Chris Reading – President and Chief Executive Officer Jon Bates – Vice President and Controller Larry McAfee – Executive Vice President and Chief Financial Officer.

Brian Tanquilut – Jefferies Mitra Ramgopal – Sidoti Dana Hambly – Stephens.

Good morning. Ladies and gentlemen, thank you for standing by and welcome to the U.S. Physical Therapy Q4 2015 Year-End Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

[Operator Instructions] I would now like to turn the conference over to Mr. Chris Reading, President and CEO. Please go ahead, sir. .

Thanks you. Good morning and welcome everyone to U.S. Physical Therapy’s fourth quarter and year-end 2015 earnings call. With me on the call this morning include Larry McAfee, our Executive Vice President and Chief Financial Officer; Glenn McDowell, our Chief Operating Officer; Rick Binstein, our General Counsel; Jon Bates, our Controller.

Before we begin with our prepared comments, I’d like Jon to cover a brief disclosure.

Jon, if you would?.

Thanks, Chris. This presentation contains forward-looking statements, which involve certain risks and uncertainties. And these forward-looking statements are based on the Company’s current views and assumptions and the Company’s actual results can vary materially from those anticipated.

Please see the Company’s filings with the Securities and Exchange Commission for more information..

Thanks, Jon. 2015 proved to be a little bit challenging, however our team remains focused and working together delivered a solid finish to the year. For the quarter, net income increased 20.4%. Diluted earnings per share improved approximately 17% on a strong quarter for patient volumes across our network of partnerships.

Net revenues improved by 9.2% and 9.7% increase in patient visits coupled with a slight decrease in our net rate. In fact I believe this is the best fourth quarter we have ever delivered for visits per clinic per day, which improved approximately 6% from what was a strong fourth quarter finish in 2014 quarter.

Clinic operating cost as well as our salary cost at the clinic level both decreased as a percent of revenue compared to the prior year quarter. As I mentioned visits per clinic per day remained strong throughout the quarter. All of which resulted in our gross margin percentage increasing about 90 basis points to 24.8% for the fourth quarter.

Corporate cost as a percent of revenue were down for the year at 9.4% although rose to little bit in fourth quarter as we did to catch up for key employee bonus accrual in the quarter. Same-store visits remained strong throughout the year at approximately 4.8% for the 2015 period.

On the development front, as you might recall we closed on a four clinic acquisition right at the end of December and late yesterday announced an eight clinic deal which we closed on Monday with another great group of talented partners, who have the capacity and desire to further grow and expand.

They are well known and highly regarded brand in a meaningful way. As I wrap up my prepared comments to hand this off to Larry. Let me first say that our entire team is excited about this coming year. We’re all very focused and working hard to grow our company.

We’re pleased about our 2015 year came together at the end giving us the momentum as we enter our 13th year together as a management team. Thank you.

Larry?.

Thanks, Chris. First, I’ll start with the fourth quarter some of this is going to be [indiscernible] Chris just mentioned, I apologize. As he said net revenue increased 9.2% to $86.7 million, that was – due to an increase in the patient visits of 9.7% offset by decrease in average net revenue per visit in a $0.78 to $105.01.

Total clinic operating costs were 75.2% of revenue in the fourth quarter as compared to 76.1% a year earlier. There was $1 increase in total cost, but that was entirely attributable to New Clinics as cost of Mature Clinics were reduced.

Total clinics salaries and related costs including those from new clinics were 53.6% of revenue in the recent period, down from 54.9% a year earlier. The provision for doubtful accounts was 1.2% in the most recent quarter versus 1.3% a year earlier.

The gross margin for the fourth quarter of 2015 increased by 13.5% to $21.5 million and the gross margin percentage increased to 24.8% from 23.9%. Corporate office costs as a quarters. Operating income in the recent period increased by 17.3% to $12.6 million.

Our provision for income taxes in the most recent quarter was 40.1% as compared to 39.4% a year earlier. Net income attributable to common shareholders increased by 20.4% to $6 million. Diluted earnings per share were $0.48 versus $0.41. At $0.48 our actual EPS was $0.01 better than the analyst consensus estimate of $0.47.

As I said in the press release, fourth quarters are normally seasonally slower, but earnings in the most recent quarter were amongst the higher of any quarter regardless of time of year in the Company’s history. Adjusted EBITDA in the fourth quarter of 2015 grew 19.5% and $13.7 million. And as Chris mentioned same-store visits increased at 4.8%.

I’ll now go through the annual – quickly go through the annual results. Net revenue for the year increased 8.6% from $331 million, due to an increase in patient visits of 9.3% partially offset by a decrease in the average net rate per visit of $0.80 down to $105.28. Total clinic operating costs was 76.3% of revenues in 2015, as compared to 75%.

As you all know, we entered – starting in the second quarter through early into the fourth quarter we entered into a cost reduction effort. Clearly that was successful as for the example in the fourth quarter. But for the year we are a little behind where we should have been.

Total clinic salaries and related costs were 54% of revenue in 2015 versus 53.6% a year earlier. Provision for doubtful accounts is 1.3% for both 2015 and 2014. The gross margin for 2015 increased to $78.4 million from $76.2 million. The gross margin percentage however was 23.7% versus 25% a year earlier.

Corporate office costs were 9.4% of revenues in 2015 versus 10% in 2014. Operating income increased to $47.3 million as compared to $45.8 million. Our provision for income taxes overall was 39.7% in 2015 and 40.6% in 2014. Net income attributable to common shareholders for the year increased 6.8% to $22.3 million.

Earnings per share were $1.80, up from $1.71. The actual EPS for the year of $1.80 was $0.02 better than the analyst most recent consensus estimate. Adjusted EBITDA in the year grew 8.7% to $50.3 million, same-store business increased 4.8%, same-store revenue increased 4.2%.

The company announced in the press release that we are increasing our quarterly dividend by 13.3%, up to $0.17 a quarter from $0.15. The first quarterly dividend of 2016 will be paid on April 1 to shareholders of record as of March 18.

As for earnings guidance, management currently expects the Company’s earnings from continuing operations for the year of 2016 to be in the range $23.2 million to $24.3 million in net income and $1.87 to $1.95 in earnings per share.

That guidance range although represents projected earnings from existing operations only, and excludes future acquisitions..

Okay. Thanks, Larry. With that, operator, we’d like to go ahead and open it up for questions..

[Operator Instructions] Your first question comes from Brian Tanquilut of Jefferies..

Hey, good morning, guys. Congratulations on the good quarter. Chris, first question for you. Yes, just on a higher level basis, we obviously saw your two largest competitors get together.

What’s your view on some lefts interest in getting back to the consolidation game? I mean do they hurt your ability to keep doing deals or are they going to be competitive this time around and also how should we think about your deal valuations.

If that is a trickledown effect on what – valuations your targets are looking for right now?.

Yes. So Brian, two questions in there. So I really don’t want to make too many comments about Select. I mean Select’s press release is out about a week ago. It’s can look on there and you can see what they’ve done over the last year with respect to the outpatient business.

We haven’t cross passed on any deals and a long time in recent memory really, I honestly don’t know what their plan is. But we plan to continue to execute on our plans we have. So with respect to pricing, this is – as it is, in some other areas, it’s a good time for sellers pricing in deals, some deals are competitive. We are still getting deals done.

We’re the only once at the table, but often there are others and it’s a reasonably competitive market. We’re still able to get things done know. I’d say compared to where things have been in the last year, we see that continuing with respect to our more recent deals, the deals that we’ve completed the last year or so.

I think pricing continuing at about that level for the near-term..

A couple of things about that deal, specifically, you will remember when Select bought held south that was a significant consolidation opportunity, because of the overlap in their clinics. In fact they reduced their total clinic accounts at one-time over 200 locations.

I suspect with [indiscernible] certain markets will they have significant overlap, plus they will be able to cut out the corporate overheads. So as opposed to the acquisitions we do where we are looking to grow smaller businesses, I suspect that they were – are expecting significant economies of scale efficiency saving..

Okay, got it. Thanks for those comments. Chris, as a follow-up on that, I mean that deal that you announced yesterday, it looked really good.

So but from a valuation perspective, it was little higher to us or is there something specific about that acquisition yesterday whether it’s a higher revenue per patient visit that we should be thinking about that commanded the valuation..

Yes. Well, first of all, it’s a good size. It was a healthy EBITDA. And the margins are really strong in this business. It’s in an area of the country where net rate is notably higher than our average net rate and margins are very, very good..

We didn’t go ahead of our normal parameters in terms of pricing..

Okay, got it. And then as we think about same-store Larry, as we think about 2016, you obviously had a really good 2015 are getting growth performance. I mean how should we think about the sustainability of your same-store volume trends and also pricing has been – the net rate has been coming down a little bit.

So is that something that we should keep modeling for the rest of the year..

Yes. In terms of net rate, with model and up net rate, I think I don’t know that it’s going to keep coming down. But I think somewhere around where it ended up for the year, in the quarter is about kind of where we expect going forward..

I mean it was a very modest decrease in Medicare reimbursement, but when we’re using the budget, Jon, we’ve budgeted to be basically flat or no….

Yes..

Yes, yes.

On same-store basis, we had a very good year in 2015. I hope we can do as well in 2016. The sales rep team that we have in place is doing a fantastic job. And we’ve got a significant buying from our clinic directors and partners at the local level marketing plans and goals. So we expect it to continue to be very well in 2016..

Hey Glenn, to that point I mean are we seeing any impact from this – Texas is your biggest state, one of your biggest states.

Are you seeing any impact from the energy concerns and unemployment?.

Not really at this point. We don’t have that big of an operation in the Houston market. And the rest of Texas, we’ve not really seen any impact at all. And we continue to believe that we’ll do quite well regardless of what happens here in Houston..

I mean our biggest market in Texas is the Dallas–Fort Worth market. It’s more than double the size, it is actually almost the triple the size of Houston. It just didn’t have the energy concentration or energy services that you do in Houston. Interestingly not though even in Houston, we’re doing fine so..

That’s good. All right, thank you guys. I appreciate the [indiscernible]..

[Operator Instructions] your next question comes from Mitra Ramgopal of Sidoti..

Yes, good morning. I just wonder if you can give me a sense as to sort of look at the market out there and you try to recruit therapists etc cetera. What is that looking like in ability to continue to fix salaries in terms of – pretty stable, heading into 2016..

From our standpoint as far as recruiting goes we have actually done a very good job over the last two years from a recruiting standpoint, there are still certain markets where it is difficult but otherwise recruiting and salaries have been relatively stable.

And we have been able to fill the positions that we need to – I don’t expect to see anything really change in market right now that would impact that..

Yes. You need to remember that most of our people throughout our facilities including – a specialty including our clinical staff, all have opportunities for addition compensation and bonus and other things.

Not only throughout the year but some of them as often as every payroll, so they really have the ability to control that with the effectiveness and their efficiency and other indicators. So we don’t feel – we are not feeling a whole lot of pressure, in terms of salary related pressure..

Okay, thanks. And as you look towards expanding your clinic network, obviously the acquisitions are a big piece of strategy and you have good pipeline but what about on the de novo side, I mean are you still seeing a lot of interest there..

No. So the de novo, we – I am trying to think how many years ago now maybe three years ago, we really quit focusing and doing – one-off single site new partner de novo locations.

In fact we shifted our resources away from that almost completely all of our de novo’s now are additional facilities that are largely coming out of our top 30 or 40 partnerships in the country. About half of which are home grown and other half of which are have been acquired over time.

And so that’s really, where the organic growth is coming from, it’s not from bringing new partners [indiscernible] you know we’re not..

But I think we ended up last year with 20 or 21 satellites..

Yes. 21 before tuck in for de novo..

Yes. Basically that is what we have budgeted for this year..

Okay, thanks then. Now finally, I don’t know if you have the [indiscernible] handy and should we anticipate any changes going forward in terms of the current mix..

I’ll give you what it was for the quarter – most recent quarter, combination of private and managed care was basically insurance company, HMO business was 52.8%, workers comp was 17.1%, Medicare and Medicaid were 23.4%, and other was 6.6%.

I mean the workers comp was down as a percentage of revenue but the number of workers comp digits were up so the rate was down a little bit from the year before..

Okay. Thanks. .

Thanks Mitra..

Your next question comes from Dana Hambly of Stephens..

Yes. Good morning, thank you. Larry, the last point you just made on the workers comp, you said the rate was actually down year-over-year..

Yes. I’ll figure out here in just a second, I’ll tell you..

Yes..

The number of visits went from year-over-year went from 97,943 - 97.9 in Q4 2014, up to 103.3 in Q4 2015. So that’s I’m just doing this in my head, what is that a 4%, 5% increase. But we’re seeing rates for workers comp come down in certain states.

So that’s part of the reason as a percentage of total revenue also some of the acquisitions we’ve done really didn’t have to get any worker’s comp.

Okay..

…your business rate..

But so you think that was a biggest driver of the year-over-year rate decline. It will be the mix shift without – with commercial rates still holding pretty steady..

Yes, I mean, our net rate moves less than 1%..

Right..

I mean that moves like what would I say [Multiple Speakers].

Yes, I don’t think we’re seeing anything that’s moving right around the whole lot, it’s – it’s very….

Other than just the mix shift….

You have growth overall in every category, but you have more growth in commercial or insurance. And less growth percentage wise in workers’ comp and you had a slight decrease in workers’ comp net revenue..

Okay. All right, okay. That makes sense. Chris, I think last quarter you talked about a big national pilot. I think it was on the workers’ comp that may be you have more details on this quarter, is there any updates there..

Yes. I am trying to remember last quarter about a big national pilot that I talked about..

Yes. And we say.

Yes. So yes, with one of the nation’s biggest order and delivery hubs, a brand name that….

That name sounds like….

A brand name that we’re [indiscernible] frequently more to from. And we – yes, we did a national pilot for them and we just recently got another opportunity from them that’s not quite fully sorted out, yes. But we’re in the middle of that right now..

Okay. That’s fit to work specifically then..

Yes. It’s fit to work and then it drives volume into our local businesses on the cash side as well..

Okay. And then lastly on the guidance, that would have been little bit higher was – it’s like 4% to 8% year-over-year growth. You just did a couple of decent acquisitions. Do you just how kind of bridge that 4% to 8%. I think in years past, you guys are little bit more aggressively.

Is there anything that makes you little more conservative this year?.

No. I think we’re being hopefully conservative. As you recall, last year, when we gave guidance, we have – primarily because we got so bad with weather in the year hopefully, that won’t happen again then we come out with reduced guidance..

Okay. .

And also we had the cost issue is it turned out our actual earnings were within the range of both the original guidance and the revised guidance. So we ended up being where we expected. The other thing is to Dana, I can’t remember if you do, but mostly earnings now include acquisitions.

So when you compare to the Streets estimate of about $1.99 most of those include acquisitions we get to make..

Okay..

Typically, what we do when we make an acquisition of size is we revise guidance at the time we announce the deal. So I hope we do better, but we didn’t want to have to come back and change guidance in a quarter or two..

That makes sense. I appreciate it. Thanks..

Thanks, Dana..

[Operator Instructions] At this time, we have no further question..

Okay. Listen, thanks everybody. We appreciate your time and attention this morning. And if you have any follow-up calls us Larry and I are in the office for the rest of the day. Thank you. Have a great day..

Thank you. This concludes your conference. You may now disconnect..