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, 2022 filed with theSecurities and Exchange Commission (the "SEC") onFebruary 28, 2023 ("2022 Annual Report"); and (iii) our management's discussion and analysis of financial condition and results of operations included in our 2022 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 below.
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 following.
• 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;
• one of our acquisition agreements contains a Put Right related to a future
purchase of a majority interest in a separate company;
• 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:
• our debt and financial obligations could adversely affect our financial
condition, our ability to obtain future financing and our ability to operate
our business;
• 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;
• 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;
• actual or perceived events involving banking volatility or limited liability,
defaults or other adverse developments that affect the
financial systems, may result in market wide liquidity problems which could
have a material and adverse impact on our available cash and results of
operations;
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• our business depends on hiring, training, and retaining qualified employees
• availability and cost of qualified physical therapists?
• competitive environment in the industrial injury prevention services business,
which could result in the termination or non-renewal 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, industrial injury
prevention related services, 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.
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. EXECUTIVE SUMMARY Our Business
References to "we," "us," "our" and the "Company" shall mean
Therapy, Inc.
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
("IIP") 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 IIP segment include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments. OnMarch 31, 2023 , we operated 647 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 35 third-party facilities under management as ofMarch 31, 2023 . 31
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During the three months ended
year ended
practices as detailed below.
% Interest Number of
Acquisition Date Acquired Clinics
February 2023 Acquisition February 28, 2023 80% 1
November 2022 Acquisition November 30, 2022 80% 13
October 2022 Acquisition October 31, 2022 60% 14
September 2022 Acquisition September 30, 2022 80% 2
August 2022 Acquisition August 31, 2022 70% 6
March 2022 Acquisition March 31, 2022 70% 6
During the 2023 First Quarter, the Company closed one clinic.
RESULTS OF OPERATIONS Net income attributable to our shareholders, was$7.4 million for the 2023 First Quarter compared to$8.8 million for the three months endedMarch 31, 2022 ("2022 First Quarter"). The decrease in net income is primarily due to a$2.0 million increase in interest expense as a result of a higher effective interest rate as well as increased borrowings to fund acquisitions. In accordance with Generally Accepted Accounting Principles ("GAAP"), the revaluation of non-controlling interest, net of taxes, is not included in net income but is charged directly to retained earnings; however, this change is included in the computation of earnings per diluted share. Earnings per diluted share, in accordance with GAAP, was$0.58 for the 2023 First Quarter as compared to$0.67 for the 2022 First Quarter.
Operating income increased
First Quarter from
Non-GAAP Measures
Adjusted EBITDA, a non-GAAP measure, increased$1.0 million to$18.5 million for the 2023 First Quarter, an all-time high first quarter amount, from$17.5 million for the 2022 First Quarter. Adjusted EBITDA, a non-GAAP measure, is defined as net income attributable to USPH shareholders before interest income, interest expense, taxes, depreciation, amortization, change in fair value of contingent earn-out consideration, income received under the Coronavirus Aid, Relief and Economic Security Act ("Relief Funds"), changes in revaluation of put-right liability, equity-based awards compensation expense, and related portions for non-controlling interests. Operating results per diluted share, a non-GAAP measure, was$0.59 per diluted share for the 2023 First Quarter as compared to$0.65 for 2022 First Quarter, with the decrease primarily due to an increase in interest expense. Operating Results, a non-GAAP measure, equals net income attributable to our diluted shareholders per the consolidated statements of income, less a change in revaluation of the put-right liability, Relief Funds, changes in fair value of contingent earn-out consideration, and any allocations to non-controlling interests, all net of taxes. Operating Results per diluted share also exclude the impact of the revaluation of redeemable non-controlling interest and the associated tax impact. We use Operating Results and Adjusted EBITDA, which eliminate certain items described above that can be subject to volatility and unusual costs, as one the principal measures to evaluate and monitor financial performance period over period. We believe that presenting Operating Results and Adjusted EBITDA is useful information for investors to use in comparing the Company's period-to-period results as well as for comparing with other similar businesses since most do not have redeemable instruments and therefore have different equity structures. Operating Results and Adjusted EBITDA are not measures of financial performance under GAAP. Adjusted EBITDA and Operating Results should not be considered in isolation or as an alternative to, or substitute for, net income attributable to our shareholders presented in the consolidated financial statements. 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 Adjusted EBITDA and Operating Results (in thousands,
except per share data):
Three Months Ended March 31,
2023 2022*
Adjusted EBITDA
Net income attributable to USPH shareholders $ 7,410 $ 8,799
Adjustments:
Depreciation and amortization 3,788 3,824
Change in fair value of contingent earn-out consideration 698 -
Interest income (64 ) (46 )
Relief funds (467 ) -
Change in revaluation of put-right liability 149 (603 )
Interest expense - debt and other, net 2,560 540
Provision for income taxes 2,969 3,498
Equity-based awards compensation expense 1,806 1,846
Allocation to non-controlling interests (371 ) (363 )
Adjusted EBITDA (a non-GAAP measure) 18,478 17,495
Earnings per share
Computation of earnings per share - USPH shareholders:
Net income attributable to USPH shareholders
$ 7,410 $ 8,799 Charges to retained earnings: Revaluation of redeemable non-controlling interest 119 (153 ) Tax effect at statutory rate (federal and state) (30 ) 39 $
7,499
Earnings per share (basic and diluted) $
0.58 $ 0.67
Operating Results Net income attributable to USPH shareholders 7,410 8,799
Adjustments:
Change in fair value of contingent earn-out consideration 698 - Change in revaluation of put-right liability 149 (603 ) Allocation to non-controlling interests 33 - Relief Funds (467 ) - Tax effect at statutory rate (federal and state) (105 ) 154 Operating Results (a non-GAAP measure) $
7,718
Basic and diluted Operating Results per share (a non-GAAP
measure)
$
0.59 $ 0.65
Shares used in computation - basic and diluted 13,025 12,937
*Revised to conform to current year presentation
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2023 First Quarter Compared to 2022 First 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 March 31,
2023 2022
Net operating revenue:
Physical therapy operations $ 129,159 $ 112,636
Industrial injury prevention services 19,350 19,068
Total Company $ 148,509 $ 131,704
Gross profit:
Physical therapy operations $ 27,089 $ 22,436
Industrial injury prevention services 3,768 4,152
Total Company $ 30,857 $ 26,588
Total Assets:
Physical therapy operations $ 726,422 $ 608,240
Industrial injury prevention services 141,705 155,623
Total Company $ 868,127 $ 763,863
Revenue
Total net revenue for 2023 First Quarter was
12.8%, compared to
for a breakdown of total net revenue.
Three Months Ended March 31, Variance
2023 2022 $ %
(In thousands, except percentages)
Revenue related to: In USD
Mature Clinics (1) $ 114,502 $ 108,229 $ 6,273 5.8 %
2023 Clinic Additions 371 - 371 * (2)
2022 Clinic Additions 11,708 195 11,513 * (2)
Clinics sold or closed in 2022 - 1,114 (1,114 ) * (2)
Net patient revenue from physical therapy operations 126,581 109,538 17,043 15.6 %
Other revenue 799 872 (73 ) -8.4 %
Physical therapy operations 127,380 110,410 16,970 15.4 %
Management contracts 1,779 2,226 (447 ) -20.1 %
Industrial injury prevention services 19,350 19,068 282 1.5 %
$ 148,509 $ 131,704 $ 16,805 12.8 %
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(1) See Glossary of Terms - Key Business Metrics for the definition.
(2) Not meaningful. Revenue from physical therapy operations increased$17.0 million , or 15.4%, to$127.4 million for the 2023 First Quarter from$110.4 million for the 2022 First Quarter primarily due to a 15.4% increase in the number of patient visits to 1,227,490 for the 2023 First Quarter from 1,063,519 in the 2022 First Quarter. Net patient revenue per visit increased to$103.12 in the 2023 First Quarter from$103.00 in the 2022 First Quarter.
IIP services revenue increased to
compared to
Operating Cost
Operating cost was$117.7 million for the 2023 First Quarter, or 79.2% of net revenue, compared to$105.1 million , or 79.8% of net revenue, for the 2022 First Quarter. Salaries and related costs were 57.9% of net revenue for the 2023 First Quarter versus 57.1% for the 2022 First Quarter. Rent, supplies, contract labor and other costs as a percentage of total revenue were 20.3% for the 2023 First Quarter versus 21.8% for the 2022 First Quarter. The provision for credit losses as a percentage of total revenue was 1.0% for both 2023 First Quarter and 2022 First Quarter. See table below for a more detailed breakdown of operating costs. See table below for a breakdown of Operating costs. 34
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Three Months Ended March 31, Variance
2023 2022 $ %
Operating costs related to:
Mature clinics (1) $ 91,025 $ 86,978 $ 4,047 4.7 %
2023 clinic additions 432 - 432 * (2)
2022 clinic additions 9,100 389 8,711 * (2)
Clinics sold or closed in 2022 64 1,002 (938 ) * (2)
Physical therapy operations 100,621 88,369 12,252 13.9 %
Management contracts 1,449 1,831 (382 ) -20.9 %
Industrial injury prevention services 15,582 14,916 666 4.5 %
Operating costs $ 117,652 $ 105,116 $ 12,536 11.9 %
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(1) See Glossary of Terms of our Key Business Metrics for the definition of these
terms.
(2) Not meaningful
Physical therapy operating costs increased $12.3 million or 13.9% primarily
driven by the impact of a full quarter of 2022 and 2023 clinic additions.
Additionally, costs associated with mature clinics increased 4.7% mostly due to
higher salaries and related costs related to a 6.0% increase in patient visits
at mature clinics.
IIP services operating costs increased by
million
Operating Cost-Salaries and Related Costs
Salaries and related costs was$86.0 million or 57.9% of net revenue for the 2023 First Quarter versus$75.1 million or 57.1% for the 2022 First Quarter. Salaries and related costs for the physical therapy operations was$72.6 million in the 2023 First Quarter, or 57.0% of physical therapy operations revenue, as compared to$62.5 million in the 2022 First Quarter, or 56.6% of physical therapy operations revenue. Salaries and related costs for the IIP business was$12.1 million in the 2023 First Quarter, or 62.8% of IIP services revenue, as compared to$11.1 million in the 2022 First Quarter, or 58.2% of IIP revenue.
Operating Cost-Rent, Supplies, Contract Labor and Other
Rent, supplies, contract labor and other costs as a percentage of total revenue were$30.1 million or 20.3% for the 2023 First Quarter versus$28.7 million or 21.8% for the 2022 First Quarter. Rent, supplies, contract labor and other costs for the physical therapy operations was$26.5 million in the 2023 First Quarter, or 20.8% of physical therapy operations revenue, as compared to$24.6 million in the 2022 First Quarter, or 22.3% of physical therapy operations revenue. Rent, supplies, contract labor and other costs for the IIP services business was$3.4 million in the 2023 First Quarter, or 17.7% of IIP services revenue, as compared to$3.8 million in the 2022 First Quarter, or 20.1% of net IIP services revenue.
Operating Cost-Provision for Credit Losses
The provision for credit losses as a percentage of net revenue were 1.0% in the
2023 First Quarter and for 2022 First Quarter.
Our provision for credit losses for patient accounts receivable as a percentage of total patient accounts receivable was 4.5% onMarch 31, 2023 , as compared to 5.2% onDecember 31, 2022 . Our days' sales outstanding were both 31 days onMarch 31, 2023 , andDecember 31, 2022 . 35
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Gross Profit
Gross profit for the 2023 First Quarter increased$4.3 million , or 16.1%, to$30.9 million from$26.6 million for the 2022 First Quarter. The following table provides a more detailed breakdown of gross profit and related gross profit margins: First Quarter Ended March 31, 2023 2022 Variance In USD Margin % In USD Margin % $ % Physical therapy operations$ 26,759 21.0 %$ 22,041 20.0 %$ 4,718 21.4 % Management contracts 330 18.5 % 395 17.7 % (65 ) -16.5 % Industrial injury prevention services 3,768 19.5 % 4,152 21.8 % (384 ) -9.2 % Gross profit$ 30,857 20.8 %$ 26,588 20.2 %$ 4,269 16.1 % Corporate Office Cost Corporate office cost was$13.9 million , or 9.3% of net revenue, for the 2023 First Quarter compared to$11.6 million , or 8.8% of net revenue, for the 2022 First Quarter. Operating Income Operating income was$17.0 million for the 2023 First Quarter compared to$15.0 million in the 2022 First Quarter. In both comparative periods, the operating income was 11.4% of net revenue.
Other Income and Expense
For 2023 First Quarter, other expenses were
income of
During the 2023 First Quarter, we recognized$0.5 million of Relief Funds. The Relief Funds were received in prior years but were subject to certain compliance requirements which were met in 2023 First Quarter. We do not expect to receive or recognize any future Relief Funds. No such income was recognized in the comparable prior year period. During the 2023 First Quarter, we revalued the contingent earn-out consideration related to an acquisition and recognized an increase in the related liability of$0.7 million . The revaluation of the put-right liability resulted in an increase of$0.1 million to the related liability for the 2023 First Quarter. The put-right relates to the potential future purchase of a company 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 . The value of this right will continue to be adjusted in future periods, as appropriate. Interest expense, net of$0.6 million savings from the interest rate swap arrangement discussed below, was$2.6 million for the 2023 First Quarter compared to$0.5 million in the 2022 First Quarter. The increase in interest expense was primarily due to a higher effective interest rate as well as increased borrowings to fund acquisitions. The overall effective interest rate on our debt was 5.5% for the 2023 First Quarter. 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 ofMarch 31, 2023 , is$12.2 million . For the 2023 First Quarter, we recognized income of$0.3 million on this 49% joint venture. 36
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Provision for Income Taxes
The provision for income tax was$3.0 million for the 2023 First Quarter compared to$3.5 million for the 2022 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 28.6% for the 2023 First Quarter and 28.4% for the 2022 First Quarter. A reconciliation of our income tax expense and effective income rate is as follows: First Quarter EndedMarch 31, 2023 2022 (In thousands, except percentages) Income before taxes $
14,396 $ 15,480
Less: net loss (income) attributable to non-controlling
interest:
Redeemable non-controlling interest - temporary equity
(2,720 ) (2,557 )
Non-controlling interest - permanent equity (1,297 ) (626 )
$
(4,017 ) $ (3,183 )
Income before taxes less net income attributable to
non-controlling interest
$
10,379 $ 12,297
Provision for income taxes $ 2,969 $ 3,498 Percentage 28.6 % 28.4 %
Net Income Attributable to Non-controlling Interest
Net income attributable to redeemable non-controlling interest (temporary equity) was$2.7 million for the 2023 First Quarter and$2.6 million for the 2022 First Quarter. Net income attributable to non-controlling interest (permanent equity) was$1.3 million for the 2023 First Quarter and$0.6 million for the 2022 First Quarter. Other Comprehensive Loss The Company entered into an interest rate swap effective onJune 30, 2022 , which will mature onJune 30, 2027 . It has a$150.0 million notional value adjusted concurrently with scheduled principal payments made on the Term Facility. OnMarch 31, 2023 , the fair value of the interest rate swap was$3.6 million , a decrease of$1.8 million , net of tax, as compared toDecember 31, 2022 . The fair value of the interest rate swap is included in other assets (current and long term) in the accompanying consolidated balance sheet while the decrease in fair value is presented as unrealized loss in the accompanying unaudited consolidated statements of comprehensive income. The interest rate swap arrangement has generated$0.7 million in interest savings since its inception. The average interest rate for the term loan during the 2023 First Quarter was 4.9%.
GLOSSARY OF TERMS - Key Business Metrics
Mature clinics are clinics opened or acquired prior to
still operating as of the balance sheet date.
Net rate per patient visit is net patient revenue related to our physical
therapy operations divided by total number of patient visits (defined below)
during the periods presented.
Patient visits is the number of unique patient visits during the periods
presented.
Average visits per day per clinic is patient visits divided by the number of
days in which normal business operations were conducted during the periods
presented and further divided by the average number of clinics in operation
during the periods presented.
LIQUIDITY AND CAPITAL RESOURCES We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. OnMarch 31, 2023 , andDecember 31, 2022 , we had$32.6 million and$31.6 million , respectively, in cash and cash equivalents. 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 leastMarch 31, 2024 . 37
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Cash and cash equivalents increased by$8.4 million fromMarch 31, 2022 toMarch 31, 2023 . During the First Quarter 2023,$11.3 million was provided by operations,$2.3 million was provided by financing activities and$12.7 million was used in investing activities. The major uses of cash for investing and financing activities included: purchase of business and non-controlling interest ($11.0 million ) distributions to non-controlling interests inclusive of those classified as redeemable non-controlling interest ($3.3 million ), and purchase of fixed assets ($2.1 million ).
On
Agreement (the "Credit Agreement") among
administrative agent ("Administrative Agent") and the lenders from time-to-time
party thereto.
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:$175 million , five-year, revolving credit facility ("Revolving Facility"), which includes a$12 million sublimit for the issuance of standby letters of credit and a$15 million sublimit for swingline loans (each, a "Swingline Loan"). 2) Term Facility:$150 million term loan facility (the "Term Facility"). The Term 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 have been and shall continue to be used by us for working capital and other general corporate purposes of our 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. 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 4.915%. 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 our 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 our existing and future personal property and each Guarantor, subject to certain exceptions. 38
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InMay 2022 , we entered into an interest rate swap agreement, effective onJune 30, 2022 , withBank of America, N.A , which became effective onJune 30, 2022 . It has a$150 million notional value adjusted concurrently with schedule principal payments made on the term loan, and has a maturity date ofJune 30, 2027 . Beginning inJuly 2022 , we receive 1-month SOFR, and pay a fixed rate of interest of 2.815% on 1-month SOFR on a quarterly basis. The total interest rate in any period also includes an applicable margin based on our consolidated leverage ratio. In connection with the swap, no cash was exchanged between us and the counterparty. We designated our 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. OnMarch 31, 2023 ,$147.2 million was outstanding on the Term Loan and$38.0 million was outstanding under the Revolving Facility. The Revolving Facility has$137.0 million of availability. As ofMarch 31, 2023 , we were in compliance with all of the covenants thereunder. OnFebruary 28, 2023 , we acquired an 80% interest in a one-clinic physical therapy practice. The practice's owners and founders retained 20% of the equity interest. The purchase price for the 80% equity interest was approximately$6.2 million , of which$5.8 million was paid in cash and$0.4 million in the form of a note payable. The note accrues interest at 4.5% per annum and the principal and interest are payable onFebruary 28, 2025 . OnNovember 30, 2022 , we acquired an 80% interest in a thirteen-clinic physical therapy practice. The practice's owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately$25.0 million , of which$24.2 million was paid in cash and$0.8 million in the form of a note payable. The note accrues interest at 7.0% per annum and the principal and interest are payable onNovember 30, 2024 . OnOctober 31, 2022 , we acquired a 60% interest in a fourteen-clinic physical therapy practice. The practice's owners retained 40% of the equity interests. The purchase price for the 60% equity interest was approximately$19.5 million , with a potential additional amount to be paid at a later date based on the performance of the business. This contingent consideration had a fair value of$8.9 million onMarch 31, 2023 . The fair value of this contingent consideration will be adjusted quarterly based on certain criteria and market inputs. 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 . 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 . 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 . 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. 39
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We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts. 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 CMS approval initially may not be submitted for six months or more. 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 account receivable has been outstanding for 120 days or longer. We generally enter into various notes payable as a means of financing our acquisitions. Our present outstanding notes payable primarily relate to the acquisitions of a business or acquisitions of majority interests in businesses. AtMarch 31, 2023 , our remaining outstanding balance on these notes aggregated$7.0 million .$6.0 million of the outstanding notes payable are payable in 2023 and 2024 and$1.0 million is payable in 2025. Notes are generally payable in equal annual installments of principal over two years plus any accrued and unpaid interest. Interest accrues at various interest rates ranging from 3.25% to 8.0% per annum. The limited partnership agreements, as amended, provide that, upon the triggering events, we have a Call Right and the selling entity or individual has a Put Right for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the Put Right and the Call Right do not expire, even upon an individual partner's death, and contain no mandatory redemption feature. The purchase price of the partner's limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements and classified as redeemable non-controlling interest (temporary equity) in our consolidated balance sheets. The fair value of the redeemable non-controlling interest atMarch 31, 2023 was$164.3 million . 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
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 Credit Agreement permits share repurchases of up to$15,000,000 in the aggregate, 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 ofMarch 31, 2023 , there are currently an additional estimated 156,855 shares (based on the closing price of$95.63 onMarch 31, 2023 ) 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 endedMarch 31, 2023 .
Management's Discussion and Analysis of Financial Condition and Results of Operations (tabular dollars are in thousands)
TRUPANION, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
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