U.S. Physical Therapy Reports Record Results for 2018

Management Provides 2019 Earnings Guidance and Raises Dividend

HOUSTON–(BUSINESS WIRE)–U.S. Physical Therapy, Inc. (“USPH” or the “Company”) (NYSE: USPH), a
national operator of outpatient physical therapy clinics, today reported
results for the fourth quarter and year ended December 31, 2018.

For the fourth quarter ended December 31, 2018, USPH’s Operating Results
increased 45.5% to $9.0 million, or $0.71 per diluted share, as compared
to $6.2 million, or $0.49 per diluted share, in the fourth quarter of
2017. For the year ended December 31, 2018, USPH’s Operating Results
increased 28.1% to $33.5 million, or $2.65 per diluted share, as
compared to $26.2 million, or $2.08 per diluted share, for the 2017
year. Operating Results, a non-generally accepted accounting principles
(“non-GAAP”) measure, for the 2018 fourth quarter and for the 2018 year,
equals net income attributable to USPH shareholders less a gain
resulting from a liability no longer deemed payable, net of taxes. For
the 2017 fourth quarter and 2017 year, Operating Results is defined as
net income attributable to USPH shareholders prior to the benefit due to
the revaluation of deferred tax assets and liabilities due to the 2017
Tax Cuts and Jobs Act (“TCJA”), and prior to charges for interest
expense – mandatorily redeemable non-controlling interests – change in
redemption value and charges for costs related to restatement of
financials – legal and accounting, both charges net of tax.

For the fourth quarter ended December 31, 2018, USPH’s net income
attributable to its shareholders, in accordance with GAAP, was $10.4
million, or $0.43 per share, as compared to $7.3 million, or $0.57 per
share for the fourth quarter of 2017. For the year ended December 31,
2018, USPH’s net income attributable to its shareholders, in accordance
with GAAP, was $34.9 million, $1.31 per share, as compared to $22.3
million, or $1.76 per share, for the 2017 year. For both periods of
2018, in accordance with current accounting guidance, the revaluation of
redeemable non-controlling interest, net of tax, is not included in net
income but rather charged directly to retained earnings, but is included
in the earnings per basic and diluted share calculation. See the
schedule on page 14 for a computation of diluted earnings per share and
a reconciliation of net income attributable to USPH shareholders to
Operating Results.

Fourth Quarter 2018 Compared to Fourth Quarter
2017

  • Net revenues increased $8.1 million, or 7.5%, from $109.2 million in
    the fourth quarter of 2017, to $117.3 million in the fourth quarter of
    2018, primarily due to an increase in net patient revenues from
    physical therapy operations from both internal growth and
    acquisitions, and an increase in the revenue from the industrial
    injury prevention business from a combination of internal growth plus
    a recent acquisition. Our first company in the industrial injury
    prevention business was acquired in March 2017 and, on April 30, 2018,
    the Company made a second acquisition with the two businesses then
    combined.
  • Net patient revenues from physical therapy operations increased
    approximately $6.2 million, or 6.1%, to $107.8 million in the fourth
    quarter of 2018 from $101.6 million in the fourth quarter of 2017 due
    to an increase in total patient visits of 4.9% from 975,400 to
    1,023,000 and an increase in the average net patient revenue per visit
    from $104.21 to $105.38. Of the $6.2 million increase in net patient
    revenues, $3.6 million related to an increase in business of clinics
    opened or acquired prior to 2018 (“Mature Clinics”) and $2.6 million
    related to clinics opened or acquired in 2018 (“New Clinics”). Revenue
    from physical therapy management contracts was $2.0 million for the
    fourth quarter of 2018 and $2.2 million for the comparable 2017 period.
  • The revenue from the industrial injury prevention business increased
    51.6% to $7.1 million in the fourth quarter of 2018 compared to $4.7
    million in the fourth quarter 2017 due to internal growth plus the
    acquisition in April of 2018. Other miscellaneous revenue was $0.5
    million in the fourth quarter of 2018 and $0.7 million in the fourth
    quarter of 2017.
  • Total operating costs were $92.1 million, or 78.5% of net revenues, in
    the fourth quarter of 2018 as compared to $85.1 million, or 77.9% of
    net revenues, in the fourth quarter of 2017. The $7.0 million increase
    was attributable to $2.7 million in operating costs related to New
    Clinics, an increase of $2.7 million related to Mature Clinics, an
    increase of $2.2 million in the industrial injury prevention business
    primarily due to the recent acquisition offset by a reduction in
    closure costs of $0.6 million. Total salaries and related costs,
    including those from New Clinics and the industrial injury prevention
    business, were 57.8% of net revenues in the recent quarter versus
    56.9% in the fourth quarter of 2017. Rent, supplies, contract labor
    and other costs as a percentage of net revenues were 19.5% in the
    fourth quarter of 2018 versus 19.6% in the fourth quarter of 2017. The
    provision for doubtful accounts as a percentage of net revenue was
    1.3% in the fourth quarter of 2018 as compared to 0.9% in the fourth
    quarter of 2017.
  • For the fourth quarter of 2018 and 2017, closure costs amounted to a
    credit of $17,000 and a charge of $0.6 million, respectively. For the
    fourth quarter of 2017, closure costs were primarily due to the
    closure of a single clinic acquired partnership due to the loss of a
    significant management contract.
  • The gross profit for the fourth quarter of 2018 grew by 4.5% or $1.1
    million to $25.2 million, as compared to $24.1 million in the fourth
    quarter of 2017. The gross profit percentage was 21.5% of net revenue
    in the recent period as compared to 22.1% in the fourth quarter 2017.
    The gross profit percentage for the Company’s physical therapy clinics
    was 22.5% in the recent quarter as compared to 22.8% in the fourth
    quarter of 2017. The gross profit percentage on physical therapy
    management contracts was 7.7% in the 2018 fourth quarter as compared
    to 18.9% in the 2017 fourth quarter. The gross profit percentage for
    the industrial injury prevention business was 10.4% in the recent
    quarter as compared to 10.6% in the 2017 period. The gross profit for
    the industrial injury prevention business was negatively impacted by
    the write-off of a $297,000 receivable from Pacific Gas & Electric
    which has filed for bankruptcy.
  • Corporate office costs were $10.4 million in the fourth quarter of
    2018 compared to $10.2 million in the fourth quarter of 2017.
    Corporate office costs were 8.9% of net revenues for the fourth
    quarter of 2018 quarter as compared to 9.3% for the fourth quarter of
    2017.
  • Operating income for the recent quarter increased 6.0% to $14.8
    million as compared to $14.0 million in the fourth quarter 2017.
  • The Company no longer has mandatorily redeemable non-controlling
    interests. See discussion following – Redeemable Non-Controlling
    Interests.
  • A gain of $1.8 million was recognized in the fourth quarter of 2018 on
    a partnership liability no longer deemed payable.
  • Interest expense – debt and other was $0.4 million in the fourth
    quarter of 2018 and $0.5 million in fourth quarter of 2017.
  • The provision for income tax for the fourth quarter of 2018 was $2.6
    million, inclusive of a $0.5 million benefit related to the
    reconciliation of the 2017 federal and state returns to our book
    provision and a $0.3 million benefit due to an analysis of our current
    year tax provision. Excluding those benefits, the provision for income
    taxes as a percentage of income before taxes less net income
    attributable to non-controlling interest was 26.3%. The income tax
    benefit for the 2017 fourth quarter was $2.0 million. Included in the
    fourth quarter of 2017 is a tax benefit of $4.3 million due to the
    revaluation of deferred tax assets and liabilities due to the TCJA.
    Also, included in the fourth quarter of 2017 was a charge of $0.3
    million related to a detailed reconciliation of the federal and state
    taxes payable and receivable accounts along with federal and state
    deferred tax assets and liability accounts at December 31, 2016.
    Excluding this reconciliation charge and prior to the $4.3 million tax
    benefit, the provision for income taxes as a percentage of income
    before taxes less net income attributable to non-controlling interest
    was 37.9%. As reported, the provision for income tax as a percentage
    of income before taxes less net income attributable to non-controlling
    interest was 20.2% for the fourth quarter of 2018 and a tax benefit of
    37.3% for the fourth quarter of 2017.
  • Net income attributable to non-controlling interests (permanent
    equity) was $1.6 million in the fourth quarter of 2018 and $1.2
    million in the fourth quarter of 2017. Net income attributable to
    redeemable non-controlling interests (temporary equity) was $1.6
    million in the fourth quarter of 2018 and $0.2 million in the fourth
    quarter of 2017.
  • Same store revenues for de novo and acquired clinics open for one year
    or more increased 3.9%. Visits increased 3.2% for de novo and acquired
    clinics open for one year or more while the same store net rate
    increased slightly.

Year 2018 Compared to Year 2017

  • Net revenues increased $39.8 million, or 9.6%, from $414.1 million in
    2017 to $453.9 million in 2018, primarily due to an increase in net
    patient revenues from physical therapy operations from both internal
    growth and acquisitions, an increase in the revenue from the
    industrial injury prevention business from a combination of internal
    growth plus an acquisition and an increase in revenue from management
    contracts due to acquired contracts. Our first company in the
    industrial injury prevention business was acquired in March 2017 and,
    on April 30, 2018, the Company made a second acquisition.
  • Net patient revenues from physical therapy operations increased
    approximately $28.5 million, or 7.3%, to $417.7 million in 2018 from
    $389.2 million in 2017 due to an increase in total patient visits of
    6.8% from 3,705,000 to 3,958,000 and an increase in the average net
    patient revenue per visit from $105.05 to $105.55. Of the $28.5
    million increase, $23.8 million related to Mature Clinics and $4.7
    million related to New Clinics. Revenue from physical therapy
    management contracts increased 12.1% to $8.3 million in 2018 as
    compared to $7.4 million in 2017.
  • Revenue from the industrial injury prevention business increased 70.8%
    to $25.5 million in 2018 compared to $14.9 in 2017 due to internal
    growth and the recent acquisition. Other miscellaneous revenue was
    $2.4 million in 2018 and $2.5 million in 2017.
  • Total operating costs were $352.2 million, or 77.6% of net revenues,
    in 2018 as compared to $323.4 million, or 78.1% of net revenues, in
    2017. The $28.8 million increase was attributable to $5.3 million in
    operating costs related to New Clinics, an increase of $15.1 million
    related to Mature Clinics, an increase of $7.4 million related to the
    industrial injury prevention business primarily due to the recent
    acquisition and a full year of activity in 2018 for the business
    acquired in March 2017 versus ten months in 2017, and an increase of
    $1.0 million related to management contracts. Total salaries and
    related costs, including those from New Clinics and the industrial
    injury prevention business, were 57.1% of net revenue for 2018 as
    compared to 57.3% for 2017. Rent, supplies, contract labor and other
    costs as a percentage of net revenue were 19.5% for 2018 and 19.8% for
    2017. The provision for doubtful accounts as a percentage of net
    revenue was 1.0% for 2018 and 0.9% for 2017.
  • For 2018 and 2017, closure costs amounted to a credit of $9,000 and a
    charge of $0.6 million, respectively.
  • The gross profit, inclusive of closure costs, in 2018 grew by 12.2% or
    $11.1 million to $101.7 million, as compared to $90.6 million in 2017.
    The gross profit percentage grew to 22.4% of net revenue in the recent
    year as compared to 21.9% for 2017. The gross profit percentage for
    the Company’s physical therapy clinics was 22.7% for 2018 as compared
    to 22.5% for 2017. The gross profit percentage on management contracts
    was 12.1% for 2018 as compared to 14.9% for 2017. The gross profit
    percentage for the industrial injury prevention business was 20.4% for
    2018 as compared to 13.3% for 2017.
  • Corporate office costs were $41.3 million in 2018 compared to $35.9
    million in 2017. Corporate office costs were 9.1% of net revenues for
    2018 compared to 8.7% for 2017.
  • Operating income for 2018 increased 10.2% to $60.3 million as compared
    to $54.7 million in 2017.
  • The Company no longer has mandatorily redeemable non-controlling
    interests. See discussion following – Redeemable Non-Controlling
    Interests.
  • A gain of $1.8 million was recognized in 2018 on a partnership
    liability no longer deemed payable.
  • Interest expense – debt and other was $2.0 million in 2018 and $2.1
    million in 2017.
  • The provision for income tax in 2018 was $11.4 million, inclusive of a
    $0.5 million benefit related to the reconciliation of the 2017 federal
    and state returns to our book provision. Without this benefit, the
    provision for income taxes as a percentage of income before taxes less
    net income attributable to non-controlling interest was 25.7%. The
    income tax benefit in 2017 was $6.0 million. Included in 2017 is a tax
    benefit of $4.3 million due to the revaluation of deferred tax assets
    and liabilities due to the TCJA. Also, included in 2017 was a charge
    of $0.3 million related to a detailed reconciliation of the federal
    and state taxes payable and receivable accounts along with federal and
    state deferred tax assets and liability accounts at December 31, 2016.
    Without this reconciliation charge and prior to the $4.3 million tax
    benefit, the provision for income taxes as a percentage of income
    before taxes less net income attributable to non-controlling interest
    was 35.6%. As reported, the provision for income tax as a percentage
    of income before taxes less net income attributable to non-controlling
    interest was 24.6% in 2018 and 21.3% in 2017.
  • Net income attributable to non-controlling interests (permanent
    equity) was $5.5 million in 2018 as compared to $5.2 million in 2017.
    Net income attributable to redeemable non-controlling interests
    (temporary equity) was $8.4 million in 2018 and $0.2 million in 2017.
  • Same store revenues for de novo and acquired clinics open for one year
    or more increased 4.6%. Visits increased 4.6% for de novo and acquired
    clinics open for one year or more and the same store net rate remained
    relatively the same.

Other Financial Measures

For the fourth quarter of 2018 the Company’s Adjusted EBITDA increased
by 3.1% to $15.5 million from $15.0 million in the fourth quarter of
2017. For 2018, the Company’s Adjusted EBITDA increased by 7.1% to $62.1
million from $57.9 million in 2017. See definition and explanation of
Adjusted EBITDA in the schedule on pages 13 and 14.

Management Provides 2019 Earnings Guidance

Management currently expects the Company’s Operating Results for 2019 to
be in the range of $35.1 million to $36.4 million or $2.76 to $2.85 per
share. This earnings range is based on an assumed annual corporate tax
rate of approximately 26.5%. Please note that the earnings guidance
represents projected Operating Results from existing operations but
excludes future acquisitions. The annual guidance figures may not be
updated unless there is a material development that causes management to
believe that Operating Results will be significantly outside the given
range.

Management’s Comments

Chris Reading, Chief Executive Officer, said, “2018 was another very
positive year for our Company as well as our shareholders. I continue to
be very proud of our entire team for the work that they do every day. We
made a number of key investments in 2018 which are bearing great fruit.
Our industrial injury prevention business has expanded significantly
from our start in early 2017. Our corporate support infrastructure,
especially for operations, was also strengthened this past year. We
continue to attract amazing people as well as partners which have
further enhanced our Company and, I believe, will facilitate our
continued growth into the future.”

Larry McAfee, Chief Financial Officer, noted, “Net cash flow from
operations ran at a record level in 2018, funding both de novo clinic
development and acquisitions while net debt, that is debt less cash, was
reduced by $22.4 million or 58%.”

U.S. Physical Therapy Declares Quarterly
Dividend

The Company is increasing its dividend by 17.4%. The first quarterly
dividend for 2019 of $0.27 per share will be paid on April 19, 2019 to
shareholders of record as of March 20, 2019. U.S. Physical Therapy began
paying quarterly dividends in 2011 and has increased the dividend amount
every year since.

Redeemable Non-Controlling Interests

Effective December 31, 2017, the Company entered into amendments to its
acquired limited partnership agreements replacing the mandatory
redemption feature. No monetary consideration was paid to the partners
to amend the agreements. The amended Partnership Agreements provide
that, upon certain events, the Company has a call right (the “Call
Right”) and the selling entity has a put right (the “Put Right”) for the
purchase and sale of the limited partnership interest held by the
partner. Once the terms are triggered, the Put Right and the Call Right
do not expire, even upon an individual partner’s death, and contain no
mandatory redemption feature. The purchase price of the partner’s
limited partnership interest upon the exercise of either the Put Right
or the Call Right is calculated per the original terms of the respective
agreements. The Company accounted for the amendment of its Partnership
Agreements as an extinguishment of the outstanding Seller Entity
Interests classified as liabilities through the issuance of new Seller
Entity Interests classified in temporary equity. Pursuant to ASC
470-50-40-2, the Company removed the outstanding liability-classified
Seller Entity Interests at their carrying amounts and recognized the new
temporary-equity-classified Seller Entity Interests at their fair value.
In summary, the redemption values of the mandatorily redeemable
non-controlling interest (previously classified as liabilities) were
reclassified as redeemable non-controlling interest (temporary equity)
on the December 31, 2017 consolidated balance sheet. For 2018, in
accordance with current accounting guidance, the revaluation of
redeemable non-controlling interest, net of tax, is not charged to net
income but is charged to retained earnings and is included in the
earnings per basic and diluted share calculation.

Fourth Quarter and Year End 2018 Conference Call

U.S. Physical Therapy’s Management will host a conference call at 10:30
a.m. Eastern Time, 9:30 a.m. Central Time, on March 7, 2019 to discuss
the Company’s Fourth Quarter and Year Ended December 31, 2018 results.
Interested parties may participate in the call by dialing 1-888-335-5539
or 973-582-2857 and entering reservation number 1948767 approximately 10
minutes before the call is scheduled to begin. To listen to the live
call via web-cast, go to the Company’s website at www.usph.com
at least 15 minutes early to register, download and install any
necessary audio software. The conference call will be archived and can
be accessed until June 7, 2019 at U.S. Physical Therapy’s website.

Forward-Looking Statements

This press release contains statements that are considered to be
forward-looking within the meaning under Section 21E of the Securities
Exchange Act of 1934, as amended. These statements contain
forward-looking information relating to the financial condition, results
of operations, plans, objectives, future performance and business of our
Company. These statements (often using words such as “believes”,
“expects”, “intends”, “plans”, “appear”, “should” and similar words)
involve risks and uncertainties that could cause actual results to
differ materially from those we expect. Included among such statements
may be those relating to new clinics, availability of personnel and the
reimbursement environment. The forward-looking statements are based on
our current views and assumptions and actual results could differ
materially from those anticipated in such forward-looking statements as
a result of certain risks, uncertainties, and factors, which include,
but are not limited to:

  • changes as the result of government enacted national healthcare reform;
  • changes in Medicare rules and guidelines and reimbursement or failure
    of our clinics to maintain their Medicare certification status;
  • revenue we receive from Medicare and Medicaid being subject to
    potential retroactive reduction;
  • business and regulatory conditions including federal and state
    regulations;
  • governmental and other third party payor inspections, reviews,
    investigations and audits;
  • compliance with federal and state laws and regulations relating to the
    privacy of individually identifiable patient information, and
    associated fines and penalties for failure to comply;
  • changes in reimbursement rates or payment methods from third party
    payors including government agencies and deductibles and co-pays owed
    by patients;
  • revenue and earnings expectations;
  • legal actions, which could subject us to increased operating costs and
    uninsured liabilities;
  • general economic conditions;
  • availability and cost of qualified physical therapists;
  • personnel productivity and retaining key personnel;
  • competitive, economic or reimbursement conditions in our markets which
    may require us to reorganize or close certain clinics and thereby
    incur losses and/or closure costs including the possible write-down or
    write-off of goodwill and other intangible assets;
  • acquisitions, purchase of non-controlling interests (minority
    interests) and the successful integration of the operations of the
    acquired businesses;
  • maintaining our information technology systems with adequate
    safeguards to protect against cyber-attacks;
  • maintaining adequate internal controls;
  • maintaining necessary insurance coverage;
  • availability, terms, and use of capital; and
  • weather and other seasonal factors.

Many factors are beyond our control. Given these uncertainties, you
should not place undue reliance on our forward-looking statements.
Please see our periodic reports filed with the Securities and Exchange
Commission for more information on these factors. Our forward-looking
statements represent our estimates and assumptions only as of the date
of this press release. Except as required by law, we are under no
obligation to update any forward-looking statement, regardless of the
reason the statement is no longer accurate.

About U.S. Physical Therapy, Inc.

Founded in 1990, U.S. Physical Therapy, Inc. operates 591 outpatient
physical therapy clinics in 42 states. The Company’s clinics provide
preventative and post-operative care for a variety of orthopedic-related
disorders and sports-related injuries, treatment for
neurologically-related injuries and rehabilitation of injured workers.
In addition to owning and operating clinics, the Company manages 28
physical therapy facilities for unaffiliated third parties, including
hospitals and physician groups. The Company also has an industrial
injury prevention business which provides onsite services for clients’
employees including injury prevention, rehabilitation, ergonomic
assessments and performance optimization.

More information about U.S. Physical Therapy, Inc. is available at www.usph.com.
The information included on that website is not incorporated into this
press release.

     

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF NET INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(unaudited)

 
For the Three Months Ended For the Year Ended

December 31,
2018

 

December 31,
2017

December 31,
2018

 

December 31,
2017

 
Net patient revenues $ 107,808 $ 101,642 $ 417,703 $ 389,226
Other revenues   9,541   7,561   36,208   24,825
Net revenues 117,349 109,203 453,911 414,051
Operating costs:
Salaries and related costs 67,818 62,155 259,228 237,067
Rent, supplies, contract labor and other 22,828 21,376 88,426 82,096
Provision for doubtful accounts 1,501 956 4,603 3,672
Closure costs   (17 )   572   (9 )   599
Total operating costs   92,130   85,059   352,248   323,434
 
Gross profit 25,219 24,144 101,663 90,617
 
Corporate office costs   10,415   10,182   41,349   35,889
Operating income 14,804 13,962 60,314 54,728
 
Gain on derecognition of debt 1,846 1,846
Interest and other income, net 23 30 93 88
Interest expense:
Mandatorily redeemable non-controlling interests – change in
redemption value
(5,055 ) (12,894 )
Mandatorily redeemable non-controlling interests – earnings allocable (1,689 ) (6,055 )
Debt and other   (365 )   (539 )   (2,042 )   (2,111 )
Total interest expense (365 ) (7,283 ) (2,042 ) (21,060 )
 
Income before taxes 16,308 6,709 60,211 33,756
 
Provision for income taxes   2,635   (1,997 )   11,369   6,032
 
Net income 13,673 8,706 48,842 27,724
 
Less: net income attributable to non-controlling interests   (3,265 )   (1,357 )   (13,969 )   (5,468 )
 
Net income attributable to USPH shareholders $ 10,408 $ 7,349 $ 34,873 $ 22,256
 
Basic and diluted earnings per share attributable to USPH
shareholders
$ 0.43 $ 0.57 $ 1.31 $ 1.76
 
Shares used in computation – basic and diluted   12,685   12,593   12,666   12,570
 
Dividends declared per common share $ 0.23 $ 0.20 $ 0.92 $ 0.80

Contacts

U.S. Physical Therapy, Inc.
Larry McAfee, Chief Financial Officer
Chris
Reading, Chief Executive Officer
(713) 297-7000
Three Part
Advisors
Joe Noyons
(817) 778-8424

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