U.S. Physical Therapy, Inc. (“USPH” or the “Company”) (NYSE: USPH), a national operator of outpatient physical therapy clinics and provider of industrial injury prevention services, today reported results for the three and six months ended June 30, 2023.
SECOND QUARTER FINANCIAL HIGHLIGHTS
- Adjusted EBITDA, a non-Generally Accepted Accounting Principles (“GAAP”) measure, was $21.7 million for the three months ended June 30, 2023 (“2023 Second Quarter”), an increase of $0.4 million from $21.3 million for the three months ended June 30, 2022 (“2022 Second Quarter”). See pages 14 and 15 of this release for the definition and reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure.
- Net income attributable to USPH’s shareholders, a GAAP measure, was $10.9 million for the 2023 Second Quarter compared to $11.2 million for the 2022 Second Quarter. The decrease in net income was primarily driven by the $1.6 million increase in interest expense as a result of higher effective interest rates and increased borrowings to fund acquisitions. In accordance with GAAP, the revaluation of non-controlling interest, net of taxes, is not included in net income but is charged directly to retained earnings; however, this change is included in the computation of earnings per share. Earnings per share, in accordance with GAAP, was $0.64 for the 2023 Second Quarter as compared to $0.87 for the 2022 Second Quarter.
- Operating Results per share, a non-GAAP measure, was $0.76 per share for the 2023 Second Quarter as compared to $0.90 for the 2022 Second Quarter. The decrease in our Operating Results was primarily driven by the increase in interest expense previously described. See pages 14 and 15 of this release for the definition and reconciliation of Operating Results per share to the most directly comparable GAAP measure.
- Net patient revenue from physical therapy operations increased 9.4% to $129.3 million for the 2023 Second Quarter from $118.2 million for the 2022 Second Quarter due to record-high average visits per clinic per day and increased volume from the 48 net new clinics added since the comparable prior year period, partially offset by lower net rate per patient visit.
- Average visits per clinic per day was an all-time high of 30.4 in the 2023 Second Quarter compared to 29.5 in the 2022 Second Quarter. Total patient visits increased 10.6% in the 2023 Second Quarter as compared to the 2022 Second Quarter, with patient visits at mature clinics up 2.6%.
- Net rate per patient visit was $102.03 in the 2023 Second Quarter compared to $103.18 in the 2022 Second Quarter due to a decrease in the net rate for Medicare visits, partially offset by rate increases for commercial and workers compensation visits. The decrease in the Medicare net rate is primarily due to the 2% Medicare rate reduction beginning in January 2023 and discontinuation of the sequestration relief on Medicare visits effective in July 2022.
- Physical therapy total operating costs per patient visit were $80.61 in the 2023 Second Quarter, a decrease of 0.6% from $81.09 in the 2022 Second Quarter. Physical therapy salaries and related costs decreased 1.2% to $57.59 per visit in the 2023 Second Quarter from $58.29 in the 2022 Second Quarter. On a sequential basis, both salaries and related costs and total operating costs decreased for the third consecutive quarter after peaking in the third quarter of 2022. Salaries and related costs per visit have decreased from $60.99 in the third quarter of 2022 to $57.59 in the 2023 Second Quarter, while total operating costs per visit have decreased from $85.14 in the third quarter of 2022 to $80.61 in the 2023 Second Quarter.
- The Company’s physical therapy operating margin was 21.5% in the 2023 Second Quarter, increasing for the third consecutive quarter -- up from 18.7% in the third quarter of 2022 to 20.0% in the fourth quarter of 2022, to 21.0% in the first quarter of 2023 and to 21.5% in the 2023 Second Quarter.
- Industrial injury prevention (“IIP”) services revenue was $19.2 million for the 2023 Second Quarter compared to $19.4 million in the 2022 Second Quarter. IIP services operating margin was 20.7% in the 2023 Second Quarter as compared to 21.2% in the 2022 Second Quarter.
- During the 2023 Second Quarter, the Company added 13 clinics and closed four clinics, bringing its total clinic count to 656 as of June 30, 2023 as compared to 608 clinics as of June 30, 2022. The clinic additions included an acquisition by the Company and one of its local partners of a 75% equity interest in a four-clinic practice that generates approximately $2.6 million in annual revenues and 27,000 annual visits at a purchase price of $3.1 million.
- On May 30, 2023, the Company completed a secondary offering of 1,916,667 shares of its common stock. Upon completion of the offering, the Company received net proceeds of approximately $163.7 million, after deducting fees associated with the transaction. A portion of the net proceeds was used to repay the $35.0 million then outstanding under the Company’s revolving credit facility while the remainder is expected to be used primarily for acquisitions. While such cash is awaiting deployment, it is currently invested in a high-yield savings account which generated interest income of approximately $0.5 million in June 2023.
- On July 31, 2023, the Company acquired a 70% equity interest in a five-clinic practice for a purchase price of $2.1 million, with the current practice owners retaining a 30% equity interest. The business currently generates approximately $2.4 million in annual revenues.
- On August 7, 2023, the Company’s Board of Directors declared a quarterly dividend of $0.43 per share payable on September 8, 2023, to shareholders of record on August 18, 2023.
- Management reaffirms that it currently expects the Company’s Adjusted EBITDA for 2023 to be in the range of $75.0 million to $80.0 million. The earnings guidance represents projected Adjusted EBITDA from existing operations and excludes future acquisitions. See “Management Reaffirms 2023 Earnings Guidance” below for more information.
MANAGEMENT’S COMMENTS
Chris Reading, Chief Executive Officer, said, “Considering the challenges we have had to overcome since the middle of 2022 with significant inflation and interest rate escalation, our team has done an exceptional job. We completed a very successful secondary offering, the first in our Company’s history, positioning us for future growth; we decreased our cost per visit each quarter since the third quarter of last year; we are running at record clinic volumes, well ahead of anything we have ever done before; and we are making progress with respect to contract renegotiations which is helping to offset some of the misplaced Medicare cuts that have been handed down from CMS. The combination of record volumes this quarter, and an improving but still challenging hiring environment, has created a slightly negative impact on our net rate compared to where we expected to be at this point. As we have many times in the past, our team is making the necessary adjustments to address this opportunity as we work for a strong finish to this year.”
2023 SECOND QUARTER VERSUS 2022 SECOND QUARTER
Total net revenue for 2023 Second Quarter was $151.5 million, an increase of 7.7%, compared to $140.7 million for the 2022 Second Quarter. The following table provides a breakdown of total net revenue.
For the Three Months Ended June 30, | Variance | ||||||||||||
2023 | 2022 | $ | % | ||||||||||
(In thousands, except percentages) | |||||||||||||
Revenue related to: | |||||||||||||
Mature Clinics (1) | $ | 115,053 | $ | 113,538 | $ | 1,515 | 1.3 | % | |||||
2023 clinic additions | 1,910 | - | 1,910 | * | (2) | ||||||||
2022 clinic additions | 12,271 | 3,201 | 9,070 | * | (2) | ||||||||
Clinics sold or closed (3) | 46 | 1,457 | (1,411 | ) | * | (2) | |||||||
Net patient revenue from physical therapy operations | 129,280 | 118,196 | 11,084 | 9.4 | % | ||||||||
Other revenue | 792 | 898 | (106 | ) | (11.8 | )% | |||||||
Physical therapy operations | 130,072 | 119,094 | 10,978 | 9.2 | % | ||||||||
Industrial injury prevention services | 19,246 | 19,437 | (191 | ) | (1.0 | )% | |||||||
Management contracts | 2,167 | 2,125 | 42 | 2.0 | % | ||||||||
$ | 151,485 | $ | 140,656 | $ | 10,829 | 7.7 | % | ||||||
| ____________________ | |
(1) | See Glossary of Terms – Revenue Metrics for the definition. |
(2) | Not meaningful. |
(3) | Revenue from closed clinics includes revenue from the five and 16 clinics closed during the six months ended June 30, 2023 and the year ended December 31, 2022, respectively. |
- Revenue from physical therapy operations increased $11.0 million, or 9.2%, to $130.1 million for the 2023 Second Quarter from $119.1 million for the 2022 Second Quarter primarily due to record-high average visits per clinic per day (30.4 for the 2023 Second Quarter versus 29.5 for the 2022 Second Quarter) and an increase in volume from the 48 net new clinics added since the comparable prior year period, partially offset by a decrease in net rate per patient visit. The number of patient visits increased 10.6% to 1,267,140 for the 2023 Second Quarter from 1,145,554 in the 2022 Second Quarter. Patient visits at our mature clinics increased 2.6% in the 2023 Second Quarter as compared to the 2022 Second Quarter. Net rate per patient visit was $102.03 in the 2023 Second Quarter as compared to $103.18 in the 2022 Second Quarter due to a decrease in the net rate for Medicare visits, partially offset by rate increases for commercial and workers compensation visits. The decrease in the Medicare net rate is primarily due to the 2% Medicare rate reduction beginning in January 2023 and discontinuation of the sequestration relief on Medicare visits effective in July 2022.
- IIP services revenue decreased slightly to $19.2 million for the 2023 Second Quarter as compared to $19.4 million for the 2022 Second Quarter.
Operating costs were $119.3 million for the 2023 Second Quarter, or 78.7% of net revenue, compared to $109.8 million, or 78.1% of net revenue, for the 2022 Second Quarter. Salaries and related costs were 57.3% of net revenue for the 2023 Second Quarter versus 56.8% for the 2022 Second Quarter. Rent, supplies, contract labor and other costs as a percentage of total revenue were 20.4% for the 2023 Second Quarter versus 20.2% for the 2022 Second Quarter. The provision for credit losses as a percentage of total revenue was 1.0% for 2023 Second Quarter and 1.1% for 2022 Second Quarter. The following table provides a breakdown of operating costs.
For the Three Months Ended June 30, | Variance | ||||||||||||
2023 | 2022 | $ | % | ||||||||||
Operating costs related to: | (In thousands, except percentages) | ||||||||||||
Mature Clinics (1) | $ | 90,965 | $ | 89,364 | $ | 1,601 | 1.8 | % | |||||
2023 clinic additions | 1,832 | - | 1,832 | * | (2) | ||||||||
2022 clinic additions | 9,192 | 2,713 | 6,479 | * | (2) | ||||||||
Clinics sold or closed (3) | 157 | 821 | (664 | ) | * | (2) | |||||||
Physical therapy operations | 102,146 | 92,898 | 9,248 | 10.0 | % | ||||||||
Industrial injury prevention services | 15,261 | 15,315 | (54 | ) | (0.4 | )% | |||||||
Management contracts | 1,871 | 1,622 | 249 | 15.4 | % | ||||||||
$ | 119,278 | $ | 109,835 | $ | 9,443 | 8.6 | % | ||||||
| ___________________ | |
(1) | See Glossary of Terms – Revenue Metrics for the definition. |
(2) | Not meaningful. |
(3) | Operating costs from closed clinics include costs from the five and 16 clinics closed or sold during the six months ended June 30, 2023 and the year ended December 31, 2022, respectively. |
- Operating costs from physical therapy operations increased $9.2 million, or 10.0%, to $102.1 million in the 2023 Second Quarter from $92.9 million in the 2022 Second Quarter primarily driven by costs associated with the 48 net new clinics since the comparable prior year period as well as increased patient visits at mature clinics.
- Operating costs from IIP services were down slightly versus the comparable prior year period.
Gross profit for the 2023 Second Quarter increased $1.4 million, or 4.5%, to $32.2 million from $30.8 million for the 2022 Second Quarter. Gross profit margin slightly decreased to 21.3% in the 2023 Second Quarter from 21.9% in the 2022 Second Quarter. The following table provides a detailed breakdown of gross profit and related gross profit margins.
For the Three Months Ended June 30, | ||||||||||||||||||
2023 | 2022 | Variance | ||||||||||||||||
$ | Margin % | $ | Margin % | $ | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||||
Physical therapy operations | $ | 27,926 | 21.5 | % | $ | 26,196 | 22.0 | % | $ | 1,730 | 6.6 | % | ||||||
Industrial injury prevention services | 3,985 | 20.7 | % | 4,122 | 21.2 | % | (137 | ) | (3.3 | )% | ||||||||
Management contracts | 296 | 13.7 | % | 503 | 23.7 | % | (207 | ) | (41.2 | )% | ||||||||
Gross profit | $ | 32,207 | 21.3 | % | $ | 30,821 | 21.9 | % | $ | 1,386 | 4.5 | % | ||||||
Corporate office costs were $12.1 million, or 8.0% of net revenue, for the 2023 Second Quarter compared to $10.7 million, or 7.6% of net revenue, for the 2022 Second Quarter. The increase was primarily due to higher salaries related to merit increases and inflationary impacts, staff additions to support a larger number of clinics and a higher accrual for bonus expense.
Operating income was flat at $20.1 million for both the 2023 Second Quarter and 2022 Second Quarter.
Total other (expense) income was ($1.0) million in the 2023 Second Quarter compared to ($0.6) million in the 2022 Second Quarter.
- Interest expense, net of $0.8 million savings from the interest rate swap arrangement discussed below, was $2.6 million for the 2023 Second Quarter compared to $1.0 million in the 2022 Second Quarter. The increase in interest expense was primarily due to a higher effective interest rate and increased borrowings to fund acquisitions. The effective net interest rate on the Company’s credit facilities was 6.0% for the 2023 Second Quarter.
- The Company revalued the contingent earn-out consideration related to an acquisition and recognized $0.7 million as income (a reduction in the related liability).
- The revaluation of a put-right liability resulted in $0.1 million of expense (an increase in the related liability) for the 2023 Second Quarter. The put-right relates to the potential future purchase of a company that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. The owners have the right to put this transaction to the Company in approximately five years from November 2021.
- Equity in earnings of the unconsolidated affiliate was $0.3 million in both the 2023 Second Quarter and 2022 Second Quarter.
- Other and interest income for the 2023 Second Quarter included $0.5 million of interest income earned in June 2023 from investing the net proceeds from the secondary offering of the Company’s common stock in a high-yield savings account while the prior year comparable period mostly consisted of $0.6 million of gain from the sale of certain clinics.
The provision for income tax was $4.2 million for both the 2023 Second Quarter and 2022 Second Quarter. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 27.9% for the 2023 Second Quarter and 27.5% for the 2022 Second Quarter. A reconciliation of our income tax expense and effective income tax rate is as follows:
Three Months Ended June 30, | |||||||
2023 | 2022 | ||||||
(In thousands, except percentages) | |||||||
Income before taxes | $ | 19,095 | $ | 19,495 | |||
Less: net loss (income) attributable to non-controlling interest: | |||||||
Redeemable non-controlling interest - temporary equity | (2,920 | ) | (2,626 | ) | |||
Non-controlling interest - permanent equity | (1,025 | ) | (1,435 | ) | |||
$ | (3,945 | ) | $ | (4,061 | ) | ||
Income before taxes less net income attributable to non-controlling interest | $ | 15,150 | $ | 15,434 | |||
Provision for income taxes | $ | 4,231 | $ | 4,239 | |||
Percentage | 27.9 | % | 27.5 | % | |||
Net income attributable to non-controlling interest was $3.9 million in the 2023 Second Quarter compared to $4.1 million in the 2022 Second Quarter.
Adjusted EBITDA, a non-GAAP measure, was $21.7 million for the 2023 Second Quarter, an increase of $0.4 million as compared to $21.3 million in 2022 Second Quarter.
Operating Results, a non-GAAP measure, was $10.4 million, or $0.76 per share, in 2023 Second Quarter as compared to $11.7 million, or $0.90 per share, in 2022 Second Quarter.
SIX MONTHS ENDED JUNE 30, 2023 VERSUS SIX MONTHS ENDED JUNE 30, 2022
Total net revenue for six months ended June 30, 2023 (“2023 Six Months”) was $300.0 million, an increase of 10.1%, compared to $272.4 million for the six months ended June 30, 2022 (“2022 Six Months”). The table below provides a breakdown of total net revenue.
Six Months Ended June 30, | Variance | ||||||||||||
2023 | 2022 | $ | % | ||||||||||
Revenue related to: | (In thousands, except percentages) | ||||||||||||
Mature Clinics (1) | $ | 229,072 | $ | 221,187 | $ | 7,885 | |||||||
