U.S. Physical Therapy, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited results; amounts below are in U.S. dollars unless stated otherwise. The company operates outpatient physical therapy clinics and industrial injury prevention services. It reported 567 clinics in 39 states at quarter-end.
Financial results and liquidity
- Revenue: $112.7 million, down 3.0% from $116.2 million. Excluding $5.7 million of prior-year revenue from clinics sold in June 2019, revenue increased 2.0%. Net patient revenue fell 6.1% to $100.1 million; industrial injury prevention revenue rose 43.1% to $9.9 million.
- Profit: Operating income was $4.0 million versus $15.4 million; net income attributable to USPH shareholders was $1.0 million versus $8.4 million. Reported diluted EPS was $0.20 versus $0.39. Management’s non-GAAP “Operating Results” were $3.9 million, or $0.30 per share, versus $8.4 million, or $0.66 per share.
- Margins: Operating margin declined to 3.6% from 13.3%. Gross profit, excluding closure costs, was $19.4 million, or 17.2% of revenue, versus $26.7 million, or 23.1%. Salaries and related costs increased to 61.2% of revenue from 57.0%.
- Cash flow: Operating activities provided $16.4 million, compared with $13.6 million in Q1 2019. Investing activities used $15.9 million, including $11.6 million for an acquisition; financing activities provided $65.5 million, primarily reflecting net revolving-credit borrowings. Quarter-end cash was $89.6 million, up from $23.5 million at December 31, 2019.
- Debt and liquidity: At March 31, revolving credit borrowings were $114.0 million of the $125.0 million facility; notes payable totaled $5.3 million. The filing later states the facility was fully drawn. Subsequent disclosures put cash at approximately $110 million. The company was in covenant compliance at quarter-end but could not confirm compliance for Q2 and was discussing an amendment with its lender. Management believed cash could fund operating-subsidiary working capital through at least March 31, 2021.
- Other metrics: Patient visits totaled 971,023, and net patient revenue per visit was $103.11 versus $106.02 excluding the sold clinics in the prior-year quarter. Dividends declared were $0.32 per share versus $0.27.
Changes, outlook, and material items
- COVID-19 impact: Revenue for March alone declined 14.4% year over year; average visits per clinic per day fell to 22.7 from 27.9. Management said April patient volume fell as low as 45% of normal and was a little above 60% at the time of the filing, with substantial regional variation. The company expected near-term losses and said the pandemic’s full effect was uncertain; it provided no quantified earnings or revenue guidance.
- Operating response: By the filing date, more than 2,150 employees had been furloughed or terminated, about 40% of the workforce. Pay and board-fee reductions and other cost actions were estimated to yield approximately $87 million in annualized savings. Actions also included telehealth, lease renegotiations, slower clinic development, delayed acquisitions, and expense reductions.
- Closures and impairment: Q1 included $3.8 million of closure costs, including a $1.9 million goodwill write-off for permanently closed clinics. As of May 20, 69 clinics were closed; at least 35 were expected not to reopen. Additional Q2 closure costs of at least $0.9 million were anticipated. Management reported no impairment of reporting-unit goodwill or tradenames at March 31, but said it would continue monitoring them.
- Government support: After quarter-end, the company received Medicare advance payments, repayable through future Medicare billings beginning in August, with remaining amounts due by November 2020. It also received non-repayable CARES Act relief funds and deferred employer payroll taxes. The filing gives slightly different relief-fund amounts in separate sections ($5.7 million and $5.9 million); verify the amount and timing.
- Acquisition: In February, the company acquired interests in a four-clinic practice for $11.9 million, including a $0.3 million seller note. Preliminary purchase accounting recorded $13.6 million of goodwill, subject to final valuation.
- Risks and contingencies: A proposed 2021 Medicare fee-schedule change could reduce certain therapy-code payments by an estimated 8%, subject to CMS review and finalization. A Florida False Claims Act qui tam case alleges Medicare upcoding; the company disputes the allegations, and the outcome is uncertain. Put rights on redeemable minority interests may require cash payments and could affect capital structure. The filing was delayed under SEC COVID-19 relief due to pandemic-related disruptions.
Important facts for investors to verify
- Whether the lender amendment was completed and whether the company met credit-facility covenants after March 31, 2020.
- Cash, fully drawn revolver balance, and the repayment schedule for Medicare advance payments and deferred payroll taxes.
- Actual clinic reopening and closure counts, patient-volume recovery, and realized cost savings compared with management’s estimates.
- Final Q2 closure costs, any further goodwill or intangible-asset impairment, and the final purchase accounting for the February acquisition.
- The amount and recognition of CARES Act relief funds, given the differing figures in the filing, and the status of the Florida litigation.