U.S. Physical Therapy, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013; comparisons are with the corresponding 2012 periods. The company operated 449 clinics in 43 states, plus 17 third-party facilities under management.
Financial performance
Amounts are in millions except per-share data, clinic statistics and margins. Figures may not sum due to rounding.
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net revenues | $67.2 | $64.0 | $130.3 | $126.5 |
| Operating income | $10.7 | $10.6 | $18.8 | $20.5 |
| Net income attributable to common shareholders | $4.9 | $4.8 | $8.6 | $9.3 |
| Diluted EPS | $0.41 | $0.41 | $0.72 | $0.79 |
| Gross margin | $17.3 (25.7%) | $17.0 (26.6%) | $32.0 (24.5%) | $33.1 (26.2%) |
| Operating cash flow | Not provided separately | Not provided separately | $20.7 | $19.0 |
Q2 net patient revenue was $65.3 million, up 5.2%; visits rose to 614,241 from 587,324, while net patient revenue per visit increased to $106.30 from $105.65. Average visits per clinic per day declined to 21.6 from 22.1. For the first half, visits increased to 1,192,116 from 1,165,994 and revenue per visit to $106.37 from $105.10.
At June 30, cash was $10.3 million, current assets $41.4 million and current liabilities $17.4 million. Total liabilities were $35.2 million. Debt comprised $15.75 million drawn on the revolving facility and $1.2 million of notes payable; revolving availability was $59.2 million under the $75 million facility. The company reported compliance with covenants. The variable-rate facility had a 3.0% average effective rate, including the unused fee.
Changes versus prior period
- Q2 revenue rose about 5.1%, but operating income and common-shareholder net income increased only modestly; diluted EPS was unchanged at $0.41.
- First-half revenue rose about 3.0%, while operating income fell about 8.0%, common-shareholder net income fell about 7.4%, and diluted EPS declined from $0.79 to $0.72. Clinic operating costs increased to 75.5% of net revenue from 73.8%; salaries and related costs were 53.9% of revenue versus 51.7%.
- Growth came mainly from new clinics and acquisitions. New clinics contributed $3.6 million of Q2 and $5.1 million of first-half patient revenue, while mature-clinic patient revenue declined $0.4 million in Q2 and $0.9 million in the first half.
- The company acquired three clinic groups totaling 19 clinics, with interests of 50% to 80%, and two additional clinics. Acquisition consideration was $10.8 million, including $0.8 million in seller notes; preliminary goodwill recorded was $14.4 million. The acquired businesses’ purchase-price allocation remained preliminary.
Cash flow, outlook and risks
- First-half operating cash flow of $20.7 million funded, among other items, $10.0 million of business acquisitions and $2.4 million of fixed-asset purchases. Investing activities used $13.4 million; financing activities used $8.7 million. Cash declined $1.4 million from year-end.
- Management said operating cash flow, cash and unused credit availability were expected to fund working capital, dividends, capital needs and development through at least June 2014, excluding future acquisitions. Significant acquisitions would likely require credit-facility financing. No earnings or revenue guidance was provided.
- Medicare reimbursement was reduced 2% effective April 1, 2013 under sequestration. The increase in Medicare multiple-procedure payment reductions to 50% also took effect April 1; management estimated an 8%–10% reduction in reimbursement for services to Medicare beneficiaries. Further payment changes depend on legislation and regulation.
- The Physician Services Business recorded a first-half gross-margin loss of $0.5 million, versus a $21,000 profit a year earlier; RMG revenue was lower. One OA Center had closed and the second was scheduled to close in late August, with about $50,000 of expected closure costs. If RMG profitability does not recover, the company may impair some or all of its $6.4 million of RMG goodwill and other intangible assets.
- Other principal risks include payor reimbursement and regulatory changes, therapist recruitment and retention, competition, economic conditions, collections and decentralized billing controls, weather, and acquisition integration. The filing reported disclosure controls as effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether mature-clinic visits and productivity stabilize and salary-cost growth moderates.
- Actual effects of Medicare payment reductions, including the stated 8%–10% reimbursement impact on Medicare services.
- Progress in restoring RMG profitability and any impairment or additional closure costs.
- Final purchase-price allocations for 2013 acquisitions and the resulting goodwill and intangible-asset balances.
- Cash generation, acquisition spending, revolving-credit usage and continued compliance with credit covenants.