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10-Q: U S PHYSICAL THERAPY INC /NV

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(EDGAR Online via COMTEX) -- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following is a discussion of our historical consolidated financial condition and results of operations, and should be read in conjunction with (i) our historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q; (ii) our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the "SEC") on March 1, 2022 ("2021 Annual Report"); and

References to "we," "us," "our" and the "Company" shall mean U.S. Physical Therapy, Inc. and its subsidiaries.

EXECUTIVE SUMMARY

Our Business

We operate outpatient physical therapy clinics that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders and sports-related injuries, neurologically-related injuries and rehabilitation of injured workers. We also operate an industrial injury prevention services business which includes onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments services.

Selected Operating and Financial Data

Our reportable segments include the physical therapy operations segment and the industrial injury prevention services segment. Our physical operations consist of physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic-related disorders, sports-related injuries, preventive care, rehabilitation of injured workers and neurological injuries. Services provided by industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments.

At March 31, 2022, we operated 601 clinics in 39 states. In addition to our ownership and operation of outpatient physical therapy clinics, we also manage physical therapy facilities for third parties, such as physicians and hospitals, with 38 such third-party facilities under management as of March 31, 2022.

During the 2021 year and three months ended March 31, 2022, we completed the acquisitions of four multi-clinic practices and two industrial injury services businesses as detailed below.







        Acquisition                         Date          Acquired   Clinics
        March 2022 Acquisition         March 31, 2022       70%         6
        December 2021 Acquisition    December 31, 2021      75%         3
        November 2021 Acquisition    November 30, 2021      70%       IIPS*
        September 2021 Acquisition   September 30, 2021     100%      IIPS*
        June 2021 Acquisition          June 30, 2021        65%         8
        March 2021 Acquisition         March 31, 2021       70%         6
        


* Industrial injury prevention services business

During the 2022 First Quarter, we closed two clinics.

Employees

Our strategy to acquire physical therapy practices, develop outpatient physical therapy clinics as satellites within existing partnerships, acquire industrial injury prevention services businesses, and to continue to support the growth of our existing businesses requires a talented workforce that can grow with us. As of March 31, 2022 we employed approximately 5,519 people nationwide, of which approximately 3,060 were full-time employees.

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It is crucial that we continue to attract and retain top talent. To attract and retain talented employees, we strive to make our corporate office and all of our practices and businesses a diverse and healthy workplace, with opportunities for our employees to receive continuing education, skill development, encouragement to grow and develop their career, all supported by competitive compensation, incentives, and benefits. Our clinical professionals are all licensed and a vast majority have advanced degrees. Our operational leadership teams have long-standing relationships with local and regional universities, professional affiliations, and other applicable sources that provide our practices with a talent pipeline.

We provide competitive compensation and benefits programs to help meet our employees' needs in the practices and communities in which they serve. These programs (which can vary by practice and employment classification) include incentive compensation plans, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, education assistance, mental health, and other employee assistance benefits.

We invest resources to develop the talent needed to support our business strategy. Resources include a multitude of training and development programs delivered internally and externally, online and instructor-led, and on-the-job learning formats.

We expect to continue adding personnel in the future as we focus on potential acquisition targets and organic growth opportunities.

RESULTS OF OPERATIONS

Summary of 2022 First Quarter Compared to the 2021 First Quarter Results

For the three months ended March 31, 2022 ("2022 First Quarter"), our net income attributable to our shareholders was $8.8 million as compared to $8.2 million for the three months ended March 31, 2021 ("2021 First Quarter"). In accordance with current GAAP accounting guidance, the revaluation of redeemable non-controlling interest, net of taxes, is not included in net income but charged directly to retained earnings; however, the charge for this change is included in the earnings per basic and diluted share calculation. Inclusive of the charge for revaluation of non-controlling interest, net of taxes, the amount is $8.2 million, or $0.64 per diluted share, for the 2022 First Quarter, and $2.8 million, or $0.21 per diluted share, for the 2021 First Quarter.

For the 2022 First Quarter, our Operating Results, were $8.7 million, or $0.67 per diluted share, an increase of 2.0%, as compared to $8.2 million, or $0.64 per diluted share, for the 2021 First Quarter. Operating Results, a non-GAAP measure, equals net income attributable to our shareholders per the consolidated statements of income, less the gain on the revaluation of the put-right liability. In accordance with GAAP, the revaluation of redeemable non-controlling interest, net of tax, is included in the earnings per basic and diluted share calculation, although it is not included in net income but charged directly to retained earnings. See table on page 30.

We believe providing Operating Results is useful to investors for comparing the Company's period-to-period results and for comparing with other similar businesses since most do not have redeemable instruments and therefore have different equity structures. We use Operating Results, which eliminates certain items described above that can be subject to volatility and unusual costs, as one of the principal measures to evaluate and monitor financial performance.

Operating Results is not a measure of financial performance under GAAP and should not be considered in isolation or as an alternative to, or substitute for, net income attributable to our shareholders presented in the consolidated financial statements.

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The following tables provide detail of the diluted earnings per share computation and reconcile net income attributable to our shareholders calculated in accordance with GAAP to Operating Results (in thousands, except per share data):







                                                                          Three Months Ended March 31,
                                                                            2022                 2021
        Computation of earnings per share - USPH shareholders:
        Net income attributable to USPH shareholders                   $        8,799       $        8,173
        Credit (charges) to retained earnings:
        Revaluation of redeemable non-controlling interest                       (153 )             (7,270 )
        Tax effect at statutory rate (federal and state) of 25.55%                 39                1,857
                                                                       $        8,685       $        2,760
        Earnings per share (basic and diluted)                         $         0.67       $         0.21
        Adjustments:
        Gain on revaluation of put-right liability                               (603 )                  -
        Revaluation of redeemable non-controlling interest                        153                7,270
        Tax effect at statutory rate (federal and state)                          115               (1,857 )
        Operating Results (a non-GAAP measure)                         $        8,350       $        8,173
        Basic and diluted Operating Results per share (a non-GAAP
        measure)                                                       $         0.65       $         0.64
        Shares used in computation - basic and diluted                         12,937               12,870
        


The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements (in thousands):







                                                   Three Months Ended March 31,
                                                     2022                 2021
        Net operating revenue:
        Physical therapy operations             $      112,636       $      102,359
        Industrial injury prevention services           19,068               10,009
        Total Company                           $      131,704       $      112,368
        Gross profit:
        Physical therapy operations             $       22,436       $       23,174
        Industrial injury prevention services            4,152                2,722
        Gross profit                            $       26,588       $       25,896
        Total Assets:
        Physical therapy operations             $      608,240       $      723,530
        Industrial injury prevention services          155,623               25,896
        Total Company                           $      763,863       $      749,426
        


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        Revenue
        Reported total revenue for the 2022 First Quarter was $131.7 million, an
        increase of 17.2% as compared to $112.4 million for the 2021 First Quarter.  See
        table below for a detail of reported total revenue (in thousands):
                                                                        Three Months Ended
                                                                March 31, 2022       March 31, 2021
        Revenue related to Mature Clinics                      $        102,321     $         98,649
        Revenue related to 2022 Clinic Additions                            195                    -
        Revenue related to 2021 Clinic Additions                          6,823                  149
        Revenue from clinics sold or closed in 2022                         199                  190
        Revenue from clinics sold or closed in 2021                           -                  266
        Net patient revenue from physical therapy operations            109,538               99,254
        Other revenue                                                       872                  546
        Revenue from physical therapy operations                        110,410               99,800
        Management contract revenue                                       2,226                2,559
        Industrial injury prevention services                            19,068               10,009
        Total Revenue                                          $        131,704     $        112,368
        


Revenue from physical therapy operations increased $10.6 million, or 10.5%, to $110.4 million for the 2022 First Quarter from $99.8 million for the 2021 First Quarter. Net patient revenue related to clinics opened or acquired prior to 2021 and still in operation at March 31, 2022 ("Mature Clinics") increased $3.7 million, or 3.7%, to $102.3 million for the 2022 First Quarter compared to $98.6 million for the 2021 First Quarter.

The average net patient revenue per visit was $103.00 for the 2022 First Quarter as compared to $104.72 for the 2021 First Quarter. Total patient visits increased 12.2% to 1,063,519 for the 2022 First Quarter from 947,788 for the 2021 First Quarter. Net patient revenue is based on established billing rates less allowances for patients covered by contractual programs and workers' compensation. Net patient revenue is determined after contractual and other adjustments relating to patient discounts from certain payors. Payments received under contractual programs and workers' compensation are based on predetermined rates and are generally less than the established billing rates.

Visits for Mature Clinics (same store) for the 2022 First Quarter increased 5.9% as compared to the 2021 First Quarter.

Revenue from physical therapy management contracts decreased 13.0% to $2.2 million for the 2022 First Quarter as compared to $2.6 million for the 2021 First Quarter. Other miscellaneous revenue was $0.9 million for the 2022 First Quarter and $0.5 million for the 2021 First Quarter. Other miscellaneous revenue includes a variety of services, including athletic trainers provided for schools and athletic events. Other miscellaneous revenue includes a variety of services, including athletic trainers provided for schools and athletic events.

Revenue from the industrial injury prevention services business increased 90.5% to $19.1 million for the 2022 First Quarter as compared to $10.0 million for the 2021 First Quarter. Excluding $6.8 million of revenue related to the industrial injury prevention services acquisition in November 2021, industrial injury prevention services revenue increased 22.4% in the 2022 First Quarter as compared to the 2021 First Quarter.

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Operating Cost

Total operating cost was $105.1 million for the 2022 First Quarter, or 79.8% of total revenue, as compared to $86.5 million, or 77.0% of total revenue, for the 2021 First Quarter. Operating cost related to Mature Clinics increased by $4.8 million for the 2022 First Quarter compared to the 2021 First Quarter. On a per visit basis, operating cost related to Mature Clinics increased 0.4% from $80.78 in the 2021 First Quarter to $81.08 in the 2022 First Quarter. In addition, operating cost related to the industrial injury prevention services business increased by $7.6 million of which $5.6 million related to the recent industrial injury prevention services acquisition in November 2021. See table below for a detail of operating cost (in thousands):







                                                                                    Three Months Ended
                                                                            March 31, 2022       March 31, 2021
        Operating cost related to Mature Clinics                          $           81,034     $        76,221
        Operating cost related to 2022 Clinic Additions                                  840                   -
        Operating cost related to 2021 Clinic Additions                                6,209                 136
        Operating cost related to clinics sold or closed in 2022                         286                 249
        Operating cost related to clinics sold or closed in 2021                           -                 334
        Operating cost related to physical therapy operations                         88,369              76,940
        Operating cost related to management contracts                                 1,831               2,245
        Operating cost related to industrial injury prevention services               14,916               7,287
        Total operating cost                                              $          105,116     $        86,472
        


Each component of operating cost is discussed below:

Operating Cost-Salaries and Related Costs

Salaries and related costs, including physical therapy operations and the industrial injury prevention services business, was 57.1% of net revenue for the 2022 First Quarter versus 56.8% for the 2021 First Quarter. Salaries and related costs for the physical therapy operations was $62.4 million in the 2022 First Quarter, or 56.6% of physical therapy operations revenue, as compared to $55.6 million in the 2021 First Quarter, or 55.7% of physical therapy operations revenue. Included in salaries and related costs for the physical therapy operations for the 2022 First Quarter was $3.7 million related to 2022 and 2021 Clinic Additions. Adjusted for the salaries and related costs for clinics closed or sold in 2022 and 2021, salaries and related costs related to Mature Clinics increased by $3.4 million in the 2022 First Quarter compared to the 2021 First Quarter. Salaries and related costs related to management contracts decreased by $0.3 million for the 2022 First Quarter.

Salaries and related costs for the industrial injury prevention services business was $11.1 million in the 2022 First Quarter, or 58.2% of industrial injury prevention services revenue, as compared to $6.3 million in the 2021 First Quarter, or 62.5% of industrial injury prevention services revenue.

Operating Cost-Rent, Supplies, Contract Labor and Other

Rent, supplies, contract labor and other costs, including physical therapy operations and the industrial injury prevention services business, was 21.8% of net revenue in the 2022 First Quarter versus 19.1% in the 2021 First Quarter. Rent, supplies, contract labor and other costs for the physical therapy operations was $24.6 million in the 2022 First Quarter, or 22.3% of physical therapy operations revenue, as compared to $20.1 million in the 2021 First Quarter, or 20.1% of physical therapy operations revenue. Included in rent, supplies, contract labor and other costs related to physical therapy operations for the 2022 First Quarter was $3.2 million related to 2022 and 2021 Clinic Additions. Adjusted for the rent, supplies, contract labor and other costs for clinics related to the clinics closed or sold in 2022 and 2021 of $0.1 million in the 2022 First Quarter and $0.3 million in the 2021 First Quarter, rent, supplies, contract labor and other costs for Mature Clinics increased by $1.4 million in the 2022 First Quarter compared to the 2021 First Quarter. Rent, supplies, contract labor and other costs, related to management contracts increased $0.1 million in the 2022 First Quarter.

Rent, supplies, contract labor and other costs for the industrial injury prevention services business was $3.8 million in the 2022 First Quarter, or 20.1% of industrial injury prevention services revenue, as compared to $1.0 million in the 2021 First Quarter, or 10.3% of net industrial injury prevention services revenue.

Operating Cost-Provision for Credit Losses

The provision for credit losses as a percentage of net revenue was 1.0% in the 2022 First Quarter and 1.1% for the comparable period in 2021.

Our provision for credit losses for patient accounts receivable as a percentage of total patient accounts receivable was 5.37% at March 31, 2022, as compared to 5.64% at December 31, 2021. Our days' sales outstanding was 34 days at March 31, 2022 and 32 days at December 31, 2021.

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Gross Profit

Gross profit for the 2022 First Quarter, was $26.6 million, an increase of $0.7 million, or approximately 2.7%, as compared to $25.9 million for the 2021 First Quarter. The gross profit percentage was 20.2% of total revenue for the 2022 First Quarter as compared to 23.0% for the 2021 First Quarter. The gross profit percentage for physical therapy operations was 20.0% for the 2022 First Quarter as compared to 22.9% for the 2021 First Quarter. The gross profit percentage on management contracts was 17.7% for the 2022 First Quarter as compared to 12.3% for the 2021 First Quarter. The gross profit percentage for industrial injury prevention services was 21.8% for the 2022 First Quarter as compared to 27.2% for the 2021 First Quarter. The table below details the gross profit (in thousands):







                                                         Three Months Ended
                                                 March 31, 2022      March 31, 2021
        Physical therapy operations             $         22,041     $        22,860
        Management contracts                                 395                 314
        Industrial injury prevention services              4,152               2,722
        Gross profit                            $         26,588     $        25,896
        


Corporate Office Costs

Corporate office costs were $11.6 million for the 2022 First Quarter compared to $10.9 million for the 2021 First Quarter. Corporate office costs were 8.8% of total revenue for the 2022 First Quarter as compared to 9.7% for the 2021 First Quarter.

Operating Income

Operating income for the 2022 First Quarter and 2021 First Quarter was $15.0 million. Operating income as a percentage of total revenue was 11.4% for the 2022 First Quarter as compared to 13.4% for the 2021 First Quarter.

Gain on Revaluation of Put-Right Liability

The gain on revaluation of put-right liability was $603,000. As part of the industrial injury prevention services business acquisition on November 30, 2021, the Company also agreed to the potential future purchase of a separate company under the same ownership that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. The owners have the right to put this transaction to us in approximately five years, with such right having a $2.9 million value on March 31, 2022, as reflected on the Company's consolidated balance sheet in Other long-term liabilities. The value of this right will continue to be adjusted in future periods, as appropriate.

Provision for Income Taxes

The provision for income tax was $3.5 million for the 2022 First Quarter and $2.9 million for the 2021 First Quarter. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 28.4% for the 2022 First Quarter and 26.5% for the 2021 First Quarter.

See table below detailing calculation of the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands):







                                                                                Three Months Ended
                                                                        March 31, 2022       March 31, 2021
        Income before taxes                                            $          15,480     $        14,830
        Less: net income attributable to non-controlling interest:
        Redeemable non-controlling interest - temporary equity                    (2,557 )            (2,453 )
        Non-controlling interest - permanent equity                                 (626 )            (1,260 )
                                                                       $          (3,183 )   $        (3,713 )
        Income before taxes less net income attributable to
        non-controlling interest                                       $          12,297     $        11,117
        Provision for income taxes                                     $           3,498     $         2,944
        Percentage                                                                  28.4 %              26.5 %
        


Net Income Attributable to Non-controlling Interest

Net income attributable to redeemable non-controlling interest (temporary equity) was $2.6 million for the 2022 First Quarter and $2.5 million for the 2021 First Quarter. Net income attributable to non-controlling interest (permanent equity) was $0.6 million for the 2022 First Quarter and $1.3 million for the 2021 First Quarter.

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LIQUIDITY AND CAPITAL RESOURCES

We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. At March 31, 2022 and December 31, 2021, we had $24.2 million and $28.6 million, respectively, in cash. We believe that our cash and cash equivalents and availability under our revolving credit facility are sufficient to fund the working capital needs of our operating subsidiaries through at least March 31, 2022.

Cash and cash equivalents decreased by $4.3 million from December 31, 2021 to March 31, 2022. During the 2022 Three Months, $11.6 million was provided by operations and $35.0 million from proceeds on our Amended Credit Agreement (described below). The major uses of cash for investing and financing activities included: distributions to non-controlling interests inclusive of those classified as redeemable non-controlling interest ($2.2 million), purchase of business and non-controlling interest ($11.3 million), and purchase of fixed assets ($3.0 million).

Effective December 5, 2013, we entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended and/or restated in August 2015, January 2016, March 2017, November 2017 and January 2021 (hereafter referred to as "Amended Credit Agreement"). In November 2021, the Company exercised the accordion feature in the Amended Credit Agreement to increase the limit on the facility from $125.0 million to $150.0 million, with an updated accordion feature providing for additional capacity of $25.0 million, therefore increasing the availability up to $175.0 million.

The Amended Credit Agreement is unsecured and has loan covenants, including requirements that we comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of our common stock, dividend payments to our common stockholders, capital expenditures and other corporate purposes. The pricing grid is based on our consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25% to 2.0% or the applicable spread over the Base Rate ranging from 0.1% to 1%. Fees under the Amended Credit Agreement include an unused commitment fee of 0.3% of the amount of funds outstanding under the Amended Credit Agreement.

The 2021 amendment to the Amended Credit Agreement allows for cash and noncash consideration for acquisitions permitted under the Amended Credit Agreement of up to $50,000,000 for any fiscal year, and allows for payments in cash dividends to shareholders in an aggregate amount not to exceed $50,000,000 in any fiscal year. The Amended Credit Agreement is unsecured and includes certain financial covenants which include a consolidated fixed charge coverage ratio and a consolidated leverage ratio, as defined in the agreement.

On March 31, 2022, $118.0 million was outstanding on the Amended Credit Agreement resulting in $32.0 million of availability. As of March 31, 2022, we were in compliance with all of the covenants thereunder.

On March 31, 2022, we acquired a 70% interest in a six-clinic physical therapy practice in South Central Pennsylvania - Madden and Gilbert Physical Therapy, . . .

May 09, 2022

COMTEX_406928957/2041/2022-05-09T12:47:38

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