U.S. Physical Therapy, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; comparisons are primarily with FY2020. The company operates outpatient physical therapy clinics and industrial injury prevention services.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | $495.0 million | $423.0 million |
| Operating income | $70.6 million | $52.4 million |
| Operating margin | 14.3% | 12.4% |
| Net income attributable to USPH shareholders | $40.8 million | $35.2 million |
| GAAP diluted EPS | $2.41 | $2.48 |
| Cash provided by operations | $76.4 million | $100.0 million |
| Cash and cash equivalents at year-end | $28.6 million | $32.9 million |
- Revenue increased 17.0%. Physical therapy net patient revenue rose 17.4% to $438.3 million; industrial injury prevention revenue grew 12.0% to $43.9 million. Management attributed much of the increase to recovery from pandemic-affected 2020 activity.
- Patient visits increased 19.4% to 4.22 million, while net patient revenue per visit declined to $103.88 from $105.66. The company ended the year with 591 clinics, compared with 554.
- Gross profit excluding clinic closure costs, a non-GAAP measure, was $117.2 million, or 23.7% of revenue, versus $98.4 million, or 23.3%, in 2020. Operating income rose 34.8%.
- GAAP diluted EPS declined despite higher shareholder-attributable net income, principally reflecting a larger noncash revaluation charge for redeemable non-controlling interests included in the EPS calculation. Management’s non-GAAP Operating Results excluding Relief Funds were $3.17 per diluted share, versus $2.39.
- Operating cash flow was $76.4 million; investing activities used $124.1 million, including $86.8 million for business acquisitions and $28.5 million to purchase redeemable non-controlling interests. Financing activities provided $43.4 million.
Debt, liquidity and capital allocation
- At year-end, revolving credit borrowings were $114.0 million and acquisition notes payable were $4.4 million. The amended unsecured facility had $61.0 million of availability; its limit was increased to $150 million, with an accordion feature for up to $175 million total capacity. The company reported covenant compliance.
- Cash was $28.6 million. Management said operating cash flow and available credit were expected to fund working capital, clinic development and acquisitions through at least December 2022; significant acquisitions would likely require credit-facility financing.
- FY2021 dividends totaled $1.46 per share, or approximately $18.8 million in cash. The board declared a $0.41-per-share dividend for payment in April 2022.
- Redeemable non-controlling interests were carried at $155.3 million. Partner put/call rights can require or permit purchases under specified conditions; the timing and amount may affect cash needs.
Material changes, outlook and risks
- The company completed several 2021 acquisitions. Most notably, it acquired approximately 70% of an industrial injury prevention provider for an initial price of about $63.2 million, excluding contingent consideration; the acquired business was described as generating about $27 million in annual revenue at an approximately 20% margin. The company also acquired physical therapy practices and other injury-prevention assets.
- Management intends to pursue additional acquisitions, develop satellite clinics and grow patient volume. The filing provides no numerical earnings or revenue guidance.
- COVID-19 Provider Relief Fund income declined to $4.6 million from $13.5 million in 2020. The company repaid $14.1 million of Medicare advance payments in 2021. It also paid $4.1 million of deferred employer payroll taxes and had $4.2 million remaining accrued at year-end.
- Medicare payment policy remains a material exposure: management estimated an approximately 0.75% full-year 2022 rate reduction, noted a 15% payment reduction for services involving therapist assistants effective January 2022, and cited potential approximately 3% rate cuts in 2023 and 2024 absent further action. Medicare represented 35.4% of 2021 net patient revenue.
- Other key risks include therapist recruitment and retention, COVID-related staffing and visit disruption, payer audits and possible recoupments, regulatory compliance, acquisition integration, partner put rights, and termination of employer contracts in the industrial services business.
- A qui tam billing lawsuit was settled in January 2022 for $2.75 million. The company recorded $2.6 million of expense in 2021, admitted no liability or wrongdoing, and the claims were dismissed.
- The auditor issued an unqualified opinion on the financial statements and internal controls. The November 2021 acquisition was excluded from the internal-control assessment while integration work continued.
Important facts for investors to verify
- Whether higher clinic visits and margins can be sustained as pandemic comparisons normalize, and how revenue per visit responds to payer mix and reimbursement changes.
- Integration results and returns from acquisitions, particularly the large industrial injury prevention transaction and its contingent payments and future purchase rights.
- Cash generation and borrowing capacity after acquisition spending, dividends, lease commitments and potential purchases of partners’ interests.
- Actual effects of Medicare rate changes, therapist-assistant payment reductions, payer audits and any repayment obligations.
- Whether Relief Fund recognition and settlement-related expenses are fully reflected in comparisons of recurring earnings; non-GAAP Operating Results are not a substitute for GAAP results.