[PART I—FINANCIAL INFORMATION - UNAUDITED](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION%20-%20UNAUDITED) [Item 1. Financial Statements.](index=3&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited consolidated financial statements and accompanying notes for the period [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202020%20and%20December%2031%2C%202019) The balance sheets show an increase in total assets to $585.0 million, driven by cash and goodwill | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $43,555 | $23,548 | | Total current assets | $92,139 | $85,386 | | Total assets | $585,018 | $560,845 | | Total current liabilities | $87,353 | $60,563 | | Total liabilities | $191,602 | $181,394 | | Total USPH shareholders' equity | $255,254 | $240,257 | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202020%20and%202019) Income statements reflect a significant decline in net revenues and net income due to the COVID-19 pandemic | Metric (in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net revenues | $83,857 | $126,373 | $196,574 | $242,604 | | Operating income | $10,262 | $19,898 | $14,276 | $35,323 | | Net income | $14,763 | $19,800 | $18,101 | $32,175 | | Net income attributable to USPH shareholders | $10,232 | $14,620 | $11,248 | $23,063 | | Basic and diluted EPS | $0.99 | $0.85 | $1.19 | $1.24 | | Dividends declared per common share | $- | $0.27 | $0.32 | $0.54 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20six%20months%20ended%20June%2030%2C%202020%20and%202019) Operating cash flow increased significantly to $48.4 million, while financing activities used cash | Metric (in thousands) | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $48,356 | $28,621 | | Net cash used in investing activities | $(18,079) | $(25,241) | | Net cash provided by (used in) financing activities | $(10,270) | $8,111 | | Net increase in cash and cash equivalents | $20,007 | $11,491 | | Cash and cash equivalents - end of period | $43,555 | $34,859 | [Consolidated Statements of Changes in Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity%20for%20the%20three%20months%20and%20six%20months%20ended%20June%2030%2C%202020%20and%202019) Total USPH shareholders' equity increased to $255.3 million, driven by net income | Metric (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------- | :------------ | :---------------- | | Total USPH Shareholders' Equity (Beginning Balance) | $240,257 | $215,945 | | Net income attributable to USPH shareholders | $11,248 | $23,063 | | Revaluation of redeemable non-controlling interest, net of tax | $4,036 | $(7,250) | | Compensation expense - equity-based awards | $3,389 | $3,558 | | Dividends paid to USPH shareholders | $(4,110) | $(6,891) | | Total USPH Shareholders' Equity (Ending Balance) | $255,254 | $240,257 | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail accounting policies, acquisitions, revenue, and the impact of the COVID-19 pandemic [1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=1.%20BASIS%20OF%20PRESENTATION%20AND%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the company's two business segments, operational structure, and accounting policies - The Company operates two reportable business segments: physical therapy operations and industrial injury prevention services[22](index=22&type=chunk) - As of June 30, 2020, the Company operated **554 physical therapy clinics** in 39 states and managed 29 third-party physical therapy facilities[28](index=28&type=chunk) - The COVID-19 pandemic has adversely impacted operations, leading to **significant reductions and cancellations of patient visits** in physical therapy[40](index=40&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) - The Company received **$12.8 million in Medicare Accelerated and Advance Payment Funds** (MAAPP) and **$7.9 million from the Public Health and Social Services Emergency Fund** (Relief Fund) under the CARES Act[51](index=51&type=chunk) [2. ACQUISITIONS OF BUSINESSES](index=19&type=section&id=2.%20ACQUISITIONS%20OF%20BUSINESSES) The company completed several acquisitions in 2019 and 2020 to expand its services - On February 27, 2020, the Company acquired interests in a four-clinic physical therapy practice for **$11.9 million**, resulting in an overall 65.0% ownership[80](index=80&type=chunk) - In 2019, the Company acquired a **67% interest in an eleven-clinic physical therapy practice for $12.4 million** and a third industrial injury prevention services company for **$22.9 million**[83](index=83&type=chunk)[84](index=84&type=chunk) 2020 Physical Therapy Acquisition Allocation (in thousands) | Item | Amount | | :---------------------------------------------------------- | :----- | | Cash paid, net of cash acquired | $11,633 | | Seller note | $300 | | Total consideration | $11,933 | | Net tangible assets acquired | $709 | | Referral relationships | $1,600 | | Non-compete | $750 | | Tradename | $1,500 | | Goodwill | $13,845 | | Fair value of non-controlling interest (redeemable) | $(6,471) | [3. REVENUE RECOGNITION](index=22&type=section&id=3.%20REVENUE%20RECOGNITION) Revenue is recognized when services are rendered, with details on payor mix and reimbursement - Medicare reimbursement for physical/occupational therapy services could face an **estimated 9% decrease in payment** effective January 1, 2021[98](index=98&type=chunk) - CMS provided a temporary waiver for physical and occupational therapists to perform and be reimbursed for telehealth visits, effective March 1, 2020[99](index=99&type=chunk) - Net patient revenue from Medicare was approximately **$44.4 million** for the six months ended June 30, 2020, a decrease from $59.4 million in the prior year[106](index=106&type=chunk) Revenue Categories (in thousands) | Category | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net patient revenues | $72,279 | $113,363 | $172,405 | $220,013 | | Management contract revenues | $1,592 | $2,215 | $3,740 | $4,360 | | Other revenues | $328 | $507 | $895 | $1,043 | | Industrial injury prevention services revenues | $9,658 | $10,288 | $19,534 | $17,188 | | Total Net Revenues | $83,857 | $126,373 | $196,574 | $242,604 | [4. OTHER INCOME](index=25&type=section&id=4.%20OTHER%20INCOME) Other income included a gain from the sale of clinics and significant relief funds under the CARES Act - The Company recognized a **gain of $1.1 million** in Q2 2020 from the sale of 11 previously closed clinics[111](index=111&type=chunk) - The Company received **$7.9 million in non-repayable Relief Funds** from the Public Health and Social Services Emergency Fund (CARES Act) in Q2 2020[112](index=112&type=chunk) [5. EARNINGS PER SHARE](index=25&type=section&id=5.%20EARNINGS%20PER%20SHARE) The earnings per share calculation includes the revaluation of redeemable non-controlling interest Earnings Per Share Computation (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :---------------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income attributable to USPH shareholders | $10,232 | $14,620 | $11,248 | $23,063 | | Credit (charges) to retained earnings: Revaluation of redeemable non-controlling interest | $3,344 | $(5,169) | $5,473 | $(9,830) | | Tax effect at statutory rate (federal and state) of 26.25% | $(878) | $1,356 | $(1,437) | $2,580 | | Total for EPS computation | $12,698 | $10,807 | $15,284 | $15,813 | | Earnings per share (basic and diluted) | $0.99 | $0.85 | $1.19 | $1.24 | | Shares used in computation - basic and diluted | 12,843 | 12,767 | 12,820 | 12,738 | [6. REDEEMABLE NON-CONTROLLING INTEREST](index=26&type=section&id=6.%20REDEEMABLE%20NON-CONTROLLING%20INTEREST) This section details the accounting for redeemable non-controlling interests from clinic partnerships - Redeemable non-controlling interests are recorded at fair value and adjusted each period, with adjustments charged directly to retained earnings[60](index=60&type=chunk) - The redemption price is based on a **specified multiple of the partnership's trailing twelve months of earnings**[119](index=119&type=chunk) Changes in Redeemable Non-Controlling Interests (in thousands) | Metric | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :---------------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Beginning balance | $140,498 | $137,196 | $137,750 | $133,943 | | Operating results allocated to redeemable non-controlling interest partners | $2,996 | $3,378 | $4,792 | $5,773 | | Changes in the fair value of redeemable non-controlling interest | $(3,344) | $5,169 | $(5,473) | $9,830 | | Purchases of redeemable non-controlling interest | $(1,372) | $(2,604) | $(3,224) | $(4,885) | | Ending balance | $136,728 | $133,366 | $136,728 | $133,366 | [7. GOODWILL](index=28&type=section&id=7.%20GOODWILL) Goodwill increased due to acquisitions but was partially offset by a write-off related to closed clinics - The Company derecognized **$1.9 million in goodwill** for the six months ended June 30, 2020, related to permanently closed clinics due to COVID-19[121](index=121&type=chunk) - Despite the pandemic's impact, the Company determined that **goodwill and tradenames were not impaired** as of June 30, 2020[55](index=55&type=chunk) Changes in Goodwill (in thousands) | Metric | 6 Months Ended June 30, 2020 | Year Ended December 31, 2019 | | :---------------------------------------------------------- | :--------------------------- | :--------------------------- | | Beginning balance | $317,676 | $293,525 | | Goodwill acquired | $13,845 | $31,330 | | Goodwill write-off related to closed clinics | $(1,859) | $- | | Ending balance | $330,894 | $317,676 | [8. INTANGIBLE ASSETS, NET](index=28&type=section&id=8.%20INTANGIBLE%20ASSETS%2C%20NET) Net intangible assets increased to $54.9 million, comprising tradenames, referral relationships, and non-compete agreements Intangible Assets, Net (in thousands) | Asset Category | June 30, 2020 | December 31, 2019 | | :---------------------------------------------------------- | :------------ | :---------------- | | Tradenames | $31,490 | $32,049 | | Referral relationships, net | $21,517 | $18,367 | | Non-compete agreements, net | $1,888 | $2,172 | | Total | $54,895 | $52,588 | Amortization Expense for Intangible Assets (in thousands) | Asset Category | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Referral relationships | $836 | $581 | $1,449 | $1,114 | | Non-compete agreements | $87 | $169 | $264 | $338 | | Total | $923 | $750 | $1,713 | $1,452 | [9. ACCRUED EXPENSES](index=30&type=section&id=9.%20ACCRUED%20EXPENSES) Accrued expenses increased significantly due to MAAPP funds payable and deferred payroll taxes - The Company recorded **$12.8 million in Medicare Accelerated and Advance Payment Program (MAAPP) funds** as a liability[125](index=125&type=chunk) - The Company deferred depositing **$2.2 million of employer's share of Social Security taxes** under the CARES Act[51](index=51&type=chunk)[125](index=125&type=chunk) Accrued Expenses (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Salaries and related costs | $16,809 | $19,340 | | Credit balances due to patients and payors | $6,871 | $4,303 | | MAAPP funds payable | $12,861 | $- | | Deferred employer payroll taxes - CARES ACT | $2,155 | $- | | Total | $51,325 | $30,855 | [10. NOTES PAYABLE AND AMENDED CREDIT AGREEMENT](index=31&type=section&id=10.%20NOTES%20PAYABLE%20AND%20AMENDED%20CREDIT%20AGREEMENT) Total notes payable decreased to $38.3 million, with $92.0 million available on the revolving credit facility - As of June 30, 2020, **$33.0 million was outstanding** on the $125.0 million revolving credit facility, leaving **$92.0 million of availability**[129](index=129&type=chunk) - The Amended Credit Agreement's maturity date is November 30, 2021, and it allows for acquisitions, stock repurchases, and dividend payments[128](index=128&type=chunk)[216](index=216&type=chunk) Notes Payable and Amended Credit Agreement (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :---------------------------------------------------------- | :------------ | :---------------- | | Credit Agreement outstanding | $33,000 | $46,000 | | Various notes payable | $5,320 | $5,089 | | Total | $38,320 | $51,089 | | Less current portion | $(4,635) | $(728) | | Long term portion | $33,685 | $50,361 | [11. LEASES](index=32&type=section&id=11.%20LEASES) Operating lease liabilities totaled $90.8 million, with total lease costs of $19.2 million for H1 2020 - The weighted-average remaining lease term for operating leases was **4.21 years**, and the weighted-average discount rate was **3.2%** as of June 30, 2020[139](index=139&type=chunk) Components of Lease Expense (in thousands) | Lease Type | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease cost | $7,815 | $7,708 | $15,627 | $15,295 | | Short-term lease cost | $215 | $297 | $509 | $668 | | Variable lease cost | $1,514 | $1,547 | $3,046 | $3,128 | | Total lease cost | $9,544 | $9,552 | $19,182 | $19,091 | Aggregate Future Lease Payments for Operating Leases (in thousands) | Fiscal Year | Amount | | :------------------------------------------ | :----- | | 2020 (excluding six months ended June 30, 2020) | $15,568 | | 2021 | $26,363 | | 2022 | $20,565 | | 2023 | $14,968 | | 2024 | $9,439 | | 2025 and thereafter | $10,288 | | Total lease payments | $97,191 | | Less: imputed interest | $6,359 | | Total operating lease liabilities | $90,832 | [12. SEGMENT INFORMATION](index=34&type=section&id=12.%20SEGMENT%20INFORMATION) Financial performance is reported across two segments, with physical therapy operations significantly impacted by COVID-19 Net Operating Revenues by Segment (in thousands) | Segment | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Physical therapy operations | $74,199 | $116,085 | $177,040 | $225,416 | | Industrial injury prevention services | $9,658 | $10,288 | $19,534 | $17,188 | | Total Company | $83,857 | $126,373 | $196,574 | $242,604 | Gross Profit by Segment (in thousands) | Segment | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Physical therapy operations (excluding closure costs) | $16,199 | $28,433 | $33,978 | $53,610 | | Industrial injury prevention services | $3,179 | $3,005 | $4,843 | $4,542 | | Total Gross Profit | $19,284 | $31,425 | $34,975 | $58,143 | [13. COMMON STOCK](index=35&type=section&id=13.%20COMMON%20STOCK) The company has an authorized share repurchase program with approximately 185,139 shares remaining - As of June 30, 2020, approximately **185,139 shares remain available for repurchase** under the March 2009 Authorization[144](index=144&type=chunk) - The Company **did not purchase any shares** of its common stock during the six months ended June 30, 2020[144](index=144&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial performance, highlighting the impact of COVID-19 [EXECUTIVE SUMMARY](index=36&type=section&id=EXECUTIVE%20SUMMARY) The summary details the adverse impact of COVID-19 on patient volumes and provides an update on recovery trends - The Company operates **554 outpatient physical therapy clinics** and an industrial injury prevention services business[148](index=148&type=chunk)[150](index=150&type=chunk) - COVID-19 led to the furlough/termination of **~40% of the 5,500 workforce** in March, with over 750 employees returning by early May[149](index=149&type=chunk) - Physical therapy daily patient volumes declined to **45% of normal in April** but recovered to an estimated **80-85% of pre-COVID-19 levels in July 2020**[149](index=149&type=chunk) - The industrial injury prevention business was less affected, operating at approximately **90% of normal**[149](index=149&type=chunk) [RESULTS OF OPERATIONS](index=37&type=section&id=RESULTS%20OF%20OPERATIONS) This section compares financial results, showing declines in revenue and income due to COVID-19 [Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019](index=37&type=section&id=Three%20Months%20Ended%20June%2030%2C%202020%20Compared%20to%20the%20Three%20Months%20Ended%20June%2030%2C%202019) Q2 2020 net revenues decreased significantly, leading to a decline in GAAP net income [Revenues](index=40&type=section&id=Revenues) Net revenues for Q2 2020 decreased by $42.5 million (33.6%) YoY to $83.9 million due to COVID-19 - Total patient visits **decreased from 1,058,000 in Q2 2019 to 675,700 in Q2 2020**[165](index=165&type=chunk) - Average net patient revenue per visit remained stable at **$106.97 in Q2 2020** compared to $107.16 in Q2 2019[165](index=165&type=chunk) Net Revenues (in thousands) | Metric | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Reported net revenues | $83,857 | $126,373 | | Adjusted net revenues (excluding sold clinics) | $83,745 | $118,782 | | Net patient revenues (physical therapy) | $72,279 | $113,363 | | Industrial injury prevention services revenues | $9,658 | $10,288 | [Operating Costs](index=41&type=section&id=Operating%20Costs) Total operating costs decreased by $30.4 million but increased as a percentage of net revenues - Total operating costs (excluding closure costs) were **$64.5 million (76.9% of net revenues)** in Q2 2020, down from $94.9 million (75.1% of net revenues) in Q2 2019[167](index=167&type=chunk) [Operating Costs—Salaries and Related Costs](index=41&type=section&id=Operating%20Costs%E2%80%94Salaries%20and%20Related%20Costs) Salaries and related costs decreased due to staffing reductions in response to the COVID-19 pandemic - Salaries and related costs were **51.8% of net revenues** in Q2 2020, down from 55.9% in Q2 2019, due to staffing and salary reductions[169](index=169&type=chunk) [Operating Costs—Rent, Supplies, Contract Labor and Other](index=42&type=section&id=Operating%20Costs%E2%80%94Rent%2C%20Supplies%2C%20Contract%20Labor%20and%20Other) These costs decreased in absolute terms but increased as a percentage of net revenues - Rent, supplies, contract labor and other costs were **24.2% of net revenues** in Q2 2020, up from 18.2% in Q2 2019[172](index=172&type=chunk) [Operating Costs—Provision for Doubtful Accounts](index=42&type=section&id=Operating%20Costs%E2%80%94Provision%20for%20Doubtful%20Accounts) The provision for doubtful accounts remained stable, but days' sales outstanding increased - Provision for doubtful accounts was **0.9% of net revenue** in Q2 2020, compared to 1.0% in Q2 2019[174](index=174&type=chunk) - Days' sales outstanding increased to **36 days** at June 30, 2020, from 33 days at December 31, 2019[174](index=174&type=chunk) [Gross Profit](index=42&type=section&id=Gross%20Profit) Gross profit decreased significantly in Q2 2020, both in absolute terms and as a percentage of net revenue - Gross profit was **$19.4 million (23.1% of net revenue)** in Q2 2020, down from $31.4 million (24.9% of net revenues) in Q2 2019[175](index=175&type=chunk) - Gross profit for industrial injury prevention services **increased to $3.2 million (32.9%)** in Q2 2020 from $3.0 million (29.2%) in Q2 2019[176](index=176&type=chunk) [Corporate Office Costs](index=42&type=section&id=Corporate%20Office%20Costs) Corporate office costs decreased due to cost reduction measures but increased as a percentage of net revenues - Corporate office costs **decreased to $9.0 million** in Q2 2020 from $11.5 million in Q2 2019[177](index=177&type=chunk) - As a percentage of net revenues, corporate office costs **increased to 10.8%** in Q2 2020 from 9.1% in Q2 2019[177](index=177&type=chunk) [Operating Income](index=42&type=section&id=Operating%20Income) Operating income declined significantly in Q2 2020 compared to the prior year - Operating income for Q2 2020 was **$10.3 million**, down from $19.9 million in Q2 2019[178](index=178&type=chunk) - Operating income as a percentage of net revenue **decreased from 15.7% in Q2 2019 to 12.2% in Q2 2020**[178](index=178&type=chunk) [Relief Funds](index=43&type=section&id=Relief%20Funds) The company recognized $7.9 million in non-repayable relief funds from the CARES Act - Included in other income in Q2 2020 was **$7.9 million of non-repayable Relief Funds** from the CARES Act[179](index=179&type=chunk) [Gain on Sale of Partnership Interest and Clinics](index=43&type=section&id=Gain%20on%20Sale%20of%20Partnership%20Interest%20and%20Clinics) The company recognized a gain from the sale of clinics, though less than the prior year's gain - A **gain of $1.1 million** was recognized in Q2 2020 from the sale of 11 previously closed clinics[180](index=180&type=chunk) [Interest Expense](index=43&type=section&id=Interest%20Expense) Interest expense slightly increased due to higher average borrowings - Interest expense was **$653,000 in Q2 2020**, up from $607,000 in Q2 2019[181](index=181&type=chunk) [Provision for Income Taxes](index=43&type=section&id=Provision%20for%20Income%20Taxes) The provision for income taxes decreased, with the effective tax rate slightly increasing - Provision for income tax was **$3.9 million** in Q2 2020, down from $5.3 million in Q2 2019[182](index=182&type=chunk) - The effective tax rate was **27.5% in Q2 2020**, compared to 26.7% in Q2 2019[182](index=182&type=chunk)[183](index=183&type=chunk) [Net Income Attributable to Non-controlling Interests](index=43&type=section&id=Net%20Income%20Attributable%20to%20Non-controlling%20Interests) Net income attributable to non-controlling interests decreased in Q2 2020 - Net income attributable to non-controlling interests (permanent equity) was **$1.5 million** in Q2 2020, down from $1.8 million in Q2 2019[184](index=184&type=chunk) - Net income attributable to redeemable non-controlling interests (temporary equity) was **$3.0 million** in Q2 2020, down from $3.4 million in Q2 2019[184](index=184&type=chunk) Operating Results (Non-GAAP) (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | | :---------------------------------------------------------- | :--------------------------- | :--------------------------- | | Net income attributable to USPH shareholders (GAAP) | $10,232 | $14,620 | | Operating Results (without Relief Fund) | $5,042 | $10,325 | | Operating Results (including Relief Fund) | $10,911 | $10,325 | | Basic and diluted Operating Results (without Relief Fund) per share | $0.39 | $0.81 | | Basic and diluted Operating Results (including Relief Fund) per share | $0.85 | $0.81 | [Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019](index=44&type=section&id=Six%20Months%20Ended%20June%2030%2C%202020%20Compared%20to%20the%20Six%20Months%20Ended%20June%2030%2C%202019) For H1 2020, the company experienced a substantial decline in GAAP net income [Revenues](index=46&type=section&id=Revenues) Net revenues for H1 2020 decreased by $46.0 million (19.0%) YoY to $196.6 million due to COVID-19 - Total patient visits **decreased from 2,059,000 in H1 2019 to 1,646,700 in H1 2020**[197](index=197&type=chunk) - Average net patient revenue per visit **decreased slightly to $104.70** in H1 2020 from $106.83 in H1 2019[197](index=197&type=chunk) Net Revenues (in thousands) | Metric | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Reported net revenues | $196,574 | $242,604 | | Adjusted net revenues (excluding sold clinics) | $195,625 | $228,370 | | Net patient revenues (physical therapy) | $172,405 | $220,013 | | Industrial injury prevention services revenues | $19,534 | $17,188 | [Operating Costs](index=47&type=section&id=Operating%20Costs) Total operating costs decreased in H1 2020 but increased as a percentage of net revenues - Total operating costs (excluding closure costs) were **$157.8 million (80.3% of net revenues)** in H1 2020, down from $184.5 million (76.0% of net revenues) in H1 2019[195](index=195&type=chunk) [Operating Costs—Salaries and Related Costs](index=47&type=section&id=Operating%20Costs%E2%80%94Salaries%20and%20Related%20Costs) Salaries and related costs decreased due to COVID-19 related reductions but slightly increased as a percentage of net revenues - Salaries and related costs were **57.2% of net revenues** in H1 2020, up from 56.4% in H1 2019[197](index=197&type=chunk) [Operating Costs—Rent, Supplies, Contract Labor and Other](index=48&type=section&id=Operating%20Costs%E2%80%94Rent%2C%20Supplies%2C%20Contract%20Labor%20and%20Other) These costs decreased in absolute terms but increased as a percentage of net revenues in H1 2020 - Rent, supplies, contract labor and other costs were **22.0% of net revenues** in H1 2020, up from 18.6% in H1 2019[199](index=199&type=chunk) [Operating Costs—Provision for Doubtful Accounts](index=48&type=section&id=Operating%20Costs%E2%80%94Provision%20for%20Doubtful%20Accounts) The provision for doubtful accounts remained stable, but days' sales outstanding increased - Provision for doubtful accounts was **1.1% of net revenue** in H1 2020, compared to 1.0% in H1 2019[201](index=201&type=chunk) - Days' sales outstanding increased to **36 days** at June 30, 2020, from 33 days at December 31, 2019[201](index=201&type=chunk) [Gross Profit](index=48&type=section&id=Gross%20Profit) Gross profit decreased significantly in H1 2020, both in absolute terms and as a percentage of net revenue - Gross profit was **$38.8 million (19.7% of net revenue)** in H1 2020, down from $58.2 million (24.0% of net revenues) in H1 2019[202](index=202&type=chunk) - Gross profit for industrial injury prevention services was **$4.8 million (24.8%)** in H1 2020, compared to $4.5 million (26.4%) in H1 2019[203](index=203&type=chunk) [Corporate Office Costs](index=48&type=section&id=Corporate%20Office%20Costs) Corporate office costs decreased due to cost reduction measures but increased as a percentage of net revenues - Corporate office costs **decreased to $20.7 million** in H1 2020 from $22.8 million in H1 2019[204](index=204&type=chunk) - As a percentage of net revenues, corporate office costs **increased to 10.5%** in H1 2020 from 9.4% in H1 2019[204](index=204&type=chunk) [Operating Income](index=48&type=section&id=Operating%20Income) Operating income declined substantially in H1 2020 compared to the prior year - Operating income for H1 2020 was **$14.3 million**, down from $35.3 million in H1 2019[205](index=205&type=chunk) - Operating income as a percentage of net revenue **decreased from 14.6% in H1 2019 to 7.3% in H1 2020**[205](index=205&type=chunk) [Relief Funds](index=49&type=section&id=Relief%20Funds) The company recognized $7.9 million in non-repayable relief funds from the CARES Act - Included in other income in H1 2020 was **$7.9 million of non-repayable Relief Funds** from the CARES Act[206](index=206&type=chunk) [Gain on Sale of Partnership Interest and Clinics](index=49&type=section&id=Gain%20on%20Sale%20of%20Partnership%20Interest%20and%20Clinics) The company recognized a gain from the sale of clinics, though less than the prior year's gain - A **gain of $1.1 million** was recognized in H1 2020 from the sale of 11 previously closed clinics[207](index=207&type=chunk) [Interest Expense](index=49&type=section&id=Interest%20Expense) Interest expense slightly increased in H1 2020 due to higher average borrowings - Interest expense was **$1.1 million in H1 2020**, up from $1.0 million in H1 2019[208](index=208&type=chunk) [Provision for Income Taxes](index=49&type=section&id=Provision%20for%20Income%20Taxes) The provision for income taxes decreased, with the effective tax rate slightly increasing - Provision for income tax was **$4.2 million** in H1 2020, down from $8.0 million in H1 2019[209](index=209&type=chunk) - The effective tax rate was **27.1% in H1 2020**, compared to 25.8% in H1 2019[209](index=209&type=chunk)[210](index=210&type=chunk) [Net Income Attributable to Non-controlling Interests](index=49&type=section&id=Net%20Income%20Attributable%20to%20Non-controlling%20Interests) Net income attributable to non-controlling interests decreased in H1 2020 - Net income attributable to non-controlling interests (permanent equity) was **$2.0 million** in H1 2020, down from $3.3 million in H1 2019[211](index=211&type=chunk) - Net income attributable to redeemable non-controlling interests (temporary equity) was **$4.8 million** in H1 2020, down from $5.8 million in H1 2019[211](index=211&type=chunk) Operating Results (Non-GAAP) (in thousands, except per share data) | Metric | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :---------------------------------------------------------- | :--------------------------- | :--------------------------- | | Net income attributable to USPH shareholders (GAAP) | $11,248 | $23,063 | | Operating Results (without Relief Fund) | $8,923 | $18,768 | | Operating Results (including Relief Fund) | $14,792 | $18,768 | | Basic and diluted Operating Results (without Relief Fund) per share | $0.70 | $1.47 | | Basic and diluted Operating Results (including Relief Fund) per share | $1.15 | $1.47 | [LIQUIDITY AND CAPITAL RESOURCES](index=49&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Cash and cash equivalents increased to $43.5 million, supported by operating activities and Medicare advances - Cash and cash equivalents **increased by $20.0 million** from December 31, 2019, to June 30, 2020, reaching **$43.5 million**[212](index=212&type=chunk)[214](index=214&type=chunk) - Operating activities provided **$48.4 million in cash**, and **$12.9 million was received from the Medicare Accelerated and Advance Payment Program** (MAAPP)[214](index=214&type=chunk) - Major uses of cash included a net reduction in the credit line ($33.0 million), business acquisitions ($11.6 million), and cash dividends paid ($4.1 million)[214](index=214&type=chunk) - The company has a **$125.0 million revolving credit facility**, with $33.0 million outstanding and **$92.0 million available** as of June 30, 2020[215](index=215&type=chunk)[216](index=216&type=chunk) [FACTORS AFFECTING FUTURE RESULTS](index=51&type=section&id=FACTORS%20AFFECTING%20FUTURE%20RESULTS) Future results are subject to risks from public health crises, healthcare regulations, and competition - Key risks include the financial magnitude of public health crises like COVID-19, changes in Medicare rules, and governmental audits[227](index=227&type=chunk) - Other factors include general economic conditions, availability of qualified therapists, and the competitive environment[233](index=233&type=chunk) [Forward-Looking Statements](index=52&type=section&id=Forward-Looking%20Statements) This section clarifies that the report contains forward-looking statements involving risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, including those related to new clinics and reimbursement[230](index=230&type=chunk) - The company is under **no obligation to update any forward-looking statement**[231](index=231&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The company's primary market risk exposure is to changes in interest rates on its variable-rate credit facility - The company's primary market risk is from changes in interest rates on its variable-rate Amended Credit Agreement[232](index=232&type=chunk) - A **1% change in the interest rate** would result in an annual interest expense change of **$330,000**[232](index=232&type=chunk) [Item 4. Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2020 - The principal executive and financial officers concluded that **disclosure controls and procedures were effective** as of June 30, 2020[234](index=234&type=chunk) - Internal controls were added or modified in Q2 2020 to address COVID-19 risks and changes in segment reporting[235](index=235&type=chunk) [PART II—OTHER INFORMATION](index=48&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal actions, including a qui tam lawsuit in Florida - The company is a party to various legal actions, including potential lawsuits under the federal False Claims Act[237](index=237&type=chunk)[238](index=238&type=chunk) - A qui tam lawsuit filed in August 2019 alleges **'upcoding' of Medicare billings** by a majority-owned subsidiary[239](index=239&type=chunk)[240](index=240&type=chunk) - The company believes the allegations in the Florida litigation **have no merit** and intends to vigorously defend the action[242](index=242&type=chunk) [Item 1A. Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, emphasizing the adverse impact of public health crises like COVID-19 - The company is subject to risks from public health crises such as COVID-19, which has caused disruption and economic uncertainty[245](index=245&type=chunk) - COVID-19 has led to **significant and unpredictable reductions and cancellations** of physical therapy patient appointments[246](index=246&type=chunk)[247](index=247&type=chunk) - The exercise of 'put' rights by partners to sell their redeemable non-controlling interests could adversely impact the company's capital structure[248](index=248&type=chunk) [Item 6. Exhibits](index=56&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data - Exhibits include **Rule 13a-14(a)/15d-14(a) Certifications** from the CEO, CFO, and Corporate Controller[250](index=250&type=chunk) - **XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents** are also filed as exhibits[250](index=250&type=chunk) [Signatures](index=57&type=section&id=Signatures) The report is duly signed by the Chief Financial Officer and Corporate Controller as of August 7, 2020 - The report was signed on **August 7, 2020**, by Lawrance W. McAfee, Chief Financial Officer, and Jon C. Bates, Vice President/Corporate Controller[254](index=254&type=chunk)

U.S. Physical Therapy, Inc. (NYSE:USPH) Q1 2020 Earnings Conference Call May 21, 2020 10:30 AM ET Company Participants Chris Reading - Chief Executive Officer Jon Bates - Vice President & Controller Larry McAfee - Executive Vice President & Chief Financial Officer Graham Reeve - Chief Operating Officer, East Conference Call Participants Larry Solow - CJS Securities Brian Tanquilut - Jefferies Matt Larew - William Blair Mike Petusky - Barrington Research Operator Ladies and gentlemen, thank you for standing ...

[EXPLANATORY NOTE](index=2&type=section&id=EXPLANATORY%20NOTE) The company delayed its **Form 10-Q** filing due to **COVID-19** disruptions, relying on **SEC Release No. 34-88465** - The filing of the **Form 10-Q** was delayed due to **COVID-19 pandemic disruptions**, including government restrictions and limited access to facilities and staff support[6](index=6&type=chunk) - The Company relied on **SEC Release No. 34-88465** to delay the filing of this Report[6](index=6&type=chunk) [PART I—FINANCIAL INFORMATION - UNAUDITED](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION%20-%20UNAUDITED) [Item 1. Financial Statements.](index=4&type=section&id=Item%201.%20Financial%20Statements.) **U.S. Physical Therapy, Inc.**'s unaudited consolidated financial statements and comprehensive explanatory notes are presented [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) **Cash and cash equivalents** significantly increased to **$89.6 million** by March 31, 2020, primarily due to increased borrowings, driving total assets Consolidated Balance Sheet Data | Metric | Dec 31, 2019 (in thousands) | Mar 31, 2020 (in thousands) | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Cash and cash equivalents | $23,548 | $89,551 | +$66,003 | | Patient accounts receivable, net | $46,228 | $42,649 | -$3,579 | | Total current assets | $85,386 | $148,672 | +$63,286 | | Total assets | $560,845 | $643,253 | +$82,408 | | Revolving line of credit | $46,000 | $114,000 | +$68,000 | | Total liabilities | $181,394 | $260,451 | +$79,057 | | Total USPH shareholders' equity | $240,257 | $241,064 | +$807 | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) **Net revenues** declined and **net income attributable to USPH shareholders** substantially decreased in Q1 2020 due to **COVID-19 impacts** and increased operating costs Consolidated Statements of Income Data | Metric (Three Months Ended March 31) | 2020 (in thousands) | 2019 (in thousands) | Change | | :----------------------------------- | :------------------ | :------------------ | :----- | | Net revenues | $112,717 | $116,231 | -$3,514 | | Total operating costs | $97,026 | $89,513 | +$7,513 | | Gross profit | $15,691 | $26,718 | -$11,027 | | Operating income | $4,014 | $15,425 | -$11,411 | | Net income attributable to USPH shareholders | $1,016 | $8,443 | -$7,427 | | Basic and diluted EPS attributable to USPH shareholders | $0.20 | $0.39 | -$0.19 | | Dividends declared per common share | $0.32 | $0.27 | +$0.05 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) **Cash and cash equivalents** significantly increased by **$66.0 million** in Q1 2020, driven by **financing activities** and increased borrowings Consolidated Statements of Cash Flows Data | Metric (Three Months Ended March 31) | 2020 (in thousands) | 2019 (in thousands) | Change | | :----------------------------------- | :------------------ | :------------------ | :----- | | Net cash provided by operating activities | $16,380 | $13,563 | +$2,817 | | Net cash used in investing activities | $(15,923) | $(4,630) | -$11,293 | | Net cash provided by (used in) financing activities | $65,546 | $(12,063) | +$77,609 | | Net increase in cash and cash equivalents | $66,003 | $(3,130) | +$69,133 | | Cash and cash equivalents - end of period | $89,551 | $20,238 | +$69,313 | [Consolidated Statements of Changes in Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) Total shareholders' equity increased slightly to **$241.1 million** by March 31, 2020, influenced by **net income** and **equity compensation** Consolidated Statements of Changes in Equity Data | Metric (Three Months Ended March 31, 2020) | Amount (in thousands) | | :----------------------------------------- | :-------------------- | | Balance December 31, 2019 | $240,257 | | Net income attributable to USPH shareholders | $1,016 | | Revaluation of redeemable non-controlling interest, net of tax | $1,570 | | Compensation expense - equity-based awards | $1,886 | | Dividends payable to USPT shareholders | $(4,110) | | Balance March 31, 2020 | $241,064 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES](index=8&type=section&id=1.%20BASIS%20OF%20PRESENTATION%20AND%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the company's operations, recent acquisitions, and the significant impact of **COVID-19** on its financial policies and presentation - The Company operates **567 clinics** in 39 states and an **industrial injury prevention business** as of March 31, 2020, with **30 third-party facilities** under management[26](index=26&type=chunk) - On February 27, 2020, the Company acquired interests in a four-clinic **physical therapy practice** for **$11.9 million** (**$11.6 million cash**, **$0.3 million seller note**)[21](index=21&type=chunk)[81](index=81&type=chunk) - The **COVID-19 pandemic** has caused significant disruptions, leading to a decline in **patient visits** (as low as **45% of normal** in April, currently slightly over **60%**), closure of **69 clinics** (**35 permanently**), **furloughs/terminations of over 2,150 employees** (**40% of workforce**), and **salary reductions** for corporate staff and executives, resulting in estimated **annualized savings** of **$87 million**[75](index=75&type=chunk) - The Company received **$12.3 million** from the **Medicare Accelerated and Advance Payments Program (MAAPP)** and **$5.9 million** from the **Public Health and Social Services Emergency Fund (Relief Fund)** under the **CARES Act**, and is deferring employer payroll taxes[77](index=77&type=chunk)[78](index=78&type=chunk) - The Company derecognized **$1.9 million** in **goodwill** related to clinics permanently closed due to **COVID-19**[50](index=50&type=chunk)[126](index=126&type=chunk) - The Company adopted **ASU 2016-13 (CECL)** and **ASU 2017-04 (Goodwill Impairment)** on January 1, 2020, with no material impact on financial statements[71](index=71&type=chunk)[72](index=72&type=chunk) [2. ACQUISITIONS OF BUSINESSES](index=15&type=section&id=2.%20ACQUISITIONS%20OF%20BUSINESSES) This note details the company's 2020 and 2019 acquisitions, outlining purchase prices and preliminary asset allocation, including **goodwill** and **intangibles** - On February 27, 2020, the Company acquired interests in a four-clinic **physical therapy practice** for **$11.9 million** (**$11.6 million cash**, **$0.3 million seller note**), resulting in a **65.0%** overall ownership[81](index=81&type=chunk) 2020 Acquisition Allocation Data | 2020 Acquisition Allocation (in thousands) | Amount | | :--------------------------------------- | :----- | | Total consideration | $11,933 | | Net tangible assets acquired | $922 | | Referral relationships | $1,600 | | Non-compete | $750 | | Tradename | $1,500 | | Goodwill | $13,632 | | Fair value of non-controlling interest | $(6,471) | - In 2019, the Company acquired a **67%** interest in an eleven-clinic **physical therapy practice** for **$12.4 million** and a third **industrial injury prevention company** for **$22.9 million**, increasing its ownership in Briotix Health to approximately **76.0%**[86](index=86&type=chunk)[158](index=158&type=chunk) 2019 Acquisition Allocation Data | 2019 Acquisition Allocation (in thousands) | IIPS | Clinic Practice | Total | | :--------------------------------------- | :--- | :-------------- | :---- | | Total consideration | $22,913 | $12,470 | $35,383 | | Net tangible assets acquired | $(365) | $908 | $543 | | Referral relationships | $1,500 | $1,500 | $3,000 | | Non-compete | $590 | $700 | $1,290 | | Tradename | $2,500 | $1,600 | $4,100 | | Goodwill | $18,688 | $13,991 | $32,679 | | Fair value of non-controlling interest | - | $(6,229) | $(6,229) | [3. REVENUE RECOGNITION](index=17&type=section&id=3.%20REVENUE%20RECOGNITION) This note details **revenue recognition** policies across services, discussing **Medicare** changes, **telehealth waivers**, and **contractual allowance** methodology Revenue Category Data | Revenue Category (Three Months Ended March 31) | 2020 (in thousands) | 2019 (in thousands) | Change | | :--------------------------------------------- | :------------------ | :------------------ | :----- | | Net patient revenues | $100,126 | $106,650 | -$6,524 | | Management contract revenues | $2,149 | $2,146 | +$3 | | Industrial injury prevention services revenues | $9,876 | $6,900 | +$2,976 | | Other revenues | $566 | $535 | +$31 | | Total Net revenues | $112,717 | $116,231 | -$3,514 | - **Medicare reimbursement** for physical/occupational therapy services could see an estimated **8%** decrease in payment effective January 1, 2021, due to proposed changes in code valuations[102](index=102&type=chunk) - Effective March 1, 2020, CMS provided a temporary waiver allowing physical and occupational therapists to perform and be reimbursed for **telehealth visits** for **Medicare beneficiaries**, applicable to approximately **60%** of the Company's clinics enrolled as private practices[103](index=103&type=chunk) - The **CARES Act** temporarily suspended the **2% Medicare payment adjustment** from May 1, 2020, through December 31, 2020[106](index=106&type=chunk) - **Net patient revenue** from **Medicare** was approximately **$27.5 million** in Q1 2020, down from **$28.3 million** in Q1 2019[112](index=112&type=chunk) [4. EARNINGS PER SHARE](index=21&type=section&id=4.%20EARNINGS%20PER%20SHARE) This note details **basic and diluted EPS** computation, highlighting the inclusion of **revaluation of redeemable non-controlling interest** EPS Computation Data | EPS Computation (Three Months Ended March 31) | 2020 (in thousands, except per share) | 2019 (in thousands, except per share) | | :-------------------------------------------- | :------------------------------------ | :------------------------------------ | | Net income attributable to USPH shareholders | $1,016 | $8,443 | | Revaluation of redeemable non-controlling interest | $2,129 | $(4,661) | | Tax effect at statutory rate (26.25%) | $(559) | $1,224 | | Total for EPS calculation | $2,586 | $5,006 | | Earnings per share (basic and diluted) | $0.20 | $0.39 | | Shares used in computation | 12,796 | 12,707 | [5. REDEEMABLE NON-CONTROLLING INTEREST](index=21&type=section&id=5.%20REDEEMABLE%20NON-CONTROLLING%20INTEREST) This note explains **redeemable non-controlling interests** in clinic partnerships, their accounting treatment, and changes in carrying amount - **Redeemable non-controlling interests** are equity interests in acquired partnerships held by selling shareholders, subject to **put/call rights** based on a multiple of trailing twelve months earnings[122](index=122&type=chunk) - The **revaluation of redeemable non-controlling interest**, net of tax, is adjusted directly to **retained earnings** and included in **EPS calculation**, but not net income[54](index=54&type=chunk)[117](index=117&type=chunk) Changes in Redeemable Non-Controlling Interests Data | Changes in Redeemable Non-Controlling Interests (in thousands) | Three Months Ended March 31, 2020 | Year Ended December 31, 2019 | | :----------------------------------------------------------- | :-------------------------------- | :--------------------------- | | Beginning balance | $137,750 | $133,943 | | Operating results allocated | $1,796 | $10,659 | | Distributions | $(1,611) | $(10,221) | | Changes in fair value | $(2,129) | $11,893 | | Purchases | $(1,852) | $(8,934) | | Acquired interest | $6,471 | $6,230 | | Ending balance | $140,498 | $137,750 | [6. GOODWILL](index=24&type=section&id=6.%20GOODWILL) This note details changes in **goodwill**, including acquisitions and a **$1.9 million** write-off for **COVID-19** related clinic closures Changes in Goodwill Data | Changes in Goodwill (in thousands) | Three Months Ended March 31, 2020 | Year Ended December 31, 2019 | | :--------------------------------- | :-------------------------------- | :--------------------------- | | Beginning balance | $317,676 | $293,525 | | Goodwill acquired | $13,632 | $31,330 | | Goodwill write-off related to closed clinics | $(1,859) | - | | Goodwill adjustments | $1,320 | $146 | | Ending balance | $330,769 | $317,676 | - The Company derecognized (wrote-off) **$1.9 million** in **goodwill** related to permanently closed clinics due to **COVID-19**[50](index=50&type=chunk)[126](index=126&type=chunk) - Despite current economic conditions and declining **patient visits** in March 2020 due to the **COVID-19 pandemic**, the Company determined that **goodwill** and **tradenames** of reporting units were not impaired as of March 31, 2020[47](index=47&type=chunk) [7. INTANGIBLE ASSETS, NET](index=24&type=section&id=7.%20INTANGIBLE%20ASSETS,%20NET) This note provides a breakdown of **intangible assets**, their **amortization periods**, and the **amortization expense** incurred for the quarter Intangible Assets Data | Intangible Assets (in thousands) | March 31, 2020 | December 31, 2019 | | :------------------------------- | :------------- | :---------------- | | Tradenames | $33,549 | $32,049 | | Referral relationships, net | $19,354 | $18,367 | | Non-compete agreements, net | $2,745 | $2,172 | | Total | $55,648 | $52,588 | Amortization Expense Data | Amortization Expense (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Referral relationships | $613 | $533 | | Non-compete agreements | $177 | $169 | | Total | $790 | $702 | - **Tradenames** have an indefinite life and are tested annually for **impairment**; **referral relationships** are amortized over **6-16 years**, and **non-compete agreements** over **5-6 years**[127](index=127&type=chunk) [8. ACCRUED EXPENSES](index=25&type=section&id=8.%20ACCURRED%20EXPENSES) This note details **accrued expenses**, which significantly increased due to **dividends payable** and **COVID-19** related **closure costs** Accrued Expenses Data | Accrued Expenses (in thousands) | March 31, 2020 | December 31, 2019 | | :------------------------------ | :------------- | :---------------- | | Salaries and related costs | $19,230 | $19,340 | | Credit balances due to patients and payors | $5,115 | $4,303 | | Group health insurance claims | $2,499 | $2,277 | | Dividends payable | $4,110 | - | | Closure costs | $1,843 | - | | Federal income taxes payable | $1,891 | - | | Other | $5,957 | $4,935 | | Total | $40,645 | $30,855 | - **Closure costs** of **$1.8 million** are included, primarily for remaining **lease commitments** and write-off of leasehold improvements for **22 clinics** closed in late March due to **COVID-19**[129](index=129&type=chunk) [9. NOTES PAYABLE AND AMENDED CREDIT AGREEMENT](index=25&type=section&id=9.%20NOTES%20PAYABLE%20AND%20AMENDED%20CREDIT%20AGREEMENT) This note details the company's debt structure, increased borrowings, and ongoing discussions for **credit agreement covenant** amendments due to **COVID-19** Notes Payable and Credit Agreement Data | Notes Payable & Credit Agreement (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------------------------------- | :------------- | :---------------- | | Credit Agreement outstanding | $114,000 | $46,000 | | Various notes payable | $5,330 | $5,089 | | Total | $119,330 | $51,089 | | Less current portion | $(728) | $(728) | | Long term portion | $118,602 | $50,361 | - The Company has a **$125.0 million revolving credit facility**, with **$114.0 million** outstanding as of March 31, 2020, and has since drawn all available funds (**$125.0 million**)[132](index=132&type=chunk)[182](index=182&type=chunk) - The Company was in compliance with all **credit agreement covenants** as of March 31, 2020, but is in discussions with its lender for an amendment to maintain compliance by the end of Q2 2020 due to **COVID-19** uncertainties[134](index=134&type=chunk)[185](index=185&type=chunk) - Subsequent aggregate annual payments of principal required for **notes payable** and the **credit agreement** are **$728,000** for the **12 months** ended March 31, 2021, and **$118.6 million** for the **12 months** ended March 31, 2022[136](index=136&type=chunk) [10. LEASES](index=26&type=section&id=10.%20LEASES) This note details **operating lease accounting** under **ASC 842**, including **right-of-use assets**, **liabilities**, **lease expenses**, and future payment obligations Lease Expense Data | Lease Expense (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--------------------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | $7,812 | $7,587 | | Short-term lease cost | $294 | $371 | | Variable lease cost | $1,532 | $1,581 | | Total lease cost | $9,638 | $9,539 | Future Lease Payments Data | Future Lease Payments (in thousands) | Amount | | :----------------------------------- | :----- | | 2020 (excluding Q1) | $22,273 | | 2021 | $24,801 | | 2022 | $18,922 | | 2023 | $13,514 | | 2024 | $8,298 | | 2025 and therafter | $9,318 | | Total lease payments | $97,126 | | Less: imputed interest | $7,723 | | Total operating lease liabilities | $89,403 | - The weighted-average remaining lease term for **operating leases** was **4.25 years** at March 31, 2020, with a weighted-average discount rate of **3.9%**[142](index=142&type=chunk) [11. COMMON STOCK](index=27&type=section&id=11.%20COMMON%20STOCK) This note outlines the company's **common stock repurchase program**, detailing shares purchased and remaining available for repurchase - The Company has an authorized **share repurchase program** (**March 2009 Authorization**) for up to **1.2 million shares**, with no expiration date[143](index=143&type=chunk) - As of March 31, 2020, **859,499 shares** have been purchased, with an estimated **217,391 shares** remaining for repurchase. No shares were purchased during the three months ended March 31, 2020[144](index=144&type=chunk)[197](index=197&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's **financial condition** and **results of operations**, focusing on **COVID-19** impacts, mitigation strategies, and Q1 2020 performance [EXECUTIVE SUMMARY](index=28&type=section&id=EXECUTIVE%20SUMMARY) This summary highlights **COVID-19's** adverse impact on **patient volumes** and operations, detailing immediate mitigation strategies and **cost-saving measures** - The Company operates **outpatient physical therapy clinics** and an **industrial injury prevention business**[147](index=147&type=chunk)[154](index=154&type=chunk) - **COVID-19** caused significant and unpredictable reductions in **patient visits**, declining to as low as **45% of normal** in April and currently slightly above **60% of normal**[149](index=149&type=chunk)[152](index=152&type=chunk) - **Mitigation efforts** include **furloughing/terminating over 2,150 employees** (**40% of workforce**), implementing **salary reductions** (**20-25%** for corporate, **35-40%** for executives, **50%** for Board), and pursuing telehealth solutions, lease renegotiations, and delayed acquisitions, with estimated **annualized savings** of **$87 million**[152](index=152&type=chunk) Operating Statistics Data | Operating Statistics (without sold clinics) | Feb 29, 2020 (2 months) | Feb 28, 2019 (2 months) | % Change | Mar 31, 2020 (1 month) | Mar 31, 2019 (1 month) | % Change | Mar 31, 2020 (3 months) | Mar 31, 2019 (3 months) | % Change | | :---------------------------------------- | :---------------------- | :---------------------- | :------- | :--------------------- | :--------------------- | :------- | :---------------------- | :---------------------- | :------- | | Net revenues (in thousands) | $78,193 | $72,232 | 8.3% | $34,524 | $38,314 | -9.9% | $112,717 | $110,546 | 2.0% | | Number of clinics, at end of period | 587 | 561 | | 567 | 559 | | 567 | 559 | | | Average visits per day per clinic | 27.7 | 26.5 | | 22.7 | 27.9 | | 26.2 | 27.0 | | | Total patient visits | 676,328 | 623,943 | | 294,695 | 328,288 | | 971,023 | 952,231 | | | Net patient revenue per visit | $103.06 | $105.89 | | $103.22 | $106.29 | | $103.11 | $106.02 | | [RESULTS OF OPERATIONS](index=30&type=section&id=RESULTS%20OF%20OPERATIONS) Q1 2020 **operating results** show a significant decline in **GAAP net income** and **diluted EPS** due to **COVID-19** and increased **operating costs** Operating Results Summary | Metric (Three Months Ended March 31) | 2020 (in thousands, except per share) | 2019 (in thousands, except per share) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | | Net income attributable to USPH shareholders (GAAP) | $1,016 | $8,443 | | Diluted EPS (GAAP) | $0.20 | $0.39 | | Operating Results (Non-GAAP) | $3,881 | $8,443 | | Basic and diluted Operating Results per share (Non-GAAP) | $0.30 | $0.66 | - **Net revenues** for Q1 2020 were **$112.7 million**, a **2.0%** increase from adjusted Q1 2019 revenues (excluding sold clinics), despite **COVID-19** impacts[166](index=166&type=chunk) - **Net patient revenues** decreased by **$6.5 million** (**6.1%**) to **$100.1 million**, primarily due to **$5.7 million** lost from sold clinics and **COVID-19** effects. Total **patient visits** were **971,000**, down from **1,001,510** (including sold clinics) in Q1 2019[166](index=166&type=chunk) - **Industrial injury prevention business revenue** increased **43.1%** to **$9.9 million**, driven by internal growth and a 2019 acquisition, despite an estimated **$126,000** loss due to the **COVID-19 pandemic**[166](index=166&type=chunk) - **Total operating costs** (excluding **closure costs**) increased by **$3.8 million** to **$93.3 million** (**82.7% of net revenues**) in Q1 2020, up from **$89.5 million** (**77.0%**) in Q1 2019. **Closure costs** of **$3.8 million** were incurred in Q1 2020[167](index=167&type=chunk) - **Operating income** for Q1 2020 was **$4.0 million**, a significant decrease from **$15.4 million** in Q1 2019, with **operating income** as a percentage of **net revenue** falling from **13.3%** to **3.6%**[175](index=175&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=34&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company maintains strong **liquidity** with **$89.5 million** cash, supported by a fully drawn **credit facility** and **CARES Act** funds, managing debt and covenants - **Cash and cash equivalents** increased from **$23.5 million** at Dec 31, 2019, to **$89.5 million** at March 31, 2020, and further to approximately **$110.0 million** by the filing date[181](index=181&type=chunk)[182](index=182&type=chunk) - The Company has fully drawn its **$125.0 million revolving credit facility** and received **$12.4 million** from **MAAPP** and **$5.7 million** from the **Relief Fund** under the **CARES Act**[182](index=182&type=chunk) - The Company was in compliance with **credit agreement covenants** as of March 31, 2020, but is discussing amendments with its lender to ensure continued compliance by the end of Q2 2020[185](index=185&type=chunk) - Major **cash uses** in Q1 2020 included **$11.6 million** for acquisitions, **$2.3 million** for **non-controlling interest distributions**, **$2.7 million** for **fixed assets**, and **$1.9 million** for **redeemable non-controlling interest purchases**[186](index=186&type=chunk) - The Company did not purchase any shares of its **common stock** during Q1 2020, with approximately **217,391 shares** remaining available for repurchase under its program[197](index=197&type=chunk) [FACTORS AFFECTING FUTURE RESULTS](index=36&type=section&id=FACTORS%20AFFECTING%20FUTURE%20RESULTS) This section highlights risks from **COVID-19**, **healthcare regulations**, **legal actions**, economic conditions, and operational challenges affecting future results - The company is subject to significant risks from **public health crises** like **COVID-19**, which has an unquantifiable financial magnitude and could cause a global recession[202](index=202&type=chunk)[216](index=216&type=chunk) - Key risks include changes in **Medicare rules** and **reimbursement rates**, **governmental audits**, compliance with **privacy laws (HIPAA)**, **legal actions**, availability of **qualified personnel**, and **competitive pressures**[202](index=202&type=chunk) - The impact on business and **cash reserves** resulting from the retirement or resignation of key partners and the resulting purchase of their **non-controlling interests** is also a significant risk[202](index=202&type=chunk)[219](index=219&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The company's primary **market risk exposure** is **interest rate** changes on its variable-rate **credit agreement**, with a **$1.14 million** annual impact per **1%** change - The primary **market risk exposure** is to changes in **interest rates** on the variable-rate **Amended Credit Agreement**[204](index=204&type=chunk) - A **1%** change in the **interest rate** would result in an **annual interest expense** change of **$1.14 million**, based on **$114.0 million** outstanding at March 31, 2020[204](index=204&type=chunk) - The Company does not maintain any **derivative instruments**, interest rate swap arrangements, hedging contracts, or futures contracts[204](index=204&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) **Disclosure controls and procedures** were effective as of March 31, 2020, with no **material changes** in **internal control over financial reporting** - **Disclosure controls and procedures** were evaluated and deemed effective as of March 31, 2020[205](index=205&type=chunk) - No **material changes** in **internal control over financial reporting** occurred during Q1 2020[206](index=206&type=chunk) - The adoption of **new accounting standards** (**CECL** and **goodwill impairment**) on January 1, 2020, had no significant impact on **internal control over financial reporting**[206](index=206&type=chunk) [PART II—OTHER INFORMATION](index=38&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is defending a **qui tam lawsuit** alleging **Medicare** "upcoding" by a subsidiary, with the **government** declining to intervene - The Company is a party to various **legal actions**, proceedings, claims, and **regulatory audits** in the ordinary course of business[208](index=208&type=chunk) - A **qui tam lawsuit**, U.S. ex rel. Bonnie Elsdon, v. **U.S. Physical Therapy, Inc.**, was filed in August 2019, alleging "upcoding" of **Medicare billings** by The Hale Hand Center, Limited Partnership[210](index=210&type=chunk)[211](index=211&type=chunk) - The **U.S. Government** declined to intervene in the **lawsuit**, and the Company believes the **allegations lack merit** and intends to **vigorously defend the action**[210](index=210&type=chunk)[213](index=213&type=chunk) [Item 1A. RISK FACTORS.](index=39&type=section&id=Item%201A.%20RISK%20FACTORS.) This section updates **risk factors**, emphasizing **COVID-19's** uncertain impact, **Medicare** changes, **regulatory compliance**, and **personnel availability** - The company is subject to risks associated with **public health crises** and **epidemics/pandemics**, such as **COVID-19**, which has caused disruption and volatility in global **capital markets** and an **economic slowdown**[216](index=216&type=chunk) - **COVID-19** is adversely impacting operations through increased patient appointment cancellations and declines in new appointments, leading to significant and unpredictable reductions in **patient visits**[217](index=217&type=chunk) - The extent of **COVID-19's** impact on the business, **financial condition**, and **results of operations** remains uncertain[218](index=218&type=chunk) - The company faces risks related to changes in **Medicare rules**, **governmental audits**, **legal actions**, availability of **qualified personnel**, and the financial impact of purchasing **non-controlling interests** from retiring or resigning partners[202](index=202&type=chunk)[219](index=219&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the **Form 10-Q**, including **certifications**, **incentive plans**, and amendments to **employment agreements** - Exhibits include **Rule 13a-14(a)/15d-14(a) Certifications** of the **Chief Executive Officer**, **Chief Financial Officer**, and **Corporate Controller**, as well as **Certification Pursuant to 18 U.S.C 1350**[221](index=221&type=chunk) - **Long-term incentive plans** and amendments to **employment agreements** for **senior management** are also filed as exhibits[221](index=221&type=chunk) [Signatures](index=41&type=section&id=Signatures) The report was duly signed by the **Chief Financial Officer** and **Corporate Controller** on behalf of **U.S. Physical Therapy, Inc.** on May 21, 2020 - The report was signed by Lawrance W. McAfee, **Chief Financial Officer**, and Jon C. Bates, **Vice President/Corporate Controller**, on May 21, 2020[226](index=226&type=chunk)

TABLE OF CONTENTS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-11151 U.S. PHYSICAL THERAPY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEVADA 76-0364866 (STATE OR ...

U.S. Physical Therapy, Inc. (NYSE:USPH) Q4 2019 Earnings Conference Call February 27, 2020 10:30 AM ET Company Participants Chris Reading - Chief Executive Officer Larry McAfee - Executive Vice President & Chief Financial Officer Jon Bates - Vice President & Controller Graham Reeve - COO, East Glenn McDowell - COO Rick Binstein - General Counsel Conference Call Participants Brian Tanquilut - Jefferies Larry Solow - CJS Securities Matt Larew - William Blair Mitra Ramgopal - Sidoti Operator Ladies and gentlem ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO _____ COMMISSION FILE NUMBER 1-11151 U.S. PHYSICAL THERAPY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEVADA 76-0364866 (STATE OR OTH ...

U.S. Physical Therapy, Inc. (NYSE:USPH) Q3 2019 Results Earnings Conference Call November 7, 2019 10:30 AM ET Company Participants Chris Reading - Chief Executive Officer Larry McAfee - Executive Vice President & Chief Financial Officer Jon Bates - Vice President & Controller Graham Reeve - COO, East Conference Call Participants Brian Tanquilut - Jefferies Larry Solow - CJS Securities Matt Larew - William Blair Mitra Ramgopal - Sidoti Operator Good morning. My name is Sia and I will be the conference operat ...

U.S. Physical Therapy, Inc. (NYSE:USPH) Q2 2019 Earnings Conference Call August 8, 2019 10:30 AM ET Company Participants Chris Reading - Chief Executive Officer Larry McAfee - Executive Vice President & Chief Financial Officer Jon Bates - Vice President & Controller Conference Call Participants Brian Tanquilut - Jefferies Larry Solow - CJS Securities Matt Larew - William Blair Mitra Ramgopal - Sidoti Operator Good morning, ladies and gentlemen, and welcome to the U.S. Physical Therapy Second Quarter 2019 Ea ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO _____ COMMISSION FILE NUMBER 1-11151 | Large accelerated filer | ☐ | Accelerated filer | ☒ | | --- | --- | --- | --- | | | | Smaller reporting | | | Non-acc ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO _____ COMMISSION FILE NUMBER 1-11151 U.S. PHYSICAL THERAPY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (STATE OR OTHER JURISDICTION OF INC ...