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, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2021 (“2020 Annual Report”); and (iii) our management’s discussion and analysis of financial condition and results of operations included in our 2020 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 includes 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 our Quarterly Reports on Form 10-Q for the first three quarters of 2020 and the 2020 Annual Report, our results were negatively impacted by the effects of the COVID-19 pandemic in 2020. For 2021 periods as compared to 2020 periods, the increase in revenues and expenses are primarily due to the Company returning to pre-pandemic volumes.
We have put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps to keep employees and patients safe. In line with recommendations to reduce large gatherings and increase social distancing, we continue to allow a large number of office-based employees to work remotely. The Company is monitoring the situation and will adjust work environments accordingly.
In response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act was signed into law in March 2020. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees.
In 2020, we received benefits under the CARES Act including, but not limited to:
|
•
|
The CARES Act allowed for qualified healthcare providers to receive advanced payments under the Medicare Accelerated and Advance Payment Program (“MAAPP Funds”) during the COVID-19 pandemic. Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided. We applied for and received approval from Centers for Medicare & Medicaid Services (“CMS”) in April 2020. We recorded the $14.1 million in advance payments received as a liability. During the 2021 First Quarter, we repaid the MAAPP Funds of $14.1 million rather than applying them to future services performed.
|
|
•
|
We elected to defer depositing the employer’s share of Social Security taxes for payments due from March 27, 2020 through December 31, 2020, interest-free and penalty-free. As of June 30, 2021, included in each of accrued liabilities was $4.1 million and in other long-term liabilities is $4.2 million related to these deferred payments.
|
|
•
|
The CARES Act provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19. Through December 31, 2020, our consolidated subsidiaries received approximately $13.5 million of payments under the CARES Act (“Relief Funds”). Under the our accounting policy, these payments have been recorded as Other income – Relief Funds. These funds are not required to be repaid upon attestation and compliance with certain terms and conditions, which could change materially based on evolving grant compliance provisions and guidance provided by the U.S. Department of Health and Human Services. Currently, we can attest and comply with the terms and conditions. We will continue to monitor the evolving guidelines and may record adjustments as additional information is released. There were no Relief Funds received in the six months ended June 30, 2021.
|
Selected Operating and Financial Data
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.
At June 30, 2021, we operated 575 clinics 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 39 such third-party facilities under management as of June 30, 2021.
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 June 30, 2021, we acquired a 65% interest in an eight-clinic physical therapy practice with the practice founder retaining 35%. The purchase price was approximately $10.3 million, of which $9.0 million was paid in cash, $1.0 million is payable based on the achievement of certain business criteria and $0.3 million is in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on June 30, 2023.
On March 31, 2021, we acquired a 70% interest in a five-clinic physical therapy practice with the practice founder retaining 30%. When acquired, the practice was developing a sixth clinic which has been completed. The purchase price was approximately $12.0 million, of which $11.7 million was paid in cash and a $0.3 million note payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on March 31, 2023.
On November 30, 2020, we acquired a 75% interest in a three-clinic physical therapy practice. The purchase price for the 75% interest was $8.9 million (net of cash acquired), of which $8.6 million was paid in cash and $0.3 million in the form of a note payable that is payable in two principal installments totaling $162,500 each. The first principal payment plus accrued interest is due to be paid in November 2021 with the second installment to be paid in November 2022. The note accrues interest at 3.25% per annum.
On September 30, 2020, we acquired a 70% interest in an entity which holds six-management contracts that have been in place for a number of years. Currently, these contracts have a five year term. The purchase price for the 70% interest was approximately $4.2 million, with $3.7 million payable in cash and $0.5 million in two notes payable. One of the notes payable of $0.2 million is payable, with any accrued interest at 5% per annum, on September 30, 2021. The remaining note of $0.3 million was paid in November 2020.
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 note payable. The note accrues interest at 4.75% per annum and the principal and interest is payable in February 2022.
During the six months ended June 30, 2020, we sold two clinics. The aggregate sales price was $0.1 million.
Employees
Our strategy to acquire physical therapy practices, develop outpatient physical therapy clinics as satellites within existing partnerships, acquire industrial injury prevention businesses, and to continue to support the growth of our existing businesses requires a talented workforce that can grow with us. As of June 30, 2021, we employed approximately 5,178 people nationwide, of which approximately 2,755 were full-time employees.
It is crucial that we continue to attract and retain top talent. To attract and retain talented employees, we strive to make our corporate office and all of our practices and businesses a diverse and healthy workplace, with opportunities for our employees to receive continuing education, skill development, encouragement to grow and develop their career, all supported by competitive compensation, incentives, and benefits. Our clinical professionals are all licensed and a vast majority have advanced degrees. Our operational leadership teams have long-standing relationships with local and regional universities, professional affiliations, and other applicable sources that provide our practices with a talent pipeline.
We provide competitive compensation and benefits programs to help meet our employees' needs in the practices and communities in which they serve. These programs (which can vary by practice and employment classification) include incentive compensation plans, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, education assistance, mental health, and other employee assistance benefits.
We invest resources to develop the talent needed to support our business strategy. Resources include a multitude of training and development programs delivered internally and externally, online and instructor-led, and on-the-job learning formats.
We expect to continue adding personnel in the future as we focus on potential acquisition targets and organic growth opportunities.
RESULTS OF OPERATIONS
Summary of 2021 Second Quarter and Six Months Results
For the three months ended June 30, 2021 (“2021 Second Quarter”), our net income attributable to diluted shareholders was $12.4 million, as compared to $10.2 million for the three months ended June 30, 2020 (“2020 Second Quarter”) and $14.6 million for the three months ended June 30, 2019 (“2019 Second Quarter”), which includes a $5.8 million gain on the sale of the Company’s interest in a physical therapy partnership on June 30, 2019. For the six months ended June 30, 2021 (“2021 Six Months”), our net income attributable to diluted shareholders was $20.6 million, as compared to $11.2 million for the six months ended June 30, 2020 (“2020 Six Months”) and $23.1 million for the six months ended June 30, 2019 (“2019 Six Months”). Inclusive of the charge or credit for revaluation of non-controlling interest, net of taxes, used to compute diluted earnings per diluted share in accordance with GAAP, the amount is $10.5 million, or $0.82 per diluted share, for the 2021 Second Quarter as compared to $12.7 million, or $0.99 per diluted share, for the 2020 Second Quarter, and $10.8 million, or $0.85 per diluted share, for the 2019 Second Quarter. Inclusive of the charge or credit for revaluation of redeemable non-controlling interest, net of taxes, used to compute diluted earnings per diluted share in accordance with GAAP, the amount is $13.3 million, or $1.03 per diluted share, for the 2021 Six Months as compared to $15.3 million, or $1.19 per diluted share, for the 2020 Six Months, and $15.8 million, or $1.24 per diluted share, for the 2019 Six Months. In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of taxes, is not included in net income but charged directly to retained earnings; however, the charge or credit for this change is included in the earnings per basic and diluted share calculation. See the table below for the computation of diluted earnings per diluted share. In 2020, the valuation of redeemable non-controlling interests decreased due to the results associated with the pandemic, therefore resulting in a credit to retained earnings. In 2021 and 2019, the valuations increased therefore there was a charge to retained earnings.
For the 2021 Second Quarter, our Operating Results was $12.4 million, or $0.96 per diluted diluted share, as compared to $9.5 million (inclusive of Relief Funds), or $0.74 per diluted diluted share, for the 2020 Second Quarter, and $10.3 million, or $0.81 per diluted share for the 2019 Second Quarter. For the 2021 Six Months, our Operating Results was $20.6 million, or $1.60 per diluted diluted share, as compared to $13.4 million, or $1.04 per diluted diluted share, for the 2020 Six Months, and $18.8 million, or $1.47 per diluted share, for the 2019 Six Months. Operating Results, a non-Generally Accepted Accounting Principles (“GAAP”) measure, equals net income attributable to our diluted shareholders per the consolidated statements of income less gain on sale of partnership interests and clinics plus charges incurred for clinic closure costs and expenses related to CFO transition, all net of taxes. Earnings per diluted share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest and the associated tax impact.
The table below provides a calculation of diluted earnings per share and Operating Results (in thousands, except per share data):
U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
EARNINGS PER SHARES AND OPERATING RESULTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
|
|
Three Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Computation of earnings per share - USPH shareholders:
|
|
|
|
|
|
|
|
|
|
Net income attributable to USPH shareholders
|
|
$
|
12,436
|
|
|
$
|
10,232
|
|
|
$
|
14,620
|
|
Credit (charges) to retained earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation of redeemable non-controlling interest
|
|
|
(2,549
|
)
|
|
|
3,344
|
|
|
|
(5,169
|
)
|
Tax effect at statutory rate (federal and state) of 25.55% and 26.25%, respectively
|
|
|
651
|
|
|
|
(878
|
)
|
|
|
1,356
|
|
|
|
$
|
10,538
|
|
|
$
|
12,698
|
|
|
$
|
10,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (basic and diluted)
|
|
$
|
0.82
|
|
|
$
|
0.99
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure costs
|
|
|
(22
|
)
|
|
|
94
|
|
|
|
-
|
|
Expenses related to CFO transition
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gain on sale of partnership interest and clinics
|
|
|
-
|
|
|
|
(1,073
|
)
|
|
|
(5,823
|
)
|
Relief Funds
|
|
|
-
|
|
|
|
(7,958
|
)
|
|
|
-
|
|
Allocation to non-controlling interest
|
|
|
-
|
|
|
|
1,900
|
|
|
|
-
|
|
Revaluation of redeemable non-controlling interest
|
|
|
2,549
|
|
|
|
(3,344
|
)
|
|
|
5,169
|
|
Tax effect at statutory rate (federal and state) of 25.55%, 26.25% and 26.25%, respectively
|
|
|
(651
|
)
|
|
|
2,725
|
|
|
|
172
|
|
Operating Results (excluding Relief Funds)
|
|
$
|
12,414
|
|
|
$
|
5,042
|
|
|
$
|
10,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relief Funds
|
|
|
-
|
|
|
|
7,958
|
|
|
|
-
|
|
Allocation to non-controlling interest
|
|
|
-
|
|
|
|
(1,900
|
)
|
|
|
-
|
|
Tax effect at statutory rate (federal and state) of 25.55%, 26.25% and 26.25%, respectively
|
|
|
-
|
|
|
|
(1,590
|
)
|
|
|
-
|
|
Operating Results (including Relief Funds)
|
|
$
|
12,414
|
|
|
$
|
9,510
|
|
|
$
|
10,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted Operating Results (without Relief Funds) per share
|
|
$
|
0.96
|
|
|
$
|
0.39
|
|
|
$
|
0.81
|
|
Basic and diluted Operating Results (including Relief Funds) per share
|
|
$
|
0.96
|
|
|
$
|
0.74
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation - basic and diluted
|
|
|
12,902
|
|
|
|
12,843
|
|
|
|
12,767
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Computation of earnings per share - USPH shareholders:
|
|
|
|
|
|
|
|
|
|
Net income attributable to USPH shareholders
|
|
$
|
20,609
|
|
|
$
|
11,248
|
|
|
$
|
23,063
|
|
Credit (charges) to retained earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation of redeemable non-controlling interest
|
|
|
(9,819
|
)
|
|
|
5,473
|
|
|
|
(9,830
|
)
|
Tax effect at statutory rate (federal and state) of 25.55%, 26.25% and 26.25%, respectively
|
|
|
2,508
|
|
|
|
(1,437
|
)
|
|
|
2,580
|
|
|
|
$
|
13,298
|
|
|
$
|
15,284
|
|
|
$
|
15,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (basic and diluted)
|
|
$
|
1.03
|
|
|
$
|
1.19
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure costs
|
|
|
15
|
|
|
|
3,846
|
|
|
|
-
|
|
Expenses related to CFO transition
|
|
|
-
|
|
|
|
133
|
|
|
|
-
|
|
Gain on sale of partnership interest and clinics
|
|
|
-
|
|
|
|
(1,073
|
)
|
|
|
(5,823
|
)
|
Relief Funds
|
|
|
-
|
|
|
|
(7,958
|
)
|
|
|
-
|
|
Allocation to non-controlling interest
|
|
|
-
|
|
|
|
1,900
|
|
|
|
-
|
|
Revaluation of redeemable non-controlling interest
|
|
|
9,819
|
|
|
|
(5,473
|
)
|
|
|
9,830
|
|
Tax effect at statutory rate (federal and state) of 25.55%, 26.25% and 26.25%, respectively
|
|
|
(2,508
|
)
|
|
|
2,264
|
|
|
|
(1,052
|
)
|
Operating Results (excluding Relief Funds)
|
|
$
|
20,624
|
|
|
$
|
8,923
|
|
|
$
|
18,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relief Funds
|
|
|
-
|
|
|
|
7,958
|
|
|
|
-
|
|
Allocation to non-controlling interest
|
|
|
-
|
|
|
|
(1,900
|
)
|
|
|
-
|
|
Tax effect at statutory rate (federal and state) of 25.55%, 26.25% and 26.25%, respectively
|
|
|
-
|
|
|
|
(1,590
|
)
|
|
|
-
|
|
Operating Results (including Relief Funds)
|
|
$
|
20,624
|
|
|
$
|
13,391
|
|
|
$
|
18,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted Operating Results (without Relief Funds) per share
|
|
$
|
1.60
|
|
|
$
|
0.70
|
|
|
$
|
1.47
|
|
Basic and diluted Operating Results (including Relief Funds) per share
|
|
$
|
1.60
|
|
|
$
|
1.04
|
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation - basic and diluted
|
|
|
12,886
|
|
|
|
12,820
|
|
|
|
12,738
|
|
Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020
The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements (in thousands):
|
|
Three Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Net operating revenues:
|
|
|
|
|
|
|
Physical therapy operations
|
|
$
|
116,895
|
|
|
$
|
74,199
|
|
Industrial injury prevention services
|
|
|
10,033
|
|
|
|
9,658
|
|
Total Company
|
|
$
|
126,928
|
|
|
$
|
83,857
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
Physical therapy operations (excluding closure costs)
|
|
$
|
31,739
|
|
|
$
|
16,199
|
|
Industrial injury prevention services
|
|
|
2,543
|
|
|
|
3,179
|
|
|
|
$
|
34,282
|
|
|
$
|
19,378
|
|
Physical therapy operations - closure costs
|
|
|
(22
|
)
|
|
|
94
|
|
Gross profit
|
|
$
|
34,304
|
|
|
$
|
19,284
|
|
|
|
|
|
|
|
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Physical therapy operations
|
|
$
|
578,888
|
|
|
$
|
534,238
|
|
Industrial injury prevention services
|
|
|
44,070
|
|
|
|
50,780
|
|
Total Company
|
|
$
|
622,958
|
|
|
$
|
585,018
|
|
Revenues
Reported net revenues for the 2021 Second Quarter was $126.9 million, an increase of 51.4% as compared to $83.9 million for the 2020 Second Quarter.See table below for a detail of reported net revenues (in thousands):
|
|
Three Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Revenue related to Mature Clinics
|
|
$
|
105,223
|
|
|
$
|
69,567
|
|
Revenue related to 2021 Clinic Additions
|
|
|
2,458
|
|
|
|
-
|
|
Revenue related to 2020 Clinic Additions
|
|
|
5,531
|
|
|
|
1,952
|
|
Revenue from clinics sold or closed in 2021
|
|
|
24
|
|
|
|
102
|
|
Revenue from clinics sold or closed in 2020
|
|
|
2
|
|
|
|
658
|
|
Net patient revenue from physical therapy operations.
|
|
|
113,238
|
|
|
|
72,279
|
|
Other revenue
|
|
|
918
|
|
|
|
328
|
|
Physical therapy operations
|
|
$
|
114,156
|
|
|
$
|
72,607
|
|
Management contract revenue
|
|
|
2,739
|
|
|
|
1,592
|
|
Industrial injury prevention services
|
|
|
10,033
|
|
|
|
9,658
|
|
Total Revenue
|
|
$
|
126,928
|
|
|
$
|
83,857
|
|
Net patient revenues from physical therapy operations increased $41.0 million, or 56.7%, to $113.2 million for the 2021 Second Quarter from $72.3 million for the 2020 Second Quarter. Included in net patient revenues are revenues related to clinics sold or closed in 2021 and 2020 of $26,000 for 2021 Second Quarter and $0.8 million for the 2020 Second Quarter. During the full year of 2020, the Company sold its interest in 14 clinics and closed 34 clinics. For comparison purposes, adjusted for revenue from the clinics sold or closed, net patient revenues from physical therapy operations was approximately $113.2 million for Second Quarter 2021, inclusive of $8.0 million related to clinics opened or acquired in the 2021 Second Quarter (“2021 Clinic Additions”) and 2020 year (“2020 Clinic Additions”), together referred to as (“Clinic Additions”), and $71.5 million for the Second Quarter 2020, inclusive of $2.0 million for 2020 Clinic Additions. Net patient revenues related to clinics opened or acquired prior to 2020 and still in operations at June 30, 2021 (“Mature Clinics”) increased $35.7 million for the 2021 Second Quarter compared to the 2020 Second Quarter.
The average net patient revenue per visit was $104.46 for the 2021 Second Quarter as compared to $106.97 for the 2020 Second Quarter, including all clinics operational during such periods. Total patient visits increased 60.4% to 1,084,070 for the 2021 Second Quarter from 675,701 for the 2020 Second Quarter. 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.
Revenue from physical therapy management contracts increased 72.0% to $2.7 million for the 2021 Second Quarter as compared to $1.6 million for the 2020 Second Quarter. Other miscellaneous revenue was $0.9 million in the 2021 Second Quarter and $0.3 million in the 2020 Second Quarter. Other miscellaneous revenue includes a variety of services, including athletic trainers provided for schools and athletic events.
Revenue from the industrial injury prevention business increased 3.9% to $10.0 million for the 2021 Second Quarter as compared to $9.7 million for the 2020 Second Quarter.
Operating Costs
Total operating costs, excluding closure costs, were $92.6 million for the 2021 Second Quarter, or 73.0% of net revenues, an improvement of 390 basis points as compared to $64.5 million for the 2020 Second Quarter, or 76.9% of net revenues. Included in operating costs for the 2021 Second Quarter was $7.0 million related to Clinic Additions. Operating costs for Mature Clinics increased by $22.2 million for the 2021 Second Quarter compared to the 2020 Second Quarter. In addition, operating costs related to the industrial injury prevention business increased by $1.0 million. See table below for a detail of operating costs, excluding closure costs (in thousands):
|
|
Three Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Operating costs related to Mature Clinics
|
|
$
|
75,988
|
|
|
$
|
53,767
|
|
Operating costs related to 2021 Clinic Additions
|
|
|
2,019
|
|
|
|
-
|
|
Operating costs related to 2020 Clinic Additions
|
|
|
4,934
|
|
|
|
1,513
|
|
Operating costs related to clinics sold or closed in 2021
|
|
|
(2
|
)
|
|
|
132
|
|
Operating costs related to clinics sold or closed in 2020
|
|
|
14
|
|
|
|
1,425
|
|
Physical therapy operations
|
|
$
|
82,953
|
|
|
$
|
56,837
|
|
Physical therapy management contracts
|
|
|
2,202
|
|
|
|
1,163
|
|
Industrial injury prevention services
|
|
|
7,491
|
|
|
|
6,479
|
|
|
|
$
|
92,646
|
|
|
$
|
64,479
|
|
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 business, were 54.3% of net revenues for the 2021 Second Quarter versus 51.8% for the 2020 Second Quarter. Salaries and related costs for the physical therapy operations were $60.6 million in the 2021 Second Quarter, or 53.1% of physical therapy operations revenues, as compared to $36.9 million in the 2020 Second Quarter, or 50.9% of physical therapy operations revenues. Included in salaries and related costs for the physical therapy operations for the 2021 Second Quarter was $4.9 million related to 2021 and 2020 Clinic Additions. Adjusted for the salaries and related costs for clinics closed or sold in 2021 and 2020, salaries and related costs for Mature Clinics increased by $20.1 million in the 2021 Second Quarter compared to the 2020 Second Quarter. Salaries and related costs related to management contracts increased by $0.9 million for the 2021 Second Quarter.
Salaries and related costs for the industrial injury prevention services business were $6.2 million in the 2021 Second Quarter, or 62.2% of industrial injury prevention services revenues, as compared to $5.5 million in the 2020 Second Quarter, or 56.9% 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 17.7% of net revenues in the 2021 Second Quarter versus 24.2% in the 2020 Second Quarter. Rent, supplies, contract labor and other costs for the physical therapy operations were $20.9 million in the 2021 Second Quarter, or 16.8% of physical therapy operations revenues, as compared to $19.2 million in the 2020 Second Quarter, or 26.4% of physical therapy operations revenues. Included in rent, supplies, contract labor and other costs related to physical therapy operations for the 2021 Second Quarter was $2.0 million related to 2021 and 2020 Clinic Additions. Adjusted for the rent, supplies, contract labor and other costs for clinics related to the clinics closed or sold in 2021 and 2020 of $0.1 million in the 2021 Second Quarter and $1.0 million in the 2020 Second Quarter, rent, supplies, contract labor and other costs for Mature Clinics increased by $1.3 million in the 2021 Second Quarter compared to the 2020 Second Quarter. Rent, supplies, contract labor and other costs, related to management contracts decreased $0.9 million in the 2021 Second Quarter.
Rent, supplies, contract labor and other costs for the industrial injury prevention services business were $1.2 million in the 2021 Second Quarter, or 12.5% of industrial injury prevention services revenues, as compared to $0.9 million in the 2020 Second Quarter, or 10.2% of net industrial injury prevention services revenues.
Operating Costs—Provision for Credit Losses
The provision for credit losses as a percentage of net revenue was 1.1% in the 2021 Second Quarter and 0.9% for the comparable period in 2020.
Our provision for credit losses for patient accounts receivable as a percentage of total patient accounts receivable was 5.1% at June 30, 2021, as compared to 4.5% at December 31, 2020. Our days’ sales outstanding were 32 days at both June 30, 2021 and December 31, 2020.
Gross Profit
Gross profit for the 2021 Second Quarter, excluding closure costs, was $34.3 million, an increase of $14.9 million, or approximately 76.9%, as compared to $19.4 million for the 2020 Second Quarter. The gross profit percentage, excluding closure costs, was 27.0% of net revenue for the 2021 Second Quarter, an increase of 390 basis points as compared to 23.1% for the 2020 Second Quarter. The gross profit percentage for the Company’s physical therapy clinics, excluding closure costs, was 27.3% for the 2021 Second Quarter, an improvement of 560 basis points as compared to 21.7% for the 2020 Second Quarter. The gross profit percentage on physical therapy management contracts was 19.6% for the 2021 Second Quarter, a decrease of 730 basis points as compared to 26.9% for the 2020 Second Quarter.
The gross profit percentage for the industrial injury prevention business was 25.3% for the 2021 Second Quarter, a decrease of 760 basis points as compared to 32.9% for the 2020 Second Quarter.
The table below details the gross profit, excluding closure costs (in thousands):
|
|
Three Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Gross profit, excluding closure costs:
|
|
|
|
|
|
|
Physical therapy operations
|
|
$
|
31,203
|
|
|
$
|
15,770
|
|
Management contracts
|
|
|
536
|
|
|
|
429
|
|
Industrial injury prevention services
|
|
|
2,543
|
|
|
|
3,179
|
|
Gross profit, excluding closure costs
|
|
$
|
34,282
|
|
|
$
|
19,378
|
|
|
|
|
|
|
|
|
|
|
Physical therapy operations - closure costs
|
|
|
(22
|
)
|
|
|
94
|
|
Gross profit
|
|
$
|
34,304
|
|
|
$
|
19,284
|
|
Corporate Office Costs
Corporate office costs were $12.1 million for the 2021 Second Quarter compared to $9.0 million for the 2020 Second Quarter. Corporate office costs were 9.5% of net revenues for the 2021 Second Quarter as compared to 10.8% for the 2020 Second Quarter. The increase in costs was primarily due to higher salaries and benefits for the 2021 Second Quarter compared to the 2020 Second Quarter. The 2020 Second Quarter included salary reductions and furloughs related to the pandemic.
Operating Income
Operating income for the 2021 Second Quarter was $22.2 million, an increase of $12.0 million, or 116.6%, as compared to $10.3 million for the 2020 Second Quarter. Operating income as a percentage of net revenue increased by 530 basis points from 12.2% for the 2020 period to 17.5% for the 2021 period.
Interest Expense
Interest expense was $237,000 for the 2021 Second Quarter and $653,000 for the 2020 Second Quarter due to reduced borrowings under the Company’s revolving credit line. At June 30, 2021, $38.0 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 $4.6 million for the 2021 Second Quarter and $3.9 million for the 2020 Second Quarter. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 26.9% for the 2021 Second Quarter and 27.5% for the 2020 Second Quarter.
See table below detailing calculation of the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands):
|
|
Three Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
22,039
|
|
|
$
|
18,645
|
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to non-controlling interests:
|
|
|
|
|
|
|
|
|
Redeemable non-controlling interests - temporary equity
|
|
|
(3,611
|
)
|
|
|
(2,996
|
)
|
Non-controlling interests - permanent equity
|
|
|
(1,425
|
)
|
|
|
(1,535
|
)
|
|
|
$
|
(5,036
|
)
|
|
$
|
(4,531
|
)
|
|
|
|
|
|
|
|
|
|
Income before taxes less net income attributable to non-controlling interests
|
|
$
|
17,003
|
|
|
$
|
14,114
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
4,567
|
|
|
$
|
3,882
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
26.9
|
%
|
|
|
27.5
|
%
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Non-controlling Interests
Net income attributable to redeemable non-controlling interests (temporary equity) was $3.6 million for the 2021 Second Quarter and $3.0 million for the 2020 Second Quarter. Net income attributable to non-controlling interests (permanent equity) was $1.4 million for the 2021 Second Quarter and $1.5 million for the 2020 Second Quarter.
Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020
The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements (in thousands):
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Net operating revenues:
|
|
|
|
|
|
|
Physical therapy operations
|
|
$
|
219,253
|
|
|
$
|
177,040
|
|
Industrial injury prevention services
|
|
|
20,043
|
|
|
|
19,534
|
|
Total Company
|
|
$
|
239,296
|
|
|
$
|
196,574
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
Physical therapy operations (excluding closure costs)
|
|
$
|
54,950
|
|
|
$
|
33,978
|
|
Industrial injury prevention services
|
|
|
5,265
|
|
|
|
4,843
|
|
|
|
$
|
60,215
|
|
|
$
|
38,821
|
|
Physical therapy operations - closure costs
|
|
|
15
|
|
|
|
3,846
|
|
Gross profit
|
|
$
|
60,200
|
|
|
$
|
34,975
|
|
|
|
|
|
|
|
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Physical therapy operations
|
|
$
|
578,985
|
|
|
$
|
534,238
|
|
Industrial injury prevention services
|
|
|
43,973
|
|
|
|
50,780
|
|
Total Company
|
|
$
|
622,958
|
|
|
$
|
585,018
|
|
Revenues
Reported net revenues for the 2021 Six Months increased $42.7 million or 21.7% to $239.3 million as compared to $196.6 million for the 2020 Six Months. See table below for a detail of reported net revenues (in thousands):
|
|
For the Six Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Revenue related to Mature Clinics
|
|
$
|
199,068
|
|
|
$
|
165,277
|
|
Revenue related to 2021 Clinic Additions
|
|
|
2,549
|
|
|
|
-
|
|
Revenue related to 2020 Clinic Additions
|
|
|
10,732
|
|
|
|
2,930
|
|
Revenue from clinics sold or closed in 2021
|
|
|
141
|
|
|
|
333
|
|
Revenue from clinics sold or closed in 2020
|
|
|
2
|
|
|
|
3,865
|
|
Net patient revenue from physical therapy operations.
|
|
$
|
212,492
|
|
|
$
|
172,405
|
|
Other revenue
|
|
|
1,464
|
|
|
|
895
|
|
Physical therapy operations
|
|
$
|
213,956
|
|
|
$
|
173,300
|
|
Management contract revenue
|
|
|
5,297
|
|
|
|
3,740
|
|
Industrial injury prevention services
|
|
|
20,043
|
|
|
|
19,534
|
|
Total Revenue
|
|
$
|
239,296
|
|
|
$
|
196,574
|
|
Net patient revenues from physical therapy operations increased $40.1 million, or 23.3%, to $212.5 million for the 2021 Six Months from $172.4 million for the 2020 Six Months. Included in net patient revenues are revenues related to clinics sold or closed in 2021 and 2020 of $13.3 million for the 2021 Six Months and $2.9 million for the 2020 Six Months. During the 2021 Six Months, the Company sold its interest in 2 clinics and closed 1 clinic. During the full year of 2020, the Company sold its interest in 14 clinics and closed 34 clinics. For comparison purposes, adjusted for revenue from the clinics sold or closed, net patient revenues from physical therapy operations was approximately $212.3 million for the Six Months 2021, inclusive of $13.3 million related Clinic Additions and $168.2 million for the 2021 Six Months, inclusive of $3.0 million for 2020 Clinic Additions. Net patient revenues related to Mature Clinics increased $33.8 million for the 2021 Six Months compared to the 2020 Six Months.
The average net patient revenue per visit was $104.58 for the 2021 Six Months as compared to $104.70 for the 2020 Six Months, including all clinics operational during such periods. Total patient visits were 2,031,858 for the 2021 Six Months and 1,646,724 for the 2020 Six Months, an increase of 23.4%. 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.
Revenue from physical therapy management contracts was $5.3 million for the 2021 Six Months, an increase of 41.6%, as compared to $3.7 million for the 2020 Six Months.
Revenue from the industrial injury prevention business increased 2.6% to $20.0 million for the 2021 Six Months as compared to $19.5 million for the 2020 Six Months.
Other miscellaneous revenue was $1.5 million for the 2021 Six Months and $0.9 million for the 2020 Six Months. Other miscellaneous revenue includes a variety of services, including athletic trainers provided for schools and athletic events.
Operating Costs
Total operating costs, excluding closure costs, were $179.1 million for the 2021 Six Months, or 74.8% of net revenues, an improvement of 550 basis points as compared to $157.8 million for the 2020 Six Months, or 80.3% of net revenues. Included in operating costs for the 2021 Six Months was $11.7 million related to Clinic Additions, of which $9.6 million is associated with 2020 Clinic Additions. Operating costs for Mature Clinics decreased by $15.4 million for the 2021 Six Months compared to the 2020 Six Months. In addition, operating costs related to the industrial injury prevention business decreased by $0.1 million. See table below for a detail of operating costs, excluding closure costs (in thousands):
|
|
For the Six Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Operating costs related to Mature Clinics
|
|
$
|
147,975
|
|
|
$
|
132,591
|
|
Operating costs related to 2021 Clinic Additions
|
|
|
2,161
|
|
|
|
-
|
|
Operating costs related to 2020 Clinic Additions
|
|
|
9,569
|
|
|
|
2,272
|
|
Operating costs related to clinics sold or closed in 2021
|
|
|
154
|
|
|
|
395
|
|
Operating costs related to clinics sold or closed in 2020
|
|
|
(4
|
)
|
|
|
4,829
|
|
Physical therapy operations
|
|
$
|
159,855
|
|
|
$
|
140,087
|
|
Physical therapy management contracts
|
|
|
4,448
|
|
|
|
2,975
|
|
Industrial injury prevention services
|
|
|
14,778
|
|
|
|
14,691
|
|
|
|
$
|
179,081
|
|
|
$
|
157,753
|
|
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 business, were 55.4% of net revenues for the 2021 Six Months versus 57.2% for the 2020 Six Months. Salaries and related costs for the physical therapy operations were $116.3 million in the 2021 Six Months, or 54.3% of physical therapy operations revenues, as compared to $97.5 million in the 2020 Six Months, or 56.3% of physical therapy operations revenues. Included in salaries and related costs for the physical therapy operations for the 2021 Six Months was $8.2 million related to Clinic Additions. Adjusted for the salaries and related costs for clinics closed or sold in 2021 and 2020, salaries and related costs for Mature Clinics increased by $14.6 million in the 2021 Six Months compared to the 2020 Six Months. Salaries and related costs related to management contracts increased by $1.4 million for the 2021 Six Months.
Salaries and related costs for the industrial injury prevention services business were $12.5 million in the 2021 Six Months,or 62.3% of industrial injury prevention services revenues, as compared to $12.4 million in the 2020 Six Months, or 63.6% 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 18.3% of net revenues in the 2021 Six Months versus 22.0% in the 2020 Six Months. Rent, supplies, contract labor and other costs for the physical therapy operations were $41.0 million in the 2021 Six Months, or 19.2% of physical therapy operations revenues, as compared to $40.5 million in the 2020 Six Months, or 23.4% of physical therapy operations revenues. Included in rent, supplies, contract labor and other costs related to physical therapy operations for the 2021 Six Months was $3.4 million related to Clinic Additions. Adjusted for the rent, supplies, contract labor and other costs for clinics related to the clinics closed or sold in 2021 and 2020, rent, supplies, contract labor and other costs for Mature Clinics increased by $0.3 million in the 2021 Six Months compared to the 2020 Six Months. Rent, supplies, contract labor and other costs, related to management contracts increased $48,000 in the 2021 Six Months.
Rent, supplies, contract labor and other costs for the industrial injury prevention services business were $2.3 million in the 2021 Six Months and the 2020 Six Months, or 11.4% and 11.6%, respectively, of industrial injury prevention services revenues.
Operating Costs—Provision for Credit Losses
The provision for credit losses as a percentage of net revenue was 1.1% in both the 2021 Six Months and 2020 Six Months.
Our provision for credit losses for patient accounts receivable as a percentage of total patient accounts receivable was 5.1% at June 30, 2021, as compared to 4.5% at December 31, 2020. Our days’ sales outstanding were 32 days at June 30, 2021 and December 31, 2020.
Gross Profit
Gross profit for the 2021 Six Months, excluding closure costs, was $60.2 million, an increase of $21.4 million, or approximately 55.1%, as compared to $38.8 million for the 2020 Six Months. The gross profit percentage, excluding closure costs, was 25.2% of net revenue for the 2021 Six Months, an increase of 550 basis points as compared to 19.7% for the 2020 Six Months. The gross profit percentage for the Company’s physical therapy clinics, excluding closure costs, was 25.3% for the 2021 Six Months, an improvement of 610 basis points as compared to 19.2% for the 2020 Six Months. The gross profit percentage on physical therapy management contracts was 16.0% for the 2021 Six Months, a decrease of 450 basis points as compared to 20.5% for the 2020 Six Months.
The gross profit percentage for the industrial injury prevention business was 26.3% for the 2021 Six Months, an improvement of 150 basis points as compared to 24.8% for the 2020 Six Months.
The table below details the gross profit, excluding closure costs (in thousands):
|
|
For the Six Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Gross profit, excluding closure costs:
|
|
|
|
|
|
|
Physical therapy operations
|
|
$
|
54,101
|
|
|
$
|
33,213
|
|
Management contracts
|
|
|
849
|
|
|
|
765
|
|
Industrial injury prevention services
|
|
|
5,265
|
|
|
|
4,843
|
|
Gross profit, excluding closure costs
|
|
$
|
60,215
|
|
|
$
|
38,821
|
|
|
|
|
|
|
|
|
|
|
Physical therapy operations - closure costs
|
|
|
15
|
|
|
|
3,846
|
|
Gross profit
|
|
$
|
60,200
|
|
|
$
|
34,975
|
|
Corporate Office Costs
Corporate office costs were $22.9 million for the 2021 Six Months compared to $20.7 million for the 2020 Six Months. Corporate office costs were 9.6% of net revenues for the 2021 Six Months as compared to 10.5% for the 2020 Six Months. The increase in costs was primarily due to higher salaries and benefits for the 2021 Six Months compared to the 2020 Six Months. The 2020 Six Months included salary reductions and furloughs related to the COVID-19 pandemic.
Operating Income
Operating income for the 2021 Six Months was $37.3 million, an increase of $23.0 million, or 160.9%, as compared to $14.3 million for the 2020 Six Months. Operating income as a percentage of net revenue increased by 830 basis points from 7.3% for the 2020 period to 15.6% for the 2021 period.
Interest Expense
Interest expense was $483,000 for the 2021 Six Months and $1.1 million for the 2020 Six Months due to reduced borrowings under the Company’s revolving credit line. At June 30, 2021, $38.0 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 $7.5 million for the 2021 Six Months and $4.2 million for the 2020 Six Months. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 26.7% for the 2021 Six Months and 27.1% for the 2020 Six Months.
See table below detailing calculation of the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands):
|
|
Six Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
36,869
|
|
|
$
|
22,275
|
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to non-controlling interests:
|
|
|
|
|
|
|
|
|
Redeemable non-controlling interests - temporary equity
|
|
|
(6,064
|
)
|
|
|
(4,792
|
)
|
Non-controlling interests - permanent equity
|
|
|
(2,685
|
)
|
|
|
(2,061
|
)
|
|
|
$
|
(8,749
|
)
|
|
$
|
(6,853
|
)
|
|
|
|
|
|
|
|
|
|
Income before taxes less net income attributable to non-controlling interests
|
|
$
|
28,120
|
|
|
$
|
15,422
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
7,511
|
|
|
$
|
4,174
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
26.7
|
%
|
|
|
27.1
|
%
|
Net Income Attributable to Non-controlling Interests
Net income attributable to redeemable non-controlling interests (temporary equity) was $6.6 million for the 2021 Six Months and $4.8 million for the 2020 Six Months. Net income attributable to non-controlling interests (permanent equity) was $2.7 million for the 2021 Six Months and $2.1 million for the 2020 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, 2021 and December 31, 2020, we had $20.4 million and $32.9 million, respectively, in cash. We believe that our cash and cash equivalents and availability under our revolving credit facility are sufficient to fund the working capital needs of our operating subsidiaries through at least June 30, 2022.
Cash and cash equivalents decreased by $12.5 million from December 31, 2020 to June 30, 2021. During the 2021 Six Months, $35.6 million was provided by operations and $22.0 million from proceeds on our Amended Credit Agreement (described below). The major uses of cash for investing and financing activities included: repayment of MAAPP funds ($14.1 million), distributions to non-controlling interests inclusive of those classified as redeemable non-controlling interests ($9.4 million), cash dividends to our shareholders ($9.0 million), purchase of business and non-controlling interests ($29.9 million), principal payments on notes payable ($4.2 million) and purchase of fixed assets ($3.3 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 and/or restated in August 2015, January 2016, March 2017, November 2017 and January 2021 (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 of 0.3% of the amount of funds outstanding under the Amended Credit Agreement.
The 2021 amendment to the Amended Credit Agreement allows for cash and noncash consideration for acquisitions permitted under the Amended Credit Agreement of up to $50,000,000 for any fiscal year, and allows for payments in cash dividends to shareholders in an aggregate amount not to exceed $50,000,000 in any fiscal year. The commitment remains at $125 million, however the accordion feature in the agreement was expanded to provide for capacity up to $150 million, and has a maturity date of November 30, 2025. The Amended Credit Agreement is unsecured and includes certain financial covenants which include a consolidated fixed charge coverage ratio and a consolidated leverage ratio, as defined in the agreement.
On June 30, 2021, $38.0 million was outstanding on the Amended Credit Agreement resulting in $87.0 million of availability. As of June 30, 2021, we were in compliance with all of the covenants thereunder.
On June 30, 2021, we acquired a 65% interest in an eight-clinic physical therapy practice with the practice founder retaining 35%. The purchase price was approximately $10.3 million, of which $9.0 million was paid in cash, $1.0 million is payable based on the achievement of certain business criteria and $0.3 million is in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on June 30, 2023.
On March 31, 2021, the Company acquired a 70% interest in a five-clinic physical therapy practice with the practice founder retaining 30%. When acquired, the practice was developing a sixth clinic which has been completed. The purchase price for the 70% interest was approximately $12.0 million, of which $11.7 million was paid in cash and $0.3 million in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on March 31, 2023.
On November 30, 2020, we acquired a 75% interest in a three-clinic physical therapy practice. The purchase price for the 75% interest was $8.9 million (net of cash acquired), of which $8.6 million was paid in cash and $0.3 million in the form of a note payable that is payable in two principal installments totaling $162,500 each. The first principal payment plus accrued interest is due to be paid on November 2021 with the second installment to be paid in November 2022. The note accrues interest at 3.25% per annum.
On September 30, 2020, we acquired a 70% interest in an entity which holds six-management contracts that have been in place for a number of years. Currently, these contracts have a five year term. The purchase price for the 70% interest was approximately $4.2 million, with $3.7 million payable in cash and $0.5 million in two notes payable. One of the notes payable of $0.2 million is payable, with any accrued interest at 5% per annum, on September 30, 2021. The remaining note of $0.3 million was paid in November 2020.
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 $0.3 million in a note payable. The note accrues interest at 4.75% per annum and the principal and interest is payable on February 2022.
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, 2021 relate to certain of the acquisitions of businesses and purchases of redeemable non-controlling interests that occurred in 2018 through June 2021. 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, 2021, the balance on these notes payable was $1.8 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, 2021, we have accrued $5.6 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, 2021, there are currently an additional estimated 129,455 shares (based on the closing price of $115.87 on June 30, 2021) 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 three months ended June 30, 2021.
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 also Risk Factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 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.