U.S. Physical Therapy Reports Fourth Quarter and Full Year 2022 Results

Patient Volume Remains Strong

Company Provides 2023 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 and provider of industrial injury prevention (“IIP”) services, today reported results for the three months and year ended December 31, 2022 (“2022 Fourth Quarter” and “2022 Year”, respectively).

FULL YEAR AND QUARTER HIGHLIGHTS

**The Company is still completing its evaluation of the income tax expense for the 2022 Fourth Quarter and 2022 Year. As a result, the Company’s presentation of earnings per share, operating results per share and its provision for income taxes may change as a result of this evaluation. Set forth below are the Company’s current estimates for these amounts. The Company will promptly announce any changes upon the completion of the evaluation.

• Adjusted EBITDA, a non-GAAP measure, was $17.9 million for the 2022 Fourth Quarter, an increase of $0.5 million, or 2.8%, from $17.4 million, excluding Relief Funds, for the three months ended December 31, 2021 (“2021 Fourth Quarter”). See definition, explanation and calculation of Adjusted EBITDA, a non-GAAP measure, in the schedules on pages 16 and 17.
• Adjusted EBITDA was $73.7 million for the 2022 Year, a decrease of $0.1 million, or 0.2%, from $73.8 million, excluding Relief Funds, for the year ended December 31, 2021 (“2021 Year»).
• For the 2022 Fourth Quarter, USPH’s net income attributable to its shareholders, a GAAP measure, was $2.6 million as compared to $10.2 million for the 2021 Fourth Quarter. The 2022 Fourth Quarter included a goodwill impairment charge, further described below, of $4.8 million, net of taxes and allocation to non-controlling interest. For GAAP purposes, a charge for the revaluation of redeemable non-controlling interest, net of taxes, is included in the computation of earnings or loss per diluted share. Loss per diluted share on a GAAP basis, net of taxes, was $0.01 for the 2022 Fourth Quarter as compared to earnings per share of $0.73 for the 2021 Fourth Quarter.
• For the 2022 Year, USPH’s net income attributable to its shareholders, a GAAP measure, was $32.2 million as compared to $40.8 million for the 2021 Year. Earnings per diluted share, which includes a charge for revaluation of redeemable non-controlling interest, was $2.25 for the 2022 Year, as compared to $2.41 for the 2021 Year.
• Operating Results, a non-GAAP measure, was $0.58 per diluted share for the 2022 Fourth Quarter compared to $0.72 per diluted share, excluding Relief Funds (defined under “Impact of COVID-19/Relief Funds” below), for the 2021 Fourth Quarter. See definition, explanation and calculation of Operating Results, a non-GAAP measure, in the schedules on pages 16 and 17.
• Operating Results was $2.70 per diluted share for the 2022 Year. For the 2021 Year, Operating Results, excluding Relief Funds, was $3.17 per diluted share.
• Average visits per clinic per day were 29.1 for the 2022 Fourth Quarter and 28.7 for the 2022 Year, the second highest average visits per day for each period in the Company’s history, surpassed only by 29.8 average visits per day in the Fourth Quarter 2021 and 29.1 in the 2021 Year.
• Net patient revenue from physical therapy operations was $120.1 million for the 2022 Fourth Quarter, an increase of 5.8% from $113.5 million for the 2021 Fourth Quarter. Net patient revenue from physical therapy operations was $464.6 million for the 2022 Year, an increase of 6.0% from $438.3 million for the 2021 Year.
• For the 2022 Fourth Quarter, total patient visits were 1,152,139, an increase of 5.1% from 1,096,389 for the 2021 Fourth Quarter. For the 2022 Year, total patient visits were 4,483,282, an increase of 6.2% from 4,219,576 for the 2021 Year.
• The net rate per patient visit was $104.28 in the 2022 Fourth Quarter, a $0.75 per visit increase from $103.53 in the 2021 Fourth Quarter. For the 2022 Year, the net rate per patient visit was $103.63 as compared $103.88 in the 2021 Year. The net rate per patient visit increased throughout 2022, from $103.00 in the first quarter of 2022 to $103.18 in the second quarter, $104.01 in the third quarter and $104.28 in the fourth quarter.
• Physical therapy total operating costs were $84.05 per visit in the 2022 Fourth Quarter, a decrease of 1.3% from $85.14 in the third quarter of 2022, and an increase of 2.1% from $82.30 per visit in the Fourth Quarter 2021. Physical therapy salaries and related costs were $60.04 per visit in the Fourth Quarter 2022, a decrease of 1.6% from $60.99 in the third quarter of 2022, and an increase of 1.4% from $59.20 in the Fourth Quarter 2021.
• For the 2022 Year, physical therapy total operating costs were $83.34 per visit, an increase of 4.6% from $79.71 for the 2021 Year. Total salaries and related costs were $59.52 per visit, an increase of 4.1% as compared to $57.20 for the 2021 Year.
• IIP services revenue increased 37.6% to $18.4 million in the 2022 Fourth Quarter as compared to $13.4 million in the 2021 Fourth Quarter. For the full year, IIP services revenue increased 75.5% to $77.1 million in the 2022 Year as compared to $43.9 million for the 2021 Year. Excluding the Company’s IIP Acquisition in November 2021 (“IIP Acquisition”), IIP services revenue increased 9.1% in the 2022 Fourth Quarter and 20.8% in the 2022 Full Year as compared to the same periods in 2021.
• The Company completed two acquisitions in the 2022 Fourth Quarter, resulting in five total acquisitions in the 2022 Year. On October 31, 2022, the Company acquired 60% of the equity interest in a fourteen-clinic physical therapy practice with approximately $9.2 million in annual revenue and approximately 84,000 patient visits per year. On November 30, 2022, the Company acquired 80% of the equity interest in a thirteen-clinic physical therapy practice with approximately $12.0 million in annual revenue and approximately 120,000 patient visits per year.
• The Company’s Board of Directors raised the Company’s quarterly dividend from $0.41 per share to $0.43 per share, an increase of 4.9%, effectively immediately, and declared a quarterly dividend for the first quarter of 2023 at the higher rate.
• Management currently expects the Company’s Adjusted EBITDA for 2023 to be in the range of $75.0 million to $80.0 million. The guidance represents projected Adjusted EBITDA from existing operations and excludes future acquisitions. See “Management Provides 2023 Guidance” below for more information.

Management’s Comments

Chris Reading, Chief Executive Officer, said, “I am proud of the work by our partners, clinicians, and leadership team despite significant macroeconomic headwinds present in the second half of 2022. We are making good progress around contract renegotiations, development has been strong, and staffing has begun to improve. Volumes to start the new year have been ahead of our initial expectations. Our team will continue to work on all these important items as we go forward in 2023.”

Carey Hendrickson, Chief Financial Officer, said, “We are pleased to raise our quarterly dividend rate once again in the first quarter of 2023, which we have raised each year since the inception of our dividend in 2011. While we again have some Medicare rate headwinds as we enter 2023, we have tremendous confidence in our team to produce EBITDA growth this year through increased volumes, continued momentum in rate renegotiations and an ongoing focus on making our operations as efficient as possible.”

Fourth Quarter 2022 As Compared to Fourth Quarter 2021

**As noted above, the Company is still completing its evaluation of the income tax expense for the 2022 Fourth Quarter and 2022 Year. As a result, the Company’s presentation of earnings per share, operating results per share and its provision for income taxes may change as a result of this evaluation. Set forth below are the Company’s current estimates for these amounts. The Company will promptly announce any changes upon the completion of the evaluation.

• Reported total revenue for the 2022 Fourth Quarter was $141.2 million, an increase of 8.7% as compared to $129.8 million for the 2021 Fourth Quarter. See table below for a detail of reported total revenue (in thousands):

• Revenue from physical therapy operations increased $6.8 million, or 6.0%, to $121.0 million for the 2022 Fourth Quarter from $114.2 million for the 2021 Fourth Quarter. The average net patient revenue per visit was $104.28 for the 2022 Fourth Quarter as compared to $103.53 for the 2021 Fourth Quarter. Total patient visits increased 5.1% to 1,152,139 for the 2022 Fourth Quarter from 1,096,389 for the 2021 Fourth Quarter.

• Net patient revenue related to clinics opened or acquired prior to 2021 and still in operation on December 31, 2022 (“Mature Clinics”) decreased slightly. Visits for Mature Clinics (same store) for the 2022 Fourth Quarter decreased by 2.3% as compared to the 2021 Fourth Quarter while net patient revenue per visit increased by 1.1% over the comparable period.

• IIP services revenue increased 37.6% to $18.4 million for the 2022 Fourth Quarter as compared to $13.4 million for the 2021 Fourth Quarter. The 2022 Fourth Quarter includes revenue of $6.2 million related to the IIP Acquisition compared to $2.2 million in the 2021 Fourth Quarter.

• Total operating cost was $113.4 million for the 2022 Fourth Quarter, or 80.3% of total revenue, as compared to $102.7 million, or 79.1% of total revenue, for the 2021 Fourth Quarter. Operating cost related to Mature Clinics increased $0.3 million, or 0.4%, for the 2022 Fourth Quarter as compared to the 2021 Fourth Quarter. Operating cost related to the IIP services business increased by $4.5 million for the 2022 Fourth Quarter as compared to the 2021 Fourth Quarter, of which $3.5 million related to the IIP Acquisition. See table below for a detail of operating cost (in thousands):

• Total salaries and related costs, including all operations, were 58.3% of total revenue for the 2022 Fourth Quarter versus 58.0% for the 2021 Fourth Quarter. Rent, supplies, contract labor and other costs as a percentage of total revenue were 21.0% for the 2022 Fourth Quarter versus 20.0% for the 2021 Fourth Quarter. The provision for credit losses as a percentage of total revenue was 1.0% for 2022 Fourth Quarter and 1.1% for 2021 Fourth Quarter.

• Gross profit for the 2022 Fourth Quarter was $27.8 million as compared to $27.2 million for the 2021 Fourth Quarter. The gross profit percentage was 19.7% of total revenue for the 2022 Fourth Quarter as compared to 20.9% for the 2021 Fourth Quarter. The gross profit percentage for the Company’s physical therapy operations was 20.0% for the 2022 Fourth Quarter as compared to 21.0% for the 2021 Fourth Quarter. The gross profit percentage on management contracts was 19.9% for the 2022 Fourth Quarter as compared to 19.1% for the 2021 Fourth Quarter. The gross profit percentage for industrial injury prevention services was 17.9% for the 2022 Fourth Quarter as compared to 20.6% for the 2021 Fourth Quarter. The table below details the gross profit (in thousands):

• During the 2022 Fourth Quarter, the Company recorded a charge for goodwill impairment of $9.1 million related to the IIP Acquisition. The impairment is related to a change in the IIP Acquisition’s current and projected operating income as well as various inputs based on current market conditions, including the higher interest rate environment.

• Corporate office costs were $11.9 million for the 2022 Fourth Quarter as compared to $10.7 million for the 2021 Fourth Quarter. Corporate office costs were 8.4% of total revenue for the 2022 Fourth Quarter as compared to 8.3% for the 2021 Fourth Quarter.

• Operating income was $6.8 million for the 2022 Fourth Quarter and $16.5 million for 2021 Fourth Quarter.

• During the 2022 Fourth Quarter, the Company revalued the contingent earn-out consideration related to an acquisition resulting in the elimination of a $0.5 million liability previously booked.

• For the 2022 Fourth Quarter, the Company recognized income of $0.2 million related to a joint venture company that provides physical therapy services for patients at hospitals.

• The change in revaluation of put-right liability was $0.8 million for the 2022 Fourth 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. The value of this right will continue to be adjusted in future periods, as appropriate.

• Interest expense on debt and other, primarily from the Company’s $150 million term loan entered into in June 2022 and to a lesser extent the funds drawn on the Company’s revolving credit facility, amounted to $2.2 million for the 2022 Fourth Quarter. The effective interest rate on the Company’s debt was 5.1% for the 2022 Fourth Quarter. See discussion of Other Comprehensive Income below for information related to the Company’s interest rate swap agreement. For the 2021 Fourth Quarter, interest expense, primarily from the Company’s revolving line of credit, was $0.2 million.

• The provision for income tax was $1.2 million for the 2022 Fourth Quarter and $3.9 million for the 2021 Fourth Quarter. The provision for income tax, as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate), was 31.7% for the 2022 Fourth Quarter and 27.2% for the 2021 Fourth Quarter. Excluding the impact of the impairment charge discussed above, the effective tax in the Fourth Quarter 2022 was 27.9% See computation of 2022 Year tax rate in next section. See table below ($ in thousands):

• The net loss attributable to redeemable non-controlling interest (temporary equity) was $0.3 million for the 2022 Fourth Quarter as compared to net income attributable to redeemable non-controlling interest of $2.7 million for the 2021 Fourth Quarter. Net income attributable to non-controlling interest (permanent equity) was $1.1 million for the 2022 Fourth Quarter and $1.5 million for the 2021 Fourth Quarter. During the 2022 Fourth Quarter, $2.7 million of the goodwill impairment charge related to redeemable non-controlling interest (temporary equity).

• For the 2022 Fourth Quarter, the Company’s net income attributable to its shareholders was $2.6 million as compared to $10.2 million for the 2021 Fourth Quarter. In accordance with GAAP, the revaluation of redeemable non-controlling interest, net of taxes, is not included in net income but charged directly to retained earnings; however, the charge for this change is included in the earnings per basic and diluted share calculation. Inclusive of the charge for revaluation of noncontrolling interest, net of taxes, the amount is a loss of $0.1 million, or $0.01 per diluted share, for the 2022 Fourth Quarter, and income of $9.4 million, or $0.73 per diluted share, for the 2021 Fourth Quarter.

• For the 2022 Fourth Quarter, the Company’s Adjusted EBITDA, a non-GAAP measure, was $17.9 million as compared to $17.4 million (excluding Relief Funds) in the 2021 Fourth Quarter. See definition, explanation and calculation of Adjusted EBITDA, a non-GAAP measure, in the schedules on pages 16 and 17.

• For the 2022 Fourth Quarter, the Company’s Operating Results, a non-GAAP measure, was $7.5 million, or $0.58 per diluted share as compared to $9.3 million (excluding Relief Funds), or $0.72 per diluted share, for the 2021 Fourth Quarter. See definition, explanation and calculation of Operating Results, a non-GAAP measure, in the schedules on pages 16 and 17.

2022 Year As Compared to 2021 Year

**As noted above, the Company is still completing its evaluation of the income tax expense for the 2022 Fourth Quarter and 2022 Year. As a result, the Company’s presentation of earnings per share, operating results per share and its provision for income taxes may change as a result of this evaluation. Set forth below are the Company’s current estimates for these amounts. The Company will promptly announce any changes upon the completion of the evaluation.

• Reported total revenue for the 2022 Year was $553.1 million, an increase of 11.7% as compared to $495.0 million for the 2021 Year. See table below for a detail of reported total revenue (in thousands):

• Revenue from physical therapy operations increased $26.7 million, or 6.1%, to $468.0 million for the 2022 Year from $441.3 million in the 2021 Year. The average net patient revenue per visit was $103.63 for the 2022 Year as compared to $103.88 for the 2021 Year. Total patient visits were 4,483,282 for the 2022 Year and 4,219,576 for the 2021 Year, an increase of 6.2%.

• Net patient revenue related to Mature Clinics increased $1.7 million, or 0.4%, to $421.8 million for the 2022 Year, as compared to $420.1 million for the 2021 Year. Visits for Mature Clinics (same store) for the 2022 Year increased 0.5% as compared to the 2021 Year. The increase in visits was partially offset by a 0.1% reduction in the net patient revenue per visit.

• IIP services revenue increased 75.5% to $77.1 million for the 2022 Year as compared to $43.9 million for the 2021 Year. The 2022 Year includes revenue of $26.7 million related to the IIP Acquisition compared to $2.2 million in the 2021 Year.

• Total operating cost was $441.1 million for the 2022 Year, or 79.7% of total revenue, as compared to $377.8 million, or 76.3% of total revenue, for the 2021 Year. Operating cost related to Mature Clinics increased by $16.7 million for the 2022 Year as compared to the 2021 Year. Operating cost related to the IIP services business increased by $27.9 million for the 2022 Year as compared to the 2021 Year, of which $22.4 million related to the IIP Acquisition. See table below for a detail of operating cost (in thousands):

• Total salaries and related costs, including all operations, were 57.7% of total revenue for the 2022 Year versus 56.3% for the 2021 Year. Rent, supplies, contract labor and other costs as a percentage of total revenue were 21.0% for the 2022 Year versus 19.0% for the 2021 Year. The provision for credit losses as a percentage of total revenue was 1.0% for 2022 Year and 1.1% for 2021 Year. The Company experienced pressure on labor rates and other costs in 2022 due to the inflationary economic environment.

• Gross profit for the 2022 Year was $112.0 million, a decrease of $5.2 million, or 4.4%, as compared to $117.2 million for the 2021 Year. The gross profit percentage was 20.3% of total revenue for the 2022 Year as compared to 23.7% for the 2021 Year. The gross profit percentage for the Company’s physical therapy operations was 20.2% for the 2022 Year as compared to 23.8% for the 2021 Year. The gross profit percentage on management contracts was 20.9% for the 2022 Year as compared to 15.7% for the 2021 Year. The gross profit percentage for industrial injury prevention services was 20.7% for the 2022 Year as compared to 24.4% for the 2021 Year. Gross profit in the 2022 Year was affected by pressure on labor rates and other costs due to the inflationary economic environment. The IIP margin in 2022 was impacted by the lower margin profile of the IIP Acquisition. The table below details the gross profit (in thousands):

• See above discussion of the charge recorded for goodwill impairment.

• Corporate office costs were $46.1 million for the 2022 Year as compared to $46.5 million for the 2021 Year. Corporate office costs were 8.3% of total revenue for the 2022 Year as compared to 9.4% for the 2021 Year. The decrease was primarily due to lower estimated bonus expense in the 2022 Year than the 2021 Year.

• Operating income was $56.8 million for the 2022 Year and $70.6 million for the 2021 Year.

• The Company revalued contingent earn-out consideration related to some of its acquisitions resulting in the elimination of $2.5 million of the liabilities previously booked.

• The Company recognized income of $1.2 million in the 2022 Full Year related to a joint venture company that provides physical therapy services for patients at hospitals.

Contacts

U.S. Physical Therapy, Inc.

Carey Hendrickson, Chief Financial Officer

email: [email protected]

Chris Reading, Chief Executive Officer

(713) 297-7000

Three Part Advisors

Joe Noyons

(817) 778-8424

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