U S PHYSICAL THERAPY INC /NV – 10-Q – 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 endedDecember 31, 2021 filed with theSecurities and Exchange Commission (the "SEC") onMarch 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
Therapy, Inc.
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 ("IIPS") 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 IIPS 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 the IIPS segment include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments. OnSeptember 30, 2022 , we operated 614 clinics in 40 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 ofSeptember 30, 2022 .
During the 2021 year and for the nine months ended
completed the acquisitions of six multi-clinic practices and two IIPS businesses
as detailed below.
Acquisition Date Acquired Clinics
August 2022
March 31
March 31, 2022 70% 6
November 2021
March 2021
During the nine months ended
five clinics.
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Employees
Our strategy is to acquire physical therapy practices, develop outpatient
physical therapy clinics as satellites within existing partnerships, acquire
IIPS businesses, and support the growth of our existing businesses, which
requires a talented workforce. As of
approximately 6,046 people nationwide, of which approximately 3,507 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 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
For the three months endedSeptember 30, 2022 ("2022 Third Quarter"), our net income attributable to our shareholders was$9.6 million as compared to$10.0 million for the three months endedSeptember 30, 2021 ("2021 Third Quarter"). In accordance with Generally Accepted Accounting Principles ("GAAP"), 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$9.4 million , or$0.72 per diluted share, for the 2022 Third Quarter, and$8.5 million , or$0.66 per diluted share, for the 2021 Third Quarter. The 2022 Third Quarter included a change in the fair value of a contingent earn-out payment which had the effect of increasing net income by$1.5 million and included a gain on revaluation of a put-right liability which increased net income by$0.6 million , both net of tax. For the 2022 Nine Months, our net income attributable to our shareholders was$29.6 million for the 2022 Nine Months and$30.6 million for 2021 Nine Months. Inclusive of the charge for revaluation of non-controlling interest, net of taxes, the amount is$29.4 million , or$2.27 per diluted share, for the 2022 Nine Months, and$21.8 million , or$1.69 per diluted share, for the 2021 Nine Months. The 2022 Nine Months included a change in the fair value of a contingent earn-out payment which had the effect of increasing net income by$1.5 million , net of tax. For the 2022 Third Quarter, our Operating Results, a non-GAAP measure, was$7.5 million , or$0.58 per diluted share, as compared to$10.0 million , or$0.78 per diluted share, for the 2021 Third Quarter. For the 2022 Nine Months, our Operating Results, a non-GAAP measure, was$27.5 million , or$2.12 per diluted share, as compared to$30.6 million , or$2.37 per diluted share, for the 2021 Nine Months. Operating Results, equals net income attributable to USPH shareholders per the consolidated statements of income less the change in the revaluation of the put-right liability and the change in the fair value of a contingent earn-out payment. 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. We believe providing Operating Results is useful to investors for comparing our 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. 32
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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 EndedSeptember 30, 2022 2021
Computation of earnings per share - USPH shareholders:
Net income attributable to USPH shareholders
$ 9,557$ 10,009 Charges to retained earnings: Revaluation of redeemable non-controlling interest (196 ) (2,070 ) Tax effect at statutory rate (federal and state) of 25.55% 50 529 $
9,411 $ 8,468
Earnings per share (basic and diluted) $
0.72 $ 0.66
Adjustments:
Change in revaluation of put-right liability (785 ) - Change in fair value of contingent earn-out consideration (2,000 ) - Revaluation of redeemable non-controlling interest 196 2,070 Tax effect at statutory rate (federal and state) 661 (529 ) Operating Results (a non-GAAP measure) $
7,483
Basic and diluted Operating Results per share (a non-GAAP
measure)
$
0.58 $ 0.78
Shares used in computation - basic and diluted 13,001 12,909 Nine Months Ended September 30, 2022 2021
Computation of earnings per share - USPH shareholders:
Net income attributable to USPH shareholders
$ 29,551 $ 30,618 Credit (charges) to retained earnings: Revaluation of redeemable non-controlling interest (193 ) (11,889 ) Tax effect at statutory rate (federal and state) of 25.55% 49 3,038 $
29,407 $ 21,767
Earnings per share (basic and diluted) $ 2.27 $ 1.69
Adjustments:
Change in revaluation of put-right liability (771 ) - Change in fair value of contingent earn-out consideration (2,000 ) - Revaluation of redeemable non-controlling interest 193 11,889 Tax effect at statutory rate (federal and state) 659 (3,038 ) Operating Results (a non-GAAP measure) $
27,488 $ 30,618
Basic and diluted Operating Results per share (a non-GAAP
measure)
$ 2.12 $ 2.37 Shares used in computation - basic and diluted 12,979 12,894 33
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2022 Third Quarter Compared to the 2021 Third Quarter Results
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 September 30, 2022 2021 Net operating revenue: Physical therapy operations$ 119,447 $ 115,399 Industrial injury prevention services 20,155 10,494Total Company $ 139,602 $ 125,893 Gross profit: Physical therapy operations $ 22,379 $ 27,123 Industrial injury prevention services 4,405 2,676 Gross profit $ 26,784 $ 29,799 Total Assets: Physical therapy operations$ 432,683 $ 583,785 Industrial injury prevention services 367,025 46,313Total Company $ 799,708 $ 630,098 Revenue
Reported total revenue for the 2022 Third Quarter was
increase of 10.9% as compared to
See
table below for a detail of reported total revenue (in thousands):
Three Months Ended
September 30, 2022 September 30, 2021 Revenue related to Mature Clinics $ 106,485 $ 106,631 Revenue related to 2022 Clinic Additions 3,707 - Revenue related to 2021 Clinic Additions 6,481 4,869 Revenue from clinics sold or closed in 2022 37 762 Revenue from clinics sold or closed in 2021 - 65 Net patient revenue from physical therapy operations 116,710 112,327 Other revenue 753 759 Revenue from physical therapy operations 117,463 113,086 Revenue - Management contracts 1,984 2,313 Revenue - Industrial injury prevention services 20,155 10,494 Total revenue $ 139,602 $ 125,893 Revenue from physical therapy operations increased$4.4 million , or 3.9%, to$117.5 million for the 2022 Third Quarter from$113.1 million for the 2021 Third Quarter. Net patient revenue related to clinics opened or acquired prior to 2021 and still in operation onSeptember 30, 2022 ("Mature Clinics ") decreased slightly. Visits forMature Clinics (same store) for the 2022 Third Quarter decreased by 1.5% as compared to the 2021 Third Quarter, while the net patient revenue per visit increased by 1.4%. The average net patient revenue per visit was$104.01 for the 2022 Third Quarter, a$1.08 per visit increase from$102.93 for the 2021 Third Quarter. Total patient visits increased 2.8% to 1,122,070 for the 2022 Third Quarter from 1,091,329 for the 2021 Third 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. 34
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IIPS revenue was an all-time high and increased 92.1% to$20.2 million for the 2022 Third Quarter as compared to$10.5 million for the 2021 Third Quarter. Excluding$6.8 million of revenue related to theNovember 2021 IIPS Acquisition, IIPS revenue increased 27.1% in the 2022 Third Quarter as compared to the 2021 Third Quarter. Revenue from management contracts was$2.0 million for the 2022 Third Quarter as compared to$2.3 million for the 2021 Third Quarter due to the termination of five management contracts. Operating Cost Total operating cost was$112.8 million for the 2022 Third Quarter, or 80.8% of total revenue, as compared to$96.1 million , or 76.3% of total revenue, for the 2021 Third Quarter. Operating cost related toMature Clinics increased by$4.3 million , or 5.2%, for the 2022 Third Quarter compared to the 2021 Third Quarter. In addition, operating cost related to the IIPS business increased by$7.9 million of which$5.8 million related to ourNovember 2021 IIPS Acquisition. See table below for a detail of operating cost (in thousands): Three Months Ended September 30, 2022 September 30, 2021 Operating cost related to Mature Clinics $ 86,177 $ 81,911 Operating cost related to 2022 Clinic Additions 3,267 - Operating cost related to 2021 Clinic Additions 5,366 3,748 Operating cost related to clinics sold or closed in 2022 721 504 Operating cost related to clinics sold or closed in 2021 - 69 Operating cost related to physical therapy operations 95,531 86,232 Operating cost related to management contracts 1,537 2,044 Operating cost related to industrial injury prevention services 15,750 7,818 Total operating cost $ 112,818 $ 96,094
Each component of operating cost is discussed below:
Operating Cost-Salaries and Related Costs
Salaries and related costs, including physical therapy operations and the IIPS business, was 58.6% of net revenue for the 2022 Third Quarter versus 56.1% for the 2021 Third Quarter. Salaries and related costs for the physical therapy operations was$68.4 million in the 2022 Third Quarter, or 58.3% of physical therapy operations revenue, as compared to$62.5 million in the 2021 Third Quarter, or 55.3% of physical therapy operations revenue. Included in salaries and related costs for the physical therapy operations for the 2022 Third Quarter was$5.7 million related to 2022 and 2021 Clinic Additions. Adjusted for the salaries and related costs for clinics closed or sold in 2022 and 2021 of$0.1 million in the Third Quarter and$0.4 million in 2021 Third Quarter, salaries and related costs related toMature Clinics increased by$2.9 million in the 2022 Third Quarter compared to the 2021 Third Quarter. Physical therapy total operating costs were$85.14 per visit in the 2022 Third Quarter as compared to$79.02 per visit in the 2021 Third Quarter, an increase of 7.7%. Physical therapy salaries and related costs were$60.99 per visit in the 2022 Third Quarter as compared to$56.63 per visit in the Third Quarter 2021, an increase of 7.7%, The cost increases are primarily due to continuing labor rate pressures and the inflationary economic environment. Salaries and related costs for the IIPS business was$12.1 million in the 2022 Third Quarter, or 59.9% of IIPS revenue, as compared to$6.3 million in the 2021 Third Quarter, or 60.8% of IIPS revenue. 35
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Operating Cost-Rent, Supplies, Contract Labor and Other
Rent, supplies, contract labor and other costs, including physical therapy operations and the IIPS business, was 21.3% of net revenue in the 2022 Third Quarter versus 19.3% in the 2021 Third Quarter. Rent, supplies, contract labor and other costs for the physical therapy operations was$25.7 million in the 2022 Third Quarter, or 21.9% of physical therapy operations revenue, as compared to$22.4 million in the 2021 Third Quarter, or 19.8% of physical therapy operations revenue. Included in rent, supplies, contract labor and other costs related to physical therapy operations for the 2022 Third Quarter was$2.8 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$0.7 million in the 2022 Third Quarter and$0.2 million in the 2021 Third Quarter, rent, supplies, contract labor and other costs forMature Clinics increased by$1.3 million in the 2022 Third Quarter compared to the 2021 Third Quarter. Rent, supplies, contract labor and other costs, related to management contracts decreased$0.1 million in the 2022 Third Quarter. Rent, supplies, contract labor and other costs for the IIPS business was$3.7 million in the 2022 Third Quarter, or 18.6% of IIPS revenue, as compared to$1.4 million in the 2021 Third Quarter, or 13.7% of net IIPS revenue.
Operating Cost-Provision for Credit Losses
The provision for credit losses as a percentage of net revenue was 1.0% in the
2022 Third 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 5.62% onSeptember 30, 2022 , as compared to 5.64% onDecember 31, 2021 . Our days' sales outstanding were both 32 days onSeptember 30, 2022 , andDecember 31, 2021 .
Gross Profit
Gross profit for the 2022 Third Quarter, was$26.8 million , as compared to$29.8 million for the 2021 Third Quarter. The gross profit percentage was 19.2% of total revenue for the 2022 Third Quarter as compared to 23.7% for the 2021 Third Quarter. The gross profit percentage for our physical therapy operations was 18.7% for the 2022 Third Quarter as compared to 23.7% for the 2021 Third Quarter. The gross profit percentage on management contracts was 22.5% for the 2022 Third Quarter as compared to 11.6% for the 2021 Third Quarter. The gross profit percentage for IIPS was 21.9% for the 2022 Third Quarter as compared to 25.5% for the 2021 Third Quarter. The IIPS margin in 2022 has been impacted by the lower margin profile of ourNovember 2021 IIPS Acquisition. The table below details the gross profit (in thousands):
Three Months Ended
September
30, 2022
Physical therapy operations $ 21,932 $ 26,854 Management contracts 447 269 Industrial injury prevention services 4,405 2,676 Gross profit $ 26,784 $ 29,799 Corporate Office Cost Corporate office costs were$11.9 million for the 2022 Third Quarter compared to$12.9 million for the 2021 Third Quarter. Corporate office costs were 8.5% of total revenue for the 2022 Third Quarter as compared to 10.2% for the 2021 Third Quarter. The decrease was primarily due to lower estimated bonus expense in the 2022 Third Quarter than the 2021 Third Quarter.
Operating Income
Operating income for the 2022 Third Quarter was$14.9 million and$16.9 million for 2021 Third Quarter. Operating income as a percentage of total revenue was 10.7% for the 2022 Third Quarter as compared to 13.4% for the 2021 Third Quarter.
Change in fair value of contingent earn-out consideration
During the 2022 Third Quarter, the Company revalued contingent earn-out
consideration related to an acquisition, resulting in the elimination of a
previously booked liability of
Equity in earnings of unconsolidated affiliate
Through a subsidiary, we have a 49% joint venture interest in a company which provides physical therapy services for patients at hospitals. Since we are deemed to not have a controlling interest in the joint venture, our investment is accounted for using the equity method of accounting. The investment balance of this joint venture as ofSeptember 30, 2022 , is$12.0 million . For the 2022 Third Quarter, we recognized income of$0.3 million on this 49% joint venture. 36
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Change in Revaluation of Put-Right Liability
The gain on revaluation of put-right liability was$0.8 million for the 2022 Third Quarter. As part of theNovember 2021 IIPS Acquisition, we 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 fromNovember 2021 , with such right having a$2.8 million value onSeptember 30, 2022 , as reflected on our consolidated balance sheet in Other long-term liabilities. The value of this right will continue to be adjusted in future periods, as appropriate.
Interest expense - debt and other, net
For the 2022 Third Quarter, the interest expense on debt and other, primarily from our$150 million term loan entered into inJune 2022 , details of which are disclosed within LIQUIDITY AND CAPITAL RESOURCES below, amounted to$2.0 million . See discussion of Other Comprehensive Income below. Interest expense, primarily from the Company's revolving line of credit, was$0.3 million for the 2021 Third Quarter. Provision for Income Taxes The provision for income tax was$3.2 million for the 2022 Third Quarter and$3.8 million for the 2021 Third Quarter. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 25.2% for the 2022 Third Quarter and 27.6% for the 2021 Third Quarter. The current quarter included an adjustment to the tax provision based on revised estimates on certain non-deductible items (see computation of 2022 Nine Month tax rate in next section). See table below detailing calculation of the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands):
Three Months Ended
September 30, 2022 September 30, 2021 Income before taxes $ 16,036 $ 17,938
Less: net income attributable to non-controlling interest:
Redeemable non-controlling interest - temporary equity
(2,037 ) (2,605 ) Non-controlling interest - permanent equity (1,227 ) (1,509 ) $ (3,264 ) $ (4,114 )
Income before taxes less net income attributable to
non-controlling interest
$ 12,772 $ 13,824 Provision for income taxes $ 3,215 $ 3,815 Percentage 25.2 % 27.6 %
Net Income Attributable to Non-controlling Interest
Net income attributable to redeemable non-controlling interest (temporary equity) was$2.0 million for the 2022 Third Quarter and$2.6 million for the 2021 Third Quarter. Net income attributable to non-controlling interest (permanent equity) was$1.2 million for the 2022 Third Quarter and$1.5 million for the 2021 Third Quarter. Other Comprehensive Gain We entered into an interest rate swap agreement inMay 2022 , which has a$150 million notional value, a maturity date ofJune 30, 2027 and was effective onJune 30, 2022 . Beginning inJuly 2022 , we pay a fixed rate of interest of 2.815% on a quarterly basis. The total interest rate in any period will also include an applicable margin based on our consolidated leverage ratio. Currently, our interest rate including the applicable margin is 4.665%. Unrealized gains and losses related to the fair value of the interest rate swap are recorded to accumulated other comprehensive income (loss), net of tax. The fair value of the interest rate swap onSeptember 30, 2022 , was$5.9 million , of which$1.9 million has been included within Other current assets and$4.0 million has been included in Other assets in the accompanying Consolidated Balance Sheet. The impact of the interest rate swap on the accompanying Consolidated Statements of Comprehensive Income was an unrealized gain of$4.8 million , net of tax, for the 2022 Third Quarter. 37
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2022 Nine Months Compared to 2021 Nine Months Results
The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements (in thousands): Nine Months Ended September 30, 2022 2021 Net operating revenue: Physical therapy operations$ 353,302 $ 334,652 Industrial injury prevention services 58,660 30,537Total Company $ 411,962 $ 365,189 Gross profit: Physical therapy operations $ 71,513 $ 82,058 Industrial injury prevention services 12,680 7,941 Gross profit $ 84,193 $ 89,999 Total Assets: Physical therapy operations$ 432,683 $ 583,785 Industrial injury prevention services 367,025 46,313Total Company $ 799,708 $ 630,098 Revenue
Reported total revenue for the 2022 Nine Months was
of 12.8% as compared to
below for a detail of reported total revenue (in thousands):
For the Nine Months Ended
September 30, 2022 September 30, 2021 Revenue related to Mature Clinics $ 317,514 $ 314,969 Revenue related to 2022 Clinic Additions 7,019 - Revenue related to 2021 Clinic Additions 18,827 7,334 Revenue from clinics sold or closed in 2022 1,084 2,058 Revenue from clinics sold or closed in 2021 - 458 Net patient revenue from physical therapy operations 344,444 324,819 Other revenue 2,523 2,222 Revenue from physical therapy operations 346,967 327,041 Revenue - Management contracts 6,335 7,611 Revenue - Industrial injury prevention services 58,660 30,537 Total revenue $ 411,962 $ 365,189 Revenue from physical therapy operations increased$19.9 million , or 6.1%, to$347.0 million for the 2022 Nine Months from$327.0 million for the 2021 Nine Months. The average net patient revenue per visit was$103.40 for the 2022 Nine Months as compared to$104.00 for the 2021 Nine Months. Total patient visits increased 6.7% to 3,331,143 for the 2022 Nine Months from 3,123,187 for the 2021 Nine Months. 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. Net patient revenue related toMature Clinics increased$2.5 million , or 0.8%, to$317.5 million for the 2022 Nine Months compared to$315.0 million for the 2021 Nine Months. Visits forMature Clinics (same store) for the 2022 Nine Months increased 1.5% as compared to the 2021 Nine Months. The increase in visits was partially offset by a 0.7% reduction in the net patient revenue per visit. 38
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IIPS services revenue increased 92.1% to$58.7 million for the 2022 Nine Months as compared to$30.5 million for the 2021 Nine Months. Excluding$20.5 million of revenue related to theNovember 2021 IIPS Acquisition, IIPS revenue increased 25.0% in the 2022 Nine Months as compared to the 2021 Nine Months. Revenue from management contract revenue decreased 16.8% to$6.3 million for the 2022 Nine Months as compared to$7.6 million for the 2021 Nine Months due to the termination of certain management contracts.
Operating Cost
Total operating cost was$327.8 million for the 2022 Nine Months, or 79.6% of total revenue, as compared to$275.2 million , or 75.4% of total revenue, for the 2021 Nine Months. Operating cost related toMature Clinics increased by$15.9 million for the 2022 Nine Months compared to the 2021 Nine Months. In addition, operating cost related to the IIPS business increased by$23.4 million of which$17.0 million related to theNovember 2021 IIPS Acquisition. See table below for a detail of operating cost (in thousands):
Nine Months Ended
September 30, 2022 September 30, 2021 Operating cost related to Mature Clinics $ 253,899 $ 237,982 Operating cost related to 2022 Clinic Additions 6,271 - Operating cost related to 2021 Clinic Additions 15,393 5,877 Operating cost related to clinics sold or closed in 2022 1,233 1,733 Operating cost related to clinics sold or closed in 2021 2 510 Operating cost related to physical therapy operations 276,798 246,102 Operating cost related to management contracts 4,991 6,492 Operating cost related to industrial injury prevention services 45,980 22,596 Total operating cost $ 327,769 $ 275,190
Each component of operating cost is discussed below:
Operating Cost-Salaries and Related Costs
Salaries and related costs, including physical therapy operations and the IIPS business, was 57.5% of net revenue for the 2022 Nine Months versus 55.6% for the 2021 Nine Months. Salaries and related costs for the physical therapy operations was$197.7 million in the 2022 Nine Months, or 57.0% of physical therapy operations revenue, as compared to$178.6 million in the 2021 Nine Months, or 54.6% of physical therapy operations revenue. Included in salaries and related costs for the physical therapy operations for the 2022 Nine Months was$13.8 million related to 2022 and 2021 Clinic Additions. Adjusted for the salaries and related costs for clinics closed or sold in 2022 and 2021 of$0.8 million in the 2022 Nine Months and$1.4 million in 2021 Nine Months, salaries and related costs related toMature Clinics increased by$9.7 million in the 2022 Nine Months compared to the 2021 Nine Months. Salaries and related costs related to management contracts decreased by$1.3 million for the 2022 Nine Months. As previously mentioned, the Company is experiencing pressure on labor rates and other costs due to the inflationary economic environment. Salaries and related costs for the IIPS business was$34.8 million in the 2022 Nine Months, or 59.3% of IIPS revenue, as compared to$18.8 million in the 2021 Nine Months, or 61.8% of IIPS revenue.
Operating Cost-Rent, Supplies, Contract Labor and Other
Rent, supplies, contract labor and other costs, including physical therapy operations and the IIPS business, was 21.0% of net revenue in the 2022 Nine Months versus 18.6% in the 2021 Nine Months. Rent, supplies, contract labor and other costs for the physical therapy operations was$75.0 million in the 2022 Nine Months, or 21.6% of physical therapy operations revenue, as compared to$63.5 million in the 2021 Nine Months, or 19.4% of physical therapy operations revenue. Included in rent, supplies, contract labor and other costs related to physical therapy operations for the 2022 Nine Months was$7.5 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$0.4 million in the 2022 Nine Months and$0.8 million in the 2021 Nine Months, rent, supplies, contract labor and other costs forMature Clinics increased by$6.4 million in the 2022 Nine Months compared to the 2021 Nine Months. Rent, supplies, contract labor and other costs, related to management contracts decreased$0.2 million in the 2022 Nine Months. Rent, supplies, contract labor and other costs for the IIPS business was$11.1 million in the 2022 Nine Months, or 18.9% of IIPS revenue, as compared to$3.7 million in the 2021 Nine Months, or 12.2% of net IIPS revenue. 39
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Operating Cost-Provision for Credit Losses
The provision for credit losses as a percentage of net revenue was 1.0% in the
2022 Nine Months 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 5.62% onSeptember 30, 2022 , as compared to 5.64% atDecember 31, 2021 . Our days' sales outstanding were 32 days atSeptember 30, 2022 andDecember 31, 2021 .
Gross Profit
Gross profit for the 2022 Nine Months was$84.2 million , a decrease of$5.8 million , or 6.5%, as compared to$90.0 million for the 2021 Nine Months. The gross profit percentage was 20.4% of total revenue for the 2022 Nine Months as compared to 24.6% for the 2021 Nine Months. The gross profit percentage for our physical therapy operations was 20.2% for the 2022 Nine Months as compared to 24.7% for the 2021 Nine Months. The gross profit percentage on management contracts was 21.2% for the 2022 Nine Months as compared to 14.7% for the 2021 Nine Months. The gross profit percentage for the IIPS business was 21.6% for the 2022 Nine Months as compared to 26.0% for the 2021 Nine Months. The IIPS margin in 2022 has been impacted by the lower margin profile of our November IIPS Acquisition. The table below details the gross profit (in thousands):
Nine Months Ended
September
30, 2022
Physical therapy operations $ 70,169 $ 80,939 Management contracts 1,344 1,119 Industrial injury prevention services 12,680 7,941 Gross profit $ 84,193 $ 89,999 Corporate Office Cost Corporate office costs were$34.2 million for the 2022 Nine Months compared to$35.8 million for the 2021 Nine Months. Corporate office costs were 8.3% of total revenue for the 2022 Nine Months as compared to 9.8% for the 2021 Nine Months. The decrease was primarily due to lower estimated bonus expense in the 2022 Nine Months than the 2021 Nine Months.
Operating Income
Operating income for the 2022 Nine Months was
for 2021 Nine Months. Operating income as a percentage of total revenue was
12.1% for the 2022 Nine Months as compared to 14.8% for the 2021 Nine Months.
Equity in earnings of unconsolidated affiliate
Through a subsidiary, we have a 49% joint venture interest in a company which provides physical therapy services for patients at hospitals. Since we are deemed to not have a controlling interest in the joint venture, our investment is accounted for using the equity method of accounting. The investment balance of this joint venture as ofSeptember 30, 2022 , is$12.0 million . For the 2022 Nine Months, we recognized income of$1.0 million on this 49% joint venture.
Change in fair value of contingent earn-out consideration
During the 2022 Nine Months, the Company revalued contingent earn-out
consideration related to an acquisition, resulting in the elimination of a
previously booked liability of
Change in Revaluation of Put-Right Liability
For the 2022 Nine Months, we recorded a gain on the revaluation of the put-right liability of$0.8 million . As part of theNovember 2021 IIPS Acquisition, we 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$2.8 million value onSeptember 30, 2022 , as reflected on our consolidated balance sheet in Other long-term liabilities. The value of this right will continue to be adjusted in future periods, as appropriate.
Interest expense - debt and other, net
For the 2022 Nine Months, the interest expense on debt and other, primarily from our$150 million term loan entered into inJune 2022 , details of which are disclosed withing LIQUIDITY AND CAPITAL RESOURCES, amounted to$3.5 million . See discussion of Other Comprehensive Income below. Interest expense, primarily from the Company's revolving line of credit was$0.8 million for the 2021 Nine Months. 40
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Provision for Income Taxes
The provision for income tax was
percentage of income before taxes less net income attributable to
non-controlling interest (effective tax rate) was 27.0% for both the 2022 Nine
Months and the 2021 Nine Months. See table below ($ in thousands):
For the Nine Months Ended
September 30, 2022 September 30, 2021 Income before taxes $ 51,011 $ 54,807
Less: net income attributable to non-controlling interest:
Redeemable non-controlling interest - temporary equity
(7,220 ) (8,669 ) Non-controlling interest - permanent equity (3,288 ) (4,194 ) $ (10,508 ) $ (12,863 )
Income before taxes less net income attributable to non
controlling interest
$ 40,503 $ 41,944 Provision for income taxes $ 10,952 $ 11,326 Percentage 27.0 % 27.0 %
Net Income Attributable to Non-controlling Interest
Net income attributable to redeemable non-controlling interest (temporary equity) was$7.2 million for the 2022 Nine Months and$8.7 million for the 2021 Nine Months. Net income attributable to non-controlling interest (permanent equity) was$3.3 million for the 2022 Nine Months and$4.2 million for the 2021 Nine Months. Other Comprehensive Income The impact of the interest rate swap (described within LIQUIDITY AND CAPITAL RESOURCES below) on the accompanying Consolidated Statements of Comprehensive Income was an unrealized gain of$4.4 million , net of tax, for the 2022 Nine Months.
LIQUIDITY AND CAPITAL RESOURCES
We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. OnSeptember 30, 2022 andDecember 31, 2021 , we had$37.9 million and$28.6 million , respectively, in cash. We believe that our cash and cash equivalents and availability under our Credit Facilities are sufficient to fund the working capital needs of our operating subsidiaries through at leastSeptember 30, 2023 . Cash and cash equivalents increased by$9.4 million fromDecember 31, 2021 toSeptember 30, 2022 . During the 2022 Nine Months,$41.2 million was provided by operations and$36.0 million , net of payments, from proceeds on our 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 ($11.8 million ), dividends paid to our shareholders ($16.0 million ), purchase of business and non-controlling interest ($32.9 million ), and purchase of fixed assets ($7.3 million ).
On
Agreement (the "Credit Agreement") among
administrative agent ("Administrative Agent") and others.
The Credit Agreement, which matures onJune 17, 2027 , provides for loans in an aggregate principal amount of$325 million . Such loans will be available through the following facilities (collectively, the "Senior Credit Facilities"):
1) Revolving Facility:
("Revolving Facility"), which includes a
of standby letters of credit and a
(each, a "Swingline Loan"). 41
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2) Term Facility:
Facility amortizes in quarterly installments of: (a) 0.625% in each of the
first two years, (b) 1.250% in the third and fourth year, and (c) 1.875% in
the fifth year of the Credit Agreement. The remaining outstanding principal
balance of all term loans is due on the maturity date.
The proceeds of the Revolving Facility shall be used by us for working capital and other general corporate purposes of the Company and its subsidiaries, including to fund future acquisitions and invest in growth opportunities. The proceeds of the Term Facility were used by us to refinance the indebtedness outstanding under the Second Amended and Restated Credit Agreement, to pay fees and expenses incurred in connection with the loan facilities transactions, for working capital and other general corporate purposes of our Company and its subsidiaries. We will be permitted to increase the Revolving Facility and/or add one or more tranches of term loans in an aggregate amount not to exceed the sum of (i)$100 million plus (ii) an unlimited additional amount, provided that (in the case of clause (ii)), after giving effect to such increases, the pro forma Consolidated Leverage Ratio (as defined in the Credit Agreement) would not exceed 2.0:1.0, and the aggregate amount of all incremental increases under the Revolving Facility does not exceed$50,000,000 . The interest rates per annum applicable to the Senior Credit Facilities (other than in respect of Swingline Loans) will be Term SOFR as defined in the agreement plus an applicable margin or, at our option, an alternate base rate plus an applicable margin. Currently, our interest rate including the applicable margin is 4.665%. Interest is payable at the end of the selected interest period but no less frequently than quarterly and on the date of maturity. We will also pay to the Administrative Agent, for the account of each lender under the Revolving Facility, a commitment fee equal to the actual daily excess of each lender's commitment over its outstanding credit exposure under the Revolving Facility ("unused fee"). We may prepay and/or repay the revolving loans and the term loans, and/or terminate the revolving loan commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions. The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets. The Credit Agreement includes certain financial covenants which include the Consolidated Fixed Charge Coverage Ratio and the Consolidated Leverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains customary events of default. Our obligations under the Credit Agreement are guaranteed by its wholly owned material domestic subsidiaries (each, a "Guarantor"), and our obligations and any Guarantors are secured by a perfected first priority security interest in substantially all of the existing and future personal property of our Company and each Guarantor, subject to certain exceptions. InMay 2022 , we entered into an interest rate swap agreement, effective onJune 30, 2022 , withBank of America, N.A , which has a$150 million notional value, and a maturity date ofJune 30, 2027 . Beginning inJuly 2022 , we make interest payments based on the 1-month SOFR rate ("variable rate payment") and receive or pay the differential between the variable rate payment and the fixed 2.815% SOFR rate on a monthly basis. Also included in the total interest payment in any period is an applicable margin based on our consolidated leverage ratio. We designated the interest rate swap as a cash flow hedge and structured it to be highly effective. Consequently, unrealized gains and losses related to the fair value of the interest rate swap are recorded to accumulated other comprehensive income (loss), net of tax. OnSeptember 30, 2022 ,$150.0 million was outstanding on the Term Loan and the Revolving Facility remains available resulting in$175.0 million of availability. As ofSeptember 30, 2022 , we were in compliance with all of the covenants thereunder. Through the date of this report, we have drawn$5.0 million on the Revolving Facility. OnMarch 31, 2022 , we acquired a 70% interest in a six-clinic physical therapy practice. 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 is in the form of a note payable. The note accrues interest at 3.5% per annum and the principal and interest are payable onMarch 31, 2024 . 42
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OnAugust 31, 2022 , we acquired a 70% interest in a six-clinic physical therapy practice. The practice's owners retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately$3.5 million , of which$3.3 million was paid in cash and$0.2 million in the form of a note payable. The note accrues interest at 5.5% per annum and the principal and interest are payable onAugust 31, 2024 . OnSeptember 30, 2022 , we acquired an 80% interest in a two-clinic physical therapy practice. The practice's owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately$4.2 million , of which$3.9 million was paid in cash and$0.3 million in the form of a note payable. The note accrues interest at 5.5% per annum and the principal and interest are payable onSeptember 30, 2024 . OnDecember 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 onDecember 31, 2023 . OnNovember 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 onNovember 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 put right having an initial$3.5 million fair value onJune 30, 2022 , as reflected on our 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 our consolidated statement of income. OnSeptember 30, 2021 , we 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 our IIPS 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 onSeptember 30, 2023 . OnJune 30, 2021 , we acquired a 65% interest in an eight-clinic physical therapy practice with the practice founders retaining 35%. The purchase price was approximately$10.3 million , of which$9.0 million was paid in cash,$1.0 million was payable based on the achievement of certain business criteria and$0.3 million is in the form of a note payable. The business criteria were met and accordingly$1.0 million was paid inJuly 2022 . The note accrues interest at 3.25% per annum and the principal and interest are payable onJune 30, 2023 . Additionally, we have 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. We 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. OnMarch 31, 2021 , the Company acquired a 70% interest in a five-clinic physical therapy practice with the practice founders 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 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
OnMarch 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 thePublic Health and Social Services Emergency Fund , also referred to as theProvider 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. 43
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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 fromCenters for Medicare & Medicaid Services ("CMS") inApril 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. 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. We generally enter into various notes payable as a means of financing our acquisitions. Our outstanding notes payable as ofSeptember 30, 2022 relate to certain of the acquisitions of businesses and purchases of redeemable non-controlling interest that occurred in 2018 throughSeptember 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. AtSeptember 30, 2022 , the balance on these notes payable was$5.5 million . In addition, we assumed leases with remaining terms of 1 month to 6 years for the operating facilities. In conjunction with the above-mentioned acquisitions, in the event that a limited minority partner's employment ceases at any time after a specified date that is typically between three and five years from the acquisition date, we have agreed to certain contractual provisions which enable such minority partners to exercise their right to trigger our repurchase of that partner's non-controlling interest at a predetermined multiple of earnings before interest and taxes.
As of
balances due to patients and payors. This amount is expected to be paid in the
next twelve months.
FromSeptember 2001 throughDecember 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. InMarch 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 theMarch 2009 Authorization. There is no expiration date for the share repurchase program. As ofSeptember 30, 2022 , there are currently an additional estimated 197,316 (based on the closing price of$76.02 onSeptember 30, 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 nine months endedSeptember 30, 2022 . 44
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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;
• some of our acquisition agreements contain contingent consideration, the value
of which may impact future financial results;
• one of our acquisition agreements includes a Put Right for a potential purchase
of a company and we may or may not have the capital necessary to satisfy this
obligation;
• legal actions, which could subject us to increased operating costs and
uninsured liabilities;
• general economic conditions, including but not limited to inflationary and
recessionary periods;
• availability and cost of qualified physical therapists;
• personnel productivity and hiring, training and retaining key personnel;
• competitive environment in the IIPS 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;
• our business depends upon hiring, training and retaining qualified personnel;
• maintaining necessary insurance coverage;
• availability, terms, and use of capital; and
• weather and other seasonal factors.
In addition to the above, see Risk Factors in Part I - Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2021 and in Part II - Item 1A of this report. 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 theSecurities 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. 45
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