U.S. Physical Therapy Inc. Reports Operating Results (10-Q)

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May 12, 2009
U.S. Physical Therapy Inc. (USPH, Financial) filed Quarterly Report for the period ended 2009-03-31.

U.S. Physical Therapy Inc. operates outpatient physical and occupational therapy clinics which provide post-operative care and treatment for a variety of orthopedic-related disorders and sports-related injuries. U.S. Physical Therapy Inc. has a market cap of $159.2 million; its shares were traded at around $13.23 with a P/E ratio of 15.2 and P/S ratio of 0.9. U.S. Physical Therapy Inc. had an annual average earning growth of 4.5% over the past 5 years.

Highlight of Business Operations:

Salaries and related costs increased to $25.4 million for the 2009 First Quarter from $24.1 million for the 2008 First Quarter, an increase of $1.3 million, or 5.4%. The $1.3 million increase included costs of $2.0 million incurred at the New Clinics offset by a $0.7 million reduction in costs at the Mature Clinics. Salaries and related costs as a percentage of net revenues were 52.7% for the 2009 First Quarter and 53.3% for the 2008 First Quarter.

Rent, clinic supplies, contract labor and other increased to $10.2 million for the 2009 First Quarter from $9.6 million for the 2008 First Quarter, an increase of $0.6 million, or 6.5%. The $0.6 million increase included $1.0 million incurred at the New Clinics offset by a $0.4 million reduction at the Mature Clinics. Rent, clinic supplies, contract labor and other as a percentage of net revenues was 21.2% for both the 2009 First Quarter and the 2008 First Quarter.

The increase in cash and cash equivalents of $1.0 million from December 31, 2008 to March 31, 2009 was due primarily to $6.4 million provided by operations and $1.2 million net proceeds from our revolving credit facility. Major uses of cash included: purchase of fixed assets ($1.6 million), distributions to noncontrolling interest partners ($2.4 million) and purchases of our common stock ($2.6 million).

Effective August 27, 2007, we entered into the Credit Agreement with a commitment for a $30.0 million revolving credit facility which was increased to $50.0 million effective June 4, 2008. Effective March 18, 2009, we amended the Credit Agreement to permit the Company to purchase up to $15,000,000 in its common stock subject to compliance with certain covenants as detailed in the amendment including the requirement that after giving effect to any stock purchase, our consolidated leverage ratio (as defined in the Credit Agreement) be less than 1.0 to 1.0 and that any stock repurchased be retired within seven days of purchase. In addition, the Credit Agreement was amended to adjust the pricing grid which is based on our consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.5% to 2.5%. The Credit Agreement has a four year term maturing August 31, 2011, is unsecured and includes standard financial covenants. Proceeds from the Credit Agreement may be used to finance acquisitions, working capital, purchase our common stock, capital expenditures and for other corporate purposes. There were fees under the Credit Agreement including a closing fee of .25% and an unused commitment fee ranging from .1% to .35% depending on our consolidated leverage ratio and the amount of funds outstanding under the agreement. On March 31, 2009, the outstanding balance on the revolving credit facility was $12.6 million leaving $37.4 million in availability and we were in compliance with all of the covenants thereunder.

In connection with the Mid-Atlantic Acquisition in 2008, we incurred notes payable in the aggregate totaling $950,625 payable in equal annual installments totaling $475,312 beginning June 11, 2009, plus any accrued and unpaid interest. Interest accrues at a fixed rate of 5.00% per annum. The final principal payment and any accrued and unpaid interest then outstanding is due and payable on June 11, 2010. The purchase agreement also provides for possible contingent consideration of up to $1,500,000 based on the achievement of a designated level of operating results within a three-year period following the acquisition. In addition, we assumed leases with remaining terms ranging from one month to five years for the operating facilities.

In conjunction with the acquisition of an eight-clinic practice in Arizona in November 2006, we entered into a note payable in the amount of $877,500 payable in equal quarterly principal installments of $73,125, beginning March 1, 2007, plus any accrued and unpaid interest. Interest accrues at a fixed rate of 7.5% per annum. The remaining principal and any accrued and unpaid interest then outstanding is due and payable on the third anniversary of the note, November 17, 2009. The purchase agreement also provides for possible contingent consideration of up to $1,500,000 based on the achievement of a designated level of operating results within a three-year period following the acquisition. In addition, we assumed leases with remaining terms ranging from one to five years for six of the eight operating facilities. With respect to the two remaining leased facilities, one is being leased on a month-to-month basis and the other was renewed for three years effective February 1, 2007. In December 2007, we paid $557,000 additional consideration related to this acquisition upon achievement of the predefined operating results for the first year, and such amount was added to goodwill.

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