U.S. Physical Therapy, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. The company operated 590 clinics in 41 states and managed 28 third-party facilities. Unless stated otherwise, amounts are in U.S. dollars; financial statement amounts are in millions.
Financial and operating performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net revenue | $116.2 | $108.3 | +7.3% |
| Net patient revenue | $106.7 | $100.6 | +6.1% |
| Operating income | $15.4 | $13.1 | +18.2% |
| Net income attributable to USPH shareholders | $8.4 | $7.1 | +18.6% |
| GAAP diluted EPS | $0.39 | $0.27 | |
| Operating Results diluted EPS, non-GAAP | $0.66 | $0.56 | +17.9% |
| Operating cash flow | $13.6 | $15.5 | −12.7% |
Gross profit rose 15.1% to $26.7 million; gross margin improved to 23.0% from 21.4%. Operating margin was approximately 13.3%, versus 12.1%. Salaries and related costs were 57.0% of revenue compared with 57.5%; rent, supplies, contract labor and other were 19.0%, versus 20.1%.
Patient visits increased 4.7% to 1,001,510, despite one fewer working day. Average visits per clinic per day rose to 26.9 from 25.7, and net patient revenue per visit increased to $106.49 from $105.15. Industrial injury prevention revenue grew 42.2% to $6.9 million, reflecting internal growth and the 2018 acquisition.
Balance sheet, debt and liquidity
At March 31, 2019, cash was $20.2 million, down from $23.4 million at year-end. Total assets were $523.1 million and total liabilities $164.7 million. The company reported $29.0 million drawn on its $125 million revolving facility, plus $1.6 million in notes payable; $96.0 million remained available. The facility matures November 30, 2021, and the company reported compliance with its covenants. The average effective facility rate was 4.4%.
Operating cash flow was $13.6 million. Investing activities used $4.6 million, including $2.5 million for fixed assets and $2.1 million to purchase redeemable non-controlling interests. Financing activities used $12.1 million, including a $9.0 million net repayment on the revolving line and $2.6 million in distributions to non-controlling interests.
Adoption of lease accounting on January 1, 2019 added operating lease right-of-use assets and liabilities. At quarter-end, right-of-use assets were $77.9 million and operating lease liabilities totaled $82.6 million, of which $26.7 million was current. The accounting change did not materially affect reported income or cash flows. The company stated that cash and undrawn credit availability should fund operations, clinic development and acquisitions through at least March 2020, while significant acquisitions may require additional financing.
Material changes, outlook and risks
- Growth reflected higher patient visits and revenue per visit, new and acquired clinics, and expansion in industrial injury prevention. Mature clinics contributed $3.3 million of the $6.1 million increase in patient revenue; newer clinics contributed $2.8 million.
- GAAP EPS includes the accounting effect of redeemable non-controlling interest revaluation charged directly to retained earnings. The company’s non-GAAP Operating Results measure excludes this effect; it is not a substitute for GAAP results.
- On April 11, 2019, after quarter-end, the company acquired another industrial injury prevention provider for $23.6 million, funded from the revolving credit line. Combining it with Briotix Health increased USPH’s ownership in the partnership to approximately 76%.
- The company plans to continue acquisitions, develop new clinics and open satellite clinics. No specific earnings or revenue guidance is provided; management cautions that first-quarter results are not necessarily indicative of full-year results.
- Key exposures include Medicare and other payer reimbursement changes, audits and regulatory compliance, therapist recruitment and retention, receivable collection and contractual allowance estimates, acquisition integration, leverage and variable interest rates, litigation, and clinic performance. A 1% rate change on the quarter-end revolver balance would change annual interest expense by about $290,000.
- The company said ordinary-course litigation was not expected to have a material effect. Management reported disclosure controls were effective and no material change in internal controls during the quarter.
Most important facts for investors to verify
- Whether patient volume and revenue-per-visit gains continue, and how much growth is attributable to mature clinics versus acquisitions.
- Whether improved gross margins persist as labor, clinic start-up and corporate costs evolve.
- The cash-flow and financing impact of the $23.6 million post-quarter acquisition, future acquisitions, and distributions or purchases of redeemable non-controlling interests.
- How lease obligations and variable-rate borrowing affect liquidity and total financing commitments; lease liabilities are separate from the reported debt figures.
- Whether payer reimbursement, Medicare policy, collections and contractual allowance estimates materially change. Medicare patient revenue was approximately $28.3 million in Q1 2019, versus $24.6 million a year earlier.