Houston, TX – U.S. Physical Therapy, Inc. (NYSE: USPH), a national operator of outpatient physical therapy clinics, recently reported results for the first quarter ended March 31, 2020.
USPH’s results for the first quarter of 2020 were negatively impacted by the effects of the COVID-19 pandemic. Management estimates that the Company suffered more than $8 million in lost revenue and related contribution margin because of the pandemic. The Company continues to experience significantly lower physical therapy revenue than normal and in the near term expects to incur losses. The Company’s physical therapy patient volumes in April declined to as low as 45% of normal. In a number of our markets, patient volume is increasing albeit at a slow pace. We are currently at a little over 60% of normal patient volume but that varies significantly by region. As of May 20, 2020, the Company has 69 clinics that are closed as a result of this pandemic; 34 of these clinics are anticipated to be closed only temporarily. At least 35 clinics likely will not reopen, of which 22 of those were closed in late March.
The Company’s industrial injury prevention business has also experienced a reduction in business, although not as significant as experienced by our physical therapy operations. Management has taken a number of steps to mitigate operating losses primarily through furloughs and salary cuts and to a lesser extent through terminations. To date, the Company has furloughed or terminated more than 2,150 employees (1,400 furloughs and 750 terminations), comprising approximately 40% of the employees across the Company. In the corporate office, across-the-board employee salary reductions have been implemented from 20% to 25%, as well as 35% to 40% salary reductions for executives, and a 50% reduction in fees paid to our Board of Directors. A number of the Company’s clinic partnerships have made salary reductions as well. Management estimates that these workforce and pay reductions would equate to annualized savings of approximately $87 million. The Company continues to (i) deploy a telehealth and e-visit solutions to perform services remotely, (ii) renegotiate leases, (iii) slow development of new clinics, (iv) delay potential acquisitions and (v) reduce other expenses.
Beginning in mid-March, hospitals and other medical facilities began to halt elective and non-essential surgeries. Additionally, state governments in areas with significant growth of COVID-19 infections implemented mandatory closures of non-essential and non-life sustaining businesses, executed stay-at-home orders, imposed restrictions on travel and closed schools. These actions continued to develop and towards the end of March, most states had significant restrictions on businesses and individuals. The suspension of elective surgeries, decrease in physician office visits and recommendations of social distancing along with the aforementioned limitations had an adverse impact on our volume of patient visits. Due to these impacts and measures, we have experienced significant and unpredictable reductions in and cancellations of patient visits.
For the first quarter ended March 31, 2020, USPH’s Operating Results (as defined below) was $3.9 million, or $0.30 per diluted share, as compared to $8.4 million, or $0.66 per diluted share in 2019. Operating Results, a non-GAAP measure, equals net income attributable to USPH shareholders per the consolidated statement of net income plus charges incurred for closure costs and CFO search, net of tax. The earnings per share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest. For the first quarter March 31, 2020, USPH’s net income attributable to its shareholders, in accordance with GAAP, was $1.0 million as compared to $8.4 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 First Quarter, the amount is $2.6 million, or $0.20 per share, as compared to $5.0 million, or $0.39 per share. 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. See the schedule on page 10 for the computation of diluted earnings per share.
Chris Reading, Chief Executive Officer, said, “This has obviously been a very challenging time for everyone. We were able to make changes early on which has helped our cash position while maintaining a high level of needed service in a safe environment for our patients as well as our staff. We are seeing communities begin to re-open and our volumes of new patient referrals as well as patient visits have begun to increase. In our industrial injury prevention business, the impact has been considerably less than in our core physical therapy business. Our teams in Houston and around the country in our individual partnerships are doing everything possible to conserve resources while working to carefully and safely ramp up the business. We have a strong partner-centric Company with an excellent balance sheet and these will continue to be our strengths as we work our way through this pandemic.”
The complete results release is available here: US Physical Therapy First Quarter Earnings for 2020 (PDF)