U.S. Physical Therapy Reports Third Quarter and Nine Months Results

Share Name	Share Symbol	Market	Type
US Physical Therapy Inc	NYSE:USPH	NYSE	Common Stock

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U.S. Physical Therapy, Inc. ("USPH") (NYSE: USPH), a national operator of outpatient physical therapy clinics, today reported results for the quarter and nine months ended September 30, 2016.

USPH’s net revenues in the third quarter of 2016 increased 5.1% to $88.3 million from $84.0 million in the third quarter of 2015. Income before taxes including non-controlling interests was $11.8 million as compared to $11.7 million in the comparable 2015 period. Due primarily to a higher estimated accrued tax rate of 39.8% for the recent quarter as compared to 38.6% in the third quarter of 2015, the income attributable to common shareholders from operations prior to revaluation of redeemable non-controlling interests, net of tax (“operating results”) declined slightly to $5.7 million from $5.8 million. Diluted earnings per share from operating results was $0.46 in the third quarter of 2016 as compared to $0.47 in the third quarter of 2015.

USPH’s net revenues for the first nine months of 2016 increased 8.6% to $265.7 million from $244.6 million in the first nine months of 2015. USPH’s operating results for the first nine months of 2016 increased 11.2% to $18.1 million as compared to $16.3 million in the first nine months of 2015. Diluted earnings per share from operating results were $1.45 for the 2016 period as compared to $1.32 in the comparable 2015 period.

Third Quarter 2016 Compared to Third Quarter 2015

Net revenues increased $4.3 million or 5.1% from $84.0 million in the third quarter of 2015 to $88.3 million in the third quarter of 2016, due to an increase in total patient visits of 5.2% from 782,100 to 822,500 and an increase in the average net revenue per visit to $105.06 for the 2016 third quarter from $105.04 for the 2015 third quarter. Net revenues from new clinics opened or acquired in the 12 months prior to September 30, 2016 was $5.2 million.
Total clinic operating costs were $68.7 million, or 77.7% of net revenues, in the third quarter of 2016, as compared to $65.2 million, or 77.5% of net revenues, in the 2015 period. Of the net $3.5 million expense increase, $4.1 million was attributable to operating costs of new clinics opened or acquired in the 12 months prior to September 30, 2016 offset by a decrease of $0.6 million in operating costs of clinics opened or acquired prior to September 30, 2015. Total clinic salaries and related costs, including those from new clinics, were 56.4% of net revenues in the recent quarter versus 55.4% in the 2015 period. Rent, clinic supplies, contract labor and other costs as a percentage of net revenues were 20.2% for the recent quarter versus 20.7% in the 2015 period. The provision for doubtful accounts as a percentage of net revenues was 1.0% for the 2016 and 1.3% in the 2015 period.
The gross margin for the third quarter of 2016 was $19.7 million or 22.3%, as compared to $18.9 million, or 22.5% in the 2015 third quarter.
Corporate office costs were $7.6 million in the third quarter of 2016 compared to $6.9 million in the 2015 third quarter. Corporate office costs were 8.6% of net revenues for the 2016 third quarter compared to 8.2% of net revenues for the 2015 period.
Operating income for the third quarter of 2016 was $12.1 million or 13.6% compared to $11.9 million or 14.2% in the 2015 third quarter.
Interest expense was $0.3 million in the third quarter of 2016 and in the third quarter of 2015.
The provision for income taxes for the 2016 period was $3.8 million and for the 2015 period $3.7 million. The provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest was 39.8% in the 2016 third quarter and 38.6% in the 2015 third quarter.
Net income attributable to non-controlling interests was $2.3 million in the recent quarter as compared to $2.2 million in the year earlier period.
Operating results attributable to common shareholders for the three months ended September 30, 2016 was $5.7 million versus $5.8 million for the 2015 period. Diluted earnings per share from operating results were $0.46 for the 2016 period and $0.47 for the 2015 period.
Same store visits increased 1.2% for de novo and acquired clinics open for one year or more while same store revenue remained relatively the same as the average same store net rate per visit decreased by $1.16.

First Nine Months 2016 Compared to First Nine Months 2015

Net revenues increased 8.6% from $244.6 million in the first nine months of 2015 to $265.7 million in the first nine months quarter of 2016, due to an increase in total patient visits of 8.8% from 2,271,900 to 2,470,800 and offset by a slight decrease in the average net revenue per visit to $105.19 from $105.38. Net revenues from new clinics opened or acquired in the past 12 months was $12.1 million.
Total clinic operating costs were $202.5 million, or 76.2% of net revenues, in the first nine months of 2016, as compared to $187.7 million, or 76.8% of net revenues, in the 2015 period. Of the $14.7 million expense increase $9.4 million was attributable to operating costs of new clinics opened or acquired in the past 12 months. Total clinic salaries and related costs, including those from new clinics, were 55.1% of net revenues for the 2016 versus 54.8% in the 2015 period. Rent, clinic supplies, contract labor and other costs as a percentage of net revenues were 19.9% for the 2016 first nine months versus 20.6% in the 2015 period. The provision for doubtful accounts as a percentage of net revenues was 1.1% for the 2016 and 1.3% in the 2015 period.
The gross margin for the first nine months of 2016 increased 11.2% to $63.2 million, or 23.8% of revenue, as compared to $56.9 million, or 23.2% of revenue, for the 2015 period.
Corporate office costs were $24.6 million in the first nine months of 2016 compared to $22.2 million in the 2015 period. Corporate office costs were 9.3% of net revenues for the 2016 first nine months compared to 9.1% of net revenues for the 2015 period.
Operating income for the first nine months of 2016 rose 11.2% to $38.6 million compared to $34.7 million in the 2015 first nine months.
Interest expense was $1.0 million in the first nine months of 2016 and $0.8 million in the first nine months of 2015.
The provision for income taxes for the 2016 period was $12.0 million and for the 2015 period was $10.6 million. The provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest was 39.8% in the 2016 first nine months and 39.5% in the 2015 first nine months.
Net income attributable to non-controlling interests was $7.6 million for the nine months of 2016 as compared to $7.0 million in the year earlier period.
Operating results attributable to common shareholders for the nine months ended September 30, 2016 rose 11.2% to $18.1 million as compared to $16.3 million for the nine months ended September 30, 2015. Diluted earnings per share from operating results were $1.45 for the 2016 period and $1.32 for the 2015 period.
Same store visits increased 3.7% for de novo and acquired clinics open for one year or more and same store revenue increased 3.0% as the average net rate per visit decreased by $0.82.

Other Financial Measures

In the third quarter of 2016, the Company's Adjusted EBITDA was $13.1 million and $12.8 million in the 2015 third quarter. In the first nine months of 2016, the Company's Adjusted EBITDA grew by 11.7% to $40.9 million from $36.7 million in the 2015 first nine months.

In the third quarter of 2016 and 2015, operating results prior to equity-based compensation (a non-cash expense) was $6.5 million for both, and on a per share basis was $0.52 as compared to $0.53, respectively. In the first nine months of 2016, operating results prior to equity-based compensation, increased by 11.1% to $20.4 million versus $18.3 million for the 2015 first nine months, and on a per share basis grew to $1.63 from $1.48. (See schedule on page 9.)

Management’s Comments

Chris Reading, Chief Executive Officer, said about the recent quarter, “While we got off to a slower than expected start in July, visits rebounded sequentially in August and September. Additionally, our development activity is strong and we expect to finish this year with very solid de novo as well as acquisition-related growth.”

U.S. Physical Therapy Declares Quarterly Dividend

The fourth quarterly dividend of 2016 for $0.17 per share will be paid on December 2, 2016 to shareholders of record as of November 18, 2016.

Third Quarter 2016 Conference Call

U.S. Physical Therapy's Management will host a conference call at 10:30 a.m. Eastern Time, 9:30 a.m. Central Time, on Thursday, November 3, 2016 to discuss the Company's Quarter Ended September 30, 2016 results. Interested parties may participate in the call by dialing 1-888-335-5539 or 973-582-2857 and entering reservation number 92445436 approximately 10 minutes before the call is scheduled to begin. To listen to the live call via web-cast, go to the Company's website at www.usph.com at least 15 minutes early to register, download and install any necessary audio software. The conference call will be archived and can be accessed until January 3, 2017.

Forward-Looking Statements

This press release contains statements that are considered to be forward-looking within the meaning under Section 21E of the Securities Exchange Act of 1934, as amended. 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 expect. Included among such statements may be those relating to 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:

changes as the result of government enacted national healthcare reform;
changes in Medicare guidelines and reimbursement or failure of our clinics to maintain their Medicare certification status;
revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction;
business and regulatory conditions including federal and state regulations;
governmental and other third party payor investigations and audits;
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;
possible legal actions; which could subject us to increased operating costs and uninsured liabilities;

changes in reimbursement rates or payment methods from third party payors including government agencies and deductibles and co-pays owed by patients;
revenue and earnings expectations;
general economic conditions;
availability and cost of qualified physical and occupational therapists;
personnel productivity and retaining personnel;
competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certain operations and thereby incur losses and/or closure costs including the possible write-down or write-off of goodwill and other intangible assets;
acquisitions, purchase of non-controlling interests (minority interests) and the successful integration of the operations of the acquired businesses;
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 our periodic reports filed with the Securities and Exchange Commission for more information on these factors. Our forward-looking statements represent our estimates and assumptions only as of the date of this press release. Except as required by law, we are under no obligation to update any forward-looking statement, regardless of the reason the statement is no longer applicable.

About U.S. Physical Therapy, Inc.

Founded in 1990, U.S. Physical Therapy, Inc. operates 524 outpatient physical and occupational therapy clinics in 42 states. The Company's clinics provide preventative and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, treatment for neurologically-related injuries and rehabilitation of injured workers. In addition to owning and operating clinics, the Company manages 22 physical therapy facilities for third parties, including hospitals and physician groups.

More information about U.S. Physical Therapy, Inc. is available at www.usph.com. The information included on that website is not incorporated into this press release.

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NET INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(unaudited)

Three Months Ended

Nine Months Ended

September 30, 2016

September 30, 2015

September 30, 2016

September 30, 2015

Net patient revenues $ 86,411 $ 82,154 $ 259,893 $ 239,412 Other revenues 1,933 1,895 5,789 5,166 Net revenues 88,344 84,049 265,682 244,578 Clinic operating costs: Salaries and related costs 49,868 46,594 146,509 134,044 Rent, clinic supplies, contract labor and other 17,885 17,428 52,938 50,434 Provision for doubtful accounts 917 1,067 2,962 3,119 Closure costs 9 88 54 125 Total clinic operating costs 68,679 65,177 202,463 187,722 Gross margin 19,665 18,872 63,219 56,856 Corporate office costs 7,610 6,923 24,640 22,173 Operating income 12,055 11,949 38,579 34,683 Interest and other income, net 21 24 62 48 Interest expense (326 ) (255 ) (954 ) (765 ) Income before taxes including non-controlling interests 11,750 11,718 37,687 33,966 Provision for income taxes 3,778 3,654 11,975 10,634 Net income including non-controlling interests 7,972 8,064 25,712 23,332 Less: net income attributable to non-controlling interests (2,259 ) (2,246 ) (7,600 ) (7,044 ) Net income attributable to common shareholders $ 5,713 $ 5,818 $ 18,112 $ 16,288 Basic earnings per share attributable to common shareholders: From operations prior to revaluation of redeemable non-controlling interests, net of tax $ 0.46 $ 0.47 $ 1.45 $ 1.32 Charges to additional paid-in-capital - revaluation of redeemable non-controlling interests, net of tax - - - (0.03 ) Basic $ 0.46 $ 0.47 $ 1.45 $ 1.29 Diluted earnings per share attributable to common shareholders: From operations prior to revaluation of redeemable non-controlling interests, net of tax $ 0.46 $ 0.47 $ 1.45 $ 1.32 Charges to additional paid-in-capital - revaluation of redeemable non-controlling interests, net of tax - - - (0.03 ) Diluted $ 0.46 $ 0.47 $ 1.45 $ 1.29 Shares used in computation: Basic and diluted earnings per share - weighted average shares 12,520 12,421 12,494 12,382 Dividends declared per common share $ 0.17 $ 0.15 $ 0.51 $ 0.45

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

September 30, 2016

December 31, 2015

(unaudited) ASSETS Current assets: Cash and cash equivalents $ 15,024 $ 15,778 Patient accounts receivable, less allowance for doubtful accounts of $1,770 and $1,444, respectively 38,522 36,231 Accounts receivable - other, less allowance for doubtful accounts of $-0- and $198, respectively 2,272 2,388 Other current assets 10,800 5,785 Total current assets 66,618 60,182 Fixed assets: Furniture and equipment 46,996 44,749 Leasehold improvements 26,206 25,160 73,202 69,909 Less accumulated depreciation and amortization 55,760 53,255 17,442 16,654 Goodwill 191,231 171,547 Other identifiable intangible assets, net 33,389 30,296 Other assets 1,221 1,234 $ 309,901 $ 279,913 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable - trade $ 2,181 $ 1,636 Accrued expenses 23,216 16,596 Current portion of notes payable 986 775 Total current liabilities 26,383 19,007 Notes payable 4,546 4,335 Revolving line of credit 36,000 44,000 Deferred rent 1,313 1,395 Deferred taxes 13,727 8,355 Other long-term liabilities 860 868 Total liabilities 82,829 77,960 Commitments and contingencies Redeemable non-controlling interests 8,334 8,843 Shareholders' equity: U.S. Physical Therapy, Inc. shareholders' equity: Preferred stock, $.01 par value, 500,000 shares authorized, no shares issued and outstanding

Common stock, $.01 par value, 20,000,000 shares authorized, 14,734,963 and 14,635,874 shares issued, respectively 147 146 Additional paid-in capital 49,506 45,251 Retained earnings 160,746 149,016 Treasury stock at cost, 2,214,737 shares (31,628 ) (31,628 )

Total U.S. Physical Therapy, Inc. shareholders' equity

178,771 162,785 Non-controlling interests 39,967 30,325 Total equity 218,738 193,110 $ 309,901 $ 279,913

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(unaudited)

Nine Months Ended

September 30, 2016

September 30, 2015

OPERATING ACTIVITIES Net income including non-controlling interests $ 25,712 $ 23,332 Adjustments to reconcile net income including non-controlling interests to net cash provided by operating activities: Depreciation and amortization 6,210 5,656 Provision for doubtful accounts 2,962 3,119 Equity-based awards compensation expense 3,748 3,368 Loss (gain) on sale of fixed assets 31 3 Excess tax benefit from equity-based awards (798 ) (816 ) Deferred income tax 5,688 3,181 Other - 180 Changes in operating assets and liabilities: Increase in patient accounts receivable (2,548 ) (4,148 ) Decrease (increase) in accounts receivable - other 116 (145 ) Increase in other assets (4,979 ) (1,485 ) Increase (decrease) in accounts payable and accrued expenses 5,178 (3,766 ) Increase in other liabilities 708 380 Net cash provided by operating activities 42,028 28,859 INVESTING ACTIVITIES Purchase of fixed assets (5,620 ) (4,690 ) Purchase of businesses, net of cash acquired (12,958 ) (14,434 ) Acquisitions of non-controlling interests (including redeemable non-controlling interests) (1,800 ) (2,802 ) Proceeds on sale of fixed assets, net 42 71 Net cash used in investing activities (20,336 ) (21,855 ) FINANCING ACTIVITIES Distributions to non-controlling interests (including redeemable non-controlling interests) (8,271 ) (6,836 ) Cash dividends to shareholders - funded (6,382 ) (5,586 ) Proceeds from revolving line of credit 128,000 75,000 Payments on revolving line of credit (136,000 ) (63,500 ) Principal payments on notes payable (592 ) (616 ) Tax benefit from equity-based awards 798 816 Other 1 5 Net cash used in financing activities (22,446 ) (717 ) Net increase in cash and cash equivalents (754 ) 6,287 Cash and cash equivalents - beginning of period 15,778 14,271 Cash and cash equivalents - end of period $

15,024

20,558

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes $ 10,051 $

5,659

Interest $

770

616

Non-cash investing and financing transactions during the period: Purchase of business - seller financing portion $

514

1,240

Acquisition of non-controlling interest - seller financing portion $

500

1,350

Revaluation of redeemable non-controlling interests $ - $

627

Sale of non-controlling interests $ (148 ) $ -

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

ADJUSTED EBITDA AND ADJUSTED NET INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following tables reconcile net income attributable to common shareholders calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP"), to Adjusted EBITDA and Adjusted Net Income. Management believes providing Adjusted EBITDA and Adjusted Net Income to investors is useful information for comparing the Company's period-to-period results. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and equity compensation expense. Adjusted Net Income is defined as net income attributable to common shareholders less equity-based compensation, net of tax. Adjusted EBITDA and Adjusted Net Income are not measures of financial performance under GAAP. Adjusted EBITDA and Adjusted Net Income should not be considered in isolation or as an alternative to, or substitute for, net income attributable to common shareholders presented in the consolidated financial statements.

Three Months Ended September 30,

Nine Months Ended September 30, 2016 2015 2016 2015 Net income attributable to common shareholders * $ 5,713 $ 5,818 $ 18,112 $ 16,288 Adjustments: Depreciation and amortization 2,052 1,982 6,210 5,656 Interest expense, net of interest income 305 231 892 717 Provision for income taxes 3,778 3,654 11,975 10,634 Equity-based awards compensation expense 1,264 1,162 3,748 3,368 Adjusted EBITDA $ 13,112 $ 12,847 $ 40,937 $ 36,663 Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Net income attributable to common shareholders * $ 5,713 $ 5,818 $ 18,112 $ 16,288 Equity-based awards compensation expense, net of tax 761 713 2,256 2,038 Adjusted net income $ 6,474 $ 6,531 $ 20,368 $ 18,326 Basic and diluted earnings per share attributable to common shareholders: $ 0.52 $ 0.53 $ 1.63 $ 1.48 Shares used in computation: Basic and diluted 12,520 12,421 12,494 12,382

* Prior to revaluation of redeemable non-controlling interests.

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

RECAP OF CLINIC COUNT

Date Number of Clinics

March 31, 2015

494 June 30, 2015 501 September 30, 2015 506 December 31, 2015 508 March 31, 2016 512 June 30, 2016 516 September 30, 2016 524

View source version on businesswire.com: http://www.businesswire.com/news/home/20161103005228/en/

U.S. Physical Therapy, Inc.Larry McAfee, (713) 297-7000Chief Financial OfficerorChris Reading, (713) 297-7000Chief Executive OfficerorThree Part AdvisorsJoe Noyons, (817) 778-8424

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