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Aug. 8, 2022, 12:40 p.m. EDT

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 ("IIPS") 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 June 30, 2022, we operated 608 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 33 such third-party facilities under management as of June 30, 2022.

During the 2021 year and for the six months ended June 30, 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 six months ended June 30, 2022, we closed three clinics and sold five clinics.

Employees

Our strategy is 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 June 30, 2022 we employed approximately 5,809 people nationwide, of which approximately 3,158 were full-time employees.

Index

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 Second Quarter Compared to the 2021 Second Quarter Results

For the three months ended June 30, 2022 ("2022 Second Quarter"), our net income attributable to our shareholders was $11.2 million as compared to $12.4 million for the three months ended June 30, 2021 ("2021 Second Quarter"). In accordance with Generally Accepted Accounting Principles ("GAAP"), 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 $11.4 million, or $0.87 per diluted share, for the 2022 Second Quarter, and $10.5 million, or $0.82 per diluted share, for the 2021 Second Quarter.

For the 2022 Second Quarter, our Operating Results, a non-GAAP measure, was $11.7 million, or $0.90 per diluted share, the second highest quarterly amount in our Company's history, as compared to $12.4 million, or $0.96 per diluted share, for the 2021 Second Quarter, the highest quarterly amount in our Company's history.

For the six months ended June 30, 2022 ("2022 Six Months"), our net income attributable to our shareholders was $20.0 million and was $20.6 million for the six months ended June 30, 2022 ("2021 Six Months"). Inclusive of the charge for revaluation of non-controlling interest, net of taxes, the amount is $20.0 million, or $1.55 per diluted share, for the 2022 Six Months, and $13.3 million, or $1.03 per diluted share, for the 2021 Six Months.

For the 2022 Six Months, our Operating Results, a non-GAAP measure, was $20.0 million, or $1.54 per diluted share, a decrease of 3.0%, as compared to $20.6 million, or $1.60 per diluted share, for the 2021 Second Quarter.

We believe providing Operating Results is useful to investors for comparing our 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.

Index

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 June 30,
                                                                            2022                 2021
        Computation of earnings per share - USPH shareholders:
        Net income attributable to USPH shareholders                   $       11,195       $       12,436
        Credit (charges) to retained earnings:
        Revaluation of redeemable non-controlling interest                        210               (2,549 )
        Tax effect at statutory rate (federal and state) of 25.55%                (54 )                651
                                                                       $       11,351       $       10,538
        Earnings per share (basic and diluted)                         $         0.87       $         0.82
        Adjustments:
        Change in revaluation of put-right liability                              617                    -
        Revaluation of redeemable non-controlling interest                       (210 )              2,549
        Tax effect at statutory rate (federal and state)                         (104 )               (651 )
        Operating Results (a non-GAAP measure)                         $       11,654       $       12,436
        Basic and diluted Operating Results per share (a non-GAAP
        measure)                                                       $         0.90       $         0.96
        Shares used in computation - basic and diluted                         12,998               12,902
                                                                           Six Months Ended June 30,
                                                                           2022                2021
        Computation of earnings per share - USPH shareholders:
        Net income attributable to USPH shareholders                   $      19,994       $      20,609
        Credit (charges) to retained earnings:
        Revaluation of redeemable non-controlling interest                        57              (9,819 )
        Tax effect at statutory rate (federal and state) of 25.55%               (15 )             2,508
                                                                       $      20,036       $      13,298
        Earnings per share (basic and diluted)                         $        1.55       $        1.03
        Adjustments:
        Change in revaluation of put-right liability                              14                   -
        Revaluation of redeemable non-controlling interest                       (57 )             9,819
        Tax effect at statutory rate (federal and state)                          11              (2,508 )
        Operating Results (a non-GAAP measure)                         $      20,004       $      20,609
        Basic and diluted Operating Results per share (a non-GAAP
        measure)                                                       $        1.54       $        1.60
        Shares used in computation - basic and diluted                        12,968              12,886
        


Index

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 June 30,
                                                     2022                 2021
        Net operating revenue:
        Physical therapy operations             $      121,219       $      116,895
        Industrial injury prevention services           19,437               10,033
        Total Company                           $      140,656       $      126,928
        Gross profit:
        Physical therapy operations             $       26,698       $       31,761
        Industrial injury prevention services            4,123                2,543
        Gross profit                            $       30,821       $       34,304
        Total Assets:
        Physical therapy operations             $      414,172       $      545,449
        Industrial injury prevention services          382,272              203,977
        Total Company                           $      796,444       $      749,426
        








        Revenue
        Reported total revenue for the 2022 Second Quarter was $140.7 million, an
        increase of 10.8% as compared to $126.9 million for the 2021 Second Quarter.
        See table below for a detail of reported total revenue (in thousands):
                                                                       Three Months Ended
                                                                June 30, 2022       June 30, 2021
        Revenue related to Mature Clinics                      $       108,582     $       110,105
        Revenue related to 2022 Clinic Additions                         3,117                   -
        Revenue related to 2021 Clinic Additions                         6,191               2,414
        Revenue from clinics sold or closed in 2022                        306                 592
        Revenue from clinics sold or closed in 2021                          -                 127
        Net patient revenue from physical therapy operations           118,196             113,238
        Other revenue                                                      898                 918
        Revenue from physical therapy operations                       119,094             114,156
        Revenue - Management contracts                                   2,125               2,739
        Revenue - Industrial injury prevention services                 19,437              10,033
        Total Revenue                                          $       140,656     $       126,928
        


Revenue from physical therapy operations increased $4.9 million, or 4.3%, to $119.1 million for the 2022 Second Quarter from $114.2 million for the 2021 Second Quarter. Net patient revenue related to clinics opened or acquired prior to 2021 and still in operation on June 30, 2022 ("Mature Clinics") decreased $1.5 million, or 1.4%, to $108.6 million for the 2022 Second Quarter compared to $110.1 million for the 2021 Second Quarter, due mostly to the decrease in average net patient revenue per visit. Visits for Mature Clinics (same store) for the 2022 Second Quarter decreased slightly (0.2%) as compared to the 2021 Second Quarter.

The average net patient revenue per visit was $103.18 for the 2022 Second Quarter as compared to $104.46 for the 2021 Second Quarter. Total patient visits increased 5.7% to 1,145,554 for the 2022 Second Quarter from 1,084,070 for the 2021 Second 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.

Index

Revenue from the industrial injury prevention services business increased 93.7% to $19.4 million for the 2022 Second Quarter as compared to $10.0 million for the 2021 Second Quarter. Excluding $6.8 million of revenue related to the IIPS acquisition in November 2021, IIPS revenue increased 25.5% in the 2022 Second Quarter as compared to the 2021 Second Quarter.

Revenue from management contracts decreased 22.4% to $2.1 million for the 2022 Second Quarter as compared to $2.7 million for the 2021 Second Quarter due to the termination of five management contracts.

Operating Cost

Total operating cost was $109.8 million for the 2022 Second Quarter, or 78.1% of total revenue, as compared to $92.6 million, or 73.0% of total revenue, for the 2021 Second Quarter. Operating cost related to Mature Clinics increased by $4.0 million or 5.0%, for the 2022 Second Quarter compared to the 2021 Second Quarter. In addition, operating cost related to the IIPS business increased by $7.8 million of which $5.7 million related to our November 2021 IIPS acquisition. Physical therapy total operating costs were $81.09 per visit in the 2022 Second Quarter as compared to $76.50 per visit in the 2021 Second Quarter, an increase of 6.0%. See table below for a detail of operating cost (in thousands):







                                                                                   Three Months Ended
                                                                           June 30, 2022        June 30, 2021
        Operating cost related to Mature Clinics                          $         84,216     $        80,205
        Operating cost related to 2022 Clinic Additions                              2,692                   -
        Operating cost related to 2021 Clinic Additions                              5,996               2,063
        Operating cost related to clinics sold or closed in 2022                       324                 555
        Operating cost related to clinics sold or closed in 2021                         -                 107
        Operating cost related to physical therapy operations                       92,898              82,930
        Operating cost related to management contracts                               1,622               2,203
        Operating cost related to industrial injury prevention services             15,315               7,491
        Total operating cost                                              $        109,835     $        92,624
        


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 56.8% of net revenue for the 2022 Second Quarter versus 54.3% for the 2021 Second Quarter. Salaries and related costs for the physical therapy operations was $66.7 million in the 2022 Second Quarter, or 56.1% of physical therapy operations revenue, as compared to $60.6 million in the 2021 Second Quarter, or 53.1% of physical therapy operations revenue. Included in salaries and related costs for the physical therapy operations for the 2022 Second Quarter was $4.9 million related to 2022 and 2021 Clinic Additions. Adjusted for the salaries and related costs for clinics closed or sold in 2022 and 2021 of $0.2 million in the Second Quarter and $0.4 million in 2021 Second Quarter, salaries and related costs related to Mature Clinics increased by $2.7 million in the 2022 Second Quarter compared to the 2021 Second Quarter. Physical therapy salaries and related costs were $58.29 per visit in the 2022 Second Quarter as compared to $55.95 per visit in the Second Quarter 2021, an increase of 4.2%. Salaries and related costs related to management contracts decreased by $0.4 million for the 2022 Second Quarter.

Salaries and related costs for the industrial injury prevention services business was $11.6 million in the 2022 Second Quarter, or 59.9% of industrial injury prevention services revenue, as compared to $6.2 million in the 2021 Second Quarter, or 62.2% 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 IIPS business, was 20.2% of net revenue in the 2022 Second Quarter versus 17.6% in the 2021 Second Quarter. Rent, supplies, contract labor and other costs for the physical therapy operations was $24.7 million in the 2022 Second Quarter, or 20.7% of physical therapy operations revenue, as compared to $20.9 million in the 2021 Second Quarter, or 18.3% of physical therapy operations revenue. Included in rent, supplies, contract labor and other costs related to physical therapy operations for the 2022 Second Quarter was $2.7 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 Second Quarter and $0.2 million in the 2021 Second Quarter, rent, supplies, contract labor and other costs for Mature Clinics increased by $1.9 million in the 2022 Second Quarter compared to the 2021 Second Quarter. Rent, supplies, contract labor and other costs, related to management contracts decreased $0.1 million in the 2022 Second Quarter.

Index

Rent, supplies, contract labor and other costs for the industrial injury prevention services business was $3.5 million in the 2022 Second Quarter, or 18.2% of industrial injury prevention services revenue, as compared to $1.2 million in the 2021 Second Quarter, or 12.5% 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 1.1% in the 2022 Second Quarter and for the comparable period in 2021.

Our provision for credit losses for patient accounts receivable as a percentage of total patient accounts receivable was 5.51% on June 30, 2022, as compared to 5.64% on December 31, 2021. Our days' sales outstanding was 33 days on June 30, 2022 and 32 days on December 31, 2021.

Gross Profit

Gross profit for the 2022 Second Quarter, was $30.8 million, a decrease of $3.5 million, or approximately 10.2%, as compared to $34.3 million for the 2021 Second Quarter. The gross profit percentage was 21.9% of total revenue for the 2022 Second Quarter as compared to 27.0% for the 2021 Second Quarter. The gross profit percentage for our







                                                        Three Months Ended
                                                 June 30, 2022       June 30, 2021
        Physical therapy operations             $        26,196     $        31,226
        Management contracts                                503                 536
        Industrial injury prevention services             4,122               2,542
        Gross profit                            $        30,821     $        34,304
        


Corporate Office Costs

Corporate office costs were $10.7 million for the 2022 Second Quarter compared to $12.1 million for the 2021 Second Quarter. Corporate office costs were 7.6% of total revenue for the 2022 Second Quarter as compared to 9.5% for the 2021 Second Quarter. The decrease was primarily due to lower estimated bonus expense in the 2022 Second Quarter compared to the 2021 Second Quarter.

Operating Income

Operating income for the 2022 Second Quarter was $20.1 million and $22.2 million for the 2021 Second Quarter. Operating income as a percentage of total revenue was 14.3% for the 2022 Second Quarter as compared to 17.5% for the 2021 Second Quarter.

Loss on Revaluation of Put-Right Liability

The loss on revaluation of put-right liability was $617,000. As part of the IIPS business acquisition on November 30, 2021, we 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 $3.5 million value at June 30, 2022, as reflected on our consolidated balance sheet in Other long-term liabilities. The value of this right will continue to be adjusted in future periods, as appropriate.

Index

Provision for Income Taxes

The provision for income tax was $4.2 million for the 2022 Second Quarter and $4.6 million for the 2021 Second Quarter. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 27.5% for the 2022 Second Quarter and 26.9% for the 2021 Second Quarter. See table below ($ in thousands):

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
                                                                        June 30, 2022       June 30, 2021
        Income before taxes                                            $        19,495     $        22,039
        Less: net income attributable to non-controlling interest:
        Redeemable non-controlling interest - temporary equity                  (2,626 )            (3,611 )
        Non-controlling interest - permanent equity                             (1,435 )            (1,425 )
                                                                       $        (4,061 )   $        (5,036 )
        Income before taxes less net income attributable to
        non-controlling interest                                       $        15,434     $        17,003
        Provision for income taxes                                     $         4,239     $         4,567
        Percentage                                                                27.5 %              26.9 %
        


Net Income Attributable to Non-controlling Interest

Net income attributable to redeemable non-controlling interest (temporary equity) was $2.6 million for the 2022 Second Quarter and $3.6 million for the 2021 Second Quarter. Net income attributable to non-controlling interest (permanent equity) was $1.4 million for the 2022 Second Quarter and million for the 2021 Second Quarter.







        2022 Six Months Compared to 2021 Six Months
        The following table summarizes financial data by segment for the periods
        indicated and reconciles the data to our consolidated financial statements (in
        thousands):
                                                  Six Months Ended June 30,
                                                    2022               2021
        Net operating revenue:
        Physical therapy operations             $     233,855       $  219,253
        Industrial injury prevention services          38,505           20,043
        Total Company                           $     272,360       $  239,296
        Gross profit:
        Physical therapy operations             $      49,135       $   54,935
        Industrial injury prevention services           8,274            5,265
        Gross profit                            $      57,409       $   60,200
        Total Assets:
        Physical therapy operations             $     414,172       $  545,449
        Industrial injury prevention services         382,272          203,977
        Total Company                           $     796,444       $  749,426
        


Index







        Revenue
        . . .
        


Aug 08, 2022

COMTEX_411851416/2041/2022-08-08T12:40:09

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