U.S. Physical Therapy, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited consolidated results; amounts below are in U.S. dollars. The company operates outpatient physical therapy clinics and an industrial injury prevention services business.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $125.9 million | $108.9 million | $365.2 million | $305.5 million |
| Operating income | $16.9 million | $19.9 million | $54.2 million | $34.2 million |
| Net income attributable to USPH shareholders | $10.0 million | $10.9 million | $30.6 million | $22.2 million |
| GAAP diluted EPS | $0.66 | $0.61 | $1.69 | $1.80 |
| Operating cash flow | Not separately provided | Not separately provided | $60.5 million | $74.6 million |
- Q3 revenue rose 15.6%, while operating income fell 15.1%. Gross margin was approximately 23.7% versus 27.9%; operating margin was approximately 13.4% versus 18.3%.
- Nine-month revenue rose 19.5%; operating income increased 58.4%. Gross margin was approximately 24.6% versus 21.4%, and operating margin was approximately 14.8% versus 11.2%.
- Patient visits rose 19.9% in Q3 and 22.1% year to date. Mature-clinic visits increased 13.7% and 18.1%, respectively, while revenue per visit declined 2.8% in Q3 and 1.1% year to date.
- Management’s non-GAAP Operating Results were $11.0 million, or $0.85 per share, in Q3 and $31.6 million, or $2.45 per share, for nine months. These measures exclude specified items, including redeemable non-controlling-interest revaluation; they are not substitutes for GAAP results.
- Cash and equivalents were $19.2 million at quarter-end, down from $32.9 million at December 31, 2020. Current assets were $79.4 million and current liabilities $81.7 million.
- At September 30, debt included $33.0 million drawn on the $125 million revolving facility and $2.9 million in notes payable. Revolver availability was $92.0 million; the company reported covenant compliance. Operating lease liabilities totaled $100.4 million.
Changes versus prior comparable periods
- Management attributed the 2021 year-over-year rebound primarily to recovery from pandemic-related volume declines in 2020, with activity returning to and exceeding pre-pandemic levels.
- Q3 cost pressure reduced margins: salaries and related costs were 56.0% of revenue versus 52.8% a year earlier. The company cited higher staffing costs as volumes recovered, along with costs from clinic additions.
- Q3 corporate costs included $1.3 million of accelerated equity compensation following the retirement of the Chief Operating Officer-West. A $1.2 million favorable resolution of a payor matter was recorded in other income.
- 2020 comparisons included $8.3 million of CARES Act Relief Funds for the first nine months (including $0.4 million in Q3); no Relief Funds were received in 2021. The company repaid $14.1 million of Medicare advance payments in Q1 2021.
- GAAP nine-month EPS declined despite higher shareholder-attributable income, primarily because the required redeemable non-controlling-interest revaluation charge reduced EPS. That revaluation is charged to retained earnings rather than net income but is included in the EPS calculation.
Outlook, risks and unusual items
- No specific earnings or revenue guidance was provided. Management said available cash and revolving-credit capacity should fund operating working-capital needs through at least September 30, 2022, and expects to continue pursuing acquisitions and organic growth.
- Medicare reimbursement is a material risk. The filing describes an approximately 3.5% aggregate Medicare payment decrease in 2021, an approximately 3.75% reduction in 2022, and possible further reductions in 2024 absent legislative or regulatory action. A 2% Medicare payment reduction was scheduled to resume January 1, 2022 absent further action.
- The company identified pandemic impacts, therapist recruitment and retention, payor changes, regulatory compliance, audits, acquisitions and integration, cybersecurity, and clinic closures as risks. Proposed federal vaccination or testing requirements could contribute to employee attrition; the impact was uncertain.
- A False Claims Act qui tam case alleges upcoding of Medicare billings at a subsidiary. The government declined to intervene; motions to dismiss were denied, discovery began, and the company said it intends to defend the case. It could not predict the outcome or timing.
- 2021 acquisitions included two physical therapy practices and an injury-prevention services business. Purchase accounting remained preliminary; contingent payments include up to $0.8 million for one clinic acquisition and up to $0.6 million for the injury-prevention acquisition.
Investor verification priorities
- Reconcile consolidated net revenue to the segment revenue figures in the filing, which exclude certain other revenue, and confirm the GAAP/non-GAAP basis of any performance comparisons.
- Assess the sustainability of volume recovery and Q3 margin compression, especially staffing costs, revenue per visit, and Medicare reimbursement reductions.
- Review operating cash generation against acquisition spending, dividends, distributions to non-controlling partners, and the reduced cash balance.
- Monitor revolving-credit borrowings, covenant headroom, lease obligations, and future partner-interest redemption requirements.
- Track the False Claims Act litigation, Medicare policy changes, and any developments affecting the CARES Act relief-fund compliance obligations.