Houston, TX – U.S. Physical Therapy, Inc. (NYSE: USPH), a national operator of outpatient physical therapy clinics and provider of industrial injury prevention services, recently reported results for the three and six months ended June 30, 2023.
Chris Reading, Chief Executive Officer, said, “Considering the challenges we have had to overcome since the middle of 2022 with significant inflation and interest rate escalation, our team has done an exceptional job. We completed a very successful secondary offering, the first in our Company’s history, positioning us for future growth; we decreased our cost per visit each quarter since the third quarter of last year; we are running at record clinic volumes, well ahead of anything we have ever done before; and we are making progress with respect to contract renegotiations which is helping to offset some of the misplaced Medicare cuts that have been handed down from CMS. The combination of record volumes this quarter, and an improving but still challenging hiring environment, has created a slightly negative impact on our net rate compared to where we expected to be at this point. As we have many times in the past, our team is making the necessary adjustments to address this opportunity as we work for a strong finish to this year.”
Second Quarter Highlights:
Adjusted EBITDA, a non-Generally Accepted Accounting Principles (“GAAP”) measure, was $21.7 million for the three months ended June 30, 2023 (“2023 Second Quarter”), an increase of $0.4 million from $21.3 million for the three months ended June 30, 2022 (“2022 Second Quarter”). See pages 14 and 15 of the full release for the definition and reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure.
Net income attributable to USPH’s shareholders, a GAAP measure, was $10.9 million for the 2023 Second Quarter compared to $11.2 million for the 2022 Second Quarter. The decrease in net income was primarily driven by the $1.6 million increase in interest expense as a result of higher effective interest rates and increased borrowings to fund acquisitions. In accordance with GAAP, the revaluation of non-controlling interest, net of taxes, is not included in net income but is charged directly to retained earnings; however, this change is included in the computation of earnings per share. Earnings per share, in accordance with GAAP, was $0.64 for the 2023 Second Quarter as compared to $0.87 for the 2022 Second Quarter.
Operating Results per share, a non-GAAP measure, was $0.76 per share for the 2023 Second Quarter as compared to $0.90 for the 2022 Second Quarter. The decrease in our Operating Results was primarily driven by the increase in interest expense previously described. See pages 14 and 15 of this release for the definition and reconciliation of Operating Results per share to the most directly comparable GAAP measure.
Net patient revenue from physical therapy operations increased 9.4% to $129.3 million for the 2023 Second Quarter from $118.2 million for the 2022 Second Quarter due to record-high average visits per clinic per day and increased volume from the 48 net new clinics added since the comparable prior year period, partially offset by lower net rate per patient visit.
Average visits per clinic per day was an all-time high of 30.4 in the 2023 Second Quarter compared to 29.5 in the 2022 Second Quarter. Total patient visits increased 10.6% in the 2023 Second Quarter as compared to the 2022 Second Quarter, with patient visits at mature clinics up 2.6%.
Net rate per patient visit was $102.03 in the 2023 Second Quarter compared to $103.18 in the 2022 Second Quarter due to a decrease in the net rate for Medicare visits, partially offset by rate increases for commercial and workers compensation visits. The decrease in the Medicare net rate is primarily due to the 2% Medicare rate reduction beginning in January 2023 and discontinuation of the sequestration relief on Medicare visits effective in July 2022.
Physical therapy total operating costs per patient visit were $80.61 in the 2023 Second Quarter, a decrease of 0.6% from $81.09 in the 2022 Second Quarter. Physical therapy salaries and related costs decreased 1.2% to $57.59 per visit in the 2023 Second Quarter from $58.29 in the 2022 Second Quarter. On a sequential basis, both salaries and related costs and total operating costs decreased for the third consecutive quarter after peaking in the third quarter of 2022. Salaries and related costs per visit have decreased from $60.99 in the third quarter of 2022 to $57.59 in the 2023 Second Quarter, while total operating costs per visit have decreased from $85.14 in the third quarter of 2022 to $80.61 in the 2023 Second Quarter.
The Company’s physical therapy operating margin was 21.5% in the 2023 Second Quarter, increasing for the third consecutive quarter — up from 18.7% in the third quarter of 2022 to 20.0% in the fourth quarter of 2022, to 21.0% in the first quarter of 2023 and to 21.5% in the 2023 Second Quarter.
Industrial injury prevention (“IIP”) services revenue was $19.2 million for the 2023 Second Quarter compared to $19.4 million in the 2022 Second Quarter. IIP services operating margin was 20.7% in the 2023 Second Quarter as compared to 21.2% in the 2022 Second Quarter.
During the 2023 Second Quarter, the Company added 13 clinics and closed four clinics, bringing its total clinic count to 656 as of June 30, 2023 as compared to 608 clinics as of June 30, 2022. The clinic additions included an acquisition by the Company and one of its local partners of a 75% equity interest in a four-clinic practice that generates approximately $2.6 million in annual revenues and 27,000 annual visits at a purchase price of $3.1 million.
On May 30, 2023, the Company completed a secondary offering of 1,916,667 shares of its common stock. Upon completion of the offering, the Company received net proceeds of approximately $163.7 million, after deducting fees associated with the transaction. A portion of the net proceeds was used to repay the $35.0 million then outstanding under the Company’s revolving credit facility while the remainder is expected to be used primarily for acquisitions. While such cash is awaiting deployment, it is currently invested in a high-yield savings account which generated interest income of approximately $0.5 million in June 2023.
On July 31, 2023, the Company acquired a 70% equity interest in a five-clinic practice for a purchase price of $2.1 million, with the current practice owners retaining a 30% equity interest. The business currently generates approximately $2.4 million in annual revenues.
On August 7, 2023, the Company’s Board of Directors declared a quarterly dividend of $0.43 per share payable on September 8, 2023, to shareholders of record on August 18, 2023.
Management reaffirms that it currently expects the Company’s Adjusted EBITDA for 2023 to be in the range of $75.0 million to $80.0 million. The earnings guidance represents projected Adjusted EBITDA from existing operations and excludes future acquisitions. See “Management Reaffirms 2023 Earnings Guidance” in the full release for more information.
The complete results release is available here: U.S. Physical Therapy Reports Second Quarter 2023 Results (PDF)