What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2020-11-06 · 234 added, 326 removed, 565 unchanged (50% of the section changed)

4 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE DATA)

September 30, 2020

March 31, 2021

December 31, 2020

1 unchanged sentence

Cash and cash equivalents

Patient accounts receivable, less allowance for doubtful accounts of $ 2,154 and $ 2,698 , respectively

Patient accounts receivable, less allowance for credit losses of $ 2,120 and $ 2,008 , respectively

Accounts receivable - other

12 unchanged sentences

Accounts payable - trade

Accounts payable - purchase of non-controlling interest

Accrued expenses

9 unchanged sentences

Redeemable non-controlling interests - temporary equity

Commitments and Contingencies

Physical Therapy, Inc.

7 unchanged sentences

Non-controlling interests - permanent equity

Total USPH shareholders’ equity and non-controlling interests

Total liabilities, redeemable non-controlling interests, USPH shareholders’ equity and non-controlling interests

Total USPH shareholders' equity and non-controlling interests - permanent equity

Total liabilities, redeemable non-controlling interests, USPH shareholders' equity and non-controlling interests - permanent equity

See notes to consolidated financial statements.

4 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

September 30, 2020

September 30, 2019

September 30,2020

September 30, 2019

March 31, 2021

March 31, 2020

Net patient revenues

3 unchanged sentences

Rent, supplies, contract labor and other

Provision for doubtful accounts

Provision for credit losses

Closure costs - lease and other

4 unchanged sentences

Other income and expense:

Gain on sale of partnership interest and clinics

Interest and other income, net

4 unchanged sentences

net income attributable to non-controlling interests:

Non-controlling interests - permanent equity

Redeemable non-controlling interests - temporary equity

Non-controlling interests - permanent equity

Net income attributable to USPH shareholders

7 unchanged sentences

(IN THOUSANDS)

Nine Months Ended

September 30, 2020

September 30, 2019

Three Months Ended

March 31, 2021

March 31, 2020

OPERATING ACTIVITIES

2 unchanged sentences

Depreciation and amortization

Provision for doubtful accounts

Provision for credit losses

Equity-based awards compensation expense

Deferred income taxes

Loss on sale of fixed assets

Gain on sale of partnership interest

Write-off of goodwill - closed clinics

Derecognition (write-off) of goodwill - closed clinics

Changes in operating assets and liabilities:

Decrease (increase) in patient accounts receivable

(Increase) decrease in patient accounts receivable

Decrease (increase) in accounts receivable - other

Decrease (increase) in other assets

Increase (decrease) in accounts payable and accrued expenses

Decrease in other long-term liabilities

Decrease in other assets

Increase in accounts payable and accrued expenses

Increase in other long-term liabilities

Net cash provided by operating activities

3 unchanged sentences

Purchase of redeemable non-controlling interest - temporary equity

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

Net cash used in investing activities

1 unchanged sentence

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 used in financing activities

Net increase in cash and cash equivalents

Payment of Medicare Accelerated and Advance Funds

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents - beginning of period

4 unchanged sentences

Purchase of businesses - seller financing portion

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 redeemable non-controlling interest, temporary equity

Notes receivable related to sale of partnership interest - redeemable non-controlling interest

Dividends payable to USPH shareholders

See notes to consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN E QUITY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(IN THOUSANDS)

U.S.Physical Therapy, Inc.

Treasury Stock

Total Shareholders’

Non-Controlling

For the three months ended September 30, 2020

Paid-In Capital

Balance June 30, 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 September 30, 2020

U.S.Physical Therapy, Inc.

Treasury Stock

1 unchanged sentence

Non-Controlling

For the nine months ended September 30, 2020

Paid-In Capital

For the three months ended March 31, 2021

Balance December 31, 2020

2 unchanged sentences

Compensation expense - equity-based awards

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

Dividends paid to USPT shareholders

Dividends payable to USPT shareholders

Distributions to non-controlling interest partners - permanent equity

Short swing profit settlement

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance September 30, 2020

See notes to consolidated financial statements.

Balance March 31, 2021

U.S.Physical Therapy, Inc.

Treasury Stock

Total Shareholders’

Non-Controlling

For the three months ended September 30, 2019

Paid-In Capital

Balance June 30, 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 September 30, 2019

U.S.Physical Therapy, Inc.

Treasury Stock

1 unchanged sentence

Non-Controlling

For the nine months ended September 30, 2019

Paid-In Capital

For the three months ended March 31, 2020

Balance December 31, 2019

3 unchanged sentences

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

Dividends payable to USPT shareholders

Distributions to non-controlling interest partners - permanent equity

Net income attributable to non-controlling interests - permanent equity

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance September 30, 2019

Balance March 31, 2020

See notes to consolidated financial statements.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

March 31, 2021

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

8 unchanged sentences

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 segment presentation.

Segment Information.

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

See Note 11 - 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.

The physical therapy operations segment primarily operates through subsidiary clinic partnerships, in which the Company generally owns a 1 % general partnership and limited partnership interests typically ranging from 49 % to 99 % in the Clinic Partnerships.

The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of the clinics (hereinafter referred to as “Clinic Partnerships”).

3 unchanged sentences

In addition, the Company has developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location.

On March 31, 2021 , the Company acquired a 70 % interest in a five -clinic physical therapy practice in the first quarter of 2021 , with the practice founder retaining 30 % .

The practice is in the process of developing a sixth clinic.

The purchase price for the 70 % interest was approximately $ 12.0 million, of which $ 11.7 million was paid in cash and $ 0.3 million in the form of a note payable.

The note accrues interest at 3.25 % per annum and the principal and interest is payable on March 31, 2023 .

On November 30, 2020 , the Company acquired a 75 % interest in a three -clinic physical therapy practice.

The purchase price for the 75 % interest was $ 8.9 million (net of cash acquired), of which $ 8.6 million was paid in cash and $ 0.3 million in the form of a note payable that is payable in two principal installments totaling $ 162,500 each.

The first principal payment plus accrued interest is due to be paid on November 2021 with the second installment to be paid in November 2022 .

The note accrues interest at 3.25 % per annum.

On September 30, 2020 , the Company 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.

The purchase price for the 70 % interest was approximately $ 4.2 million, with $ 3.7 million payable in cash and $ 0.5 million in two 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 .

3 unchanged sentences

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.

The aggregate purchase price was $ 11.9 million , of which $ 11.6 million was paid in cash and $ 0.3 million in the form of a seller note.

The aggregate purchase price was $ 11.9 million , of which $ 11.6 million was paid in cash and $ 0.3 million in the form of a note payable.

The note accrues interest at 4.75 % per annum and the principal and interest is payable on February 2022 .

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 the form of a seller note that was payable in two principal installments totaling $ 150,000 each.

The first principal payment plus accrued interest was paid in September 2020 with the second installment to be paid in September 2021.

The note accrues interest at 5.0 % per annum.

During the nine months ended September 30, 2020, the Company 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.

As of September 30, 2020, the Company operated 550 clinics in 39 states.

The Company also manages physical therapy facilities for third parties, primarily hospital and physicians, with 38 third-party facilities under management as of September 30, 2020.

During the three months ended March 31, 2021 , the Company sold two clinics.

The aggregate sales price of $ 0.1 million was paid in cash.

As of March 31, 2021 , the Company operated 564 clinics in 39 states.

The Company also manages physical therapy facilities for third parties, primarily hospital and physicians, with 40 third -party facilities under management as of March 31, 2021 .

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 – permanent equity and within the income statements as net-income attributable to 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 – temporary 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 .

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

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

2 unchanged sentences

Management believes this report contains all necessary adjustments (consisting only of normal recurring adjustments) to present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the interim periods presented.

For further information regarding the Company’s accounting policies, please read the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 28, 2020 (“2019 Annual Report”).

For further information regarding the Company’s accounting policies, please read the audited financial statements included in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on March 1, 2021 .

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 and nine months ended September 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.

We are subject to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (“COVID-19”).

Our operations expose us to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID-19) that has spread globally.

Since February, the continued spread has led to disruption and volatility in the global capital markets, which increases the cost of, and adversely impacts access to, capital and increases economic uncertainty.

The pandemic has caused an economic slowdown of potentially extended duration, and it is possible that it could cause a global recession.

COVID-19 is having, and will continue to have, an adverse impact on our operations and supply chains, including an increase in cancellations of physical therapy patient appointments and a decline in the scheduling of new or additional patient appointments.

Due to these impacts and measures, we have experienced, and will continue to experience, significant and unpredictable reductions and cancellations of our patient visits.

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)

As described in Note 6, the redeemable non-controlling interests in our partnerships are held by our partners.

Upon the occurrence of certain events, such as retirement or other termination of employment, partners from acquired partnerships may have the right to exercise a “put” to cause the Company to purchase their redeemable non-controlling interests.

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.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results the Company expects for the entire year.

Impact of COVID -19

As previously disclosed in a series of filings with the SEC and further described in detail in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 filed with the SEC on May 21, 2020 and August 7, 2020, respectively, 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, make up for operating losses incurred in March and April, and increase profits.

The Company continues to experience somewhat lower physical therapy patient volumes;

however revenues improved significantly in the 2020 third quarter compared to the 2020 second quarter.

The Company’s 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.

The Company’s 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, the Company began to furlough or terminate approximately 40 % of its 5,500 full and part-time workforce.

Since early May, appoximately 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, the Company continues to experience lower physical therapy revenues;

however the Company has 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 Company’s 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.

As previously disclosed in a series of filings with the SEC and further described in detail in our Quarterly Reports on Form 10 -Q for the first three quarters of 2020 and our Annual Report on Form 10 -K, the Company’s results were negatively impacted by the effects of the COVID -19 pandemic in the 2020 First Quarter, especially in March 2020 .

Physical therapy patient volumes per day per clinic for the three months ended March 31, 2021 , were 27.1 , which is at or near pre-pandemic levels, compared to 26.2 in the three months ended March 31, 2020 .

The Company’s industrial injury prevention business has been less affected by the pandemic in 2020 .

The Company has 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.

In response to the COVID -19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

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 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.

The CARES Act allowed for qualified healthcare providers to receive advanced payments under the existing Medicare Accelerated and Advance Payment 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 to receive from Centers for Medicare & Medicaid Services (“CMS”) in April 2020.

The Company 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.

The Company currently intends 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.

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

The Company recorded these payments as a liability;

however, during the first quarter of 2021 , the Company repaid the MAAPP Funds of $ 14.1 million rather than applying them to future services performed .

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 September 30, 2020, included in accrued liabilities is $ 4.9 million related to these deferred payments.

As of March 31, 2021 , $ 4.2 million is included in each of accrued liabilities and other long-term liabilities 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, the Company’s consolidated subsidiaries received approximately $ 8.3 million of payments under the CARES Act (“Relief Funds”).

In accordance with GAAP, these payments have been recorded as Other income – Relief Funds.

For the three and nine months ended September 30, 2020, the Company has recognized approximately $ 0.4 million and $ 8.3 million, respectively, as Other income – Relief Funds on the accompanying consolidated statements of income.

In 2020 , the Company’s consolidated subsidiaries received approximately $ 13.5 million in payments under the CARES Act (“Relief Funds”).

In accordance with GAAP, these payments were recorded as Other income – Relief Funds.

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.

2 unchanged sentences

The Company will continue to monitor the evolving guidelines and may record adjustments as additional information is released.

There were no Relief Funds received in the three months ended March 31, 2021.

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 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

The Company did no t note an impairment to long-lived assets during the three months ended March 31, 2021 .

The Company reviews property and equipment and intangible assets with finite lives for impairment upon the occurrence of certain events or circumstances which indicate that the amounts may be impaired.

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.

The Company did no t note an impairment to long-lived assets during the three months ended March 31, 2021 .

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.

2 unchanged sentences

Goodwill and other indefinite-lived intangible assets are not amortized, but are instead subject to periodic impairment evaluations.

The fair value of goodwill and other identifiable intangible assets with indefinite lives are evaluated for impairment at least annually and upon the occurrence of certain events, and are written down to fair value if considered impaired.

The fair value of goodwill and other identifiable intangible assets with indefinite lives are evaluated for impairment at least annually and upon the occurrence of certain events or conditions, and are written down to fair value if considered impaired.

These events or conditions include, but are not limited to:

3 unchanged sentences

The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment charge.

The Company is first required to assess qualitatively if it can conclude whether goodwill is more likely than not impaired.

The Company evaluates indefinite lived tradenames using the relief from royalty method in conjunction with its annual goodwill impairment test.

The Company operates a two segment business which is made up of various clinics within partnerships, and the other is industrial injury prevention services business.

The partnerships are components of regions and are aggregated to the operating segment level for the purpose of determining the Company’s reporting units when performing its annual goodwill impairment test.

There were six regions in both 2020 and 2019 in the physical therapy operations segment.

In addition to the six regions mentioned prior, the impairment analysis included a separate analysis for the industrial injury prevention business, as a separate reporting unit.

As part of the impairment analysis, the Company is first required to assess qualitatively if it can conclude whether goodwill is more likely than not impaired.

If goodwill is more likely than not impaired, the Company is then required to complete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount.

1 unchanged sentence

The Company considers both the income and market approach in determining the fair value of its reporting units when performing a quantitative analysis.

To determine the fair values of its tradenames, the Company uses a relief from royalty income approach.

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 September 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 September 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 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.

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

An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets, exceeds the estimated fair value of the reporting unit.

The evaluation of goodwill in 2020 and 2019 did not result in any goodwill amounts that were deemed impaired.

Based on the economic conditions and the decline in patient visits due to the COVID -19 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, 2021 .

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 were impaired as of March 31, 2021 .

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

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 quarterly.

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

Redeemable Non-Controlling Interests

7 unchanged sentences

As a result, the value of the non-controlling interest is not adjusted below its initial carrying value.

The Company records any adjustments in the redemption value, net of tax, directly to retained earnings and they are not reflected in the consolidated statements of income.

The Company records any adjustments in the redemption value, net of tax, directly to retained earnings and the adjustments are not reflected in the consolidated statements of income.

Although the adjustments are not reflected in the consolidated statements of income, current accounting rules require that the Company reflects the adjustments, net of tax, in the earnings per share calculation.

13 unchanged sentences

See Note 3- Revenue Recognition, for further discussion of revenue recognition.

Allowance for Doubtful Accounts

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

The provision for doubtful accounts is included in operating costs in the consolidated statements of net income.

Net accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for doubtful accounts, includes only those amounts the Company estimates to be collectible.

Provision for Credit Losses

T he Company determines provisions for credit losses based on the specific agings and payor classifications at each clinic.

The provision for credit losses is included in operating costs in the consolidated statements of net income.

Net accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and provisions for credit losses, includes only those amounts the Company estimates to be collectible .

Income taxes are accounted for under the asset and liability method.

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For tax positions meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

On March 27, 2020, CARES Act was enacted.

On March 27, 2020 , the CARES Act was enacted.

The CARES Act includes changes to certain tax law related to net operating losses and the deductibility of interest expense and depreciation.

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 nine months ended September 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 nine months ended September 30, 2020 .

The legislation had no effect on the Company’s deferred income taxes and current income taxes payable during the three months ended March 31, 2021 .

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, 2021.

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

3 unchanged sentences

The fair value of the Company’s redeemable non-controlling interests is determined based on “Level 3 ” inputs.

The interest rate on the Amended Credit Agreement, which is tied to LIBOR, is set at various short-term intervals, as detailed in the Amended Credit Agreement.

The interest rate on the Amended Credit Agreement, which is tied to the London Interbank Offered Rate (“LIBOR”).

Provisions within the agreement currently provide the Company with the ability to replace LIBOR with a different reference rate in the event LIBOR ceases to exist .

Segment Reporting

3 unchanged sentences

Use of Estimates

In preparing the Company’s consolidated financial statements, management makes certain estimates and assumptions, especially in relation to, but not limited to, goodwill impairment, tradenames, allocations of purchase price, allowance for receivables, tax provision and contractual allowances, that affect the amounts reported in the consolidated financial statements and related disclosures.

I n preparing the Company’s consolidated financial statements, management makes certain estimates and assumptions, especially in relation to, but not limited to, goodwill impairment, tradenames and other intangible assets, allocations of purchase price, provision for credit losses, tax provision and contractual allowances, that affect the amounts reported in the consolidated financial statements and related disclosures.

Actual results may differ from these estimates .

3 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 September 30, 2020 .

Management believes that the current accrued amounts are sufficient to pay claims arising from self-insurance claims incurred through March 31, 2021.

Restricted Stock

12 unchanged sentences

The standard is required to be applied using the modified retrospective approach with a cumulative-effect adjustment to retained earnings, if any, upon adoption.

The Company has completed the adoption of the standard on January 1, 2020.

The Company completed the adoption of the standard on January 1, 2020 .

The financial instruments subject to ASU 2016-13 are the Company’s accounts receivable derived from contracts with customers.

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Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU provides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates.

This ASU provides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates.

The new guidance was effective upon issuance, and the Company is allowed to elect to apply the amendments prospectively through December 31, 2022 .

The Company is currently evaluating the impact this standard will have on its combined financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”).

The objective of ASU 2019-12 is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and early adoption is permitted.

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

Borrowings under the Amended Credit Agreement bear interest based on LIBOR or an alternate base rate.

Provisions within the agreement currently provide the Company with the ability to replace LIBOR with a different reference rate in the event LIBOR ceases to exist.

In August 2020 , the FASB issued ASU 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20 ) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40 ):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

As part of this update, convertible instruments are to be included in diluted earnings per share using the if-converted method, rather than the treasury stock method.

Further, contracts which can be settled in cash or shares, excluding liability-classified share-based payment awards, are to be included in diluted earnings per share on an if-converted basis if the effect is dilutive, regardless of whether the entity or the counterparty can choose between cash and share settlement.

The share-settlement presumption may not be rebutted based on past experience or a stated policy.

This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021 .

The Company plans to adopt this pronouncement as of January 1, 2022 .

The use of either the modified retrospective or fully retrospective method of transition is permitted.

The Company is currently evaluating the impact of the adoption of ASU 2020-06 on the Company's consolidated financial statements .

ACQUISITIONS OF BUSINESSES

On September 30, 2020, the Company 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 remaining 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, the Company acquired interests in a four -clinic physical therapy practice.

The four clinics are 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.The aggregate purchase price was $ 11.9 million, of which $ 11.6 million was paid in cash and $ 0.3 million in the form of a seller note.

The note accrues interest at 4.75 % per annum and the principal and interest is payable on February 2022.

On March 31, 2021, the Company acquired a 70 % interest in a five -clinic physical therapy practice, with a sixth clinic in the process of development, in the first quarter of 2021, with the practice founder retaining 30 % .

The purchase price for the 70% interest was approximately $ 12.0 million, of which $ 11.7 million was paid in cash and $ 0.3 million in a note payable.

The note accrues interest at 3.25 % per annum and the principal and interest is payable on March 31, 2023.

The purchase price plus the fair value of the non-controlling interests for the acquisitions in 2021 was allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, i.e.

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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 September 30, 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 March 31, 2021 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.

The Company does not expect the adjustments to be material.

For the acquisitions in 2020, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives.

For the acquisition in 2021, the estimated values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives.

For referral relationships, the amortization period is 11.0 years.

For non-compete agreements, the amortization period is 6.0 years.

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 purchase price for the 2020 acquisitions has been preliminarily allocated as follows (in thousands):

T he results of operations of the acquired clinics have been included in the Company’s consolidated financial statements since the date of their respective acquisitio n.

T he purchase price for the 2021 acquisitions has been preliminarily allocated as follows (in thousands) :

Cash paid, net of cash acquired

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Fair value of non-controlling interest (classified as redeemable non-controlling interests)

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 the form of a seller note that is payable in two principal installments totaling $ 150,000 each, plus accrued interest.

The first principal payment and accrued interest was paid in September 2020 and the second payment plus accrued interest remains due to be paid in September 2021.

On November 30, 2020, the Company acquired a 75 % interest in a three -clinic physical therapy practice.

The purchase price for the 75% interest was $ 8.9 million (net of cash acquired), of which $ 8.6 million was paid in cash and $ 0.3 million in the form of a note payable that is payable in two principal installments totaling $ 162,500 each.

The first principal payment plus accrued interest will be paid on November 2021 with the second installment to be paid in November 2022.

The note accrues interest at 3.25 % per annum.

On April 11, 2019, the Company 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, the Company’s industrial injury prevention operation, increasing the Company’s 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.

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.

For the 2019 acquisitions, a majority of total current assets primarily represents accounts receivable.

Total non-current assets are fixed assets and equipment used in the practice.

On September 30, 2020, the Company 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 remaining 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 two 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, the Company acquired interests in a four -clinic physical therapy practice.

The four clinics are 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.

The aggregate purchase price was $ 11.9 million, of which $ 11.6 million was paid in cash and $ 0.3 million in the form of a note payable.

The note accrues interest at 4.75 % per annum and the principal and interest is payable on February 2022.

T he results of operations of the acquired clinics have been included in the Company’s consolidated financial statements since the date of their respective acquisition.

For the 2021 and 2020 acquisitions, a majority of total current assets primarily represents accounts receivable.

Total non-current assets are fixed assets and equipment used in the practic e.

The purchase price for the 2020 acquisitions has been allocated as follows (in thousands):

Cash paid, net of cash acquired

Payable to shareholders of seller

Total consideration

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Fair value of non-controlling interest (classified as redeemable non-controlling interests)

* Industrial injury prevention services

The purchase prices plus the fair value of the non-controlling interests for the acquisitions in 2020 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, i.e.

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.

The Company has completed its formal valuation analyses for the acquisitions in the three months ended March 31, 2020.

For the acquisitions in 2020, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives.

For referral relationships, the weighted average amortization period was 11.0 years at December 31, 2019.

For referral relationships, the weighted average amortization period w as 11.0 years at December 31, 2020.

For non-compete agreements, the weighted average amortization period was 6.0 years at December 31, 2020.

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

Unaudited proforma consolidated financial information for the acquisitions in the 2020 and 2019 acquisitions have not been included as the results, individually and in the aggregate, were not material to current operations.

During 2019, the Company acquired additional interests in four partnerships which are included in non-controlling interest.

The additional interests purchased in each of the partnerships ranged from 1 % and 55 %.

Also in 2019, the Company sold a 1 % interest in a partnership.

The net after tax difference between the payments and the portion of undistributed earnings of $ 196,000 was credited to additional paid-in capital.

Unaudited proforma consolidated financial information for the acquisitions in 2021 and 2020 have not been included, as the results, individually and in the aggregate, were not material to current operations.

REVENUE RECOGNITION

Revenues are recognized in the period in which services are rendered.

Net patient revenues consists of revenues for physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries.

N et patient revenues consists of revenues for physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic-related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries.

Net patient revenues (patient revenues less estimated contractual adjustments) are recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied.

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The provision for doubtful accounts is included in clinic operating costs in the statements of net income.

Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for doubtful accounts, includes only those amounts the Company estimates to be collectible.

The following table details the revenue related to the various categories (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

March 31, 2021

March 31, 2020

Net patient revenues

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Medicare Reimbursement

The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (‘‘MPFS’’).

For services provided in 2019, a 0.25 % increase was applied to the fee schedule payment rates before applying the mandatory budget neutrality adjustment.

For services provided in 2020 through 2025, a 0.0 % update will be applied each year to the fee schedule payment rates, before applying the mandatory budget neutrality adjustment.

However, in the 2021 MPFS Final Rule, CMS proposed an increase to the code values for office/outpatient evaluation and management (E/M) codes and cuts to other codes to maintain budget neutrality of the MPFS.

This change in code valuations would be effective January 1, 2021.

Under the proposal, physical/occupational therapy services could see code reductions that may result in an estimated 9 % decrease in payment.

In announcing this possible reduction in the applicable physical/occupational therapy codes, CMS indicated that it would further consider and address industry and provider concerns before finalizing the 2021 code values.

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

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.

Since 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”.

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

Department of Health and Human Services.

They have the authority to extend the public health emergency, which it did on July 23, 2020 and then again on October 23, 2020.

T he Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”).

For services provided in 2017 through 2019, a 0.5 % increase was applied to the fee schedule payment rates before applying the mandatory budget neutrality adjustment.

For services provided in 2020 through 2025, a 0.0 % percent update is expected to be applied each year to the fee schedule payment rates, before applying the mandatory budget neutrality adjustment.

In the 2020 MPFS Final Rule, CMS revised coding, documentation guidelines, and increased the code values for office/outpatient evaluation and management (E/M) codes and cuts to other codes to maintain budget neutrality of the MPFS beginning in 2021.

Under the 2021 MPFS Final Rule, CMS increased the values for the E/M office visit codes and cuts to other specialty codes to maintain budget neutrality.

As a result, reimbursement for the codes applicable to physical/occupational therapy services provided by our clinics will receive an estimated 3.5 % decrease in the aggregate in payment from Medicare in calendar year 2021.

The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years , and requires automatic reductions in federal spending by approximately $ 1.2 trillion.

Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2 % cap.

On April 1, 2013, a 2 % reduction to Medicare payments was implemented.

The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2 % reductions to Medicare payments through fiscal year 2025.

The Bipartisan Budget Act of 2018, enacted on February 9, 2018, extends the 2 % reductions to Medicare payments through fiscal year 2027.

T he Act suspended the 2 % payment reduction Medicare payments for dates of service from May 1, 2020 through December 31, 2020.

The Consolidated Appropriations Act, 2021 further suspended the 2 % payment reduction until March 31, 2021.

On April 14, 2021, additional legislation was enacted that waived the 2 % payment reduction for calendar 2021 .

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.

Therapists eligible to participate in MIPS include only those therapists who are enrolled with Medicare as private practice providers, and does not include therapists in facility-based providers, such as our clinics enrolled as certified rehabilitation agencies.

Less than 3 % of the Company’s therapist providers currently participate in MIPS.

Under the MIPS requirements, a provider's performance is assessed according to established performance standards each year and then is used to determine an adjustment factor that is applied to the professional's payment for the corresponding payment year.

The provider’s MIPS performance in 2019 will determine the payment adjustment in 2021.

For those therapist providers who actually participated in MIPS during 2019, the resulting average payment adjustment was an increase of 1 % .

Each year from 2019 through 2024, professionals who receive a significant share of their revenues through an alternate payment model (“APM”) (such as accountable care organizations or bundled payment arrangements) that involves risk of financial losses and a quality measurement component will receive a 5 % bonus in the corresponding payment year.

The bonus payment for APM participation is intended to encourage participation and testing of new APMs and to promote the alignment of incentives across payors.

The specifics of the MIPS and APM adjustments will be subject to future notice and comment rule-making.

Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2 % cap.

On April 1, 2013, a 2 % reduction to Medicare payments was implemented.

The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2 % reductions to Medicare payments through fiscal year 2025.

The Bipartisan Budget Act of 2018, enacted on February 9, 2018, extended the 2 % reductions to Medicare payments through fiscal year 2027.

The CARES Act temporarily suspended the 2 % payment adjustment, effective for claims with dates of service from May 1, 2020 through December 31, 2020.

Historically, the total amount paid by Medicare in any one year for outpatient physical therapy, occupational therapy, and/or speech-language pathology services provided to any Medicare beneficiary was subject to an annual dollar limit (i.e., the ‘‘Therapy Cap’’ or ‘‘Limit’’).

As a result of Bipartisan Budget Act of 2018, the Therapy Caps have been eliminated, effective as of January 1, 2018.

Under the Middle Class Tax Relief and Job Creation Act of 2012 (‘‘MCTRA’’), since October 1, 2012, patients who met or exceeded $3,700 in therapy expenditures during a calendar year have been subject to a manual medical review to determine whether applicable payment criteria are satisfied.

Under the Middle Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients who met or exceede d $ 3,700 in therapy expenditures during a calendar year have been subject to a manual medical review to determine whether applicable payment criteria are satisfied.

The $ 3,700 threshold is applied to Physical Therapy and Speech Language Pathology Services;

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

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

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.

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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Outpatient therapy services furnished on or after January 1, 2022 in whole or part by a therapy assistant will be paid at an amount equal to 85 % of the payment amount otherwise applicable for the service.

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 the our financial statements as of March 31, 2021.

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 quarter ended March 31, 2021, net patient revenues from Medicare were approximately $ 26.6 million.

Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare that sufficiently compensate us for our services or, in some instances, cover our operating costs.

Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on our revenue, financial condition and results of operations.

Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our business, financial condition and results of operations.

Contractual Allowances

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Management regularly compares its cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis.

In the aggregate, historically the difference between net revenues and corresponding cash collections has generally reflected a difference within approximately 1 % of net revenues.

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 September 30, 2020.

In the aggregate, historically the difference between net revenues and corresponding cash collections has generally reflected a difference within approximately 1.0 % to 1.5 % of net revenues.

Additionally, analysis of subsequent periods’ contractual write-offs on a payor basis reflects a difference within approximately 1.0 % to 1.5 % 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 1.0 % to 1.5 % at March 31, 2021.

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

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the transaction price), the Company recognizes the revenue, net of contractual allowances, in the period in which the services are rendered.

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 first nine months of 2020 , included in other income, resulting from the sale of 12 previously closed clinics.

Receipts of Relief Funds

The Company’s consolidated subsidiaries received approximately $ 8.3 million of payments under the Provider Relief Fund as of September 30, 2020.

Under the Company’s accounting policy, these payments have been recorded as other income – Relief Funds.

For the three and nine months ended September 30, 2020, the Company has recognized approximately $ 0.4 million and $ 8.3 million, respectively, as other income – Relief Funds on the accompanying condensed consolidated statements of income.

Department of Health and Human Services.

Currently, the Company can attest to and comply with the terms and conditions.

The Company will continue to monitor the evolving guidelines and may record adjustments as additional information is released.

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 collection s.

EARNINGS PER SHARE

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Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

March 31, 2021

March 31, 2020

Computation of earnings per share - USPH shareholders:

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Revaluation of redeemable non-controlling interest

Tax effect at statutory rate (federal and state) of 26.25 %

Tax effect at statutory rate (federal and state) of 25.55 % and 26.25 % , respectively

Earnings per share (basic and diluted)

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NewCo’s earnings are distributed monthly based on available cash within NewCo; Therefore, the undistributed earnings amount is small, if any.

The Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple of the trailing twelve-month earnings that is used in the Put Right and the Call Right noted above.

The Put Right and the Call Right do not have an expiration date, and the Seller Entity Interest is not required to be purchased by the Company or sold by the Seller Entity unless either the Put Right and the Call Right is exercised.

The Purchase Price for the initial equity interest purchased by the Company is, in almost all cases, also based on the same specified multiple of the trailing twelve-month earnings that is used in the Put Right and the Call Right noted above.

The Put Right and the Call Right never apply to Selling Shareholders who do not become employed by NewCo, since the Company requires that such Selling Shareholders sell their entire ownership interest in the Seller Entity at the closing of the Acquisition.

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

For the three months ended March 31, 2021, the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interests (in thousand s):

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

March 31, 2021

December 31, 2020

Beginning balance

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

September 30, 2020

September 30, 2019

March 31, 2021

December 31, 2020

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

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

Nine Months Ended

September 30, 2020

Three Months Ended

March 31, 2021

December 31, 2020

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Goodwill acquired

Goodwill related to partnership interest sold

Goodwill write-off related to closed clinics

Goodwill derecognition (write-off) related to closed clinics

Goodwill adjustments for purchase price allocation of businesses acquired in prior year

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INTANGIBLE ASSETS, NET

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

September 30, 2020

Intangible assets, net as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

March 31, 2021

December 31, 2020

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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 and nine months ended September 30, 2020 and 2019 (in thousands):

The following table details the amount of amortization expense recorded for intangible assets for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Three Months Ended

March 31, 2021

March 31, 2020

Referral relationships

Non-compete agreements

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

Based on the balance of referral relationships and non-compete agreements as of March 31, 2021, the expected amount to be amortized in 2021 and thereafter by year is as follows (in thousand s):

Referral Relationships

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Ending December 31,

2020 (excluding the nine months ended September 30, 2020)

2021 (excluding the three months ended March 31, 2021)

ACCRUED EXPENSES

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

September 30, 2020

Accrued expenses as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

March 31, 2021

December 31, 2020

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Closure costs

Federal and state income taxes payable

Federal income taxes payable

MAAPP funds payable

Deferred employer payroll taxes - CARES ACT

See Note – 1 Basis of Presentation and Significant Accounting Policies – Impact of COVID-19 for a discussion of CARE Act and MAAPP funds.

Dividends payable

See Note – 1 Basis of Presentation and Significant Accounting Policies – Impact of COVID-19 for a discussion of CARES Act and MAAPP funds.

Closure costs consist primarily of remaining lease commitments related to closed clinics.

NOTES PAYABLE AND AMENDED CREDIT AGREEMENT

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

September 30, 2020

Amounts outstanding under the Amended Credit Agreement (as defined below) and notes payable as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

March 31, 2021

December 31, 2020

Credit Agreement average effective interest rate of 2.5 % inclusive of unused fee

Credit Agreement average effective interest rate of 3.0 % and 2.6 % in 2021 and 2020, respectively (inclusive of unused fee)

Various notes payable with $ 5,079 plus accrued interest due in the next year, interest accrues in the range of 3.25 % through 5.50 % per annum

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Effective December 5, 2013, the Company 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”).

This agreement was amended and/or restated in August 2015, January 2016, March 2017, November 2017 and January 2021 (hereafter referred to as “Amended Credit Agreement”).

The Amended Credit Agreement is unsecured and has loan covenants, including requirements that the Company 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 the Company’s common stock, dividend payments to the Company’s common stockholders, capital expenditures and other corporate purposes.

The pricing grid which is based on the Company’s 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 the Company’s 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 the Company could pay with respect to acquisitions permitted under the Amended Credit Agreement to $ 50.0 million for any fiscal year, and increased the amount the Company may pay in cash dividends to its 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 the Company may pay in cash dividends to its 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 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 .

As of September 30, 2020, $ 7.0 million was outstanding on the Amended Credit Agreement, resulting in $ 118.0 million of availability.

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

The pricing grid is based on the Company’s 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 of 0.3 % of the amount of funds outstanding under the Amended Credit Agreement.

The January 2021 amendment to the Amended Credit Agreement allows the cash and noncash consideration that the Company could pay with respect to acquisitions permitted under the Amended Credit Agreement to $ 50,000,000 for any fiscal year, and the amount the Company may pay in cash dividends to its shareholders in an aggregate amount not to exceed $ 50,000,000 in any fiscal year.

The commitment remains at $ 125 million, however the accordion feature in the agreement was expanded to provide for capacity up to $ 150 million, and has a maturity date of November 30, 2025 .

The Amended Credit Agreement is unsecured and includes certain financial covenants which include a consolidated fixed charge coverage ratio and a consolidated leverage ratio, as defined in the agreement.

As of March 31, 2021, $ 16.0 million was outstanding on the Amended Credit Agreement, resulting in $ 109.0 million of availability.

As of March 31, 2021, 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 is currently in negotiations with its lender to renew the Amended Credit Agreement .

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 a recent acquisition on September 30, 2020, the Company entered into a notes payable in the amount of $ 0.5 million.

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.

Interest accrues at the rate of 5.0 % per annum.

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 September 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.

In conjunction with the 2019 acquisitions, the Company entered into notes payable in the aggregate amount of $ 4.8 million of which an aggregate principal payment of $ 4.6 million is due in 2021, and $ 0.2 million is due in 2022.

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

In conjunction with these transactions in 2020 and 2021, the Company entered into notes payable in the aggregate amount of $ 1.4 million of which an aggregate principal payment of $ 0.5 million is due in 2021, $ 0.6 million is due in 2022 and $ 0.3 million is due in 2023.

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 September 30, 2020 are as follows (in thousands):

During the twelve months ended September 30, 2021

During the twelve months ended September 30, 2022

The outstanding amounts under the Amended Credit Agreement facility (balance at September 30, 2020 of $ 7.0 million) mature on November 30, 2021 .

The balance of the various notes payable entered into prior to 2020 was $ 4.4 million which will be paid in 2021.

Subsequent aggregate annual payments of principal required pursuant to the Amended Credit Agreement and outstanding notes payable at March 31, 2021 are as follows (in thousands):

During the twelve months ended March 31, 2022

During the twelve months ended March 31, 2023

During the twelve months ended March 31, 2026

The outstanding amounts under the Amended Credit Agreement facility (balance at March 31, 2021 of $ 16.0 million) mature on November 30, 2025 .

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

The Company determines if an arrangement is a lease at the inception of a contract.

Effective January 1, 2019, right-of-use assets and operating lease liabilities are included in its consolidated balance sheet.

Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent net present value of the Company’s obligation to make lease payments arising from the lease.

12 unchanged sentences

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

For the three months ended March 31, 2021, the components of lease expense were as follows (in thousands):

Three Months Ended

March 31, 2021

March 31, 2020

Operating lease cost

5 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended

March 31, 2021

March 31, 2020

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

Right-of-use assets obtained in exchange for new operating lease liabilities (in thousands)

* 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 September 30, 2020 were as follows (in thousands):

2020 (excluding the nine months ended September 30, 2020)

The aggregate future lease payments for operating leases as of March 31, 2021 were as follows (in thousands):

2021 (excluding the three months ended March 31, 2021)

2026 and therafter

4 unchanged sentences

Three Months Ended

September 30, 2020

Nine Months Ended

September 30, 2020

March 31, 2021

March 31, 2020

Weighted-average remaining lease term - Operating leases

2 unchanged sentences

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.

2 unchanged sentences

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

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

(in thousands)

Three Months Ended March 31,

(in thousands)

11 unchanged sentences

Total Company

RELATED PARTY TRANSACTIONS

Settlement of Short Swing Profit Claim

In March 2021, the Company recorded approximately $ 12.8 thousand related to the short swing profit settlement remitted by a shareholder of our company under Section 16(b) of the Securities Exchange Act of 1934, as amended.

The Company recognized the proceeds as an increase to additional paid-in capital in the consolidated balance sheets as of March 31, 2021 and consolidated statements of stockholders’ equity, as well as in cash provided by financing activities included in Other, in the consolidated statements of cash flows, for the three months ended March 31, 2021.

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 172,652 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 the Company’s cash position.

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

There are currently an additional estimated 144,092 shares (based on the closing price of $ 104.10 on March 31, 2021) 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 three months ended March 31, 2021.

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