U.S. Physical Therapy(USPH) - 2023 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements The financial statements for the three months ended March 31, 2023, show a 12.8% increase in net revenue to $148.5 million compared to the prior year period. However, net income attributable to shareholders decreased to $7.4 million from $8.8 million, primarily due to higher operating costs and a significant increase in interest expense. The balance sheet reflects growth in total assets to $868.1 million, driven by acquisitions which increased goodwill. Cash flow from operations remained stable at $11.3 million Consolidated Balance Sheets As of March 31, 2023, total assets increased to $868.1 million from $858.2 million at year-end 2022, primarily due to a $7.2 million increase in goodwill from acquisitions. Total liabilities rose to $384.4 million from $373.6 million, mainly driven by a $7.0 million increase in the revolving line of credit. Total USPH shareholders' equity saw a modest increase to $318.1 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $117,794 | $111,266 | | Goodwill | $501,347 | $494,101 | | Total Assets | $868,127 | $858,154 | | Total Current Liabilities | $90,833 | $85,489 | | Revolving line of credit | $38,000 | $31,000 | | Total Liabilities | $384,368 | $373,586 | | Total USPH shareholders' equity | $318,058 | $315,793 | Consolidated Statements of Net Income For the three months ended March 31, 2023, net revenue increased 12.8% year-over-year to $148.5 million. Despite a higher gross profit of $30.9 million, net income attributable to USPH shareholders declined to $7.4 million from $8.8 million in the prior-year period. This was primarily due to a significant increase in interest expense from $0.5 million to $2.6 million. Consequently, diluted earnings per share fell to $0.58 from $0.67 Q1 2023 vs Q1 2022 Income Statement (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Revenue | $148,509 | $131,704 | | Gross Profit | $30,857 | $26,588 | | Operating Income | $16,998 | $15,032 | | Interest Expense | ($2,560) | ($540) | | Net Income Attributable to USPH Shareholders | $7,410 | $8,799 | | Diluted EPS | $0.58 | $0.67 | Consolidated Statements of Cash Flows For the first quarter of 2023, net cash provided by operating activities was $11.3 million, nearly flat compared to $11.6 million in the prior year. Net cash used in investing activities was $12.7 million, primarily for the purchase of businesses ($5.8 million) and redeemable non-controlling interests ($5.2 million). Financing activities provided a net $2.3 million, resulting in a total net increase in cash of $1.0 million for the period Q1 2023 vs Q1 2022 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $11,349 | $11,649 | | Net Cash used in Investing Activities | ($12,681) | ($15,944) | | Net Cash from (used in) Financing Activities | $2,343 | ($43) | | Net Increase (Decrease) in Cash | $1,011 | ($4,338) | Notes to Consolidated Financial Statements The notes detail the company's accounting policies and operational structure, which includes two segments: physical therapy operations and industrial injury prevention services. As of March 31, 2023, the company operated 647 clinics. A key event was the February 2023 acquisition of an 80% interest in a single-clinic practice for approximately $6.2 million. The notes also cover revenue recognition, significant goodwill balances, debt facilities, and segment performance, highlighting the ongoing impact of Medicare reimbursement changes on revenue - The company operates through two segments: physical therapy operations and industrial injury prevention services. As of March 31, 2023, it operated 647 clinics and managed 35 third-party facilities[23][25] - In February 2023, the company acquired an 80% interest in a one-clinic physical therapy practice for approximately $6.2 million[64] - Net patient revenue from Medicare was approximately $41.9 million for Q1 2023, up from $35.6 million in Q1 2022[103] Segment Revenue and Gross Profit (Q1 2023, in thousands) | Segment | Net Operating Revenue | Gross Profit | | :--- | :--- | :--- | | Physical therapy operations | $129,159 | $27,089 | | Industrial injury prevention services | $19,350 | $3,768 | | Total Company | $148,509 | $30,857 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 12.8% year-over-year revenue growth in Q1 2023 to acquisitions and a 15.4% increase in patient visits. While operating income grew 13.1% to $17.0 million, net income attributable to shareholders declined from $8.8 million to $7.4 million, primarily due to a $2.0 million increase in interest expense from higher rates and increased borrowings. The company maintains sufficient liquidity with $32.6 million in cash and $137.0 million available under its revolving credit facility. Non-GAAP Adjusted EBITDA rose to $18.5 million from $17.5 million Q1 2023 vs Q1 2022 Key Metrics | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Net Revenue | $148.5M | $131.7M | | Operating Income | $17.0M | $15.0M | | Net Income (to shareholders) | $7.4M | $8.8M | | Diluted EPS | $0.58 | $0.67 | | Adjusted EBITDA (Non-GAAP) | $18.5M | $17.5M | - Revenue from physical therapy operations increased 15.4% to $127.4 million, driven by a 15.4% increase in patient visits. Net patient revenue per visit was stable at $103.12[197] - Interest expense increased significantly to $2.6 million from $0.5 million year-over-year, primarily due to a higher effective interest rate (5.5%) and increased borrowings to fund acquisitions[213] - As of March 31, 2023, the company had $32.6 million in cash and $137.0 million of availability on its Revolving Facility, indicating sufficient liquidity[222][235] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company's primary market risk exposure is to interest rate fluctuations on its variable-rate debt, specifically the $38.0 million drawn on its Revolving Facility. To mitigate this risk on its term loan, the company utilizes an interest rate swap. A hypothetical 1% change in interest rates would result in an approximate $0.4 million annual change in interest expense on the outstanding revolving credit balance - The main market risk is from fluctuating interest rates on variable-rate debt, particularly the $38.0 million outstanding on the Revolving Facility[251] - A 1% change in the interest rate would impact annual interest expense by approximately $0.4 million[251] - The company uses an interest rate swap to manage interest rate risk associated with its $147.2 million term note[251] Item 4. Controls and Procedures Based on an evaluation conducted by management, including the CEO and CFO, the company concluded that its disclosure controls and procedures were effective as of March 31, 2023. There were no material changes in the company's internal control over financial reporting during the first quarter - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures are effective[253] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[254] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal actions, proceedings, and governmental audits in the ordinary course of business. The ultimate outcome of these matters cannot be predicted and could potentially result in sanctions, damages, or other penalties - The company is party to various legal actions and regulatory investigations in the ordinary course of business, with unpredictable outcomes[255] Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K, with the exception of a new risk factor. This new risk addresses the potential adverse impact of banking volatility on the company's available cash, particularly funds exceeding FDIC insurance limits, and its ability to obtain future financing - A new risk factor has been added concerning banking volatility and its potential to impact the company's access to cash held in operating accounts and its ability to secure future debt or equity financing[257] - Other than the new banking volatility risk, there have been no material changes to the risk factors previously disclosed in the 2022 Form 10-K[256] Item 6. Exhibits This section lists all exhibits filed with the quarterly report. Key exhibits include certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act, and interactive data files (XBRL) - The report includes required CEO and CFO certifications (Exhibits 31.1, 31.2, 32) and XBRL data files[259]