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U.S. Physical Therapy Reports First Quarter Results

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U.S. Physical Therapy, Inc. ("USPH" or the "Company") (NYSE:USPH), a
national operator of outpatient physical therapy clinics, today reported
results for the first quarter ended March 31, 2017.

For the quarter ended March 31, 2017, USPH's net income attributable to
common shareholders prior to interest expense – mandatorily redeemable
non-controlling interests – change in redemption value, net of tax
("operating results"), a non-generally accepted accounting principles
("non-GAAP") measure, was $6.4 million as compared to $5.8 million in
the comparable 2016 period. Diluted earnings per share from operating
results was $0.51 in the 2017 period as compared to $0.47 in the 2016
period.

For the quarter ended March 31, 2017, USPH's net income attributable to
its shareholders, in accordance with generally accepted accounting
principles ("GAAP"), was $4.8 million, or $0.38 per diluted share, as
compared to $4.5 million, or $0.36 per diluted share, for the 2016
period. See schedule on page 9 for a reconciliation of net income
attributable to USPH shareholders to operating results.

First Quarter 2017 Compared to First Quarter
2016

  • Net revenues increased $10.7 million or 12.3% from $86.9 million in
    the first quarter of 2016 to $97.6 million in the first quarter of
    2017, primarily due to a 10.1% increase in net patient revenues from
    the physical therapy operations, higher revenues from management
    contracts due to an increase in the number of facilities managed by
    the Company and one month of revenues from the workforce performance
    solutions business acquired in March 2017.
  • Net patient revenues from physical therapy operations increased
    approximately $8.6 million to $93.7 million in the 2017 period from
    $85.1 million in the 2016 period due to an increase in total patient
    visits of 10.3% from 808,000 to 892,000 partially offset by a $0.18
    decrease in average net patient revenue per visit to $105.04 from
    $105.22. For the 2017 period, revenues from management contracts was
    $1.9 million as compared to $1.4 million for the 2016 period. The
    revenues from the recently acquired workforce performance solutions
    business was $1.5 million for the month of March 2017. Other revenue
    was $0.5 million for both periods.
  • Total clinic operating costs were $76.8 million, or 78.7% of net
    revenues, in the first quarter of 2017 as compared to $66.4 million,
    or 76.4% of net revenues, in the 2016 period. The increase was
    primarily attributable to $8.9 million in operating costs related to
    new clinics opened or acquired in the past 12 months, an additional
    $1.1 million related to a full quarter of activity in 2017 for clinics
    opened or acquired in the first quarter of 2016 and the addition of
    the workforce performance solutions business. Total clinic salaries
    and related costs, including those from new clinics, were 57.2% of net
    revenues in the recent quarter 2017 versus 55.0% for the 2016 period.
    Rent, clinic supplies, contract labor and other costs as a percentage
    of net revenues were 20.6% for recent quarter versus 20.1% for the
    2016 period. The provision for doubtful accounts as a percentage of
    net revenues was 0.9% for the first quarter of 2017 as compared to
    1.3% in the 2016 period.
  • The gross margin for the first quarter of 2017 was $20.7 million, or
    21.3% of revenue, as compared to $20.5 million, or 23.6% of revenue,
    for the 2016 quarter. The gross margin for the Company's physical
    therapy clinics was 21.5% in the recent quarter as compared to 23.6% a
    year earlier. The gross margin on management contracts was 14.8% in
    the first quarter of 2017 as compared to 19.8% in the comparable
    period of 2016. The gross margin for the recently acquired workforce
    performance solutions business was 14.3%.
  • Corporate office costs were $8.5 million in the first quarter of 2017
    compared to $9.0 million in the 2016 first quarter. Corporate office
    costs were 8.8% of net revenues for the 2017 quarter compared to 10.4%
    of net revenues for the 2016 period.
  • Operating income for the recent quarter increased 6.2% to $12.2
    million as compared to $11.5 million in the first quarter 2016.
  • Interest expense – mandatorily redeemable non-controlling interest –
    change in redemption value increased to $2.7 million in the first
    quarter 2017 from $2.2 million in the 2016 first quarter. The change
    in redemption value for acquired partnerships is based on the
    redemption amount (which is derived from a formula based on a
    specified multiple times the underlying business' trailing twelve
    months of earnings before interest, taxes, depreciation, amortization
    and our internal management fee) at the end of the reporting period
    compared to the end of the previous period. This is a non-cash item
    and is directly related to the increase in the profitability and
    underlying value of the Company's partnerships.
  • Interest expense – mandatorily redeemable non-controlling interest –
    earnings allocable, which represent the portion of earnings allocable
    to the holders of mandatorily redeemable non-controlling interest,
    increased to $1.3 million in the 2017 first quarter from $0.9 million
    in the 2016 period.
  • Interest expense – debt and other was $0.4 million in the first
    quarter 2017 and $0.3 million in the 2016 period.
  • The provision for income taxes for the 2017 first quarter was $1.8
    million and for the 2016 first quarter was $2.2 million. The provision
    for income taxes as a percentage of income before taxes less net
    income attributable to non-controlling interest was 27.3% in the 2017
    first quarter and 32.6% in the 2016 first quarter. Included in the
    first quarter of 2017 was an excess tax benefit of $0.8 million
    related to the adoption of revised guidance on accounting for stock
    compensation as compared to $0.5 million in the first quarter of 2016.
  • Net income attributable to non-controlling interests was $1.2 million
    in the 2017 first quarter as compared to $1.5 million in the 2016
    first quarter.
  • Operating results, a non-GAAP measure, attributable to common
    shareholders for the three months ended March 31, 2017 rose 10.6% to
    $6.4 million as compared to $5.8 million for the 2016 period. Diluted
    earnings per share from operating results were $0.51 for the 2017
    period and $0.47 for the 2016 period. For the quarter ended March 31,
    2017, USPH's net income attributable to its shareholders, in
    accordance with GAAP, was $4.8 million, or $0.38 per diluted share, as
    compared to $4.5 million, or $0.36 per diluted share, for the 2016
    period. See schedule on page 9 for a reconciliation of net income
    attributable to USPH shareholders to operating results.
  • Same store revenues and visits increased slightly for de novo and
    acquired clinics open for one year or more. The same store net rate
    per visit was flat.

Other Financial Measures

For the first three months of 2017 the Company's Adjusted EBITDA grew by
7.0% to $13.3 million from $12.5 million in 2016. See definition and
explanation of Adjusted EBITDA on page 9 and schedule on page 10.

Management's Comments

Chris Reading, Chief Executive Officer, said, "In the first quarter we
had solid revenue and visit growth driven in large part by recent
acquisitions which are performing very well. Our development for the
year is very strong both organically and through acquisition. Operating
costs have increased in large part due to acquisitions. Our operations
team is actively reducing costs where needed. The early performance from
our industrial prevention services deal has been solid and we are
looking for other opportunities with the right partners in that space.
We are happy to have now worked our way through the recent period to
update all of our filings. We sincerely appreciate your patience and
continued support as we work to move our Company forward."

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:

  • cost, risks and uncertainties associated with the Company's recent
    restatement of its prior financial statements due to the correction of
    its accounting methodology for redeemable non-controlling partnership
    interests, and including any pending and future claims or proceedings
    relating to such matters;
  • 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;
  • legal actions; which could subject us to increased operating costs and
    uninsured liabilities;
  • 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;
  • 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 adequate internal controls;
  • maintaining necessary insurance coverage;
  • our ability to design and maintain effective internal control over
    financial reporting and remediate the material weakness in internal
    control over financial reporting related to our accounting for
    redeemable non-controlling partnership interests;
  • 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 applicable.

About U.S. Physical Therapy, Inc.

Founded in 1990, U.S. Physical Therapy, Inc. operates 561 outpatient
physical therapy clinics in 41 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 27
physical therapy facilities for unaffiliated third parties, including
hospitals and physician groups. The Company also 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
     
March 31, 2017 March 31, 2016
 
Net patient revenues $ 93,654 $ 85,049
Other revenues   3,911     1,859  
Net revenues 97,565 86,908
Clinic operating costs:
Salaries and related costs 55,827 47,804
Rent, clinic supplies, contract labor and other 20,087 17,507
Provision for doubtful accounts 898 1,089
Closure costs   6     13  
Total clinic operating costs   76,818     66,413  
Gross margin 20,747 20,495
Corporate office costs   8,547     9,004  
Operating income 12,200 11,491
Interest and other income, net 24 20
Interest expense:
Mandatorily redeemable non-controlling interests - change in
redemption value
(2,669 ) (2,191 )
Mandatorily redeemable non-controlling interests - earnings allocable (1,294 ) (887 )
Debt and other   (415 )   (308 )
Total interest expense (4,378 ) (3,386 )
Income before taxes 7,846 8,125
Provision for income taxes   1,812     2,172  
Net income 6,034 5,953
Less: net income attributable to non-controlling interests   (1,218 )   (1,465 )
Net income attributable to USPH shareholders $ 4,816   $ 4,488  
 
Basic and diluted earnings per share attributable to USPH
shareholders
$ 0.38   $ 0.36  
 
Shares used in computation - basic   12,528     12,448  
 
Shares used in computation - diluted   12,528     12,448  
 
Dividends declared per common share $ 0.20   $ 0.17  
 

 
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(unaudited)
        March 31, 2017   December 31, 2016

ASSETS

Current assets:
Cash and cash equivalents $ 25,154 $ 20,047
Patient accounts receivable, less allowance for doubtful accounts of
$1,853 and $1,792, respectively
43,244 38,840
Accounts receivable - other 6,346 2,649
Other current assets   3,827     4,428  
Total current assets 78,571 65,964
Fixed assets:

Furniture and equipment

49,820 48,426
Leasehold improvements   27,582     26,765  
Fixed assets, gross 77,402 75,191
Less accumulated depreciation and amortization   57,235     56,018  
Fixed assets, net 20,167 19,173
Goodwill 244,446 226,806
Other identifiable intangible assets, net 43,213 38,060
Other assets   1,274     1,228  

Total assets

$ 387,671   $ 351,231  
LIABILITIES, USPH SHAREHOLDERS' EQUITY AND NON-CONTROLLING INTERESTS
Current liabilities:
Accounts payable - trade $ 1,996 $ 1,634
Accrued expenses 30,820 21,756
Current portion of notes payable   1,219     1,227  
Total current liabilities 34,035 24,617
Notes payable 4,802 4,596
Revolving line of credit 58,000 46,000
Mandatorily redeemable non-controlling interests 80,154 69,190
Deferred taxes 15,486 15,736
Deferred rent 1,809 1,575
Other long-term liabilities   671     829  
Total liabilities 194,957 162,543
Commitments and contingencies
U.S. Physical Therapy, Inc. ("USPH") shareholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized, no
shares issued and outstanding
- -
Common stock, $.01 par value, 20,000,000 shares authorized,
14,792,744 and 14,732,699 shares issued, respectively
147 147
Additional paid-in capital 70,132 68,687
Retained earnings 152,642 150,342
Treasury stock at cost, 2,214,737 shares   (31,628 )   (31,628 )
Total USPH shareholders' equity 191,293 187,548
Non-controlling interests   1,421     1,140  
Total USPH shareholders' equity and non-controlling interests   192,714     188,688  
Total liabilities, USPH shareholders' equity and non-controlling
interests
$ 387,671   $ 351,231  
 

 
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
 
        Three Months Ended
March 31, 2017       March 31, 2016
OPERATING ACTIVITIES
Net income including non-controlling interests $ 6,034 $ 5,953
Adjustments to reconcile net income including non-controlling
interests to net cash provided by operating activities:
Depreciation and amortization 2,356 2,091
Provision for doubtful accounts 898 1,089
Equity-based awards compensation expense 1,280 1,221
Loss on sale of fixed assets 33 (19 )
Deferred income tax (250 ) 1,823
Changes in operating assets and liabilities:
Increase in patient accounts receivable (1,542 ) (2,185 )
(Increase) decrease in accounts receivable - other (3,697 ) 43
Decrease (increase) in other assets 757 (2,282 )
Increase in accounts payable and accrued expenses 5,315 3,857
Increase in mandatorily redeemable non-controlling interests 2,911 2,578
Increase in other liabilities   76     365  
Net cash provided by operating activities 14,171 14,534
INVESTING ACTIVITIES
Purchase of fixed assets (1,587 ) (1,738 )
Purchase of businesses, net of cash acquired (15,670 ) (12,899 )
Acquisitions of non-controlling interests - (388 )
Proceeds on sale of fixed assets, net   62     42  
Net cash used in investing activities (17,195 ) (14,983 )
FINANCING ACTIVITIES
Distributions to non-controlling interests (937 ) (1,113 )
Cash dividends to shareholders - funded - (2,125 )
Proceeds from revolving line of credit 32,000 49,000
Payments on revolving line of credit (20,000 ) (40,500 )
Payments to settle mandatorily redeemable non-controlling interests (2,230 ) (1,136 )
Principal payments on notes payable (702 ) (250 )
Other   -     1  
Net cash used in financing activities 8,131 3,877
 
Net increase in cash and cash equivalents 5,107 3,428
Cash and cash equivalents - beginning of period   20,047     15,778  
Cash and cash equivalents - end of period $ 25,154   $ 19,206  
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 86 $ 2,265
Interest $ 599 $ 248
Non-cash investing and financing transactions during the period:
Purchase of business - seller financing portion $ 900 $ 500
Acquisition of non-controlling interest - seller financing portion $ - $ 388
Payment to settle redeemable non-controlling interest - financing
portion
$ - $ 126
 

 

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

 

OPERATING RESULTS AND ADJUSTED EBITDA

(IN THOUSANDS, EXCEPT PER SHARE DATA)

 

The following tables reconcile net income attributable to USPH
shareholders calculated in accordance with GAAP to operating results and
Adjusted EBITDA. Management believes providing operating results and
Adjusted EBITDA to investors is useful information for comparing the
Company's period-to-period results.

Operating results is defined as USPH's net income attributable to common
shareholders prior to interest expense – mandatorily redeemable
non-controlling interests – change in redemption value, net of tax.
Management uses operating results, which eliminates this non-cash item
that can be subject to volatility, as one of the principal measures to
evaluate and monitor financial performance period over period.
Management believes that operating results is useful information for
investors to use in comparing the Company's period-to-period results as
well as for comparing with other similar businesses since most do not
have mandatorily redeemable instruments and therefore have different
liability and equity structures.

Adjusted EBITDA is defined as earnings before interest income, interest
expense – mandatorily redeemable non-controlling interests – change in
redemption value, interest expense – debt and other, taxes,
depreciation, amortization and equity-based awards compensation expense.
Management believes reporting Adjusted EBITDA is useful information for
investors in comparing the Company's period-to-period results as well as
comparing with similar businesses which report adjusted EBITDA as
defined by their company.

Operating results and Adjusted EBITDA are not measures of financial
performance under GAAP. Adjusted EBITDA and Adjusted Net Income should
not be considered in isolation or as an alternative to, or substitute
for, net income attributable to USPH shareholders presented in the
consolidated financial statements.

 
        Three Months Ended March 31,
2017       2016
 
Net income attributable to USPH shareholders $ 4,816 $ 4,488
 
Adjustments:
Interest expense MRNCI * - change in redemption value 2,669 2,191
Tax effect at statutory rate (federal and state) of 39.25%   (1,048 )   (860 )
Operating results $ 6,437   $ 5,819  
 
Basic and diluted net income attributable to USPH shareholders per
share
$ 0.38   $ 0.36  
 
Basic and diluted operating results per share $ 0.51   $ 0.47  
 
Shares used in computation:
Basic and diluted   12,528     12,448  
 
 
Three Months Ended March 31,
2017 2016
 
Net income attributable to USPH shareholders $ 4,816 $ 4,488
 
Adjustments:
Depreciation and amortization 2,356 2,091
Interest income (24 ) (20 )
Interest expense MRNCI * - change in redemption value 2,669 2,191
Interest expense - debt and other 415 308
Provision for income taxes 1,812 2,172
Equity-based awards compensation expense   1,280     1,221  
 
Adjusted EBITDA $ 13,324   $ 12,451  
 
* Mandatorily redeemable non-controlling interest
 

 

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

RECAP OF CLINIC COUNT

 
March 31, 2016         512
June 30, 2016 516
September 30, 2016 524
December 31, 2016 540
 
 
March 31, 2017 558
 

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