U.S. Physical Therapy, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. The company operates outpatient physical therapy clinics and industrial injury prevention services. It had 601 clinics in 39 states and managed 38 third-party facilities at quarter-end. Dollar amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $131.7 | $112.4 | +17.2% |
| Gross profit | $26.6 | $25.9 | +2.7% |
| Operating income | $15.0 | $15.0 | Approximately flat |
| Net income | $12.0 | $11.9 | Approximately flat |
| Net income attributable to USPH shareholders | $8.8 | $8.2 | +7.7% |
| GAAP diluted EPS | $0.67 | $0.21 | Up from prior-year revaluation charge |
| Operating cash flow | $11.6 | $17.7 | Down $6.0 |
Margins weakened despite revenue growth: gross margin was 20.2% versus 23.0%, and operating margin was 11.4% versus 13.4%. Operating costs rose to $105.1 million from $86.5 million, with salaries and related costs at $75.1 million and rent, supplies, contract labor and other costs at $28.7 million.
Physical therapy operations revenue was $112.6 million, up from $102.4 million, while segment gross profit declined to $22.4 million from $23.2 million. Industrial injury prevention revenue rose to $19.1 million from $10.0 million; its gross profit increased to $4.2 million from $2.7 million. The November 2021 acquisition contributed $6.8 million of industrial injury prevention revenue. Excluding that acquisition, the segment’s revenue increased 22.4% year over year.
Patient visits increased 12.2% to 1,063,519; mature-clinic visits grew 5.9%. Average net patient revenue per visit decreased to $103.00 from $104.72. Mature-clinic operating cost per visit increased 0.4% to $81.08.
Cash, debt and liquidity
- Cash and cash equivalents were $24.2 million at March 31, 2022, down from $28.6 million at year-end. Operating cash flow of $11.6 million was below investing outflows of $15.9 million; financing cash flow was a $0.04 million use.
- Investing outflows included $11.2 million for business acquisitions, $2.5 million for fixed assets and $2.2 million to purchase redeemable non-controlling interests.
- Outstanding debt was $122.9 million: $118.0 million under the revolving credit facility and $4.9 million in notes payable. The facility had $32.0 million available, matures November 2025, and carried a 1.74% average effective rate. The company reported compliance with its covenants.
- Operating lease liabilities totaled $102.8 million. The company reported $5.3 million of dividends payable and declared dividends of $0.41 per share; no shareholder dividends were paid in cash during the quarter.
Material changes, outlook and risks
- Q1 included the acquisition of a 70% interest in a six-clinic Pennsylvania practice for approximately $11.5 million. The company also made several acquisitions during 2021, including a major industrial injury prevention business. Goodwill rose to $443.7 million from $434.7 million.
- A $0.6 million gain arose from revaluation of a put right related to the November 2021 acquisition; the put right was valued at $2.9 million at quarter-end. This gain is included in GAAP results.
- Management said it expects to continue pursuing clinic development, acquisitions and organic growth, and stated that cash and credit availability were sufficient for near-term needs. No quantified full-year earnings or revenue guidance is provided. Management cautioned that quarterly results are not necessarily indicative of full-year results.
- Medicare reimbursement remains a key risk. The company estimated an approximately 0.75% Medicare rate reduction for 2022; therapist-assistant services became subject to a 15% payment reduction in 2022. Further reductions of approximately 3% in each of 2023 and 2024 were described as scheduled absent policy changes. Sequester relief was scheduled to end June 30, 2022.
- Other stated risks include therapist recruitment and retention, acquisition integration, changes in third-party reimbursement, regulatory audits and compliance, cyber risks, and possible clinic closures. A $2.75 million settlement of a False Claims Act case was agreed in January 2022; the company admitted no liability, and $2.6 million had been expensed in 2021.
Important facts for investors to verify
- EPS and non-GAAP presentation: GAAP diluted EPS was $0.67, affected by redeemable non-controlling-interest revaluation. The detailed reconciliation reports non-GAAP Operating Results of $8.35 million, or $0.65 per share, versus $8.17 million, or $0.64, in Q1 2021. Some MD&A prose instead describes 2022 Operating Results as $8.7 million and $0.67 per share; confirm the intended figures against the reconciliation.
- Assess whether stronger visit volumes and acquisition-driven growth can offset lower revenue per visit and margin compression, particularly in physical therapy operations.
- Monitor cash conversion, acquisition spending, debt usage and variable-rate exposure. The filing estimates that a 1 percentage-point interest-rate change would change annual interest expense by $1.18 million at quarter-end debt levels.
- Review the Medicare reimbursement outlook, acquisition-related contingent obligations and put/call rights, and the company’s substantial goodwill and redeemable non-controlling interests.