U.S. Physical Therapy Reports Significant First Quarter Earnings Growth

Declares Quarterly Dividend

HOUSTON–(BUSINESS WIRE)–U.S. Physical Therapy, Inc. (“USPH” or the “Company”) (NYSE: USPH), a
national operator of outpatient physical therapy clinics, today reported
results for the first quarter ended March 31, 2019.

For the first quarter ended March 31, 2019, USPH’s Operating Results
increased 18.6% to $8.4 million, or $0.66 per diluted share, as compared
to $7.1 million, or $0.56 per diluted share, in the first quarter of
2018. Operating Results per share, a non-GAAP measure, equals net income
attributable to USPH shareholders per the consolidated statement of net
income, and excludes the impact of the revaluation of redeemable
non-controlling interest, net of tax, to calculate earnings per share.

For the first quarter ended March 31, 2019, USPH’s net income
attributable to its shareholders was $8.4 million as compared to $7.1
million in the first quarter of 2018. Inclusive of the charge for
revaluation of non-controlling interest, net of tax, used to compute
diluted earnings per share, in accordance with GAAP, in the recent
quarter, the amount is $5.0 million, or $0.39 per share, as compared to
$3.4 million, or $0.27 per share for the first quarter of 2018. In
accordance with current accounting guidance, the revaluation of
redeemable non-controlling interest, net of tax, is not included in net
income but charged directly to retained earnings and is included in the
earnings per basic and diluted share calculation. See the schedule on
page 10 for a computation of diluted earnings per share.

First Quarter 2019 Compared to First Quarter
2018

  • Net revenues increased $7.9 million, or 7.3%, from $108.3 million in
    the first quarter of 2018, to $116.2 million in the first quarter of
    2019, due to an increase in net patient revenues from physical therapy
    operations and an increase in the revenue from the industrial injury
    prevention business. Both increases are due to internal growth and
    acquisitions. The first quarter of 2019 had 63 business days versus 64
    in the first quarter of 2018.
  • Net patient revenues from physical therapy operations increased
    approximately $6.1 million, or 6.1%, to $106.7 million in the first
    quarter of 2019 from $100.6 million in the first quarter of 2018 due
    to an increase in total patient visits of 4.7% from 956,000 to
    1,001,500 and an increase in the average net patient revenue per visit
    to $106.49 from $105.15. Of the $6.1 million increase in net patient
    revenues, $3.3 million related to an increase in business of clinics
    opened or acquired prior to April 1, 2018 (“Mature Clinics”) and $2.8
    million related to clinics opened or acquired after March 31, 2018
    (“New Clinics”). Revenue from physical therapy management contracts
    was $2.1 million for the first quarter of 2019 and $2.2 million for
    the comparable 2018 period.
  • Revenue from the industrial injury prevention business increased 42.2%
    to $6.9 million in the first quarter of 2019 compared to $4.9 million
    in the first quarter 2018 due to internal growth and an April 2018
    acquisition. Other miscellaneous revenue was $0.5 million in the first
    quarter of 2019 and $0.7 million in the first quarter of 2018.
  • Total operating costs were $89.5 million, or 77.0% of net revenues, in
    the first quarter of 2019 as compared to $85.1 million, or 78.6% of
    net revenues, in the first quarter of 2018. The $4.4 million increase
    was attributable to $1.9 million in operating costs related to Mature
    Clinics, an increase of $1.4 million related to New Clinics, an
    increase of $1.3 million related to the industrial injury prevention
    business and a reduction in management contracts costs of $0.2
    million. Total salaries and related costs, including physical therapy
    operations and the industrial injury prevention business, were 57.0%
    of net revenues in the recent quarter versus 57.5% in the first
    quarter of 2018. Rent, supplies, contract labor and other costs as a
    percentage of net revenues were 19.0% in the first quarter of 2019
    versus 20.1% in the first quarter of 2018. The provision for doubtful
    accounts as a percentage of net revenue was 1.0% for both periods.
  • The gross profit for the first quarter of 2019 grew by 15.1% or $3.5
    million to $26.7 million, as compared to $23.2 million in the first
    quarter of 2018. The gross profit percentage increased by 160 basis
    points to 23.0% of net revenue in the recent period as compared to
    21.4% in the first quarter 2018. The gross profit percentage for the
    Company’s physical therapy clinics increased by 120 basis points to
    23.1% in the recent quarter as compared to 21.9% in the first quarter
    of 2018. The gross profit percentage on physical therapy management
    contracts increased by 470 basis points to 18.5% in the 2019 first
    quarter as compared to 13.8% in the 2018 first quarter. The gross
    profit percentage for the industrial injury prevention business
    increased by 650 basis points to 22.3% in the recent quarter as
    compared to 15.8% in the 2018 period.
  • Corporate office costs were $11.3 million in the first quarter of 2019
    compared to $10.2 million in the first quarter of 2018. Corporate
    office costs were 9.7% of net revenues for the first quarter of 2019
    quarter as compared to 9.4% for the first quarter of 2018.
  • Operating income for the first quarter of 2019 increased 18.2% to
    $15.4 million as compared to $13.1 million in the first quarter of
    2018. Operating income as a percentage of net revenue increased by 130
    basis points from 12.0% in the 2018 period to 13.3% in the recent
    quarter.
  • Interest expense – debt and other was $358,000 in the first quarter of
    2019 and $553,000 in first quarter of 2018 due to lower borrowings
    under the Company’s revolving credit line.
  • The provision for income tax for the first quarter of 2019 was $2.7
    million and $2.5 million in the 2018 first quarter. The provision for
    income tax as a percentage of income before taxes less net income
    attributable to non-controlling interest was 24.3% for the first
    quarter of 2019 and 25.8% for the first quarter of 2018.
  • Net income attributable to non-controlling interests (permanent
    equity) was $1.5 million in the first quarter of 2019 and $1.2 million
    in the first quarter of 2018. Net income attributable to redeemable
    non-controlling interests (temporary equity) was $2.4 million in the
    first quarter of 2019 and $1.7 million in the first quarter of 2018.
  • Same store revenues for de novo and acquired clinics open for one year
    or more increased 4.7% in the most recent quarter. Visits increased
    3.6% for de novo and acquired clinics open for one year or more while
    the same store net rate increased 1.0%.

Other Financial Measures

For the first quarter of 2019 the Company’s Adjusted EBITDA increased by
11.7% to $15.6 million from $14.0 million in the first quarter of 2018.
Adjusted EBITDA as a percentage of net revenue increased by 50 basis
points from 12.9% to 13.4%. See definition and explanation of Adjusted
EBITDA in the schedule on pages 9 and 10.

Management’s Comments

Chris Reading, Chief Executive Officer, said, “Despite a historically
long and difficult winter our dedicated team of partners, clinicians and
support staff got us started off on the right foot for 2019. Cost
control coupled with good volume helped to create some meaningful margin
improvement in all aspects of our business. With our recently announced
industrial injury prevention acquisition coupled with continued
opportunity, internally and externally, we look forward to a good year
ahead.”

Larry McAfee, Chief Financial Officer, noted, “Strong net cash flow in
the quarter enabled the Company to reduce credit line borrowings by
approximately 24% to $29,000,000, the lowest since 2013.”

U.S. Physical Therapy Declares Quarterly
Dividend

The second quarterly dividend for 2019 of $0.27 per share will be paid
on June 14, 2019 to shareholders of record as of May 17, 2019. U.S.
Physical Therapy began paying quarterly dividends in 2011 and has
increased the dividend amount every year since.

Operating Leases – Right-to-Use Assets and
Lease Liability

The Company implemented the new lease accounting standard beginning
January 1, 2019. On March 31, 2019, the adoption resulted in $77.9
million of right-to-use assets and $82.6 million of operating lease
liabilities, of which $26.7 million was classified as a current
liability, in the consolidated balance sheet. For a detailed discussion
of the new lease accounting standard refer to the Company’s Annual
Report on Form 10-K filed with the SEC on March 18, 2019.

First Quarter 2019 Conference Call

U.S. Physical Therapy’s Management will host a conference call at 10:30
a.m. Eastern Time, 9:30 a.m. Central Time, on May 2, 2019 to discuss the
Company’s Quarter Ended March 31, 2019 results. Interested parties may
participate in the call by dialing 1-888-335-5539 or 973-582-2857 and
entering reservation number 7918419 approximately 10 minutes before the
call is scheduled to begin. To listen to the live call via web-cast, go
to the Company’s website at www.usph.com
at least 15 minutes early to register, download and install any
necessary audio software. The conference call will be archived and can
be accessed until August 2, 2019 at U.S. Physical Therapy’s website.

Forward-Looking Statements

This press release contains statements that are considered to be
forward-looking within the meaning under Section 21E of the Securities
Exchange Act of 1934, as amended. These statements contain
forward-looking information relating to the financial condition, results
of operations, plans, objectives, future performance and business of our
Company. These statements (often using words such as “believes”,
“expects”, “intends”, “plans”, “appear”, “should” and similar words)
involve risks and uncertainties that could cause actual results to
differ materially from those we expect. Included among such statements
may be those relating to new clinics, availability of personnel and the
reimbursement environment. The forward-looking statements are based on
our current views and assumptions and actual results could differ
materially from those anticipated in such forward-looking statements as
a result of certain risks, uncertainties, and factors, which include,
but are not limited to:

  • changes as the result of government enacted national healthcare reform;
  • changes in Medicare rules and guidelines and reimbursement or failure
    of our clinics to maintain their Medicare certification status;
  • revenue we receive from Medicare and Medicaid being subject to
    potential retroactive reduction;
  • business and regulatory conditions including federal and state
    regulations;
  • governmental and other third party payor inspections, reviews,
    investigations and audits;
  • compliance with federal and state laws and regulations relating to the
    privacy of individually identifiable patient information, and
    associated fines and penalties for failure to comply;
  • changes in reimbursement rates or payment methods from third party
    payors including government agencies and deductibles and co-pays owed
    by patients;
  • revenue and earnings expectations;
  • legal actions, which could subject us to increased operating costs and
    uninsured liabilities;
  • general economic conditions;
  • availability and cost of qualified physical therapists;
  • personnel productivity and retaining key personnel;
  • competitive, economic or reimbursement conditions in our markets which
    may require us to reorganize or close certain clinics and thereby
    incur losses and/or closure costs including the possible write-down or
    write-off of goodwill and other intangible assets;
  • acquisitions, purchase of non-controlling interests (minority
    interests) and the successful integration of the operations of the
    acquired businesses;
  • maintaining our information technology systems with adequate
    safeguards to protect against cyber-attacks;
  • maintaining adequate internal controls;
  • maintaining necessary insurance coverage;
  • availability, terms, and use of capital; and
  • weather and other seasonal factors.

Many factors are beyond our control. Given these uncertainties, you
should not place undue reliance on our forward-looking statements.
Please see our periodic reports filed with the Securities and Exchange
Commission for more information on these factors. Our forward-looking
statements represent our estimates and assumptions only as of the date
of this press release. Except as required by law, we are under no
obligation to update any forward-looking statement, regardless of the
reason the statement is no longer accurate.

About U.S. Physical Therapy, Inc.

Founded in 1990, U.S. Physical Therapy, Inc. operates 590 outpatient
physical therapy clinics in 41 states. The Company’s clinics provide
preventative and post-operative care for a variety of orthopedic-related
disorders and sports-related injuries, treatment for
neurologically-related injuries and rehabilitation of injured workers.
In addition to owning and operating clinics, the Company manages 28
physical therapy facilities for unaffiliated third parties, including
hospitals and physician groups. The Company also has an industrial
injury prevention business which provides onsite services for clients’
employees including injury prevention, rehabilitation, ergonomic
assessments and performance optimization.

More information about U.S. Physical Therapy, Inc. is available at www.usph.com.
The information included on that website is not incorporated into this
press release.

     

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF NET INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(unaudited)

 
For the Three Months Ended
March 31, 2019       March 31, 2018
 
Net patient revenues $ 106,650 $ 100,552
Other revenues   9,581   7,790
Net revenues 116,231 108,342
Operating costs:
Salaries and related costs 66,267 62,279
Rent, supplies, contract labor and other 22,044 21,776
Provision for doubtful accounts 1,206 1,061
Closure costs   (4 )   12
Total operating costs   89,513   85,128
 
Gross profit 26,718 23,214
 
Corporate office costs   11,293   10,163
Operating income 15,425 13,051
 
Interest and other income, net 16 32
Interest expense – debt and other   (358 )   (553 )
 
Income before taxes 15,083 12,530
 
Provision for income taxes   2,708   2,476
 
Net income 12,375 10,054
 
Less: net income attributable to non-controlling interests:
Non-controlling interests – permanent equity (1,537 ) (1,201 )
Redeemable non-controlling interests – temporary equity   (2,395 )   (1,736 )
  (3,932 )   (2,937 )
 
Net income attributable to USPH shareholders $ 8,443 $ 7,117
 
Basic and diluted earnings per share attributable to USPH
shareholders
$ 0.39 $ 0.27
 
Shares used in computation – basic and diluted   12,707   12,616
 
Dividends declared per common share $ 0.27 $ 0.23
           

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

(unaudited)

 
March 31, 2019 December 31, 2018
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 20,238 $ 23,368
Patient accounts receivable, less allowance for doubtful accounts of
$2,692 and $2,672, respectively
48,443 44,751
Accounts receivable – other 7,237 6,742
Other current assets   5,238   4,353
Total current assets 81,156 79,214
Fixed assets:
Furniture and equipment 53,267 52,611
Leasehold improvements   33,089   31,712
Fixed assets, gross 86,356 84,323
Less accumulated depreciation and amortization   65,197   64,154
Fixed assets, net 21,159 20,169
 
Operating lease right-of-use assets 77,870
Goodwill 293,338 293,525
Other identifiable intangible assets, net 48,125 48,828
Other assets   1,439   1,430
Total assets $ 523,087 $ 443,166
 

LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, USPH
SHAREHOLDERS’ EQUITY
AND NON-CONTROLLING INTERESTS

Current liabilities:
Accounts payable – trade $ 1,894 $ 2,019
Accrued expenses 39,237 38,493
Current portion of operating lease liabilities 26,733
Current portion of notes payable   1,066   1,434
Total current liabilities 68,930 41,946
Notes payable, net of current portion 516 402
Revolving line of credit 29,000 38,000
Deferred taxes 9,872 9,012
Deferred rent 2,159
Operating lease liabilities, net of current portion 55,834
Other long-term liabilities   566   829
Total liabilities 164,718 92,348
 
Redeemable non-controlling interests 137,196 133,943
 
U.S. Physical Therapy, Inc. (“USPH”) shareholders’ equity:
Preferred stock, $.01 par value, 500,000 shares authorized, no
shares issued and outstanding
Common stock, $.01 par value, 20,000,000 shares authorized,
14,975,829 and 14,899,233 shares issued, respectively
149 149
Additional paid-in capital 82,295 80,028
Retained earnings 168,952 167,396
Treasury stock at cost, 2,214,737 shares   (31,628 )   (31,628 )
Total USPH shareholders’ equity 219,768 215,945
Non-controlling interests   1,405   930
Total USPH shareholders’ equity and non-controlling interests   221,173   216,875

Total liabilities, redeemable non-controlling interests, USPH
shareholders’ equity and non-controlling interests

$ 523,087 $ 443,166
     

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(unaudited)

 
Three Months Ended
March 31, 2019       March 31, 2018
OPERATING ACTIVITIES
Net income including non-controlling interests $ 12,375 $ 10,054
Adjustments to reconcile net income including non-controlling
interests to net cash provided by operating activities:
Depreciation and amortization 2,400 2,468
Provision for doubtful accounts 1,206 1,061
Equity-based awards compensation expense 1,728 1,381
Deferred income taxes 2,118 (1,162 )
Other 12 54
Changes in operating assets and liabilities:
Increase in patient accounts receivable (4,898 ) (2,782 )
Increase in accounts receivable – other (495 ) (849 )
Increase in other assets (894 ) (1,238 )
Increase in accounts payable and accrued expenses 274 7,389
Decrease in other liabilities   (263 )   (845 )
Net cash provided by operating activities 13,563 15,531
 
INVESTING ACTIVITIES
Purchase of fixed assets (2,497 ) (1,404 )
Purchase of redeemable non-controlling interest, temporary equity (2,053 ) (761 )
Purchase of non-controlling interest, permanent equity (139 ) (246 )
Proceeds on sale of fixed assets   60  
Net cash used in investing activities (4,629 ) (2,411 )
 
FINANCING ACTIVITIES
Distributions to non-controlling interests, permanent and temporary
equity
(2,576 ) (2,208 )
Proceeds from revolving line of credit 19,000 19,000
Payments on revolving line of credit (28,000 ) (31,000 )
Payments to settle mandatorily redeemable non-controlling interests (265 )
Principal payments on notes payable (482 ) (823 )
Other   (5 )   56
Net cash used in financing activities (12,063 ) (15,240 )
 
Net decrease in cash and cash equivalents (3,129 ) (2,120 )
Cash and cash equivalents – beginning of period   23,368   21,933
Cash and cash equivalents – end of period $ 20,239 $ 19,813
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 313 $ 2,941
Interest $ 343 $ 526
Non-cash investing and financing transactions during the period:
Purchase of business – seller financing portion $ 228 $ 150
 

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

OPERATING RESULTS AND ADJUSTED EBITDA
(IN THOUSANDS,
EXCEPT PER SHARE DATA)

(unaudited)

The following tables provide detail of the diluted earnings per share
computation and reconcile net income attributable to USPH shareholders
calculated in accordance with GAAP to Operating Results and Adjusted
EBITDA. Management believes providing Operating Results and Adjusted
EBITDA to investors is useful information for comparing the Company’s
period-to-period results.

Operating Results (as defined below), a non-generally accepted
accounting principles (“non-GAAP”) measure, equals net income
attributable to USPH shareholders. In accordance with current accounting
guidance, the revaluation of redeemable non-controlling interest, net of
tax, is not included in net income but charged directly to retained
earnings and is included in the earnings per basic and diluted share
calculation.

Management uses Operating Results, which eliminates the non-current cash
item related to the revaluation of redeemable non-controlling interest
that can be subject to volatility and unusual costs, as one of the
principal measures to evaluate and monitor financial performance period
over period. Management believes that Operating Results is useful
information for investors to use in comparing the Company’s
period-to-period results as well as for comparing with other similar
businesses since most do not have mandatorily redeemable instruments and
therefore have different liability and equity structures.

Adjusted EBITDA is defined as net income attributable to USPH
shareholders before interest income, interest expense – debt and other,
taxes, depreciation, amortization and equity-based awards compensation
expense. Management believes reporting Adjusted EBITDA is useful
information for investors in comparing the Company’s period-to-period
results as well as comparing with similar businesses which report
adjusted EBITDA as defined by their company.

Operating Results and Adjusted EBITDA are not measures of financial
performance under GAAP. Adjusted EBITDA and Operating Results should not
be considered in isolation or as an alternative to, or substitute for,
net income attributable to USPH shareholders presented in the
consolidated financial statements.

     
Three Months Ended March 31,
2019       2018
Computation of earnings per share – USPH shareholders:
Net income attributable to USPH shareholders $ 8,443 $ 7,117
Charges to retained earnings:
Revaluation of redeemable non-controlling interest $ (4,661 ) $ (5,081 )
Tax effect at statutory rate (federal and state) of 26.25%   1,224   1,334
$ 5,006 $ 3,370
 
Basic and diluted per share $ 0.39 $ 0.27
 
Adjustments:
Revaluation of redeemable non-controlling interest 4,661 5,081
Tax effect at statutory rate (federal and state) of 26.25% and
39.25%, respectively
  (1,224 )   (1,334 )
Operating results $ 8,443 $ 7,117
 
Basic and diluted operating results per share $ 0.66 $ 0.56
 
Shares used in computation – basic and diluted   12,707   12,616
 
 
Three Months Ended March 31,
2019 2018
 
Net income attributable to USPH shareholders $ 8,443 $ 7,117
 
Adjustments:
Depreciation and amortization 2,375 2,468
Interest income (16 ) (32 )
Interest expense – debt and other 358 553
Provision for income taxes 2,708 2,476
Equity-based awards compensation expense   1,728   1,381
 
Adjusted EBITDA $ 15,596 $ 13,963
 

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

RECAP OF CLINIC COUNT

 
Date Number of Clinics
 
March 31, 2018 580
June 30, 2018 581
September 30, 2018 588
December 31, 2018 591
 
March 31, 2019 590

Contacts

U.S. Physical Therapy, Inc.
Larry McAfee, Chief Financial Officer
Chris
Reading, Chief Executive Officer
(713) 297-7000
Three Part
Advisors
Joe Noyons
(817) 778-8424

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