U.S. Physical Therapy, Inc. — Q3 2019 Form 10-Q
Business and period: Quarterly report for the three and nine months ended September 30, 2019, compared with the same 2018 periods. The company operated 574 clinics in 41 states and managed 26 third-party facilities. It also provides industrial injury prevention services.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net revenue | $117.3 | $113.1 | $359.9 | $336.6 |
| Gross profit / margin | $27.4 / 23.3% | $26.1 / 23.1% | $85.5 / 23.8% | $76.4 / 22.7% |
| Operating income / margin | $16.8 / 14.3% | $15.4 / 13.6% | $52.1 / 14.5% | $45.5 / 13.5% |
| Net income attributable to USPH shareholders | $9.0 | $8.1 | $32.1 | $24.5 |
| GAAP diluted EPS | $0.66 | $0.13 | $1.90 | $0.88 |
| Management’s non-GAAP Operating Results per diluted share | $0.71 | $0.64 | $2.18 | $1.93 |
- Q3 revenue increased 3.7%; nine-month revenue increased 6.9%. Patient visits rose 1.7% in Q3 and 4.1% year to date. Nine-month net patient revenue per visit increased to $106.17 from $105.60; Q3 rate decreased to $104.80 from $105.48.
- Industrial injury prevention revenue grew 36.6% in Q3 and 47.4% year to date, supported by internal growth and acquisitions. The acquired business was combined with Briotix Health.
- Q3 net income attributable to USPH rose 11.7%. Nine-month reported net income includes a $5.8 million pretax gain on the sale of a partnership interest. Management’s non-GAAP Operating Results exclude that gain and redeemable non-controlling-interest revaluation; they are not a substitute for GAAP results.
- Cash from operations was $46.5 million for the first nine months, down from $54.0 million. Investing used $32.0 million, including $30.4 million for business acquisitions and $7.4 million of fixed-asset purchases. Cash increased $4.5 million to $27.9 million.
Financial position and liquidity
- At September 30, 2019, the company had $51.0 million outstanding on its $125 million revolving facility, with $74.0 million available; notes payable totaled approximately $5.0 million. The revolving facility matures November 30, 2021. The company reported compliance with its covenants.
- Total assets were $565.2 million and total liabilities were $188.1 million. Current assets were $92.5 million and current liabilities $62.8 million.
- Operating lease right-of-use assets were $79.8 million; operating lease liabilities totaled $84.6 million, of which $25.6 million was current. Adoption of the lease standard increased assets and liabilities but did not materially affect income or cash flows.
- Management stated that operating cash flow and available credit were expected to fund working capital, clinic development, and acquisitions through at least September 2020; significant acquisitions could require additional financing.
Changes, outlook and risks
- The company acquired an industrial injury prevention provider in April and a 67% interest in an 11-clinic practice on September 30. It also sold its 50% interest in a physical therapy partnership for $11.6 million in June, recognizing the $5.8 million gain.
- A single-payor overpayment of $825,000, accumulated over several years, was identified in 2019 and accounted for in two recent quarters; $525,000 affected Q3. Management said the overpayment reduced the Q3 patient revenue-per-visit measure.
- No specific earnings or revenue guidance was provided. Management intends to continue acquisitions, new clinic development, and satellite expansion. Results for the nine-month period are not necessarily indicative of full-year results.
- Key risks include Medicare and other payor reimbursement or rule changes, audits and regulatory compliance, therapist recruitment and retention, acquisition integration, clinic performance, cybersecurity and information privacy, and variable interest rates. A 1 percentage-point rate change on the revolving balance would change annual interest expense by about $510,000.
- The company reported ordinary-course litigation that it did not believe would have a material effect. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile GAAP EPS with the company’s non-GAAP Operating Results, especially the effects of redeemable non-controlling-interest revaluation and the partnership-sale gain.
- Assess the persistence of clinic visit growth and margins, including the payor overpayment and the lower Q3 industrial injury prevention margin.
- Review acquisition performance, integration costs, purchase-price allocations, and future funding needs alongside the company’s stated liquidity runway and credit covenants.
- Monitor reimbursement policy changes, particularly Medicare payment updates and future therapy-assistant payment reductions.