USPH

Business Context and Reporting Period

Company: U.S. Physical Therapy, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: The Company operates outpatient physical and occupational therapy clinics providing preventive and post-operative care. As of June 30, 2009, it operated 366 clinics in 42 states. The Company primarily operates through subsidiary clinic partnerships where it holds a majority interest, with managing therapists owning the remaining interest. The Company also manages third-party facilities and recently launched a venture specializing in osteoarthritis treatment.

Key Financial Metrics

Note: All figures in thousands except per share data. Debt includes current and long-term notes payable and the revolving line of credit.

Material Changes vs. Prior Period

• Revenue Growth: Net revenues increased 7.9% year-over-year for the six-month period, driven by a 2.7% increase in patient visits and a $4.33 increase in net patient revenue per visit (from $97.70 to $102.03). Growth was supported by new clinics and acquisitions from late 2008.
• Profitability: Operating income rose 21.5% to $14.9 million. Net income attributable to shareholders increased 21.7% to $6.4 million. Operating margins improved as clinic operating costs as a percentage of net revenues decreased from 75.4% to 73.4%.
• Cash Flow: Net cash provided by operating activities increased significantly by 47.5% to $14.7 million, aided by a decrease in patient accounts receivable and improved collection efficiency (Days Sales Outstanding reduced to 45 days from 57 days).
• Capital Allocation: The Company repurchased 518,335 shares of common stock for $5.6 million during the six months ended June 30, 2009, reducing the share count and increasing EPS.

Guidance, Outlook, and Risks

• Outlook: Management expects to incur initial operating losses from new clinics opened in late 2008 and during 2009. The Company plans to continue developing new clinics and evaluating acquisition opportunities.
• Liquidity: The Company maintains a $50.0 million revolving credit facility with $39.4 million available as of June 30, 2009. Management believes cash flow and credit availability are sufficient to fund operations and capital needs through at least June 2010.
• Risks:
  • Economic Conditions: The current recession may lead to reduced patient visits due to unemployment and tighter credit affecting receivables collection.
  • Regulatory: Reimbursement rates from Medicare and third-party payors are subject to change. The Company is subject to the Medicare Cap, though exceptions are available for medically necessary services.
  • Acquisition Integration: Future growth relies on successful integration of acquired businesses and the ability to access capital for large acquisitions.
• Unusual Items: No significant impairment charges were recorded. The Company adopted SFAS 160 effective January 1, 2009, changing the accounting treatment for noncontrolling interests, which impacted the presentation of net income but not the underlying cash flows.

Investor Verification Checklist

• Reimbursement Rates: Verify the sustainability of the $4.33 increase in net patient revenue per visit amidst potential payer contract renegotiations.
• Acquisition Performance: Monitor the performance of the Mid-Atlantic, San Antonio, and RMG acquisitions to ensure they meet earn-out thresholds and integration goals.
• Debt Covenants: Confirm continued compliance with the Credit Agreement leverage ratio (must be less than 1.0 to 1.0) to maintain the ability to repurchase stock.
• Days Sales Outstanding (DSO): Track the 45-day DSO to ensure collection efficiency remains stable despite economic headwinds.
• Share Repurchases: Assess the impact of the $5.6 million stock buyback on long-term liquidity and future capital deployment for growth.