Good day everyone, and welcome to the U.S. Physical Therapy fourth quarter and year-end 2021 conference call. At this time, all participants are in listen only mode. Later, you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and the number one on your touch tone phone. I will be standing by should you need any assistance. Please note, this call may be recorded. It is now my pleasure to turn today's program over to Chris Reading, CEO.
Thank you. Good morning, and thanks everyone for joining us for our U.S. Physical Therapy fourth quarter and year-end 2021 earnings call. Several of our team are on the road this morning working on new opportunities. They include Eric Williams, our Chief Operating Officer for the eastern half of the country, Rick Binstein, our Executive Vice President and General Counsel. On the line, we have Carey Hendrickson with me here in Houston, our Chief Financial Officer, Graham Reeve, our COO for the western half of the company, along with Jon Bates, our Vice President and Controller. Before I provide some color on the year and the quarter, we need to cover a brief disclosure statement. Jon, if you would, please.
Thanks, Chris. This presentation contains forward-looking statements which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions, and the company's actual results can vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information.
Thank you, Jon. I wanna start this morning and cover some highlights on the year. For the year, our operating income increased $18.2 million or 34.8% compared with 2020. Reported revenue increased 17% to $495 million. PT net revenue increased 17.4%. As you're aware, in 2021 we were hit with reduced Medicare pricing, which in turn impacted our net rate, which dropped slightly from $105.66 in 2020 to $103.88 in 2021. Our visits were very strong throughout most of the year, up 19.4%, in spite of the fact that comparable numbers in the latter part of 2020 were also very strong.
Volumes for most of the year, beginning March and continuing through year's end, were at record highs for us, exceeding 29 visits per clinic per day for those 10 straight months. Visits from mature clinics increased 17.8% for the year. Management contract revenue was up 17.2% on the year. Our injury prevention services revenue increased 12% on the year and 38.5% in the fourth quarter. Our total operating costs were impacted in 2021 by inflation, along with some labor escalation. In spite of that, and in spite of the net rate impact from Medicare, we finish with total operating costs as a percent of revenue at 76.3% versus 76.7% in both 2020 and 2019. Further, our total operating costs per visit decreased slightly in comparison.
In 2021, we finished the year at $79.70 per visit, and in 2019, again pre-pandemically, we were at $81.38 per visit. The team has worked really hard all year to balance and control the cost equation, along with our growth in visits per clinic per day. I think they've done an excellent job. Total salaries and related costs held up well for the majority of the year, although we did experience some slight upward migration in the latter part of the year. In spite of that, we finished 2021 with salary cost as a percent of revenue at 56.3%, compared to a pre-pandemic level in 2019, 56.9%.
Salary and related costs performed well this year, ending up at $57.20 on a per visit basis for 2021, compared to $57.26 in 2020. As you know, 2020 included a period of significantly reduced salaries early on in the pandemic and continuing actually through a good chunk of the year. We also compared very favorably to where we were in 2019 at $59.24 per visit. That's a 350 basis point improvement from that pre-pandemic year. Our gross profit was $117.2 million in 2021, an increase of 19.1%, and our gross margin ended up 40 basis points better on the year at 23.7%.
Our PT margins were up 70 basis points to 23.8%, while management contract margins were down slightly to just under 16%. Our injury prevention business, which has been impacted by remote workers as well as COVID, finished at 24.4%, down slightly from 25.7% on what was a very tightly controlled expense year in 2020 with very little travel, and no major conferences attended. Our performance included the addition of our newly acquired industrial injury prevention business late in the year. This business has a slightly lower margin profile compared with our legacy business, and the combined margins will be reflective of that difference going forward. Operating income for 2021 increased $18.2 million, or 34.8% from 2020.
Operating income margin improved 190 basis points to 14.3%, despite the many challenges we have faced throughout the past year, including COVID, staffing, inflation, and all the rest. In 2021, our company deployed significant acquisition-related capital across several deals in the PT space, and two in the injury prevention area, including our largest to date, which we announced late in the fourth quarter of last year. Carey's going to review with you our total use of free cash flow, and I think you'll find it pretty impressive on the year, what we were able to get done while still keeping our debt-to-EBITDA ratio in very good shape.
In response to the company's strong performance in 2021 and our continued confidence in our ability to grow, our board of directors has voted to increase the first quarter dividend from $0.38 per share to $0.41 per share, which is an increase of approximately 8% from the last dividend, but an increase of approximately 12.3% when compared to our average dividend paid in 2020. You may recall that midway through 2021 for the third and fourth quarters, we increased our dividend. As I stated in our press release, I'm immensely appreciative of the fine work and results produced by our partner-led teams all year.
All of them, along with our home office support group in Houston, have not only functioned well in these exceedingly difficult and rapidly changing times, but we have worked effectively under difficult circumstances to produce a record earnings year for the company. Our services, which keep people on the job and healthy, along with those who may have suffered a serious musculoskeletal injury, they help make people's lives better, more enjoyable, more productive, and ultimately, with a documented improvement in their overall health and well-being. This allows people to stay in the workforce as well as to do productive and enjoyable things with and for their families at a time when our nation needs all of those things very much. Speaking of the labor market, I would like to address staffing for a minute.
While I would characterize the current environment as challenging, both for finding staff and for the increased time that it takes to do that right now, our turnover rate for licensed clinicians is actually down slightly as compared to where we ran on a pre-pandemic basis in 2019. Let's let that kind of sit for a minute. When you look at our turnover rate for our most important group, which is our clinical group, our licensed clinicians, it's actually down as a percentage compared to where we were in 2019. We thought 2019, you know, a normal operating and hiring environment. Now, on our front desk and our unlicensed support staff, our turnover rate is definitely up. Some continued adjustments to overcome that.
I will say that our recruiting group have worked their tails off all year to stay on top of this issue and to deliver good, strong candidates where we needed them as a result of some normal turnover. Whereas the case has been through much of the year as a result of some very strong growth, which required the need for additional clinicians. While the environment is definitely challenging, in some cases, we are seeing an upward migration in terms of salaries. Overall, I think we've done a pretty good job in this area, as evidenced by our strong result for the year, both in terms of cost and also our earnings growth. That concludes my prepared comments. Carey, if you would, please cover financial performance as well as our guidance before we open it up for-
Good morning, everyone. We're very pleased with the results our team achieved. All of our team metrics, many of which Chris noted. Results excluding relief funds finished at $3.17 per share for the full year and at $0.72 per share for the fourth quarter, the high end of our guidance that we provided, and we're higher than analyst consensus. Included in these numbers is another $4.6 million in CARES relief funds that we received and recorded in the fourth quarter of 2021. Our $3.17 of operating results excluding relief funds are 32.6% higher than we reported on the same basis for 2020, and they're 12.4% higher than the $2.82 we reported for the pre-pandemic year of 2019.
Our fourth quarter 2021 operating results, excluding relief funds, of $0.72 per share compares to $0.85 in the fourth from reduced expense levels due to the pandemic and a slight rate adjustment that we had related to earlier 2020 periods. It's 12.5% higher than the $0.64 we reported for the pre-pandemic fourth. Our adjusted EBITDA, excluding relief funds, was $74.3 million for the full year of 2021, which was an increase of $31.5 million and an increase of 2.1%.
The same measurement was $17 million in the fourth quarter of 2021 compared to $18.3 million, and it was $10.9 million higher than the $15.3 million of adjusted EBITDA that we reported for the fourth quarter of 2019. Our full year 2021 revenues increased to $495.0 million, a 17% increase over full year 2020. Fourth quarter 2021 revenues increased to $129.8 million, which was a 10.5% increase over the fourth quarter of 2020. Our physical therapy patient visits per clinic per day continued at 29.8 for the fourth quarter of 2021. The only quarter higher in our company's history was the second quarter of 2021, when our average visits per day were 30.0.
For the full year, our average visits per one. Prior to March 2021, we'd never had a single month at 29 average visits per clinic per day. This year we finished for the full year above 29. A real testament to our operating team. Our net rate for our physical therapy operations was $103.88 for full year 2021, as compared to $105.66 for the full year of 2020. Our net rate was $103.53 in the fourth quarter of 2021, compared to $107.05 in the fourth quarter of 2020. Our 2021 full year and fourth quarter rates reflect the 3.5% Medicare rate cut that went into effect in January of our business.
Higher rate workers' comp visits have not yet returned to pre-pandemic levels, while Medicare visits, which are paid at a lesser rate than overall average rate, have increased above pre-pandemic levels, which put some downward pressure on our overall rate in 2021. Also, that net rate included the slide adjustment related to earlier 2020 periods that I mentioned earlier. Our physical therapy revenues were $404 million for the year of 2021, which was a 17.6% increase over 2020, and they were $114.2 million for the fourth quarter of 2021, which was 8.6% higher than the fourth quarter. In the Industrial Injury Prevention business, full year and fourth quarter 2021 $43.9 million and...
That was a 12% increase over 2020 and a 38.20, as Chris noted in his remarks. The fourth quarter of 2021 included the one month of operations related to the November 30 acquisition that we made of an Industrial Injury Prevention Services business. Our operating costs were well contained in 2021 aligned with our growth in revenue. Our cost per visit did increase from the third quarter to the fourth quarter of 2021, with most of the increase in salaries as we continued to build our staff to the levels needed to support our record volume. Some higher contract services costs in the fourth quarter due to having a higher number of employees out due to COVID. Our gross profit was for the full year of 2021, which was a 24.1% increase over full year 2020.
Our gross profit for the fourth quarter, $7.2 million compared to $29.1 million in the fourth quarter of 2020 and $27 million in the fourth quarter of 2019. Our gross profit margin was 23.7%. It was 22.3% in full year 2020 and 23.3% in full year 2019, so it was high. Our corporate office costs were $46.5 million for the full year and $10.7 million, including the incremental equity compensation expense that we had in 2021 related to the retirement of our COO for the West Division.
Our corporate office costs were 9.1% of revenues for the full year of 2021, which is lower than the 9.6% in 2020 on the same basis and 9.3% of revenues for pre-pandemic 2019. Our net income that was attributable to our noncontrolling interest was $17.1 million, 13.9% of our profits. This compares to 16% for the full year of 2020. In 2021, we purchased $31.1 million of noncontrolling interest from our existing partners, representing EBITDA of approximately $4.1 million, occurring in the fourth quarter of 2021.
In the fourth quarter of 2021, non-controlling interest as a percent of our profits was 13.3%, 0.3% in the fourth quarter of 2020. Our balance sheet remains in an excellent position, and our cash generation remains strong. We ended the year with 100 facilities, including approximately $62 million added to the line on November 30 for the acquisition of the Industrial Injury Prevention Services business, acquisition of three clinics on December 31. Our net debt at December 31, 2021 was $94 million, which includes $114 million on our credit facility, $4.2 million and $4.4 million, $28.6 million in cash. That's net debt. December 2021 was $94 million. Our net debt was $11 million.
In 2021, we funded acquisitions totaling approximately $87 million in fixed assets. We paid back $14.1 million in MAP funds. We paid back $4.1 million in deferred payroll taxes under CARES. Partners of $31 million. Paid dividends of $18.8 million. Paid off $4.9 million in notes payable. All of which total $168.1 million. Our net debt position increased by only $83 million. Our low leverage and our strong cash generation provide us with tremendous flexibility and sufficient capacity for the right growth opportunities as we identify them. As we look to 2022, we're optimistic about our prospects for the year and our team's operating ability projections for 2022.
We managed very successfully through the 2021 rate reduction, and we're confident we'll do so again. In $0.25-$3.35 in operating results per share for 2022. The range considers the following, all of which we had previously announced, a Medicare reduction for the full year of 2022 of approximately 0.7% out of sequestration relief, which results in a 1% reduction in payments for the second quarter of 2022, and a 2% reduction in the rate applied to all Medicare payments in the third and fourth quarters of 2022. It also includes a 15% decrease in rate for care provided to Medicare patients by a physical in 2022. All options are expected to reduce our 2022 $22.2 million, which amounts to $0.21 per share.
As a point of information, Medicare visits represent approximately. As usual, the range does not include any potential acquisitions we may make in 2022. The guidance percent, the 13% increase in our rate reductions and a 2.5% operating results, including the Medicare rate reductions. With that, I'll turn it back to Chris.
Yeah, good job, Carey. Thank you. Okay, operator, let's go ahead. I'm sure we have questions, so let's go ahead and open up for questions.
Once again, we'll take our first question from Larry Solow.
Morning, Larry.
Good morning, Larry.
Good morning. Morning, guys. I get two questions on the guidance. Maybe just some high level, sort of, what you're sort of thinking about same-store sales volumes and margins, just direction, thoughts on that. Part B, that question is sort of, I know you don't guide quarterly, but how should we think of cadence? I missed the first couple minutes of the call, but Q1 obviously there's especially early in the quarter a lot, you know, a big flurry of COVID and we all know somebody, if not ourselves, who was out for five days 'cause you know they had it. Trying to figure out how that, you know, your maybe employee situation in the first quarter might be worse than the rest of the year.
Just any thoughts on cadence would be great then.
Yeah. Let me talk, let me do the cadence part and I'll kick it over to Carey on the other. For the first quarter, you know, between Omicron, COVID, and the weather which we always have in the first quarter, yeah, first quarter is gonna be the lighter quarter. I will tell you on a positive note, while we were hit heavily in January with COVID and you're right, a lot of people shorter quarantines and shorter outputs of updated CDC guidance put a lot of folks out, combined with weather. The COVID thing has begun to over the last couple of weeks, so we've seen a big drop off there.
Now we just gotta get through the rest. We're getting some weather again this week, but we just gotta get through the rest of the weather and then you know get to work.
Mm-hmm. Yeah, Larry, as far as the mature clinics and the growth expected in 2022 within about a 2%-3% increase in volume for mature clinics. Then the net rate, you know, with all things considered, is gonna be down about 1% or a little bit, you know, a little bit north of 1%. You know, that's the pieces of that for mature clinics. Then from a margin standpoint, I think something like what we had in the fourth quarter 2022.
You know, the government pricing, so it sounds like you're Medicare, Medicaid, you're assuming private pay, commercial pay is about flat it seems like, right?
Yes, we've assumed that in the budget.
Right.
On some very capable shoulders here. We've placed, you know, an enormous focus here. Aside from just straight contracting, it's something that I can't go into great detail yet, but we're about to kick off a program that we think will help to fill in some of the things as a result of the Medicare cut. That's. We're on the cusp of that as well. We're working on for sure.
I would think, you know, maybe not in immediate term, but with this kind of inflation, right, that means your cost of care, but you still have some leverage. I mean, I'm sure the payers are gonna always
Some leverage there against them on that, right?
I don't know if it's a leverage, but it's certainly rational response would seem to be that, you know, payers are gonna have to understand cost is going up, and if rates go
Right. Just last question on the turnover. It sounds like it's not more back office admin staff and-
Yeah. I will say even with that, our revenue cycle group has done a great job for the year. Just hats off to them, and they have in some cases, you know, struggled quickly. Even with that, I gotta tell you, our people really stepped up this year and not just this year, but the last couple years in so many ways. Carey, I don't know if you have any-
No, that's the number of employees we had throughout the year. The team just worked incredibly hard. Actions well in line with where they've been in previous years, certainly with pre-pandemic 2019. We were able to close a few of our and move them into more profitable ones.
Yeah. They did a great job.
Right. Thank you so much.
Our next question comes from Stephanie Wissink of Jefferies.
Thank you for all the information, everybody. I do have another follow-up question just on the cadence. I just wanna make sure we're hearing you correctly in terms of how you expect sequentially the business to kind of build back. As you think about the acquisitions that you've completed last year, plugging those into the productivity wheel, how we should be thinking about the organic nature of the contribution of growth from those kind of late-stage acquisitions in 2021?
Yeah. Well, we'll have the benefit, you know, through. So the cadence, we had one end of March. We had a small injury prevention deal in September. We had a big injury prevention deal at the end of November, and then a small PT deal right at the end of the year. So layer in accordingly, all for sure for the first quarter. My mention on cadence had more to do with, you know, just the environment coming out of the gate in COVID, January, maybe the first with COVID and weather. So therefore, I think we'll see some forward weighting, you know, and not equal weighting through the quarters, which is really our typical cadence more than.
Q1 is always lower for us as kind of getting started issues and the kinds of things we're having this year, just like we normally do. The second quarter, typically in March or April is, and that was the case last year for sure, and it continued from that point. The second quarter and the fourth quarter typically are higher quarters. The third quarter, you know, has a little bit of a lull because of summer and people being off. That's typically the pattern, and I think that would hold into 2022 as well. The acquisitions, the largest one, of course, is the one that we did in November, on November.
I would expect that more in the first part of the year and grow as the year goes along, is what I would expect from that one.
Yeah. Agree.
Okay. Very helpful. Just my follow-up is on the waves of COVID that we've seen. I'm hoping you can kind of compare and contrast Delta versus Omicron. It sounds a little bit like it's intense, but over a shorter period of time. Is that a fair take on what you're observing in your business in terms of recovery post-wave?
Yeah. Definitely fair assessment. The out time with Omicron was worse than even with Delta, but the out time was shorter. The drop off has been pretty precipitous since things have settled down. There's not, you know, not another Greek alphabet letter come waiting for us. It's right now we're doing better.
Okay. We're with you on that hope. Last one for us is just on ability to recruit and retain. You'd wanna flag for us or considerations as you're thinking about your underlying de novo growth and then staffing up into some of the acquisitions that you've completed.
Yeah, let me kick that over to my COOs, to Eric and Graham. They're front line and so I'll let them comment.
Yeah. Chris, this is Eric. Yeah, from a recruiting perspective, as you'd mentioned earlier, percentage points from our turnover rates pre-pandemic in 2019. In terms of recruiting department, adding additional staff there made a huge difference in terms of our ability to backfill open positions. The biggest challenge, it's just the turnover rates, very competitive out there for front office and admin staff, but we're having success there as well. Turnover rates still continue to be high.
Graham, if you could speak to how that impacts our de novo and what the de novo both East and West for this year. Graham, you there? Eric, you wanna speak to de novo and overall pipeline?
Yeah. The de novo pipeline is really, really strong, but we did see about 20 more facilities in 2021. As a result of again, you know, a competitive environment out there from staffing, it slowed it down. The bigger piece really on the de novo front, Chris, was related to the ability to get contractors and permits. Bigger impact for us than staffing. De novo pipeline, very, very strong here for 2022 as well.
Does that answer?
Very helpful.
Okay.
It does.
Our next question comes from Matt Larew with William Blair.
Hi, this is Madeline Mollman on for Matt Larew. Injury prevention segment, how's that segment to begin to sort of restart. Now that Omicron is kind of declining, have you started to have conversations around acquiring new clients for that segment? Then as a follow-up, do you think that the current labor environment and the current employee pressures will lead to greater interest in industrial injury prevention services? Do you think that's gonna be a catalyst for growth there?
Yeah. Let me unpack that. First, trade shows. While we haven't, I don't think yet, have attended many trade shows, I am hopeful, I think the team is hopeful that those will come back sometime this year, soon as. Very anxious to kinda get, you know, directionally headed that way. You know, our ability, we're talking to new opportunities, you know, as we go. I think certainly the ability to get face-to-face will help that and accelerate that opportunity. That's been some of, you know, the impact. Team's done a wonderful job. I'm trying to remember what. There was another.
About the labor environment.
The labor environment. Our ability. You know, we've gotta find staff to do this. Different than the clinics where we may take sometimes two people from an existing staff to go seed a satellite opportunity. We don't always have that ability geographically to you know to pull from somewhere else. We have to find. They have to be recruited and on longer than normal. That's been some of our impact. I'm hopeful that as we go forward, clinicians, that will also.
Thank you. Just one quick question. The unfavorable reimbursement move this last year. Do you think that's been pressuring smaller providers? Have you seen an uptick in-
We're busy right now. We have more scheduled calls than we've had in some time. Now, I'm always cautious because, you know, inbound calls don't always immediately translate to closed deals. It's active. Look, our partners, the kind of partners that we attract by and large, and I'm talking about acquisitions, which are much smaller, our partners are not afraid. Our potential partners, the people we're talking to, you know, what they are in many cases is seeing opportunities to do tuck-ins and to move market share and resources to do that, capital resources or infrastructure resources. Or maybe they just want to benefit from the additional resources to continue to grow. Yes, I think storms that are in a series of lengthy storms, I think that creates.
I think that causes a little bigger boat to ride out. I think it'll be helpful.
Great. Thank you.
Thank you.
Once again, Ben, our next question comes from Mitra Ramgopal with Sidoti.
Hey, Mitra. Asking questions. Why don't you go to the next person, and maybe we can come back to him in a minute. Is that possible?
There are no further questions.
Okay. All right. Give us a call. Sorry for the technical difficulty. I'm not sure. Carey and I are available immediately following this call and through the rest of today. For your interest and your time, everyone, we thank you. I thank my team for all the work that they've done as well. Thank you all.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.