What changed in this filing

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Item 1. Financial Statements

2020-08-07 compared with 2020-05-21 · 255 added, 155 removed, 623 unchanged (40% of the section changed)

4 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE DATA)

March 31, 2020

June 30, 2020

December 31, 2019

44 unchanged sentences

For the Three Months Ended

March 31, 2020

March 31, 2019

For the Six Months Ended

June 30, 2020

June 30, 2019

Net patient revenues

9 unchanged sentences

Operating income

Other income and expense:

Gain on sale of partnership interest and clinics

Interest and other income, net

Interest expense - debt and other

Total other income and expense

Income before taxes

12 unchanged sentences

(IN THOUSANDS)

Three Months Ended

March 31, 2020

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

OPERATING ACTIVITIES

5 unchanged sentences

Deferred income taxes

Loss on sale of fixed assets

Gain on sale of partnership interest, net of tax

Write-off of goodwill - closed clinics

1 unchanged sentence

Decrease (increase) in patient accounts receivable

Increase in accounts receivable - other

Increase (Decrease) in other assets

Increase in accounts payable and accrued expenses

Decrease(increase) in accounts receivable - other

Decrease (increase) in other assets

Increase (decrease) in accounts payable and accrued expenses

Increase (decrease) in other liabilities

5 unchanged sentences

Purchase of non-controlling interest, permanent equity

Proceeds on sale of redeemable non-controlling interest, temporary equity

Proceeds on sales of partnership interest and clinics

Proceeds on sale of fixed assets

2 unchanged sentences

Distributions to non-controlling interests, permanent and temporary equity

Cash dividends paid to shareholders

Proceeds from revolving line of credit

1 unchanged sentence

Principal payments on notes payable

Medicare Accelerated and Advance Payment Funds

Net cash provided by (used in) financing activities

6 unchanged sentences

Purchase of businesses - seller financing portion

Purchase of non-controlling interest - payable

Purchase of business - payable to common shareholders of acquired business

Purchase of redeemable non-controlling interest - notes payable

Payable due to purchase of redeemable non-controlling interest

Receivables related to sale of partnership interest

Notes receivables related to sale of partnership interest

Payable related to purchase of partnership interest - settlement of redeemable non-controlling interest

See notes to consolidated financial statements.

7 unchanged sentences

Non-Controlling

For the three months ended March 31, 2020

For the three months ended June 30, 2020

Paid-In Capital

Balance March 31, 2020

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Compensation expense - equity-based awards

Distributions to non-controlling interest partners - permanent equity

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance June 30, 2020

U.S.Physical Therapy, Inc.

Treasury Stock

Total Shareholders’

Non-Controlling

For the six months ended June 30, 2020

Paid-In Capital

Balance December 31, 2019

3 unchanged sentences

Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans

Dividends payable to USPT shareholders

Dividends paid to USPT shareholders

Distributions to non-controlling interest partners - permanent equity

1 unchanged sentence

Net income attributable to USPH shareholders

Balance June 30, 2020

See notes to consolidated financial statements.

U.S.Physical Therapy, Inc.

Treasury Stock

Total Shareholders’

Non-Controlling

For the three months ended June 30, 2019

Paid-In Capital

Balance March 31, 2019

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 non-controlling interest

Dividends paid to USPH shareholders

Purchase of partnership interests - redeemable non-controlling interests

Distributions to non-controlling interest partners - permanent equity

Net income attributable to non-controlling interests - permanent equity

Net income attributable to USPH shareholders

Balance June 30, 2019

U.S.Physical Therapy, Inc.

2 unchanged sentences

Non-Controlling

For the three months ended March 31, 2019

For the six months ended June 30, 2019

Paid-In Capital

Balance December 31, 2018

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

2 unchanged sentences

Purchase of non-controlling interest

Dividends payable to USPT shareholders

Dividends paid to USPH shareholders

Purchase of partnership interests - redeemable non-controlling interests

Distributions to non-controlling interest partners - permanent equity

1 unchanged sentence

Net income attributable to USPH shareholders

Balance March 31, 2019

Balance June 30, 2019

See notes to consolidated financial statements.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

June 30, 2020

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

3 unchanged sentences

All significant intercompany transactions and balances have been eliminated.

The Company primarily operates through subsidiary clinic partnerships, in which the Company generally owns a 1 % general partnership interest in all the Clinic Partnerships.

The Company operates its business through two reportable business segments.

The Company’s reportable segments include the physical therapy operations segment and the industrial injury prevention services segment.

The Company’s physical therapy operations consist of physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventive care, rehabilitation of injured workers and neurological injuries.

Services provided by industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments.

Prior to the second quarter of 2020, the Company operated as a single segment.

All prior year segment information has been reclassified to conform to the 2020 presentation.

Segment Information.

Physical Therapy Operations

The physical therapy operations segment primarily operates through subsidiary clinic partnerships, in which the Company generally owns a 1 % general partnership interest in all the Clinic Partnerships.

Our limited partnership interests typically range from 49 % to 99 % in the Clinic Partnerships.

5 unchanged sentences

On February 27, 2020 , the Company acquired interests in a four -clinic physical therapy practice.

The four clinics are in four separate partnerships.

The four clinics are operated in four separate partnerships.

The Company’s interests in the four partnerships range from 10.0 % to 83.8 % , with an overall 65.0 % based on the initial purchase transaction.

2 unchanged sentences

On September 30, 2019 , the Company acquired a 67 % interest in an 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 a $ 0.3 million seller note that is payable in two principal installments totaling $ 150,000 each, plus accrued interest in September 2020 and September 2021.

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 the form of 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.

Since March 2017, the Company has acquired a majority interest in two industrial injury prevention businesses and acquired one company in the industrial injury prevention sector.

During the six months ended June 30, 2020, the Company sold 11 previously closed clinics.

The aggregate sales price was $ 1.1 million, of which $ 0.7 million was paid in cash and $ 0.4 million in a note receivable payable in two equal installments of principal and any accrued interest on June 15, 2021 and 2022.

As of June 30, 2020, the Company operated 554 clinics in 39 states.

The Company also manages physical therapy facilities for third parties, primarily hospital and physicians, with 29 third-party facilities under management as of June 30, 2020.

Clinic Partnerships

For non-acquired Clinic Partnerships, the earnings and liabilities attributable to the non-controlling interests, typically owned by the managing therapist, directly or indirectly, are recorded within the balance sheets as non-controlling interests and within the income statements as non-controlling interests – permanent equity.

For acquired Clinic Partnerships with redeemable non-controlling interests, the earnings attributable to the redeemable non-controlling interests are recorded within the consolidated statements of income line item – net income attributable to non-controlling interests – redeemable non-controlling interests – temporary equity and the equity interests are recorded on the consolidated balance sheet as redeemable non-controlling interests .

In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is not included in net income but charged directly to retained earnings and is included in the earnings per basic and diluted share calculation.

Wholly-Owned Facilities

For Wholly-Owned Facilities with profit sharing arrangements, an appropriate accrual is recorded for the amount of profit sharing due to the profit sharing therapists.

The amount is expensed as compensation and included in operating costs – salaries and related costs.

The respective liability is included in current liabilities – accrued expenses on the balance sheets.

Industrial Injury Prevention Services

Since March 2017, the Company has acquired a majority interest in two industrial injury prevention businesses and acquired all of another company in the industrial injury prevention sector.

In March 2017, the Company acquired a 55 % interest in the initial industrial injury prevention business.

6 unchanged sentences

The business was then combined with Briotix Health increasing the Company’s ownership position in the partnership to approximately 76.0 %.

Services provided in the industrial injury prevention businesses include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, and ergonomic assessments.

Services provided in the industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, and ergonomic assessments.

The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies.

1 unchanged sentence

The Company performs these services through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs).

As of March 31, 2020 , the Company operated 567 clinics in 39 states, as well as the industrial injury prevention business.

As of May 21, 2020, the Company operates 555 clinics of which 34 are not currently seeing patients.

The Company also manages physical therapy facilities for third parties, primarily hospital and physicians, with 30 third-party facilities under management as of March 31, 2020 .

The results of operations of the acquired clinics have been included in the Company’s consolidated financial statements since the date of their respective acquisition.

The results of operations of the acquired clinics and businesses have been included in the Company’s consolidated financial statements since the date of their respective acquisition.

Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions for Form 10-Q.

3 unchanged sentences

The Company believes, and the Chief Executive Officer, Chief Financial Officer and Corporate Controller have certified, that the financial statements included in this report present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the interim periods presented.

Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results the Company expects for the entire year.

Operating results for the three months and six months ended June 30, 2020 are not necessarily indicative of the results the Company expects for the entire year.

The Company included the following Risk Factor which should be read in conjunction with the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.

9 unchanged sentences

Depending on the amount and timing of the exercise of any “put” rights, the funds required could have an adverse impact on the Company’s capital structure.

See “Subsequent Events” in Note 1 for further discussion.

Clinic Partnerships

Wholly-Owned Facilities

For Wholly-Owned Facilities with profit sharing arrangements, an appropriate accrual is recorded for the amount of profit sharing due to the profit sharing therapists.

The amount is expensed as compensation and included in operating costs – salaries and related costs.

The respective liability is included in current liabilities – accrued expenses on the balance sheets.

Impact of COVID-19

As previously disclosed in a series of filings with the SEC and further described in detail in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 21, 2020, the Company’s results have been negatively impacted by the effects of the COVID-19 pandemic.

Management has taken a number of steps to reduce costs, stem operating losses incurred in March and April and increase profits subsequently.

In March, with the onset of the COVID-19 pandemic, the Company, began to furlough or terminate approximately 40 % of its 5,500 full and part-time workforce.

Since early May, over 750 of the furloughed employees have returned to work on a full or part-time basis.

As of the filing of this quarterly report, the Company continues to experience lower physical therapy revenues;

however the Company has seen recent improvement.

As stay at home orders and other restrictions have been lifted, we have seen our physical therapy volumes trending upwards, however should stay at home orders or other restrictions be reenacted, we could see the Company’s patient volume and revenues decline.

The Company’s industrial injury prevention business has been less affected by the pandemic and is currently operating at approximately 90 % of normal.

We have put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps to keep employees and patients safe.

In line with recommendations to reduce large gatherings and increase social distancing, we have, where practical, transitioned a large number of office-based employees to a remote work environment.

In March 2020, in response to the COVID-19 pandemic, the CARES Act was signed into law.

The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees.

The Company has received, or expect to receive a number of benefits under The CARES Act including, but not limited to:

The CARES Act allowed for qualified healthcare providers to receive advanced payments under the existing Medicare Accelerated and Advance Payments Program (“MAAPP funds”) during the COVID-19 pandemic.

Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided.

The Company applied for and received approval from Centers for Medicare & Medicaid Services (“CMS”) in April 2020.

T he Company recorded these payments of $ 12.8 million as a liability until all performance obligations have been met as the payments were made on behalf of patients before services were provided.

Currently, MAAPP funds received will be applied to future Medicare billings commencing in August 2020, with all such remaining amounts required to be repaid by November 2020.

Beginning November 2020, any unpaid balance will begin accruing interest.

The Company elected to defer depositing the employer’s share of Social Security taxes for payments due from March 27, 2020 through December 31, 2020, interest-free and penalty-free.

As of June 30, 2020, included in accrued liabilities is $ 2.2 million related to these deferred payments;

The Company received approximately $ 7.9 million during the six months ended June 30, 2020 from the initial tranche of funds that was distributed to healthcare providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic.

The Company recognized the $ 7.9 million grant in other revenues for the six months ended June 30, 2020.

Significant Accounting Policies

9 unchanged sentences

Leasehold improvements are amortized over the shorter of the lease term or estimated useful lives of the assets, which is generally three to five years .

The Company did not note an impairment to long-lived assets.

The Company did no t note an impairment to long-lived assets during this quarter .

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

1 unchanged sentence

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

The Company did no t note an impairment to long-lived assets during this quarter.

Goodwill represents the excess of the amount paid and fair value of the non-controlling interests over the fair value of the acquired business assets, which include certain identifiable intangible assets.

14 unchanged sentences

The evaluation of goodwill in 2019 did not result in any goodwill amounts that were deemed impaired.

Based on the current economic conditions and the decline in patient visits in March 2020 due to the pandemic, the Company evaluated whether events or circumstances indicated that it was more likely than not that the fair value of the reporting units were reduced below their carrying value as of March 31, 2020.

As a result of the assessment, the Company determined that it was not more likely than not that goodwill and tradenames of the reporting units was impaired as of March 31, 2020.

Based on the current economic conditions and the decline in patient visits due to the pandemic, the Company evaluated whether events or circumstances indicated that it was more likely than not that the fair value of the reporting units were reduced below their carrying value as of June 30, 2020.

As a result of the assessment, the Company determined that it was not more likely than not that goodwill and tradenames of the reporting units was impaired as of June 30, 2020.

As the Company did not note an impairment, no additional disclosures were deemed to be required by management.

The Company also considered the impact of these judgments and estimates as they pertain to the disclosure requirements for such items within the Form 10 Q and risks and uncertainties discussions and believes that such disclosure is adequate.

The Company also considered the impact of these judgments and estimates as they pertain to the disclosure requirements for such items within this Form 10-Q and risks and uncertainties discussions and believes that such disclosure is adequate.

Due to the uncertainty of the current economic conditions resulting from the COVID-19 pandemic, the Company will continue to review its carrying amounts of goodwill and other intangibles.

At March 31, 2020, the Company derecognized (wrote-off) goodwill in the amount of $ 1.9 million related to closed clinics due to COVID- 19.

See “Subsequent Events” in Note 1 for further discussion.

For the six months ended June 30, 2020, the Company derecognized (wrote-off) goodwill in the amount of $ 1.9 million related to closed clinics due to COVID- 19.

The Company will continue to monitor for any triggering events or other indicators of impairment.

37 unchanged sentences

ASC 740, Income Taxes requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted.

The legislation had no effect on the Company’s deferred income taxes and current income taxes payable during the three months ended March 31, 2020.

The Company did no t have any accrued interest or penalties associated with any unrecognized tax benefits no r was any interest expense recognized during the three months ended March 31, 2020 .

The legislation had no effect on the Company’s deferred income taxes and current income taxes payable during the six months ended June 30, 2020 .

The Company did no t have any accrued interest or penalties associated with any unrecognized tax benefits no r was any interest expense recognized during the six months ended June 30, 2020 .

The Company records any interest or penalties, if required, in interest and other expense, as appropriate.

6 unchanged sentences

Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by chief operating decision makers in determining the allocation of resources and in assessing performance.

The Company identifies operating segments based on management responsibility and believes it meets the criteria for aggregating its operating segments into a single reportable segment.

The Company currently operates through two segments:

physical therapy operations and industrial injury prevention services.

Use of Estimates

5 unchanged sentences

Accrued expenses include the estimated incurred but unreported costs to settle unpaid claims and estimated future claims.

Management believes that the current accrued amounts are sufficient to pay claims arising from self-insurance claims incurred through March 31, 2020 .

Management believes that the current accrued amounts are sufficient to pay claims arising from self-insurance claims incurred through June 30, 2020 .

Restricted Stock

29 unchanged sentences

We are currently evaluating the impact this guidance may have on our consolidated financial statements and related footnote disclosures.

Subsequent Events

The Company continues to experience significantly lower physical therapy revenue than normal and in the near term expects to incur losses.

The Company’s 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.

The Company is currently at approximately a little over 60 % of normal patient volume but that varies significantly by region.

As of May 20, 2020, the Company has 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.

The Company’s industrial injury prevention business has also experienced a reduction in business, although not as significant as experienced by our physical therapy operations.

Management has taken a number of steps to mitigate operating losses primarily through furloughs and salary cuts and to a lesser extent through terminations.

To date, the Company has 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 35 % to 40 % salary reductions for executives, and a 50 % reduction in fees paid to our Board of Directors.

A number of the Company’s clinic partnerships have made salary reductions as well.

Management estimates 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, the Company’s 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.

In response to the COVID-19 pandemic, the federal government approved the CARES Act.

The CARES Act allows for qualified healthcare providers to receive advanced payments under the existing Medicare Accelerated and Advance Payments Program (“MAAPP funds”) during the COVID-19 pandemic.

Under this program, healthcare providers may choose to receive advanced payments for future Medicare services provided.

The Company applied for and received approval from Centers for Medicare & Medicaid Services (“CMS”) in April 2020 to receive advanced payments and, through April 30, 2020, the Company has received $ 12.3 million under this program.

The Company will record these payments as a contract liability until all performance obligations have been met as the payments are made on behalf of patients before services are provided.

MAAPP funds received will be applied to future Medicare billings commencing in August 2020, with all such remaining amounts required to be repaid by November 2020.

Beginning November 2020, any unpaid balance will begin accruing interest.

Failure to repay the advanced payments when due will result in interest charges on the outstanding balance owed.

The Company has also received funds from the Public Health and Social Services Emergency Fund (“Relief Fund”) ($ 5.9 million to date) as part of the CARES Act.

The Relief Fund monies do not have to be repaid, are used to fund operations and will be positively incremental to operating results in the second quarter of 2020.

In addition, the Company is taking advantage of the allowed deferral of the employer payroll taxes under the CARES Act.

In April 2020, the Company began deferring payment on its share of payroll taxes owed, as allowed by the CARES Act through December 31, 2020.

The Company is able to defer half of its share of payroll taxes owed until December 31, 2021, with the remaining half due on December 31, 2022.

As of March 31, 2020, the Company was in compliance with all of the covenants contained in the credit agreement.

The Company cannot be certain whether it will be in compliance with covenants at the end of the second quarter of 2020.

The Company is in discussions with its lender regarding an amendment to the facility so as to maintain compliance with all covenants.

The Company anticipates an amendment will be in place by the end of the second quarter of 2020.

Currently, the Company has a cash balance of approximately $ 110.0 million.

All funds available on our credit line of $ 125.0 million have been drawn.

During April 2020 and May 2020, the Company closed 11 clinics and 2 clinics respectively .

The Company will record closure costs in the second quarter of at least $ 0.9 million .

ACQUISITIONS OF BUSINESSES

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The Company is in the process of completing its formal valuation analysis of the acquisitions, to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed.

Thus, the final allocation of the purchase price may differ from the preliminary estimates used at March 31, 2020 based on additional information obtained and completion of the valuation of the identifiable intangible assets.

Thus, the final allocation of the purchase price may differ from the preliminary estimates used at June 30, 2020 based on additional information obtained and completion of the valuation of the identifiable intangible assets.

Changes in the estimated valuation of the tangible assets acquired, the completion of the valuation of identifiable intangible assets and the completion by the Company of the identification of any unrecorded pre-acquisition contingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustments to goodwill.

15 unchanged sentences

On September 30, 2019, the Company acquired a 67 % interest in an 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 purchase price for the 67 % interest was $ 12.4 million, of which $ 12.1 million was paid in cash and $ 0.3 million in the form of 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.

9 unchanged sentences

The purchase price for the 2019 acquisitions has been allocated as follows (in thousands):

Clinic Practice

Cash paid, net of cash acquired

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trade names, referral relationships and non-compete agreements, and liabilities assumed based on the fair values at the acquisition date, with the amount exceeding the fair values being recorded as goodwill.

The Company has completed its formal valuation analyses for the acquisitions in 2019 with immaterial changes to the values.

The Company has completed its formal valuation analyses for the IIPS acquisition in 2019 with immaterial changes to the values.

The Company is in the process of completing its formal valuation analysis of the 2019 physical therapy operations acquisition, to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed.

The Company does not expect the adjustments to be material.

For the acquisitions in 2019, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives.

22 unchanged sentences

Costs, typically salaries for our employees, are recorded when incurred.

Revenues from the industrial injury prevention business, which are also included in other revenues in the consolidated statements of net income, are derived from onsite services the Company provides to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performance optimization.

Revenue from the industrial injury prevention business is recognized when obligations under the terms of the contract are satisfied.

Revenues from the industrial injury prevention services segment, which are also included in other revenues in the consolidated statements of net income, are derived from onsite services the Company provides to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performance optimization.

Revenue from the industrial injury prevention services segment is recognized when obligations under the terms of the contract are satisfied.

Revenues are recognized at an amount equal to the consideration the Company expects to receive in exchange for providing injury prevention services to its clients.

The revenue is determined and recognized based on the number of hours and respective rate for services provided in a given period.

Additionally, other revenues include services the Company provides on-site, such as schools and industrial worksites, for physical or occupational therapy services, and athletic trainers and gym membership fees.

Additionally, other revenues include services the Company provides on-site, such as schools, for physical or occupational therapy services, and fees from athletic trainers.

Contract terms and rates are agreed to in advance between the Company and the third parties.

Services are typically performed over the contract period and revenue is recorded at the point of service.

If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time, when the services are performed.

If the services are paid in advance, revenue is recorded as a liability over the period of the agreement and recognized at the point in time, when the services are performed.

The Company determines allowances for doubtful accounts based on the specific agings and payor classifications at each clinic.

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Three Months Ended

March 31, 2020

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Net patient revenues

Management contract revenues

Industrial injury prevention services revenues

Other revenues

Physical therapy operations

Industrial injury prevention services revenues

Medicare Reimbursement

8 unchanged sentences

Our physical therapists and occupational therapists are able to provide services to patients on a remote basis, using a variety of technologies.

This is particularly helpful during the pendency of the Coronavirus emergency, as some patients are reluctant to travel.

This has been particularly helpful during the COVID-19 pandemic, as some patients are reluctant to travel.

Reimbursement and coverage for these services vary among payors.

Effective as of March 1, 2020, CMS provided a temporary waiver to allow physical therapists and occupational therapists (and their respective assistants) to perform and be reimbursed for the full scope of services performed remotely as “telehealth visits,” provided the telehealth services ae performed by therapists associated with clinics that are enrolled with Medicare on a private practice basis.

Currently, clinics enrolled with Medicare as certified rehabilitation agencies are not authorized to perform and be reimbursed for telehealth visits for Medicare beneficiaries.

Approximately 60 % of our clinics participate with Medicare as private practices.

The foregoing telehealth temporary waiver will continue until the end of the Coronavirus emergency as determined by CMS, unless extended further by CMS.

The foregoing telehealth temporary waiver will continue until the end of the COVID-19 pandemic as determined by HHS.

HHS has the authority extend the public health emergency, which it did on July 23, 2020.

Beginning in 2021, payments to individual therapists (Physical/Occupational Therapist in Private Practice) paid under the fee schedule may be subject to adjustment based on performance in the Merit Based Incentive Payment System (“MIPS”), which measures performance based on certain quality metrics, resource use, and meaningful use of electronic health records.

16 unchanged sentences

a separate $ 3,700 threshold is applied to the Occupational Therapy.

The MACRA directed CMS to modify the manual medical review process such that those reviews will no longer apply to all claims exceeding the $ 3,700 threshold and instead will be determined on a targeted basis based on a variety of factors that CMS considers appropriate The Bipartisan Budget Act of 2018 extends the targeted medical review indefinitely, but reduces the threshold to $ 3,000 through December 31, 2027.

The Bipartisan Budget Act of 2018 extends the targeted medical review indefinitely, but reduces the threshold to $ 3,000 through December 31, 2027.

For 2028, the threshold amount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequent years the threshold amount will increase based on the corresponding percentage increase in the MEI for such subsequent year.

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Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation.

We believe that we are in compliance in all material respects with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on our financial statements as of March 31, 2020.

Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program.

For the three months ended March 31, 2020 and 2019, net patient revenue from Medicare accounted for approximately $ 27.5 and $ 28.3 million, respectively.

For the six months ended June 30, 2020 and 2019, net patient revenue from Medicare accounted for approximately $ 44.4 million and $ 59.4 million, respectively.

Contractual Allowances

10 unchanged sentences

Additionally, analysis of subsequent periods’ contractual write-offs on a payor basis reflects a difference within approximately 1 % between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance.

As a result, the Company believes that a change in the contractual allowance reserve estimate would not likely be more than 1 % at March 31, 2020.

As a result, the Company believes that a change in the contractual allowance reserve estimate would not likely be more than 1 % at June 30, 2020.

A contract’s transaction price is allocated to each distinct performance obligation and recognized when, or as, the performance obligation is satisfied.

10 unchanged sentences

The Company recognizes the full amount of revenue and reports the contractual allowances as a contra (or offset) revenue account to report a net revenue number based on the expected collections.

Sale of clinics

The Company recognized a gain of $ 1.1 million in the second quarter of 2020, included in other income, resulting from the sale of 11 previously closed clinics.

Receipts of Relief Funds

The Company received $ 7.9 million of funds from the Public Health and Social Services Emergency Fund (“Relief Fund”) as part of the CARES Act.

The Relief Fund monies do not have to be repaid, were used for operations and to offset losses due to the COVID-19 pandemic in the second quarter of 2020.

EARNINGS PER SHARE

2 unchanged sentences

Three Months Ended

March 31, 2020

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Computation of earnings per share - USPH shareholders:

49 unchanged sentences

There are no conditions in any of the arrangements with an Employed Selling Shareholder that would result in a forfeiture of the equity interest held in the Seller Entity or of the Seller Entity Interest.

For the three months ended March 31, 2020 and for the year ended December 31, 2019, the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interests (in thousand s):

For the three and six months ended June 30, 2020 , the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interests (in thousands):

Three Months Ended

March 31, 2020

December 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Beginning balance

4 unchanged sentences

Acquired interest

Sales of redeemable non-controlling interest - temporary equity

Reduction of non-controlling interest due to sale of USPH partnership interest

Sales of redeemable non-controlling interest - temporary equity

Notes receivable related to sales of redeemable non-controlling interest - temporary equity

Reduction in notes receivable related to the the sales of redeemable non-controlling interest - temporary equity

Adjustments in notes receivable related to the the sales of redeemable non-controlling interest - temporary equity

Ending balance

The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interests (in thousands):

March 31, 2020

December 31, 2019

June 30, 2020

June 30, 2019

Contractual time period has lapsed but holder's employment has not been terminated

3 unchanged sentences

The changes in the carrying amount of goodwill consisted of the following (in thousands):

Three Months Ended

March 31, 2020

Six Months Ended

June 30, 2020

December 31, 2019

7 unchanged sentences

INTANGIBLE ASSETS, NET

Intangible assets, net as of March 31, 2020 and December 31, 2019 consisted of the following (in thousands):

March 31, 2020

Intangible assets, net as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

June 30, 2020

December 31, 2019

5 unchanged sentences

Non-compete agreements are amortized over the respective term of the agreements which range from five to six years .

The following table details the amount of amortization expense recorded for intangible assets for the three months ended March 31, 2020 and 2019 (in thousands):

Three Months Ended

The following table details the amount of amortization expense recorded for intangible assets for the three months and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended

March 31, 2020

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Referral relationships

Non-compete agreements

Based on the balance of referral relationships and non-compete agreements as of March 31, 2020, the expected amount to be amortized in 2020 and thereafter by year is as follows (in thousand s):

Based on the balance of referral relationships and non-compete agreements as of June 30, 2020, the expected amount to be amortized in 2020 and thereafter by year is as follows (in thousands):

Referral Relationships

4 unchanged sentences

Ending December 31,

2020 (excluding the three months ended March 31, 2020)

2020 (excluding the six months ended June 30, 2020)

ACCRUED EXPENSES

Accrued expenses as of March 31, 2020 and December 31, 2019 consisted of the following (in thousands):

March 31, 2020

Accrued expenses as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

June 30, 2020

December 31, 2019

2 unchanged sentences

Group health insurance claims

Dividends payable

Closure costs

Federal income taxes payable

Closure costs relating to the 22 clinics closed in late March, included in the consolidated statement of income, consist primarily of remaining lease commitments (included in accrued liabilities above) and the write-off of leasehold improvements for those clinics closed in the three months ended March 31, 2020.

MAAPP funds payable

Deferred employer payroll taxes - CARES ACT

In response to the COVID-19 pandemic, the federal government approved the CARES Act.

Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided.

The Company applied for and received approval from Centers for Medicare & Medicaid Services (“CMS”) in April 2020.

T he Company recorded these payments as a liability until all performance obligations have been met as the payments were made on behalf of patients before services were provided.

Currently, MAAPP funds received will be applied to future Medicare billings commencing in August 2020, with all such remaining amounts required to be repaid by November 2020.

Beginning November 2020, any unpaid balance will begin accruing interest.

Failure to repay the advanced payments when due will result in interest charges on the outstanding balance owed.

Closure costs consist primarily of remaining lease commitments.

NOTES PAYABLE AND AMENDED CREDIT AGREEMENT

Amounts outstanding under the Amended Credit Agreement (as defined below) and notes payable as of March 31, 2020 and December 31, 2019 consisted of the following (in thousands):

March 31, 2020

Amounts outstanding under the Amended Credit Agreement (as defined below) and notes payable as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

June 30, 2020

December 31, 2019

12 unchanged sentences

The November 2017 amendment, among other items, adjusted the pricing grid as described above, increased the aggregate amount the Company may pay in cash dividends to its shareholders to an amount not to exceed $ 20.0 million and extended the maturity date to November 30, 2021 .

On March 31, 2020, $ 114.0 million was outstanding on the Amended Credit Agreement resulting in $ 11.0 million of availability.

As of the date of this report, the Company has drawn all funds available, therefore, the outstanding amount is $ 125 million .

As of March 31, 2020, the Company was in compliance with all of the covenants contained in the credit agreement.

The Company cannot be certain that it will be in compliance with covenants at the end of second quarter of 2020.

The Company is in discussions with its lender regarding an amendment to the facility so as to maintain compliance with all covenants.

The Company anticipates an amendment will be in place by the end of the second quarter of 2020.

On June 30, 2020, $ 33.0 million was outstanding on the Amended Credit Agreement resulting in $ 92.0 million of availability.

As of June 30, 2020, the Company was in compliance with all of the covenants contained in the Amended Credit Agreement.

Given the uncertainty inherent in operating results due to the COVID-19 pandemic, the Company continues to closely monitor covenant compliance.

The Company will engage as required in discussions with its lender regarding an amendment to the facility so as to maintain compliance with all covenants.

The Company generally enters into various notes payable as a means of financing a portion of its acquisitions and purchases of non-controlling interests.

In conjunction with the acquisitions on February 27, 2020, the Company entered into a note payable in the amount of $ 300,000 payable in February 2022 plus accrued interest.

During the quarter ended June 30, 2020, the Company entered into various notes payable as a means of financing a portion of its acquisition of partner’s non-controlling interest in the amount of $ 0.2 million.

Interest accrues at the rate of 4.75 % per annum.

1 unchanged sentence

Interest accrues in the range of 3.25 % to 5.50 % per annum and is payable with each principal installment.

Subsequent aggregate annual payments of principal required pursuant to the Amended Credit Agreement and outstanding notes payable at March 31, 2020 are as follows (in thousands):

During the twelve months ended March 31, 2021

During the twelve months ended March 31, 2022

The revolving credit facility (balance at March 31, 2020 of $ 114.0 million) matures on November 30, 2021 .

Subsequent aggregate annual payments of principal required pursuant to the Amended Credit Agreement and outstanding notes payable at June 30, 2020 are as follows (in thousands):

During the twelve months ended June 30, 2021

During the twelve months ended June 30, 2022

During the twelve months ended June 30, 2023

The outstanding amounts under the Amended Credit Agreement facility (balance at June 30, 2020 of $ 33.0 million) mature on November 30, 2021 .

The Company has operating leases for its corporate offices and operating facilities.

15 unchanged sentences

These are expensed as incurred and recorded as variable lease expense.

The components of lease expense were as follows (in thousands):

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

For the three months and six months ended June 30, 2020, the components of lease expense were as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Operating lease cost

5 unchanged sentences

Supplemental information related to leases was as follows (in thousands):

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

Three Months Ended June 30,

Six Months Ended June 30,

Cash paid for amounts included in the measurement of operating lease liabilities (in thousands)

1 unchanged sentence

* Includes the right-of-use assets obtained in exchange for lease liabilities of $ 82.6 million which were recognized upon adoption of ASC Topic 842 at January 1, 2019.

The aggregate future lease payments for operating leases as of March 31, 2020 were as follows (in thousands):

2020 (excluding the three months ended March 31, 2020)

The aggregate future lease payments for operating leases as of June 30, 2020 were as follows (in thousands):

2020 (excluding the six months ended June 30, 2020)

2025 and therafter

4 unchanged sentences

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

June 30, 2020

Six Months Ended

June 30, 2020

Weighted-average remaining lease term - Operating leases

Weighted-average discount rate - Operating leases

SEGMENT INFORMATION

The Company’s reportable segments include the physical therapy operations segment and the industrial injury prevention services segment.

Included in the physical therapy operations segment are revenues from management contract services and other services which include services the Company provides on-site, such as schools for athletic trainers.

The Company evaluates performance of the segments based on gross profit.

The Company has provided additional information regarding its reportable segments, which contributes to the understanding of the Company and provides useful information.

The following table summarizes selected financial data for the Company’s reportable segments.

Prior year results presented herein have been changed to conform to the current presentation.

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

(in thousands)

Net operating revenues:

Physical therapy operations

Industrial injury prevention services

Total Company

Gross profit:

Physical therapy operations (excluding closure costs)

Industrial injury prevention services

Physical therapy operations - closure costs

Total assets:

Physical therapy operations

Industrial injury prevention services

Total Company

From September 2001 through December 31, 2008, the Board authorized the Company to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of the Company’s common stock.

4 unchanged sentences

There is no expiration date for the share repurchase program.

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 the Company’s cash position.

The Company did not purchase any shares of its common stock during the three months ended March 31, 2020.

There are currently an additional estimated 185,139 shares (based on the closing price of $ 81.02 on June 30, 2020) that may be purchased from time to time in the open market or private transactions depending on price, availability and the Company’s cash position.

The Company did no t purchase any shares of its common stock during the six months ended June 30, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements