What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-06 · 191 added, 314 removed, 167 unchanged (75% of the section changed)

1 unchanged sentence

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”);

(ii) our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2021 (“2020 Annual Report”);

and (iii) our management’s discussion and analysis of financial condition and results of operations included in our 2020 Annual Report.

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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.

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 for the year ended December 31, 2020, our results were negatively impacted by the effects of the COVID-19 pandemic in the three months ended March 31, 2020 (“2020 First Quarter”), especially in March 2020.

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

Our industrial injury prevention business has been less affected by the pandemic in 2020.

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.

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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.

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.

In 2020, we received benefits under the CARES Act including, but not limited to:

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

The CARES Act allowed for qualified healthcare providers to receive advanced payments under the 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.

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

We recorded the $14.1 million in advance payments received as a liability.

During the 2021 First Quarter, we repaid the MAAPP Funds of $14.1 million rather than applying them to future services performed.

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.

As of March 31, 2021 included in each of accrued liabilities is $4.2 million and in other long-term liabilities is $4.2 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 .

Through December 31, 2020, our consolidated subsidiaries received approximately $13.5 million of payments under the CARES Act (“Relief Funds”).

Under the our accounting policy, these payments have been 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.

Department of Health and Human Services.

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

Currently, we can attest and comply with the terms and conditions.

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

There were no Relief Funds received in the 2021 First Quarter.

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.

At March 31, 2021, we operated 564 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 40 such third-party facilities under management as of March 31, 2021.

Our reportable segments include the physical therapy operations segment and the industrial injury prevention services segment.

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The acquired business was then combined with Briotix Health increasing our ownership position in the partnership to approximately 76.0%.

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

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

The purchase price was approximately $12.0 million, of which $11.7 million was paid in cash and a $0.3 million 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, we 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 in 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, 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.

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.

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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.

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

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

During the three months ended March 31, 2020, we sold two clinics.

The aggregate sales price was $0.1 million.

Our strategy to acquire physical therapy practices, develop outpatient physical therapy clinics as satellites within existing partnerships, acquire industrial injury prevention businesses, and to continue to support the growth of our existing businesses requires a talented workforce that can grow with us.

As of March 31, 2021, we employed approximately 4850 people nationwide, of which approximately 2,590 were full-time employees.

It is crucial that we continue to attract and retain top talent.

To attract and retain talented employees, we strive to make our corporate office and all of our practices and businesses a diverse and healthy workplace, with opportunities for our employees to receive continuing education, skill development, encouragement to grow and develop their career, all supported by competitive compensation, incentives, and benefits.

Our clinical professionals are all licensed and a vast majority have advanced degrees.

Our operational leadership teams have long-standing relationships with local and regional universities, professional affiliations, and other applicable sources that provide our practices with a talent pipeline.

We provide competitive compensation and benefits programs to help meet our employees' needs in the practices and communities in which they serve.

These programs (which can vary by practice and employment classification) include incentive compensation plans, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, education assistance, mental health, and other employee assistance benefits.

We invest resources to develop the talent needed to support our business strategy.

Resources include a multitude of training and development programs delivered internally and externally, online and instructor-led, and on-the-job learning formats.

We expect to continue adding personnel in the future as we focus on potential acquisition targets and organic growth opportunities.

Beginning in March 2020, we have supported our employees and government efforts to curb the COVID-19 pandemic through a multifaceted communication, infrastructure, and behavior modification and enforcement effort:

Establishing clear COVID-19 policies, health and safety protocols, and routine updates to our employees and patients;

Increasing cleaning protocols and hand hygiene across all locations;

Providing additional personal protective equipment and cleaning supplies;

Implementing protocols to address actual and suspected COVID-19 cases and potential exposures;

Limiting non-essential travel for all employees;

Adjusting schedules and workload to permit remote working where possible;

Requiring masks to be worn by all individuals in all locations

Decreasing density, increasing social distancing and restricting visitors in our clinics and offices for employees working onsite;

Provided information regarding the COVID-19 vaccines to employees and strongly encouraged all employees to get vaccinated.

Additionally, due to the impact of COVID-19 on our operations, we have generated efficiencies in staffing, including limiting hiring to critical business roles, reducing scheduled hours, furloughs, and reductions-in-force.

Through our employees' commitment to following operational protocols and their continued efforts to provide quality services to our patients, we have seen much of the workforce, and our operations, return to pre-pandemic levels.

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.

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2021

For the 2021 First Quarter, our Operating Results were $8.2 million, or $0.64 per diluted share, as compared to $3.9 million, or $0.30 per diluted share, for the 2020 First Quarter.

Operating Results, a non-Generally Accepted Accounting Principles (“GAAP”) measure, equals net income attributable to our shareholders per the consolidated statements of income plus charges incurred for clinic closure costs and expenses related to our 2020 CFO transition, all net of taxes.

Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest.

For the 2021 First Quarter, our net income attributable to our shareholders was $8.2 million, as compared to $1.0 million in the 2020 First Quarter.

Inclusive of the charge for revaluation of non-controlling interest, net of taxes, used to compute diluted earnings per share in accordance with GAAP, the amount is $2.8 million, or $0.21 per share, for the 2021 First Quarter as compared to $2.6 million, or $0.20 per share, for the 2020 First Quarter.

In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of taxes, is not included in net income but charged directly to retained earnings;

however, the charge 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.

The earnings per share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest.

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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,

Three Months Ended March 31,

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)

Charges incurred for CFO search

Expenses related to CFO transition

Closure costs

Gain on sale of partnership interest and clinics

Allocation to non-controlling interest

Revaluation of redeemable non-controlling interest

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

Operating Results (without Relief Funds)

Allocation to non-controlling interest

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

Operating Results (including Relief Funds)

Basic and diluted Operating Results (without Relief Funds) per share

Basic and diluted Operating Results (including Relief Funds) per share

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

Operating Results

Basic and diluted Operating Results per share

Shares used in computation - basic and diluted

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

Three Months Ended March 31,

(in thousands)

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Physical therapy operations - closure costs

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:

Reported net revenues for the 2021 First Quarter was $112.4 million as compared to $112.7 million for the 2020 First Quarter.

See table below for a detail of reported net revenues (in thousands):

Three Months Ended

September 30, 2020

September 30, 2019

(in thousands)

Net patient revenues related to 2019 and 2020 sold and closed clinics

Net patient revenue related to Mature Clinics

Net patient revenue related to New Clinics

Reported net patient revenues

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.

March 31, 2021

March 31, 2020

Net patient revenues

Management contract revenue

Other patient revenues

Physical therapy operations

Industrial injury prevention services

Net patient revenues from physical therapy operations decreased $0.9 million, or 0.9%, to $99.2 million in 2021 First Quarter from $100.1 million in the 2020 First Quarter as a result of having 24 fewer clinics open on average in the 2021 First Quarter as compared to the 2020 First Quarter.

Included in net patient revenues are revenues related to clinics sold or closed in 2021 and 2020 of $0.1 million in the First Quarter 2021 and $3.5 million in the First Quarter 2020.

During 2021 First Quarter, we sold our interest in 2 clinics and closed 1 clinic.

During 2020, we sold our interest in 14 clinics and closed 34 clinics.

For comparison purposes, adjusted for revenue from the clinics sold or closed, net patient revenues from physical therapy operations was approximately $99.1 million in the First Quarter 2021, inclusive of $5.3 million related to clinics opened or acquired in the 2021 First Quarter (“2021 Clinic Additions”) and 2020 year (“2020 Clinic Additions”), together referred to as Clinic Additions, and $96.6 million in First Quarter 2020.

Net patient revenues related to clinics opened or acquired prior to 2020 and still in operations at March 31, 2021 (“Mature Clinics) decreased $1.8 million in the 2021 First Quarter compared to the 2020 First Quarter.

See table below for a detail of net patient revenues from physical therapy operations (in thousands):

Three Months Ended

March 31, 2021

March 31, 2020

Revenue related to Mature Clinics

Revenue related to 2021 Clinic Additions

Revenue related to 2020 Clinic Additions

Revenue from clinics sold or closed in 2021

Revenue from clinics sold or closed in 2020

The average net patient revenue per visit was $104.72 for the 2021 First Quarter as compared to $103.11 for the 2020 First Quarter, including all clinics operational during such periods.

Total patient visits were 947,788 in the 2021 First Quarter and 971,023 for the 2020 First Quarter.

Net patient revenues are based on established billing rates less allowances for patients covered by contractual programs and workers’ compensation.

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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.

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.

Also included in physical therapy operationsNet patient was revenue from physical therapy management contracts which was $2.6 million for the 2021 First Quarter and $2.1 million in the 2020 First Quarter.

Other miscellaneous revenue was $0.5 million in the 2021 First Quarter and $0.6 million in the 2020 First Quarter.

Other miscellaneous revenue includes a variety of services, including athletic trainers provided for schools and athletic events.

Revenue from the industrial injury prevention business was $10.0 million in the 2021 First Quarter, as compared to $9.9 million in the 2020 First Quarter.

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.

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, 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.

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):

Total operating costs, excluding closure costs, were $86.4 million in the 2021 First Quarter, or 76.9% of net revenues, a reduction of 590 basis points as compared to $93.3 million in the 2020 First Quarter, or 82.8% of net revenues.

Included in operating costs for the 2021 First Quarter was $4.8 million related to Clinic Additions, of which $4.6 million is associated with 2020 Clinic Additions.

Operating costs for Mature Clinics decreased by $6.9 million in the 2021 First Quarter compared to the 2020 First Quarter.

In addition, operating costs related to the industrial injury prevention business decreased by $0.9 million.

See table below for a detail of operating costs, excluding closure costs (in thousands):

Three Months Ended

September 30, 2020

September 30, 2019

Income before taxes

net income attributable to non-controlling interests:

Non-controlling interests - permanent equity

Redeemable non-controlling interests - temporary equity

Income before taxes less net income attributable to non-controlling interests

Provision for income taxes

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.

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.

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.

Nine Months Ended September 30,

Computation of earnings per share - USPH shareholders:

Net income attributable to USPH shareholders

Credit (charges) to retained earnings:

Revaluation of redeemable non-controlling interest

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

Earnings per share (basic and diluted)

Charges incurred for CFO search

Closure costs

Gain on sale of partnership interest and clinics

Allocation to non-controlling interest

Revaluation of redeemable non-controlling interest

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

Operating Results (without Relief Funds)

Allocation to non-controlling interest

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

Operating Results (including Relief Funds)

Basic and diluted Operating Results (without Relief Funds) per share

Basic and diluted Operating Results (including Relief Funds) per share

Shares used in computation - basic and diluted

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

Industrial injury prevention services

Total Company

Gross profit:

Physical therapy operations (excluding closure costs)

Industrial injury prevention services

Physical therapy operations - closure costs

Total Assets:

March 31, 2021

March 31, 2020

Physical Therapy Operations

Operating costs related to Mature Clinics

Operating costs related to 2021 Clinic Additions

Operating costs related to 2020 Clinic Additions

Operating costs related to clinics sold or closed in 2021

Operating costs related to clinics sold or closed in 2020

Physical therapy management contracts

Total Physical therapy operations

Industrial injury prevention services

Total Company

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

Net patient revenue related to Mature Clinics

Net patient revenue related to New Clinics

Reported net patient revenues

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.

Total operating costs, excluding closure costs

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.

Salaries and related costs, including physical therapy operations and the industrial injury prevention services business, were 56.8% of net revenues in the 2021 First Quarter versus 61.2% in the 2020 First Quarter.

Salaries and related costs for the physical therapy operations were $57.5 million in the 2021 First Quarter, or 57.7% of physical therapy operations revenues, as compared to $62.0 million in the 2020 First Quarter, or 61.6% of physical therapy operations revenues.

Included in salaries and related costs for the physical therapy operations for the 2021 First Quarter was $3.3 million related to 2020 Clinic Additions.

Adjusted for the salaries and related costs for clinics closed or sold in 2021 and 2020 of $0.1 million and $2.4 million, in the 2021 and 2020 First Quarter, respectively, salaries and related costs for Mature Clinics decreased by $5.5 million in the First Quarter 2021 compared to the First Quarter 2020.

Salaries and related costs related to management contracts, which are included in physical therapy operations increased by $0.4 million for the 2021 First Quarter.

Salaries and related costs for the industrial injury prevention services business were $6.2 million in the 2021 First Quarter, or 62.5% of industrial injury prevention services revenues, as compared to $6.9 million in the 2020 First Quarter, or 70.3% of net industrial injury prevention services revenues.

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 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.

Rent, supplies, contract labor and other costs, including physical therapy operations and the industrial injury prevention services business, were 19.1% of net revenues in the 2021 First Quarter versus 20.3% in the 2020 First Quarter.

Rent, supplies, contract labor and other costs for the physical therapy operations were $20.4 million in the 2021 First Quarter, or 20.4% of physical therapy operations revenues, as compared to $21.6 million in the 2020 First Quarter, or 21.5% of physical therapy operations revenues.

Included in rent, supplies, contract labor and other costs related to physical therapy operations for the 2021 First Quarter was $1.4 million related to 2020 Clinic Additions.

Adjusted for the rent, supplies, contract labor and other costs for clinics related to the partnership interests closed or sold in 2021 and 2020 of $0.1 million in the 2021 First Quarter and $1.2 million in the 2020 First Quarter, rent, supplies, contract labor and other for Mature Clinics decreased by $1.2 million in the First Quarter 2021 compared to the First Quarter 2020.

Rent, supplies, contract labor and other costs, related to management contracts, which are included in physical therapy operations, decreased $0.1 million in the 2021 First Quarter.

Rent, supplies, contract labor and other costs for the industrial injury prevention services business were $1.0 million in the 2021 First Quarter, or 10.3% of industrial injury prevention services revenues, as compared to $1.3 million in the 2020 First Quarter, or 12.9% of net industrial injury prevention services revenues.

Operating Costs—Provision for Credit Losses

The provision for credit losses as a percentage of net revenue was 1.1% in the 2021 First Quarter and 1.2% for the comparable period in 2020.

Our provision for credit losses for patient accounts receivable as a percentage of total patient accounts receivable was 4.3% at March 31, 2021, as compared to 4.5% at December 31, 2020.

Our days’ sales outstanding were 34 days at March 31, 2021 and 32 days at December 31, 2020.

Gross profit for the 2021 First Quarter, excluding closure costs, was $25.9 million, an increase of $6.5 million, or approximately 33.4%, as compared to $19.4 million in the 2020 First Quarter.

The gross profit percentage, excluding closure costs, was 23.1% of net revenue in the 2021 First Quarter, an increase of 590 basis points as compared to 17.2% in the 2020 First Quarter.

The gross profit percentage for the our physical therapy clinics, excluding closure costs, was 22.9% in the 2021 First Quarter, an improvement of 560 basis points as compared to 17.3% in the 2020 First Quarter.

The gross profit percentage on physical therapy management contracts was 12.3% in the 2021 First Quarter, a decrease of 340 basis points as compared to 15.7% in the 2020 First Quarter.

During the 2021 First Quarter, the physical therapy management contracts business had a charge to provision for credit losses of $0.1 million.

The gross profit percentage for the industrial injury prevention business was 27.2% in the 2021 First Quarter, an improvement of 1040 basis points as compared to 16.8% in the 2020 First Quarter.

The table below details the gross profit, excluding closure costs (in thousands):

Three Months Ended

March 31, 2021

March 31, 2020

Gross profit, excluding closure costs:

Physical therapy clinics

Management contracts

Industrial injury prevention services

Gross profit, excluding closure costs

Physical therapy operations - closure costs

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.

Corporate office costs were $10.9 million in the 2021 First Quarter compared to $11.7 million in the 2020 First Quarter.

Corporate office costs were 9.7% of net revenues for the 2021 First Quarter as compared to 10.4% for the 2020 First Quarter.

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.

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.

Operating income for the 2021 First Quarter was $15.0 million, an increase of $11.0 million, or 274.2% as compared to $4.0 million for the 2020 First Quarter.

Operating income as a percentage of net revenue increased by 980 basis points from 3.6% in the 2020 period to 13.4% in 2021.

The 2020 First Quarter included $3.8 million related to clinic closures.

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).

Interest expense was $0.2 million in the 2021 First Quarter and $0.4 million in the 2020 First Quarter due to lower average borrowings under our Amended Credit Agreement.

At March 31, 2021, $16.0 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

The provision for income taxes was $2.9 million for the 2021 First Quarter and $0.3 million for the 2020 First Quarter.

The provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 26.5% for the 2021 First Quarter and 22.3% for the 2020 First Quarter.

See table below detailing calculation of the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands):

Three Months Ended

March 31, 2021

March 31, 2020

Income before taxes

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Provision for income taxes

Effective tax rate

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.

Net income attributable to redeemable non-controlling interests (temporary equity) was $2.5 million in the 2021 First Quarter and $1.8 million in the 2020 First Quarter.

Net income attributable to non-controlling interests (permanent equity) was $1.3 million in the 2021 First Quarter and $0.5 million in the 2020 First Quarter.

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.

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.

At March 31, 2021 and December 31, 2020, we had $17.9 million and $32.9 million, respectively, in cash.

We believe that our cash and cash equivalents and availability under our revolving credit facility are sufficient to fund the working capital needs of our operating subsidiaries through at least March 31, 2022.

Cash and cash equivalents decreased by $15.0 million from December 31, 2020 to March 31, 2021.

During the 2021 First Quarter, $17.7 million was provided by operations.

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).

repayment of MAAPP funds ($14.0 million), distributions to non-controlling interests inclusive of those classified as redeemable non-controlling interests ($5.3 million), purchase of business ($11.7 million), and purchase of fixed assets ($1.6 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”).

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 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.

Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of our common stock, dividend payments to the 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.

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 2021 amendment to the Amended Credit Agreement allows the cash and noncash consideration that we could pay with respect to acquisitions permitted under the Amended Credit Agreement to $50,000,000 for any fiscal year, and the amount we 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.

On 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, we were in compliance with all of the covenants thereunder.

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

The practice is in the process of developing a sixth.

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.

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

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, 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.

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.

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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 aggregate purchase price was $11.9 million, of which $11.6 million was paid in cash and a $0.3 million 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, 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.

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.

7 unchanged sentences

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.

Our outstanding notes payable as of March 31, 2021 relate to certain of the acquisitions of businesses and purchases of redeemable non-controlling interests that occurred in 2018 through March 2021.

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.

At March 31, 2021, the balance on these notes payable was $5.7 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.

As of March 31, 2021, we have accrued $5.8 million related to credit balances due to patients and payors.

This amount is expected to be paid in the next twelve months.

4 unchanged sentences

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.

As of March 31, 2021, 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 our cash position.

We did not purchase any shares of our common stock during the three months ended March 31, 2021.

FACTORS AFFECTING FUTURE RESULTS

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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.

See also Risk Factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.

Forward-Looking Statements

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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 2. Management’s Discussion and Analysis