U.S. Physical Therapy, Inc. (NYSE:USPH) is a leading provider of outpatient physical therapy services, operating a network of clinics across the United States. The company has established a strong reputation for delivering high-quality care and driving consistent financial performance, making it an attractive investment opportunity for long-term investors.
Business Overview
U.S. Physical Therapy operates through two reportable segments: physical therapy operations and industrial injury prevention services (IIP). The physical therapy operations segment consists of physical and occupational therapy clinics that provide pre- and post-operative care, treatment for orthopedic-related disorders, sports-related injuries, preventive care, rehabilitation of injured workers, and neurological injuries. The IIP segment offers services such as onsite injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional evaluations, and ergonomic assessments, primarily contracted with and paid for directly by employers.
As of March 31, 2023, the company operated 679 clinics in 42 states and managed an additional 41 physical therapy practices for unrelated physician groups and hospitals. The company's strategy is to continue acquiring outpatient physical therapy practices, develop new clinics as satellites in existing partnerships, and acquire companies that provide or serve the IIP sector.
Financials
U.S. Physical Therapy has demonstrated a track record of consistent financial performance, with annual revenue of $604.8 million and net income of $14.7 million in the fiscal year ended December 31, 2023. The company's operating cash flow for the same period was $82.8 million, and its free cash flow was $73.5 million, highlighting its strong liquidity and ability to fund growth initiatives.
In the first quarter of 2023, the company reported net revenue of $155.7 million, a 4.8% increase from the same period in the prior year. Net income attributable to USPH shareholders was $8.0 million, compared to $7.4 million in the first quarter of 2023. The company's adjusted EBITDA for the first quarter of 2023 was $16.7 million, compared to $18.5 million in the same period of the prior year.
The decrease in adjusted EBITDA was primarily due to the impact of a 3.5% Medicare rate reduction that was in effect for most of the first quarter, as well as adverse weather events in January 2023 that negatively impacted the company's operations. However, the company was able to offset these headwinds through strong volume growth and improvements in its net rate, which increased to $103.37 per patient visit in the first quarter of 2023, up from $103.12 in the same period of the prior year.
Segment Performance
Physical Therapy Operations
The physical therapy operations segment generated revenue of $134.4 million in the first quarter of 2023, a 4.1% increase from the same period in 2023. This growth was driven by the addition of 32 net new clinics since the first quarter of 2023, as well as improvements in the company's net rate per patient visit.The segment's gross profit margin was 17.9% in the first quarter of 2023, compared to 21.0% in the same period of the prior year. The decrease in gross margin was primarily due to the impact of the Medicare rate reduction and adverse weather events in January 2023, which reduced the company's operating leverage.
Industrial Injury Prevention Services (IIP)
The IIP segment continued to deliver strong performance, with revenue increasing 9.8% to $21.3 million in the first quarter of 2023 compared to the same period in 2023. Gross profit for the IIP segment increased 15.1% to $4.3 million, and the segment's gross margin expanded from 19.5% in the first quarter of 2023 to 20.4% in the first quarter of 2023.The growth in the IIP segment was driven by the company's ability to attract new clients, expand its service offerings, and cross-sell its capabilities to existing customers. The company's recent acquisition of a leading IIP business has further strengthened its position in the market and provided additional opportunities for growth.
Liquidity
U.S. Physical Therapy maintains a strong balance sheet, with $132.3 million in cash and cash equivalents as of March 31, 2023. The company also has access to a $175 million revolving credit facility, of which none was drawn as of the end of the first quarter.
The company's long-term debt, consisting primarily of a term loan, totaled $145.9 million as of March 31, 2023, with a weighted-average interest rate of 4.7%. The company has an interest rate swap agreement in place that has generated $0.9 million in interest savings during the first quarter of 2023.
U.S. Physical Therapy's robust liquidity position and access to capital provide the company with the flexibility to continue executing its growth strategy through acquisitions and organic expansion.
Outlook
For the full year of 2023, U.S. Physical Therapy has raised its guidance for adjusted EBITDA to a range of $82.5 million to $87.5 million, up from the previous range of $80.0 million to $85.0 million. This increase reflects the company's strong performance in the first quarter, as well as the impact of the Consolidated Appropriations Act of 2023, which reduced the Medicare rate reduction from 3.5% to 1.8% effective March 9, 2023.
The company's guidance also includes the expected contributions from acquisitions completed in the first quarter of 2023 and an additional acquisition expected to close by the end of July 2023. U.S. Physical Therapy remains focused on driving growth through strategic acquisitions, expanding its IIP business, and continuing to improve its net rate through contract negotiations and payer mix optimization.
Risks and Challenges
While U.S. Physical Therapy has demonstrated its ability to navigate industry challenges, the company faces several risks that investors should consider. These include potential changes in Medicare reimbursement rates, compliance with federal and state regulations, competition from other healthcare providers, and the ability to attract and retain qualified personnel.
Additionally, the company's growth strategy, which relies heavily on acquisitions, carries integration risks that could impact the company's financial performance if not executed effectively.
Conclusion
U.S. Physical Therapy is a well-positioned leader in the outpatient physical therapy and industrial injury prevention services markets. The company's consistent financial performance, strong liquidity, and strategic growth initiatives make it an attractive investment opportunity for long-term investors seeking exposure to the healthcare sector.
With a focus on delivering high-quality patient care, expanding its service offerings, and driving operational efficiencies, U.S. Physical Therapy is well-equipped to continue generating shareholder value in the years to come.