Business context and reporting period
U.S. Physical Therapy, Inc. (NYSE: USPH) filed this Form 10-K for the fiscal year ended December 31, 2020. It operates outpatient physical and occupational therapy clinics and an industrial injury prevention services business. At year-end it operated 554 clinics in 39 states and managed 38 third-party practices. The filing reports full-year results; it does not provide a clear standalone fourth-quarter income statement.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net revenue | $423.0 million | $482.0 million |
| Net income attributable to USPH shareholders | $35.2 million | $40.0 million |
| GAAP diluted EPS | $2.48 | $2.45 |
| Operating income | $52.4 million; 12.4% of revenue | $67.4 million; 14.0% of revenue |
| Operating cash flow | $100.0 million | $62.4 million |
| Cash and cash equivalents at year-end | $32.9 million | $23.5 million |
| Revolving credit facility borrowings | $16.0 million | $46.0 million |
Gross profit was $94.5 million, including $3.9 million of clinic closure costs; excluding those costs, gross profit was $98.4 million versus $112.5 million in 2019. Adjusted EBITDA, a non-GAAP measure, was $70.0 million including $13.5 million of Provider Relief Funds, or $56.5 million excluding them, compared with $72.8 million in 2019. Current assets were $87.6 million and current liabilities $93.5 million. Total debt under the credit facility and seller notes was $21.5 million; operating lease liabilities were $89.5 million. The company reported $109.0 million of unused credit availability at year-end and compliance with its credit covenants.
Material changes versus the prior comparable period
- Revenue fell 12.2%; physical therapy net patient revenue declined 13.8% to $373.3 million. Patient visits declined to 3.53 million from 4.09 million, while revenue per visit was nearly flat at $105.66 versus $105.90.
- Management attributed lower clinic volume primarily to COVID-19. Average daily visits per clinic recovered from 18.9 in the second quarter to 27.7 in the fourth quarter; industrial injury prevention was less affected.
- Industrial injury prevention revenue increased 4.6% to $39.2 million. Its gross profit rose to $10.1 million from $8.4 million.
- Operating income declined by $15.0 million. Shareholder net income declined, while reported diluted EPS increased slightly; EPS includes the accounting effect of redeemable non-controlling-interest revaluation.
- The company acquired interests in three physical therapy businesses during 2020, including a practice with three clinics, acquired additional partnership interests, and closed 34 clinics. It sold 14 previously closed clinics. Year-end clinic count was 554 versus 583.
Outlook, commentary, risks, and unusual items
- Management said physical therapy volumes were trending upward as restrictions eased, but revenues remained below prior levels at the filing date; renewed restrictions could reduce visits and revenue. The company plans to pursue acquisitions, develop clinics and satellites, and increase patient volume. No quantified earnings or revenue guidance is provided.
- The company recognized $13.5 million of CARES Act Provider Relief Funds as other income; management said the funds are not repayable if applicable conditions are met and stated it could attest to compliance, while noting guidance could evolve. It also received $14.1 million of Medicare advance payments recorded as a liability, with repayment or application to future billings beginning in 2021; management intended to repay before August 2021.
- Medicare represented 31.6% of net patient revenue. The company estimated an aggregate Medicare rate reduction of about 3.5% for 2021, and therapy assistant services furnished in whole or part by assistants are scheduled for an 85% payment rate beginning in 2022.
- Clinic closure costs were $3.9 million, including $1.9 million of goodwill write-offs related to closed clinics. The company found no goodwill impairment in its annual assessment but said it would continue monitoring COVID-related uncertainty.
- A Florida qui tam False Claims Act case alleges upcoding at a subsidiary clinic. The government declined to intervene; dismissal motions were pending. The company disputes the allegations and says the outcome cannot be predicted.
- Redeemable non-controlling interests were $132.3 million at year-end; partner put rights could require purchases and affect cash or capital structure. Other key risks include reimbursement changes, audits and recoupments, healthcare regulation, staffing, cyber/privacy incidents, litigation, and pandemic-related disruption.
- After year-end, the credit facility maturity was extended to November 30, 2025, with borrowing capacity remaining $125 million and an accordion feature allowing capacity up to $150 million. The board declared a $0.35-per-share dividend in February 2021 after suspending further 2020 dividends following the first-quarter payment.
Important facts for investors to verify
- How much of 2020 earnings and cash flow was supported by Provider Relief Funds, Medicare advances, and temporary working-capital movements, and the status of relief-fund compliance and advance repayment.
- Whether patient visits and revenue continued recovering after the fourth quarter, and the resulting impact on mature-clinic revenue and operating margins.
- The effect of Medicare rate changes and therapy-assistant payment reductions, along with changes in commercial and workers’ compensation reimbursement.
- Potential cash requirements from partner put rights, lease obligations, acquisition notes, and the pending False Claims Act litigation.
- The company’s acquisition integration, clinic closure, and goodwill assumptions. The filing reports audited GAAP financial statements with an unqualified opinion and effective internal control; contractual-adjustment estimates were identified as a critical audit matter.