Q1 2008 RehabCare Group, Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning, ladies and gentlemen, and welcome to the first quarter earning's conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Gordon McCoun. Mr. McCoun you may begin.

GORDON MCCOUN, FINANCIAL DYNAMICS, REHABCARE GROUP, INC.: Thank you and good morning, everyone. Welcome again to the conference call to discuss RehabCare's first quarter 2008 earnings. With us today from management are John Short, Chief Executive Officer of RehabCare Group and other members of the senior management team. Before we begin, I'd like to remind you that on --this conference call contains forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on the company's current expectations and could be effected by numerous factors, risks and uncertainties discussed in the company's filings with the Securities and Exchange Commission including its most recent annual report on form 10-K, subsequent quarterly reports on form 10-Q and current reports on form 8-K. Do not rely on forward-looking statements as the company cannot predict or control many of the factors that ultimately may affect the company's ability to achieve the results estimated. The company makes no promise to update any forward-looking statements whether as a result of changes in underlying factors, new information, future events or otherwise.

With these introductory comments out of the way, I'd like to turn the call over to Dr. Short. John, please go ahead.

JOHN SHORT, PRESIDENT AND CEO, REHABCARE GROUP, INC.: Thanks, Gordon. Good morning and thank you for joining us today. I'm John Short, President and CEO of the company. With me are Jay Shreiner, Chief Financial Officer and the rest of my executive management team, all of whom will be available to answer your questions at the conclusion of our remarks.

After dedicating 2007 to integrating the significant Symphony acquisition and improving our profitability, we have turned our attention in 2008 back to growing the business. I'm very pleased to report that based on the results of first quarter, we are achieving that goal.

We saw sequential operating revenue growth across each of our divisions. With the Contract Therapy division reporting the most significant top line growth of $4.9 million. Sequentially consolidated operating revenues increased 6%, fueled in part by the long-awaited legislative relief we received in our HRS and hospital divisions and increased patient volumes in our CT division.

However, earnings on a sequential basis were hindered by a combination of higher first quarter incentive accruals and a return to more typical levels of self-insurance accruals. As expected, our hospital division continued to experience growing pains, impacted by start up and ramp up losses, and infrastructure development investments.

We remain firm in our commitment to our strategy and are encouraged by the fact that Central Texas Rehab Hospital-our joint venture in Austin-reached break even at the end of this quarter, within only four months of receiving its Medicare provider number.

Let me give you some highlights of the quarter as they pertain to our core operating segments. Contract Therapy reported same-store revenue growth of 7.2% as a result of increased patient volume and enhanced therapist efficiency. Strong same-store revenue growth more than offset the net loss of 26 locations in the first quarter. The division opened 25 new locations and signed contracts for 30 new client locations in first quarter. We remain confident that we can achieve the net increase in locations as we have projected for 2008.

We also continue to believe we can obtain operating earnings margins of 4.5 to 5.5% during 2008. Our Hospital Rehabilitation Services division had its first sequential top line improvement since the second quarter of 2005, marked by a 3.7% increase in operating revenues and a 4% growth in inpatient rehab facilities or same-store admissions.

With the permanent freeze at 75% rule of 60%, our units managed from an average compliance level of 67.8% in the fourth quarter of 2007 to a 62.7% level in the first quarter.

Strong development activity coupled with improved client retention led to stabilization in the number of managed inpatient rehabilitation facilities and outpatient units at 107 and 33 respectively. We lost one subacute contract.

In the first quarter, we signed five new IRF clients and opened four new units, which is is the largest number of new openings for a quarter in our inpatient segment since 2005. We expect to achieve net additions in IRFs and to deliver operating earnings of 12 to 15% in 2008. In our hospital division, we saw a healthy …