U S PHYSICAL THERAPY INC /NV 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following is a discussion of our historical consolidated financial condition and results of operations, and should be read in conjunction with (i) our historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q; (ii) our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2022 (“2021 Annual Report”); and (iii) our management’s discussion and analysis of financial condition and results of operations included in our 2021 Annual Report. This discussion includes forward-looking statements that are subject to risk and uncertainties. Actual results may differ substantially from the statements we make in this section due to a number of factors that are discussed in “Forward-Looking Statements” herein and in Part II, Item 1A. Risk Factors of this report. References to “we,” “us,” “our” and the “Company” shall mean U.S. Physical Therapy, Inc. and its subsidiaries. EXECUTIVE SUMMARY Our Business We operate outpatient physical therapy clinics that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders and sports-related injuries, neurologically-related injuries and rehabilitation of injured workers. We also operate an industrial injury prevention services business which includes onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments services. Selected Operating and Financial Data Our reportable segments include the physical therapy operations segment and the industrial injury prevention services segment. Our physical operations consist of physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic-related disorders, sports-related injuries, preventive care, rehabilitation of injured workers and neurological injuries. Services provided by industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments. At March 31, 2022, we operated 601 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 March 31, 2022. During the 2021 year and three months ended March 31, 2022, we completed the acquisitions of four multi-clinic practices and two industrial injury services businesses as detailed below. Acquisition Date Acquired Clinics March 2022 Acquisition March 31, 2022 70% 6 December 2021 Acquisition December 31, 2021 75% 3 November 2021 Acquisition November 30, 2021 70% IIPS* September 2021 Acquisition September 30, 2021 100% IIPS* June 2021 Acquisition June 30, 2021 65% 8 March 2021 Acquisition March 31, 2021 70% 6 * Industrial injury prevention services business During the 2022 First Quarter, we closed two clinics. Employees Our strategy to acquire physical therapy practices, develop outpatient physical therapy clinics as satellites within existing partnerships, acquire industrial injury prevention services 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, 2022 we employed approximately 5,519 people nationwide, of which approximately 3,060 were full-time employees. 28 Index 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. RESULTS OF OPERATIONS Summary of 2022 First Quarter Compared to the 2021 First Quarter Results For the three months ended March 31, 2022 (“2022 First Quarter”), our net income attributable to our shareholders was $8.8 million as compared to $8.2 million for the three months ended March 31, 2021 (“2021 First Quarter”). In accordance with current GAAP 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 for this change is included in the earnings per basic and diluted share calculation. Inclusive of the charge for revaluation of non-controlling interest, net of taxes, the amount is $8.2 million, or $0.64 per diluted share, for the 2022 First Quarter, and $2.8 million, or $0.21 per diluted share, for the 2021 First Quarter. For the 2022 First Quarter, our Operating Results, were $8.7 million, or $0.67 per diluted share, an increase of 2.0%, as compared to $8.2 million, or $0.64 per diluted share, for the 2021 First Quarter. Operating Results, a non-GAAP measure, equals net income attributable to our shareholders per the consolidated statements of income, less the gain on the revaluation of the put-right liability. In accordance with GAAP, 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. See table on page 30. We believe providing Operating Results is useful to investors for comparing the Company’s period-to-period results and for comparing with other similar businesses since most do not have redeemable instruments and therefore have different equity structures. We use 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. Operating Results is not a measure of financial performance under GAAP and 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. 29 Index The following tables provide detail of the diluted earnings per share computation and reconcile net income attributable to our shareholders calculated in accordance with GAAP to Operating Results (in thousands, except per share data): Three Months Ended March 31, 2022 2021 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 8,799 $ 8,173 Credit (charges) to retained earnings: Revaluation of redeemable non-controlling interest (153 ) (7,270 ) Tax effect at statutory rate (federal and state) of 25.55% 39 1,857 $ 8,685 $ 2,760 Earnings per share (basic and diluted) $ 0.67 $ 0.21 Adjustments: Gain on revaluation of put-right liability (603 ) - Revaluation of redeemable non-controlling interest 153 7,270 Tax effect at statutory rate (federal and state) 115 (1,857 ) Operating Results (a non-GAAP measure) $ 8,350 $ 8,173 Basic and diluted Operating Results per share (a non-GAAP measure) $ 0.65 $ 0.64 Shares used in computation - basic and diluted 12,937 12,870 The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements (in thousands): Three Months Ended March 31, 2022 2021 Net operating revenue: Physical therapy operations $ 112,636 $ 102,359 Industrial injury prevention services 19,068 10,009 Total Company $ 131,704 $ 112,368 Gross profit: Physical therapy operations $ 22,436 $ 23,174 Industrial injury prevention services 4,152 2,722 Gross profit $ 26,588 $ 25,896 Total Assets: Physical therapy operations $ 608,240 $ 723,530 Industrial injury prevention services 155,623 25,896 Total Company $ 763,863 $ 749,426 30 Index Revenue Reported total revenue for the 2022 First Quarter was $131.7 million, an increase of 17.2% as compared to $112.4 million for the 2021 First Quarter. See table below for a detail of reported total revenue (in thousands): Three Months Ended March 31, 2022 March 31, 2021 Revenue related to Mature Clinics $ 102,321 $ 98,649 Revenue related to 2022 Clinic Additions 195 - Revenue related to 2021 Clinic Additions 6,823 149 Revenue from clinics sold or closed in 2022 199 190 Revenue from clinics sold or closed in 2021 - 266 Net patient revenue from physical therapy operations 109,538 99,254 Other revenue 872 546 Revenue from physical therapy operations 110,410 99,800 Management contract revenue 2,226 2,559 Industrial injury prevention services 19,068 10,009 Total Revenue $ 131,704 $ 112,368 Revenue from physical therapy operations increased $10.6 million, or 10.5%, to $110.4 million for the 2022 First Quarter from $99.8 million for the 2021 First Quarter. Net patient revenue related to clinics opened or acquired prior to 2021 and still in operation at March 31, 2022 (“Mature Clinics”) increased $3.7 million, or 3.7%, to $102.3 million for the 2022 First Quarter compared to $98.6 million for the 2021 First Quarter. The average net patient revenue per visit was $103.00 for the 2022 First Quarter as compared to $104.72 for the 2021 First Quarter. Total patient visits increased 12.2% to 1,063,519 for the 2022 First Quarter from 947,788 for the 2021 First Quarter. Net patient revenue is based on established billing rates less allowances for patients covered by contractual programs and workers’ compensation. Net patient revenue is 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. Visits for Mature Clinics (same store) for the 2022 First Quarter increased 5.9% as compared to the 2021 First Quarter. Revenue from physical therapy management contracts decreased 13.0% to $2.2 million for the 2022 First Quarter as compared to $2.6 million for the 2021 First Quarter. Other miscellaneous revenue was $0.9 million for the 2022 First Quarter and $0.5 million for the 2021 First Quarter. Other miscellaneous revenue includes a variety of services, including athletic trainers provided for schools and athletic events. Other miscellaneous revenue includes a variety of services, including athletic trainers provided for schools and athletic events. Revenue from the industrial injury prevention services business increased 90.5% to $19.1 million for the 2022 First Quarter as compared to $10.0 million for the 2021 First Quarter. Excluding $6.8 million of revenue related to the industrial injury prevention services acquisition in November 2021, industrial injury prevention services revenue increased 22.4% in the 2022 First Quarter as compared to the 2021 First Quarter. 31 Index Operating Cost Total operating cost was $105.1 million for the 2022 First Quarter, or 79.8% of total revenue, as compared to $86.5 million, or 77.0% of total revenue, for the 2021 First Quarter. Operating cost related to Mature Clinics increased by $4.8 million for the 2022 First Quarter compared to the 2021 First Quarter. On a per visit basis, operating cost related to Mature Clinics increased 0.4% from $80.78 in the 2021 First Quarter to $81.08 in the 2022 First Quarter. In addition, operating cost related to the industrial injury prevention services business increased by $7.6 million of which $5.6 million related to the recent industrial injury prevention services acquisition in November 2021. See table below for a detail of operating cost (in thousands): Three Months Ended March 31, 2022 March 31, 2021 Operating cost related to Mature Clinics $ 81,034 $ 76,221 Operating cost related to 2022 Clinic Additions 840 - Operating cost related to 2021 Clinic Additions 6,209 136 Operating cost related to clinics sold or closed in 2022 286 249 Operating cost related to clinics sold or closed in 2021 - 334 Operating cost related to physical therapy operations 88,369 76,940 Operating cost related to management contracts 1,831 2,245 Operating cost related to industrial injury prevention services 14,916 7,287 Total operating cost $ 105,116 $ 86,472 Each component of operating cost is discussed below: Operating Cost—Salaries and Related Costs Salaries and related costs, including physical therapy operations and the industrial injury prevention services business, was 57.1% of net revenue for the 2022 First Quarter versus 56.8% for the 2021 First Quarter. Salaries and related costs for the physical therapy operations was $62.4 million in the 2022 First Quarter, or 56.6% of physical therapy operations revenue, as compared to $55.6 million in the 2021 First Quarter, or 55.7% of physical therapy operations revenue. Included in salaries and related costs for the physical therapy operations for the 2022 First Quarter was $3.7 million related to 2022 and 2021 Clinic Additions. Adjusted for the salaries and related costs for clinics closed or sold in 2022 and 2021, salaries and related costs related to Mature Clinics increased by $3.4 million in the 2022 First Quarter compared to the 2021 First Quarter. Salaries and related costs related to management contracts decreased by $0.3 million for the 2022 First Quarter. Salaries and related costs for the industrial injury prevention services business was $11.1 million in the 2022 First Quarter, or 58.2% of industrial injury prevention services revenue, as compared to $6.3 million in the 2021 First Quarter, or 62.5% of industrial injury prevention services revenue. Operating Cost—Rent, Supplies, Contract Labor and Other Rent, supplies, contract labor and other costs, including physical therapy operations and the industrial injury prevention services business, was 21.8% of net revenue in the 2022 First Quarter versus 19.1% in the 2021 First Quarter. Rent, supplies, contract labor and other costs for the physical therapy operations was $24.6 million in the 2022 First Quarter, or 22.3% of physical therapy operations revenue, as compared to $20.1 million in the 2021 First Quarter, or 20.1% of physical therapy operations revenue. Included in rent, supplies, contract labor and other costs related to physical therapy operations for the 2022 First Quarter was $3.2 million related to 2022 and 2021 Clinic Additions. Adjusted for the rent, supplies, contract labor and other costs for clinics related to the clinics closed or sold in 2022 and 2021 of $0.1 million in the 2022 First Quarter and $0.3 million in the 2021 First Quarter, rent, supplies, contract labor and other costs for Mature Clinics increased by $1.4 million in the 2022 First Quarter compared to the 2021 First Quarter. Rent, supplies, contract labor and other costs, related to management contracts increased $0.1 million in the 2022 First Quarter. Rent, supplies, contract labor and other costs for the industrial injury prevention services business was $3.8 million in the 2022 First Quarter, or 20.1% of industrial injury prevention services revenue, as compared to $1.0 million in the 2021 First Quarter, or 10.3% of net industrial injury prevention services revenue. Operating Cost—Provision for Credit Losses The provision for credit losses as a percentage of net revenue was 1.0% in the 2022 First Quarter and 1.1% for the comparable period in 2021. Our provision for credit losses for patient accounts receivable as a percentage of total patient accounts receivable was 5.37% at March 31, 2022, as compared to 5.64% at December 31, 2021. Our days’ sales outstanding was 34 days at March 31, 2022 and 32 days at December 31, 2021. 32 Index Gross Profit Gross profit for the 2022 First Quarter, was $26.6 million, an increase of $0.7 million, or approximately 2.7%, as compared to $25.9 million for the 2021 First Quarter. The gross profit percentage was 20.2% of total revenue for the 2022 First Quarter as compared to 23.0% for the 2021 First Quarter. The gross profit percentage for physical therapy operations was 20.0% for the 2022 First Quarter as compared to 22.9% for the 2021 First Quarter. The gross profit percentage on management contracts was 17.7% for the 2022 First Quarter as compared to 12.3% for the 2021 First Quarter. The gross profit percentage for industrial injury prevention services was 21.8% for the 2022 First Quarter as compared to 27.2% for the 2021 First Quarter. The table below details the gross profit (in thousands): Three Months Ended March 31, 2022 March 31, 2021 Physical therapy operations $ 22,041 $ 22,860 Management contracts 395 314 Industrial injury prevention services 4,152 2,722 Gross profit $ 26,588 $ 25,896 Corporate Office Costs Corporate office costs were $11.6 million for the 2022 First Quarter compared to $10.9 million for the 2021 First Quarter. Corporate office costs were 8.8% of total revenue for the 2022 First Quarter as compared to 9.7% for the 2021 First Quarter. Operating Income Operating income for the 2022 First Quarter and 2021 First Quarter was $15.0 million. Operating income as a percentage of total revenue was 11.4% for the 2022 First Quarter as compared to 13.4% for the 2021 First Quarter. Gain on Revaluation of Put-Right Liability The gain on revaluation of put-right liability was $603,000. As part of the industrial injury prevention services business acquisition on November 30, 2021, the Company also agreed to the potential future purchase of a separate company under the same ownership that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. The owners have the right to put this transaction to us in approximately five years, with such right having a $2.9 million value on March 31, 2022, as reflected on the Company's consolidated balance sheet in Other long-term liabilities. The value of this right will continue to be adjusted in future periods, as appropriate. Provision for Income Taxes The provision for income tax was $3.5 million for the 2022 First Quarter and $2.9 million for the 2021 First Quarter. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 28.4% for the 2022 First Quarter and 26.5% for the 2021 First Quarter. See table below detailing calculation of the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands): Three Months Ended March 31, 2022 March 31, 2021 Income before taxes $ 15,480 $ 14,830 Less: net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity (2,557 ) (2,453 ) Non-controlling interest - permanent equity (626 ) (1,260 ) $ (3,183 ) $ (3,713 ) Income before taxes less net income attributable to non-controlling interest $ 12,297 $ 11,117 Provision for income taxes $ 3,498 $ 2,944 Percentage 28.4 % 26.5 % Net Income Attributable to Non-controlling Interest Net income attributable to redeemable non-controlling interest (temporary equity) was $2.6 million for the 2022 First Quarter and $2.5 million for the 2021 First Quarter. Net income attributable to non-controlling interest (permanent equity) was $0.6 million for the 2022 First Quarter and $1.3 million for the 2021 First Quarter. 33 Index LIQUIDITY AND CAPITAL RESOURCES We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. At March 31, 2022 and December 31, 2021, we had $24.2 million and $28.6 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 $4.3 million from December 31, 2021 to March 31, 2022. During the 2022 Three Months, $11.6 million was provided by operations and $35.0 million from proceeds on our Amended Credit Agreement (described below). The major uses of cash for investing and financing activities included: distributions to non-controlling interests inclusive of those classified as redeemable non-controlling interest ($2.2 million), purchase of business and non-controlling interest ($11.3 million), and purchase of fixed assets ($3.0 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 and/or restated in August 2015, January 2016, March 2017, November 2017 and January 2021 (hereafter referred to as “Amended Credit Agreement”). In November 2021, the Company exercised the accordion feature in the Amended Credit Agreement to increase the limit on the facility from $125.0 million to $150.0 million, with an updated accordion feature providing for additional capacity of $25.0 million, therefore increasing the availability up to $175.0 million. The Amended Credit Agreement is unsecured and has loan covenants, including requirements that we comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of our common stock, dividend payments to our common stockholders, capital expenditures and other corporate purposes. The pricing grid is based on our consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25% to 2.0% or the applicable spread over the Base Rate ranging from 0.1% to 1%. Fees under the Amended Credit Agreement include an unused commitment fee of 0.3% of the amount of funds outstanding under the Amended Credit Agreement. The 2021 amendment to the Amended Credit Agreement allows for cash and noncash consideration for acquisitions permitted under the Amended Credit Agreement of up to $50,000,000 for any fiscal year, and allows for payments in cash dividends to shareholders in an aggregate amount not to exceed $50,000,000 in any fiscal year. 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, 2022, $118.0 million was outstanding on the Amended Credit Agreement resulting in $32.0 million of availability. As of March 31, 2022, we were in compliance with all of the covenants thereunder. On March 31, 2022, we acquired a 70% interest in a six-clinic physical therapy practice in South Central Pennsylvania – Madden and Gilbert Physical Therapy, LLC. The practice’s owners retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $11.5 million. of which $11.2 million was paid in cash and $0.3 million in the form of a note payable. The note accrues interest at 3.5% per annum and the principal and interest are payable on March 31, 2024. On December 31, 2021, we acquired a 75% interest in a three-clinic physical therapy practice with the practice founder retaining 25%. The purchase price for the 75% interest was approximately $3.7 million, of which $3.5 million was paid in cash and $0.2 million in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest are payable on December 31, 2023. On November 30, 2021, we acquired an approximate 70% interest in a leading provider of industrial injury prevention services. The previous owners retained the remaining interest. The initial purchase price for the 70% equity interest, not inclusive of the $2.0 million contingent payment in conjunction with the acquisition if specified future operational objectives are met, was approximately $63.2 million, of which $62.2 million was paid in cash, and $1.0 million is in the form of a note payable. The note accrues interest at 3.25% and the principal and interest is payable on November 30, 2023. The business generates approximately $27.0 million in annual revenue at a margin of approximately 20%. As part of the transaction, we also agreed to the future purchase of a separate company under the same ownership that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. The current owners have the right to put this transaction to us in approximately five years, with such right having an initial $3.5 million fair value at December 31, 2021, as reflected on the Company’s consolidated balance sheet in Other long-term liabilities. The value of this right will be adjusted in future periods, as appropriate, with any change in fair value reflected in the Company’s consolidated statement of income. 34 Index On September 30, 2021, the Company acquired a company that specializes in return-to-work and ergonomic services, among other offerings. The business generates more than $2.0 million in annual revenue. We acquired the company’s assets at a purchase price of approximately $3.3 million (which includes the obligation to pay an amount up to $0.6 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met) and contributed those assets to industrial injury prevention services subsidiary. The initial purchase price, not inclusive of the $0.6 million contingent payment, was approximately $2.7 million, of which $2.4 million was paid in cash, and $0.3 million is in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest are payable on September 30, 2023. On June 30, 2021, the Company acquired a 65% interest in an eight-clinic physical therapy practice with the practice founder retaining 35%. The purchase price was approximately $10.3 million, of which $9.0 million was paid in cash, $1.0 million is payable based on the achievement of certain business criteria and $0.3 million is in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest are payable on June 30, 2023. Additionally, the Company has an obligation to pay an additional amount up to $0.8 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met. The Company recorded acquisition-date fair value of this contingent liability based on the likelihood of the contingent earn-out payment. The earn-out payment will subsequently be remeasured to fair value each reporting date. On March 31, 2021, the Company acquired a 70% interest in a five-clinic physical therapy practice with the practice founder retaining 30%. When acquired, the practice was developing a sixth clinic which has been completed. 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 are payable on March 31, 2023. On March 27, 2020, in response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provided 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. 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. The Company applied for and received approval from Centers for Medicare & Medicaid Services (“CMS”) in April 2020. T he Company recorded the $14.1 million in advance payments received as a liability. During the 2021 First Quarter, the Company repaid the MAAPP Funds of $14.1 million rather than applying them to future services performed. Historically, we have generated sufficient cash from operations to fund our development activities and to cover operational needs. We plan to continue developing new clinics and making additional acquisitions. We have from time to time purchased the non-controlling interests of limited partners in our Clinic Partnerships. We may purchase additional non-controlling interests in the future. Generally, any acquisition or purchase of non-controlling interests is expected to be accomplished using a combination of cash and financing. Any large acquisition would likely require financing. We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts, in a consistent manner for all payor types. Claims are submitted to payors daily, weekly or monthly in accordance with our policy or payor’s requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting payor credentialing approval initially may be delayed for a relatively short transition period. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-pay payor type receivables, the write-off generally occurs after the accounts receivable has been outstanding for at least 120 days. 35 Index We generally enter into various notes payable as a means of financing our acquisitions. Our outstanding notes payable as of March 31, 2022 relate to certain of the acquisitions of businesses and purchases of redeemable non-controlling interest that occurred in 2018 through March 2022. Typically, the notes are payable over two years plus any accrued and unpaid interest. Interest accrues at various interest rates ranging from 3.25% to 5.5% per annum, subject to adjustment. At March 31, 2022, the balance on these notes payable was $4.9 million. In addition, we assumed leases with remaining terms of 1 month to 6 years for the operating facilities. In conjunction with the above-mentioned acquisitions, in the event that a limited minority partner’s employment ceases at any time after a specified date that is typically between three and five years from the acquisition date, we have agreed to certain contractual provisions which enable such minority partners to exercise their right to trigger our repurchase of that partner’s non-controlling interest at a predetermined multiple of earnings before interest and taxes. As of March 31, 2022, we have accrued $6.8 million related to credit balances due to patients and payors. This amount is expected to be paid in the next twelve months. From September 2001 through December 31, 2008, our Board of Directors (“Board”) authorized us to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of our common stock. In March 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of our common stock (“March 2009 Authorization”). Our Amended Credit Agreement permits share repurchases of up to $15,000,000, subject to compliance with covenants. We are required to retire shares purchased under the March 2009 Authorization. There is no expiration date for the share repurchase program. As of March 31, 2022, there are currently an additional estimated 150,830 shares (based on the closing price of $99.45 on March 31, 2022) 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, 2022. FACTORS AFFECTING FUTURE RESULTS The risks related to our business and operations include: • the multiple effects of the impact of public health crises and epidemics/pandemics, such as the novel strain of COVID-19 and its variants, for which the total financial magnitude cannot be currently estimated; • changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certification and/or enrollment status; • revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction; • changes in reimbursement rates or payment methods from third party payors including government agencies, and changes in the deductibles and co-pays owed by patients; • compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure to comply; • competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certain clinics and thereby incur losses and/or closure costs including the possible write-down or write-off of goodwill and other intangible assets; • the impact of COVID-19 related vaccination and/or testing mandates at the federal, state and/or local level, which could have an adverse impact on staffing, revenue, costs and the results of operations; • changes as the result of government enacted national healthcare reform; • business and regulatory conditions including federal and state regulations; • governmental and other third party payor inspections, reviews, investigations and audits, which may result in sanctions or reputational harm and increased costs; • revenue and earnings expectations; • legal actions, which could subject us to increased operating costs and uninsured liabilities; • general economic conditions; • availability and cost of qualified physical therapists; • personnel productivity and retaining key personnel; 36 Index • competitive environment in the industrial injury prevention services business, which could result in the termination or nonrenewal of contractual service arrangements and other adverse financial consequences for that service line; • acquisitions, and the successful integration of the operations of the acquired businesses; • impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their non-controlling interest (minority interests); • maintaining our information technology systems with adequate safeguards to protect against cyber-attacks; • a security breach of our or our third party vendors’ information technology systems may subject us to potential legal action and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 of the Health Information Technology for Economic and Clinical Health Act; • maintaining clients for which we perform management and other services, as a breach or termination of those contractual arrangements by such clients could cause operating results to be less than expected; • maintaining adequate internal controls; • maintaining necessary insurance coverage; • availability, terms, and use of capital; and • weather and other seasonal factors. See also Risk Factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 and our subsequent current and periodic reports. Forward-Looking Statements We make statements in this report that are considered to be forward-looking statements within the meaning given such term under Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements contain forward-looking information relating to the financial condition, results of operations, plans, objectives, future performance and business of our Company. These statements (often using words such as “believes”, “expects”, “intends”, “plans”, “appear”, “should” and similar words) involve risks and uncertainties that could cause actual results to differ materially from those we project. Included among such statements are those relating to opening new clinics, availability of personnel and the reimbursement environment. The forward-looking statements are based on our current views and assumptions and actual results could differ materially from those anticipated in such forward-looking statements as a result of certain risks, uncertainties, and factors, which include, but are not limited to the risks listed above. Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our forward-looking statements. Please see the other sections of this report and our other periodic reports filed with the Securities and Exchange Commission (the “SEC”) for more information on these factors. Our forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we are under no obligation to update any forward-looking statement, regardless of the reason the statement may no longer be accurate.