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spk06: We do appreciate your patience in holding. We ask that you please continue to stand by. Conference will begin momentarily. Thank you. Mm-hmm. Thank you. Please stand by, your program is about to begin. 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. After the speaker's presentation, there will be a question and answer session. In order to ask a question during the session, please press star one on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I'd like to turn the call over to Chris Redding, President and CEO. Please go ahead, sir.
spk08: Thank you, sir. Good morning and welcome everyone to U.S. Physical Therapy second quarter 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. 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.
spk02: 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. The company's actual results may vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information.
spk08: Thanks, Jake. So this morning, I'm going to keep my commentary kind of at a high level, and then we'll turn it over to Kerry 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 a door where 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. Many therapists across our more than 150 individual partnerships. These first six months, first two quarters of 2023, as a result of the excellent care and outcomes you continue to provide our patient, you continue to provide our patient demand has been greater than ever before in the history of our company. Quarter one delivered record visits per point per day. The highest ever for it is normally our seasonally slowest quarter at 29.8. March gave us our best single month at that point at 30.7 visits per point per day. I'm pleased and proud to say that despite challenges in the labor market this past year, we were able to continue that quarter one momentum In fact, we've turned it up even more in the second quarter, with new record volume in April and May at 30.9 for both months, and overall Q2 volume at 30.4 visits per clinic per day on average. We've produced some very good additions, both acquired and de novo, since quarter two a year ago. We've added 48 clinics in total, and this year 22 de novo clinics through the end of July. which, as you know, early on mostly drain our overall average until we get fully up to speed 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 facilities, same-store volume grew 2.6% against the strong comparative quarter in 2022. Our same-store for the year is up 4.2% overall. Land 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 and general inflation that has plagued every corner of our country these past 12-plus months. In spite of that, we've seen salary and related costs per visit as well as total costs per visit decline now three quarters in a row after peaking in third quarter 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% sequester relief phase-out, which impacted us in this quarter. This rate area is where we continue to work on a multifaceted approach and where we have more opportunity to further improve. What we've seen over this past year with tighter-than-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 our very strong demand has increased over where we've historically been. That in combination with the high demand has resulted in a greater percentage of Medicare visits being touched by a PT assistant, with a 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 and 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 diluted a bit, dealing with front office turnover in late 2022 and early 2023, 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 and working hard to make the necessary adjustments. Other positives for the quarter. Our company completed a 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 the 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 that we believe we can further strengthen our business in physical therapy as well as our injury prevention business services. On the IEP front, this year seems to be unfolding much the way we expected. we've seen major increases in spend across some of our longest ended relationships and as we discussed last quarter we've seen some companies fearful of a pending recession pull back from prior levels of spend and engagement in a defensive move for them counteracting that our teams have done a great job replacing the vast majority of that pullback with exciting new business that i'm happy to that I'm happy to say we're able to stack now with greater efficiency in much less time than where we were nine months ago. Both of our IAP partnerships are working hard together to cross-sell and expand programs. We're looking for new opportunities. We continue to explore acquisition-based uh opportunities as well as expect that our reinvigorated balance sheet will provide us with dry powder on the runway to do that over the coming quarters and years 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 been amazing fun, exhilarating ride with more good things to come. I feel extremely blessed to 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. We've made a huge difference in the lives of millions of patients, and 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 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 increase access to the very efficient and effective treatment that we provide versus the much more costly and often riskier interventions that should not be positioned as first choice options. I believe physical therapy should be first option primary care equivalent for prevention and treatment of musculoskeletal and 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 down 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. So, Terry, if you would tell the financials in more detail, that would be great.
spk03: 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. 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 million in net proceeds for the issuance of 1.9 million shares. We used $35 million 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 million. We also lowered our leverage ratio, resulting in a 25 basis point decrease in the rate on our outstanding $150 million term loan based on our leverage grid. We've invested that cash at this point in a high yield savings account prior to deployment into 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 1.9 million shares. And of course, the return on those net proceeds will increase substantially when we deploy them into acquisitions. We reported adjusted EBITDA for the second quarter of $21.7 million, which was the second highest quarterly EBITDA amount in our history, and an increase of $0.4 million over the $21.3 million we reported in the second quarter of 2022. Our operating results, which includes the impact of higher interest expense, was 76 cents per share in the second quarter of 2023. Our total company revenues increased 7.7% in the second quarter, growing from $140.7 million in the second quarter of last year to $151.5 million in the second quarter of 23. And our total company gross profit increased $1.4 million from $30.8 million in the second quarter of last year to $32.2 million in the second quarter of 23. As Chris noted in his remarks, our average visits per clinic per day in the second quarter was 30.4, which is the highest volume for any quarter in the company's history. April and 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 second quarter of 23, which was a decrease of 1.1% compared to our net rate of $103.18 in the second quarter of last year. The net rate for 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 effective at the beginning of this year, coupled with the fact that the second quarter of last year included a 1% sequestration relief on Medicare rates. 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 that reimburse us at a rate that's less than what it cost us to serve our patients. The terminations were effective in June and 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. We also continue to focus on renegotiations of commercial contracts, and as Chris noted, we're making other necessary adjustments to adjust our net rates. Physical therapy revenues were $130.1 million in the second quarter of 2023, which is an increase of $11 million, or 9.2%, from the second quarter of 2022. The revenue increase at our same store clinics was 103, excuse me, 1.3%. The patient visits up 2.6% versus the prior year. Our physical therapy operating costs were $102.1 million, an increase of 10% over the second quarter of the prior year. On a per visit basis, our total operating costs were $80.61 in the second quarter, which was a decrease of 0.6% compared to $81.09 per visit in the second quarter of the prior year. And we were pleased to see our physical therapy operating cost per visit decrease for the third consecutive quarter after peaking in the third quarter of last year. Our total operating costs were $85.14 per visit in the third quarter of 2022. It decreased to $84.05 in the fourth quarter. It declined further to $81.97 in the first quarter of 23, and then declined again to $80.61 in the second quarter of 2023. Our salaries and related cost per visit decreased 1.2% in the second quarter of this year versus the prior year, and they've also declined for three consecutive quarters, from $60.99 in the third quarter of 22, down to $60.04 in the fourth quarter, down to $59.14 per visit in the first quarter of 23, and then down to $57.59 per visit in the second quarter of 2023. Our physical therapy margin also improved for the third consecutive quarter, increasing from 18.7% in the third quarter of 22 to 20% in the fourth quarter, 21% in the first quarter of this year, and then to 21.5% in the second quarter of 2023. Really pleased with the progression that we've seen in all of those metrics. Our IIP revenues were $19.2 million in the second quarter, which is down slightly from the second quarter of 22. And our IIP expenses were even with the prior year at $15.3 million, with IIP operating income of $4 million. And our margin in IIP business was 20.7% in the second quarter of 23. Our interest expense was $2.6 million in the second quarter of this year, which was an increase of $1.6 million over the second quarter of the prior year. Of course, that higher interest expense is due to the increase in our debt-related acquisitions we closed during or since the second quarter of last year, and also the higher interest rates in the second quarter of this year versus last year. Our balance sheet remains in an excellent position. We have a $150 million term loan with a five-year swap agreement in place that fixes the one-month term SOFR rate on that $150 million at 2.8%, including the applicable margin based on our leverage ratio, The all-in rate on our $150 million of debt was 4.9% in the second 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% after the secondary offering. In the second quarter of 2023 alone, the swap agreement saved us $800,000 in interest expense with cumulative savings to date related to the swap of $1.5 million over the first 12 months. In addition to the term loan, we also have a $175 million revolving credit facility that had approximately $35 million drawn on it prior to the completion of the equity offering. Of course, we paid that down with some of the net proceeds, and so now there's nothing drawn on the revolver. Borrowings on the revolver from 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 second quarter give us continued confidence in the adjusted EBITDA guidance range we provided at the beginning of the year of $75 million to $80 million. With that, I'll turn the call back to Chris.
spk08: Thanks, Kerry. Appreciate that. Operator, let's go ahead and line up for questions.
spk06: Yes, sir. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself at any time by pressing the pound key. Once again, that is star and 1 to ask a question. And we'll go first to Brian Tanquillette with Jefferies. Please go ahead. Your line is open. Hey, Brian. Hey, good morning, guys.
spk07: Good morning. I'll ask the question. It sounds like, based on the metrics that Kerry 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, you know, some of those key points, right, I mean, the productivity of the clinic and the cost to deliver care, how much runway do you think there's left to drive some of those metrics?
spk08: It's a good question. 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 four, five, six years ago. I mean, you know, we constantly... adjust our hours. We can expand our hours. Most of our clinics are not open on Saturdays. A lot of our clinics you know 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 you know that's not going to be a limiting factor and we certainly have room to move this net rate and that rate this quarter a little bit of a disappointment because we really got extremely granular with You know, where that issue is, I think the fact that we had, you know, the turnover that we had and the scarcity we had in 22, particularly at the front desk, has caused us not to be as doubting as we need to be from a scheduling perspective 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 um and they're rolling out some very very detailed training not just on that but on a couple other areas that i think will help us as we go forward so um On one hand, I wish it was for the quarter a little better, but we have made progress, as you pointed out, in all the areas that we've been focused on, and I think we'll make progress there. We know what to do.
spk07: Got it. And then maybe since you mentioned rate, obviously the 1% net rate group 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, how much opportunity is left to, number one, drive positive rate trend within the portfolio of contracts, and maybe the second would be to push a rate increase above, say, a 1% number?
spk08: We have so many contracts. I wish we didn't have as many as we do just because of how our company is configured across, you know, more than 150 partnerships. But we've got a lot of contracts.
spk03: negotiation left enough in to do area i don't know if you want to come back further no i agree we have lots of contracts that's it's a it's a constant focus for us brian you know we're we're up and we're having good success i mean they're we're having success in these in these rate negotiations I'd say the big payers are the ones that it just takes longer to make progress with them. And so, you know, we're continuing to work at it every day.
spk08: Brian, some of these contracts, we're getting increases now, but we have been sequential annual increases that are yet to come, even on the ones that we've completed already.
spk03: Yeah, we're working to build in three-year step increases for the most part. 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 movement.
spk07: Yeah, go ahead. No, that's it. Yeah, last question for me, Chris. I mean, obviously, you know, you guys did the raise. You're sitting at 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 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?
spk08: Yeah, I think the opportunity is still strong. I think what we're seeing right now is a lot of the PE backed companies have been decidedly more quiet um this year particularly because the number have either you know done significant deals themselves or or gotten to the point where the interest rate increases where leverage is is high um and i think to a certain extent um the reality that many of these individual operators have kind of missed the peak you know has set in this year i mean you know we're not we're not in 2019 anymore uh you know at the height of this um or even early 21 when things were still really really hot and i think there's there's a little timing remorse in the market i mean said that we're busy now for us Sometimes, you know, 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. You know, 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, you know, it's going to be lumpy. It's always been lumpy. But we're going to get good things done. Awesome. Thank you, guys.
spk06: Thank you, Brian. Thank you. We'll take our next question from Joanna with Bank of America. Please go ahead. Good morning, Joanna. Good morning.
spk01: 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 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?
spk03: You know, Joanne, it's just going to depend on the timing of it. Kind of like M&A, it's lumpy. It's which ones you get and, you know, 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, you know, but, you know, it's There should be a bill, though.
spk08: Yeah, there should be a bill. These contracts last and they go on, you know, for years, and every additional one builds on what we've done previous.
spk03: Yeah, as we just mentioned, too, we also have step increases built in on the ones that we've renegotiated. So those should continue to help us as we go forward. So I think – I mean, I feel – you know there's always a lot of work to be done at commercial rates because there are so many contracts so we've got so you know we've still got a bit of work to do but we've but we've made good progress and i think we're going to continue to make good progress i know we are and um we should see those rates you know, continue to grow up as we go forward.
spk08: And, Kerry, when you say the increases that we're seeing, they're not 1% increases. They're, in some cases, double-digit percent increases or, you know, 3% to 5% or 6% increases. We're just not touching the whole portfolio yet.
spk03: That's right. We're getting, you know, 3% to 5%, 6% increases in year one. And over a three-year period, a lot of times it's like a 10% to 12% increase over that three-year period that we've got built in. And I'll also say we're also making progress on some of the other Medicare Advantage contracts, you know, because those are a focus for us as well, and those we can impact. And, you know, 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. Medicare Advantage is becoming a bigger portion of our Medicare visits overall. 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 rates.
spk01: Okay. So you say on the commercial, it's just kind of a accumulates over time because you obviously have a three-year contract, so you renegotiated like a third of your book and then you're negotiating, you know, another third, you know, so kind of like, you know, over a three-year period, you're going to have this flowing through the book. So eventually, it's going to be more reflective of what's going on in all of the contracts versus now only a third of this contract. So that makes sense. And on this last comment on the NA 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 without the Medicare violation. So how, I guess, how to think about, you know, the portion of that business that already kind of, you know, was reset and a portion that, you know, how big is the portion that kind of you're still trying to either renegotiate or drop these contracts?
spk03: So within Medicare, the commercial advantage, Medicare Advantage, yeah. Yeah, yeah, yeah. So, you know, right now I'd say the Medicare Advantage, I mean, it's grown as a percentage. It's around 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. So that piece, there's been a push to get people to Medicare Advantage. You know, 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 – They're not suitable, and so we've permitted those. So we've identified the primary ones that are in that situation. We've got still others that are addressed. Again, we've made progress on those as well, and 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, you know, where they paid 80% to 85% of Medicare and bumping those up to 100%, or it may be from 80% to 90%, but those are really nice, sizable increases on some of those contracts we're making.
spk01: That's good to hear. And the last piece, I guess, on the pricing, workers' comp. So where do you stand now in terms of your mix? And I guess, because that's the highest rate of all the different payers, right? So what's the mix there? And kind of, I know you kind of, you know, the bucket, so to speak, the client during the 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. Thank you.
spk03: Yeah, so for our mix – go ahead, I'm sorry. Eric, were you going to say something?
spk04: Yeah, I was going to weigh in. This is Eric Williams in terms of where we're headed on the work comp side. So, yeah, we started – putting in a lot of efforts second quarter of last year 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 second quarter of this year, this is the third straight quarter where we saw an uptick in volume, still a lot of opportunity. The volume we actually saw in Q2 was the highest volume we've seen over the course of the last six 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.
spk03: right and i just say for workers comp to increase the percent of the mix is really notable because as you know our volumes has been increasing pretty significantly so they're they're increasing at a pace that is greater than our overall increase so that's That's good. And they were closer to 9% in the first quarter as part of the mix, and workers' comp is about 10% in the second quarter. To address just kind of the mix overall, Joanna, commercial is about 47% in the second 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.
spk01: Great. It's super helpful. If I may just quiz last one on pricing and I guess the outlook into next year. So the Medicare proposal calls for call it all in, you know, three and a quarter rate cut or so, which that was finalized would be worse than 2023 rate cuts. So, you know, what's your take on that proposal and, you know, how much work I guess is being done and what's your visibility to Congress, you know, stepping in again and trying to lessen that cut here?
spk08: Obviously, that proposed rule came out middle to the end of July, as it does every year. So, we're early in that process. Again, I mentioned APTQI, you know, in my prepared comments. We are Liberty Partners, our lobby group, the leadership in APTQI, all of our individual member companies who are very active in Washington are all putting a full court press. You know, we just unfortunately It's difficult in, you know, when these get finalized in December on a short runway to make changes necessary to immediately come out of the gate and overcome these. And this has been out a few years in a row. I think it's very misplaced, these reductions. you know, they're picking on, you know, probably the greatest value in healthcare, you know, for returning people to function from significant, significant surgeries, which don't work without physical therapy. But it's early, you know, and it's summer. 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, you know, 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 is massive directionally in that regard.
spk01: Well, thank you. I appreciate it, Colin.
spk06: Thank you, Joanna. Thank you. We'll take our next question from Larry Solo with CJS Securities. Please go ahead. Go ahead.
spk05: Great. Hey, good morning, guys. Lots of questions answered already, but just to see, I guess, just 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 feel 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 a forgot 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 of that fair to say.
spk03: 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 it's addressable and related to the work we've already done. Yeah.
spk05: Right. And obviously the negotiation is much more of a multi-year thing. And you touched on sort of I was going to ask just like not getting 1% price increases. You're getting probably more than that or a lot more than that, a mid-single digits or whatever, but you have so many contracts, right? So I gather – that you're only moving 5% of the time or whatever, right? So it gets divided by 20 or maybe not that much, but a multiplier effect. But so fair to say that you still probably haven't worked through a lot or majority of your contracts haven't changed. Yeah, that's right.
spk03: That's not even close. We've got a lot more to do.
spk05: Right, right, right. Okay. Okay, great. Just in terms of volume, I see a really good, strong first half. Back half of the year, is there anything sort of incorporated? I think the average volume in the first half was like 4.8% up. We look at both quarters. Do you expect those trends to continue in the back half or more, I think, more historical rates and more 2% to 3%, which is what we actually saw this quarter. But any thoughts on that?
spk08: I mean, if you look back to last year, to the front part of last year, we didn't have the scarcity that we, you know, really became acute kind of in, I would say, probably in June of last year and forward. We didn't have, you know, the inflation and all the other things. And so the front half of this year, actually, the part that we're in or just completed is had tougher comps. The second half, you know, a year ago, 22, we actually couldn't address all the volume that, you know, we might have just because staffing was so tight. So I can tell you, staffing's not easy right now, but it feels a lot better than it did a year ago. We made adjustments and team has done a really good job. And so I'm hoping we can expand some of those change to our 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.
spk03: Yeah, the week is complicated here, though. I would say that the first quarter was such a big jump because it was, you know, we've never experienced volumes like that in January and February particularly. And so that was a really nice jump in the first quarter. I wouldn't expect to get back to like the 6% mature clinic growth, you know, in the second half of the year. But, you know, as Chris mentioned, the comps are a little bit, are not quite as strong as you go into the back half of the year.
spk05: Gotcha, and you're probably, obviously, like you said, in a better position at the beginning of this back end than you were last year, too, in terms of your staffing. Okay, just last question, Carrie, while you're here. You mentioned you've done a really good job. Same costs per visit, basis are down. Overall costs are really hung in there. Overall margin in the last few years has actually 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 year-over-year basis, your margins, salaries, the percentage of revenue is still up? Is that just more of a function of the acquired clinics, pricing? What's driving that?
spk03: Yeah, it's a combo, you know, 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 the impact of rate. And so I think that the rate and how that influences revenue, when you're looking at those costs as a percent of revenue, is really what impacts that.
spk08: Yeah, 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 rate.
spk03: Yeah. And that's why, you know, the best metric we believe to look at for those costs is looking at it on a per-visit basis.
spk05: Naturally. I totally understand why you do that. Yeah, for sure. Great. I appreciate that call. Thanks, guys. Thanks again.
spk06: Thank you. As a reminder, if you would like to ask a question, please press star 1 at this time. We'll take our next question from Matt LaRue with William Blair.
spk00: Hi guys, it's Madeline on for Matt. Um, one on the segment, I know it was down slightly this quarter and you've mentioned that some contracts you've 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?
spk08: You know, I'm going to tell you, and I don't know that I'm that day-to-day close to know if we have certain contracts where people were concerned and now that, you know, they're not. I honestly, I think... I think... Things are kind of still with those few customers, not a lot, and it's heavily weighted on the tech side of the business or their business is heavily tech-influenced. I still think they're kind of, you know, same outlook that they were before. And having said that, we've added a lot of good customers this year. And across both partnerships, we've 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 yet.
spk04: No, I would agree with that. I think you summed it up perfect, Chris. I mean, you know, the IEP 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 that we saw fall away. tail end of last year, we've seen other customers on the retail side and distribution side actually increase. 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.
spk00: Great. Thank you. And then again on IEP, 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 first three quarters of 2022. So just what can we expect that segment to grow over time?
spk08: Look, you know, we haven't had IEP all that long, and the growth has been extraordinary. You know, so for me right now, as many moving parts as there are in between politics and the economy and interest rate environment and Fed, all the many things and influences CEOs and CFOs to make decisions that aren't uniform across the across the country because different sectors, as Eric mentioned, recover 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 stick with us. Most clients expand, particularly those clients that have, you know, numerous operations positioned around the country. But I'm not going to be able to peg, you know, a growth rate at this point because I just don't have optics that are clear enough to do that.
spk00: Got it. Thank you.
spk06: Thank you. At this time, we have no further questions in queue. I will turn the call back to Chris Redding for any additional closing remarks.
spk08: Yeah, thanks, everyone. We know we covered a lot. We appreciate your time and attention this morning. Carrie and I are available today and the rest of the week and next week. We've got board meetings coming up next week, but after that we'll come back up for air. So if you have any questions or any follow-up necessary, please give us a call and have a great day.
spk06: Thank you all. This concludes the U.S. Physical Therapy second quarter 2023 earnings conference call. You may disconnect your line at this time and have a wonderful day.
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