Superior Plus Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 8 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the U. S. Physical Therapy Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode.

Operator

After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I'd like To turn the call over to Chris Redding, President and CEO. Please go ahead, sir.

Speaker 1

Thank you, sir. Good morning, and welcome, everyone, to U. S. Physical Therapy's Q2 2023 earnings call. With me on the line include Carrie Hendrickson, Our Chief Financial Officer, Eric Williams and Graham Reeve, our Co COOs Rick Binstein, our Executive Vice President and General Counsel Jake Martinez, our Senior Vice President of Finance and Accounting.

Speaker 1

Before I provide a little color on the quarter, We need to cover a brief disclosure statement. So Jake, if you would take that please.

Speaker 2

Chris, This presentation contains forward looking statements, which involve certain risks and uncertainties. These forward looking statements are based on the company's

Speaker 1

So this morning, I'm going to keep my commentary kind of at a high level and then we'll turn it over to Cary to go through the financials in more detail. I want to start by thanking our partners, our operations, leadership team, sales and marketing directors and our digital marketing Support and development teams, all of whom are working hard every day to drive patients to our door, we can affect life changing care, allowing them to quickly return to work, to sports and to all those activities that support families, uplift hearts as well as communities. This would not be possible if not for the care, connection and dedication of our frontline caregivers and many therapists across more than 150 individual partnerships. These 1st 6 months, 1st 2 quarters of 2023 As a result of the excellent care and outcomes you continue to provide our patient demand that's been greater than ever in the history of our company. Quarter 1 delivered record visits per point per day, the highest ever for is normally our Seasonally slowest quarter at 29.8.

Speaker 1

March gave us our best single month at that point at 30.7 I'm pleased and proud to say that despite challenges in the labor market this past year, we were able to continue that quarter 1 momentum. In fact, we turned it up even more in the Q2 with new record volume in April May at 30.9 for both months And overall Q2 volume at 30.4 visits per clinic per day on average. We produced some very good additions Both acquired in de novo since quarter 2 a year ago. We've added 48 clinics in total and this year 22 We're going to be in the end of July,

Speaker 3

which as

Speaker 1

you know early on mostly drain our overall average until we get fully up Steve with staff and overall community involvement and referral penetration. These new facilities of course become much more highly productive in the years to come And they will continue to grow for many years serving patients and families. This quarter our mature facility same store volume grew 2.6% Against the strong comparative quarter in 2022, our same store for the year is up 4.2% overall. Demand is not an issue for us. Also on the very positive side of the equation was general cost improvement, especially in light of the very significant labor scarcity General inflation has plagued every corner of our country these past 12 plus months.

Speaker 1

In spite of that, we've seen salary and related cost per visit As well as total cost per visit declined now 3 quarters in a row after peaking in Q3 of 2022 as inflation began to quickly accelerate last year. Our team has made real progress through very focused multifaceted efforts To address costs, streamline operations where possible and innovate with new solutions, some of which we're still rolling out across our main partnerships, Which is to say that we're not done yet and we have more progress to make. In the area of commercial payer contracts, we continue to make progress With rate increases and at the same time absorbing a 2% Medicare rate reduction this year and the 1% The Questa Relief phase out which impacted us in this quarter. This rate area is where we continue to work on Multifaceted approach and where we have more opportunity to further improve. What we've seen over this past year with The normal labor dynamics and extremely high volume demand is that on a small percentage basis, The number of licensed PT assistants that we have hired to fill a very strong demand has increased over where we've historically been.

Speaker 1

That in combination with the high demand has resulted in a greater percentage of Medicare visits being touched by a PT assistant The further 15% PTA reduction, reimbursement reduction creates a negative impact on our net rate. So we're in the middle of a large scale push to elevate this issue across our platform to retrain any and all of our front desk staff to better optimize scheduling To make sure that our clinical leadership is doing everything possible to ensure that we have optimal scheduling and clinically directed resources To not only provide exceptional patient care, but to be sure that we get fully paid for providing that care. We believe this heightened awareness, which may have been Coupled with the high demand for our services has resulted in some addressable inefficiencies which flow through to a net rate. Given the already very low cost nature of the incredible care that we provide, this becomes an all hands on deck effort To ensure that we are paid at a level that aligns with the results we are achieving, we're not there yet, but we are very focused on working hard to make the necessary adjustments. Other positives for the quarter.

Speaker 1

As you're aware, our company completed secondary offering at the end of May, which has proven to be very successful, allowing us to pay off our highest interest rate debt and further invest remaining significant proceeds directly to further grow our Partner centric company. We're currently busy doing just that and you will continue to see us add new partners and expand to new states, While we also explore offerings in other adjacent service areas, we believe we can further strengthen our business Physical Therapy as well as our Injury Prevention Business Services. On the IP front, This year seems to be unfolding much the way we expected. We've seen major increases in spend across some of our longest tenured relationships. And as we discussed last quarter, we've seen some companies fearful of a pending recession, pull back from prior levels of And engagement in a defensive move for them.

Speaker 1

Counteracting that our teams have done a great job replacing the vast majority of that Back with exciting new business that I'm happy to say we're able to stack now with greater efficiency, Much less time than where we were 9 months ago. Both of our IP partnerships are working hard together to cross sell, Expand programs, we're looking for new opportunities. We continue to explore acquisition based Opportunities as well is expect that our reinvigorated balance sheet will provide us Finally, I want to end my comments much the way I started By thanking those colleagues and many dear friends who've been with me now as I close in on my 20th anniversary here with the company. It's an amazing, fun and exhilarating ride with more good things to come. I feel extremely blessed We'll be working alongside so many talented and committed team members across our home office support group As well as our many partnerships around the country.

Speaker 1

We've made a huge difference in the lives of millions of patients and I'm I'm proud to say that my life and I think the lives of many of our partners and staff have been made better as a result of the work that we do as well. And we're not done. As you've heard, we always have challenges to tackle and things to address. That has been the way It's been the way it's been for the entirety of my 38 career, including the early chapter as a treating therapist and clinician. And we continue to have the energy and the drive to fight for better reimbursement for the life improving work that we deliver so consistently every day, The rules and regulations that make sense and increased access to the very efficient and effective treatment that we provide This is the much more costly and often riskier interventions that should not be positioned as 1st choice options.

Speaker 1

I believe physical therapy should be first option, primary care equivalent for prevention and treatment of musculoskeletal enduring disease. We will continue to fight for that rightful place in the healthcare continuum. And for those of you who are listening from other companies, Please get dialed into the constant work we are doing within APTQI. We need you to fight alongside us With us as we work towards these important goals. That concludes my prepared comments.

Speaker 1

So Harry, if you We'll cover the financials in more detail. That's great.

Speaker 2

Great. Thank you, Chris, and good morning, everyone. We had an excellent second quarter in many respects. We had all time high patient volumes. We had strong growth in revenue, a continuing downward trend in our salaries and total operating costs on a per visit basis.

Speaker 2

We had growth in our Physical Therapy operating income and our Physical Therapy operating margin percentage and year over year growth in our total company adjusted EBITDA. And in addition, as Chris noted, we completed a successful equity offering that further strengthened our capital structure, providing significant capital for future growth initiatives. The equity offering provided us with approximately $164,000,000 in net proceeds through the issuance of 1,900,000 shares. We used $35,000,000 of those proceeds to pay down the debt on our revolving credit facility, which at the time was at a variable rate of about 7.2%, leaving approximately 129,000,000 We also lowered our leverage ratio, resulting in a 25 basis point decrease in the rate on our outstanding $150,000,000 Based on our leverage grid, we've invested that cash at this point at a high yield savings account prior to deployment in the acquisitions. The savings and interest expense and the interest income on the net proceeds makes the offering immediately accretive even with the issuance of the 1,900,000 shares.

Speaker 2

And of course, the return on those net proceeds will increase substantially when we deploy them in acquisitions. We reported adjusted EBITDA $4,000,000 over the $21,300,000 we reported in the Q2 of 2022. Our operating results, which include the impact of higher interest With $0.76 per share in the Q2 of 2023. Our total company revenues increased 7.7% in the 2nd quarter, growing from $140,700,000 in the Q2 of last year to $151,500,000 in the Q2 of 'twenty 3. And our total company gross profit increased $1,400,000 from $30,800,000 in the Q2 of last year to $32,200,000 in the As Chris noted in his remarks, our average visits per clinic per day in the Q2 was 30.4, which is the highest volume for any quarter in the company's history.

Speaker 2

April May were both at 30.9, highest volumes for any month in our history, And our average visits per clinic per day in June was 29.6, which is a normal seasonal decline related to vacations taken in the summer months and higher than the 28 9 that we had in June of last year. Our net rate was $102.03 in the Q2 23, which was a decrease of 1.1% compared to our net rate of $103.18 in the Q2 of last year. The net rate for our commercial and workers' compensation visits both increased approximately 1%, while the net rate associated with Medicare visits was down 3.5%. As we noted in the release and as Chris mentioned, the Medicare rate decrease was primarily due to the 2% rate reduction from CMS that was As we've talked about in our last couple of earnings calls, we've either renegotiated or terminated the subset of our Medicare Advantage contracts It reimburses at a rate that's less than what it costs us to serve our patients. Determinations were effective in June July, And most of the associated renegotiated rates are also now in effect, so we expect the impact of this work to begin showing up in the second half of 2023.

Speaker 2

We also continue to focus on renegotiations of commercial contracts. And as Chris noted, we're making other Adjustments to adjust our net rates. Physical Therapy revenues were $130,100,000 in the Q2 of 2023, which is an increase of $11,000,000 or 9.2 percent from the Q2 of 2022. The revenue increase at our same store clinics was 103 excuse me, 1.3 percent with patient visits up 2.6% versus the prior year. Our physical therapy operating costs were $102,100,000 an increase of 10% over the Q2 of the prior year.

Speaker 2

On a per visit basis, our total operating costs were $80.61 in the 2nd quarter, which was a decrease of 0 point percent compared to $81.09 per visit in the Q2 of the prior year. And we were pleased to see our physical operating cost per visit decreased for the 3rd consecutive quarter after peaking in the Q3 of last year. Our total operating costs were $85.14 Per visit in the Q3 of 2022, it decreased to $84.05 in the 4th quarter. It declined further to 81.97 dollars in the Q1 of 'twenty three and then declined again to $80.61 in the Q2 of 2023. Our salaries and related cost per visit decreased 1.2% in the Q2 of this year versus the prior year, and they've also declined for 3 consecutive quarters From $60.99 in the Q3 of 'twenty two, down to $60.04 in the 4th quarter, down to $59.14 per visit in 1st quarter of 'twenty three and then down to $57.59 per visit in the Q2 of 2023.

Speaker 2

Our physical therapy margin also improved for the 3rd consecutive quarter, increasing from 18.7% in the Q3 of 2022 to 20% in the 4th quarter, 21% in the Q1 of this year and then 20 1.5% in the Q2 of 2023. Really pleased with the progression that we've seen in all of those metrics. Our IIP revenues were $19,200,000 in the 2nd quarter, which is down slightly from the Q2 of 'twenty 2. And our IIP expenses were even with the prior year at $15,300,000 with IIP operating income of $4,000,000 And our margin and IAP business was 20.7% in the Q2 of 2023. Our interest expense was $2,600,000 in the And our debt related acquisitions we closed during or since the Q2 of last year and also the higher interest rates in the Q2 of this year versus last year.

Speaker 2

Our balance sheet remains in an excellent position. We have a $150,000,000 term loan with a 5 year swap agreement in place Including the applicable margin based on our leverage ratio, the all in rate on our $150,000,000 of debt was 4.9% in the 2nd quarter, It's a very favorable rate in today's market and it's below the current Fed funds rate. And as I noted earlier, the net rate on that term loan moved down 25 basis points to 4.65 percent after the secondary offering. In the Q2 of 2023 alone, the swap agreement saved us $800,000 in interest Expense with cumulative savings to date related to the swap of $1,500,000 over the 1st 12 months. In addition to the term loan, we also have $175,000,000 revolving credit facility that had $35,000,000 drawn on it prior to the completion of the equity offering.

Speaker 2

Of course, we paid that down with some of the net proceeds. And so there's now there's nothing drawn on the revolver. Borrowings on the revolver of April 1 through May 30 were at a variable rate just north of 7%. In closing, we've had a very solid first half of the year and we'll continue to work hard to produce the best results possible for all of our stakeholders this year. The strength of our results in the Q2 give us continued confidence in the adjusted EBITDA guidance range we provided at the beginning of year $75,000,000 to $80,000,000 With that, I'll turn the call back to Chris.

Speaker 1

Thanks, Carey. Appreciate that. Operator, let's go ahead and line up for questions.

Operator

And we'll go first to Brian Tanquilut with Jefferies. Please go ahead. Your line is open.

Speaker 1

Hey, Brian. Hey, good morning, guys.

Speaker 2

Good morning. Good morning. I guess,

Speaker 4

I'll ask the question. It sounds like based on the metrics that Carey shared with us this morning, whether it's Productivity of the clinic, cost per visit and all these KPIs, it looks like you're executing very well. But As I think about some of those key points, right, I mean the productivity of the clinic and the cost to do Delivered

Speaker 2

Care, how much

Speaker 4

runway do you think there's left to drive some of those metrics?

Speaker 1

It's a good question. So I mean individual clinician productivity, there's not a lot of elasticity there. Individual clinic throughput, I wouldn't call that productivity, but just being the number of patients that we can get Through an individual clinic, we've got as much room as we had probably 4, 5, 6 years ago. I We constantly adjust our hours. We can expand our hours.

Speaker 1

Most of our clinics are not open on Saturdays. A lot of our clinics, I hate to say this, but a lot of our clinics in certain markets close early on Fridays. We've got Capacity on a per clinic basis to continue to have that number increase. So that's not going to be a limiting factor. And we certainly have room to move this net rate the net rate this quarter a little bit of a disappointment We really got extremely granular with where that issue is.

Speaker 1

I think the fact that we had The turnover that we had and the scarcity we had in 2022, particularly at the front desk, This caused us not to be as dialed in as we need to be from a scheduling perspective. I'm actually encouraged by the fact that it's I think addressable. The team, the clinical services team in conjunction with our operations group is on top of that. And they're rolling out some very, very detailed training, not just on that, but on a couple of other areas that I think will help us as Going forward, so on one hand, I wish it was for the quarter a little better, But we have made progress as you pointed out in all of the areas that we've been focused on. I think we'll make progress there, but we know what to do.

Speaker 4

Got it. And then maybe since you mentioned rate, obviously, 1% net rate growth on the commercial side being offset by some of the Medicare stuff. But As we think about maybe the number of contracts that you have, without going to percentages, right? I mean, how much Opportunities left to number 1, drive positive rate trend within the portfolio of contracts and maybe the second would be To push your rate increase above, say, a 1% number?

Speaker 1

We have so many contracts. Okay. We didn't have as many as we do just because of how our company is configured across more than 150 partnerships. But We've got a lot of contract negotiation left in us and to do. Harry, I don't know if you want to comment further.

Speaker 2

No, I agree. We have lots of contracts that it's a constant focus for us, Brian. We're out and we're having good success. I mean, there We're having success in these rate negotiations. I'd say the big payers are the ones that just takes longer to get make progress with them.

Speaker 2

And so we're continuing to work at it every day.

Speaker 1

But Brian, some of these contracts were getting increases now, but we have been sequential Annual increases that are yet to come, even on the ones we've completed already.

Speaker 2

Yes. We're working to build in 3 year step increases for the most part. So we got so we'll have less to touch each year. We know we're going to be getting those contractual rate increases as the year goes along. So That's the move

Speaker 4

that Yes, go ahead. No, that's it. Okay.

Speaker 2

Yes, last question for me, Chris.

Speaker 3

I mean,

Speaker 4

obviously, You guys did a raise. You're sitting in a bunch of capital right now, a lot of balance sheet flexibility. I mean, what does the market look like? I know your space is obviously dominated by a bunch of PE backed players. And I know your appetite has been more on the smaller side Rather than the big platforms, but what does the market today look like in terms of either competition for deals or opportunities popping up that probably are more scaled Given your capital availability.

Speaker 1

Yes. I think the opportunity is still strong. I think what we're seeing right now is a lot of the PBVAC companies have been decidedly more quiet This year, particularly because a number have either done significant deals themselves Or gotten to the point where the interest rate increases where leverage is high. And I think to a certain extent, The reality that many of these individual operators have kind of missed the peak As said in this year, I mean, we're not in 2019 anymore at the height of this Or even early 2021 when things were still really, really hot. And I think there's a little timing remorse In the market, having said that, we're busy.

Speaker 1

Now for us, sometimes We're ready to go and then the partner has something and things push a little bit and that's Happened on a couple of occasions this year. We'll still get those things done. It's just taking a little bit longer. But we're looking at bigger deals too And opportunities not just in PT, but in injury prevention. So it's going to be lumpy.

Speaker 1

It's always been lumpy, but We're going to get good things done.

Speaker 4

Awesome. Thank you, guys.

Speaker 2

Thank you, Brian.

Operator

Thank you. We'll take our next question from Joanna Gajuk with Bank of America. Please go ahead.

Speaker 2

Good morning, Joanna. Good morning.

Speaker 5

Hey, good morning. Thanks so much for taking the question here. So in terms of these commercial rate increases, if I can just follow-up there. So the 1% You are just experiencing right now, are you kind of suggesting that as you negotiate incremental the Additional contracts that rate increase could actually accelerate into next year?

Speaker 2

Joanna, it's just going to depend on the timing of it, kind of like M and A. It's lumpy as which ones you get and the timing of those. I certainly expect those commercial rates to continue to increase over time. We're working hard at that. As far as The rate of increase, it's hard to say, but There should be a build though.

Speaker 2

Yes, there should be

Speaker 1

a build. These contracts Last and they go on for years and every additional one builds on what we've done previous. Yes.

Speaker 2

And as we just mentioned too, we also have step increases built in for on the ones that we've renegotiated. So those should continue to help us as we go forward. So I mean, I feel there's always a lot of work to be done at commercial rates because there are so many contracts. So we've got we've still got a bit of work to do, But we've made good progress and I think we're going to continue to make good progress. I know we are.

Speaker 2

And we should see those rates continue Gary, when

Speaker 1

you say the increases that we're seeing, they're not 1% increase. Is there in some cases double digit percent increases Yes. 3% to 5% or 6% increases. We're just not touching the whole portfolio yet.

Speaker 2

That's right. We're getting 3% to 5%, 6% increases in year 1 and over a 3 year period, a lot of times it's like a 10% to 12% increase over that your period that we've got built in. And also say we're also making progress on some of the other Medicare Advantage contracts Because those are a focus for us as well and those we can impact. And we've terminated a number of those contracts I mentioned in my remarks, But there are other ones that we can still renegotiate and we're working on those as well. Because Medicare Advantage is becoming a bigger portion of our Medicare visits overall.

Speaker 2

And so we've got through and that We can address somewhat. We can't address what CMS hands down, but we can address at least to a certain extent those Medicare Advantage contracts and how they relate to those CMS

Speaker 5

rates. Okay. So you say on commercial, it's just kind of Accumulates over time because you obviously have a 3 year contract, so you renegotiated like a third of your book and then you're negotiating another third. So it's kind of like over a 3 year period, you're going to have the slowing through to the book. So eventually, it's going to be more What's going on in all of the contracts versus now only a third of these contracts?

Speaker 5

So that makes sense. And on this last comment on the MA part of the business, So is there a way to think I know it's a small portion, but to your point, it becomes bigger of the Medicare population. So How I guess, how to think about the portion of that business that already kind of Was reset and a portion that how big is the portion that kind of you're still trying to either renegotiate or drop these contracts?

Speaker 2

So within Medicare, the commercial advantage?

Speaker 5

Yes. Yes. In fact, in May, yes.

Speaker 2

Yes. So right now, I'd say the Medicare Advantage, I mean it's grown as a percentage. It's around 40% 40% to 45% of our total Medicare bucket. So if you look at all the Medicare visits, it's about 40% to 45% of it. And that's up from where it was in the Upper 30s last year at this time.

Speaker 2

So that piece, there's been a push to get people to Medicare Advantage. I'd say we're still early innings on that too. We've done some really good work as it relates to identifying some of these contracts that we just know are not They're not suitable. And so we've terminated those. So we've identified the primary ones that are in that situation.

Speaker 2

We've got still others that address. Again, we've made progress

Speaker 4

on those as well and

Speaker 2

those are the same kinds of increases we're seeing. A lot of times those are double digit right off the bat because we're going from it could be Where they paid 80% to 85% of Medicare and bumping us up to 100% or it may be from 80% to 90%. But those are

Operator

really nice sizable increases on some of

Speaker 2

those contracts we're making.

Speaker 5

And that's good to hear. And the last piece, I guess, on the pricing, workers' comp, So what do you spend now in terms of your mix? And I guess, because that's the highest rates of all the different payers, Right. So what's the mix there and kind of I know you kind of the bucket, so to speak, the clients were in Pandemic and I guess was there was some work being done to kind of bring it back maybe to 14% pre COVID. So kind of any update on that front?

Speaker 5

Thank you.

Speaker 2

Yes. So far, our mix go ahead. I'm sorry. Eric, were you going

Speaker 3

to say something?

Speaker 6

Yes. I was going to weigh in. This is Eric Williams in terms of where we're headed on the word comp side. So yes, we started putting in a lot of efforts Q2 of last here to rebuild some of the relationships with the networks we brought back in, the individual who actually built the work comp program for us years ago. And in Q2 of this year, this is the 3rd straight quarter where we saw an uptick in volume, Still a lot of opportunity.

Speaker 6

The volume we actually saw in Q2 was the highest volume we've seen over the course of the last 6 quarters. So We signed some new network agreements here beginning of the year. We've got a number of additional contracts in play right now and we feel optimistic in terms of our ability to continue to Drive this as a higher percentage of our mix. It was just under 10% here in Q2 of this year.

Speaker 2

Right. And I'll just say for workers' comp to increase as a percent of the mix is really notable because as you know, our volumes has been increasing pretty Significantly, so they're increasing at a pace that is greater than our overall increase. So that's good. And they were closer to 9% in the Q1 as part of the mix and comps about 10% in the 2nd quarter. To address just kind of the mix overall, Joanna, commercial is about 47% in the 2nd quarter, Medicare is 34%, workers' comp is 10%, Medicaid was about 3.5%, and then there's just everything else, which is maybe 6% or so.

Speaker 5

Great. That's super helpful. If I may just squeeze last one on pricing and I guess the outlook into next year. So the Medicare proposal calls for, call it, all in 3.25 rate cut or so, which that was I know that would be worse than our 2023 rate cut. So, what's your take on that proposal and How much work, I guess, is being done?

Speaker 5

And what's your visibility to Congress stepping in again and trying to lessen that cut here?

Speaker 1

Obviously, that proposed rule came out to the end of July as it does every year. So we're early in that process. Again, I mentioned APTQI in my prepared comments. We are delivery partners, our lobby group, the leadership in AT and TQI, all of our individual member companies We are very active in Washington. We're all putting a full court press.

Speaker 1

We just unfortunately, It's difficult when we get finalized in December on a short runway to make Change is necessary to immediately come out of the gate and overcome these and this has been a few years in a row. We think it's very misplaced, these reductions. They're picking Probably the greatest value in the healthcare for returning people to function from significant, Significant injuries and surgeries, which don't work without physical therapy. But it's early. It's summer.

Speaker 1

And so we've got as we have in the past a lot more work to do. I'm hopeful We'll make progress. I'm not going to give you much more than that on a crystal ball because I don't know yet. But we're going to the effort It's massive directionally in that regard.

Speaker 5

Thank you. I appreciate the color.

Speaker 2

Thank you, Joanna.

Operator

Thank you. We'll take our next question from Larry Solo with CJS Securities. Please go ahead.

Speaker 3

Great. Hey, good morning guys.

Speaker 1

I have

Speaker 3

some questions answered already, but just I guess just on the topic to death here on the pricing, but it does feel like I guess just in terms of your guidance just on the shorter term, You didn't it feels like you have a little bit of a tailwind at least going to the back half just from fixing up some of the scheduling Misalignments and walking away from some of these Medicare agreements that you just spoke to, right? So again, not asking To give you an odd in the back half of pricing, but perhaps this is at least a low watermark for the year. We could slowly work our way up in the back half. That's fair to say.

Speaker 2

We do believe there's potential to move that rate up, yes, based on the things that we've talked about today, the things we think is addressable And related to the work we've already done, yes.

Speaker 3

Right. And honestly, the negotiation is much more of a multiyear thing and you touched on sort of I was going to ask just like Not getting 1% price increase a year. You're getting probably more than that or a lot more than that or mid single digits or whatever, but You have so many contracts, right? So I gather right that you're only moving 5% at a time Whatever, right? So it gets divided by 20 or maybe not that much, but of a multiplier effect.

Speaker 3

But so Fair to say that you still probably haven't worked through a lot or majority of your contracts haven't changed? No, ma'am. It takes a while.

Speaker 2

Yes, that's right. That's not even close. We've got a lot more to

Speaker 1

do. Right.

Speaker 3

Right. Okay. Okay, great. And just in terms of volume, obviously, a really good strong first half. Back half of the year, Is there anything sort of incorporated you kind of I think the average volume in the first half was like 4.5% up if you look at both quarters.

Speaker 3

Do you expect those Trends could continue in the back half or more, I think, more total growth from 2% to 3%, which is what we actually saw this quarter. But Any thoughts on that?

Speaker 1

I mean, if you look back to last year, so the front part of last year, We didn't have the scarcity that we really became acute kind of in, I would say, probably in June Last year and forward, we didn't have the inflation and all the other things. And so The front half of this year actually, the part that we're in are just completed, had tougher comps. The second half A year ago of 2022, we actually couldn't address all the volume We might have just because staffing was so tight. And so I can tell you, staffing is not Easy right now, but it feels a lot better than it did a year ago. We've made adjustments.

Speaker 1

Our team has done a really good job. And so I'm hoping we can expand some of those same store Numbers, just because in part volume has continued to be strong, but our comp is a little bit weaker in the second half of the year.

Speaker 2

Yes, the weakest comp of the year though, I would say that the Q1 was such a big jump because it was We've never experienced volume like that in January February particularly. And so that was a really nice jump in the first part. I wouldn't expect it to But as Chris mentioned, the comps are a little bit are not quite as strong as you go into the back half of the year.

Speaker 3

Got you. And you're probably obviously, like you said, more well better positioned at the beginning of this back half than you were last year too, so in terms of your staffing. Okay. Just last question, Carrie, while you're here. Just you mentioned you've done a really good job staying costs On a per visit basis are down, overall costs are really hung in there.

Speaker 3

Overall margin in the last few years has Should have been pretty steady despite rapid inflation and price pressure, which is Really commendable to you guys. Can you just explain to me how come on a if I just look on a year over year basis, your margins, Salary as a percentage of revenue and it's still up. Is that just more of a function of The acquired clinics, pricing or what's kind of driving that?

Speaker 2

Yes. It's It's a combo because when you're looking at those percentages, you're looking at there's a double impact, right? There's the impact of volume and there's And so when you I think that the rate and how that influences revenue when you're looking at those costs as a percent of revenue is really is what impacts that.

Speaker 1

Yes. I totally agree. It's driven off it's a driver. It's reflective of The pressure that I think we've dealt with pretty well with the pressure on that, right?

Speaker 2

Yes. And that's why the best metric we believe to look at for those Cost is looking at on a per visit basis.

Speaker 3

Natural. I totally understand why you do that. Yes, for sure. Okay. Great.

Speaker 3

And I appreciate that color. Thanks, guys. Thanks again.

Operator

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

Speaker 7

Hi. This is Madelyn Mollin on for Matt. Hi, guys. It's Madeleine on for Matt. Just one on the IT segment.

Speaker 7

I know it was down slightly this quarter and you mentioned that Some contracts you talked to some customers about delaying contracts or pushing them back or putting pause on them. With the macro environment starting to improve, Have you seen these customers reengaging, wanting to restart contracts, beginning discussions for that at all?

Speaker 1

No, I'm going to tell you and I don't know that Day to day close to know if we have certain contracts where people were concerned And now that they're not, I honestly I think Things are kind of still with those few customers, not a lot and it's heavily weighted on the tech side The business, what were their businesses heavily tech influenced. I still think they're kind of Same outlook that they were before. Having said that, we've added a lot of good customers this year And across both partnerships, we further diversified our client base. But to my knowledge and Eric, you might speak to it. I don't know if we've seen any big reversals That are meaningful, yes.

Speaker 6

No, I would agree with that. I think you summed it up perfect, Chris. I mean, The IAC businesses have done a nice job of trying to diversify their portfolios. But the tech sector and the automotive sector got hurt really hard and that was business We saw fall away tail end of last year. We've seen other customers on the retail side and distribution side actually increase.

Speaker 6

So on a macro basis, I think things have stabilized, and I think there's opportunity for growth here going forward, but not near as robust as it was in 2022.

Speaker 7

Great. Thank you. And then again on IAP, can you talk a little bit about what you expect Past 2023, I know this is a more muted year, the long term growth for that segment to be, I think last year same store growth was in The 20% range for the 1st 3 quarters of 2022. So just what can we expect that segment to grow over time?

Speaker 1

Look, I don't we haven't had IP all that long and the growth has been extraordinary. So for me right now with as many moving parts as they're in between politics and the economy And interest rate environment and the Fed, all the many things that influence CEOs and CFOs to make decisions They aren't uniform across the country because different sectors, as Eric mentioned, We'll cover at different rates or get hot or cold at different times. So I expect us to be Ahead of our PT growth and to be very positive as we go forward, all other macro things being relatively Stable and equal, we've demonstrated that we can grow this business through acquisition. Our clients, generally speaking, are very, very sticky. They Most clients expand, particularly those clients that have numerous operations Physicians around the country, but I'm not going to be able to take a growth rate at this point because I just don't have optics that are clear enough to do that.

Speaker 7

Got it. Thank you.

Operator

Thank you. At this time, we have no further questions in queue. I will turn the call back to Chris Redding for any additional or closing remarks.

Speaker 1

Yes. Thanks, everyone. We know we covered a lot. We appreciate your time Attention this morning, Carrie and I are available today and rest of the week and next week. We've got board meetings for the next After that, we'll come back up for air.

Speaker 1

So if you have any questions or any follow-up necessary, please give us a call and have a great day.

Speaker 2

Thank you all.

Operator

This concludes the U. S. Physical Therapy Second Quarter 2023 Earnings Conference Call.

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Earnings Conference Call
Superior Plus Q2 2023
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