U.S. Physical Therapy, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; quarterly comparisons refer to Q4 2019 versus Q4 2018. Financial statements are audited; quarterly data is unaudited. The company operates outpatient physical therapy clinics and an industrial injury prevention business. At year-end it operated 583 clinics in 40 states and managed 26 third-party practices.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net revenue | $482.0 million | $453.9 million |
| Operating income / margin | $67.4 million / 14.0% | $60.3 million / 13.3% |
| Gross profit / margin | $112.5 million / 23.3% | $101.7 million / 22.4% |
| Consolidated net income | $57.3 million | $48.8 million |
| Net income attributable to USPH shareholders | $40.0 million | $34.9 million |
| Reported diluted EPS | $2.45 | $1.31 |
| Operating Results per diluted share, non-GAAP | $2.82 | $2.65 |
| Adjusted EBITDA, non-GAAP | $67.3 million | $62.0 million |
| Cash from operations | $62.4 million | $73.0 million |
Revenue grew 6.2%. Patient revenue rose 3.7% to $433.3 million, with visits up 3.4% to 4.09 million and net patient revenue per visit increasing to $105.90 from $105.55. Industrial injury prevention revenue increased 47.1% to $37.5 million, primarily reflecting acquisitions and internal growth. Operating costs were 76.7% of revenue versus 77.6% in 2018. Employee health costs were approximately $1.4 million above plan.
Q4 revenue was $122.1 million versus $117.3 million; operating income was $15.3 million versus $14.8 million. Q4 net income attributable to USPH shareholders was $7.9 million versus $10.4 million, while reported diluted EPS was $0.55 versus $0.43. The filing attributes differences between reported EPS and operating performance in part to redeemable non-controlling interest revaluation accounting; review the quarterly calculations and notes.
Year-end cash was $23.5 million. The company had $46.0 million outstanding on its $125 million revolving credit facility, with $79.0 million available, and $5.1 million in seller notes. The credit facility matures November 30, 2021; the company reported covenant compliance. Working capital was $24.8 million, down from $37.3 million, and the current ratio was 1.41 versus 1.89. Operating lease liabilities totaled $86.7 million. The company paid $14.6 million in common dividends during 2019; the credit agreement limits annual dividends to $20 million.
Material changes and unusual items
- FY2019 included a $5.5 million pre-tax gain on the June sale of a 50% interest in a physical therapy partnership for $11.6 million. The sale reduced the year’s reported revenue relative to 2018 because the clinics were included for only part of 2019.
- The company acquired an 11-clinic physical therapy practice for approximately $12.4 million and an industrial injury prevention business for approximately $22.9 million, increasing its Briotix Health ownership to about 76%.
- Acquisition spending was $30.6 million; purchases of redeemable non-controlling interests were $8.7 million. Goodwill increased to $317.7 million; no goodwill impairment was recorded.
- Adoption of lease accounting (ASC 842) added $81.6 million of operating lease right-of-use assets and $86.7 million of lease liabilities at year-end; it did not materially affect income or cash flows.
- Reported EPS reflects charges to retained earnings for redeemable non-controlling interest revaluation, unlike the related income-statement presentation. The company’s non-GAAP Operating Results exclude specified gains and the EPS effect of that revaluation.
Outlook, risks and contingencies
Management intends to pursue clinic acquisitions, develop new clinics and satellite locations, and grow patient volume through marketing and new programs. It stated that operating cash flow, cash and credit availability were expected to cover working capital, clinic development and acquisitions through at least December 2020, excluding the potential need for financing for significant acquisitions. No specific revenue or earnings guidance was provided.
- Medicare reimbursement changes remain a key risk. The filing describes a potential estimated 8% reduction to certain physical and occupational therapy payments from proposed 2021 code-value changes; CMS had not finalized those values. Medicare and Medicaid represented 30.6% of net patient revenue in 2019.
- Other risks include third-party payor rate pressure, audits and retroactive recoupments, healthcare regulatory compliance, therapist recruitment and retention, acquisition integration, competition, cybersecurity, weather and economic conditions. The filing notes potential coronavirus impacts but provides no quantified estimate.
- A False Claims Act qui tam case alleges upcoding at the Hale Hand Center partnership. The government declined to intervene; the company disputes the allegations and said its motions to dismiss were pending. Outcome and timing were not predictable.
- The company remains subject to a five-year Corporate Integrity Agreement effective December 2015, including annual independent billing and coding audits, arising from a prior settlement. The filing reports no material pending or threatened investigation known as of December 31, 2019.
- Grant Thornton issued unqualified opinions on the financial statements and internal controls. The auditor identified measurement of patient revenue net of contractual adjustments as a critical audit matter because it requires estimates of future collections.
Important facts for investors to verify
- Whether growth in visits, reimbursement per visit and clinic-level margins continues, and the effect of clinics sold and acquired on comparable results.
- The final Medicare payment rules for 2021 and subsequent periods, as well as exposure to Medicare audits and potential reimbursement recoupments.
- Acquisition returns, integration progress and cash requirements, including the size and potential timing of purchases under redeemable non-controlling interest arrangements.
- Debt maturity and refinancing plans, covenant headroom, variable-rate exposure, and liquidity after dividends, leases and acquisition spending.
- Developments in the Hale Hand Center litigation and the company’s ongoing Corporate Integrity Agreement obligations.