Houston, TX – U.S. Physical Therapy, Inc. (NYSE: USPH), a national operator of outpatient physical therapy clinics, recently reported results for the fourth quarter and year ended December 31, 2016.
For the year 2016, USPH’s net income attributable to common shareholders prior to interest expense – mandatorily redeemable non-controlling interests – change in redemption value, net of tax (“operating results”) was $24.3 million as compared to $22.2 million in 2015. Diluted earnings per share from operating results, a non-GAAP measure, was $1.94 in 2016 as compared to $1.79 in 2015. Operating results was at the upper end of management’s earnings guidance range of $23.7 million to $24.5 million and $1.90 to $1.96 per share.
In the fourth quarter of 2016, USPH’s operating results was $6.1 million as compared to $6.0 million in the fourth quarter of 2015. Diluted earnings per share from operating results, was $0.49 in the fourth quarter of 2016 as compared to $0.48 in the comparable period of 2015. The fourth quarter of 2016, with 63 business days, had one fewer business day than the fourth quarter of 2015.
For the year 2016, USPH’s net income attributable to its shareholders, in accordance with generally accepted accounting principles (“GAAP”), was $20.6 million, or $1.64 per diluted share, as compared to $20.6 million, or $1.66 per diluted share, for the year 2015. For the fourth quarter 2016, net income attributable to shareholders in accordance with GAAP, was $6.0 million, or $0.48 per diluted share, as compared to $4.8 million, or $0.38 per diluted share for the 2015 period. See schedule on page 11 for a reconciliation of net income attributable to USPH shareholders to operating results.
The FASB issued guidance during 2016 relevant to stock compensation accounting provisions. This amends how excess tax benefits should be classified. Under the guidance excess tax benefits, which have previously been accounted for in additional paid-in capital, will be a component of the income tax provision/benefit in the period in which they occur. This revised accounting became effective for all entities in 2017 but early adoption was permitted. As previously disclosed in the Form 10Q for the third quarter of 2016, the Company adopted this accounting treatment in the fourth quarter of 2016. The adoption resulted in an effective tax rate of 28.0% for the fourth quarter of 2016 and 36.6% for the year.
Year 2016 Compared to Year 2015
- Net revenues increased 7.6% from $331.3 million in 2015 to $356.5 million in 2016, due to an increase in total patient visits of 7.7% from 3,080,200 to 3,316,800 and offset by a slight decrease in the average net revenue per visit to $105.18 from $105.28. Net revenues from new clinics opened or acquired in the past 12 months was $12.8 million.
- Total clinic operating costs were $274.5 million, or 77.0% of net revenues for 2016, as compared to $252.9 million, or 76.3% of net revenues, in the 2015 period. Of the dollar increase, $10.9 million was in operating costs of new clinics opened or acquired in 2016. Total clinic salaries and related costs, including those from new clinics, were 55.7% of net revenues for 2016 versus 54.5% for 2015. Rent, clinic supplies, contract labor and other costs as a percentage of net revenues were 20.2% for 2016 versus 20.5% for 2015. The provision for doubtful accounts as a percentage of net revenues was 1.1% for 2016 and 1.3% in 2015.
- The gross margin for 2016 increased 4.7% to $82.0 million, or 23.0% of revenue, as compared to $78.4 million, or 23.7% of revenue, for the 2015 period.
- Corporate office costs were $32.5 million for 2016 compared to $31.1 million for 2015. Corporate office costs were 9.1% of net revenues for 2016 compared to 9.4% of net revenues for 2015.
- Operating income increased 4.7% to $49.5 million in 2016 as compared to $47.3 million in 2015.
- Interest expense – mandatorily redeemable non-controlling interest – change in redemption value increased to $6.2 million in 2016 from $2.7 million in 2015. The change in redemption value for acquired partnerships is based on the redemption amount (which is derived from a formula based on a specified multiple times the underlying business’ trailing twelve months of earnings before interest, taxes, depreciation, amortization and our internal management fee) at the end of the reporting period compared to the end of the previous period. See “Correction of Accounting for Redeemable Non-Controlling Interests” on page 4 of this release. The increased charge in 2016 is a direct result of increases in the profitability of the applicable partnerships from 2015.
- Interest expense – mandatorily redeemable non-controlling interest – earnings allocable, which represent the portion of earnings allocable to the holders of mandatorily redeemable non-controlling interest, increased to $4.1 million in 2016 from $3.5 million in 2015.
- Interest expense – debt and other was $1.3 million in 2016 and $1.0 million in 2015.
- The provision for income taxes for 2016 was $14.4 million and for 2015 was $14.7 million. The provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest was 36.6% in 2016 and 39.8% in 2015.
- Net income attributable to non-controlling interests was $5.7 million in 2016 as compared to $5.9 million in 2015.
- Operating results attributable to common shareholders for 2016 rose 9.3% to $24.3 million as compared to $22.3 million for 2015. Diluted earnings per share from operating results were $1.94 for 2016 and $1.79 for 2015.
- Same store visits increased 2.2% for de novo and acquired clinics open for one year or more and same store revenue increased 2.6%. The average same store net rate per visit increased by 0.4%.
The complete results release is available here: U.S. Physical Therapy 2016 Results (PDF)
Source: U.S. Physical Therapy