U.S. Physical Therapy, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the supplied filing does not provide a distinct fourth-quarter income statement or Q4 results.
Business context
The company operates outpatient physical therapy clinics and an industrial injury prevention services (IIP) business. At year-end it operated 640 clinics in 40 states and managed 40 practices for unrelated physician groups and hospitals. It completed five multi-clinic physical therapy acquisitions in 2022, adding 41 clinics, and continued to pursue acquisitions and satellite-clinic growth.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $553.1 million | $495.0 million |
| Net patient revenue | $464.6 million | $438.3 million |
| Gross profit / margin | $112.0 million / 20.3% | $117.2 million / 23.7% |
| Operating income / margin | $56.8 million / 10.3% | $70.6 million / 14.3% |
| Net income attributable to USPH shareholders | $32.2 million | $40.8 million |
| GAAP diluted EPS | $2.25 | $2.41 |
| Operating cash flow | $58.5 million | $76.4 million |
- Revenue grew 11.7%. IIP revenue increased 75.5% to $77.1 million, including $26.7 million from the 2021 IIP acquisition. Physical therapy revenue increased 6.1% to $468.0 million; patient visits rose 6.2% to 4.48 million, while revenue per visit was nearly flat at $103.63.
- Margins and earnings weakened despite revenue growth. Management cited inflationary wage and other cost pressures; salaries and related costs rose 14.6%, faster than revenue. IIP profitability also reflected the acquired business’s lower-margin profile.
- Adjusted EBITDA, a non-GAAP measure, was $73.7 million, versus $73.8 million in 2021 excluding that year’s relief funds. Operating Results, also non-GAAP, were $35.0 million, or $2.70 per diluted share, versus $40.8 million, or $3.17, excluding 2021 relief funds. These measures exclude specified items and should not be treated as GAAP results.
- Cash and cash equivalents were $31.6 million at year-end, up from $28.6 million. Capital expenditure was $8.2 million. Cash uses included $74.8 million to purchase non-controlling interests, $21.3 million of common dividends, and $15.3 million of distributions to non-controlling owners.
- Gross debt was approximately $185.6 million, comprising $179.1 million under the credit facilities and $6.4 million of other debt; net debt after unamortized financing costs was $183.7 million. The credit agreement provides a $150 million term facility and a $175 million revolver, matures in June 2027, and carried a reported interest rate of 4.665% at year-end. The company reported covenant compliance and $145.9 million of facility availability.
- Current assets were $111.3 million and current liabilities $85.5 million. The company stated cash and credit availability were sufficient for expected working-capital needs through at least December 31, 2023.
Material changes and unusual items
- A $9.1 million goodwill impairment was recorded in one IIP reporting unit, attributed to changed current and projected operating income and market assumptions, including higher interest rates. No impairment was recorded for the other seven reporting units.
- Interest expense increased to $5.8 million from $0.9 million, primarily reflecting higher borrowings. A $150 million-notional interest-rate swap became effective in June 2022; it fixes the SOFR component at 2.815% through June 2027, subject to the applicable loan margin.
- The company recognized a $2.5 million benefit from remeasurement of contingent acquisition earn-out consideration. The year-end fair value of contingent consideration was $8.3 million, primarily related to the October 2022 acquisition.
- The 2021 comparison included $4.6 million of COVID-19 relief-fund income; none was recorded in 2022. The company repaid $14.1 million of Medicare advance payments in 2021.
- In January 2022, the company settled a Florida False Claims Act qui tam matter for $2.8 million, admitting no liability or wrongdoing. The related $2.6 million expense was recorded in 2021.
- FY2022 dividends totaled $1.64 per share. In February 2023, the board declared a quarterly dividend of $0.43 per share.
Outlook, risks and contingencies
- Management said it intends to continue acquiring multi-clinic practices, developing satellite clinics, and increasing patient volume through marketing and new programs. The filing provides no numerical earnings or revenue guidance.
- Medicare represented approximately 37.5% of net patient revenue. The filing describes an approximately 2% reduction in the 2023 Medicare Physician Fee Schedule conversion factor and a 15% payment reduction for services furnished in whole or in part by therapist assistants beginning in 2022.
- Key risks include Medicare and Medicaid reimbursement reductions or recoupments; payor audits and healthcare regulatory compliance; recruitment, retention and wage inflation; acquisition integration and contingent payments; variable-rate debt; clinic-partner put rights; and possible loss of IIP employer contracts. COVID-19, severe weather, cybersecurity and privacy incidents, and general economic conditions are also identified risks.
- Redeemable non-controlling interests were $167.5 million at year-end. Partner put rights are conditional, generally tied to employment termination and contractual timing, and purchase prices are formula-based; exercises could require substantial cash. Separately, an acquisition agreement includes a potential future put to acquire a majority interest in another company, valued at $3.5 million at year-end.
- The company had $8.1 million accrued for patient and payor credit balances and overpayments, expected to be paid in 2023. It also disclosed ordinary-course legal claims and regulatory matters whose outcomes cannot be predicted.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective as of year-end.
Important facts for investors to verify
- Whether patient volumes, revenue per visit and labor costs support a recovery in physical therapy and consolidated margins.
- The acquired IIP unit’s subsequent performance and whether further impairment or integration costs arise.
- Cash flow available after acquisitions, dividends, debt service and any exercise of partner put rights; confirm current facility availability and borrowing terms.
- The assumptions, maximum potential exposure and later remeasurement of the $8.3 million contingent acquisition consideration and other earn-outs.
- Actual effects of Medicare reimbursement changes, payor audits, credit balances and any legal or regulatory developments.