Houston, TX – U.S. Physical Therapy, Inc. (NYSE: USPH) recently reported results for the fourth quarter and year ended December 31, 2020.
For the year ended December 31, 2020, USPH’s Operating Results (as defined below), including Relief Funds (defined below), was $38.4 million, or $2.99 per diluted share, as compared to $36.0 million, or $2.82 per diluted share, in 2019. For the fourth quarter ended December 31, 2020, USPH’s Operating Results, including Relief Funds, was $13.9 million, or $1.08 per diluted share, as compared to $8.2 million, or $0.64 per diluted share, in the fourth quarter of 2019. For the year ended December 31, 2020, USPH’s Operating Results (as defined below), excluding Relief Funds, was $30.6 million, or $2.39 per diluted share, as compared to $36.0 million, or $2.82 per diluted share in 2019. For the fourth quarter ended December 31, 2020, USPH’s Operating Results, excluding Relief Funds, was $10.9 million, or $0.85 per diluted share, as compared to $8.2 million, or $0.64 per diluted share, in the fourth quarter of 2019. Operating Results, a non-Generally Accepted Accounting Principles (“GAAP”) measure, equals net income attributable to USPH shareholders per the consolidated statements of income plus charges incurred for clinic closure costs, less gain on the sale of partnership interests and clinics, plus allocated non-controlling interests, and excludes expenses incurred for the CFO transition, all net of taxes. The earnings per share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest. See table on page 15.
For the year ended December 31, 2020, USPH’s net income attributable to its shareholders, in accordance with GAAP, was $35.2 million as compared to $40.0 million for the comparable period of 2019. For the fourth quarter ended December 31, 2020, USPH’s net income attributable to its shareholders was $13.0 million, as compared to $7.9 million in the fourth quarter of 2019. Inclusive of the charge for revaluation of non-controlling interest, net of taxes, used to compute diluted earnings per share, in accordance with GAAP, the amount is $31.8 million, or $2.48 per share, for 2020 as compared to $31.3 million, or $2.45 per share, for 2019. Inclusive of the charge for revaluation of non-controlling interest, net of taxes, used to compute diluted earnings per share in accordance with GAAP, the amount is $8.7 million, or $0.68 per share, for the fourth quarter of 2020 as compared to $7.1 million, or $0.55 per share, for the fourth quarter of 2019. 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 schedule on page 15 for the computation of diluted earnings per share.
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, the Company’s results were negatively impacted by the effects of the COVID-19 pandemic in 2020. Following the onset of the pandemic, management took a number of steps to reduce costs, make up for operating losses incurred in March and April, and increase profits subsequently. The Company’s physical therapy patient volumes increased consistently from May through December 2020, returning to near-normal levels in the fourth quarter of 2020. The Company’s average physical therapy patient volumes per day per clinic were 26.2, 18.9, 25.8, and 27.7, respectively, in the four quarters of 2020. Physical therapy patient volumes per day per clinic for the fourth quarter of 2020 were 27.7 compared to 28.0 in the fourth quarter of 2019. The Company’s industrial injury prevention business was less affected by the pandemic in 2020, with revenues higher by $1.7 million, or 4.6%, in 2020 as compared to 2019, including an acquisition closed in April 2019.
Year 2020 Compared to Year 2019
Reported net revenues for year ended December 31, 2020 (“2020”) was $423.0 million as compared to $482.0 million for the year ended December 31, 2019 (“2019”).
Net patient revenues from physical therapy operations decreased approximately 13.8%, or $60.0 million, to $373.3 million in 2020 from $433.3 million in 2019. Included in net patient revenues are revenues related to clinics sold or closed in 2020 and 2019 of $4.4 million in 2020 and $28.6 million in 2019. During 2020, the Company sold its interest in 14 clinics and closed 34 clinics. During 2019, the Company sold its interest in a partnership which included 30 clinics and closed 11 clinics. For comparison purposes, adjusted for revenue from the clinics sold or closed, net patient revenues from physical therapy operations was approximately $369.0 million in 2020, inclusive of $9.7 million related to clinics open or acquired in 2020 (“New Clinics”) and $404.8 million in 2019. Net patient revenues related to clinics opened or acquired prior to 2020 and not closed or sold (“Mature Clinics”) decreased by $45.5 million in 2020 compared to 2019. The reduction is largely attributable to the adverse effects of the COVID-19 pandemic.
Including all clinics operational during 2020 and 2019, the average net patient revenue per visit was $105.66 and $105.90, respectively. Total patient visits were 3,533,371 in 2020 and 4,091,967 in 2019. The reduction is largely attributable to the adverse effects of the COVID-19 pandemic.
Revenue from physical therapy management contracts was $8.4 million in 2020 and $8.7 million in 2019.
Revenue from the industrial injury prevention business was $39.2 million in 2020, an increase of $1.7 million, or 4.6%, as compared to $37.5 million in 2019, inclusive of an acquisition in April 2019.
Other miscellaneous revenue was $2.0 million in 2020 and $2.5 million in 2019. Other miscellaneous revenue includes a variety of services, including athletic trainers provided for schools and athletic events.
Total operating costs, excluding closure costs, were $324.6 million in 2020, as compared to $369.5 million in 2019. Operating costs were 76.7% as a percentage of net revenues in both 2020 and 2019. Included in operating costs for 2020 was $8.4 million related to New Clinics. Operating costs for Mature Clinics decreased by $31.3 million in 2020 compared to 2019. Operating costs related to management contracts decreased by $0.7 million. Operating costs related to the industrial injury prevention business stayed relatively the same. Closure costs in the current period of $3.9 million include estimates of remaining lease obligations, derecognition of goodwill and other costs related to closed and sold clinics.
Total salaries and related costs, including physical therapy operations and the industrial injury prevention business, decreased by $38.6 million in 2020 as compared to 2019 and were 55.7% of net revenues in 2020 versus 56.9% in 2019. Rent, supplies, contract labor and other costs decreased by $6.0 million in 2020 as compared to 2019 and were 19.9% as a percentage of net revenues in 2020 versus 18.8% in 2019. The provision for credit losses as a percentage of net revenue was 1.1% in 2020 and 1.0% in 2019.
Gross profit, excluding closure costs, for 2020 was $98.4 million as compared to $112.5 million in 2019. The gross profit percentage for the Company’s physical therapy clinics was 23.1% in 2020 compared to 23.6% in 2019. The gross profit percentage on physical therapy management contracts increased to 20.9% in 2020 (an increase of 610 basis points) as compared to 14.8% in the 2019. The gross profit for the industrial injury prevention business was $10.1 million, or 25.7% (an increase of 330 basis points), in 2020 as compared to $8.4 million, or 22.4%, in the comparable 2019 period.
Corporate office costs were $42.0 million in 2020 compared to $45.0 million in 2019. Corporate office costs were 9.9% of net revenues for 2020 as compared to 9.3% for 2019.
Operating income for 2020 was $52.4 million as compared to $67.4 million for 2019. Operating income as a percentage of net revenue was 12.4% in 2020 compared to 14.0% in 2019. See discussion above related to effects of COVID-19.
Included in other income was the gain of $1.1 million in 2020 resulting from the sale of 14 previously closed clinics and, in 2019, a gain of $5.5 million resulting from the sale of a partnership interest with 30 clinics. Relief funds of $13.5 million are also included in other income in 2020. See discussion of Relief Funds below.
Interest expense was $1.6 million in 2020 and $2.1 million in 2019.
The provision for income tax was $13.0 million for 2020 and $13.6 million for 2019. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 27.0% for 2020 and 25.4% for 2019.
Net income attributable to non-controlling interests (permanent equity) was $6.1 million in 2020 and $6.6 million in 2019. Net income attributable to redeemable non-controlling interests (temporary equity) was $11.2 million in 2020 and $10.6 million in 2019.
Medicare Accelerated and Advance Payment Program (“MAAPP Funds”)
In response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act allowed for qualified healthcare providers to receive advanced payments under the existing MAAPP Funds during the COVID-19 pandemic. Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided. The Company applied for and received approval from Centers for Medicare & Medicaid Services (“CMS”) in April 2020. The Company recorded these payments as a liability until all performance obligations have been met as the payments were made on behalf of patients before services were provided. Currently, MAAPP funds received are required to be applied to future Medicare billings commencing in August 2021, with all such remaining amounts required to be repaid by January 2024. Beginning January 2024, any unpaid balance will begin accruing interest. The Company currently intends to repay funds prior to August 2021. Included in cash and cash equivalents and accrued liabilities at December 31, 2020 is $14.1 million of MAAPP Funds.
Relief Funds
On March 27, 2020, the CARES Act was enacted. 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, the Company’s consolidated subsidiaries received approximately $13.5 million of payments under the CARES Act (“Relief Funds”). Under the Company’s accounting policy, these payments have been recorded as Other income – Relief Funds. For the three months and year ended December 31, 2020, the Company has recognized approximately $5.2 million and $13.5 million, respectively, as Other income – Relief Funds on the accompanying consolidated statement of operations. 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, the Company can attest and comply with the terms and conditions. The Company will continue to monitor the evolving guidelines and may record adjustments as additional information is released.
Other Financial Measures
For the 2020 Fourth Quarter, the Company’s Adjusted EBITDA was $23.5 million compared to $15.3 million in the 2019 Fourth Quarter. For the 2020 Fourth Quarter, the Company’s Adjusted EBITDA, excluding Relief Funds, was $18.3 million.
For 2020, the Company’s Adjusted EBITDA was $70.0 million compared to $72.8 million in 2019. For 2020, the Company’s Adjusted EBITDA, excluding Relief Funds, was $56.5 million.
See definition, explanation and calculation of Adjusted EBITDA in the schedule on pages 14 and 15.
Acquisitions in Fourth Quarter 2020
As previously reported, the Company acquired a 75% interest in a three-clinic physical therapy practice in the fourth quarter of 2020 with the practice founder retaining 25%. The purchase price was approximately $9.1 million. The business generates $4.6 million in annual revenue and has approximately 54,000 annual patient visits. The Company’s strategy is to continue acquiring multi-clinic outpatient physical therapy practices, to develop outpatient physical therapy clinics as satellites in existing partnerships and to continue acquiring companies that provide industrial injury prevention services.
Quarterly Dividend Reinstated
In April 2020, the Company announced the suspension of it quarterly dividend to enhance its operational and financial flexibility during the COVID-19 pandemic. The Company announced today that its Board of Directors has reinstated its quarterly dividend and declared a dividend of $0.35 per share, which is an increase of 9.4% from its previous dividend of $0.32 per share paid in April 2020. The quarterly dividend of $0.35 per share will be paid on April 9, 2021 to shareholders of record as of March 12, 2021.
Renewal of Credit Agreement
On January 29, 2021, the Company completed the renewal of its bank credit facility, extending the maturity date from November 30, 2021 to November 30, 2025. The commitment under the facility remains at $125.0 million; however, the accordion feature in the agreement was expanded to provide for capacity up to $150 million. Proceeds from the Credit Agreement may be used for working capital, acquisitions, and for other purposes.
Management Provides 2021 Earnings Guidance
Management currently expects the Company’s Operating Results for 2021 to be in the range of $30.9 million to $32.5 million, or $2.40 to $2.52 per share, which considers the following:
- The previously-announced Medicare rate reduction for the full year of 2021 of approximately 3.5%, which is expected to reduce the Company’s 2021 revenue by approximately $4.5 million, or $0.21 per share after non-controlling interest and taxes
- The previously-announced cessation of the 2% sequestration relief applied to all Medicare payments effective April 1, 2021, which is expected to reduce the Company’s 2021 revenue, beginning in the second quarter, by approximately $2.0 million, or $0.10 per share after non-controlling interest and taxes
- Lost revenues related to significant weather-related events in February, primarily in Texas and Tennessee, of approximately $2.8 million, or $0.13 per share after non-controlling interest and taxes
This earnings range is based on an estimated annual effective tax rate of approximately 27.0%. Please note that the earnings guidance represents projected Operating Results from existing operations and excludes future acquisitions. The 2021 earnings guidance range excludes expenses associated with the previously-announced retirement and replacement of one of the Company’s co-Chief Operating Officers. The annual guidance figures will not be updated unless there is a material development that causes management to believe that Operating Results will be significantly outside the given range.
Management’s Comments
Chris Reading, Chief Executive Officer, said, “It is difficult at best to adequately summarize the year we have just completed. One thing that isn’t difficult is to highlight the extraordinary efforts of all of our employees across the entirety of our Company for their stellar work during this most challenging and unpredictable year in 2020. I cannot overstate how impressed I am with the continuous examples of sacrifice, leadership, commitment and resolve that have been evident to me throughout this past year (and continuing) as we face the challenges and opportunities before us. While I may not be the best person to predict the end of this COVID-19 virus, I am well positioned to say that I believe that the team we have can work through and overcome whatever obstacles come our way. We also continue to believe that we are well positioned to attract truly excellent partners as we work with grit and strong resolve to grow and scale our Company while we serve those who are entrusted to us with great care.”
Carey Hendrickson, Chief Financial Officer, said, “As a result of the early actions we took when the pandemic began and the outstanding efforts of our team throughout the year, the Company’s net cash flow in 2020 was stronger than initially expected and our results improved consistently from May through December, putting our balance sheet in a strong position as we begin 2021. We are pleased to reinstate and increase the quarterly dividend and to extend our credit agreement with Bank of America for an additional four years on favorable terms.”
The complete results release is available here: US Physical Therapy Fourth Quarter and Full Year 2020 Results
Source: USPh