U.S. Physical Therapy(USPH) - 2020 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION - UNAUDITED Item 1. Financial Statements. This section presents the unaudited consolidated financial statements and accompanying notes for the period Consolidated Balance Sheets 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 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 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 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 These notes detail accounting policies, acquisitions, revenue, and the impact of the COVID-19 pandemic 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES 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] - As of June 30, 2020, the Company operated 554 physical therapy clinics in 39 states and managed 29 third-party physical therapy facilities[28] - The COVID-19 pandemic has adversely impacted operations, leading to significant reductions and cancellations of patient visits in physical therapy[40][44][45] - 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] 2. ACQUISITIONS OF BUSINESSES 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] - 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][84] 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 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] - CMS provided a temporary waiver for physical and occupational therapists to perform and be reimbursed for telehealth visits, effective March 1, 2020[99] - 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] 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 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] - 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] 5. EARNINGS PER SHARE 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 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] - The redemption price is based on a specified multiple of the partnership's trailing twelve months of earnings[119] 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 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] - Despite the pandemic's impact, the Company determined that goodwill and tradenames were not impaired as of June 30, 2020[55] 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 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 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] - The Company deferred depositing $2.2 million of employer's share of Social Security taxes under the CARES Act[51][125] 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 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] - The Amended Credit Agreement's maturity date is November 30, 2021, and it allows for acquisitions, stock repurchases, and dividend payments[128][216] 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 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] 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 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 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] - The Company did not purchase any shares of its common stock during the six months ended June 30, 2020[144] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, highlighting the impact of COVID-19 EXECUTIVE SUMMARY 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][150] - 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] - 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] - The industrial injury prevention business was less affected, operating at approximately 90% of normal[149] RESULTS OF OPERATIONS 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 Q2 2020 net revenues decreased significantly, leading to a decline in GAAP net income 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] - Average net patient revenue per visit remained stable at $106.97 in Q2 2020 compared to $107.16 in Q2 2019[165] 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 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] Operating Costs—Salaries and Related Costs 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] Operating Costs—Rent, Supplies, Contract Labor and Other 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] Operating Costs—Provision for Doubtful Accounts 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] - Days' sales outstanding increased to 36 days at June 30, 2020, from 33 days at December 31, 2019[174] Gross Profit 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] - 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] Corporate Office Costs 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] - As a percentage of net revenues, corporate office costs increased to 10.8% in Q2 2020 from 9.1% in Q2 2019[177] Operating Income 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] - Operating income as a percentage of net revenue decreased from 15.7% in Q2 2019 to 12.2% in Q2 2020[178] Relief Funds 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] Gain on Sale of Partnership Interest and Clinics 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] Interest Expense 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] Provision for Income Taxes 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] - The effective tax rate was 27.5% in Q2 2020, compared to 26.7% in Q2 2019[182][183] Net Income Attributable to Non-controlling Interests 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] - 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] 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 For H1 2020, the company experienced a substantial decline in GAAP net income 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] - Average net patient revenue per visit decreased slightly to $104.70 in H1 2020 from $106.83 in H1 2019[197] 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 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] Operating Costs—Salaries and Related Costs 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] Operating Costs—Rent, Supplies, Contract Labor and Other 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] Operating Costs—Provision for Doubtful Accounts 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] - Days' sales outstanding increased to 36 days at June 30, 2020, from 33 days at December 31, 2019[201] Gross Profit 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] - 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] Corporate Office Costs 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] - As a percentage of net revenues, corporate office costs increased to 10.5% in H1 2020 from 9.4% in H1 2019[204] Operating Income 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] - Operating income as a percentage of net revenue decreased from 14.6% in H1 2019 to 7.3% in H1 2020[205] Relief Funds 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] Gain on Sale of Partnership Interest and Clinics 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] Interest Expense 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] Provision for Income Taxes 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] - The effective tax rate was 27.1% in H1 2020, compared to 25.8% in H1 2019[209][210] Net Income Attributable to Non-controlling Interests 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] - 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] 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 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][214] - Operating activities provided $48.4 million in cash, and $12.9 million was received from the Medicare Accelerated and Advance Payment Program (MAAPP)[214] - 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] - 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][216] FACTORS AFFECTING FUTURE RESULTS 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] - Other factors include general economic conditions, availability of qualified therapists, and the competitive environment[233] Forward-Looking Statements 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] - The company is under no obligation to update any forward-looking statement[231] Item 3. Quantitative and Qualitative Disclosure About Market Risk 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] - A 1% change in the interest rate would result in an annual interest expense change of $330,000[232] Item 4. Controls and Procedures 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] - Internal controls were added or modified in Q2 2020 to address COVID-19 risks and changes in segment reporting[235] PART II—OTHER INFORMATION Item 1. Legal Proceedings 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][238] - A qui tam lawsuit filed in August 2019 alleges 'upcoding' of Medicare billings by a majority-owned subsidiary[239][240] - The company believes the allegations in the Florida litigation have no merit and intends to vigorously defend the action[242] Item 1A. Risk Factors 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] - COVID-19 has led to significant and unpredictable reductions and cancellations of physical therapy patient appointments[246][247] - The exercise of 'put' rights by partners to sell their redeemable non-controlling interests could adversely impact the company's capital structure[248] Item 6. Exhibits 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] - XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents are also filed as exhibits[250] 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]