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. We also operate an industrial injury prevention services business which include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments services. Business Update Related to COVID-19 As previously disclosed in a series of filings with the SEC and further described in detail in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and June 30, 2020 filed with the SEC on May 21, 2020 and August 7, 2020, respectively, our results have been negatively impacted by the effects of the COVID-19 pandemic. We have taken a number of steps to reduce costs, make up for operating losses incurred in March and April, and increase profits. We continue to experience somewhat lower physical therapy patient volumes; however revenues improved significantly in the three months ended September 30, 2020 (“2020 Third Quarter”) compared to the three months ended June 30, 2020 (“2020 Second Quarter”). Our average physical therapy patient volumes per day per clinic were 26.2, 18.9, and 25.8, respectively, in the first three quarters of 2020. Our industrial injury prevention business has been less affected by the pandemic and is currently running at slightly less than its pre-COVID-19 levels. In March, with the onset of the COVID-19 pandemic, we began to furlough or terminate approximately 40% of our 5,500 full and part-time workforce. Since early May, approximately 1,200 of the furloughed employees have returned to work on a full or part-time basis. As of the filing of this quarterly report, we continue to experience lower physical therapy revenues; however we have seen recent improvements. As stay at home orders and other restrictions have been lifted, we have seen our physical therapy volumes trending upwards. Should stay at home orders or other restrictions be reenacted, we could see the patient volume and revenues decline again. 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 Coronavirus Aid, Relief, and Economic Security Act (“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. 30 Table of Contents We have received, or expects 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. We applied for and received approval to receive advanced payments from Centers for Medicare & Medicaid Services (“CMS”) in April 2020. We will record 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 are required to be applied to future Medicare billings commencing in August 2021, with all such remaining amounts required to be repaid by January 2024. Beginning January 2024, any unpaid balance will begin accruing interest. We currently intend to repay funds prior to August 2021. Included in cash and cash equivalents and accrued liabilities at September 30, 2020 is $12.9 million of MAAPP funds. • We 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 September 30, 2020, included in accrued liabilities is $4.9 million related to these deferred payments. • The CARES Act provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19. Through September 30, 2020, our consolidated subsidiaries received approximately $8.3 million of payments under the CARES Act (“Relief Funds”). Under our accounting policy, these payments have been recorded as Other income – Relief Funds. For the three and nine months ended September 30, 2020, we have recognized approximately $0.4 million and $8.3 million, respectively, as Other income – Relief Funds on the accompanying consolidated statements of income . These funds are not required to be repaid upon attestation and compliance with certain terms and conditions, which could change materially based on evolving grant compliance provisions and guidance provided by the U.S. Department of Health and Human Services. Currently, we can attest to and comply with the terms and conditions. We will continue to monitor the evolving guidelines and may record adjustments as additional information is released. Selected Operating and Financial Data At September 30, 2020, we operated 550 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 38 such third-party facilities under management as of September 30, 2020. Our reportable segments include the physical therapy operations segment and the industrial injury prevention services segment. Our physical 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. 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). 31 Table of Contents 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%. On September 30, 2020, we acquired a 70% interest in an entity which holds six-management contracts that have been in place for a number of years. Currently, these contracts have a five year term. The purchase price for the 70% interest was approximately $4.2 million, with $3.7 million payable in cash and $0.5 million in notes payable. One of the notes payable of $0.2 million is payable, with any accrued interest at 5% per annum, on September 30, 2021. The remaining note of $0.3 million was paid in November 2020. 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. The first installent plus accrued interest was paid in September 2020 and the second installment plus accrued interest is due in September 2021. The note accrues interest at 5.0% per annum. During the nine months ended September 30, 2020, we sold 12 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. RESULTS OF OPERATIONS Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019 • For the third quarter ended September 30, 2020 (“ 2020 Third Quarter”), our Operating Results (as defined below), inclusive of Relief Funds was $11.1 million, or $0.86 per diluted share, as compared to $9.0 million, or $0.71 per diluted share, for the third quarter ended September 30, 2019 (“2019 Third Quarter”). For the third quarter ended September 30, 2020, USPH’s Operating Results, without the Relief Funds, was $10.9 million, or $0.85 per diluted share. Operating Results, a non-GAAP measure, equals net income attributable to our shareholders per the consolidated statement of net income plus charges incurred for closure costs less gain on sale of partnership interest and clinics, less allocated non-controlling interests, and excludes expenses associated with the CFO recruitment, all net of tax. The earnings per share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest. • For the third quarter ended September 30, 2020, our net income attributable to its shareholders, in accordance with GAAP, was $10.9 million as compared to $9.0 million for the comparable period of 2019. 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 Third Quarter, the amount is $7.8 million, or $0.61 per share, as compared to $8.4 million, or $0.66 per share in the third quarter last year. 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 calculations. 32 Table of Contents 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 closure costs less gain on sale of partnership interest and clinics and Relief Funds, all 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. Three Months Ended September 30, 2020 2019 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 10,916 $ 9,047 Credit (charges) to retained earnings: Revaluation of redeemable non-controlling interest (4,298 ) (922 ) Tax effect at statutory rate (federal and state) of 26.25% 1,228 242 $ 7,846 $ 8,367 Earnings per share (basic and diluted) $ 0.61 $ 0.66 Adjustments: Charges incurred for CFO search 69 - Closure costs 79 - Gain on sale of partnership interest and clinics (18 ) - Relief Funds (391 ) - Allocation to non-controlling interest 77 - Revaluation of redeemable non-controlling interest 4,298 922 Tax effect at statutory rate (federal and state) of 26.25% (1,080 ) (242 ) Operating Results (without Relief Funds) $ 10,880 $ 9,047 Relief Funds 391 - Allocation to non-controlling interest (77 ) - Tax effect at statutory rate (federal and state) of 26.25% (82 ) - Operating Results (including Relief Funds) $ 11,112 $ 9,047 Basic and diluted Operating Results (without Relief Funds) per share $ 0.85 $ 0.71 Basic and diluted Operating Results (including Relief Funds) per share $ 0.86 $ 0.71 Shares used in computation - basic and diluted 12,847 12,774 33 Table of Contents The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements: Three Months Ended September 30, 2020 September 30, 2019 (in thousands) Net operating revenues: Physical therapy operations $ 98,914 $ 107,303 Industrial injury prevention services 10,015 9,948 Total Company $ 108,929 $ 117,251 Gross profit: Physical therapy operations (excluding closure costs) $ 27,568 $ 25,399 Industrial injury prevention services 2,868 1,976 $ 30,436 $ 27,375 Physical therapy operations - closure costs 79 3 Gross profit $ 30,357 $ 27,372 Revenues • Reported net revenues in the 2020 Third Quarter were $108.9 million as compared to $117.3 million in the 2019 Third Quarter. See detailed discussion below for each category of reported revenue. • Net patient revenues from physical therapy operations was approximately $96.4 million in the 2020 Third Quarter and $104.4 million in the 2019 Third Quarter. Included in net patient revenues for the 2019 Third Quarter was $3.2 million related in clinics sold or closed in the nine months ended September 30, 2020 and 2019 compared in $0.1 million related to these clinics in the 2020 Third Quarter. During the 2020 nine month period, we sold our interest in 12 closed clinics. For comparison purposes, adjusted for revenue from the clinics sold or closed, net patient revenues from physical therapy operations was approximately $96.3 million in the 2020 Third Quarter and $101.2 million in the 2019 Third Quarter. Net patient revenues for the 2020 Third Quarter included $3.8 million related to clinics opened or acquired after September 30, 2019 (“New Clinics”). Net patient revenues related to clinics opened or acquired prior to October 1, 2019 decreased by $8.7 million (“Mature Clinics”). See below for a tabular presentation of the above discussion: Three Months Ended September 30, 2020 September 30, 2019 (in thousands) Net patient revenues related to 2019 and 2020 sold and closed clinics $ 67 $ 3,222 Net patient revenue related to Mature Clinics 92,486 101,170 Net patient revenue related to New Clinics 3,845 - Reported net patient revenues $ 96,398 $ 104,392 • The average net patient revenue per visit was $105.91 for the 2020 Third Quarter and $104.80 for the 2019 Third Quarter. Total patient visits were 910,200 in the 2020 Third Quarter and 996,100 for the 2019 Third Quarter. The reduction in adjusted total patient visits is due primarily to the adverse effects of the COVID-19 pandemic. 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. • Also included in physical therapy operations was revenue from physical therapy management contracts which was $2.0 million for the 2020 Third Quarter and $2.1 million in the 2019 Third Quarter. Other miscellaneous revenue from physical therapy operations was $0.5 million in the 2020 Third Quarter and $0.7 million in the 2019 Third Quarter. Other miscellaneous revenue include physical therapy services, including athletic trainers, provided on-site such as for schools. 34 Table of Contents • Revenue from the industrial injury prevention business was $10.0 million in the 2020 Third Quarter compared to $9.9 million in the 2019 Third Quarter. On April 11, 2019, we acquired a third company that is a provider of industrial injury prevention services. Operating Costs Total operating costs, excluding closure costs, were $78.5 million in the 2020 Third Quarter, or 72.1% of net revenues, as compared to $89.9 million in the 2019 Third Quarter, or 76.7% of net revenues. Total operating costs for the physical therapy operations, excluding closure costs, were $71.3 million in the 2020 Third Quarter, or 65.5% of physical therapy operations revenues, as compared to $81.9 million in the 2019 Third Quarter, or 69.8% of physical therapy operations revenues. Included in operating costs for the physical therapy operations for the 2020 Third Quarter was $3.0 million related to New Clinics, of which $1.2 million related the clinics acquired in September 2019 and February 2020. Adjusted for the operating costs for clinics related to the partnership interest sold in 2019 and 2020 of $3.1 million in the 2019 Third Quarter and $0.1 million in the 2020 Third Quarter, operating costs for Mature Clinics decreased by $7.2 million in the 2020 Third Quarter compared to the 2019 Third Quarter. Operating costs, included in physical therapy operations, related to management contracts decreased by $0.3 million. Closure costs of $0.1 million include estimates of remaining lease obligations and other costs offset by settlement of certain lease commitments recorded in the first quarter of 2019 due to closed clinics. Total operating costs for the industrial injury prevention services business were $7.1 million in the 2020 Third Quarter, or 65.6% of industrial injury prevention services revenues, as compared to $7.9 million in the 2019 Third Quarter, or 67.6% of net industrial injury prevention revenues. Each component of operating costs is discussed below: Operating Costs—Salaries and Related Costs Salaries and related costs, including physical therapy operations and the industrial injury prevention services business, were 52.8% of net revenues in the 2020 Third Quarter versus 56.9% in the 2019 Third Quarter primarily due to a reduction in staffing due to management response to the COVID-19 pandemic. Salaries and related costs for the physical therapy operations were $51.6 million in the 2020 Third Quarter, or 53.3% of physical therapy operations revenues, as compared to $60.4 million in the 2019 Third Quarter, or 57.5% of physical therapy operations revenues. Included in salaries and related costs for the physical therapy operations for the 2020 Third Quarter was $1.9 million related to New Clinics. Adjusted for the salaries and related costs for clinics closed or sold in 2020 and 2019 of $0.1 million and $2.2 million, respectively, in the 2020 and 2019 Third Quarters, repectively, salaries and related costs for Mature Clinics decreased by $8.4 million in the Third Quarter 2020 compared to the Third Quarter 2019. Salaries and related costs, included in physical therapy operations, related to management contracts decreased by $0.2 million. Salaries and related costs for the industrial injury prevention services business, were $5.9 million in the 2020 Third Quarter, or 59.0% of industrial injury prevention services revenues, as compared to $6.3 million in the 2019 Third Quarter, or 63.8% of net industrial injury prevention services revenues. 35 Table of Contents Operating Costs—Rent, Supplies, Contract Labor and Other Rent, supplies, contract labor and other costs, including physical therapy operations and the industrial injury prevention services business, were 18.1% of net revenues in the 2020 Third Quarter versus 18.9% in the 2019 Third Quarter. Rent, supplies, contract labor and other costs for the physical therapy operations were $18.6 million in the 2020 Third Quarter, or 19.2% of physical therapy operations revenues, as compared to $20.3 million in the 2019 Third Quarter, or 19.3% of physical therapy operations revenues. Included in rent, supplies, contract labor and other costs for the physical therapy operations for the 2020 Third Quarter was $1.2 million related to New Clinics. Adjusted for the rent, supplies, contract labor and other costs for clinics related to the partnership interest closed or sold in 2020 and 2019 of $0.0 million in the 2020 Third Quarter and $1.1 million in the 2019 Third Quarter, rent, supplies, contract labor and other for Mature Clinics decreased by $1.6 million in the Third Quarter 2020 compared to the Third Quarter 2019. Rent, supplies, contract labor and other costs, included in physical therapy operations, related to management contracts decreased $0.2 million. Rent, supplies, contract labor and other costs for the industrial injury prevention services business, were $1.1 million in the 2020 Third Quarter, or 11.1% of industrial injury prevention services revenues, as compared to $1.8 million in the 2019 Third Quarter, or 18.6% of net industrial injury prevention services revenues. Operating Costs—Provision for Doubtful Accounts The provision for doubtful accounts as a percentage of net revenue was 1.2% in the 2020 Third Quarter and 0.8% for the comparable period in 2019. Our provision for doubtful accounts for patient accounts receivable as a percentage of total patient accounts receivable was 5.1% at September 30, 2020, as compared to 5.6% at December 31, 2019. Our days’ sales outstanding were 29 days at September 30, 2020 and 33 days at December 31, 2019. Gross Profit Gross profit, including physical therapy operations, without closure costs, and the industrial injury prevention services business, was $30.4 million, or 27.9% of net revenue, as compared to $27.4 million, or 23.3% of net revenues, in the 2019 Third Quarter. Gross profit for the physical therapy operations was $27.6 million in the 2020 Third Quarter, or 27.9% of physical therapy operations revenues, as compared to $25.4 million in the 2019 Third Quarter, or 23.7% of physical therapy operations revenues. Gross profit for the physical therapy operations, excluding management contracts, was $27.2 million in the 2020 Third Quarter, or 28.0% of net patient revenues, as compared to $25.2 million in the 2019 Third Quarter, or 23.9% of net patient revenues. Gross profit for management contracts was $0.4 million in the 2020 Third Quarter, or 19.8% of management contract revenues, as compared to $0.2 million in the 2019 Third Quarter, or 11.2% of net patient revenues. The gross profit for the industrial injury prevention services business was $2.9 million, or 28.6%, in the 2020 Third Quarter as compared to $2.0 million, or 19.9%, in the 2019 Third Quarter. 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 $10.4 million for the 2020 Third Quarter and $10.6 million for the 2019 Third Quarter. As a percentage of net revenues, corporate office costs were 9.6% for the 2020 Third Quarter and 9.0% for the 2019 Third Quarter. Operating Income Operating income for the 2020 Third Quarter was $19.9 million as compared to $16.8 million for the 2019 Third Quarter. Operating income as a percentage of net revenue increased from 14.3% in the 2019 period to 18.3% in 2020. For the 2020 Third Quarter, operating income increased $9.6 million or 94.3% compared to the second quarter of 2020. See discussion above related to effects of COVID-19. 36 Table of Contents Relief Funds For the 2020 Third Quarter, we have recognized approximately $0.4 million as Other income – Relief Funds on the accompanying consolidated statement of operations . See discussion above related to Relief Funds. Interest Expense Interest expense was $351,000 in the 2020 Third Quarter and $557,000 in the 2019 Third Quarter due to lower average borrowings under our Amended Credit Agreement. At September 30, 2020, $7.0 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 was $4.3 million for the 2020 Third Quarter and $3.2 million for the 2019 Third Quarter. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest was 28.2% for the 2020 Third Quarter and 26.1% for the 2019 Third Quarter. See table below detailing calculation of the provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands): Three Months Ended September 30, 2020 September 30, 2019 Income before taxes $ 20,042 $ 16,266 Less: net income attributable to non-controlling interests: Non-controlling interests - permanent equity (1,828 ) (1,643 ) Redeemable non-controlling interests - temporary equity (3,019 ) (2,379 ) $ (4,847 ) $ (4,022 ) Income before taxes less net income attributable to non-controlling interests $ 15,195 $ 12,244 Provision for income taxes $ 4,279 $ 3,197 Percentage 28.2 % 26.1 % Net Income Attributable to Non-controlling Interests Net income attributable to non-controlling interests (permanent equity) was $1.8 million in the 2020 Third Quarter and $1.6 million in the 2019 Third Quarter. Net income attributable to redeemable non-controlling interests (temporary equity) was $3.0 million in the 2020 Third Quarter and $2.4 million in the 2019 Third Quarter. 37 Table of Contents Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019 • For the nine months ended September 30, 2020 (“2020 Nine Months”), our Operating Results, including Relief Funds, was $24.6 million, or $1.92 per diluted share, as compared to $27.8 million, or $2.18 per diluted share for the nine months ended September 30, 2019 (“2019 Nine Months”). For the nine months ended September 30, 2020, our Operating Results, without Relief Funds, was $19.7 million, or $1.54 per diluted share. • For the nine months ended September 30, 2020, our net income attributable to our shareholders, in accordance with GAAP, was $22.2 million as compared to $32.1 million for the comparable period of 2019. 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 nine months ended September 30, 2020, the amount is $23.0 million, or $1.80 per share, as compared to $24.2 million, or $1.90 per share in 2019. 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. 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 closure costs less gain on sale of partnership interest and clinics and Relief Funds, and excludes the expenses associated with the CFO recruitment, all 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. 38 Table of Contents Nine Months Ended September 30, 2020 2019 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 22,164 $ 32,110 Credit (charges) to retained earnings: Revaluation of redeemable non-controlling interest 1,175 (10,752 ) Tax effect at statutory rate (federal and state) of 26.25% (308 ) 2,822 $ 23,031 $ 24,180 Earnings per share (basic and diluted) $ 1.80 $ 1.90 Adjustments: Charges incurred for CFO search 202 - Closure costs 3,925 - Gain on sale of partnership interest and clinics (1,091 ) (5,823 ) Relief Funds (8,349 ) - Allocation to non-controlling interest 1,977 - Revaluation of redeemable non-controlling interest (1,175 ) 10,752 Tax effect at statutory rate (federal and state) of 26.25% 1,184 (1,293 ) Operating Results (without Relief Funds) $ 19,704 $ 27,816 Relief Funds 8,349 - Allocation to non-controlling interest (1,753 ) - Tax effect at statutory rate (federal and state) of 26.25% (1,731 ) - Operating Results (including Relief Funds) $ 24,569 $ 27,816 Basic and diluted Operating Results (without Relief Funds) per share $ 1.54 $ 2.18 Basic and diluted Operating Results (including Relief Funds) per share $ 1.92 $ 2.18 Shares used in computation - basic and diluted 12,829 12,750 39 Table of Contents The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements: Nine Months Ended September 30, 2020 September 30, 2019 (in thousands) Net operating revenues: Physical therapy operations $ 275,954 $ 332,719 Industrial injury prevention services 29,549 27,136 Total Company $ 305,503 $ 359,855 Gross profit: Physical therapy operations (excluding closure costs) $ 61,546 $ 79,009 Industrial injury prevention services 7,711 6,518 $ 69,257 $ 85,527 Physical therapy operations - closure costs 3,925 12 Gross profit $ 65,332 $ 85,515 Total Assets: Physical therapy operations $ 524,658 $ 512,657 Industrial injury prevention services 50,780 48,188 Total Company $ 575,438 $ 560,845 Revenues • Reported net revenues in the 2020 Nine Months was $305.5 million as compared to $359.9 million in the 2019 Nine Months. See detailed discussion below for each category of reported revenue. • Net patient revenues from physical therapy operations was approximately $268.8 million in the 2020 Nine Months and $324.4 million in the 2019 Nine Months. Included in net patient revenues above are revenues related to clinics sold or closed in the nine months ended September 30, 2020 and 2019 of $3.2 million and $22.5 million, respectively. During the 2020 nine month period, the Company sold its interest in 12 closed clinics and closed 31 clinics. During the nine months ended September 30, 2019, the Company sold its interest in a partnership which include 30 clinics and closed 11 clinics. For comparison purposes, adjusted for revenue from the clinics sold or closed, net patient revenues from physical therapy operations was approximately $265.6 million in the 2020 Nine Months and $301.9 million in the 2019 Nine Months. Net patient revenues for the 2020 Nine Months included $8.4 million related to New Clinics. Net patient revenues related to Mature Clinics decreased by $44.7 million in the 2020 Nine Months compared to the 2019 comparable period. The reduction is largely attributable to the adverse effects of the COVID-19 pandemic. See below for a tabular presentation of the above discussion: Nine Months Ended September 30, 2020 September 30, 2019 (in thousands) Net patient revenues related to 2019 and 2020 sold and closed clinics $ 3,169 $ 22,554 Net patient revenue related to Mature Clinics 257,236 301,851 Net patient revenue related to New Clinics 8,398 - Reported net patient revenues $ 268,803 $ 324,405 40 Table of Contents • Including all clinics operational during the periods, the average net patient revenue per visit was $105.13 for the 2020 Nine Months and $106.17 for the 2019 Nine Months. Total patient visits were 2,556,900 in the first nine months of 2020 and 3,055,400 in the first nine months of 2019. 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. • Also included in physical therapy operations was revenue from physical therapy management contracts which was $5.7 million for the 2020 Nine Months and $6.5 million in 2019 Nine Months. Other miscellaneous revenue from physical therapy operations was $1.4 million in the 2020 Nine Months and $1.8 million in the 2019 Nine Months. Other miscellaneous revenue include physical therapy services, including athletic trainers, provided on-site such as for schools. • Revenue from the industrial injury prevention services business increased 8.9% to $29.5 million in the 2020 Nine Months compared to $27.1 million in the 2019 Nine Months. The increase is primarily attributable to the acquisition in April 2019 offset by the adverse effects of the COVID-19 pandemic. Operating Costs Total operating costs, excluding closure costs, were $236.2 million in the 2020 Nine Months, or 77.3% of net revenues, as compared to $274.3 million in the 2019 Nine Months, or 76.2% of net revenues. Total operating costs for the physical therapy operations, excluding closure costs, were $214.4 million in the 2020 Nine Months, or 77.7% of physical therapy operations revenues, as compared to $253.7 million in the 2019 Nine Months, or 76.3% of physical therapy operations revenues. Included in operating costs for the physical therapy operations for the 2020 Nine Months was $6.9 million related to New Clinics, of which $2.7 million related the clinics acquired in February 2020. Adjusted for the operating costs for clinics closed or sold in 2020 and 2019 of $4.4 million and $17.3 million, respectively, in the 2020 and 2019 Nine Months, respectively, operating costs for clinic opened or acquired prior to Mature Clinics decreased by $27.9 million in the 2020 Nine Months compared to the 2019 Nine Months. Operating costs, included in physical therapy operations, related to management contracts decreased by $1.0 million in 2020 Nine Months compared to the 2019 Nine Months. Closure costs in the current nine month period of $3.9 million include estimates of remaining lease obligations, derecognition of goodwill and other costs related to closed and sold clinics. Operating costs for the industrial injury prevention services business, were $21.8 million in the 2020 Nine Months, or 73.9% of industrial injury prevention services revenues, as compared to $20.6 million in the 2019 Nine Months, or 76.0% of net industrial injury prevention revenues. Each component of operating costs is discussed below: Operating Costs—Salaries and Related Costs Salaries and related costs, including physical therapy operations and the industrial injury prevention services business, were 55.6% of net revenues in the 2020 Nine Months versus 56.6% in the 2019 Nine Months primarily due to a reduction in staffing and salary reductions due to management response to the COVID-19 pandemic. Salaries and related costs for the physical therapy operations were $151.6 million in the 2020 Nine Months, or 56.1% of physical therapy operations revenues, as compared to $186.9 million in the 2019 Nine Months, or 57.3% of physical therapy operations revenues. Included in salaries and related costs for the physical therapy operations for the 2020 Nine Months was $4.0 million related to New Clinics. Adjusted for the salaries and related costs for clinics closed or sold in 2020 and 2019 of $2.5 million and $13.4 million, respectively, in the 2020 and 2019 Nine Months, respectively, salaries and related costs for Mature Clinics decreased by $27.6 million in the 2020 Nine Months compared to the 2019 Nine Months. Salaries and related costs, included in physical therapy operations, related to management contracts decreased by $0.8 million. Salaries and related costs for the industrial injury prevention services business, were $18.4 million in the 2020 Nine Months, or 62.1% of industrial injury prevention services revenues, as compared to $16.7 million in the 2019 Nine Months, or 61.7% of net industrial injury prevention services revenues. 41 Table of Contents Operating Costs—Rent, Supplies, Contract Labor and Other Rent, supplies, contract labor and other costs, including physical therapy operations and the industrial injury prevention services business, were 20.6% of net revenues in the 2020 Nine Months versus 18.7% in the 2019 Nine Months. Rent, supplies, contract labor and other costs for the physical therapy operations were $59.5 million in the 2020 Nine Months, or 22.0% of physical therapy operations revenues, as compared to $63.1 million in the 2019 Nine Months, or 19.3% of physical therapy operations revenues. Included in rent, supplies, contract labor and other costs for the physical therapy operations for the 2020 Nine Months was $2.8 million related to New Clinics. Adjusted for the rent, supplies, contract labor and other costs for clinics closed or sold in 2020 and 2019 of $1.9 million and $8.1 million, respectively, in the 2020 and 2019 Nine Months, respectively, rent, supplies, contract labor and other costs for Mature Clinics decreased by $0.1 million in the 2020 Nine Months compared to the 2019 Nine Months. Rent, supplies, contract labor and other costs, included in physical therapy operations, related to management contracts decreased by $0.1 million. Rent, supplies, contract labor and other costs for the industrial injury prevention services business, were $3.3 million in the 2020 Nine Months and $4.1 million in 2019 Nine Months. As a percentage of industrial injury prevention services revenues, rent, supplies, contract labor and other costs were 11.4% and 15.2% of net industrial injury prevention services revenues for the 2020 and 2019 Nine Months, respectively. Operating Costs—Provision for Doubtful Accounts The provision for doubtful accounts as a percentage of net revenue was 1.1% in the 2020 Nine Months and 0.9% for the 2019 Nine Months. Our provision for doubtful accounts for patient accounts receivable as a percentage of total patient accounts receivable was 5.1% at September 30, 2020, as compared to 5.6% at December 31, 2019. Our days’ sales outstanding were 29 days at September 30, 2020 and 33 days at December 31, 2019. Gross Profit Gross profit for the 2020 Nine Months, excluding closure costs, was $69.3 million, as compared to $85.5 million in the 2019 Nine Months. The gross profit percentage, excluding closure costs, was 22.7% of net revenue in the 2020 Nine Months as compared to 23.8% in the 2019 Nine Months. The gross profit percentage for our physical therapy clinics, excluding closure costs, was 22.3% in the 2020 Nine Months as compared to 23.9% in the 2019 Nine Months. The gross profit percentage on physical therapy management contracts was 20.2% in the 2020 Nine Months as compared to 15.0% in the 2019 Nine Months. The gross profit for the industrial injury prevention business was $7.7 million, or 26.1%, in the 2020 Nine Months as compared to $6.5 million, or 24.0%, in the 2019 Nine Months. 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 $31.1 million for the 2020 Nine Months and $33.4 million for the 2019 Nine Months primarily due to a reduction in staffing and salary reductions due to management response to the COVID-19 pandemic. As a percentage of net revenues, corporate office costs were 10.2% for the 2020 Nine Months and 9.3% for the 2019 Nine Months. Operating Income Operating income for the 2020 Nine Months was $34.2 million as compared to $52.1 million for the 2019 Nine Months. Operating income as a percentage of net revenue decreased from 14.5% in the 2019 period to 11.2% in 2020 comparable period. See discussion above related to the effects of COVID-19 on our business and results of operations. 42 Table of Contents Relief Funds For the 2020 First Nine Months, our consolidated subsidiaries received approximately $8.3 million of Relief Funds. See discussion above related to Relief Funds. Gain on Sale of Partnership Interest and Clinics Included in other income was the gain of $1.1 million in the 2020 Nine Months resulting from the sale of 12 previously closed clinics and, in the 2019 Nine Months, a gain of $5.8 million resulting from the sale of a partnership interest with 30 clinics. Interest Expense Interest expense was $1.4 million in the 2020 Nine Months and $1.5 in the 2019 Nine Months due to higher average borrowings under our Amended Credit Agreement. At September 30, 2020, $7.0 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 was $8.5 million for the 2020 Nine Months and $11.2 million for the 2019 Nine Months. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest was 27.6% for the 2020 Nine Months and 25.9% for the 2019 Nine Months. See table below detailing calculation of the provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands): Nine Months Ended September 30, 2020 September 30, 2019 Income before taxes $ 42,317 $ 56,467 Less: net income attributable to non-controlling interests: Non-controlling interests - permanent equity (3,889 ) (4,982 ) Redeemable non-controlling interests - temporary equity (7,811 ) (8,152 ) $ (11,700 ) $ (13,134 ) Income before taxes less net income attributable to non-controlling interests $ 30,617 $ 43,333 Provision for income taxes $ 8,453 $ 11,223 Percentage 27.6 % 25.9 % Net Income Attributable to Non-controlling Interests Net income attributable to non-controlling interests (permanent equity) was $3.9 million in the 2020 Nine Months and $5.0 million in the 2019 Nine Months. Net income attributable to redeemable non-controlling interests (temporary equity) was $7.8 million in the 2020 Nine Months and $8.1 million in the 2019 Nine Months. LIQUIDITY AND CAPITAL RESOURCES We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. At September 30, 2020 and December 31, 2019, we had $30.1 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 September 30, 2021. Included in our cash at September 30, 2020 are the receipts from MAAPP of $12.9 million. Currently, MAAPP funds received are required to be applied to future Medicare billings commencing in August 2021, with all such remaining amounts required to be repaid by January 2024. Beginning January 2024, any unpaid balance will begin accruing interest. We currently intend to repay funds prior to August 2021. 43 Table of Contents Cash and cash equivalents increased by $6.6 million from December 31, 2019 to September 30, 2020. During the 2020 Nine Months, $74.6 million was provided by operations and $12.9 million from MAAPP, as described above. The major uses of cash for investing and financing activities included: net reduction in credit line ($39.0 million), distributions to non-controlling interests inclusive of those classified as redeemable non-controlling interests ($14.2 million), purchase of business ($15.3 million), purchase of fixed assets ($5.5 million), cash dividends paid to our shareholders ($4.1 million) and a purchase of redeemable non-controlling interests ($3.1 million). 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 September 30, 2020, we were in compliance with all of the covenants contained in the credit agreement. Given the uncertainty inherent in operating results due to the COVID-19 pandemic, we continue to closely monitor covenant compliance. We will engage as required in discussions with our lender regarding an amendment to the facility so as to maintain compliance with all covenants. We are currently in negotiations with our lender to renew the Amended Credit Agreement. On September 30, 2020, we acquired a 70% interest in an entity which holds six-management contracts that have been in place for a number of years. Currently, these contracts have a five year term. The purchase price for the 70% interest was approximately $4.2 million, with $3.7 million payable in cash and $0.5 million in notes payable. One of the notes payable of $0.2 million is payable, with any accrued interest at 5% per annum, on September 30, 2021. The remaining note of $0.3 million was paid in November 2020. 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. The first installment plus accrued interest was paid in September 2020 and the second installment plus accrued interest remains to be paid in September 2021. The note accrues interest at 5.0% per annum. 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. 44 Table of Contents 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 September 30, 2020 relate to certain of the acquisitions of businesses and purchases of redeemable non-controlling interests that occurred in 2018 through September 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 September 30, 2020, the balance on these notes payable was $5.5 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 September 30, 2020, we have accrued $6.8 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 September 30, 2020, there are currently an additional estimated 172,651 shares (based on the closing price of $86.88 on September 30, 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 nine months ended September 30, 2020. 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; 45 Table of Contents • 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. 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. 46 Table of Contents