QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
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(I.R.S. EMPLOYER IDENTIFICATION NO.)
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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(ZIP CODE)
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Title of each class
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Trading
Symbol(s)
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Name of each exchange on which registered
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☑
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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Emerging growth company
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Item 1.
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3
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3
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4
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5
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6
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7
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Item 2.
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28
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Item 3.
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37
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Item 4.
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38
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PART II—OTHER INFORMATION
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Item 1.
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39 |
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Item 6.
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40 |
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40 |
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Certifications
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ITEM 1. |
FINANCIAL STATEMENTS.
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March 31, 2022
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December 31, 2021
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|||||||
ASSETS
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(unaudited)
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|||||||
Current assets:
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||||||||
Cash and cash equivalents
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$
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$
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|
||||
Patient accounts receivable, less allowance for credit
losses of $
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||||||
Accounts receivable - other
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||||||
Other current assets
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||||||
Total current assets
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Fixed assets:
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Furniture and equipment
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||||||
Leasehold improvements
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||||||
Fixed assets, gross
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||||||
Less accumulated depreciation and amortization
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Fixed assets, net
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||||||
Operating lease right-of-use assets
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Investment in unconsolidated affiliate |
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Goodwill
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||||||
Other identifiable intangible assets, net
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Other assets
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||||||
Total assets
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$
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$
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||||
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, USPH SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTEREST
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||||||||
Current liabilities:
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||||||||
Accounts payable - trade
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$
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$
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|
||||
Accounts payable - due to seller of acquired business
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||||||||
Accrued expenses
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||||||
Current portion of operating lease liabilities
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||||||
Current portion of notes payable
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||||||
Total current liabilities
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||||||
Notes payable, net of current portion
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||||||
Revolving line of credit
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||||||
Deferred taxes
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|
||||||
Operating lease liabilities, net of current portion
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||||||
Other long-term liabilities
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||||||
Total liabilities
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||||||
Redeemable non-controlling interest - temporary equity
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||||||
Commitments and Contingencies
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||||||
U.S. Physical Therapy, Inc. (“USPH”) shareholders’ equity:
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||||||||
Preferred stock, $
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|
||||||
Common stock, $
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|
|
||||||
Additional paid-in capital
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||||||
Retained earnings
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||||||
Treasury stock at cost,
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(
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)
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(
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)
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||||
Total USPH shareholders’ equity
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|
||||||
Non-controlling interest - permanent equity
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|
||||||
Total USPH shareholders’ equity and non-controlling interest - permanent equity
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|
||||||
Total liabilities, redeemable non-controlling interest,
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||||||||
USPH shareholders’ equity and non-controlling interest - permanent equity
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$
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$
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For the Three Months Ended
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||||||||
March 31, 2022
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March 31, 2021
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|||||||
Net patient revenue
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$ | $ | ||||||
Other revenue
|
||||||||
Net revenue
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||||||||
Operating cost:
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||||||||
Salaries and related costs
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||||||||
Rent, supplies, contract labor and other
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||||||||
Provision for credit losses
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||||||||
Total operating cost
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||||||||
Gross profit
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||||||||
Corporate office costs
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||||||||
Operating income
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||||||||
Other income and expense
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||||||||
Equity in earnings of unconsolidated affiliate
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||||||||
Interest and other income, net
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||||||||
Gain on revaluation of put-right liability
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||||||||
Interest expense - debt and other
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( |
) | ( |
) | ||||
Total other income and expense
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( |
) | ||||||
Income before taxes
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||||||||
Provision for income taxes
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||||||||
Net income
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||||||||
Less: net income attributable to non-controlling interest:
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||||||||
Redeemable non-controlling interest - temporary equity
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( |
) | ( |
) | ||||
Non-controlling interest - permanent equity
|
( |
) | ( |
) | ||||
( |
) | ( |
) | |||||
Net income attributable to USPH shareholders
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$ | $ | ||||||
Basic and diluted earnings per share attributable to USPH shareholders
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$ | $ | ||||||
Shares used in computation - basic and diluted
|
||||||||
Dividends declared per common share
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$ | $ |
Three Months Ended
|
||||||||
March 31, 2022
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March 31, 2021
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|||||||
OPERATING ACTIVITIES
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||||||||
Net income including non-controlling interest and earnings from unconsolidated affiliates, net
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$
|
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$
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|
||||
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities:
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||||||||
Depreciation and amortization
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|
|
||||||
Provision for credit losses
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|
|
||||||
Equity-based awards compensation expense
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|
||||||
Deferred income taxes
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|
|
||||||
Gain on revaluation of put-right liability
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( |
) | ||||||
Earnings in unconsolidated affiliate
|
( |
) | ||||||
Other
|
||||||||
Changes in operating assets and liabilities:
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||||||||
Increase in patient accounts receivable
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(
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)
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(
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)
|
||||
(Increase) decrease in accounts receivable - other
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(
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)
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|
|||||
(Increase) decrease in other assets
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(
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)
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|||||
Increase in accounts payable and accrued expenses
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||||||
Decrease in other long-term liabilities
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(
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)
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(
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)
|
||||
Net cash provided by operating activities
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|
||||||
INVESTING ACTIVITIES
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||||||||
Purchase of fixed assets
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(
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)
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(
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)
|
||||
Purchase of majority interest in businesses, net of cash acquired
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(
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)
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(
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)
|
||||
Purchase of redeemable non-controlling interest, temporary equity
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(
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)
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|
|||||
Purchase of non-controlling interest, permanent equity
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(
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)
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|
|||||
Proceeds on sales of partnership interest, clinics and fixed assets
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|
||||||
Distributions from unconsolidated affiliate
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||||||||
Sales of non-controlling interest-permanent
|
||||||||
Net cash used in investing activities
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(
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)
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(
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)
|
||||
FINANCING ACTIVITIES
|
||||||||
Distributions to non-controlling interest, permanent and temporary equity
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(
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)
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(
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)
|
||||
Cash dividends paid to shareholders
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||||||
Proceeds from revolving line of credit
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|
||||||
Payments on revolving line of credit
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(
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)
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(
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)
|
||||
Principal payments on notes payable
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(
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)
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(
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)
|
||||
(Payment) receipt of Medicare Accelerated and Advance Funds
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(
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)
|
|||||
Other
|
|
|
||||||
Net cash used in financing activities
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(
|
)
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(
|
)
|
||||
Net decrease in cash and cash equivalents
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(
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)
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(
|
)
|
||||
Cash and cash equivalents - beginning of period
|
|
|
||||||
Cash and cash equivalents - end of period
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$
|
|
$
|
|
||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Cash paid during the period for:
|
||||||||
Income taxes
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$
|
|
$
|
|
||||
Interest paid
|
$
|
|
$
|
|
||||
Non-cash investing and financing transactions during the period:
|
||||||||
Purchase of businesses - seller financing portion
|
$
|
|
$
|
|
||||
Notes payable related to purchase of redeemable non-controlling interest, temporary equity
|
$ | $ | ||||||
Notes payable due to purchase of non-controlling interest, permanent equity
|
$
|
|
$
|
|
||||
Notes receivable related to sale of partnership interest - redeemable non-controlling interest
|
||||||||
Dividends payable to USPH shareholders
|
$ | $ |
U.S.Physical Therapy, Inc.
|
||||||||||||||||||||||||||||||||||||
Common Stock
|
Additional
Paid-In Capital
|
Retained
Earnings
|
Treasury Stock
|
Total Shareholders’
Equity
|
Non-Controlling
Interests
|
Total
|
||||||||||||||||||||||||||||||
For the three months ended March 31, 2022
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Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||||||||||||||||||
Balance December 31, 2021
|
|
$
|
|
$
|
|
$
|
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
Issuance of restricted stock, net of cancellations
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Revaluation of redeemable non-controlling interest, net of tax
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||||||||||
Compensation expense - equity-based awards
|
-
|
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||||||||
Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans
|
- | - | ||||||||||||||||||||||||||||||||||
Purchase of partnership interests - non-controlling interest
|
- | ( |
) | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Sale of non-controlling interest, net of purchases and tax
|
- | - | ||||||||||||||||||||||||||||||||||
Dividends payable to USPH shareholders
|
-
|
|
|
(
|
)
|
-
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||||||||||
Distributions to non-controlling interest partners - permanent equity
|
-
|
|
|
|
-
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||||||||
Other
|
-
|
|
|
(
|
)
|
-
|
|
(
|
)
|
|
|
|||||||||||||||||||||||||
Net income attributable to non-controlling interest - permanent equity
|
-
|
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||||||||
Net income attributable to USPH shareholders
|
-
|
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||||||||
Balance March 31, 2022
|
|
$
|
|
$
|
|
$
|
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
U.S.Physical Therapy, Inc.
|
||||||||||||||||||||||||||||||||||||
Common Stock
|
Additional
Paid-In Capital
|
Retained
Earnings
|
Treasury Stock
|
Total Shareholders’
Equity
|
Non-Controlling
Interests
|
Total
|
||||||||||||||||||||||||||||||
For the three months ended March 31, 2021
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||||||||||||||||||
Balance December 31, 2020
|
|
$
|
|
$
|
|
$
|
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
Issuance of restricted stock, net of cancellations
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Revaluation of redeemable non-controlling interest, net of tax
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||||||||||
Compensation expense - equity-based awards
|
-
|
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||||||||
Dividends payable to USPT shareholders
|
- | ( |
) | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||
Distributions to non-controlling interest partners - permanent equity
|
-
|
|
|
|
-
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||||||||
Short swing profit settlement |
- | - | ||||||||||||||||||||||||||||||||||
Other
|
-
|
|
|
|
-
|
|
|
(
|
)
|
|
||||||||||||||||||||||||||
Net income attributable to non-controlling interest - permanent equity
|
-
|
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||||||||
Net income attributable to USPH shareholders
|
-
|
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||||||||
Balance March 31, 2021
|
|
$
|
|
$
|
|
$
|
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
Acquisition
|
Date
|
Acquired
|
Clinics
|
|||||||
March 2022 Acquisition
|
|
|
%
|
|
||||||
December 2021 Acquisition
|
|
|
%
|
|
||||||
November 2021 Acquisition
|
|
|
%
|
|
IIPS* | |||||
September 2021 Acquisition
|
|
|
%
|
|
IIPS* | |||||
June 2021 Acquisition
|
|
|
%
|
|
||||||
March 2021 Acquisition
|
|
|
%
|
|
*
|
|
Cash paid, net of cash acquired
|
$
|
|
||
Seller notes
|
|
|||
Total consideration
|
$
|
|
||
Estimated fair value of net tangible assets acquired:
|
||||
Total non-current assets
|
$ |
|
||
Customer and referral relationships
|
|
|||
Non-compete agreements
|
|
|||
Tradenames
|
|
|||
Goodwill
|
|
|||
Fair value of non-controlling interest (classified as redeemable non-controlling interest)
|
(
|
)
|
||
$
|
|
Physical Therapy
|
||||||||||||
IIPS*
|
Operations
|
Total
|
||||||||||
Cash paid, net of cash acquired
|
$
|
|
$
|
|
$
|
|
||||||
Seller notes
|
|
|
|
|||||||||
Contingent payments
|
|
|
|
|||||||||
Other payable
|
|
|
|
|||||||||
Seller put right
|
|
|
|
|||||||||
Total consideration
|
$
|
|
$
|
|
$
|
|
||||||
Estimated fair value of net tangible assets acquired:
|
||||||||||||
Total current assets
|
$
|
|
$
|
|
$
|
|
||||||
Total non-current assets
|
|
|
|
|||||||||
Total liabilities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Net tangible assets acquired
|
$
|
|
$
|
|
$
|
|
||||||
Customer and referral relationships
|
|
|
|
|||||||||
Non-compete agreements
|
|
|
|
|||||||||
Tradenames
|
|
|
|
|||||||||
Goodwill
|
|
|
|
|||||||||
Fair value of non-controlling interest (classified as redeemable non-controlling interest)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
$
|
|
$
|
|
$
|
|
*
|
|
Three Months Ended
|
||||||||
March 31, 2022
|
March 31, 2021
|
|||||||
Net patient revenue
|
$ | $ | ||||||
Other revenue
|
||||||||
Physical therapy operations
|
$ | $ | ||||||
Management contract revenue
|
||||||||
Industrial injury prevention services revenue
|
||||||||
$ | $ |
Three Months Ended
|
||||||||
March 31, 2022
|
March 31, 2021
|
|||||||
Computation of earnings per share - USPH shareholders:
|
||||||||
Net income attributable to USPH shareholders
|
$ | $ | ||||||
(Charges) credit to retained earnings:
|
||||||||
Revaluation of redeemable non-controlling interest
|
( |
) | ( |
) | ||||
Tax effect at statutory rate (federal and state) of
|
||||||||
$ | $ | |||||||
Earnings per share (basic and diluted)
|
$ | $ | ||||||
Shares used in computation:
|
||||||||
Basic and diluted earnings per share - weighted-average shares
|
1. |
Prior to the Acquisition, the Therapy Practice exists as a separate legal entity (the “Seller Entity”). The Seller Entity is owned by one or more individuals (the “Selling
Shareholders”) most of whom are physical therapists that work in the Therapy Practice and provide physical therapy services to patients.
|
2. |
In conjunction with the Acquisition, the Seller Entity contributes the Therapy Practice into a newly-formed limited partnership (“NewCo”), in exchange for one hundred percent (
|
3. |
The Company enters into an agreement (the “Purchase Agreement”) to acquire from the Seller Entity a majority (ranges from
|
4. |
The Company and the Seller Entity also execute a partnership agreement (the “Partnership Agreement”) for NewCo that sets forth the rights and obligations of the limited and general
partners of NewCo. After the Acquisition, the Company is the general partner of NewCo.
|
5. |
As noted above, the Company does not purchase 100% of the limited partnership interests in NewCo and the Seller Entity retains a portion of the limited partnership interest in NewCo
(“Seller Entity Interest”).
|
6. |
In most cases, some or all of the Selling Shareholders enter into an employment agreement (the “Employment Agreement”) with NewCo with an initial term that ranges from
to |
7. |
The compensation of each Employed Selling Shareholder is specified in the Employment Agreement and is customary and commensurate with his or her responsibilities based on other
employees in similar capacities within NewCo, the Company and the industry.
|
8. |
The Company and the Selling Shareholder (including both Employed Selling Shareholders and Selling Shareholders not employed by NewCo) execute a non-compete agreement (the
“Non-Compete Agreement”) which restricts the Selling Shareholder from engaging in competing business activities for a specified period of time (the “Non-Compete Term”). A Non-Compete Agreement is executed with the Selling Shareholders in all
cases. That is, even if the Selling Shareholder does not become an Employed Selling Shareholder, the Selling Shareholder is restricted from engaging in a competing business during the Non-Compete Term.
|
9. |
The Non-Compete Term commences as of the date of the Acquisition and expires on the later of :
|
a. |
|
b. |
|
10. |
The Non-Compete Agreement applies to a restricted region which is defined as a defined mile radius from the Therapy Practice. That is, an Employed Selling Shareholder is permitted to
engage in competing businesses or activities outside the defined mileage (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholder who is not employed by NewCo immediately is permitted to engage in the
competing business or activities outside the defined mileage.
|
1. |
Put Right
|
a) |
In the event that any Selling Shareholder’s employment is terminated under certain circumstances prior to a specified date (the “Specified Date”), the Seller Entity thereafter may
have an irrevocable right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below.
|
b) |
In the event that any Selling Shareholder is not employed by NewCo as of the Specified Date and the Company has not exercised its Call Right with respect to the Terminated Selling
Shareholder’s Allocable Percentage of Seller Entity’s Interest, Seller Entity thereafter shall have the Put Right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s
Interest at the purchase price described in “3” below.
|
c) |
In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the Specified Date, the Seller Entity shall have the Put Right, and upon
the exercise of the Put Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.
|
2. |
Call Right
|
a) |
If any Selling Shareholder’s employment by NewCo is terminated prior to the Specified Date, the Company thereafter shall have an irrevocable right to purchase from Seller Entity the
Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, in each case at the purchase price described in “3” below.
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b) |
In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after Specified Date, the Company shall have the Call Right, and upon the
exercise of the Call Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.
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3. |
For the Put Right and the Call Right, the purchase price is derived from a formula based on a specified multiple of NewCo’s trailing twelve months of earnings before interest, taxes,
depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of NewCo (the “Redemption Amount”). NewCo’s earnings are distributed monthly based on available cash within
NewCo.; Therefore, the undistributed earnings amount is small, if any.
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4. |
The Purchase Price for the initial equity interest purchased by the Company is, in almost all cases, also based
on the same specified multiple of the trailing twelve-month earnings that is used in the Put Right and the Call Right noted above.
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5. |
The Put Right and the Call Right do not have an expiration date, and the Seller Entity Interest is not required to be purchased by the Company or sold by the Seller Entity unless
either the Put Right or the Call Right is exercised.
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6. |
The Put Right and the Call Right never apply to Selling Shareholders who do not become employed by NewCo, since the Company requires that such Selling Shareholders sell their entire
ownership interest in the Seller Entity at the closing of the Acquisition.
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1. |
Prior to the acquisition, the Progressive Subsidiaries were owned by a legal entity (“Progressive Parent”) controlled by its individual
owners (the “Selling Shareholders”), who work in and manage the Progressive business.
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2. |
In conjunction with the acquisition, the Selling Shareholders caused the Progressive Parent to transfer its ownership of the Progressive
Subsidiaries into a newly-formed limited liability company (“NewCo”), in exchange for one hundred percent (
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3. |
The Company entered into an agreement (the “Purchase Agreement”) to acquire from the Selling Shareholders a majority of the membership
interest in NewCo. The consideration for the acquisition is primarily payable in the form of cash at closing, a relatively small portion paid in cash after the closing contingent on certain performance criteria, and a small note in
lieu of an escrow (the “Purchase Price”).
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4. |
The Company and the Selling Shareholders also executed an operating agreement (the “Operating Agreement”) for NewCo that sets forth the
rights and obligations of the members of NewCo.
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5. |
As noted above, the Company did not purchase
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6. |
The Company and the Selling Shareholders executed a non-compete agreement (the “Non-Compete Agreement”) which restricts the Selling
Shareholders from competing for a specified period of time (the “Non-Compete Term”).
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7. |
The Non-Compete Term commences as of the date of the Acquisition and expires on the later of:
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a. |
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b. |
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8. |
The Non-Compete Agreement applies to the entire United States.
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9. |
The Put Right and the Call Right do not have an expiration date.
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1. |
Put Right
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a. |
Each of the Selling Shareholders has the right to sell
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b. |
In the event that any Selling Shareholder terminates his management relationship with NewCo for any reason on or after the seventh
anniversary of the Closing Date, the Selling Shareholder has the Put Right, and upon the exercise of the Put Right, the Selling Shareholder’s Interest shall be redeemed by the Company at the purchase price described in “3” below.
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2. |
Call Right
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a. |
If any Selling Shareholder’s ceases to perform management services on behalf of NewCo, the Company thereafter shall have an
irrevocable right to purchase from such Selling Shareholder his Interest, in each case at the purchase price described in “3” below.
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3. |
For the Put Right and the Call Right, the purchase price is derived from a formula based on a specified multiple of NewCo’s trailing
twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of NewCo (the “Redemption Amount”). NewCo’s earnings
are distributed monthly based on available cash within NewCo; therefore, the undistributed earnings amount is small, if any.
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4. |
The Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple of the
trailing twelve-month earnings that is used in the Put Right and the Call Right noted above.
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5. |
The Put Right and the Call Right do not have an expiration date.
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