US Physical Therapy (NYSE: USPH) reported Q2 EPS of $0.73, $0.05 better than the analyst estimate of $0.68. Revenue for the quarter came in at $115.1 million versus the consensus estimate of $111.74 million.

Second Quarter 2018 Compared to Second Quarter 2017

• Net revenues increased $10.8 million, or 10.4%, from $104.3 million in the 2017 second quarter to $115.1 million in the 2018 second quarter, primarily due to an increase in net patient revenues from physical therapy operations from both internal growth and acquisitions, an increase in revenue from management contracts primarily due to acquired contracts and an increase in the revenue from the industrial injury prevention business from a combination of internal growth plus a recent acquisition. Our first company in the initial industrial injury prevention business was acquired in March 2017 and, on April 30, 2018, the Company made a second acquisition with the two businesses then combined.
• Net patient revenues from physical therapy operations increased approximately $8.3 million, or 8.5%, to $106.0 million in the 2018 second quarter from $97.7 million in the 2017 second quarter due to an increase in total patient visits of 8.1% from 924,000 to 999,000 and an increase in the average net patient revenue per visit to $106.16 from $105.73. Of the $8.3 million increase in net patient revenues, $4.6 million related to an increase in business of clinics opened or acquired on or prior to June 30, 2017 (“Mature Clinics”) and $3.7 million related to clinics opened or acquired after June 30, 2017 (“New Clinics”). Revenue from physical therapy management contracts increased 33.6% to $2.2 million in the 2018 second quarter as compared to $1.6 million in the 2017 second quarter.
• The revenue from the industrial injury prevention business increased 43.2% to $6.3 million in the 2018 second quarter compared to $4.4 million in the 2017 second quarter due to internal growth and the acquisition on April 30, 2018. Other revenue was $0.6 million in both the 2018 and 2017 second quarters.
• Total operating costs were $87.9 million, or 76.4% of net revenues, in the 2018 second quarter as compared to $79.7 million, or 76.5% of net revenues, in the 2017 second quarter. The $8.2 million increase was attributable to $3.6 million in operating costs related to New Clinics, an increase of $3.3 million related to Mature Clinics, an increase of $1.0 million in the industrial injury prevention business primarily due to the most recent acquisition and an increase of $0.3 million related to management contracts. Total salaries and related costs, including those from New Clinics and the industrial injury prevention business, were 56.1% of net revenue in the recent quarter versus 56.4% in the 2017 second quarter. Rent, supplies, contract labor and other costs as a percentage of net revenuewere 19.3% in the recent quarter versus 19.2% in the 2017 second quarter. The provision for doubtful accounts as a percentage of net revenue was 1.0% in the 2018 second quarter as compared to 0.9% in the 2017 second quarter.
• The gross profit for the 2018 second quarter grew by 10.7% or $2.6 million to $27.1 million, as compared to $24.5 million in the second quarter of 2017. The gross profit percentage was 23.6% of net revenue in the recent period as compared to 23.5% in the 2017 second quarter. The gross profit percentage for the Company’s physical therapy clinics was 23.7% in the recent quarter as compared to 24.2% in the 2017 second quarter. The gross profit percentage on management contracts was 16.3% in the 2018 second quarter as compared to 7.4% in the 2017 second quarter. The gross profit percentage for the industrial injury prevention business was 24.4% in the recent quarter as compared to 15.0% in the 2017 period.
• Corporate office costs were $10.1 million in the 2018 second quarter compared to $8.8 million in the 2017 second quarter. Corporate office costs were 8.8% of net revenues for the 2018 quarter compared to 8.5% for the 2017 quarter.
• Operating income for the recent quarter increased 8.6% to $17.0 million as compared to $15.7 million in the 2017 second quarter.
• The Company no longer has mandatorily redeemable non-controlling interests. See discussion following – Redeemable Non-Controlling Interests.
• Interest expense – debt and other was $0.5 million both the 2018 and 2017 second quarters.
• The provision for income tax for the 2018 second quarter was $3.3 million and for the 2017 second quarter was $3.1 million, both of which are inclusive of the reduction of $0.2 million and $0.1 million, respectively, for the excess tax benefit, which is a component of the provision for income taxes, related to equity compensation. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest was 26.1% and 38.4%, respectively, for the 2018 and 2017 second quarters.
• Net income attributable to non-controlling interests (permanent equity) was $1.4 million in both the 2018 and 2017 second quarters. Net income attributable to redeemable non-controlling interests (temporary equity) was $2.6 million in the 2018 second quarter.
• Same store revenues for de novo and acquired clinics open for one year or more increased 3.7%. Visits increased 2.8% for de novo and acquired clinics open for one year or more and the same store net rate increased by approximately 0.8%.

The Company is raising earnings guidance for the year 2018. Management currently expects the Company’s Operating Results for the year 2018 to be in the range of $31.1 million to $32.3 million or $2.45 to $2.55 per share. Previous 2018 earning guidance had been for Operating Results of $29.5 million to $30.9 million or $2.34 to $2.44 per share. Please note that the earnings guidance represents projected operating results from existing operations but excludes future acquisitions. The annual guidance figures may not be updated unless there is a material development that causes management to believe that operating results will be significantly outside the given range.

GUIDANCE:

US Physical Therapy sees FY2018 EPS of $2.45-$2.55, versus the consensus of $2.44.

For earnings history and earnings-related data on US Physical Therapy (USPH) click here.