announced yesterday, we originally thought we'd get done this year. And the better right thing to do was to take the time that it took and to get it done when it was ready to be done instead of trying to force it. So we're busy right now in discussions and active process than any time since I've been here. It will be, I think, hopefully, a good -- a very good year. Pricing continues to be strong and very healthy, very good for sellers. We continue to be selective. And I think -- we just had a Board meeting. We've looked at our inception forever to date performance and -- including deals that we've done in the last 4, 5 years, and performance continues to be really strong. So I expect to get a lot done in PT. On the Briotix side, we'll see. We expect a really good organic year. We've had to digest a lot through these 3 acquisitions since we started and we'll see how the year progresses. I'm not going to provide much more color than that. We may have activity there from an M&A perspective, and we may focus on organic growth. So we'll wait and see how the year unfolds.

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Jason Michael Plagman, Jefferies LLC, Research Division - VP [8]

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Okay, fair enough. And then last one for me is just the cash flow in 2019 seemed like it was impacted by some working capital headwinds in 2019. Larry, any thoughts on operating cash flow for 2020?

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [9]

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Well, we're a cash machine, so I don't ever feel particularly apologetic about the cash flow. We rolled out Raintree, an EMR. Our clinics' spend on software and hardware was normal -- was higher than normal, and we had a really good year in terms of de novo openings, which is a good thing. Early on, they lose money, but they quickly get in the black. So that was higher in '19 than '18, but I mean, we set an analysis that shows that if we didn't do any new clinics or acquisitions, you'd pay off your debt in less than a year. So we have extremely strong cash flow.

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Operator [10]

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The next question is from the line of Lawrence Solow with CJS Securities.

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Lawrence Scott Solow, CJS Securities, Inc. - MD [11]

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Just a couple of follow-ups. So, obviously, the same-store sales have -- especially volumes have been running a little bit above what we thought was sort of normal highs, I guess, if you will, or peaks the last few years. What are you guys baking into -- sort of you going back to that sort of 2% to 3%-ish baked into your 2020 outlook? Is that a good starting point?

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [12]

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Yes, that's a good starting point.

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [13]

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That's what we normally use in the budget is 2% to 3%. I think we used 3% this year. We assumed 3% this year just because we've been running higher than that, but…

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Lawrence Scott Solow, CJS Securities, Inc. - MD [14]

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Right. So hopefully, there -- potentially, if things -- seems like the environment is pretty stable. Obviously, who knows what happens. If corona gets into the U.S. -- I would view that as a short term issue, hopefully, anyhow. Okay. What about on the health care cost side? So it sounds like -- you guys called out, it looks like it's -- maybe it's operational, but not certainly related to volumes or anything at your clinics. It seems like you have it pretty much under control, unless, I guess, as costs continue to go up, right, I guess things -- health care costs seem to be -- go ahead.

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [15]

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Okay. So let me go through it.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [16]

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It's not operational.

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [17]

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Yes. It's 2 items. One, our pharmaceutical costs were significantly higher than we expected. And I'll be honest with you, it's these name brand drugs that are advertised on TV that are now being used for 10 different purposes other than they were -- what they were originally, again, supposed to be used for. So we changed plan administrators as of January 1 and put it a gatekeeper so you can buy these $10,000 worth of prescription drugs without getting -- making sure there's not a generic alternative or a less expensive...

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Lawrence Scott Solow, CJS Securities, Inc. - MD [18]

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Right, much more scrutiny there. Yes, yes.

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [19]

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And then we increased co-pays on drugs, too. And then for the health care plan, we try to provide a health care plan that is really solid. Because oftentimes, we're competing with hospitals for therapy. They normally provide superior benefits on the health care side. But we're going to make some design changes there. And just frankly, what everybody else is doing, we're going to have to increase deductibles and co-pays. But again, we're going to try to do it such that we still maintain a top-tier health plan. But there are design changes that we already know will save us 7 figures. And so we're going to -- I'm not going to have a recurrence of what we had last year.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [20]

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But I think part of the issue last year, we've -- randomly, we've had, relatively speaking, we've tweaked our health care plan a little bit year in and year out. We had a rash of really, really tough big spend cases. So much normal -- including young people and trainees and accidents that...

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Lawrence Scott Solow, CJS Securities, Inc. - MD [21]

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Yes, you just can't avoid. Yes, absolutely.

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [22]

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So we're self-insured up to $300,000. And then we have an individual case stop-loss. And then we have an aggregate stop-loss. Both of those got triggered by the end of the year. Our case is over $150,000 in clients jumped 62% from the prior year. Technically, you wouldn't normally expect something like that.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [23]

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But we'll make some adjustments and we'll...

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Lawrence Scott Solow, CJS Securities, Inc. - MD [24]

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And it seems like an extraordinary little perfect storm against you guys, a couple of things that were impossible to sort of predict and probably don't repeat, and you have said in your other higher stuff. Okay. What -- does that -- I guess that shows up in what? In salaries and related costs? Where does that show up in the P&L?

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [25]

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It shows up in operating costs in the clinics and corporate G&A in corporate.

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Lawrence Scott Solow, CJS Securities, Inc. - MD [26]

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Okay. Okay. So it's sort of spread out…

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [27]

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Yes.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [28]

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And just a point on that. Even though it shows up in operating costs in clinics, we have one of the best fourth quarter operating margins in PT that we've posted in a really, really long time, even with those costs pushed out.

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Lawrence Scott Solow, CJS Securities, Inc. - MD [29]

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Right. So hopefully there you got a little room for improvement, too, once you get some -- once you offset some of these higher costs. What about on the industrial prevention side. Chris, you mentioned you've obviously done a great job integrating. And I guess 2 questions there. I know you had some increased expenses in Q4 sort of to complete, I guess, the integration of the most recent acquisition. They are sort of pretty much complete? And then on the margin side, what do you think the ultimate -- not an exact number, but you're up to the low 20s today. Can that continue to climb?

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [30]

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Yes. This is a young business. And we've taken margins from 13% to 22% and I understand how that graph plots out. I would encourage everybody not to get too far ahead of us. We've kind of budgeted for the year around where we are right now. We'll see what we can do with that. The focus is on growing the business. We have had to take and kind of rescale some support, particularly around our financial team and IT because there's a lot of IT resources that need to be deployed to both manage the company and support these contracts. So we'll see. I think right now, where we finished the year is kind of a good watermark, and we'll see if we can take that forward. But I wouldn't model it right now, at least I'd ask you not to.

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Lawrence Scott Solow, CJS Securities, Inc. - MD [31]

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No, no, fair enough. And just last question. Just -- I know Larry has not taken -- not to do it too fast, although I'd like to see him here longer, but I know I think you're leaving, I think, in October. Do you expect to have a replacement at some point before you leave to sort of help the transition process?

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [32]

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Yes. We're not going to do without a CFO. Larry has been an amazing CFO. So that process is well underway. We've got a good slate of people to talk to. We're still early in the process, but we expect to have somebody, I would say, broadly by the summertime, situated with overlap with Larry and then a nice smooth transition. And Larry is going to be around to help support and transition as we need to. So...

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [33]

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We should -- I should overlap with the new person for several months. We, obviously, have a deep accounting financial admin team. I will warn the new CFO not to take calls from Mike Petusky, but other than that...

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Operator [34]

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Your next question is from the line of Matt Larew with William Blair.

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Matthew Richard Larew, William Blair & Company L.L.C., Research Division - Analyst [35]

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Wanted to actually ask about IIP again. Obviously, the most recent acquisition added some slightly different business mix for some of the POET testing. Could you maybe give a sense for growth in 2020 here. Whether you think there's a bigger opportunity, penetrating existing customers, like you've done with Costco versus now that you have a broader suite of services, going out and acquiring new customers? And then just any update on the cross-selling opportunity with PT?

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [36]

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Yes. So 2 different questions. So on the BTE part with post-software testing, we've spent a lot of last year just on integration. And to be honest, we'll, it's been -- we've got a great BTE team and a lot of great folks. And so we're excited about that. It's been a little bit of a tough market for the POET, especially with their concentration in transportation, railways and some other industries that got hit a bit hard in '19 with China tariffs and all the craziness that was going on around the world particularly centered around tariffs. And so -- and then secondarily to that, in such a hot employment market, while we've kept all these contracts, some of the people because they can't find even warm bodies to fill their positions, they're temporarily at least not screening everybody because they don't have enough people that -- even to look at to hire. And so it's a good problem the -- I would say the POET business is kind of countercyclical. And so in a super-hot economy that's a little bit tougher. Now having said that, we have seen a pick up more recently in that volume. I'm hopeful, and it's early that we can continue that into the year. We were a little slow, frankly, in the latter part of '19. We have a great team. We've started the work to cross-sell and do that or early, and I don't really have commentary on how that looks yet because I really truly don't know.

And then on the PT business, we're still early in that. We've been, as I mentioned to you when we were traveling to meet with shareholders recently, we've been really slow on trying to and very careful on trying to keep these businesses between PT and the prevention side a bit a bit suffer. Now there's lots of opportunity to cross-sell within Briotix. We're -- our folks do such a good job on the prevention side, frankly. If they do their jobs and they do, there isn't a ton of PT business. Now there is a relationship there. And over time, we believe those relationships will benefit our customers, maybe not necessarily on the comp side, but on the group health side because most of these companies are the large self-insured employers. But we're in the first or second inning there. We're moving slowly so as not to create the impression that we've done this just to suck out PT visits by doing a bad job on prevention. So we're not doing that. We're doing a great job on prevention. And so this is a long-term play and we're still early. So it's going to take a while.

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Matthew Richard Larew, William Blair & Company L.L.C., Research Division - Analyst [37]

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Yes. Understood. And I just wanted to get any sort of update in terms of 2021. Any discussions you've had with the industry group in terms of positioning with CMS? What -- how we should be thinking about in terms of our own 2021 models, kind of the rate impact from the post changes? And then whether you think some of the disruption it could create in the industry to, like, accelerate M&A? So I guess a few different questions within that.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [38]

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Yes. The easy part of that first. Any disruption in the industry absolutely accelerates M&A. That's just been the pattern. As I say, if everybody is in the same storm, but if you have a much bigger boat, you feel it a little bit less and it feels a lot better. And if you're in a small boat, it gets a lot rougher and people who are onboard, and that's going to happen. Our industry group, the alliance -- our alliance has continued to grow and strengthen. I'm really proud of that group, APTQI. We've added a number of more companies here in the last few months. Great companies. We've been very active. We've had 6 or 7 congressional dinners over the last 2 or 3 months focused around the 2021 issue. We've been to CMS -- we've been to CMS a few times for a few different things. They started out the year also with kind of a bungled CCI edit process, which affects code combinations. It was a mistake, shouldn't have happened. It affected January and a little bit of February, half of February actually, but we've got that resolved and corrected back to where it was. And so that was an effective initiative that APTQI participated in directly with other industry groups and leaders. We're still working on the 8% issue, how to model it. Until it changes, you're going to model it like it is. It's 8% for 2021. We're working really hard to blunt and to mitigate that, but it's not done yet. So that's about as clear as I can make it.

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Operator [39]

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(Operator Instructions) Your next question is from the line of Mitra Ramgopal with Sidoti.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [40]

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First, I just wanted to start with the IIP business. Chris, I know you talked about the cross-selling opportunities that are out there. And I was wondering if you also need a dedicated sales force to drive incremental revenue? Or can you do it with just the cross-selling initiative?

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [41]

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No, we do have a dedicated sales force. And we have a great sales force. So Bob Patterson heads that up that for us. Bob is a partner in Briotix Health. He's got a great team that's made up of Briotix folks and folks from InSite acquisition as well as BTE. And so that's been a growing force for us. And they're doing a terrific job as our client managers and other people embedded throughout our Briotix Health workforce who are involved in client relationships and cross-selling and all those things, the leadership team all the way through the organization. So we've invested a lot in that. We have worked to bring that team together. And so that's not new for us, but it continues to be a significant part of our success. They're doing a really good job.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [42]

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Okay. No, that's great. And then just commenting on the acquisition today. It seems like, obviously, just made by a number of clinics and they're revenue generated, these are fairly nice-sized clinics. And I was wondering in terms of -- as you look at opportunities out there, is it just a question of balance in the 4 or 5 clinics versus maybe the 10-plus clinics and a similar revenue. If you have a preference for one versus the other?

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [43]

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Yes. We need to come -- the way they come and we get attached to really good people and one we announced this morning. Some outstanding folks. We're really excited about. And they come in different shapes and sizes. Some are bigger and more dense and some have more clinics than -- are more average in average clinic volume. This happens with a smaller footprint to be really, really nice-sized facilities that run an amazing schedule, including through the weekend. So they do a great job. Affinity, one for the other. They're all different. And so we have an affinity for great people of integrity that love the business. And then people that also understand how to run the business and have an appetite for growth. With those things combined, then they look and feel all a little bit different. And so it starts with us, with the people. And once the people fit it, there's a healthy business, and there's a healthy appetite to grow, we're interested. The size of the clinics still matter as much to me at least right now.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [44]

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Okay. No, that's great. And then just on the guidance. I'm assuming it's already factoring in the savings from the pharma side. I was wondering if it also was including some of the savings you expect to get once you tweak some of the health care plans.

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [45]

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Not really. I mean, a little bit but mainly, we're trying to make changes that cover the miss for last year, that's what at the budget.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [46]

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Okay. And then, finally, I'm not sure if you mentioned it already. Larry, I was wondering if you had the payer mix for the year.

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [47]

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The year...

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [48]

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No, for the quarter, the quarter is actually fine.

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Lawrance W. McAfee, U.S. Physical Therapy, Inc. - Executive VP, CFO & Director [49]

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Okay, for the quarter. So private managed care really commercial insurance was 47.4%. Workers comp was 14%. Medicare and Medicaid was 31.1%. And then other was 7.4%. Now that's just for PT. If you look at our total revenue and workers' comp and industrial injury prevention together, that's 21% of our revenue now.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [50]

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And we may start to report that on a recut basis, factoring in that Briotix, which we'll do probably as the quarters roll out here going forward. We think that's meaningful to the marketplace. So expect that as we go forward.

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Operator [51]

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Your next question is from the line of Brian Tanquilut with Jefferies.

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Jason Michael Plagman, Jefferies LLC, Research Division - VP [52]

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One quick follow-up. On the PT side, are you seeing any change in ease of hiring or compensation, given some of the reports out there about reduced therapist utilization in some other sectors, post-acute from -- nursing homes and home health seem to be cutting back on therapist utilization somewhat. So I was just wondering if you're seeing an increased supply of candidates when you have open positions.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [53]

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I personally don't have particularly clear optics on -- I don't get a report on how many applicants we get per advertised location. I can tell you that the group has done a really good job filling open positions. Our partners have done a good job in staying connected and creating reputations where people want to come work. I don't know that particularly, we often hire, typically, folks that are coming out of the long-term care business, not necessarily what we think about in terms of being a great fit for orthopedic or sports medicine business. But I don't know that I'm aware of it. We -- it may be easier here recently, but we seem to be able to fill positions generally where people live.

On the pricing side, I will tell you, unfortunately, 5 or 6 and over many years ago, our association made the decision to have everybody come out with a doctor degree. People come out with more of that. And so -- and that's a full employment market, and I don't think therapists are waiting tables right now. So the pricing is -- there's pressure there. The group in '19 did what I think is an exemplary job in getting some margin expansion, some relatively flat net rate, but easing out some margin improvement, but it's not because we're paying people less. That's not the case.

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Operator [54]

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There are no further questions.

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Christopher J. Reading, U.S. Physical Therapy, Inc. - President, CEO & Director [55]

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All right, everybody. Thanks for your time and attention today. Larry and I are available. If you have follow-up questions, feel free to give us a buzz. Have a great day. Bye now.

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Operator [56]

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This concludes today's year-end earnings call. Thank you for your participation. You may now disconnect.