Item 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
The following is a discussion of our historical consolidated financial condition and results of operations, and should be read in conjunction with (i) our historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q; (ii) our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2020 (“2019 Annual Report”); and (iii) our management’s discussion and analysis of financial condition and results of operations included in our 2019 Annual Report. This discussion includes forward-looking statements that are subject to risk and uncertainties. Actual results may differ substantially from the statements we make in this section due to a number of factors that are discussed in “Forward-Looking Statements” herein and in Part II, Item 1A. Risk Factors of this report.
References to “we,” “us,” “our” and the “Company” shall mean U.S. Physical Therapy, Inc. and its subsidiaries.
EXECUTIVE SUMMARY
Our Business
We operate outpatient physical therapy clinics that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders and sports-related injuries, neurologically-related injuries and rehabilitation of injured workers. We also operate an industrial injury prevention services business which include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments services.
Business Update Related to COVID-19
As previously disclosed in a series of filings with the SEC and further described in detail in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 21, 2020, the our results have been negatively impacted by the effects of the COVID-19 pandemic. Management has taken a number of steps to reduce costs, stem operating losses incurred in March and April and increase profits subsequently. In March, with the onset of the COVID-19 pandemic, we began to furlough or terminate approximately 40% of its 5,500 full and part-time workforce. Since early May, over 750 of the furloughed employees have returned to work on a full or part-time basis. As of the filing of this quarterly report, we continue to experience lower physical therapy revenues; however we have seen recent improvement. The Company’s physical therapy daily patient volumes in April declined to as low as 45% of normal. For the month of April recent average visits per day per clinic were 16.4, in May that increased to 18.6 and in June rose to an average of 21.8 visits per day per clinic. Our industrial injury prevention business has been less effected by the pandemic and is currently running at approximately 90% of normal. Management estimates that the physical therapy visits in the month of July 2020, reached 80% to 85% of pre-COVID-19 volume.
Selected Operating and Financial Data
At June 30, 2020, we operated 554 clinics (of which 8 are not currently seeing patients) in 39 states. In addition to our ownership and operation of outpatient physical therapy clinics, we also manage physical therapy facilities for third parties, such as physicians and hospitals, with 29 such third-party facilities under management as of June 30, 2020.
Our reportable segments include the physical therapy operations segment and the industrial injury prevention services segment. Our physical operations consist of physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventive care, rehabilitation of injured workers and neurological injuries. Services provided by industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. We perform these services through Industrial Sports Medicine Professionals, consisting of both physical therapists and highly specialized certified athletic trainers (ATCs).
In March 2017, we acquired a 55% interest in an initial industrial injury prevention business. On April 30, 2018, we made a second acquisition and subsequently combined the two businesses. After the combination, we owned a 59.45% interest in the combined business, Briotix Health, Limited Partnership (“Briotix Health”). Services provided include onsite injury and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. We perform these services through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs). On April 11, 2019, we acquired a third company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network in 45 states including onsite at eleven client locations. The acquired business was then combined with Briotix Health increasing our ownership position in the partnership to approximately 76.0%.
On February 27, 2020, we acquired interests in a four-clinic physical therapy practice. The four clinics are in four separate partnerships. Our interests in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. The purchase price was $11.9 million, of which $11.6 million was paid in cash and a $0.3 million seller note. The note accrues interest at 4.75% per annum and the principal and interest is payable on February 2022.
On September 30, 2019, we acquired a 67% interest in eleven-clinic physical therapy practice. The purchase price for the 67% interest was $12.4 million of which $12.1 million was paid in cash and $0.3 million in a seller note that is payable in two principal installments totaling $150,000 each, plus accrued interest in September 2020 and September 2021. The note accrues interest at 5.0% per annum.
During the six months ended June 30, 2020, we sold 11 previously closed clinics. The aggregate sales price was $1.1 million, of which $0.7 million was paid in cash and $0.4 million in a note receivable payable in two equal installments of principal and any accrued interest on June 15, 2021 and 2022.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019
|
•
|
For the second quarter ended June 30, 2020 (“2020 Second Quarter”), our Operating Results (as defined below) was $10.9 million, or $0.85 per diluted share, inclusive of relief funds received from the Public Health and Social Services Emergency Fund as part of the CARES Act (“Relief Funds”), as compared to $10.3 million, or $0.81 per diluted share, in quarter ended June 30, 2019 (“2019 Second Quarter”). For the 2020 Second Quarter, our Operating Results was $5.0 million, or $0.39 per diluted share, without the Relief Funds. Operating Results, a non-GAAP measure, equals net income attributable to our shareholders per the consolidated statement of net income plus charges incurred for closure costs less gain on sale of partnership interest and clinics and Relief Funds, all net of tax. The earnings per share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest.
|
|
•
|
For the 2020 Second Quarter, our net income attributable to its shareholders, in accordance with GAAP, was $10.3 million as compared to $14.6 million for the comparable period of 2019. Inclusive of the credit or charge for the revaluation of non-controlling interest, net of tax, used to compute diluted earnings per share, in accordance with GAAP, in the 2020 Second Quarter, the amount is $12.7 million, or $0.99 per share, as compared to $10.8 million, or $0.85 per share in the 2019 Second Quarter. In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is not included in net income but charged or credited directly to retained earnings; however, the charge or credit for this change is included in the earnings per basic and diluted share calculation.
|
The following table provides details of the diluted earnings per share computation and reconciles net income attributable to our shareholders calculated in accordance with GAAP to Operating Results. Management believes providing Operating Results to investors is useful information for comparing our period-to-period results. Operating Results, a non-GAAP measure, equals net income attributable to our shareholders per the consolidated statement of net income plus charges incurred for closure costs less gain on sale of partnership interest and clinics and Relief Funds, all net of tax. The earnings per share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest. In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is included in the earnings per basic and diluted share calculation, although it is not included in net income but charged directly to retained earnings. Management uses Operating Results, which eliminates certain items described above 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 our period-to-period results as well as for comparing with other similar businesses since most do not have redeemable non-controlling interest instruments and therefore have different liability and equity structures.
Operating Results is not a measure of financial performance under GAAP. Operating Results should not be considered in isolation or as an alternative to, or substitute for, net income attributable to our shareholders presented in the consolidated financial statements.
|
|
Three Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Computation of earnings per share - USPH shareholders:
|
|
|
|
|
|
|
Net income attributable to USPH shareholders
|
|
$
|
10,232
|
|
|
$
|
14,620
|
|
Credit (charges) to retained earnings:
|
|
|
|
|
|
|
|
|
Revaluation of redeemable non-controlling interest
|
|
|
3,344
|
|
|
|
(5,169
|
)
|
Tax effect at statutory rate (federal and state) of 26.25%
|
|
|
(878
|
)
|
|
|
1,356
|
|
|
|
$
|
12,698
|
|
|
$
|
10,807
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (basic and diluted)
|
|
$
|
0.99
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Charges incurred for CFO search
|
|
|
-
|
|
|
|
-
|
|
Closure costs
|
|
|
94
|
|
|
|
-
|
|
Gain on sale of partnership interest and clinics
|
|
|
(1,073
|
)
|
|
|
(5,823
|
)
|
Receipts from the CARES Act Provider Relief Fund ("Relief Fund")
|
|
|
(7,958
|
)
|
|
|
-
|
|
Allocation to non-controlling interest
|
|
|
1,900
|
|
|
|
-
|
|
Revaluation of redeemable non-controlling interest
|
|
|
(3,344
|
)
|
|
|
5,169
|
|
Tax effect at statutory rate (federal and state) of 26.25%
|
|
|
2,725
|
|
|
|
172
|
|
Operating Results (without receipts from Relief Fund)
|
|
$
|
5,042
|
|
|
$
|
10,325
|
|
|
|
|
|
|
|
|
|
|
Receipts from Relief Fund
|
|
|
7,958
|
|
|
|
-
|
|
Tax effect at statutory rate (federal and state) of 26.25%
|
|
|
(2,089
|
)
|
|
|
-
|
|
Operating Results (including receipts from Relief Fund)
|
|
$
|
10,911
|
|
|
$
|
10,325
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted Operating Results (without receipts from Relief Fund) per share
|
|
$
|
0.39
|
|
|
$
|
0.81
|
|
Basic and diluted Operating Results (including receipts from Relief Fund) per share
|
|
$
|
0.85
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation - basic and diluted
|
|
|
12,843
|
|
|
|
12,767
|
|
The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements:
|
|
Three Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
(in thousands)
|
|
Net operating revenues:
|
|
|
|
|
|
|
Physical therapy operations
|
|
$
|
74,199
|
|
|
$
|
116,085
|
|
Industrial injury prevention services
|
|
|
9,658
|
|
|
|
10,288
|
|
Total Company
|
|
$
|
83,857
|
|
|
$
|
126,373
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
Physical therapy operations (excluding closure costs)
|
|
$
|
16,199
|
|
|
$
|
28,433
|
|
Industrial injury prevention services
|
|
|
3,179
|
|
|
|
3,005
|
|
|
|
$
|
19,378
|
|
|
$
|
31,438
|
|
Physical therapy operations - closure costs
|
|
|
94
|
|
|
|
13
|
|
Gross profit
|
|
$
|
19,284
|
|
|
$
|
31,425
|
|
Revenues
|
•
|
Reported net revenues in the 2020 Second Quarter was $83.9 million as compared to $126.4 million in the 2019 Second Quarter. Adjusted for the clinics sold in 2019 and 2020, net patient revenues were $83.7 million ($83.9 million less $0.2 million related to sold clinics) in the 2020 Second Quarter compared to $118.8 million ($126.4 million less $7.6 million related to sold clinics) in the 2019 Second Quarter. The remaining reduction in revenue of $35.1 million is due to the adverse effects of the COVID-19 pandemic. Please see table below.
|
|
|
Three Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
(in thousands)
|
|
Reported net revenues
|
|
$
|
83,857
|
|
|
$
|
126,373
|
|
2019 sold clinics
|
|
|
-
|
|
|
|
(6,552
|
)
|
2020 sold clinics
|
|
|
(112
|
)
|
|
|
(1,039
|
)
|
|
|
$
|
83,745
|
|
|
$
|
118,782
|
|
|
•
|
Net patient revenues from physical therapy operations were approximately $72.3 million in the 2020 Second Quarter and $113.4 million in the 2019 Second Quarter. Included in net patient revenues for the 2020 Second Quarter was $5.0 million related to clinics opened or acquired after June 30, 2019 (“New Clinics”). Included in net patient revenues for the 2019 Second Quarter was $7.8 million related to clinics sold in the six months ended June 30, 2019 and 2020. During the 2019 Second Quarter, the Company sold its interest in a partnership that included 30 clinics and during the 2020 Second Quarter, the Company sold its interest in eleven closed clinics.
|
|
•
|
The average net patient revenue per visit was $106.97 for the 2020 Second Quarter and $107.16 for the 2019 Second Quarter. Total patient visits were 675,700 in the 2020 Second Quarter and 1,058,000 for the 2019 Second Quarter. Adjusted for the clinics sold in 2020 and 2019, total patient visits were 674,600 in the 2020 Second Quarter and 992,200 for the 2019 Second Quarter. The reduction in adjusted total patient visits is due to the adverse effects of the COVID-19 pandemic. Net patient revenues are based on established billing rates less allowances for patients covered by contractual programs and workers’ compensation. Net patient revenues are determined after contractual and other adjustments relating to patient discounts from certain payors. Payments received under contractual programs and workers’ compensation are based on predetermined rates and are generally less than the established billing rates.
|
|
•
|
Also included in physical therapy operations was revenue from physical therapy management contracts which was $1.6 million for the 2020 Second Quarter and $2.2 million in 2019 Second Quarter. Other miscellaneous revenue from physical therapy operations was $0.3 million in the 2020 Second Quarter and $0.5 million in the 2019 Second Quarter. Other miscellaneous revenue include physical therapy services, including athletic trainers, provided on-site such as for schools.
|
|
•
|
Revenue from the industrial injury prevention services business decreased 6.1% to $9.7 million in the 2020 Second Quarter compared to $10.3 million in the 2019 Second Quarter. The reduction is primarily attributable to the adverse effects of the COVID-19 pandemic. Currently, the industrial injury prevention services business is running at slightly over 90% of normal.
|
Operating Costs
Total operating costs, excluding closure costs, were $64.5 million in the 2020 Second Quarter, or 76.9% of net revenues, as compared to $94.9 million in the 2019 Second Quarter, or 75.1% of net revenues. Total operating costs for the physical therapy operations, excluding closure costs, were $58.0 million in the 2020 Second Quarter, or 78.2% of physical therapy operations revenues, as compared to $87.7 million in the 2019 Second Quarter, or 75.5% of physical therapy operations revenues. Included in operating costs for the physical therapy operations for the 2020 Second Quarter was $3.8 million related to New Clinics, of which $2.6 million related the clinics acquired in September 2019 and February 2020. Adjusted for the operating costs for clinics related to the partnership interest sold in 2019 and 2020 of $6.6 million in 2019 Second Quarter and $0.5 million in 2020 Second Quarter, operating costs for clinic opened or acquired prior to July 1, 2019 (“Mature Clinics”) decreased by $26.5 million in the 2020 Second Quarter compared to the 2019 Second Quarter. Operating costs, included in physical therapy operations, related to management contracts decreased by $0.7 million. Closure costs of $0.1 million include estimates of remaining lease obligations and other costs offset by settlement of certain lease commitments recorded in the first quarter of 2019 due to closed clinics.
Total operating costs for the industrial injury prevention services business, were $6.5 million in the 2020 Second Quarter, or 67.1% of industrial injury prevention services revenues, as compared to $7.3 million in the 2019 Second Quarter, or 70.8% of net industrial injury prevention revenues.
Each component of operating costs is discussed below:
Operating Costs—Salaries and Related Costs
Salaries and related costs, including physical therapy operations and the industrial injury prevention services business, were 51.8% of net revenues in the 2020 Second Quarter versus 55.9% in the 2019 Second Quarter primarily due to a reduction in staffing and salary reductions due to management response to the COVID-19 pandemic. Please see discussion in Business Update Related to COVID-19 for further information. Salaries and related costs for the physical therapy operations were $37.9 million in the 2020 Second Quarter, or 51.1% of physical therapy operations revenues, as compared to $64.6 million in the 2019 Second Quarter, or 55.6% of physical therapy operations revenues. Included in salaries and related costs for the physical therapy operations for the 2020 Second Quarter was $2.2 million related to New Clinics. Adjusted for the salaries and related costs for clinics related to the partnership interest sold in 2019 and 2020 of $4.9 million in the 2019 Second Quarter and $0.1 million in the 2020 Second Quarter, salaries and related costs for Mature Clinics decreased by $23.5 million in the Second Quarter 2020 compared to the Second Quarter 2019 . Salaries and related costs, included in physical therapy operations, related to management contracts decreased by $0.6 million.
Salaries and related costs for the industrial injury prevention services business, were $5.5 million in the 2020 Second Quarter, or 56.9% of industrial injury prevention services revenues, as compared to $6.0 million in the 2019 Second Quarter, or 58.7% of net industrial injury prevention services revenues.
Operating Costs—Rent, Supplies, Contract Labor and Other
Rent, supplies, contract labor and other costs, including physical therapy operations and the industrial injury prevention services business, were 24.2% of net revenues in the 2020 Second Quarter versus 18.2% in the 2019 Second Quarter. Rent, supplies, contract labor and other costs for the physical therapy operations were $19.3 million in the 2020 Second Quarter, or 26.0% of physical therapy operations revenues, as compared to $21.8 million in the 2019 Second Quarter, or 18.8% of physical therapy operations revenues. Included in rent, supplies, contract labor and other costs for the physical therapy operations for the 2020 Second Quarter was $1.5 million related to New Clinics. Adjusted for the rent, supplies, contract labor and other costs for clinics related to the partnership interest sold in 2019 and 2020 of $1.6 million in the 2019 Second Quarter and $0.4 million in the 2020 second quarter, rent, supplies, contract labor and other costs for Mature Clinics decreased by $2.6 million in the Second Quarter 2020 compared to the Second Quarter 2019 . Rent, supplies, contract labor and other costs, included in physical therapy operations, related to management contracts decreased slightly.
Rent, supplies, contract labor and other costs for the industrial injury prevention services business, were $1.0 million in the 2020 Second Quarter, or 10.2% of industrial injury prevention services revenues, as compared to $1.2 million in the 2019 Second Quarter, or 12.1% of net industrial injury prevention services revenues.
Operating Costs—Provision for Doubtful Accounts
The provision for doubtful accounts as a percentage of net revenue was 0.9% in the 2020 Second Quarter and 1.0% for the comparable period in 2019.
Our provision for doubtful accounts for patient accounts receivable as a percentage of total patient accounts receivable was 6.4% at June 30, 2020, as compared to 5.6% at December 31, 2019. Our days’ sales outstanding were 36 days at June 30, 2020 and 33 days at December 31, 2019.
Gross Profit
Gross profit, including physical therapy operations, without closure costs, and the industrial injury prevention service business, was $19.4 million, or 23.1% of net revenue, as compared to $31.4 million, or 24.9% of net revenues, in the 2019 Second Quarter. Gross profit for the physical therapy operations was $16.2 million in the 2020 Second Quarter, or 21.8% of physical therapy operations revenues, as compared to $28.4 million in the 2019 Second Quarter, or 24.5% of physical therapy operations revenues. Gross profit for the physical therapy operations, excluding management contracts, was $15.8 million in the 2020 Second Quarter, or 21.7% of net patient revenues, as compared to $28.1 million in the 2019 Second Quarter, or 24.7% of net patient revenues. Gross profit for management contracts was $0.4 million in the 2020 Second Quarter, or 26.9% of management contract revenues, as compared to $0.3 million in the 2019 Second Quarter, or 15.4% of net patient revenues.
The gross profit for the industrial injury prevention service business was $3.2 million, or 32.9%, in the 2020 Second Quarter as compared to $3.0 million, or 29.2%, in the 2019 Second Quarter.
Corporate Office Costs
Corporate office costs, consisting primarily of salaries, incentive compensation, and benefits of corporate office personnel, rent, insurance costs, depreciation and amortization, travel, legal, accounting, professional, and recruiting fees, were $9.0 million for the 2020 Second Quarter and $11.5 million for the 2019 Second Quarter primarily due to a reduction in staffing and salary reductions due to management response to the COVID-19 pandemic. Please see discussion in Business Update Related to COVID-19 for further information. As a percentage of net revenues, corporate office costs were 10.8% for the 2020 Second Quarter and 9.1% for the 2019 Second Quarter.
Operating Income
Operating income for the 2020 Second Quarter was $10.3 million as compared to $19.9 million for the 2019 Second Quarter. Operating income as a percentage of net revenue decreased from 15.7% in the 2019 period to 12.2% in 2020. For the 2020 Second Quarter, operating income increased $6.2 million or 3.6% compared to the first quarter of 2020. See discussion above related to the effects of COVID-19 on our business and results of operation.
Relief Funds
Included in other income in the 2020 Second Quarter was $7.9 million of Relief Funds. The Relief Funds do not have to be repaid and were used for operations and offset of losses due to the COVID-19 pandemic.
Gain on Sale of Partnership Interest and Clinics
Included in other income was a gain of $1.1 million in the 2020 Second Quarter resulting from the sale of 11 previously closed clinics. A gain of $5.8 million was recognized in the 2019 Second Quarter resulting from the sale of a partnership interest which included 30 clinics.
Interest Expense
Interest expense was $653,000 in the 2020 Second Quarter and $607,000 in the 2019 Second Quarter due to higher average borrowings under the Company’s Amended Credit Agreement. At June 30, 2020, $33.0 million was outstanding under our Amended Credit Agreement (as defined below). See “—Liquidity and Capital Resources” below for a discussion of the terms of our Amended Credit Agreement.
Provision for Income Taxes
The provision for income tax was $3.9 million for the 2020 Second Quarter and $5.3 million for the 2019 Second Quarter. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest was 27.5% for the 2020 Second Quarter and 26.7% for the 2019 Second Quarter.
See table below detailing calculation of the provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands):
|
|
Three Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
18,645
|
|
|
$
|
25,118
|
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to non-controlling interests:
|
|
|
|
|
|
|
|
|
Non-controlling interests - permanent equity
|
|
|
(1,535
|
)
|
|
|
(1,802
|
)
|
Redeemable non-controlling interests - temporary equity
|
|
|
(2,996
|
)
|
|
|
(3,378
|
)
|
|
|
$
|
(4,531
|
)
|
|
$
|
(5,180
|
)
|
|
|
|
|
|
|
|
|
|
Income before taxes less net income attributable to non-controlling interests
|
|
$
|
14,114
|
|
|
$
|
19,938
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
3,882
|
|
|
$
|
5,318
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
27.5
|
%
|
|
|
26.7
|
%
|
Net Income Attributable to Non-controlling Interests
Net income attributable to non-controlling interests (permanent equity) was $1.5 million in the 2020 Second Quarter and $1.8 million in the 2019 Second Quarter. Net income attributable to redeemable non-controlling interests (temporary equity) was $3.0 million in the 2020 Second Quarter and $3.4 million in the 2019 Second Quarter.
Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019
|
•
|
For the six months ended June 30, 2020 (“2020 Six Months”), our Operating Results (as defined below), was $14.8 million, or $1.15 per diluted share, inclusive of Relief Funds, as compared to $18.8 million, or $1.47 per diluted share in the six months ended June 30, 2019 (“2019 Six Months”). For the 2020 Six Months, our Operating Results, was $8.9 million, or $0.70 per diluted share, without the Relief Funds. Please see page 32 for the definition of Operating Results.
|
|
•
|
For the 2020 Six Months, our net income attributable to its shareholders, in accordance with GAAP, was $11.2 million as compared to $23.0 million for the 2019 Six Months. Inclusive of the credit or charge for the revaluation of non-controlling interest, net of tax, used to compute diluted earnings per share, in accordance with GAAP, in the 2020 Six Months, the amount is $15.3 million, or $1.19 per share, as compared to $15.8 million, or $1.24 per share, in the 2019 Six Months. In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is not included in net income but charged or credited directly to retained earnings; however, the charge or credit for this change is included in the earnings per basic and diluted share calculation.
|
The following table provides details of the diluted earnings per share computation and reconciles net income attributable to our shareholders calculated in accordance with GAAP to Operating Results. Management believes providing Operating Results to investors is useful information for comparing our period-to-period results. Operating Results, a non-GAAP measure, equals net income attributable to our shareholders per the consolidated statement of net income plus charges incurred for closure costs less gain on sale of partnership interest and clinics and Relief Funds, and excludes the ongoing CFO search, all net of tax. The earnings per share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest. In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is included in the earnings per basic and diluted share calculation, although it is not included in net income but charged directly to retained earnings. Management uses Operating Results, which eliminates certain items described above 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 our period-to-period results as well as for comparing with other similar businesses since most do not have redeemable non-controlling interest instruments and therefore have different liability and equity structures.
Operating Results is not a measure of financial performance under GAAP. Operating Results should not be considered in isolation or as an alternative to, or substitute for, net income attributable to our shareholders presented in the consolidated financial statements.
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Computation of earnings per share - USPH shareholders:
|
|
|
|
|
|
|
Net income attributable to USPH shareholders
|
|
$
|
11,248
|
|
|
$
|
23,063
|
|
Credit (charges) to retained earnings:
|
|
|
|
|
|
|
|
|
Revaluation of redeemable non-controlling interest
|
|
|
5,473
|
|
|
|
(9,830
|
)
|
Tax effect at statutory rate (federal and state) of 26.25%
|
|
|
(1,437
|
)
|
|
|
2,580
|
|
|
|
$
|
15,284
|
|
|
$
|
15,813
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (basic and diluted)
|
|
$
|
1.19
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Charges incurred for CFO search
|
|
|
133
|
|
|
|
-
|
|
Closure costs
|
|
|
3,846
|
|
|
|
-
|
|
Gain on sale of partnership interest and clinics
|
|
|
(1,073
|
)
|
|
|
(5,823
|
)
|
Receipts from the CARES Act Provider Relief Fund ("Relief Fund")
|
|
|
(7,958
|
)
|
|
|
-
|
|
Allocation to non-controlling interest
|
|
|
1,900
|
|
|
|
-
|
|
Revaluation of redeemable non-controlling interest
|
|
|
(5,473
|
)
|
|
|
9,830
|
|
Tax effect at statutory rate (federal and state) of 26.25%
|
|
|
2,264
|
|
|
|
(1,052
|
)
|
Operating Results (without receipts from Relief Fund)
|
|
$
|
8,923
|
|
|
$
|
18,768
|
|
|
|
|
|
|
|
|
|
|
Receipts from Relief Fund
|
|
|
7,958
|
|
|
|
-
|
|
Tax effect at statutory rate (federal and state) of 26.25%
|
|
|
(2,089
|
)
|
|
|
-
|
|
Operating Results (including receipts from Relief Fund)
|
|
$
|
14,792
|
|
|
$
|
18,768
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted Operating Results (without receipts from Relief Fund) per share
|
|
$
|
0.70
|
|
|
$
|
1.47
|
|
Basic and diluted Operating Results (including receipts from Relief Fund) per share
|
|
$
|
1.15
|
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation - basic and diluted
|
|
|
12,820
|
|
|
|
12,738
|
|
The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements:
|
|
Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
(in thousands)
|
|
Net operating revenues:
|
|
|
|
|
|
|
Physical therapy operations
|
|
$
|
177,040
|
|
|
$
|
225,416
|
|
Industrial injury prevention services
|
|
|
19,534
|
|
|
|
17,188
|
|
Total Company
|
|
$
|
196,574
|
|
|
$
|
242,604
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
Physical therapy operations (excluding closure costs)
|
|
$
|
33,978
|
|
|
$
|
53,610
|
|
Industrial injury prevention services
|
|
|
4,843
|
|
|
|
4,542
|
|
|
|
$
|
38,821
|
|
|
$
|
58,152
|
|
Physical therapy operations - closure costs
|
|
|
3,846
|
|
|
|
9
|
|
Gross profit
|
|
$
|
34,975
|
|
|
$
|
58,143
|
|
|
|
|
|
|
|
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Physical therapy operations
|
|
$
|
534,238
|
|
|
$
|
512,657
|
|
Industrial injury prevention services
|
|
|
50,780
|
|
|
|
48,188
|
|
Total Company
|
|
$
|
585,018
|
|
|
$
|
560,845
|
|
Revenues
|
•
|
Reported net revenues in the 2020 Six Months was $196.6 million as compared to $242.6 million in the 2019 Six Months. Adjusted for the clinics sold in 2019 and 2020, net patient revenues were $195.6 million ($196.6 million less $1.0 million related to sold clinics) in the 2020 Six Months compared to $228.4 million ($242.6 million less $14.2 million related to sold clinics) in the 2019 Six Months. The remaining reduction in revenue of $32.8 million is due to the adverse effects of the COVID-19 pandemic. Please see table below.
|
|
|
Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
(in thousands)
|
|
Reported net revenues
|
|
$
|
196,574
|
|
|
$
|
242,604
|
|
2019 sold clinics
|
|
|
-
|
|
|
|
(12,237
|
)
|
2020 sold clinics
|
|
|
(949
|
)
|
|
|
(1,997
|
)
|
|
|
$
|
195,625
|
|
|
$
|
228,370
|
|
|
•
|
Net patient revenues from physical therapy operations were approximately $172.4 million in the 2020 Six Months and $220.0 million in the 2019 Six Months. Included in net patient revenues for the 2020 Six Months was $9.1 million related to New Clinics. Included in net patient revenues for the 2020 Six Months was $1.0 million related to the clinics sold in 2020. For the 2019 Six Months, net patient revenue included $7.8 million related to the clinics sold in the six months ended June 30, 2019 and 2020. During the 2019 Six Months, the Company sold its interest in a partnership that included 30 clinics and during the 2020 six month period, the Company sold its interest in 11 closed clinics.
|
|
•
|
The average net patient revenue per visit was $104.70 for the 2020 Six Months and $106.83 for the 2019 Six Months. Total patient visits were 1,646,700 in the 2020 Six Months and 2,059,000 for the 2019 Six Months. Adjusted for the clinics sold in 2020 and 2019, total patient visits were 1,637,800 in the 2020 Six Months and 1,934,500 for the 2019 Six Months. The reduction in adjusted total patient visits is due to the adverse effects of the COVID-19 pandemic. Net patient revenues are based on established billing rates less allowances for patients covered by contractual programs and workers’ compensation. Net patient revenues are determined after contractual and other adjustments relating to patient discounts from certain payors. Payments received under contractual programs and workers’ compensation are based on predetermined rates and are generally less than the established billing rates.
|
|
•
|
Also included in physical therapy operations was revenue from physical therapy management contracts which was $3.7 million for the 2020 Six Months and $4.4 million in 2019 Six Months. Other miscellaneous revenue from physical therapy operations was $0.9 million in the 2020 Six Months and $1.0 million in the 2019 Six Months. Other miscellaneous revenue include physical therapy services, including athletic trainers, provided on-site such as for schools.
|
|
•
|
Revenue from the industrial injury prevention services business increased 13.6% to $19.5 million in the 2020 Six Months compared to $17.2 million in the 2019 Six Months. The increase is primarily attributable to the acquisition in April 2019 offset by the adverse effects of the COVID-19 pandemic. Currently, the industrial injury prevention services business is running at slightly over 90% of normal.
|
Operating Costs
Total operating costs, excluding closure costs, were $157.8 million in the 2020 Six Months, or 80.3% of net revenues, as compared to $184.5 million in the 2019 Six Months, or 76.0% of net revenues. Total operating costs for the physical therapy operations, excluding closure costs, were $143.1 million in the 2020 Six Months, or 80.8% of physical therapy operations revenues, as compared to $171.8 million in the 2019 Six Months, or 76.2% of physical therapy operations revenues. Included in operating costs for the physical therapy operations for the 2020 Six Months was $7.3 million related to New Clinics, of which $4.7 million related the clinics acquired in September 2019 and February 2020. Adjusted for the operating costs for clinics related to the partnership interests sold in 2019 and 2020 of $6.6 million in the 2019 Six Months and $0.5 million in the 2020 Six Months, operating costs for clinic opened or acquired prior to July 1, 2019 (“Mature Clinics”) decreased by $26.5 million in the Second Quarter 2020 compared to the Second Quarter 2019. Operating costs, included in physical therapy operations, related to management contracts decreased by $0.7 million. Closure costs of $0.1 million include estimates of remaining lease obligations and other costs offset by settlement of certain lease commitments recorded in the 2019 First Quarter due to closed clinics.
Operating costs for the industrial injury prevention services business, were $14.7 million in the 2020 Six Months, or 74.7% of industrial injury prevention services revenues, as compared to $12.7 million in the 2019 Six Months, or 52.1% of net industrial injury prevention revenues.
Each component of operating costs is discussed below:
Operating Costs—Salaries and Related Costs
Salaries and related costs, including physical therapy operations and the industrial injury prevention services business, were 57.2% of net revenues in the 2020 Six Months versus 56.4% in the 2019 Six Months primarily due to a reduction in staffing and salary reductions due to management response to the COVID-19 pandemic. Please see discussion in Business Update Related to COVID-19 for further information. Salaries and related costs for the physical therapy operations were $100.0 million in the 2020 Six Months, or 56.5% of physical therapy operations revenues, as compared to $126.5 million in the 2019 Six Months, or 56.1% of physical therapy operations revenues. Included in salaries and related costs for the physical therapy operations for the 2020 Six Months was $4.5 million related to New Clinics. Adjusted for the salaries and related costs for clinics related to the partnership interest sold in 2019 and 2020 of $9.6 million in the 2019 Six Months and $0.6 million in the 2020 Six Months, salaries and related costs for Mature Clinics decreased by $21.4 million in the Second Quarter 2020 compared to the Second Quarter 2019. Salaries and related costs, included in physical therapy operations, related to management contracts decreased by $0.7 million.
Salaries and related costs for the industrial injury prevention services business, were $12.4 million in the 2020 Six Months, or 63.6% of industrial injury prevention services revenues, as compared to $10.4 million in the 2019 Six Months, or 60.4% of net industrial injury prevention services revenues.
Operating Costs—Rent, Supplies, Contract Labor and Other
Rent, supplies, contract labor and other costs, including physical therapy operations and the industrial injury prevention services business, were 22.0% of net revenues in the 2020 Six Months versus 18.6% in the 2019 Six Months. Rent, supplies, contract labor and other costs for the physical therapy operations were $40.9 million in the 2020 Six Months, or 23.1% of physical therapy operations revenues, as compared to $45.1 million in the 2019 Six Months, or 20.0% of physical therapy operations revenues. Included in rent, supplies, contract labor and other costs for the physical therapy operations for the 2020 Six Months was $2.4 million related to New Clinics. Adjusted for the rent, supplies, contract labor and other costs for clinics related to the partnership interest sold in 2019 and 2020 of $3.1 million in the 2019 Six Months and $0.2 million in the 2020 Six Months, rent, supplies, contract labor and other costs for Mature Clinics decreased by $1.4 million in the Second Quarter 2020 compared to the Second Quarter 2019. Rent, supplies, contract labor and other costs, included in physical therapy operations, related to management contracts increased slightly.
Rent, supplies, contract labor and other costs for the industrial injury prevention services business, were $2.3 million in both the 2020 and 2019 Six Months. As a percentage of industrial injury prevention services revenues, rent, supplies, contract labor and other costs were 11.6% and 13.1% of net industrial injury prevention services revenues for the 2020 and 2019 Six Months, respectively.
Operating Costs—Provision for Doubtful Accounts
The provision for doubtful accounts as a percentage of net revenue was 1.1% in the 2020 Six Months and 1.0% for the 2019 Six Months.
Our provision for doubtful accounts for patient accounts receivable as a percentage of total patient accounts receivable was 6.4% at June 30, 2020, as compared to 5.6% at December 31, 2019. Our days’ sales outstanding were 36 days at June 30, 2020 and 33 days at December 31, 2019.
Gross Profit
Gross profit, including physical therapy operations, without closure costs, and the industrial injury prevention services business, was $38.8 million, or 19.7% of net revenue, as compared to $58.2 million, or 24.0% of net revenues, in the 2019 Six Months. Gross profit for the physical therapy operations was $34.0 million in the 2020 Six Months, or 19.2% of physical therapy operations revenues, as compared to $53.6 million in the 2019 Six Months, or 23.8% of physical therapy operations revenues. Gross profit for the physical therapy operations, excluding management contracts, was $33.2 million in the 2020 Six Months, or 19.2% of net patient revenues, as compared to $52.9 million in the 2019 Six Months, or 23.9% of net patient revenues. Gross profit for management contracts was $0.8 million in the 2020 Six Months, or 20.5% of management contract revenues, as compared to $0.7 million in the 2019 Six Months, or 16.9% of net patient revenues.
The gross profit for the industrial injury prevention services business was $4.8 million, or 24.8%, in the 2020 Six Months as compared to $4.5 million, or 26.4%, in the 2019 Six Months.
Corporate Office Costs
Corporate office costs, consisting primarily of salaries, incentive compensation, and benefits of corporate office personnel, rent, insurance costs, depreciation and amortization, travel, legal, accounting, professional, and recruiting fees, were $20.7 million for the 2020 Six Months and $22.8 million for the 2019 Six Months primarily due to a reduction in staffing and salary reductions due to management response to the COVID-19 pandemic. As a percentage of net revenues, corporate office costs were 10.5% for the 2020 Six Months and 9.4% for the 2019 Six Months.
Operating Income
Operating income for the 2020 Six Months was $14.3 million as compared to $35.3 million for the 2019 Six Months. Operating income as a percentage of net revenue decreased from 14.6% in the 2019 Six Months to 7.3% in 2020. See discussion above related to the effects of COVID-19 on our business and results of operations.
Relief Funds
Included in other income in the 2020 Six Months was $7.9 million of Relief Funds. The Relief Funds do not have to be repaid and were used for operations and offset of losses due to the COVID-19 pandemic.
Gain on Sale of Partnership Interest and Clinics
Included in other income was a gain of $1.1 million in the 2020 Six Months resulting from the sale of 11 previously closed clinics and, as previously disclosed, a gain of $5.8 million in the 2019 Six Months resulting from the sale of a partnership interest which included 30 clinics.
Interest Expense
Interest expense was $1.1 million in the 2020 Six Months and $1.0 in the 2019 Six Months due to higher average borrowings under the Company’s Amended Credit Agreement. At June 30, 2020, $33.0 million was outstanding under our Amended Credit Agreement (as defined below). See “—Liquidity and Capital Resources” below for a discussion of the terms of our Amended Credit Agreement.
Provision for Income Taxes
The provision for income tax was $4.2 million for the 2020 Six Months and $8.0 million for the 2019 Six Months. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest was 27.1% for the 2020 Six Months and 25.8% for the 2019 Six Months.
See table below detailing calculation of the provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands):
|
|
Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
22,275
|
|
|
$
|
40,201
|
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to non-controlling interests:
|
|
|
|
|
|
|
|
|
Non-controlling interests - permanent equity
|
|
|
(2,061
|
)
|
|
|
(3,339
|
)
|
Redeemable non-controlling interests - temporary equity
|
|
|
(4,792
|
)
|
|
|
(5,773
|
)
|
|
|
$
|
(6,853
|
)
|
|
$
|
(9,112
|
)
|
|
|
|
|
|
|
|
|
|
Income before taxes less net income attributable to non-controlling interests
|
|
$
|
15,422
|
|
|
$
|
31,089
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
4,174
|
|
|
$
|
8,026
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
27.1
|
%
|
|
|
25.8
|
%
|
Net Income Attributable to Non-controlling Interests
Net income attributable to non-controlling interests (permanent equity) was $2.0 million in the 2020 Six Months and $3.3 million in the 2019 Six Months. Net income attributable to redeemable non-controlling interests (temporary equity) was $4.8 million in the 2020 Six Months and $5.8 million in the 2019 Six Months.
LIQUIDITY AND CAPITAL RESOURCES
We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. At June 30, 2020 and December 31, 2019, we had $43.5 million and $23.5 million, respectively, in cash. We believe that our cash is sufficient to fund the working capital needs of our operating subsidiaries through at least June 30, 2021.
Included in our cash at June 30, 2020 are the receipts from the Medicare Accelerated and Advance Payment Program (“MAAPP”) of $12.4 million. Based on current regulations, MAAPP funds received will be applied to future Medicare billings commencing in August 2020, with all such remaining amounts required to be repaid by us by November 2020. Beginning November 2020, any unpaid balance will begin accruing interest.
Cash and cash equivalents increased by $20.0 million from December 31, 2019 to June 30, 2020. During the 2020 Six Months, $48.4 million was provided by operations and $12.9 million from MAAPP, as described above. The major uses of cash for investing and financing activities included: net reduction in credit line ($33.0 million), distributions to non-controlling interests inclusive of those classified as redeemable non-controlling interests ($5.7 million), purchase of business ($11.6 million), purchase of fixed assets ($4.6 million), cash dividends paid to our shareholders ($4.1 million), and a purchase of redeemable non-controlling interests ($2.4 million). During the 2020 Second Quarter, we were able to negotiate rent abatements and deferrals totaling $1.6 million.
Effective December 5, 2013, we entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended in August 2015, January 2016, March 2017 and November 2017 (hereafter referred to as “Amended Credit Agreement”). The Amended Credit Agreement is unsecured and has loan covenants, including requirements that we comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of our common stock, dividend payments to our common stockholders, capital expenditures and other corporate purposes. The pricing grid is based on our consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25% to 2.0% or the applicable spread over the Base Rate ranging from 0.1% to 1%. Fees under the Amended Credit Agreement include an unused commitment fee ranging from 0.25% to 0.3% depending on our consolidated leverage ratio and the amount of funds outstanding under the Amended Credit Agreement.
The January 2016 amendment to the Amended Credit Agreement increased the cash and noncash consideration that we could pay with respect to acquisitions permitted under the Amended Credit Agreement to $50.0 million for any fiscal year, and increased the amount we may pay in cash dividends to our shareholders in an aggregate amount not to exceed $10.0 million in any fiscal year. The March 2017 amendment, among other items, increased the amount we may pay in cash dividends to our shareholders in an aggregate amount not to exceed $15.0 million in any fiscal year. The November 2017 amendment, among other items, adjusted the pricing grid as described above, increased the aggregate amount we may pay in cash dividends to $20.0 million to our shareholders and extended the maturity date to November 30, 2021. As of June 30, 2020, we were in compliance with all of the covenants contained in the credit agreement. Given the uncertainty inherent in operating results due to the COVID-19 pandemic, the Company continues to closely monitor covenant compliance. The Company will engage as required in discussions with its lender regarding an amendment to the facility so as to maintain compliance with all covenants.
On February 27, 2020, we acquired interests in a four-clinic physical therapy practice. The four clinics are in four separate partnerships. Our interests in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. The aggregate purchase price was $11.9 million, of which $11.6 million was paid in cash and a $0.3 million seller note. The note accrues interest at 4.75% per annum and the principal and interest is payable on February 2022.
On September 30, 2019, we acquired a 67% interest in eleven-clinic physical therapy practice. The purchase price for the 67% interest was $12.4 million, of which $12.1 million was in cash and $0.3 million in a seller note that is payable in two principal installments totaling $150,000 each, plus accrued interest in September 2020 and September 2021. The note accrues interest at 5.0% per annum.
On April 11, 2019, we acquired a company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network of 45 states including onsite at eleven client locations. The business was then combined with Briotix Health, our industrial injury prevention operation, increasing our ownership position in the Briotix Health partnership to approximately 76.0%. The purchase price for the acquired company was $22.9 million ($23.6 million less cash acquired of $0.7 million), which consisted of $18.9 million in cash, (of which $0.5 million will be paid to certain shareholders), and a $4.0 million seller note. The note accrues interest at 5.5% and the principal and accrued interest is payable, on April 9, 2021.
On March 4, 2019, in conjunction with the purchase of a redeemable non-controlling interest, we entered into a note payable in the amount of $228,120 that was payable in two equal installments of $114,080 each, plus accrued interest. The first installment was paid in March 2020 and the second installment remains payable in March 2021.
We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts, in a consistent manner for all payor types. Claims are submitted to payors daily, weekly or monthly in accordance with our policy or payor’s requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting Medicare Rehab Agency status approval initially may be delayed for a relatively short transition period. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-pay payor type receivables, the write-off generally occurs after the accounts receivable has been outstanding for at least 120 days.
We generally enter into various notes payable as a means of financing our acquisitions. Our outstanding notes payable as of June 30, 2020 relate to certain of the acquisitions of businesses and purchases of redeemable non-controlling interests that occurred in 2018 through June 2020. Typically, the notes are payable over two years plus any accrued and unpaid interest. Interest accrues at various interest rates ranging from 3.25% to 5.5% per annum, subject to adjustment. At June 30, 2020, the balance on these notes payable was $5.3 million. In addition, we assumed leases with remaining terms of 1 month to 6 years for the operating facilities.
In conjunction with the above mentioned acquisitions, in the event that a limited minority partner’s employment ceases at any time after a specified date that is typically between three and five years from the acquisition date, we have agreed to certain contractual provisions which enable such minority partners to exercise their right to trigger our repurchase of that partner’s non-controlling interest at a predetermined multiple of earnings before interest and taxes.
As of June 30, 2020, we have accrued $6.9 million related to credit balances due to patients and payors. This amount is expected to be paid in the next twelve months.
From September 2001 through December 31, 2008, our Board of Directors (“Board”) authorized us to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of our common stock. In March 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of our common stock (“March 2009 Authorization”). Our Amended Credit Agreement permits share repurchases of up to $15,000,000, subject to compliance with covenants. We are required to retire shares purchased under the March 2009 Authorization.
There is no expiration date for the share repurchase program. As of June 30, 2020, there are currently an additional estimated 185,139 shares (based on the closing price of $81.02 on June 30, 2020) that may be purchased from time to time in the open market or private transactions depending on price, availability and our cash position. We did not purchase any shares of our common stock during the six months ended June 30, 2020.
FACTORS AFFECTING FUTURE RESULTS
The risks related to our business and operations include:
|
•
|
the multiple effects of the impact of public health crises and epidemics/pandemics, such as the novel strain of COVID-19, for which the financial magnitude cannot be currently estimated;
|
|
•
|
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 and/or enrollment 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, which may result in sanctions or reputational harm and increased costs;
|
|
•
|
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 changes in the 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;
|
|
•
|
competitive environment in the industrial injury prevention business, which could result in the termination or non-renewal of contractual service arrangements and other adverse financial consequences for that service line;
|
|
•
|
acquisitions, and the successful integration of the operations of the acquired businesses;
|
|
•
|
impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their non controlling interests (minority interests);
|
|
•
|
maintaining our information technology systems with adequate safeguards to protect against cyber-attacks;
|
|
•
|
a security breach of our or our third party vendors’ information technology systems may subject us to potential legal action and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 of the Health Information Technology for Economic and Clinical Health Act;
|
|
•
|
maintaining adequate internal controls;
|
|
•
|
maintaining necessary insurance coverage;
|
|
•
|
availability, terms, and use of capital; and
|
|
•
|
weather and other seasonal factors.
|
See Risk Factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 and our subsequent current and periodic reports, including the additional risk factor noted in our Current Report on Form 8-K filed on April 24, 2020.
Forward-Looking Statements
We make statements in this report that are considered to be forward-looking statements within the meaning given such term under Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 project. Included among such statements are those relating to opening 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 the risks listed above.
Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our forward-looking statements. Please see the other sections of this report and our other periodic reports filed with the Securities and Exchange Commission (the “SEC”) for more information on these factors. Our forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we are under no obligation to update any forward-looking statement, regardless of the reason the statement may no longer be accurate.