U.S. Physical Therapy Reports Third Quarter And Nine Months Results

U.S. Physical Therapy, Inc. ("USPH") (NYSE: USPH), a national operator of outpatient physical therapy clinics, today reported results for the quarter and nine months ended September 30, 2016.

USPH's net revenues in the third quarter of 2016 increased 5.1% to $88.3 million from $84.0 million in the third quarter of 2015. Income before taxes including non-controlling interests was $11.8 million as compared to $11.7 million in the comparable 2015 period. Due primarily to a higher estimated accrued tax rate of 39.8% for the recent quarter as compared to 38.6% in the third quarter of 2015, the income attributable to common shareholders from operations prior to revaluation of redeemable non-controlling interests, net of tax ("operating results") declined slightly to $5.7 million from $5.8 million. Diluted earnings per share from operating results was $0.46 in the third quarter of 2016 as compared to $0.47 in the third quarter of 2015.

USPH's net revenues for the first nine months of 2016 increased 8.6% to $265.7 million from $244.6 million in the first nine months of 2015. USPH's operating results for the first nine months of 2016 increased 11.2% to $18.1 million as compared to $16.3 million in the first nine months of 2015. Diluted earnings per share from operating results were $1.45 for the 2016 period as compared to $1.32 in the comparable 2015 period.

Third Quarter 2016 Compared to Third Quarter 2015
  • Net revenues increased $4.3 million or 5.1% from $84.0 million in the third quarter of 2015 to $88.3 million in the third quarter of 2016, due to an increase in total patient visits of 5.2% from 782,100 to 822,500 and an increase in the average net revenue per visit to $105.06 for the 2016 third quarter from $105.04 for the 2015 third quarter. Net revenues from new clinics opened or acquired in the 12 months prior to September 30, 2016 was $5.2 million.
  • Total clinic operating costs were $68.7 million, or 77.7% of net revenues, in the third quarter of 2016, as compared to $65.2 million, or 77.5% of net revenues, in the 2015 period. Of the net $3.5 million expense increase, $4.1 million was attributable to operating costs of new clinics opened or acquired in the 12 months prior to September 30, 2016 offset by a decrease of $0.6 million in operating costs of clinics opened or acquired prior to September 30, 2015. Total clinic salaries and related costs, including those from new clinics, were 56.4% of net revenues in the recent quarter versus 55.4% in the 2015 period. Rent, clinic supplies, contract labor and other costs as a percentage of net revenues were 20.2% for the recent quarter versus 20.7% in the 2015 period. The provision for doubtful accounts as a percentage of net revenues was 1.0% for the 2016 and 1.3% in the 2015 period.
  • The gross margin for the third quarter of 2016 was $19.7 million or 22.3%, as compared to $18.9 million, or 22.5% in the 2015 third quarter.
  • Corporate office costs were $7.6 million in the third quarter of 2016 compared to $6.9 million in the 2015 third quarter. Corporate office costs were 8.6% of net revenues for the 2016 third quarter compared to 8.2% of net revenues for the 2015 period.
  • Operating income for the third quarter of 2016 was $12.1 million or 13.6% compared to $11.9 million or 14.2% in the 2015 third quarter.
  • Interest expense was $0.3 million in the third quarter of 2016 and in the third quarter of 2015.
  • The provision for income taxes for the 2016 period was $3.8 million and for the 2015 period $3.7 million. The provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest was 39.8% in the 2016 third quarter and 38.6% in the 2015 third quarter.
  • Net income attributable to non-controlling interests was $2.3 million in the recent quarter as compared to $2.2 million in the year earlier period.
  • Operating results attributable to common shareholders for the three months ended September 30, 2016 was $5.7 million versus $5.8 million for the 2015 period. Diluted earnings per share from operating results were $0.46 for the 2016 period and $0.47 for the 2015 period.
  • Same store visits increased 1.2% for de novo and acquired clinics open for one year or more while same store revenue remained relatively the same as the average same store net rate per visit decreased by $1.16.

First Nine Months 2016 Compared to First Nine Months 2015
  • Net revenues increased 8.6% from $244.6 million in the first nine months of 2015 to $265.7 million in the first nine months quarter of 2016, due to an increase in total patient visits of 8.8% from 2,271,900 to 2,470,800 and offset by a slight decrease in the average net revenue per visit to $105.19 from $105.38. Net revenues from new clinics opened or acquired in the past 12 months was $12.1 million.
  • Total clinic operating costs were $202.5 million, or 76.2% of net revenues, in the first nine months of 2016, as compared to $187.7 million, or 76.8% of net revenues, in the 2015 period. Of the $14.7 million expense increase $9.4 million was attributable to operating costs of new clinics opened or acquired in the past 12 months. Total clinic salaries and related costs, including those from new clinics, were 55.1% of net revenues for the 2016 versus 54.8% in the 2015 period. Rent, clinic supplies, contract labor and other costs as a percentage of net revenues were 19.9% for the 2016 first nine months versus 20.6% in the 2015 period. The provision for doubtful accounts as a percentage of net revenues was 1.1% for the 2016 and 1.3% in the 2015 period.
  • The gross margin for the first nine months of 2016 increased 11.2% to $63.2 million, or 23.8% of revenue, as compared to $56.9 million, or 23.2% of revenue, for the 2015 period.
  • Corporate office costs were $24.6 million in the first nine months of 2016 compared to $22.2 million in the 2015 period. Corporate office costs were 9.3% of net revenues for the 2016 first nine months compared to 9.1% of net revenues for the 2015 period.
  • Operating income for the first nine months of 2016 rose 11.2% to $38.6 million compared to $34.7 million in the 2015 first nine months.
  • Interest expense was $1.0 million in the first nine months of 2016 and $0.8 million in the first nine months of 2015.
  • The provision for income taxes for the 2016 period was $12.0 million and for the 2015 period was $10.6 million. The provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest was 39.8% in the 2016 first nine months and 39.5% in the 2015 first nine months.
  • Net income attributable to non-controlling interests was $7.6 million for the nine months of 2016 as compared to $7.0 million in the year earlier period.
  • Operating results attributable to common shareholders for the nine months ended September 30, 2016 rose 11.2% to $18.1 million as compared to $16.3 million for the nine months ended September 30, 2015. Diluted earnings per share from operating results were $1.45 for the 2016 period and $1.32 for the 2015 period.
  • Same store visits increased 3.7% for de novo and acquired clinics open for one year or more and same store revenue increased 3.0% as the average net rate per visit decreased by $0.82.

Other Financial Measures

In the third quarter of 2016, the Company's Adjusted EBITDA was $13.1 million and $12.8 million in the 2015 third quarter. In the first nine months of 2016, the Company's Adjusted EBITDA grew by 11.7% to $40.9 million from $36.7 million in the 2015 first nine months.

In the third quarter of 2016 and 2015, operating results prior to equity-based compensation (a non-cash expense) was $6.5 million for both, and on a per share basis was $0.52 as compared to $0.53, respectively. In the first nine months of 2016, operating results prior to equity-based compensation, increased by 11.1% to $20.4 million versus $18.3 million for the 2015 first nine months, and on a per share basis grew to $1.63 from $1.48. (See schedule on page 9.)

Management's Comments

Chris Reading, Chief Executive Officer, said about the recent quarter, "While we got off to a slower than expected start in July, visits rebounded sequentially in August and September. Additionally, our development activity is strong and we expect to finish this year with very solid de novo as well as acquisition-related growth."

U.S. Physical Therapy Declares Quarterly Dividend

The fourth quarterly dividend of 2016 for $0.17 per share will be paid on December 2, 2016 to shareholders of record as of November 18, 2016.

Third Quarter 2016 Conference Call

U.S. Physical Therapy's Management will host a conference call at 10:30 a.m. Eastern Time, 9:30 a.m. Central Time, on Thursday, November 3, 2016 to discuss the Company's Quarter Ended September 30, 2016 results. Interested parties may participate in the call by dialing 1-888-335-5539 or 973-582-2857 and entering reservation number 92445436 approximately 10 minutes before the call is scheduled to begin. To listen to the live call via web-cast, go to the Company's website at www.usph.com at least 15 minutes early to register, download and install any necessary audio software. The conference call will be archived and can be accessed until January 3, 2017.

Forward-Looking Statements

This press release contains statements that are considered to be forward-looking within the meaning under Section 21E of the Securities Exchange Act of 1934, as amended. 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 expect. Included among such statements may be those relating to 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:
  • changes as the result of government enacted national healthcare reform;
  • changes in Medicare guidelines and reimbursement or failure of our clinics to maintain their Medicare certification 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 investigations and audits;
  • 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;
  • possible legal actions; which could subject us to increased operating costs and uninsured liabilities;
  • changes in reimbursement rates or payment methods from third party payors including government agencies and deductibles and co-pays owed by patients;
  • revenue and earnings expectations;
  • general economic conditions;
  • availability and cost of qualified physical and occupational therapists;
  • personnel productivity and retaining personnel;
  • competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certain operations and thereby incur losses and/or closure costs including the possible write-down or write-off of goodwill and other intangible assets;
  • acquisitions, purchase of non-controlling interests (minority interests) and the successful integration of the operations of the acquired businesses;
  • maintaining adequate internal controls;
  • maintaining necessary insurance coverage;
  • availability, terms, and use of capital; and
  • weather and other seasonal factors.

Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our forward-looking statements. Please see our periodic reports filed with the Securities and Exchange Commission for more information on these factors. Our forward-looking statements represent our estimates and assumptions only as of the date of this press release. Except as required by law, we are under no obligation to update any forward-looking statement, regardless of the reason the statement is no longer applicable.

About U.S. Physical Therapy, Inc.

Founded in 1990, U.S. Physical Therapy, Inc. operates 524 outpatient physical and occupational therapy clinics in 42 states. The Company's clinics provide preventative and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, treatment for neurologically-related injuries and rehabilitation of injured workers. In addition to owning and operating clinics, the Company manages 22 physical therapy facilities for third parties, including hospitals and physician groups.

More information about U.S. Physical Therapy, Inc. is available at www.usph.com. The information included on that website is not incorporated into this press release.
           

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF NET INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(unaudited)
 

Three Months Ended
Nine Months Ended

September 30, 2016

 

September 30, 2015

September 30, 2016

September 30, 2015
Net patient revenues $ 86,411 $ 82,154 $ 259,893 $ 239,412
Other revenues   1,933     1,895     5,789     5,166  
Net revenues 88,344 84,049 265,682 244,578
Clinic operating costs:
Salaries and related costs 49,868 46,594 146,509 134,044
Rent, clinic supplies, contract labor and other 17,885 17,428 52,938 50,434
Provision for doubtful accounts 917 1,067 2,962 3,119
Closure costs   9     88     54     125  
Total clinic operating costs   68,679     65,177     202,463     187,722  
Gross margin 19,665 18,872 63,219 56,856
Corporate office costs   7,610     6,923     24,640     22,173  
Operating income 12,055 11,949 38,579 34,683
Interest and other income, net 21 24 62 48
Interest expense   (326 )   (255 )   (954 )   (765 )
Income before taxes including non-controlling interests 11,750 11,718 37,687 33,966
Provision for income taxes   3,778     3,654     11,975     10,634  
Net income including non-controlling interests 7,972 8,064 25,712 23,332
Less: net income attributable to non-controlling interests   (2,259 )   (2,246 )   (7,600 )   (7,044 )
Net income attributable to common shareholders $ 5,713   $ 5,818   $ 18,112   $ 16,288  
 
Basic earnings per share attributable to common shareholders:
From operations prior to revaluation of redeemable non-controlling interests, net of tax $ 0.46 $ 0.47 $ 1.45 $ 1.32
Charges to additional paid-in-capital - revaluation of redeemable non-controlling interests, net of tax   -     -     -     (0.03 )
Basic $ 0.46   $ 0.47   $ 1.45   $ 1.29  
 
Diluted earnings per share attributable to common shareholders:
From operations prior to revaluation of redeemable non-controlling interests, net of tax $ 0.46 $ 0.47 $ 1.45 $ 1.32
Charges to additional paid-in-capital - revaluation of redeemable non-controlling interests, net of tax   -     -     -     (0.03 )
Diluted $ 0.46   $ 0.47   $ 1.45   $ 1.29  
 
Shares used in computation:
Basic and diluted earnings per share - weighted average shares   12,520     12,421     12,494     12,382  
 
Dividends declared per common share $ 0.17   $ 0.15   $ 0.51   $ 0.45  
 

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)
         

September 30, 2016

December 31, 2015
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,024 $ 15,778
Patient accounts receivable, less allowance for doubtful accounts of $1,770 and $1,444, respectively 38,522 36,231
Accounts receivable - other, less allowance for doubtful accounts of $-0- and $198, respectively 2,272 2,388
Other current assets   10,800     5,785  
Total current assets 66,618 60,182
Fixed assets:
Furniture and equipment 46,996 44,749
Leasehold improvements   26,206     25,160  
73,202 69,909
Less accumulated depreciation and amortization   55,760     53,255  
17,442 16,654
Goodwill 191,231 171,547
Other identifiable intangible assets, net 33,389 30,296
Other assets   1,221     1,234  
$ 309,901   $ 279,913  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 2,181 $ 1,636
Accrued expenses 23,216 16,596
Current portion of notes payable   986     775  
Total current liabilities 26,383 19,007
Notes payable 4,546 4,335
Revolving line of credit 36,000 44,000
Deferred rent 1,313 1,395
Deferred taxes 13,727 8,355
Other long-term liabilities   860     868  
Total liabilities 82,829 77,960
Commitments and contingencies
Redeemable non-controlling interests 8,334 8,843
Shareholders' equity:
U.S. Physical Therapy, Inc. shareholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized, no shares issued and outstanding

-

-
Common stock, $.01 par value, 20,000,000 shares authorized, 14,734,963 and 14,635,874 shares issued, respectively 147 146
Additional paid-in capital 49,506 45,251
Retained earnings 160,746 149,016
Treasury stock at cost, 2,214,737 shares   (31,628 )   (31,628 )

Total U.S. Physical Therapy, Inc. shareholders' equity
178,771 162,785
Non-controlling interests   39,967     30,325  
Total equity   218,738     193,110  
$ 309,901   $ 279,913  
   

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(unaudited)
 

Nine Months Ended

September 30, 2016
   

September 30, 2015
OPERATING ACTIVITIES
Net income including non-controlling interests $ 25,712 $ 23,332
Adjustments to reconcile net income including non-controlling interests to net cash provided by operating activities:
Depreciation and amortization 6,210 5,656
Provision for doubtful accounts 2,962 3,119
Equity-based awards compensation expense 3,748 3,368
Loss (gain) on sale of fixed assets 31 3
Excess tax benefit from equity-based awards (798 ) (816 )
Deferred income tax 5,688 3,181
Other - 180
Changes in operating assets and liabilities:
Increase in patient accounts receivable (2,548 ) (4,148 )
Decrease (increase) in accounts receivable - other 116 (145 )
Increase in other assets (4,979 ) (1,485 )
Increase (decrease) in accounts payable and accrued expenses 5,178 (3,766 )
Increase in other liabilities   708     380  
Net cash provided by operating activities 42,028 28,859
 
INVESTING ACTIVITIES
Purchase of fixed assets (5,620 ) (4,690 )
Purchase of businesses, net of cash acquired (12,958 ) (14,434 )
Acquisitions of non-controlling interests (including redeemable non-controlling interests) (1,800 ) (2,802 )
Proceeds on sale of fixed assets, net   42     71  
Net cash used in investing activities (20,336 ) (21,855 )
 
FINANCING ACTIVITIES
Distributions to non-controlling interests (including redeemable non-controlling interests) (8,271 ) (6,836 )
Cash dividends to shareholders - funded (6,382 ) (5,586 )
Proceeds from revolving line of credit 128,000 75,000
Payments on revolving line of credit (136,000 ) (63,500 )
Principal payments on notes payable (592 ) (616 )
Tax benefit from equity-based awards 798 816
Other   1     5  
Net cash used in financing activities (22,446 ) (717 )
 
Net increase in cash and cash equivalents (754 ) 6,287
Cash and cash equivalents - beginning of period   15,778     14,271  
Cash and cash equivalents - end of period $

15,024
  $

20,558
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 10,051 $

5,659
Interest $

770
$

616
Non-cash investing and financing transactions during the period:
Purchase of business - seller financing portion $

514
$

1,240
Acquisition of non-controlling interest - seller financing portion $

500
$

1,350
Revaluation of redeemable non-controlling interests $ - $

627
Sale of non-controlling interests $ (148 ) $ -
 

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

 

ADJUSTED EBITDA AND ADJUSTED NET INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)
 
The following tables reconcile net income attributable to common shareholders calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP"), to Adjusted EBITDA and Adjusted Net Income. Management believes providing Adjusted EBITDA and Adjusted Net Income to investors is useful information for comparing the Company's period-to-period results. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and equity compensation expense. Adjusted Net Income is defined as net income attributable to common shareholders less equity-based compensation, net of tax. Adjusted EBITDA and Adjusted Net Income are not measures of financial performance under GAAP. Adjusted EBITDA and Adjusted Net Income should not be considered in isolation or as an alternative to, or substitute for, net income attributable to common shareholders presented in the consolidated financial statements.
               

Three Months Ended September 30,
Nine Months Ended September 30,
2016 2015 2016 2015
 
Net income attributable to common shareholders * $ 5,713 $ 5,818 $ 18,112 $ 16,288
 
Adjustments:
Depreciation and amortization 2,052 1,982 6,210 5,656
Interest expense, net of interest income 305 231 892 717
Provision for income taxes 3,778 3,654 11,975 10,634
Equity-based awards compensation expense   1,264   1,162   3,748   3,368
 
Adjusted EBITDA $ 13,112 $ 12,847 $ 40,937 $ 36,663
 
 
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
 
Net income attributable to common shareholders * $ 5,713 $ 5,818 $ 18,112 $ 16,288
Equity-based awards compensation expense, net of tax   761   713   2,256   2,038
 
Adjusted net income $ 6,474 $ 6,531 $ 20,368 $ 18,326
 
Basic and diluted earnings per share attributable to common shareholders: $ 0.52 $ 0.53 $ 1.63 $ 1.48
 
Shares used in computation:
Basic and diluted   12,520   12,421   12,494   12,382
 

* Prior to revaluation of redeemable non-controlling interests.
 

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

RECAP OF CLINIC COUNT
 
Date Number of Clinics
 

March 31, 2015
494
June 30, 2015 501
September 30, 2015 506
December 31, 2015 508
 
March 31, 2016 512
June 30, 2016 516
September 30, 2016 524

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