U.S. Physical Therapy, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. U.S. Physical Therapy operates outpatient physical and occupational therapy clinics and an industrial injury prevention services business. At quarter-end it operated 564 clinics in 39 states and managed 40 facilities for third parties.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net revenue | $112.4 million | $112.7 million |
| Operating income | $15.0 million | $4.0 million |
| Net income, including non-controlling interests | $11.9 million | $3.3 million |
| Net income attributable to USPH shareholders | $8.2 million | $1.0 million |
| Operating cash flow | $17.7 million | $16.4 million |
| Dividends declared per share | $0.35 | $0.32 |
- Revenue was essentially flat year over year. Physical therapy operations revenue was $102.4 million, down 0.5%; industrial injury prevention revenue was $10.0 million, up 1.3%.
- Gross profit was $25.9 million, versus $15.7 million. Gross margin was 23.0%, compared with 13.9%; excluding closure costs, margin was 23.1% versus 17.2%. Operating margin increased to 13.4% from 3.6%.
- Physical therapy patient volume averaged 27.1 visits per clinic per day, versus 26.2. Average net patient revenue per visit rose to $104.72 from $103.11; total visits declined to 947,788 from 971,023.
- Reported basic and diluted EPS was $0.21 versus $0.20. The filing explains that the required EPS calculation includes the after-tax revaluation of redeemable non-controlling interests, despite that revaluation being recorded directly in retained earnings rather than net income. Management’s non-GAAP “Operating Results” were $8.2 million, or $0.64 per diluted share, versus $3.9 million, or $0.30. This measure excludes the revaluation and specified closure/CFO-transition costs.
Cash, debt and liquidity
- Cash was $17.9 million at March 31, 2021, down from $32.9 million at year-end. Operating cash flow of $17.7 million was offset principally by $14.1 million repayment of Medicare accelerated funds, $11.7 million for an acquisition, $5.3 million of distributions to non-controlling interests and $1.6 million of fixed-asset purchases.
- Outstanding debt was $21.7 million: $16.0 million drawn on the revolving facility and $5.7 million of notes payable. The $125 million facility had $109 million available, may expand to $150 million under its accordion feature, and matures November 30, 2025. The company reported compliance with its financial covenants.
- Total current assets were $75.8 million and current liabilities $90.8 million. Operating lease liabilities totaled $89.4 million; these are separate from reported borrowings.
- Management stated that cash and revolver availability were sufficient for operating subsidiaries’ working-capital needs through at least March 31, 2022.
Changes, outlook and risks
- Profitability improved substantially as patient volumes returned to near pre-pandemic levels and operating costs fell. The comparison is affected by COVID-19 disruption and $3.8 million of clinic closure costs in Q1 2020; there were no comparable goodwill write-offs or significant closure charges in Q1 2021.
- Physical therapy operating costs excluding closure costs fell to 76.9% of revenue from 82.8%. Management cited lower mature-clinic costs and improved staffing and cost efficiencies. Mature-clinic patient revenue nevertheless declined $1.8 million year over year.
- The company acquired a 70% interest in a five-clinic practice on March 31 for approximately $12.0 million, including $11.7 million cash and a $0.3 million seller note. Preliminary purchase accounting included $14.4 million of goodwill; valuation work remained in progress.
- No specific full-year revenue or earnings guidance is provided. Management cautioned that quarterly results are not necessarily indicative of full-year results and described forward-looking statements as subject to risks.
- Risks include COVID-19 and future volume effects; Medicare and other payer reimbursement changes; regulatory reviews and audits; staffing and retention; acquisition integration; clinic closures and potential impairment; and competition or contract losses in industrial injury prevention. Medicare rates applicable to the company’s therapy services were expected to decline an estimated 3.5% in 2021 under the fee schedule, while the 2% Medicare payment reduction was waived for calendar 2021 under legislation enacted after quarter-end.
- A pending Florida False Claims Act qui tam case alleges Medicare billing upcoding by a subsidiary. The government declined to intervene; the company disputes the allegations and intends to defend the case, but says the outcome cannot be predicted. Provider Relief Funds of approximately $13.5 million received in 2020 remain subject to compliance requirements and evolving guidance.
Important facts for investors to verify
- Track patient visits, mature-clinic revenue, staffing costs and whether operating-margin gains persist beyond the pandemic recovery and cost actions.
- Reconcile GAAP EPS of $0.21 with management’s $0.64 non-GAAP Operating Results per share, including the redeemable-interest revaluation and excluded items.
- Monitor liquidity after the MAAPP repayment, acquisition spending, distributions and dividend payments, as well as revolver covenant headroom and variable-rate exposure.
- Review the final purchase-price allocation and subsequent performance of the March 2021 acquisition, including goodwill and redeemable minority interests.
- Assess exposure to Medicare reimbursement and regulatory changes, Relief Fund compliance, and the status and potential financial consequences of the Florida litigation.