U S PHYSICAL THERAPY INC /NV 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following is a discussion of our historical consolidated financial condition and results of operations, and should be read in conjunction with (i) our historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q; (ii) our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2020 (“2019 Annual Report”); and (iii) our management’s discussion and analysis of financial condition and results of operations included in our 2019 Annual Report. This discussion includes forward-looking statements that are subject to risk and uncertainties. Actual results may differ substantially from the statements we make in this section due to a number of factors that are discussed in “Forward-Looking Statements” herein and in Part II, Item 1A. Risk Factors of this report. References to “we,” “us,” “our” and the “Company” shall mean U.S. Physical Therapy, Inc. and its subsidiaries. EXECUTIVE SUMMARY Our Business We operate outpatient physical therapy clinics that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders and sports-related injuries, neurologically-related injuries and rehabilitation of injured workers. Business Update Related to COVID-19 The total repercussions of the coronavirus disease 2019 (“COVID-19”) pandemic on the results of our operations and overall financial performance remain uncertain. We have provided certain performance metrics that will assist our readers in understanding how the COVID-19 pandemic affected our business during the one month ended March 31,2020, including our 1) net revenues for the two months ended February 29, 2020 and February 28, 2019 (excluding net revenues for the clinics sold in the partnership in June), 2) net revenues for the one month ended March 31, 2020 and March 31, 2019 (excluding net revenues for the clinics sold in the partnership in June), 3) net revenues for the three months ended March 31, 2020 and March 31, 2019, and 4) certain operating data for the previously mentioned periods. Please refer to our risk factors discussed in Part II, Item 1A, “Risk Factors” of this Form 10-Q and as previously reported in the 2019 Annual Report for more information. Beginning in mid-March, hospitals and other medical facilities began to halt elective and non-essential surgeries. Additionally, state governments in areas with significant growth of COVID-19 infections implemented mandatory closures of non-essential and non-life sustaining businesses, executed stay-at-home orders, imposed restrictions on travel and closed schools. These actions continued to develop and towards the end of March, most states had significant restrictions on businesses and individuals. The suspension of elective surgeries, decrease in physician office visits and recommendations of social distancing along with the aforementioned limitations had an adverse impact on our volume of patient visits. Due to these impacts and measures, we have experienced significant and unpredictable reductions and cancellations of our patient visits. We have provided below certain performance benchmarks and measures to help explain the adverse impact of COVID-19 on our Operating Results (as defined below). For the first quarter ended March 31, 2020, we have defined the pre-COVID-19 period as the two months ended February 29, 2020 and the post-COVID-19 period as the one month ended March 31, 2020. The following performance measures and operating data excludes the effects of the clinics in the partnership sold in June 2019 and should be evaluated in conjunction with the Operating Results for the entire quarters ended March 31, 2020 and 2019. The performance measures and operating data presented for the two months ended February 29, 2020 and one month ended March 31, 2020 are, when combined, equal to the performance measures and operating data presented for the full quarter ended March 31, 2020. 28 Table of Contents Two months ended February 29, One month ended March 31, Three months ended March 31, 2020 2019 % Change 2020 2019 % Change 2020 2019 % Change Selected Financial Data: Net revenues (in thousands) - reported $ 78,193 $ 75,901 3.0 % $ 34,524 $ 40,330 -14.4 % $ 112,717 $ 116,231 -3.0 % Net revenues (in thousands) - without sold clinics $ 78,193 $ 72,232 8.3 % $ 34,524 $ 38,314 -9.9 % $ 112,717 $ 110,546 2.0 % Operating Statistics (without sold clinics): Number of clinics, at the end of period 587 561 567 559 567 559 Working Days 42 42 22 21 64 63 Average visits per day per clinic 27.7 26.5 22.7 27.9 26.2 27.0 Total patient visits 676,328 623,943 294,695 328,288 971,023 952,231 Net patient revenue per visit $ 103.06 $ 105.89 $ 103.22 $ 106.29 $ 103.11 $ 106.02 We continue to experience significantly lower physical therapy revenue than normal and in the near term expects to incur losses. Our physical therapy patient volumes in April declined to as low as 45% of normal. In a number of our markets, patient volume is increasing albeit at a slow pace. We are currently at approximately slightly above 60% of normal patient volume but that varies significantly by region. As of May 20, 2020, we have 69 clinics that are closed as a result of this pandemic; 34 of these clinics are anticipated to be closed only temporarily. At least 35 clinics likely will not reopen, of which 22 of those were closed in late March. Our industrial injury prevention business has also experienced a reduction in business, although not as significant as experienced by our physical therapy operations. We have taken a number of steps to mitigate operating losses primarily through furloughs and salary cuts and to a lesser extent through terminations. To date, we have furloughed or terminated more than 2,150 employees (1,400 furloughs and 750 terminations), comprising approximately 40% of the employees across the Company. In the corporate office, across-the-board employee salary reductions have been implemented from 20% to 25%, as well as a 35% to 40% salary reductions for executives, and a 50% reduction in fees paid to our Board of Directors. A number of our clinic partnerships have made salary reductions as well. We estimate that these workforce and pay reductions would equate to annualized savings of approximately $87 million. The Company continues to (i) deploy a telehealth and e-visit solutions to perform services remotely, (ii) renegotiate leases, (iii) slow development of new clinics, (iv) delay potential acquisitions and (v) reduce other expenses. Given the rapid and evolving nature of COVID-19, our revenue will be negatively affected, and it is uncertain how COVID-19 will affect operations generally if these impacts continue to persist for an extended period of time. Any of these aforementioned impacts would have a significant adverse effect on our business, financial condition and results of operations, and at this point, the extent of the impact of COVID-19 remains uncertain. Selected Operating and Financial Data At March 31, 2020, we operated 567 clinics in 39 states. In addition to our ownership and operation of outpatient physical therapy clinics, we also manage physical therapy facilities for third parties, such as physicians and hospitals, with 30 such third-party facilities under management as of March 31, 2020. In March 2017, we acquired a 55% interest in an initial industrial injury prevention business. On April 30, 2018, we made a second acquisition and subsequently combined the two businesses. After the combination, we owned a 59.45% interest in the combined business, Briotix Health, Limited Partnership (“Briotix Health”). Services provided include onsite injury and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. We perform these services through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs). On April 11, 2019, we acquired a third company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network in 45 states including onsite at eleven client locations. The acquired business was then combined with Briotix Health increasing our ownership position in the partnership to approximately 76.0%. Services provided include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. We perform these services through Industrial Sports Medicine Professionals, consisting of both physical therapists and highly specialized certified athletic trainers (ATCs). 29 Table of Contents On February 27, 2020, we acquired interests in a four-clinic physical therapy practice. The four clinics are in four separate partnerships. Our interests in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. The purchase price was $11.9 million, of which $11.6 million was paid in cash and a $0.3 million seller note. The note accrues interest at 4.75% per annum and the principal and interest is payable on February 2022. On September 30, 2019, we acquired a 67% interest in eleven-clinic physical therapy practice. The purchase price for the 67% interest was $12.4 million of which $12.1 million was paid in cash and $0.3 million in a seller note that is payable in two principal installments totaling $150,000 each, plus accrued interest in September 2020 and September 2021. The note accrues interest at 5.0% per annum. RESULTS OF OPERATIONS Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019 • For the 2020 First Quarter, our Operating Results (as defined below) were $3.9 million, or $0.30 per diluted share, as compared to $8.4 million, or $0.66 per diluted share for the first quarter ended March 31, 2019 (“2019 First Quarter”). Operating Results, a non-GAAP measure, equals net income attributable to our shareholders per the consolidated statement of net income plus charges incurred for CFO search and closure costs, both net of tax. The earnings per share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest. • For the 2020 First Quarter, our net income attributable to our shareholders, in accordance with GAAP, was $1.0 million as compared to $8.4 million for the 2019 First Quarter. Inclusive of the credit or charge for the revaluation of non-controlling interest, net of tax, used to compute diluted earnings per share, in accordance with GAAP, in the 2020 First Quarter, the amount is $2.6 million, or $0.20 per share, as compared to $5.0 million, or $0.39 per share. In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is not included in net income but charged or credited directly to retained earnings; however, the charge or credit for this change is included in the earnings per basic and diluted share calculation. See above for a discussion of the effects of COVID-19 pandemic on our operations. The following table provides details of the diluted earnings per share computation and reconciles net income attributable to our shareholders calculated in accordance with GAAP to Operating Results. Management believes providing Operating Results to investors is useful information for comparing our period-to-period results. Operating Results, a non-GAAP measure, equals net income attributable to our shareholders per the consolidated statement of net income plus charges incurred for our CFO search and closure costs, both net of tax. The earnings per share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest. In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is included in the earnings per basic and diluted share calculation, although it is not included in net income but charged directly to retained earnings. Management uses Operating Results, which eliminates certain items described above that can be subject to volatility and unusual costs, 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 our period-to-period results as well as for comparing with other similar businesses since most do not have redeemable non-controlling interest instruments and therefore have different liability and equity structures. Operating Results is not a measure of financial performance under GAAP. Operating Results should not be considered in isolation or as an alternative to, or substitute for, net income attributable to our shareholders presented in the consolidated financial statements. 30 Table of Contents Three Months Ended March 31, 2020 2019 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 1,016 $ 8,443 Credit (charges) to retained earnings: Revaluation of redeemable non-controlling interest 2,129 (4,661 ) Tax effect at statutory rate (federal and state) of 26.25% (559 ) 1,224 $ 2,586 $ 5,006 Earnings per share (basic and diluted) $ 0.20 $ 0.39 Adjustments: Charges incurred for CFO search 133 - Closure costs 3,752 - Revaluation of redeemable non-controlling interest (2,129 ) 4,661 Tax effect at statutory rate (federal and state) of 26.25% (461 ) (1,224 ) Operating Results $ 3,881 $ 8,443 Basic and diluted Operating Results per share $ 0.30 $ 0.66 Shares used in computation - basic and diluted 12,796 12,707 Revenues • Excluding the loss of revenues from the clinics within the partnership sold in June of 2019 (“sold clinics”) of $5.7 million for the 2019 First Quarter, net revenues for the 2020 First Quarter of $112.7 million increased 2.0% from adjusted revenue of $110.5 million ($116.2 million less the $5.7 million) in 2019 First Quarter despite the adverse effects, beginning in mid-March, of the COVID-19 pandemic on the Company’s clinics. • Net patient revenues from physical therapy operations decreased $6.5 million, or 6.1%, to $100.1 million in the 2020 First Quarter from $106.7 million in the 2019 First Quarter primarily due to the $5.7 million of lost revenue from sold clinics and the adverse effects of COVID-19. Total patient visits were 971,000 in the 2020 First Quarter and 1,001,510 for the 2019 First Quarter (inclusive of 49,300 for the sold clinics). The average net patient revenue per visit was $103.11 for the 2020 First Quarter and $106.49 for the 2019 First Quarter. Excluding the 49,300 visits, the net revenue per visit was $106.02 for the 2019 First Quarter. Of the $0.8 million ($6.5 million less $5.7 million) decrease in net patient revenues, $5.4 million related to a decrease in business of clinics opened or acquired prior to April 1, 2019 (“Mature Clinics”) and was offset by $4.6 million related to clinics opened or acquired after March 31, 2019 (“New Clinics”). Revenue from physical therapy management contracts was $2.1 million for both 2020 and 2019 first quarters. • Revenue from the industrial injury prevention business increased 43.1% to $9.9 million in the 2020 First Quarter compared to $6.9 million in the 2019 First Quarter due to internal growth and an acquisition in the second quarter of 2019. Management estimates that the industrial injury prevention business lost approximately $126,000 in revenue and contribution margin due to the pandemic. • Other miscellaneous revenue was $0.6 million in the 2020 First Quarter and $0.5 million in the 2019 First Quarter. Net patient revenues are based on established billing rates less allowances for patients covered by contractual programs and workers’ compensation. Net patient revenues are determined after contractual and other adjustments relating to patient discounts from certain payors. Payments received under contractual programs and workers’ compensation are based on predetermined rates and are generally less than the established billing rates. 31 Table of Contents Operating Costs Total operating costs, excluding closure costs, were $93.3 million in the 2020 First Quarter, or 82.7% of net revenues, as compared to $89.5 million in the 2019 First Quarter, or 77.0% of net revenues. The $3.8 million increase was attributable to $5.2 million in operating costs related to New Clinics and $2.6 million related to the industrial injury prevention business, primarily related to the acquisition, offset by a decrease of $4.0 million related to Mature Clinics. Closure costs of $3.8 million include estimates of remaining lease obligations, write-off of goodwill and other costs. The Company will incur additional closure costs in the second quarter of 2020. Each component of operating costs is discussed below: Operating Costs—Salaries and Related Costs Salaries and related costs increased to $69.0 million for the 2020 First Quarter from $66.3 million for the 2019 First Quarter, an increase of $2.7 million. Salaries and related costs for New Clinics amounted to $3.4 million for the 2020 First Quarter. Salaries and related costs for the industrial injury prevention business was $6.9 million in the 2020 First Quarter compared to $4.3 million 2019 First Quarter, an increase of $2.6 million primarily due to the acquisition in April 2019. For Mature Clinics, salaries and related costs decreased by $3.3 million in the 2020 First Quarter compared to the 2019 First Quarter. For management contracts, salaries and related costs increased slightly by $0.1 million for the 2020 First Quarter compared to the 2019 First Quarter. Salaries and related costs as a percentage of net revenues were 61.2% for the 2020 First Quarter and 57.0% for the 2019 First Quarter. Operating Costs—Rent, Supplies, Contract Labor and Other Rent, supplies, contract labor and other were $22.9 million for the 2020 First Quarter and $22.0 million for the 2019 First Quarter. For New Clinics, rent, supplies, contract labor and other amounted to $1.7 million for the 2020 First Quarter. For Mature Clinics, rent, supplies, contract labor and other decreased by $1.1 million in the 2020 First Quarter compared to the 2019 First Quarter. For the industrial injury prevention business, rent, supplies, contract labor and other increased by $0.3 million for the respective periods. Rent, supplies, contract labor and other as a percentage of net revenues was 20.3% for the 2020 First Quarter and 19.0 % for the 2019 First Quarter. Operating Costs—Provision for Doubtful Accounts The provision for doubtful accounts was $1.4 million for the 2020 First Quarter and $1.2 million for the 2019 First Quarter. The provision for doubtful accounts for patient accounts receivable as a percentage of net patient revenues was 1.2% for the 2020 First Quarter and 1.0% for the comparable period in 2019. Our provision for doubtful accounts for patient accounts receivable as a percentage of total patient accounts receivable was 5.66% at March 31, 2020, as compared to 5.50% at December 31, 2019. Our days’ sales outstanding were both 33 days at March 31, 2020 and December 31, 2019. Gross Profit Gross profit for 2020 First Quarter, excluding closure costs, was $19.4 million, as compared to $26.7 million in the 2019 First Quarter. The gross profit percentage, excluding closure costs, decreased and was 17.2% of net revenue in the 2020 First Quarter as compared to 23.1% in the 2019 First Quarter. The gross profit percentage for our physical therapy clinics, excluding closure costs, was 17.3% in the 2020 First Quarter as compared to 23.0% in the 2019 First Quarter. The gross profit percentage on physical therapy management contracts was 15.7% in the 2020 First Quarter as compared to 18.5% in the 2019 First Quarter. The gross profit for the industrial injury prevention business was $1.7 million, or 16.8% in the 2020 First Quarter as compared to $1.5 million, or 22.3%, in the 2019 First Quarter. 32 Table of Contents Corporate Office Costs Corporate office costs, consisting primarily of salaries, incentive compensation, and benefits of corporate office personnel, rent, insurance costs, depreciation and amortization, travel, legal, accounting, professional, and recruiting fees, were $11.7 million for the 2020 First Quarter and $11.3 million for the 2019 First Quarter. As a percentage of net revenues, corporate office costs were 10.4% for the 2020 First Quarter and 9.7% for the 2019 First Quarter. Operating Income Operating income for the 2020 First Quarter was $4.0 million as compared to $15.4 million 2019 First Quarter. Operating income as a percentage of net revenue decreased by 970 basis points from 13.3% in the 2019 period to 3.6% in 2020. See discussion above related to the effects of COVID-19 on our business for more. Interest Expense Interest expense was $0.4 million in the 2020 First Quarter compared to $ 0.3 million in the 2019 First Quarter due to higher borrowings under our revolving credit line. At March 31, 2020, $114.0 million was outstanding under our Amended Credit Agreement (as defined below). See “—Liquidity and Capital Resources” below for a discussion of the terms of our Amended Credit Agreement. Provision for Income Taxes The provision for income tax for the 2020 First Quarter was $0.3 million and $2.7 million in the 2019 First Quarter. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest was 22.3% for the 2020 First Quarter and 24.3% for the 2019 First Quarter. See table below detailing calculation of the provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands): Three Months Ended March 31, 2020 March 31, 2019 Income before taxes $ 3,630 $ 15,083 Less: net income attributable to non-controlling interests: Non-controlling interests - permanent equity (526 ) (1,537 ) Redeemable non-controlling interests - temporary equity (1,796 ) (2,395 ) $ (2,322 ) $ (3,932 ) Income before taxes less net income attributable to non-controlling interests $ 1,308 $ 11,151 Provision for income taxes $ 292 $ 2,708 Percentage 22.3 % 24.3 % Net Income Attributable to Non-controlling Interests Net income attributable to non-controlling interests (permanent equity) was $0.5 million in the 2020 First Quarter and $1.5 million in the 2019 First Quarter. Net income attributable to redeemable non-controlling interests (temporary equity) was $1.8 million in the 2020 First Quarter and $2.4 million in the 2019 First Quarter. 33 Table of Contents LIQUIDITY AND CAPITAL RESOURCES We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. At March 31, 2020 and December 31, 2019, we had $89.5 million and $23.5 million, respectively, in cash. We believe that our cash is sufficient to fund the working capital needs of our operating subsidiaries through at least March 31, 2021. As of the date of this filing, we have approximately $110.0 million in cash. In addition to collections from our patient receivables, we have drawn all funds available under the Amended Credit Agreement of $125.0 million, received funds from (a) the Medicare Accelerated and Advance Payment Program (“MAAPP”) ($12.4 million to date) and (b) the Public Health and Social Services Emergency Fund (“Relief Fund”) ($5.7 million to date) as part of the Coronavirus Aid, Relief, and Economics Securities Act (“CARES Act”). MAAPP funds received will be applied to future Medicare billings commencing in August 2020, with all such remaining amounts required to be repaid by us by November 2020. Beginning November 2020, any unpaid balance will begin accruing interest. The Relief Fund monies do not have to be repaid. In addition, we are taking advantage of the allowed deferral of the employer payroll taxes under the CARES Act. Effective December 5, 2013, we entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended in August 2015, January 2016, March 2017 and November 2017 (hereafter referred to as “Amended Credit Agreement”). The Amended Credit Agreement is unsecured and has loan covenants, including requirements that we comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of our common stock, dividend payments to our common stockholders, capital expenditures and other corporate purposes. The pricing grid is based on our consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25% to 2.0% or the applicable spread over the Base Rate ranging from 0.1% to 1%. Fees under the Amended Credit Agreement include an unused commitment fee ranging from 0.25% to 0.3% depending on our consolidated leverage ratio and the amount of funds outstanding under the Amended Credit Agreement. The January 2016 amendment to the Amended Credit Agreement increased the cash and noncash consideration that we could pay with respect to acquisitions permitted under the Amended Credit Agreement to $50.0 million for any fiscal year, and increased the amount we may pay in cash dividends to our shareholders in an aggregate amount not to exceed $10.0 million in any fiscal year. The March 2017 amendment, among other items, increased the amount we may pay in cash dividends to our shareholders in an aggregate amount not to exceed $15.0 million in any fiscal year. The November 2017 amendment, among other items, adjusted the pricing grid as described above, increased the aggregate amount we may pay in cash dividends to $20.0 million to our shareholders and extended the maturity date to November 30, 2021. As of March 31, 2020, we were in compliance with all of the covenants contained in the credit agreement. Management cannot be certain the Company will be in compliance with covenants at the end of second quarter of 2020. Management is in discussions with our lender regarding an amendment to the facility so as to maintain compliance with all covenants. Management anticipates an amendment will be in place by the end of the second quarter of 2020. Cash and cash equivalents increased by $66.1 million from December 31, 2019 to March 31, 2020. During the 2020 First Quarter, $16.4 million was provided by operations, and $68.0 million of net proceeds from our revolving line of credit. The major uses of cash for investing and financing activities included: purchases of interests in the four-clinic practice acquired ($11.6 million), distributions to non-controlling interests inclusive of those classified as redeemable non-controlling interests ($2.3 million), purchase of fixed assets ($2.7 million) and a purchase of redeemable non-controlling interests ($1.9 million). On February 27, 2020, we acquired interests in a four-clinic physical therapy practice. The four clinics are in four separate partnerships. Our interests in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. The aggregate purchase price was $11.9 million, of which $11.6 million was paid in cash and a $0.3 million seller note. The note accrues interest at 4.75% per annum and the principal and interest is payable on February 2022. On September 30, 2019, we acquired a 67% interest in eleven-clinic physical therapy practice. The purchase price for the 67% interest was $12.4 million, of which $12.1 million was in cash and $0.3 million in a seller note that is payable in two principal installments totaling $150,000 each, plus accrued interest in September 2020 and September 2021. The note accrues interest at 5.0% per annum. 34 Table of Contents On April 11, 2019, we acquired a company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network of 45 states including onsite at eleven client locations. The business was then combined with Briotix Health, our industrial injury prevention operation, increasing our ownership position in the Briotix Health partnership to approximately 76.0%. The purchase price for the acquired company was $22.9 million ($23.6 million less cash acquired of $0.7 million), which consisted of $18.9 million in cash, (of which $0.5 million will be paid to certain shareholders), and a $4.0 million seller note. The note accrues interest at 5.5% and the principal and accrued interest is payable, on April 9, 2021. On March 4, 2019, in conjunction with the purchase of a redeemable non-controlling interest, we entered into a note payable in the amount of $228,120 that was payable in two equal installments of $114,080 each, plus accrued interest. The first installment was paid in March 2020 and the second installment remains payable in March 2021. We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts, in a consistent manner for all payor types. Claims are submitted to payors daily, weekly or monthly in accordance with our policy or payor’s requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting Medicare Rehab Agency status approval initially may be delayed for a relatively short transition period. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-pay payor type receivables, the write-off generally occurs after the accounts receivable has been outstanding for at least 120 days. We generally enter into various notes payable as a means of financing our acquisitions. Our outstanding notes payable as of March 30, 2020 relate to certain of the acquisitions of businesses and purchases of redeemable non-controlling interests that occurred in 2018 through March 2020. Typically, the notes are payable over two years plus any accrued and unpaid interest. Interest accrues at various interest rates ranging from 3.25% to 5.5% per annum, subject to adjustment. At March 31, 2020, the balance on these notes payable was $5.3 million. In addition, we assumed leases with remaining terms of 1 month to 6 years for the operating facilities. In conjunction with the above mentioned acquisitions, in the event that a limited minority partner’s employment ceases at any time after a specified date that is typically between three and five years from the acquisition date, we have agreed to certain contractual provisions which enable such minority partners to exercise their right to trigger our repurchase of that partner’s non-controlling interest at a predetermined multiple of earnings before interest and taxes. As of March 31, 2020, we have accrued $5.1 million related to credit balances due to patients and payors. This amount is expected to be paid in the next twelve months. From September 2001 through December 31, 2008, our Board of Directors (“Board”) authorized us to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of our common stock. In March 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of our common stock (“March 2009 Authorization”). Our Amended Credit Agreement permits share repurchases of up to $15,000,000, subject to compliance with covenants. We are required to retire shares purchased under the March 2009 Authorization. There is no expiration date for the share repurchase program. As of March 31, 2020, there are currently an additional estimated 217,391 shares (based on the closing price of $69.00 on March 31, 2020) that may be purchased from time to time in the open market or private transactions depending on price, availability and our cash position. We did not purchase any shares of our common stock during the three months ended March 31, 2020. 35 Table of Contents FACTORS AFFECTING FUTURE RESULTS The risks related to our business and operations include: • the multiple effects of the impact of public health crises and epidemics/pandemics, such as the novel strain of COVID-19, for which the financial magnitude cannot be currently estimated; • 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 and/or enrollment 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, which may result in sanctions or reputational harm and increased costs; • 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 changes in the 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; • competitive environment in the industrial injury prevention business, which could result in the termination or non-renewal of contractual service arrangements and other adverse financial consequences for that service line; • acquisitions, and the successful integration of the operations of the acquired businesses; • impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their non controlling interests (minority interests); • maintaining our information technology systems with adequate safeguards to protect against cyber-attacks; • a security breach of our or our third party vendors’ information technology systems may subject us to potential legal action and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 of the Health Information Technology for Economic and Clinical Health Act; • maintaining adequate internal controls; • maintaining necessary insurance coverage; • availability, terms, and use of capital; and • weather and other seasonal factors. See Risk Factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 and our subsequent current and periodic reports, including the additional risk factor noted in our Current Report on Form 8-K filed on April 24, 2020. Forward-Looking Statements We make statements in this report that are considered to be forward-looking statements within the meaning given such term under Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 project. Included among such statements are those relating to opening 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 the risks listed above. 36 Table of Contents Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our forward-looking statements. Please see the other sections of this report and our other periodic reports filed with the Securities and Exchange Commission (the “SEC”) for more information on these factors. Our forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we are under no obligation to update any forward-looking statement, regardless of the reason the statement may no longer be accurate.