U.S. Physical Therapy 10Q 2024 Q3 Quarterly report

U.S. Physical Therapy (USPH) 10-Q2024 Q3 Quarterly report

Content analysis

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _____TO _____

COMMISSION FILE NUMBER 1-11151

U.S. PHYSICAL THERAPY, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

NEVADA		76-0364866
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)		(I.R.S. EMPLOYER IDENTIFICATION NO.)

1300 WEST SAM HOUSTON PARKWAY SOUTH, SUITE 300, HOUSTON, TEXAS		77042
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		(ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 297-7000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	USPH	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

As of November 8, 2024, the number of shares outstanding (issued less treasury stock) of the registrant’s common stock, par value $.01 per share, was: 15,094,987.

TABLE OF CONTENTS

Item 1.	Financial Statements.	3

	Consolidated Balance Sheets as of September 30, 2024, and December 31, 2023	3

	Unaudited Consolidated Statements of Net Income for the Three and Nine Months Ended September 30, 2024, and 2023	4

	Unaudited Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2024, and 2023	5

	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024, and 2023	6

	Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2024, and 2023	7

	Notes to Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	49

Item 4.	Controls and Procedures	50

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 5.	Other Information	51

Item 6.	Exhibits	52

	Signatures	53

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

	September 30, 2024			December 31, 2023
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	116,959		$	152,825
Patient accounts receivable, less provision for credit losses of $3,443 and $2,736, respectively		57,022			51,866
Accounts receivable - other		20,056			17,854
Other current assets		10,833			10,830
Total current assets		204,870			233,375
Fixed assets:
Furniture and equipment		66,782			63,982
Leasehold improvements		48,385			46,941
Fixed assets, gross		115,167			110,923
Less accumulated depreciation and amortization		(88,602	)		(84,821	)
Fixed assets, net		26,565			26,102
Operating lease right-of-use assets		103,938			103,431
Investment in unconsolidated affiliate		12,168			12,256
Goodwill		554,642			509,571
Other identifiable intangible assets, net		124,309			109,682
Other assets		2,699			2,821
Total assets	$	1,029,191		$	997,238

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, USPH SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTEREST
Current liabilities:
Accounts payable - trade	$	6,361		$	3,898
Accrued expenses		64,506			55,344
Current portion of operating lease liabilities		34,828			35,252
Current portion of term loan and notes payable		9,605			7,691
Total current liabilities		115,300			102,185
Notes payable, net of current portion		534			1,289
Term loan, net of current portion and deferred financing costs		132,382			137,702
Deferred taxes		24,913			24,815
Operating lease liabilities, net of current portion		77,001			76,653
Other long-term liabilities		8,343			2,356
Total liabilities		358,473			345,000

Redeemable non-controlling interest - temporary equity		186,602			174,828

Commitments and Contingencies

U.S. Physical Therapy, Inc. (“USPH”) shareholders’ equity:
Preferred stock, $0.01 par value, 500,000 shares authorized, no shares issued and outstanding		-			-
Common stock, $0.01 par value, 20,000,000 shares authorized, 17,291,366 and 17,202,291 shares issued, respectively		172			172
Additional paid-in capital		287,002			281,096
Accumulated other comprehensive gain		1,339			2,782
Retained earnings		225,873			223,772
Treasury stock at cost, 2,214,737 shares		(31,628	)		(31,628	)
Total USPH shareholders’ equity		482,758			476,194
Non-controlling interest - permanent equity		1,358			1,216
Total USPH shareholders’ equity and non-controlling interest - permanent equity		484,116			477,410
Total liabilities, redeemable non-controlling interest, USPH shareholders’ equity and non-controlling interest - permanent equity	$	1,029,191		$	997,238

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

Table of Contents

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF NET INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2024			September 30, 2023			September 30,2024			September 30, 2023

Net patient revenue	$	139,146		$	127,243		$	410,492		$	383,104
Other revenue		28,887			22,764			80,406			66,897
Net revenue		168,033			150,007			490,898			450,001
Operating cost:
Salaries and related costs		99,835			89,846			289,900			262,757
Rent, supplies, contract labor and other		33,914			30,678			100,430			91,490
Provision for credit losses		1,721			1,525			5,065			4,600
Clinic closure costs - lease and other		3,432			29			4,109			161
Total operating cost		138,902			122,078			399,504			359,008

Gross profit		29,131			27,929			91,394			90,993

Corporate office costs		14,385			12,048			42,719			38,052
Operating income		14,746			15,881			48,675			52,941

Other income (expense):
Interest expense, debt and other		(2,018	)		(2,101	)		(5,966	)		(7,293	)
Interest income from investments		1,018			1,673			3,635			2,191
Change in fair value of contingent earn-out consideration		(1,899	)		187			(5,332	)		197
Change in revaluation of put-right liability		168			(145	)		(136	)		(344	)
Equity in earnings of unconsolidated affiliate		231			206			750			806
Relief Funds		-			-			-			467
Other		90			78			261			305
Total other income (expense)		(2,410	)		(102	)		(6,788	)		(3,671	)

Income before taxes		12,336			15,779			41,887			49,270

Provision for income taxes		2,559			3,557			8,781			10,757
Net income		9,777			12,222			33,106			38,513

Less: Net income attributable to non-controlling interest:
Redeemable non-controlling interest - temporary equity		(1,998	)		(1,976	)		(7,539	)		(7,616	)
Non-controlling interest - permanent equity		(1,151	)		(992	)		(3,387	)		(3,314	)
		(3,149	)		(2,968	)		(10,926	)		(10,930	)

Net income attributable to USPH shareholders	$	6,628		$	9,254		$	22,180		$	27,583

Basic and diluted earnings per share attributable to USPH shareholders (1)	$	0.39		$	0.51		$	1.32		$	1.72

Shares used in computation - basic and diluted		15,077			14,987			15,055			13,918

Dividends declared per common share	$	0.44		$	0.43		$	1.32		$	1.29

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

Table of Contents

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN THOUSANDS)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023

Net income	$	9,777		$	12,222		$	33,106		$	38,513
Other comprehensive (loss) gain:
Unrealized (loss) gain on cash flow hedge		(3,687	)		1,276			(1,937	)		2,340
Tax effect at statutory rate (federal and state)		942			(326	)		495			(598	)
Comprehensive income	$	7,032		$	13,172		$	31,664		$	40,255

Comprehensive income attributable to non-controlling interest		(3,149	)		(2,968	)		(10,926	)		(10,930	)
Comprehensive income attributable to USPH shareholders	$	3,883		$	10,204		$	20,738		$	29,325

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

Table of Contents

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

	For the Nine Months Ended
	September 30, 2024			September 30, 2023
OPERATING ACTIVITIES
Net income including non-controlling interest	$	33,106		$	38,513
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities:
Depreciation and amortization		12,996			11,582
Provision for credit losses		5,065			4,600
Equity-based awards compensation expense		5,837			5,451
Amortization of debt issue costs		317			315
Change in deferred income taxes		605			5,393
Change in revaluation of put-right liability		136			344
Change in fair value of contingent earn-out consideration		5,332			(197	)
Equity of earnings in unconsolidated affiliate		(750	)		(806	)
Loss (gain) on sale of fixed assets		280			(106	)
Others		(169	)		-
Changes in operating assets and liabilities:
Increase in patient accounts receivable		(8,870	)		(5,415	)
Increase in accounts receivable - other		(960	)		(1,631	)
(Increase) decrease in other current and long term assets		(1,808	)		2,489
Increase (decrease) in accounts payable and accrued expenses		5,003			(5,609	)
(Decrease) increase in other long-term liabilities		(589	)		220
Net cash provided by operating activities		55,531			55,143

INVESTING ACTIVITIES
Purchase of fixed assets		(6,697	)		(7,074	)
Purchase of majority interest in businesses, net of cash acquired		(41,196	)		(22,994	)
Purchase of redeemable non-controlling interest, temporary equity		(6,957	)		(7,804	)
Purchase of non controlling interest, permanent equity		(756	)		(262	)
Proceeds on sale of redeemable non-controlling interest, temporary equity		229			815
Proceeds on sale of non-controlling interest, permanent equity		26			30
Distributions from unconsolidated affiliate		838			681
Other		(84	)		7
Net cash used in investing activities		(54,597	)		(36,601	)

FINANCING ACTIVITIES
Cash dividends paid to shareholders		(19,898	)		(17,683	)
Distributions to non-controlling interest, permanent and temporary equity		(11,399	)		(11,777	)
Principal payments on notes payable		(1,726	)		(2,874	)
Payments on term loan		(3,750	)		(2,813	)
Payments on revolving facility		-			(55,000	)
Proceeds from issuance of common stock pursuant to the secondary public offering, net of issuance costs		-			163,646
Proceeds from revolving facility		-			24,000
Other		(27	)		50
Net cash (used in) provided by financing activities		(36,800	)		97,549

Net (decrease) increase in cash and cash equivalents		(35,866	)		116,091
Cash and cash equivalents - beginning of period		152,825			31,594
Cash and cash equivalents - end of period	$	116,959		$	147,685

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes	$	5,759		$	2,731
Interest paid	$	5,630		$	6,992
Non-cash investing and financing transactions during the period:
Purchase of interest in businesses - seller financing portion	$	7,395		$	1,860
Initial contingent consideration related to purchase of interest of businesses	$	5,940		$	200
Offset of notes receivable associated with purchase of redeemable non-controlling interest	$	627		$	-
Notes payable related to purchase of redeemable non-controlling interest, temporary equity	$	66		$	1,017
Notes payable related to purchase of non-controlling interest, permanent equity	$	-		$	200
Notes receivable related to sale of redeemable non-controlling interest, temporary equity	$	2,075		$	3,064
Notes receivable related to the sale of non-controlling interest, permanent equity	$	282		$	397

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

Table of Contents

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(IN THOUSANDS)

	U.S.Physical Therapy, Inc.
	Common Stock				Additional			Accumulated Other			Retained			Treasury Stock						Total Shareholders’			Non-Controlling
For the three months ended September 30, 2024	Shares		Amount		Paid-In Capital			Comprehensive Gain			Earnings			Shares			Amount			Equity			Interests			Total

Balance June 30, 2024		17,291	$	172	$	285,462		$	4,084		$	226,482			(2,215	)	$	(31,628	)	$	484,572		$	1,043		$	485,615
Net income attributable to USPH shareholders		-		-		-			-			6,628			-			-			6,628			-			6,628
Net income attributable to non-controlling interest - permanent equity		-		-		-			-			-			-			-			-			1,151			1,151
Issuance of restricted stock, net of cancellations		-		-		-			-			-			-			-			-			-			-
Revaluation of redeemable non-controlling interest		-		-		-			-			(1,097	)		-			-			(1,097	)		-			(1,097	)
Compensation expense - equity-based awards		-		-		1,921			-			-			-			-			1,921			-			1,921
Sale of non-controlling interest		-		-		29			-			-			-			-			29			-			29
Purchase of partnership interests - non-controlling interest		-		-		(410	)		-			-			-			-			(410	)		(68	)		(478	)
Dividends paid to USPH shareholders		-		-		-			-			(6,634	)		-			-			(6,634	)		-			(6,634	)
Distributions to non-controlling interest partners - permanent equity		-		-		-			-			-			-			-			-			(941	)		(941	)
Deferred taxes related to redeemable non-controlling interest - temporary equity		-		-		-			-			521			-			-			521			-			521
Other comprehensive gain		-		-		-			(2,745	)		-			-			-			(2,745	)		-			(2,745	)
Other		-		-		-			-			(27	)		-			-			(27	)		173			146
Balance September 30, 2024		17,291		172		287,002			1,339			225,873			(2,215	)		(31,628	)		482,758			1,358			484,116

	U .S.Physical Therapy, Inc.
	Common Stock				Additional			Accumulated Other			Retained			Treasury Stock						Total Shareholders’			Non-Controlling
For the nine months ended September 30, 2024	Shares		Amount		Paid-In Capital			Comprehensive Loss			Earnings			Shares			Amount			Equity			Interests			Total

Balance December 31, 2023		17,202	$	172	$	281,096		$	2,782		$	223,772			(2,215	)	$	(31,628	)	$	476,194		$	1,216		$	477,410
Net income attributable to USPH shareholders		-		-		-			-			22,180			-			-			22,180			-			22,180
Net income attributable to non-controlling interest - permanent equity		-		-		-			-			-			-			-			-			3,387			3,387
Issuance of restricted stock, net of cancellations		89		-		-			-			-			-			-			-			-			-
Revaluation of redeemable non-controlling interest, net of tax		-		-		-			-			(3,158	)		-			-			(3,158	)		-			(3,158	)
Compensation expense - equity-based awards		-		-		5,837			-			-			-			-			5,837			-			5,837
Sale of non-controlling interest		-		-		229			-			-			-			-			229			-			229
Purchase of partnership interests - non-controlling interest		-		-		(760	)		-			-			-			-			(760	)		(124	)		(884	)
Dividends paid to USPH shareholders		-		-		-			-			(19,898	)		-			-			(19,898	)		-			(19,898	)
Distributions to non-controlling interest partners - permanent equity		-		-		-			-			-			-			-			-			(3,292	)		(3,292	)
Deferred taxes related to redeemable non-controlling interest - temporary equity		-		-		-			-			(29	)		-			-			(29	)		-			(29	)
Other comprehensive gain		-		-		-			(1,442	)		-			-			-			(1,442	)		-			(1,442	)
Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans		-		-		600			-			-			-			-			600			-			600
Transfer of RNCI due to separation agreement		-		-		-			-			3,033			-			-			3,033			-			3,033
Other		-		-		-			(1	)		(27	)		-			-			(28	)		171			143
Balance September 30, 2024		17,291		172		287,002			1,339			225,873			(2,215	)		(31,628	)		482,758			1,358			484,116

Table of Contents

	U.S.Physical Therapy, Inc.
	Common Stock				Additional			Accumulated Other		Retained			Treasury Stock						Total Shareholders’			Non-Controlling
For the three months ended September 30, 2023	Shares		Amount		Paid-In Capital			Comprehensive Gain		Earnings			Shares			Amount			Equity			Interests			Total

Balance June 30, 2023		17,202	$	172	$	277,493		$	4,796	$	237,665			(2,215	)	$	(31,628	)	$	488,498		$	1,500		$	489,998
Net income attributable to USPH shareholders		-		-		-			-		9,254			-			-			9,254			-			9,254
Net income attributable to non-controlling interest - permanent equity		-		-		-			-		-			-			-			-			992			992
Issuance of common stock, pursuant to the secondary public offering, net of issuance costs		-		-		(9	)		-		-			-			-			(9	)		-			(9	)
Revaluation of redeemable non-controlling interest		-		-		-			-		(2,242	)		-			-			(2,242	)		-			(2,242	)
Compensation expense - equity-based awards		-		-		1,859			-		-			-			-			1,859			-			1,859
Sale of non-controlling interest		-		-		-			-		-			-			-			-			(30	)		(30	)
Purchase of partnership interests - non-controlling interest		-		-		(270	)		-		-			-			-			(270	)		21			(249	)
Dividends paid to USPH shareholders		-		-		-			-		(6,445	)		-			-			(6,445	)		-			(6,445	)
Distributions to non-controlling interest partners - permanent equity		-		-		-			-		-			-			-			-			(941	)		(941	)
Deferred taxes related to redeemable non-controlling interest - temporary equity		-		-		-			-		323			-			-			323			-			323
Other comprehensive gain		-		-		-			950		-			-			-			950			-			950
Other		-		-		51			-		2			-			-			53			(5	)		48
Balance September 30, 2023		17,202		172		279,124			5,746		238,557			(2,215	)		(31,628	)		491,971			1,537			493,508

	U.S.Physical Therapy, Inc.
	Common Stock				Additional			Accumulated Other		Retained			Treasury Stock						Total Shareholders’			Non-Controlling
For the nine months ended September 30, 2023	Shares		Amount		Paid-In Capital			Comprehensive Loss		Earnings			Shares			Amount			Equity			Interests			Total

Balance December 31, 2022		15,216	$	152	$	110,317		$	4,004	$	232,948			(2,215	)	$	(31,628	)	$	315,793		$	1,260		$	317,053
Issuance of restricted stock, pursuant to the secondary offering, net of cancellations		1,986		-		-			-		-			-			-			-			-			-
Net income attributable to USPH shareholders		-		-		-			-		27,583			-			-			27,583			-			27,583
Net income attributable to non-controlling interest - permanent equity		-		-		-			-		-			-			-			-			3,314			3,314
Issuance of common stock, pursuant to the secondary public offering, net of issuance costs		-		20		163,626			-		-			-			-			163,646			(4	)		163,642
Revaluation of redeemable non-controlling interest, net of tax		-		-		-			-		(4,988	)		-			-			(4,988	)		-			(4,988	)
Compensation expense - equity-based awards		-		-		5,451			-		-			-			-			5,451			-			5,451
Sale of non-controlling interest		-		-		-			-		-			-			-			-			(30	)		(30	)
Purchase of partnership interests - non-controlling interest		-		-		(320	)		-		-			-			-			(320	)		32			(288	)
Dividends paid to USPH shareholders		-		-		-			-		(17,683	)		-			-			(17,683	)		-			(17,683	)
Distributions to non-controlling interest partners - permanent equity		-		-		-			-		-			-			-			-			(3,035	)		(3,035	)
Deferred taxes related to redeemable non-controlling interest - temporary equity		-		-		-			-		697			-			-			697			-			697
Other comprehensive gain		-		-		-			1,742		-			-			-			1,742			-			1,742
Other		-		-		50			-		-			-			-			50			-			50
Balance September 30, 2023		17,202		172		279,124			5,746		238,557			(2,215	)		(31,628	)		491,971			1,537			493,508

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

Table of Contents

U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation and Significant Accounting Policies

Nature of Business

U.S. Physical Therapy, Inc. and its subsidiaries (the “Company”) operates its business through two reportable business segments which include the physical therapy operations segment and the industrial injury prevention services (“IIP”) segment. Our physical therapy operations consist of physical therapy and occupational therapy clinics that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders, and sports-related injuries, and rehabilitation of injured workers. Services provided by the IIP segment include onsite services for clients’ employees including injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. These services are performed through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers.

As of September 30, 2024, the Company operated 661 clinics in 42 states. In addition to the 661 clinics, the Company also managed 39 physical therapy practices for unrelated physician groups and hospitals as of September 30, 2024.

During the nine months ended September 30, 2024, and for the year-ended December 31, 2023, the Company completed the acquisitions of the following clinic practices and IIP businesses:

		% Interest		Number of
Acquisition	Date	Acquired		Clinics
August 2024 Acquisition	August 31, 2024		70%		8
April 2024 Acquisition	April 30, 2024		**		*
March 2024 Acquisition	March 29, 2024		50%		9
October 2023 Acquisition	October 31, 2023		***		*
September 2023 Acquisition 1	September 29, 2023		70%		4
September 2023 Acquisition 2	September 29, 2023		70%		1
July 2023 Acquisition	July 31, 2023		70%		7
May 2023 Acquisition	May 31, 2023		45%		4
February 2023 Acquisition	February 28, 2023		80%		1

*	IIP business.

**	On April 30, 2024, one of the Company’s primary IIP businesses, Briotix Health Limited Partnership, acquired 100% of an IIP business.

***	On October 31, 2023, the Company concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business.

Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions for Form 10-Q. However, the statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Management believes this report contains all necessary adjustments (consisting only of normal recurring adjustments) to present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the interim periods presented. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 29, 2024. Interim results are not necessarily indicative of the results the Company expects for the entire year.

Table of Contents

Principles of Consolidation

The consolidated financial statements include the accounts of the Company. All significant intercompany transactions have been eliminated.

Segment Reporting

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by chief operating decision makers in determining the allocation of resources and in assessing performance. The Company currently operates through two segments: physical therapy operations and IIP.

Use of Estimates

In preparing the Company’s consolidated financial statements, management makes certain estimates and assumptions, especially in relation to, but not limited to, goodwill impairment, tradenames and other intangible assets, allocations of purchase price, allowance for receivables, tax provision and contractual allowances, that affect the amounts reported in the consolidated financial statements and related disclosures. Actual results may differ from these estimates.

Goodwill and Other Indefinite-Lived Intangible Assets

Goodwill represents the excess of the amount paid and fair value of the non-controlling interests over the fair value of the acquired business assets, which include certain identifiable intangible assets. Historically, goodwill has been derived from acquisitions and, prior to 2009, from the purchase of some or all of a particular local management’s equity interest in an existing clinic. Effective January 1, 2009, if the purchase price of a non-controlling interest, permanent equity by the Company exceeds or is less than the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital.

Goodwill and other indefinite-lived intangible assets are not amortized but are instead subject to periodic impairment evaluations. The fair value of goodwill and other identifiable intangible assets with indefinite lives are evaluated for impairment at least annually and upon the occurrence of certain triggering events or conditions and are written down to fair value, if considered impaired. These events or conditions include but are not limited to a significant adverse change in the business environment, regulatory environment, or legal factors; a current period operating, or cash flow, combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit. The occurrence of one of these triggering events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. The Company evaluates indefinite-lived tradenames in conjunction with its annual goodwill impairment test.

The reporting units within the Company’s physical therapy business are comprised of six regions primarily based on each clinic’s location. The IIP business consists of two reporting units.

As part of the impairment analysis, the Company is first required to assess qualitatively if it can conclude whether goodwill is more likely than not impaired. If goodwill is more likely than not impaired, it is then required to complete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company considers relevant events or circumstances that affect the fair value or carrying amount of a reporting unit. The Company considers both the income and market approach in determining the fair value of its reporting units when performing a quantitative analysis. An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets, exceeds the estimated fair value of the reporting unit.

For both the three and nine months ended September 30, 2024, the Company recorded goodwill impairment of $0.1 million related to a closed clinic. During the three and twelve months ended December 31, 2023, the Company recorded a charge of $15.8 million for goodwill impairment and a charge of $1.7 million for the impairment of a tradename. The charges for impairment were related to one reporting unit in the IIP business. The impairment was related to a change in the reporting unit’s current and projected operating income as well as various market inputs based on current market conditions. The Company did not recognize any impairment as a result of the Company’s annual assessment of goodwill and tradename for the other seven reporting units. The Company also noted no impairment to long-lived assets for all reporting units.

The Company will continue to monitor for any triggering events or other indicators of impairment.

Table of Contents

Investment in unconsolidated affiliate

Investments in unconsolidated affiliates, in which the Company has less than a controlling interest, are accounted for under the equity method of accounting and, accordingly, are adjusted for capital contributions, distributions and the Company’s equity in net earnings or loss of the respective joint venture.

Non-Controlling Interest

The Company recognizes non-controlling interest, in which the Company has no obligation but the right to purchase the non-controlling interest, as permanent equity in the unaudited consolidated financial statements separate from the parent entity’s equity. The amount of net income attributable to non-controlling interest is included in the consolidated net income on the face of the unaudited consolidated statements of net income. Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the non-controlling equity investment on the deconsolidation date.

When the purchase price of a non-controlling interest by the Company exceeds the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital. Additionally, operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner.

Redeemable Non-Controlling Interest

The non-controlling interest that is reflected as redeemable non-controlling interest in the unaudited consolidated financial statements consist of those in which the owners and the Company have certain redemption rights, whether currently exercisable or not, and which currently, or in the future, require that the Company purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met. The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements. The redemption rights can be triggered by the owner or the Company at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three to six years, as defined in the limited partnership agreement. The redemption rights are not automatic or mandatory (even upon death) and require either the owner or the Company to exercise its rights when the conditions triggering the redemption rights have been satisfied.

On the date the Company acquires a controlling interest in a partnership, and the limited partnership agreement for such partnership contains redemption rights not under the control of the Company, the fair value of the non-controlling interest is recorded in the consolidated balance sheet under the caption – Redeemable non-controlling interest – temporary equity. Then, in each reporting period thereafter until it is purchased by the Company, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial carrying value, based on the predetermined formula defined in the respective limited partnership agreement. As a result, the value of the non-controlling interest is not adjusted below its initial carrying value. The Company records any adjustments in the redemption value, net of tax, directly to retained earnings and the adjustments are not reflected in the unaudited consolidated statements of net income. Although the adjustments are not reflected in the unaudited consolidated statements of net income, current accounting rules require that the Company reflects the adjustments, net of tax, in the earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the unaudited consolidated statements of net income. Management believes the redemption value (i.e., the carrying amount) and fair value are the same.

Table of Contents

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606. For ASC 606, there is an implied contract between the Company and the patient upon each patient visit. Separate contractual arrangements exist between the Company and third-party payors (e.g. insurers, managed care programs, government programs, workers’ compensation) which establish the amounts the third parties pay on behalf of the patients for covered services rendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third-party payors. The payor contracts do not indicate performance obligations for the Company but indicate reimbursement rates for patients who are covered by those payors when the services are provided. At that time, the Company is obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicate a performance obligation. For self-paying customers, the performance obligation exists when the Company provides the services at established rates. The difference between the Company’s established rate and the anticipated reimbursement rate is accounted for as an offset to revenue—contractual allowance. Payments for services rendered are typically due 30 to 120 days after receipt of the invoice.

Patient Revenue

Net patient revenue consists of revenues for physical therapy and occupational therapy clinics that provide pre- and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. Net patient revenue (patient revenue less estimated contractual adjustments – as described below) is recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There is an implied contract between us and the patient upon each patient visit. Generally, this occurs as the Company provides physical and occupational therapy services, as each service provided is distinct and future services rendered are not dependent on previously rendered services. The Company has agreements with third-party payors that provide payments to the Company at amounts different from its established rates.

Other Revenue

Revenue from the IIP business, which is included in other revenue in the consolidated statements of net income, is derived from onsite services the Company provides to clients’ employees including injury prevention, rehabilitation, ergonomic assessments, post-offer employment testing and performance optimization. Revenue from the Company’s IIP business is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal to the consideration the company expects to receive in exchange for providing injury prevention services to its clients. The revenue is determined and recognized based on the number of hours and respective rate for services provided in a given period.

Management contract revenue, which is also included in other revenue, is derived from contractual arrangements whereby the Company manages a clinic for third party owners. The Company does not have any ownership interest in these clinics. Typically, revenue is determined based on the number of visits conducted at the clinic and recognized at a point in time when services are performed. Costs, typically consisting of salaries, are recorded when incurred. Management contract revenue was $2.5 million and $2.4 million for the three months ended September 30, 2024 and September 30, 2023, respectively, and was $7.3 million and $6.3 million for the nine months ended September 30, 2024 and September 30, 2023, respectively.

Additionally, other revenue from physical therapy operations includes services the Company provides on-site at locations such as schools and industrial worksites for physical or occupational therapy services, athletic trainers for schools and gym membership fees. Contract terms and rates are agreed to in advance between the Company and the third parties. Services are typically performed over the contract period and revenue is recorded at the point of service. If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time when the services are performed.

Table of Contents

Contractual Allowances

The allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience. Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services. Medicare regulations and the various third-party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in Company clinics. The Company estimates contractual allowances based on its interpretation of the applicable regulations, payor contracts and historical calculations. Each month the Company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on the Company’s historical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates. However, the services authorized, provided and related reimbursement are subject to interpretation that could result in payments that differ from the Company’s estimates. Payor terms are periodically revised necessitating continual review and assessment of the estimates made by management. The Company’s billing system does not capture the exact change in its contractual allowance reserve estimate from period to period. In order to assess the accuracy of its revenues, management regularly compares its cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, historically the difference between net revenues and corresponding cash collections for any fiscal year has generally reflected a difference between approximately 1.0% to 1.5% of net revenues. As a result, the Company believes that a change in the contractual allowance reserve estimate would not likely be more than 1.0% to 1.5% on each balance sheet date.

Allowance for Credit Losses

The Company determines allowances for credit losses based on the specific agings and payor classifications at each clinic. The provision for credit losses is included in operating costs in the consolidated statements of net income. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs, and allowance for credit losses, includes only those amounts the Company estimates to be collectible.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the three and nine months ended September 30, 2024, and September 30, 2023. The Company records any interest or penalties, if required, in interest and other expense, as appropriate.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation at the measurement date.

Table of Contents

The three levels of the fair value hierarchy are as follows:

●	Level 1 – Quoted prices in active markets for identical assets or liabilities.

●	Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

●	Level 3 – Unobservable inputs based on the Company’s own assumptions.

The carrying amounts reported in the balance sheets for cash and cash equivalents, certain contingent earn-out payments, accounts receivable, accounts payable and notes payable approximate their fair values due to the short-term maturity of these financial instruments. The carrying amount of the debt under the Third Amended and Restated Credit Agreement (defined as “Credit Agreement” in Note 8) approximates the fair value due to the proximity of the debt issue date and the balance sheet date and the variable component of interest on debt. The interest rate on the Credit Agreement is tied to the Secured Overnight Financing Rate (“SOFR”).

The put right expiring in 2027 is associated with the potential future purchase of a separate company within the Company’s IIP business. It is marked to fair value on a recurring basis using Level 3 inputs. In determining the value of the put right as of September 30, 2024, the Company used a Monte Carlo simulation model utilizing unobservable inputs including asset volatility of 20.0% and a discount rate of 10.96%. The value of this put right decreased $0.2 million for the three months ended September 30, 2024, and increased $0.1 million for the nine months ended September 30, 2024. The put right was valued at approximately $1.1 million on September 30, 2024, and approximately $1.0 million on December 31, 2023.

The valuation of the Company’s interest rate derivative is measured as the present value of all expected future cash flows based on SOFR-based yield curves. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparty, which is a Level 2 fair value measurement. See Note 9 for more information on the Company’s interest rate derivative.

The redemption value of redeemable non-controlling interests approximates the fair value. See Note 4 for the changes in the fair value of Redeemable non-controlling interest.

The consideration for some of the Company’s acquisitions includes future payments that are contingent upon the occurrence of future operational or financial objectives being met. The Company estimates the fair value of contingent consideration obligations through valuation models designed to estimate the probability of such contingent payments based on various assumptions and incorporating estimated success rates. These fair value measurements are based on significant inputs not observable in the market. The unobservable inputs used in the valuation of the contingencies as of September 30, 2024, include asset volatility of 15.0% and a discount rate of 6.0%. Substantial judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the Company’s financial position or results of operations in any given period. The Company determined the fair value of its contingent consideration obligations to be $22.7 million on September 30, 2024, and $12.5 million on December 31, 2023.

Restricted Stock

Restricted stock issued to employees and directors is subject to continued employment or continued service on the board, respectively. Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following four anniversaries of the date of grant. For those shares granted to directors, the restrictions will lapse in equal quarterly installments during the first year after the date of grant. For those granted to officers and certain other key employees, the restriction will lapse in equal quarterly installments during the four years following the date of grant. Compensation expense for grants of restricted stock is recognized based on the fair value per share on the date of grant amortized over the vesting period. The Company recognizes any forfeitures as they occur. The restricted stock issued is included in basic and diluted shares for the earnings per share computation.

Table of Contents

New Accounting Pronouncements

In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements, which requires companies to amortize leasehold improvements associated with related party leases under common control over the useful life of the leasehold improvement to the common control group. The ASU is effective for annual reporting periods beginning on or after December 15, 2023; however, early adoption is permitted. The ASU can either be applied prospectively or retrospectively. The adoption of ASU 2023-01 did not have a material effect on the Company’s financial statements.

In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker and included within the reported measure of segment profit or loss. In addition, the ASU requires disclosure of other segment expenses by reportable segment and a description of their composition to permit the reconciliation between segment revenue, significant segment expenses and the reported segment measure of profit or loss. The ASU also requires disclosure of the name and title of the chief operating decision maker. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure on an annual basis, a tabular reconciliation, including both amount and percentage of specific categories of the effective tax rate reconciliation, including state and local income taxes (net of Federal taxes), foreign taxes, effects of changes in tax laws and regulations, effects of cross-border tax laws, tax credits, changes in valuation allowances, nontaxable and nondeductible items and changes in unrecognized tax benefits. Additional disclosures are required for certain items exceeding five percent of income from continuing operations multiplied by the statutory income tax rate. The standard also requires disclosure of income taxes paid between Federal, state and foreign jurisdictions, including further disaggregation of those payments exceeding five percent of the total income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

2. Earnings Per Share

Basic and diluted earnings per share is computed using the two-class method, which is an earnings allocation method that determines earnings per share for common shares and participating securities. The restricted stock the Company grants are participating securities containing non-forfeitable rights to receive dividends. Accordingly, any unvested shares of restricted stock is included in the basic and diluted earnings per share computation. Additionally, in accordance with current accounting guidance, the revaluation of redeemable non-controlling interest (see Note 4 Redeemable Non-Controlling Interest), net of tax, charged directly to retained earnings is included in the earnings per basic and diluted share calculation.

The computation of basic and diluted earnings per share are as follows.

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
	(In thousands, except per share data)
Earnings per share
Computation of earnings per share - USPH shareholders:
Net income attributable to USPH shareholders	$	6,628		$	9,254		$	22,180		$	27,583
Charges to retained earnings:
Revaluation of redeemable non-controlling interest		(1,097	)		(2,242	)		(3,158	)		(4,988	)
Tax effect at statutory rate (federal and state)		280			573			807			1,274
	$	5,811		$	7,585		$	19,829		$	23,869

Earnings per share (basic and diluted)	$	0.39		$	0.51		$	1.32		$	1.72

Shares used in computation - basic and diluted		15,077			14,987			15,055			13,918

Table of Contents

3. Acquisitions of Businesses

The Company’s strategy is to continue acquiring outpatient physical therapy practices, to develop outpatient physical therapy clinics as satellites in existing partnerships and to continue acquiring companies that provide and serve the IIP sector. The consideration paid for each acquisition is derived through arm’s length negotiations and funded through working capital, borrowings under the Revolving Facility (as defined in Note 8. Borrowings) or proceeds from the secondary equity offering completed in May 2023.

The purchase price plus the fair value of the non-controlling interest for the acquisitions after September 30, 2023, were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets (i.e. tradenames, referral relationships and non-compete agreements) and liabilities assumed based on the estimated fair values at the acquisition date, with the amount in excess of fair values being recorded as goodwill. The Company is in the process of completing its formal valuation analysis of the above-mentioned acquisitions, to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed. Thus, the final allocation of the purchase price may differ from the preliminary estimates used on September 30, 2024, based on additional information obtained and completion of the valuation of the identifiable intangible assets. Changes in the estimated valuation of the tangible assets acquired, the completion of the valuation of identifiable intangible assets and the completion by the Company of the identification of any unrecorded pre-acquisition contingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustments to goodwill. The Company does not expect the adjustments to be material. The Company continues to evaluate the components for the purchase price allocations for other acquisitions in 2023 and 2024.

The results of operations of the acquisitions below have been included in the Company’s unaudited consolidated financial statements from their respective date of acquisition. Unaudited proforma consolidated financial information for the acquisitions has not been included, as the results, individually and in the aggregate, were not material to current operations.

2024 Acquisitions

		% Interest		Number of
Acquisition	Date	Acquired		Clinics
August 2024 Acquisition	August 31, 2024		70%		8
April 2024 Acquisition	April 30, 2024		**		*
March 2024 Acquisition	March 29, 2024		50%		9

*	IIP business.

**	On April 30, 2024, one of the Company’s primary IIP businesses, Briotix Health Limited Partnership, acquired 100% of an IIP business.

On August 31, 2024, the Company acquired a 70% equity interest in an eight-clinic practice physical therapy and the original practice owners retained a 30% equity interest. The purchase price for the 70% equity interest was approximately $2.0 million. As part of the transaction, the Company agreed to additional contingent consideration if future operational and financial objectives are met. The maximum amount of additional contingent consideration due under this agreement is $3.6 million. The contingent consideration was valued at $3.6 million on August 31, 2024.

On April 30, 2024, the Company acquired 100% of an IIP business through one of its primary IIP businesses, Briotix Health Limited Partnership, for a purchase price of approximately $24.0 million, of which $0.5 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and the interest are payable on May 1, 2025. As part of the transaction, the Company agreed to additional contingent consideration if future operational objectives are met by the business. There is no maximum payout. The contingent consideration was valued at $2.4 million as of September 30, 2024.

On March 29, 2024, the Company acquired a 50% equity interest in a nine-clinic physical therapy and hand therapy practice. The original owners of the practice retained the remaining 50%. The purchase price for the 50% equity interest was approximately $16.4 million, of which $0.5 million was in the form of a note payable. The note accrues interest at 4.5% per annum and the principal and the interest are payable on March 29, 2026. As part of the transaction, the Company agreed to additional contingent consideration if future operational and financial objectives are met. There is no maximum payout. The contingent consideration was valued at $0.5 million on September 30, 2024.

Besides the multi-clinic acquisition referenced above, the Company purchased the assets and business of six physical therapy clinics, which were tucked into larger partnerships in separate transactions.

Table of Contents

The following table provides details on the preliminary purchase price allocation for the acquisitions described above.

	Physical Therapy
	IIP			Operations			Total
	(In thousands)
Cash paid, net of cash acquired	$	23,106		$	18,090		$	41,196
Seller note		455			500			955
Deferred payments		-			-			-
Contingent payments		2,100			4,340			6,440
Total consideration	$	25,661		$	22,930		$	48,591

Estimated fair value of net tangible assets acquired:
Total current assets	$	1,211		$	1,351		$	2,562
Total non-current assets		218			692			910
Total liabilities		(541	)		(622	)		(1,163	)
Net tangible assets acquired		888			1,421			2,309
Customer and referral relationships		6,708			8,663			15,371
Non-compete agreement		261			418			679
Tradenames		1,331			2,133			3,464
Goodwill		16,473			29,613			46,086
Fair value of non-controlling interest (classified as redeemable non-controlling interest)		-			(19,318	)		(19,318	)
	$	25,661		$	22,930		$	48,591

Total current assets primarily represent accounts receivable while total non-current assets consist of fixed assets and equipment used in the practice.

For the acquisitions in the first nine months of 2024, the values assigned to the customer and referral relationships and non-compete agreement are being amortized on a straight-line basis over their respective estimated lives. For customer and referral relationships, the weighted-average amortization period is 12.0 years. For the non-compete agreements, the weighted-average amortization period is 5.0 years. The values assigned to tradenames are tested annually for impairment.

2023 Acquisitions

		% Interest		Number of
Acquisition	Date	Acquired		Clinics
October 2023 Acquisition	October 31, 2023		***		*
September 2023 Acquisition 1	September 29, 2023		70%		4
September 2023 Acquisition 2	September 29, 2023		70%		1
July 2023 Acquisition	July 31, 2023		70%		7
May 2023 Acquisition	May 31, 2023		45%		4
February 2023 Acquisition	February 28, 2023		80%		1

*	IIP business.

***	On October 31, 2023, the Company concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business.

On October 31, 2023, the Company concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business. The previous owner of the ergonomics software business retained a 45% equity interest. The total purchase price of the combined businesses was approximately $4.0 million and was paid in cash.

On September 29, 2023, the Company acquired a 70% equity interest in a four-clinic physical therapy practice. The original owner of the practice retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $6.0 million, of which $5.4 million was paid in cash, and $0.6 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and interest are payable in two installments. The first payment of principal and interest of $0.3 million was paid in January 2024 and the second installment of $0.3 million is due on September 30, 2025.

Table of Contents

In a separate transaction, on September 29, 2023, the Company acquired a 70% equity interest in a single clinic physical therapy practice. The owner of the practice retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $7.8 million, of which $7.4 million was paid in cash and $0.4 million is a deferred payment due on June 30, 2025.

On July 31, 2023, the Company acquired a 70% equity interest in a five-clinic practice. The practice’s owners retained a 30% equity interest. The purchase price for the 70% equity interest was approximately $2.1 million, of which $1.8 million was paid in cash and $0.3 million is a deferred payment due on June 30, 2025.

On May 31, 2023, the Company and a local partner together acquired a 75% interest in a four-clinic physical therapy practice. After the transaction, the Company’s ownership interest is 45%, the Company’s local partner’s ownership interest is 30%, and the practice’s pre-acquisition owners have a 25% ownership interest. The purchase price for the 75% equity interest was approximately $3.1 million, of which $1.7 million was paid in cash by the Company, $1.1 million was paid in cash by the local partner, and $0.3 million was in the form of a note payable. The note was paid in full on July 1, 2024 ($0.2 million was paid by the Company and $0.1 million was paid by the local partner).

On February 28, 2023, the Company acquired an 80% interest in a one-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. 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 on February 28, 2025.

The aggregate purchase price for the 2023 acquisitions has been preliminarily allocated as follows:

	Physical Therapy
	IIP			Operations			Total
	(In thousands)
Cash paid, net of cash acquired	$	3,955		$	22,627		$	26,582
Seller note		-			985			985
Deferred payments		-			830			830
Contingent payments		-			200			200
Total consideration	$	3,955		$	24,642		$	28,597

Estimated fair value of net tangible assets acquired:
Total current assets	$	388		$	1,052		$	1,440
Total non-current assets		335			2,806			3,141
Total liabilities		(41	)		(3,295	)		(3,336	)
Net tangible assets acquired		682			563			1,245
Customer and referral relationships		757			8,242			8,999
Non-compete agreement		37			526			563
Tradenames		187			1,583			1,770
Goodwill		2,566			24,562			27,128
Fair value of non-controlling interest (classified as redeemable non-controlling interest)		(274	)		(10,834	)		(11,108	)
	$	3,955		$	24,642		$	28,597

Besides the multi-clinic acquisitions referenced in the table above, the Company purchased the assets and business of eight physical therapy clinics in separate transactions.

Total current assets primarily represent accounts receivable while total non-current assets consist of fixed assets and equipment used in the practice.

For the acquisitions in 2023, the values assigned to the customer and referral relationships and non-compete agreements are being amortized on a straight-line basis over their respective estimated lives. For customer and referral relationships, the weighted-average amortization period is 12.0 years. For the non-compete agreements, the weighted-average amortization period is 5.1 years. The values assigned to tradenames are tested annually for impairment.

Table of Contents

4. Redeemable Non-Controlling Interest

Physical Therapy Practice Acquisitions

When the Company acquires a majority interest (the “Acquisition”) in a physical therapy clinic (referred to as “Therapy Practice”), these Therapy Practice transactions occur in a series of steps which are described below.

Prior to the Acquisition, the Therapy Practice exists as a separate legal entity (the “Seller Entity”). The Seller Entity is owned by one or more individuals (the “Selling Shareholders”) most of whom are physical therapists that work in the acquired Therapy Practice and provide physical therapy services to patients.

In conjunction with the Acquisition, the Seller Entity contributes the Therapy Practice into a newly-formed limited partnership (“NewCo”), in exchange for one hundred percent (100%) of the limited and general partnership interests in NewCo. Therefore, in this step, NewCo becomes a wholly-owned subsidiary of the Seller Entity.

The Company enters into an agreement (the “Purchase Agreement”) to acquire from the Seller Entity a majority (ranges from 50% to 90%) of the limited partnership interest and in all cases 100% of the general partnership interest in NewCo. The Company does not purchase 100% of the limited partnership interest because the Selling Shareholders, through the Seller Entity, want to maintain an ownership percentage. The consideration for the Acquisition is primarily payable in the form of cash at closing and a two-year note in lieu of an escrow (the “Purchase Price”). The Purchase Agreement does not contain any future earn-out or other contingent consideration that is payable to the Seller Entity or the Selling Shareholders.

The Company and the Seller Entity also execute a partnership agreement (the “Partnership Agreement”) for NewCo that sets forth the rights and obligations of the limited and general partners of NewCo. After the Acquisition, the Company is the general partner of NewCo.

As noted above, the Company does not purchase 100% of the limited partnership interests in NewCo and the Seller Entity retains a portion of the limited partnership interest in NewCo (“Seller Entity Interest”).

In most cases, some or all of the Selling Shareholders enter into an employment agreement (the “Employment Agreement”) with NewCo with an initial term that ranges from three to five years (the “Employment Term”), with automatic one-year renewals, unless employment is terminated prior to the end of the Employment Term. As a result, a Selling Shareholder becomes an employee (“Employed Selling Shareholder”) of NewCo. The employment of an Employed Selling Shareholder can be terminated by the Employed Selling Shareholder or NewCo, with or without cause, at any time. In a few situations, a Selling Shareholder does not become employed by NewCo and is not involved with NewCo following the closing; in those situations, such Selling Shareholders sell their entire ownership interest in the Seller Entity as of the closing of the Acquisition.

The compensation of each Employed Selling Shareholder is specified in the Employment Agreement and is customary and commensurate with his or her responsibilities based on other employees in similar capacities within NewCo, the Company and the industry.

The Company and the Selling Shareholder (including both Employed Selling Shareholders and Selling Shareholders not employed by NewCo) execute a non-compete agreement (the “Non-Compete Agreement”) which restricts the Selling Shareholder from engaging in competing business activities for a specified period of time (the “Non-Compete Term”). A Non-Compete Agreement is executed with the Selling Shareholders in all cases. That is, even if the Selling Shareholder does not become an Employed Selling Shareholder, the Selling Shareholder is restricted from engaging in a competing business during the Non-Compete Term.

Table of Contents

The Non-Compete Term commences as of the date of the Acquisition and expires on the later of :

Two years after the date an Employed Selling Shareholders’ employment is terminated (if the Selling Shareholder becomes an Employed Selling Shareholder) or

Five to six years from the date of the Acquisition, as defined in the Non-Compete Agreement, regardless of whether the Selling Shareholder is employed by NewCo.

10.

The Non-Compete Agreement applies to a restricted region which is a defined mileage radius from the Therapy Practice. That is, an Employed Selling Shareholder is permitted to engage in competing Therapy Practices or activities outside the designated geography (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholder who is not employed by NewCo immediately is permitted to engage in the competing Therapy Practice or activities outside the designated geography.

The Partnership Agreement contains provisions for the redemption of the Seller Entity Interest, either at the option of the Company (the “Call Right”) or at the option of the Seller Entity (the “Put Right”) as follows:

Put Right

In the event that any Selling Shareholder’s employment is terminated under certain circumstances prior to a specified anniversary of the Closing Date, the Seller Entity thereafter may have an irrevocable right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below.

In the event that any Selling Shareholder is not employed by NewCo as of a specified anniversary of the Closing Date and the Company has not exercised its Call Right with respect to the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, Seller Entity thereafter shall have the Put Right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below.

In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after a specified of the Closing Date, the Seller Entity has the Put Right, and upon the exercise of the Put Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.

Call Right

If any Selling Shareholder’s employment by NewCo is terminated prior to a specified anniversary of the Closing Date, the Company thereafter has an irrevocable right to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, in each case at the purchase price described in “3” below.

In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after a specified anniversary of the Closing Date, the Company has the Call Right, and upon the exercise of the Call Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.

For the Put Right and the Call Right, the purchase price is derived from a formula based on a specified multiple of NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of NewCo (the “Redemption Amount”). NewCo’s earnings are distributed monthly based on available cash within NewCo; therefore, the undistributed earnings amount is small, if any.

The Purchase Price for the initial equity interest purchased by the Company, also based on the same specified multiple of the trailing twelve-month earnings that is used in the Put Right and the Call Right noted above.

Table of Contents

The Put Right and the Call Right do not have an expiration date, and the Seller Entity Interest is not required to be purchased by the Company or sold by the Seller Entity unless either the Put Right or the Call Right is exercised.

The Put Right and the Call Right never apply to Selling Shareholders who do not become employed by NewCo, since the Company requires that such Selling Shareholders sell their entire ownership interest in the Seller Entity at the closing of the Acquisition.

ProgressiveHealth Acquisition

On November 30, 2021, the Company acquired a majority interest in ProgressiveHealth Companies, LLC (“Progressive”), which owns a majority interest in certain subsidiaries (“Progressive Subsidiaries”) that operate in the IIP business. The Progressive transaction was completed in a series of steps which are described below.

Prior to the acquisition, the Progressive Subsidiaries were owned by a legal entity (“Progressive Parent”) controlled by its individual owners (the “Progressive Selling Shareholders”), who work in and manage the Progressive business.

In conjunction with the acquisition, the Progressive Selling Shareholders caused the Progressive Parent to transfer its ownership of the Progressive Subsidiaries into a newly-formed limited liability company (“Progressive NewCo”), in exchange for one hundred percent (100%) of the membership interests in Progressive NewCo. Therefore, in this step, Progressive NewCo became wholly-owned by the Progressive Selling Shareholders.

The Company entered into an agreement (the “Progressive Purchase Agreement”) to acquire from the Progressive Selling Shareholders a majority of the membership interest in Progressive NewCo. The consideration for the acquisition is primarily payable in the form of cash at closing, a relatively small portion paid in cash after the closing contingent on certain performance criteria, and a small note in lieu of an escrow (the “Progressive Purchase Price”).

The Company and the Progressive Selling Shareholders also executed an operating agreement (the “Progressive Operating Agreement”) for Progressive NewCo that sets forth the rights and obligations of the members of Progressive NewCo.

As noted above, the Company did not purchase 100% of the membership interests in Progressive NewCo and the Progressive Selling Shareholders retained a portion of the membership interest in Progressive NewCo (“Progressive Selling Shareholders’ Interest”).

The Company and the Progressive Selling Shareholders executed a non-compete agreement (the “Progressive Non-Compete Agreement”) which restricts the Progressive Selling Shareholders from competing for a specified period of time (the “Progressive Non-Compete Term”).

The Progressive Non-Compete Term commences as of the date of the Progressive acquisition and expires on the later of:

Two years after the date a Progressive Selling Shareholder no longer is involved in the management of Progressive NewCo or

Seven years from the date of the acquisition.

The Progressive Non-Compete Agreement applies to the entire United States.

The Progressive Put Right (as defined below) and the Progressive Call Right (as defined below) do not have an expiration date. The Progressive Operating Agreement contains provisions for the redemption of the Progressive Selling Shareholder’s Interest, either at the option of the Company (the “Progressive Call Right”) or at the option of the Progressive Selling Shareholder (the “Progressive Put Right”) as follows:

Table of Contents

Progressive Put Right

Each of the Progressive Selling Shareholders has the right to sell 30% of their respective residual interests on each of the 4th and 5th anniversaries of the acquisition closing, and then 10% on each of the 6th and 7th anniversaries.

In the event that any Progressive Selling Shareholder terminates his management relationship with Progressive NewCo for any reason on or after the seventh anniversary of the Closing Date, the Progressive Selling Shareholder has the Progressive Put Right, and upon the exercise of the Progressive Put Right, the Progressive Selling Shareholder’s Interest shall be redeemed by the Company at the purchase price described in “3” below.

Progressive Call Rights

If any Progressive Selling Shareholder’s ceases to perform management services on behalf of Progressive NewCo, the Company thereafter shall have an irrevocable right to purchase from such Progressive Selling Shareholder his Interest, in each case at the purchase price described in “3” below.

For the Progressive Put Right and the Progressive Call Right, the purchase price is derived from a formula based on a specified multiple of Progressive NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of Progressive NewCo. Progressive NewCo’s earnings are distributed monthly based on available cash within Progressive NewCo; therefore, the undistributed earnings amount is small, if any.

The Progressive Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple of the trailing twelve-month earnings that is used in the Progressive Put Right and the Progressive Call Right noted above.

The Progressive Put Right and the Progressive Call Right do not have an expiration date.

Neither the Progressive Operating Agreement nor the Progressive Non-Compete Agreement contain any provision to escrow or “claw back” the equity interest in Progressive NewCo held by the Progressive Selling Shareholders, in the event of a breach of the operating agreement or non-compete terms, or the management services agreement pursuant to which the Progressive Selling Shareholders perform services on behalf of Progressive NewCo. The Company’s only recourse against the Progressive Selling Shareholder for breach of any of these agreements is to seek damages and other legal remedies under such agreements. There are no conditions in any of the arrangements with a Progressive Selling Shareholder that would result in a forfeiture of the equity interest in Progressive NewCo held by a Progressive Selling Shareholder.

For both scenarios described above, an Employed Selling Shareholder’s ownership of his or her equity interest in the Seller Entity predates the Acquisition and the Company’s purchase of its partnership interest in NewCo. The Employment Agreement and the Non-Compete Agreement do not contain any provision to escrow or “claw back” the equity interest in the Seller Entity held by such Employed Selling Shareholder, nor the Seller Entity Interest in NewCo, in the event of a breach of the employment or non-compete terms. More specifically, even if the Employed Selling Shareholder is terminated for “cause” by NewCo, such Employed Selling Shareholder does not forfeit his or her right to his or her full equity interest in the Seller Entity and the Seller Entity does not forfeit its right to any portion of the Seller Entity Interest. The Company’s only recourse against the Employed Selling Shareholder for breach of either the Employment Agreement or the Non-Compete Agreement is to seek damages and other legal remedies under such agreements. There are no conditions in any of the arrangements with an Employed Selling Shareholder that would result in a forfeiture of the equity interest held in the Seller Entity or of the Seller Entity Interest.

Table of Contents

Carrying Amounts of Redeemable Non-Controlling Interests

The following table details the changes in the carrying amount (fair value) of the Company’s redeemable non-controlling interests:

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
	(In thousands)
Beginning balance	$	184,354		$	165,513		$	174,828		$	167,515
Net income allocated to redeemable non-controlling interest partners		1,998			1,976			7,539			7,616
Distributions to redeemable non-controlling interest partners		(2,140	)		(2,405	)		(8,107	)		(8,742	)
Changes in the fair value of redeemable non-controlling interest		1,097			2,242			3,158			4,988
Purchases of redeemable non-controlling interest		(1,323	)		-			(7,650	)		(8,821	)
Acquired interest		2,417			6,465			19,318			10,358
Sales of redeemable non-controlling interest		1,832			954			2,304			3,879
Changes in notes receivable related to redeemable non-controlling interest		(1,266	)		(48	)		(1,388	)		(2,096	)
Reduction due to separation agreement		-			-			(3,033	)		-
Other		(367	)		-			(367	)		-
Ending balance	$	186,602		$	174,697		$	186,602		$	174,697

The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interests:

	As of
	September 30, 2024		September 30, 2023
	(In thousands)
Contractual time period has lapsed but holder’s employment has not terminated	$	74,702	$	75,026
Contractual time period has not lapsed and holder’s employment has not terminated		111,900		99,671
Holder’s employment has terminated and contractual time period has expired		-		-
Holder’s employment has terminated and contractual time period has not expired		-		-
	$	186,602	$	174,697

5. Goodwill

The changes in the carrying amount of goodwill consisted of the following:

	For the Nine Months Ended			For the Year Ended
	September 30, 2024			December 31, 2023
	(In thousands)
Beginning balance	$	509,571		$	494,101
Acquisitions		46,086			28,083
Adjustments for purchase price allocation of businesses acquired in prior year		(982	)		3,187
Impairment of goodwill		(33	)		(15,800	)
Ending balance	$	554,642		$	509,571

For the three and nine months ended September 30, 2024, the Company recorded goodwill impairment of $0.1 million related to a closed clinic. During the year ended December 31, 2023, the Company recorded goodwill impairment of $15.8 million related to a reporting unit in the Company’s IIP business.

Table of Contents

6. Intangible Assets, Net

The Company’s intangible assets, net, consisted of the following:

	As of September 30, 2024							As of December 31, 2023
	Gross Amount		Accumulated Amortization			Net Carrying Amount		Gross Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Customer and referral relationships	$	110,452	$	(36,275	)	$	74,177	$	93,658	$	(30,414	)	$	63,244
Tradenames		47,940		-			47,940		44,573		-			44,573
Non-compete agreements		10,335		(8,143	)		2,192		9,459		(7,594	)		1,865
	$	168,727	$	(44,418	)	$	124,309	$	147,690	$	(38,008	)	$	109,682

Tradenames, customer and referral relationships and non-compete agreements are related to the businesses acquired. The value assigned to tradenames has an indefinite life and is tested at least annually for impairment using the relief from royalty method in conjunction with the Company’s annual goodwill impairment test. The value assigned to customer and referral relationships is being amortized over their respective estimated useful lives which range from 7.0 to 15.0 years. Non-compete agreements are amortized over the respective term of the agreements which range from 5.0 to 6.0 years. For the nine months ended September 30, 2024, the weighted average amortization period for customer and referral relationships was 12.7 years and the weighted average amortization period for non-compete agreements was 5.5 years. During the year ended December 31, 2023, the Company recognized a charge of $1.7 million related to the impairment of a tradename related to an IIP acquisition.

The following table details the amount of amortization expense recorded for intangible assets for the periods presented:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	(In thousands)
Customer and referral relationships	$	1,977	$	1,669	$	5,861	$	4,972
Non-compete agreements		183		148		537		450
	$	2,160	$	1,817	$	6,398	$	5,422

Based on the balance of referral relationships and non-compete agreements as of September 30, 2024, the expected amount to be amortized in 2024 and thereafter by year is as follows:

For the Year Ending December 31,	Customer and Referral Relationships		Non-Compete Agreements
	(In thousands)
2024 (excluding the nine months ended September 30, 2024)	$	2,039	$	185
2025		8,136		697
2026		7,670		557
2027		7,506		396
2028		7,237		267
Thereafter		41,589		90
Total	$	74,177	$	2,192

Table of Contents

7. Accrued Expenses

Accrued expenses consisted of the following:

	As of
	September 30, 2024		December 31, 2023
	(In thousands)
Salaries and related costs	$	21,962	$	25,641
Contingency payable		17,140		12,285
Credit balances due to patients and payors		6,816		8,847
Federal income taxes payable		5,678		1,006
Group health insurance claims		2,529		2,301
Closure costs		3,790		231
Other taxes		501		355
Interest payable		249		235
Other		5,841		4,443
Total	$	64,506	$	55,344

8. Borrowings

Amounts outstanding under the Company’s Senior Credit Facilities (as defined below) and notes payable consisted of the following:

	As of September 30, 2024							As of December 31, 2023
	Principal Amount		Unamortized discount and debt issuance cost			Net Debt		Principal Amount		Unamortized discount and debt issuance cost			Net Debt
	(In thousands)
Term Facility	$	140,625	$	(1,163	)	$	139,462	$	144,375	$	(1,468	)	$	142,907
Revolving Facility		-		-			-		-		-			-
Other		3,059		-			3,059		3,775		-			3,775
Total debt		143,684		(1,163	)		142,521		148,150		(1,468	)		146,682
Less: Current portion of long-term debt (1)		10,025		(420	)		9,605		8,111		(420	)		7,691
Long-term debt, net of current portion	$	133,659	$	(743	)	$	132,916	$	140,039	$	(1,048	)	$	138,991

(1)	The long-term portion is included as part of Other Long-Term Liabilities in the unaudited Consolidated Balance Sheet.

Effective December 5, 2013, the Company entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended and/or restated in August 2015, January 2016, March 2017, November 2017, and January 2021. On June 17, 2022, the Company entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”) among Bank of America, N.A., as administrative agent (“Administrative Agent”) and the lenders from time-to-time party thereto.

The Credit Agreement, which matures on June 17, 2027, provides for loans in an aggregate principal amount of $325 million. Such loans were made available through the following facilities (collectively, the “Senior Credit Facilities”):

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”).

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 shall be used by the Company 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 the Company to refinance the indebtedness outstanding under the Amended Credit Agreement, to pay fees and expenses incurred in connection with the transactions involving the loan facilities, for working capital and other general corporate purposes of the Company and its subsidiaries.

Table of Contents

The Company is 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 Credit Agreement) plus an applicable margin or, at the option of the Company, an alternate base rate plus an applicable margin. Each Swingline Loan shall bear interest at the base rate plus the applicable margin. The applicable margin for Term SOFR borrowings ranges from 1.50% to 2.25%, and the applicable margin for alternate base rate borrowings ranges from 0.50% to 1.25%, in each case, based on the Consolidated Leverage Ratio of the Company and its subsidiaries. Interest is payable at the end of the selected interest period but no less frequently than quarterly and on the date of maturity.

The Company is also required to 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”). Such unused fee will range between 0.25% and 0.35% per annum and is also based on the Consolidated Leverage Ratio of the Company and its subsidiaries. The Company 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.

The Company’s obligations under the Credit Agreement are guaranteed by its wholly owned material domestic subsidiaries (each, a “Guarantor”), and the obligations of the Company and any Guarantors are secured by a perfected first priority security interest in substantially all of the existing and future personal property of the Company and each Guarantor, subject to certain exceptions.

As of September 30, 2024, $140.6 million was outstanding on the Term Facility while none was outstanding under the Revolving Facility resulting in $175.0 million of credit availability. As of September 30, 2024, the Company was in compliance with all of the covenants contained in the Credit Agreement.

The interest rate on the Company’s Senior Credit Facilities was 4.7% for the three months ended September 30, 2024, and 5.6% for the three months ended September 30, 2023, with an all-in effective interest rate, including all associated costs, of 5.4% and 5.2% over the same periods, respectively. The all-in effective interest rate on the Company’s Senior Credit Facilities for the nine months ended September 30, 2024, was 5.4% and 5.7% for the nine months ended September 30, 2023.

The Company generally enters into various notes payable as a means of financing acquisitions. At September 30, 2024, the Company’s remaining outstanding balance on these notes amounted to $3.1 million, of which $0.8 million is due by December 31, 2024, $1.8 million is due in 2025 and $0.5 million is due in 2026. 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 4.0% to 8.5% per annum.

9. Derivative Instruments

The Company is exposed to certain market risks in the ordinary course of business due to adverse changes in interest rates. The exposure to interest rate risk primarily results from the Company’s variable-rate borrowing. The Company may elect to use derivative financial instruments to manage risks from fluctuations in interest rates. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in interest rates can be volatile and the Company’s risk management activities do not eliminate these risks.

Table of Contents

Interest Rate Swap

In May 2022, the Company entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A, which had a $150 million notional value, and a maturity date of June 30, 2027. Beginning in July 2022, the Company receives 1-month SOFR, and pays a fixed rate of interest of 2.815% on 1-month SOFR on a quarterly basis. The total interest rate in any period will also include an applicable margin based on the Company’s consolidated leverage ratio. In connection with the swap, no cash was exchanged between the Company and the counterparty.

The Company designated its 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.

The impact of the Company’s derivative instruments on the accompanying Consolidated Statements of Comprehensive Income are presented in the table below.

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
	(In thousands)
Net income	$	9,777		$	12,222		$	33,106		$	38,513
Other comprehensive (loss) gain:
Unrealized (loss) gain on cash flow hedge		(3,687	)		1,276			(1,937	)		2,340
Tax effect at statutory rate (federal and state)		942			(326	)		495			(598	)
Comprehensive income		7,032			13,172			31,664			40,255

Comprehensive income attributable to non-controlling interest		(3,149	)		(2,968	)		(10,926	)		(10,930	)
Comprehensive income attributable to USPH shareholders	$	3,883		$	10,204		$	20,738		$	29,325

The valuations of the Company’s interest rate derivatives are measured as the present value of all expected future cash flows based on SOFR-based yield curves. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparty which is a Level 2 fair value measurement.

The carrying and fair value of the Company’s interest rate derivatives (included in other current assets and other assets) were as follows.

	As of
	September 30, 2024		September 30, 2023
	(In thousands)
Other current assets	$	1,373	$	3,561
Other assets		425		4,156
	$	1,798	$	7,717

10. Leases

The Company has operating leases for its corporate offices and operating facilities. The Company determines if an arrangement is a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent net present value of the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at commencement date based on the net present value of the fixed lease payments over the lease term. The Company’s operating lease terms are generally five years or less. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating fixed lease expense is recognized on a straight-line basis over the lease term. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage are not included in the right-of-use assets or operating lease liabilities. These are expensed as incurred and recorded as variable lease expense.

Table of Contents

The components of lease expense were as follows.

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	(In thousands)
Operating lease cost	$	10,362	$	9,725	$	30,578	$	28,500
Short-term lease cost		323		292		851		851
Variable lease cost		2,431		2,281		7,363		6,785
Total lease cost *	$	13,116	$	12,298	$	38,792	$	36,136

*Sublease income was immaterial

Lease costs are reflected in the consolidated statement of net income in the line item – rent, supplies, contract labor and other.

The supplemental cash flow information related to leases was as follows.

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	(In thousands)

Cash paid for amounts included in the measurement of operating lease liabilities	$	10,637	$	10,007	$	31,539	$	29,418

Right-of-use assets obtained in exchange for new operating lease liabilities	$	9,945	$	10,188	$	30,573	$	26,407

The aggregate future lease payments for operating leases as of September 30, 2024, were as follows.

	Amount
Fiscal Year	(In thousands)
2024 (excluding the nine months ended September 30, 2024)	$	10,300
2025		37,362
2026		29,502
2027		21,209
2028 and thereafter		23,602
Total lease payments	$	121,975
Less: imputed interest		10,146
Total operating lease liabilities	$	111,829

Average lease terms and discount rates were as follows.

11. Segment Information

The Company’s reportable segments include the physical therapy operations segment and the IIP segment. Also included in the physical therapy operations segment are revenues from management contract services and other services, which include services the Company provides on-site, such as athletic trainers for schools.

Table of Contents

Physical Therapy Operations

The physical therapy operations segment primarily operates through subsidiary clinic partnerships (“Clinic Partnerships”), in which the Company generally owns a 1% general partnership interest in all the Clinic Partnerships. The Company’s limited partnership interests generally range from 65% to 75% (the range is 10% - 99%) in the Clinic Partnerships. The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of the clinics (hereinafter referred to as “Clinic Partnerships”). To a lesser extent, the Company operates some clinics, through wholly-owned subsidiaries, under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”).

The Company continues to seek to attract for employment physical therapists who have established relationships with physicians and other referral sources, by offering these therapists a competitive salary and incentives based on the profitability of the clinic that they manage. For multi-site clinic practices in which a controlling interest is acquired by the Company, the prior owners typically continue on as employees to manage the clinic operations, retain a non-controlling ownership interest in the clinics and receive a competitive salary for managing the clinic operations. In addition, the Company has developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location.

Clinic Partnerships

For non-acquired Clinic Partnerships, the earnings and liabilities attributable to the non-controlling interests, typically owned by the managing therapist, directly or indirectly, are recorded within the balance sheets and income statements as non-controlling interest—permanent equity. For acquired Clinic Partnerships with redeemable non-controlling interests, the earnings attributable to the redeemable non-controlling interests are recorded within the consolidated balance sheets and income statements as redeemable non-controlling interest—temporary equity.

Wholly-Owned Facilities

For Wholly-Owned Facilities with profit sharing arrangements, an appropriate accrual is recorded for the amount of profit sharing due to the clinic partners/directors. The amount is expensed as compensation and included in clinic operating costs—salaries and related costs. The respective liability is included in current liabilities—accrued expenses on the consolidated balance sheets.

Industrial Injury Prevention Services

Services provided in the IIP segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. The Company performs these services through Industrial Sports Medicine Professionals, consisting primarily of specialized certified athletic trainers.

Segment Financials

The Company evaluates performance of the segments based on gross profit. The Company has provided additional information regarding its reportable segments which contributes to the understanding of the Company and provides useful information.

Table of Contents

The following table summarizes selected financial data for the Company’s reportable segments:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	(In thousands)				(In thousands)
Net revenue:
Physical therapy operations	$	142,714	$	130,521	$	420,625	$	391,919
Industrial injury prevention services		25,319		19,486		70,273		58,082
Total Company	$	168,033	$	150,007	$	490,898	$	450,001

Operating Costs:
Salaries and related costs:
Physical therapy operations	$	84,161	$	76,969	$	245,387	$	225,251
Industrial injury prevention services		15,674		12,877		44,513		37,506
Total salaries and related costs	$	99,835	$	89,846	$	289,900	$	262,757
Rent supplies, contract labor and other:
Physical therapy operations	$	29,893	$	28,493	$	89,709	$	83,093
Industrial injury prevention services		4,021		2,185		10,721		8,397
Total rent, supplies, contract labor and other	$	33,914	$	30,678	$	100,430	$	91,490
Provision for credit losses:
Physical therapy operations	$	1,721	$	1,525	$	5,065	$	4,600
Industrial injury prevention services		-		-		-		-
Total provision for credit losses	$	1,721	$	1,525	$	5,065	$	4,600
Clinic closure costs:
Physical therapy operations	$	3,432	$	29	$	4,109	$	161
Industrial injury prevention services		-		-		-		-
Total closure costs	$	3,432	$	29	$	4,109	$	161
Total Company	$	138,902	$	122,078	$	399,504	$	359,008

Gross profit:
Physical therapy operations	$	23,507	$	23,505	$	76,355	$	78,815
Industrial injury prevention services		5,624		4,424		15,039		12,178
Total Company	$	29,131	$	27,929	$	91,394	$	90,993

	As of
	September 30, 2024		September 30, 2023
Total Assets:
Physical therapy operations	$	856,992	$	846,020
Industrial injury prevention services		172,199		151,218
Total Company	$	1,029,191	$	997,238

12. Investment in Unconsolidated Affiliate

Through one of its subsidiaries, the Company has a 49% joint venture interest in a company which provides physical therapy services for patients at hospitals. Since the Company is deemed to not have a controlling interest in the company, the Company’s investment is accounted for using the equity method of accounting. The investment balance of this joint venture as of September 30, 2024, is $12.2 million and the earnings amounted to approximately $0.2 million and $0.8 million for the three and nine months ended September 30, 2024, respectively. Earnings in the comparable prior periods were $0.2 million and $0.8 million for the three and nine months ended September 30, 2023, respectively.

13. Subsequent Events

The Company’s Board of Directors declared a quarterly dividend of $0.44 per share payable on December 6, 2024, to shareholders of record on November 15, 2024.

On October 31, 2024, the Company completed the acquisition of a 50% interest in MSO Metro, LLC (“Metro”) pursuant to the Equity Interest Purchase Agreement (the “Purchase Agreement”) dated October 7, 2024 among U.S. Physical Therapy, Ltd. (a subsidiary of the Company), Metro, the members of Metro, and Michael G. Mayrsohn, as Sellers’ Representative. The Company also became the managing member of Metro.

At the closing, the Company paid the purchase price of approximately $76.5 million, $75 million of which was funded by its cash on hand and the remaining $1.5 million through the issuance of 18,358 shares of the Company’s common stock based on a trailing five-day average as of the day immediately prior to closing. The shares of the Company’s common stock were issued in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act. The Purchase Agreement also includes an earnout where the sellers can earn up to another $20.0 million of consideration if certain performance criteria relating to the Metro business are achieved.

Table of Contents

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of U.S. Physical Therapy, Inc. and its subsidiaries (herein referred to as “we,” “us,” “our” or the “Company”) 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; and (ii) our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on February 29, 2024 (“2023 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:

•	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 future public health crises and epidemics/pandemics, such as was the case with the novel strain of COVID-19 and its variants;

•	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 future vaccinations 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;

•	contingent consideration provisions in certain our acquisition agreements, 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 U.S. or international 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;

•	our business depends on hiring, training, and retaining qualified employees;

•	availability and cost of qualified physical therapists;

Table of Contents

•	competitive environment in the IIP business, which could result in the termination or non-renewal of contractual service arrangements and other adverse financial consequences for that service line;

•	our ability to identify and complete 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 and preserve data privacy;

•

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, or may interfere with our ability to file and process claims for payment which could interfere with our collection of revenues from third party payors;

•	maintaining clients for which we perform management, IIP 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;

•	enforcing our noncompetition covenants with employed therapists;

•	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 the Securities 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.

Table of Contents

EXECUTIVE SUMMARY

We operate our business through our reportable segments which include (1) the physical therapy operations segment and (2) the industrial injury prevention services (“IIP”) segment. Our physical therapy operations consist of physical therapy and occupational therapy clinics that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders, and sports-related injuries, and rehabilitation of injured workers. Services provided by the IIP segment include onsite services for clients’ employees including injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. These services are performed through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers.

During the nine months ended September 30, 2024, and for the year ended December 31, 2023, we completed the acquisitions of clinic practices and IIP businesses detailed below:

Acquisition	Date	% Interest Acquired			Number of Clinics
August 2024 Acquisition	August 31, 2024		70	%		8
April 2024 Acquisition	April 30, 2024		**			*
March 2024 Acquisition	March 29, 2024		50	%		9
October 2023 Acquisition	October 31, 2023		***			*
September 2023 Acquisition 1	September 29, 2023		70	%		4
September 2023 Acquisition 2	September 29, 2023		70	%		1
July 2023 Acquisition	July 31, 2023		70	%		7
May 2023 Acquisition	May 31, 2023		45	%		4
February 2023 Acquisition	February 28, 2023		80	%		1

* IIP business.

** On April 30, 2024, one of our IIP businesses, Briotix Health Limited Partnership, acquired 100% of an IIP business.

*** On October 31, 2023, we concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business.

The following table provides a roll forward of our clinic count for the periods presented.

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
Number of clinics, beginning of period		681			656			671			640
Additions (1)		12			19			33			40
Closed or sold		(32	)		(3	)		(43	)		(8	)
Number of clinics, end of period		661			672			661			672

(1)

Includes clinics added through acquisitions.

We also manage clinics owned by third parties through management contracts. In addition to the clinic count shown above, as of September 30, 2024, we managed 39 clinics bringing the total owned/managed clinics to 700.

Our strategy is to continue acquiring outpatient physical therapy practices, develop outpatient physical therapy clinics as satellites in existing partnerships, and continue acquiring companies that provide or serve our IIP sector.

Our Board of Directors declared a quarterly dividend of $0.44 per share payable on December 6, 2024, to shareholders of record on November 15, 2024.

On October 31, 2024, we completed the acquisition of a 50% interest in MSO Metro, LLC (“Metro”) pursuant to the Equity Interest Purchase Agreement (the “Purchase Agreement”) dated October 7, 2024 among U.S. Physical Therapy, Ltd. (a subsidiary of the Company), Metro, the members of Metro, and Michael G. Mayrsohn, as Sellers' Representative. We also became the managing member of Metro.

At the closing, we paid the purchase price of approximately $76.5 million, $75 million of which was funded by its cash on hand and the remaining $1.5 million through the issuance of 18,358 shares of our common stock based on a trailing five-day average as of the day immediately prior to closing. The shares of our common stock were issued in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act. The Purchase Agreement also includes an earnout where the sellers can earn up to another $20.0 million of consideration if certain performance criteria relating to the Metro business are achieved.

Table of Contents

Regulatory Changes

The following is a discussion of some of the significant healthcare regulatory changes that have affected our financial performance in the periods covered by this report or are likely to affect our financial performance and financial condition in the future. The information below should be read in conjunction with the more detailed discussion of regulations contained in our 2023 Annual Report.

Medicare Reimbursement

The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”). Outpatient rehabilitation providers may enroll in Medicare as institutional outpatient rehabilitation facilities (i.e., rehab agencies) or individual physical or occupational therapists in private practice. The majority of our clinicians are enrolled as individual physical or occupational therapists in private practice while the remaining balance of providers are reimbursed through enrolled rehab agencies.

For calendar years 2021, 2022 and 2023, Centers for Medicare and Medicaid Services (“CMS”) expected decreases in Medicare reimbursement were partially offset by one-time increases in payments as a result of other legislation passed by Congress, resulting in decreases of approximately 3.5%, 0.75% and 2.0% in each of these years, respectively. For January 1 through March 8 of 2024, CMS’s final rule resulted in an approximate 3.5% decrease in Medicare payments for the therapy specialty. However, effective as of March 9, 2024, pursuant to the Consolidated Appropriations Act, 2024, Congress minimized the reduction in Medicare payments for therapy services for the balance of 2024, resulting in an approximate 1.8% reduction in Medicare payments for therapy services (rather than the 3.5% decrease). The MPFS proposed by CMS for 2025, if enacted, is expected to decrease Medicare reimbursement for therapy services by approximately 2.8% as compared to the reimbursement rates in effect for most of 2024.

In the final 2020 MPFS rule, CMS clarified that when the physical therapist is involved for the entire duration of the service and the physical therapist assistant (“PTA”) provides skilled therapy alongside the physical therapist, an identification of the PTA’s participation (as denoted by a “CQ modifier”) is not required. Also, when the same service (code) is furnished separately by the physical therapist and PTA, CMS applies the de minimis standard to each 15-minute unit of codes, not on the total physical therapist and PTA time of the service. For dates of service on and after January 1, 2022, CMS pays for physical therapy and occupational therapy services provided by PTAs and occupational therapist assistants (“OTAs”) at 85% of the otherwise applicable Part B payment amount. CMS allows a timed service to be billed without a CQ (for PTA’s) or CO (for OTA’s) modifier when a PTA or OTA participates in providing care, but the physical therapist or occupational therapist meets the Medicare billing requirements without including the PTA’s or OTA’s minutes. This occurs when the physical therapist or occupational therapist provides more minutes than the 15-minute midpoint. The proposed 2025 MPFS final rule does not contain any policy changes concerning the modifiers for services provided by physical therapy and occupational therapist assistants.

RESULTS OF OPERATIONS

The defined terms, with their respective descriptions, used in the following discussions are listed below.

•	Mature clinics are clinics opened or acquired prior to January 1, 2023, and are still operating as of September 30, 2024.

•	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 daily visits 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.

•	2024 Third Quarter refers to the three months ended September 30, 2024.

•	2023 Third Quarter refers to the three months ended September 30, 2023.

•	2024 Nine Months refers to the nine months ended September 30, 2024.

•	2023 Nine Months refers to the nine months ended September 30, 2023.

USPH Net Income was $6.6 million for the 2024 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 is charged directly to retained earnings; however, this change is included in the computation of earnings per share.

Table of Contents

Earnings per share for the 2024 Third Quarter was $0.39. USPH Net Income and earnings per share included a charge of $2.5 million, net of $1.0 million tax, or $0.16 per share, associated with the closure of 32 clinics during the 2024 Third Quarter. Excluding the clinic closure costs, USPH Net Income was $9.1 million ⁽¹⁾ compared to $9.3 million ⁽¹⁾ in the comparable prior year period while earnings per share was $0.55 ⁽¹⁾ and $0.51 ⁽¹⁾ over the same periods, respectively.

USPH Net Income was $22.2 million for the 2024 Nine Months as compared to $27.6 million for the 2023 Nine Months while earnings per share was $1.32 for the 2024 Nine Months compared to $1.72 for the 2023 Nine Months. USPH Net Income and earnings per share included a charge of $2.9 million, net of $1.2 million tax, or $0.20 per share, associated with the closure of 43 clinics during the 2024 Nine Months. Excluding the clinic closure costs, USPH Net Income was $25.1 million ⁽¹⁾compared to $27.7 million ⁽¹⁾ in the comparable period while earnings per share was $1.52 ⁽¹⁾ and $1.73 ⁽¹⁾over the same periods, respectively.

The following table provides a calculation of earnings per share.

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
	(In thousands, except per share data)
Earnings per share
Computation of earnings per share - USPH shareholders:
Net income attributable to USPH shareholders	$	6,628		$	9,254		$	22,180		$	27,583
Charges to retained earnings:
Revaluation of redeemable non-controlling interest		(1,097	)		(2,242	)		(3,158	)		(4,988	)
Tax effect at statutory rate (federal and state)		280			573			807			1,274
	$	5,811		$	7,585		$	19,829		$	23,869

Earnings per share (basic and diluted)	$	0.39		$	0.51		$	1.32		$	1.72

Shares used in computation - basic and diluted		15,077			14,987			15,055			13,918

(1)	These are non-GAAP Measures. See below for the reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

Non-GAAP Measures

Adjusted EBITDA a non-GAAP measure, is defined as net income attributable to our shareholders before interest income, interest expense, taxes, depreciation, amortization, change in fair value of contingent earn-out consideration, payments received from the federal government under the Corona virus Aid, Relief and Economic Security Act (“Relief Funds”), changes in revaluation of put-right liability, equity-based awards compensation expense, clinic closure costs, business acquisition related costs and other income and related portions for non-controlling interests.

Operating Results, a non-GAAP measure, equals net income attributable to our shareholders less, changes in revaluation of a put-right liability, Relief Funds, clinic closure costs, changes in fair value of contingent earn-out consideration, business acquisition related costs and any allocations to non-controlling interests, all net of taxes. Operating Results per share also excludes the impact of the revaluation of redeemable non-controlling interest and the associated tax impact.

The following tables provide details of the basic and diluted earnings per share computation and reconcile net income attributable to our shareholders calculated in accordance with GAAP to Adjusted EBITDA, Operating Results and other non-GAAP measures. Management believes providing Adjusted EBITDA and Operating Results to investors is useful information for comparing our 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. Management uses Adjusted EBITDA, Operating Results, and other non-GAAP measures, which eliminate certain items described above that can be subject to volatility and unusual costs, as the principal measures to evaluate and monitor financial performance period over period.

Table of Contents

Adjusted EBITDA, Operating Results and the other non-GAAP measures presented 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.

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
	(In thousands, except per share data)
Adjusted EBITDA (a non-GAAP measure)
Net income attributable to USPH shareholders	$	6,628		$	9,254		$	22,180		$	27,583
Adjustments:
Provision for income taxes		2,559			3,557			8,781			10,757
Depreciation and amortization		4,387			3,966			12,996			11,582
Interest expense, debt and other, net		2,018			2,101			5,966			7,293
Equity-based awards compensation expense		1,921			1,859			5,837			5,451
Interest income from investments		(1,018	)		(1,673	)		(3,635	)		(2,191	)
Change in revaluation of put-right liability		(168	)		(187	)		136			(197	)
Change in fair value of contingent earn-out consideration		1,899			145			5,332			344
Relief Funds		-			-			-			(467	)
Clinic closure costs (1)		3,432			29			4,109			161
Business acquisition related costs (2)		314			-			314			-
Other income		(90	)		(78	)		(261	)		(305	)
Allocation to non-controlling interests		(811	)		(361	)		(1,789	)		(1,138	)
	$	21,071		$	18,612		$	59,966		$	58,873

Operating Results (a non-GAAP measure)
Net income attributable to USPH shareholders	$	6,628		$	9,254		$	22,180		$	27,583
Adjustments:
Change in fair value of contingent earn-out consideration		1,899			145			5,332			344
Change in revaluation of put-right liability		(168	)		(187	)		136			(197	)
Clinic closure costs (1)		3,432			29			4,109			161
Business acquisition related costs (2)		314			-			314			-
Relief Funds		-			-						(467	)
Allocation to non-controlling interests		(429	)		(3	)		(513	)		(19	)
Tax effect at statutory rate (federal and state)		(1,290	)		4			(2,396	)		46
	$	10,386		$	9,242		$	29,162		$	27,451

Operating Results per share (a non-GAAP measure)	$	0.69		$	0.62		$	1.94		$	1.97

(1) Costs associated with the closure of 32 clinics during the 2024 Third Quarter and 43 clinics during the 2024 Nine Months. Closure costs in the 2023 Third Quarter and 2023 Nine Months were not material.

(2) Primarily consists of legal and consulting expenses related to the acquisition of 50% equity interest in a management services organization that provides management and administrative services to 50 physical therapy clinics.

Table of Contents

A reconciliation of additional non-GAAP measures to the most comparable GAAP measures are presented in the tables below.

	For the Three Months Ended
	September 30, 2024									September 30, 2023
	As Reported (GAAP)			Closure Costs (1)			As Adjusted (Non-GAAP)			As Reported (GAAP)			Closure Costs (1)			As Adjusted (Non-GAAP)
	(in thousands, except per share data, and percentages)
Operating costs	$	138,902		$	(3,432	)	$	135,470		$	122,078		$	(29	)	$	122,049
Gross profit		29,131			3,432			32,563			27,929			29			27,958
Gross margin		17.3	%		*			19.4	%		18.6	%		*			18.6	%
Operating income		14,746			3,432			18,178			15,881			29			15,910
Provision for taxes		2,559			(958	)		1,601			3,557			(8	)		3,549
USPH Net Income		6,628			2,474			9,102			9,254			21			9,275
Earnings per share	$	0.39			0.16		$	0.55		$	0.51			-		$	0.51

Segment information - Physical Therapy Operations
Operating costs	$	119,207			(3,432	)		115,775		$	107,016			(29	)		106,987
Gross profit		23,507			3,432			26,939			23,505			29			23,534
Gross margin		16.5	%		*			18.9	%		18.0	%		*			18.0	%

	For the Nine Months Ended
	September 30, 2024									September 30, 2023
	As Reported (GAAP)			Closure Costs (1)			As Adjusted (Non-GAAP)			As Reported (GAAP)			Closure Costs (1)			As Adjusted (Non-GAAP)
	(in thousands, except per share data, and percentages)
Operating costs	$	399,504		$	(4,109	)	$	395,395		$	359,008		$	(161	)	$	358,847
Gross profit		91,394			4,109			95,503			90,993			161			91,154
Gross margin		18.6	%		*			19.5	%		20.2	%		*			20.3	%
Operating income		48,675			4,109			52,784			52,941			161			53,102
Provision for taxes		8,781			(1,167	)		7,614			10,757			(45	)		10,712
USPH Net Income		22,180			2,942			25,122			27,583			116			27,699
Earnings per share	$	1.32			0.20		$	1.52		$	1.72			0.01		$	1.73

Segment information - Physical Therapy Operations
Operating costs	$	344,270			(4,109	)		340,161		$	313,104			(161	)		312,943
Gross profit		76,355			4,109			80,464			78,815			161			78,976
Gross margin		18.2	%		*			19.1	%		20.1	%		*			20.2	%

(1) Costs associated with the closure of 32 and 43 clinics during the 2024 Third Quarter and 2024 Nine Months, respectively. Closure costs for the comparable prior year periods were not material. We believe that presenting this information will allow investors to evaluate the performance of the Company's business more objectively.

* Not meaningful

Table of Contents

2024 Third Quarter versus 2023 Third Quarter

	For the Three Months Ended										Variance
	September 30, 2024					September 30, 2023					$			%
	(In thousands, except percentages)

Net patient revenue	$	139,146		82.8	%	$	127,243		84.8	%	$	11,903			9.4	%
Other revenue		28,887		17.2	%		22,764		15.2	%		6,123			26.9	%
Net revenue		168,033		100.0	%		150,007		100.0	%		18,026			12.0	%

Operating Cost:
Salaries and related costs		99,835		59.4	%		89,846		59.9	%		9,989			11.1	%
Rent, supplies, contract labor and other		33,914		20.2	%		30,678		20.5	%		3,236			10.5	%
Provision for credit losses		1,721		1.0	%		1,525		1.0	%		196			12.9	%
Clinic closure costs - lease and other		3,432		2.0	%		29		0.0	%		3,403			*

Total operating cost		138,902		82.7	%		122,078		81.4	%		16,824			13.8	%

Gross Profit		29,131		17.3	%		27,929		18.6	%		1,202			4.3	%

Corporate office costs		14,385		8.6	%		12,048		8.0	%		2,337			19.4	%
Operating Income		14,746		8.8	%		15,881		10.6	%		(1,135	)		-7.1	%

Other (expense) income:
Interest expense, debt and other		(2,018	)	-1.2	%		(2,101	)	-1.4	%		83			-4.0	%
Interest income from investments		1,018		0.6	%		1,673		1.1	%		(655	)		-39.2	%
Change in fair value of contingent earn-out consideration		168		0.1	%		187		0.1	%		(19	)		-10.2	%
Change in revaluation of put-right liability		(1,899	)	-1.1	%		(145	)	-0.1	%		(1,754	)		1209.7	%
Equity in earnings of unconsolidated affiliate		231		0.1	%		206		0.1	%		25			12.1	%
Other		90		0.1	%		78		0.1	%		12			15.4	%
Total other (expense) income		(2,410	)	-1.4	%		(102	)	-0.1	%		(2,308	)		2262.7	%

Income before taxes		12,336		7.3	%		15,779		10.5	%		(3,443	)		-21.8	%

Provision for income taxes		2,559		1.5	%		3,557		2.4	%		(998	)		-28.1	%
Net income		9,777		5.8	%		12,222		8.1	%		(2,445	)		-20.0	%

Less: Net income attributable to non-controlling interest:
Redeemable non-controlling interest - temporary equity		(1,998	)	-1.2	%		(1,976	)	-1.3	%		(22	)		1.1	%
Non-controlling interest - permanent equity		(1,151	)	-0.7	%		(992	)	-0.7	%		(159	)		16.0	%
		(3,149	)	-1.9	%		(2,968	)	-2.0	%		(181	)		6.1	%

Net income attributable to USPH shareholders	$	6,628		3.9	%	$	9,254		6.2	%	$	(2,626	)		-28.4	%

* Not meaningful

Total net revenue for the 2024 Third Quarter increased $18.0 million, or 12.0%, to $168.0 million from $150.0 million for the 2023 Third Quarter while operating costs increased $16.8 million, or 13.8%, to $138.9 million from $122.1 million over the same periods, respectively. As a percentage of total net revenue, total operating cost was 82.7% for the 2024 Third Quarter, as compared to 81.4% for the 2023 Third Quarter.

Gross profit for the 2024 Third Quarter was $29.1 million, or 17.3% of net revenue, compared to $27.9 million, or 18.6% of net revenue, for the 2023 Third Quarter. Excluding closure costs⁽¹⁾ of $3.4 million^,gross profit from physical therapy operations was $26.9 million, an increase of $3.4 million, or 14.5%, over the 2023 Third Quarter, and the gross profit margin from physical therapy operations was 18.9% in the 2024 Third Quarter, an increase of 90 basis points from 18.0% in the 2023 Third Quarter.

Adjusted EBITDA, a non-GAAP measure, was $21.1 million for the 2024 Third Quarter, an increase of $2.5 million from $18.6 million in the 2023 Third Quarter.

Operating Results, a non-GAAP measure, was $10.4 million in the 2024 Third Quarter, an increase of $1.1 million from $9.2 million in the 2023 Third Quarter. On a per share basis, Operating Results was $0.69 in the 2024 Third Quarter compared to $0.62 in the 2023 Third Quarter.

(1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information.

Table of Contents

Physical Therapy Operations

	For the Three Months Ended				Variance
	September 30, 2024		September 30, 2023		$			%
	(In thousands, except percentages)
Revenue related to:
Mature Clinics (1)	$	126,173	$	120,612	$	5,561			4.6	%
Clinic additions (2)		11,337		3,585		7,752			*		(9	)
Clinics sold or closed (3)		1,636		3,046		(1,410	)		*		(9	)
Net Patient Revenue		139,146		127,243		11,903			9.4	%
Other (4)		3,568		3,278		290			8.8	%
Total		142,714		130,521		12,193			9.3	%
Operating costs (4)(7)		119,207		107,016		12,191			11.4	%
Gross profit (7)	$	23,507	$	23,505	$	2			0.0	%


Financial and operating metrics (not in thousands):
Net rate per patient visit (1)	$	105.65	$	102.37	$	3.28			3.2	%
Patient visits (1)		1,317,051		1,242,954		74,097			6.0	%
Average daily visits per clinic (1)		30.1		29.7		0.4			1.3	%
Gross margin		16.5%		18.0%
Gross margin, excluding closure costs, non-GAAP (6)(8)		18.9%		18.0%
Salaries and related costs per visit, clinics (5)	$	62.47	$	60.35	$	2.12			3.5	%
Operating costs per visit, clinics (5)(7)	$	88.98	$	84.49	$	4.49			5.3	%
Operating costs per visit, clinics, excluding closure costs (5)(6)	$	86.37	$	84.47	$	1.90			2.2	%

(1) See Glossary of Terms - Revenue Metrics for definitions.

(2) Includes 33 clinics added during the nine months ended September 30, 2024 and 46 clinic added during the year ended December 31, 2023.

(3) Includes 43 clinics closed during the nine months ended September 30, 2024 and 15 clinics closed during the year ended December 31, 2023.

(4) Includes revenues and costs from management contracts.

(5) Per visit costs excludes management contract costs.

(6) Excludes $3.4 million of costs associated with the closure of 32 clinics during the 2024 Third Quarter.

(7) Includes $3.4 million of costs associated with the closure of 32 clinics during the 2024 Third Quarter.

(8) Refer to reconcilliation of non-GAAP measures to most comparable GAAP measures for more information.

(9) Not meaningful

Revenues

Net revenue from physical therapy operations increased $12.2 million, or 9.3%, to $142.7 million for the 2024 Third Quarter from $130.5 million for the 2023 Third Quarter. This increase was due primarily to the increase in visits from the 21 net clinics added since the comparable prior year period, a 2.4% increase in visits at mature clinics and an increase in net rate per patient visit. Total patient visits increased 74,097, or 6.0%, to 1,317,051 in the 2024 Third Quarter from 1,242,954 in the 2023 Third Quarter. Average daily visits per clinic was 30.1 for the 2024 Third Quarter compared to 29.7 in the comparable prior year quarter. Net rate per patient visit for the 2024 Third Quarter increased to $105.65 from $102.37 for the 2023 Third Quarter, an increase of 3.2%, despite the 1.8% Medicare rate reduction which went into effect at the beginning of 2024. The increase in net rate per patient visit was mainly driven by higher reimbursement rates from commercial and other payors as a result of contract negotiations and an increase in workers compensation as a percent of our total net patient revenues.

Other revenues increased approximately $0.3 million, or 8.8%, to $3.6 million for the 2024 Third Quarter from $3.3 million for the 2023 Third Quarter primarily due to the increase in management contract revenue since the comparable prior year period.

Table of Contents

Operating costs

Operating costs from physical therapy operations increased $12.2 million, or 11.4%, to $119.2 million in the 2024 Third Quarter from $107.0 million in the 2023 Third Quarter primarily driven by the 21 net new clinics added since the comparable prior year period and $3.4 million of costs associated with the closure of 32 clinics during the 2024 Third Quarter. Excluding the clinic closure costs, operating costs increased 8.2%⁽¹⁾, while total operating costs per visit was $88.98 compared to $84.49 over the same periods, respectively. Excluding the clinic closure costs, operating costs per visit was $86.37 in the 2024 Third Quarter.

Salaries and related costs (including management contracts) increased to $84.2 million in the 2024 Third Quarter compared to $77.0 million, in the 2023 Third Quarter, an increase of $7.2 million, or 9.4%. Salaries and related costs per visit (excluding management contracts), increased to $62.47 for the 2024 Third Quarter from $60.35 for the 2023 Third Quarter.

Total rent, supplies, contract labor and other costs related to clinics (excluding management contracts) increased to $29.8 million in the 2024 Third Quarter from $28.5 million in the 2023 Third Quarter, an increase of $1.6 million, or 5.7%. On a per visit basis, rent, supplies, contract labor and other costs (excluding management contracts costs), decreased slightly to $22.59 for the 2024 Third Quarter compared to $22.90 for the 2023 Third Quarter.

The provision for credit losses was $1.7 million for the 2024 Third Quarter and $1.5 million for the 2023 Third Quarter. As a percentage of net revenues, the provision for credit losses was 1.2% for both the 2024 Third Quarter and the 2023 Third Quarter.

Gross Profit

Gross profit from physical therapy operations in the 2024 Third Quarter was $23.5 million with a gross profit margin of 16.5%. Excluding closure costs, gross profit from physical therapy operations was $26.9 million ⁽¹⁾, an increase of $3.4 million, or 14.5%, over the 2023 Third Quarter, and the gross profit margin from physical therapy operations was 18.9% ⁽¹⁾ in the 2024 Third Quarter, an increase of 90 basis points from 18.0% in the 2023 Third Quarter.

(1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information.

Industrial Injury Prevention Services

	For the Three Months Ended				Variance
	September 30, 2024		September 30, 2023		$		%
	(In thousands, except percentages)
Net revenue	$	25,319	$	19,486	$	5,833		29.9	%
Operating costs		19,695		15,062		4,633		30.8	%
Gross profit	$	5,624	$	4,424	$	1,200		27.1	%

Gross margin		22.2%		22.7%

IIP revenues increased $5.8 million, or 29.9%, to $25.3 million for the 2024 Third Quarter as compared to $19.5 million for the 2023 Third Quarter. Excluding our IIP acquisitions during the years 2023 and 2024, IIP revenues increased 12.9%. Gross profit from IIP operations in the 2024 Third Quarter increased $1.2 million, or 27.1%, to $5.6 million from $4.4 million in the 2023 Third Quarter. Excluding our IIP acquisitions during the years 2023 and 2024, IIP gross profit increased 13.2%. The gross profit margin from IIP operations was 22.2% in the 2024 Third Quarter compared to 22.7% in the 2023 Third Quarter.

Corporate Office Costs

Corporate office costs were $14.4 million, or 8.6% of net revenue, in the 2024 Third Quarter compared to $12.0 million, or 8.0% of revenue in the 2023 Third Quarter.

Operating Income

Operating income was $14.7 million for the 2024 Third Quarter compared to $15.9 million for the 2023 Third Quarter. Excluding the clinic closure costs, operating income was $18.2 million ⁽¹⁾ in the 2024 Third Quarter.

Table of Contents

Other (Expenses) Income

Interest Expense, Debt and Other

Interest expense decreased $0.1 million to $2.0 million for the 2024 Third Quarter compared to $2.1 million in the 2023 Third Quarter due to a lower outstanding balance on our term loan. The interest rate on our credit facility was 4.7% for the 2024 Third Quarter and 4.9% for the 2023 Third Quarter, with an all-in effective interest rate, including all associated costs of 5.4% and 5.6% over the same periods, respectively.

Interest income from investment

Interest income from investing excess cash (primarily proceeds from the secondary offering sale of our stock completed in May 2023) in a high-yield savings account decreased to $1.0 million during the 2024 Third Quarter from $1.7 million in the 2023 Third Quarter as a result of our lower cash balance, due to cash used for acquisitions, since the comparable prior year period.

Change in fair value of contingent earn-out consideration and put-right liability

We revalued contingent and put-right liabilities related to certain acquisitions and recognized a net non-cash expense (an increase in the related liabilities) of $1.7 million in the 2024 Third Quarter and less than $0.1 million in the comparable 2023 Third Quarter. The put-right (expiring in 2027) relates to the potential future purchase of a company within our IIP business. The company provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area.

Equity in earnings of unconsolidated affiliate

For both the 2024 Third Quarter and the 2023 Third Quarter, we recognized income of $0.2 million from a joint venture 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.

Provision for Income Taxes

The provision for income taxes was $2.6 million in the 2024 Third Quarter compared to $3.6 million during the 2023 Third Quarter while the effective tax rates were 27.9% and 27.8% for the 2024 Third Quarter and the 2023 Third Quarter respectively.

	For the Three Months Ended
	September 30, 2024			September 30, 2023
	(In thousands, except percentages)
Income before taxes	$	12,336		$	15,779

Less: Net income attributable to non-controlling interest:
Redeemable non-controlling interest - temporary equity		(1,998	)		(1,976	)
Non-controlling interest - permanent equity		(1,151	)		(992	)
	$	(3,149	)	$	(2,968	)

Income before taxes less net income attributable to non-controlling interest	$	9,187		$	12,811

Provision for income taxes	$	2,559		$	3,557

Effective income tax rate		27.9%			27.8%

Net Income Attributable to Non-controlling Interest

Net income attributable to redeemable non-controlling interest (temporary equity) was $2.0 million for both the 2024 Third Quarter and the 2023 Third Quarter. Net income attributable to non-controlling interest (permanent equity) was $1.2 million for the 2024 Third Quarter and $1.0 million for the 2023 Third Quarter.

(1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information.

Table of Contents

2024 Nine Months versus 2023 Nine Months

	For the Nine Months Ended										Variance
	September 30, 2024					September 30, 2023					$			%
	(In thousands, except percentages)

Net patient revenue	$	410,492		83.6	%	$	383,104		85.1	%	$	27,388			7.1	%
Other revenue		80,406		16.4	%		66,897		14.9	%		13,509			20.2	%
Net revenue		490,898		100.0	%		450,001		100.0	%		40,897			9.1	%

Operating Cost:
Salaries and related costs		289,900		59.1	%		262,757		58.4	%		27,143			10.3	%
Rent, supplies, contract labor and other		100,430		20.5	%		91,490		20.3	%		8,940			9.8	%
Provision for credit losses		5,065		1.0	%		4,600		1.0	%		465			10.1	%
Clinic closure costs - lease and other		4,109		0.8	%		161		0.0	%		3,948			2452.2	%
Total operating cost		399,504		81.4	%		359,008		79.8	%		40,496			11.3	%

Gross Profit		91,394		18.6	%		90,993		20.2	%		401			0.4	%

Corporate office costs		42,719		8.7	%		38,052		8.5	%		4,667			12.3	%
Operating Income		48,675		9.9	%		52,941		11.8	%		(4,266	)		-8.1	%

Other (expense) income:
Interest expense, debt and other		(5,966	)	-1.2	%		(7,293	)	-1.6	%		1,327			-18.2	%
Interest income from investments		3,635		0.7	%		2,191		0.5	%		1,444			65.9	%
Change in fair value of contingent earn-out consideration		(136	)	0.0	%		197		0.0	%		(333	)		-169	%
Change in revaluation of put-right liability		(5,332	)	-1.1	%		(344	)	-0.1	%		(4,988	)		1450.0	%
Equity in earnings of unconsolidated affiliate		750		0.2	%		806		0.2	%		(56	)		-6.9	%
Relief Funds		-		0.0	%		467		0.1	%		(467	)		-100.0	%
Other		261		0.1	%		305		0.1	%		(44	)		-14.4	%
Total other (expense) income		(6,788	)	-1.4	%		(3,671	)	-0.8	%		(3,117	)		84.9	%

Income before taxes		41,887		8.5	%		49,270		10.9	%		(7,383	)		-15.0	%

Provision for income taxes		8,781		1.8	%		10,757		2.4	%		(1,976	)		-18.4	%
Net income		33,106		6.7	%		38,513		8.6	%		(5,407	)		-14.0	%

Less: Net income attributable to non-controlling interest:
Redeemable non-controlling interest - temporary equity		(7,539	)	-1.5	%		(7,616	)	-1.7	%		77			-1.0	%
Non-controlling interest - permanent equity		(3,387	)	-0.7	%		(3,314	)	-0.7	%		(73	)		2.2	%
		(10,926	)	-2.2	%		(10,930	)	-2.4	%		4			0.0	%

Net income attributable to USPH shareholders	$	22,180		4.5	%	$	27,583		6.1	%	$	(5,403	)		-19.6	%

* Not meaningful

Total net revenue for the 2024 Nine increased $40.9 million, or 9.1%, to $490.9 million from $450.0 million for the 2023 Nine Months while operating costs increased $40.5 million, or 11.3%, to $399.5 million from $359.0 million over the same periods, respectively.

Gross profit, which included $4.1 million of costs associated with the closure of 43 clinics, was $91.4 million, or 18.6% of net revenue, during the 2024 Nine Months compared to $91.0 million, or 20.2% of net revenue, for the 2023 Nine Months. Excluding the clinic closure costs, gross profit for the 2024 Nine Months was $95.5 million ⁽¹⁾ or 19.5%⁽¹⁾ of net revenue, compared to $91.1⁽¹⁾ million, or 20.3%⁽¹⁾ of net revenue, for the 2023 Nine Months.

Non-GAAP Adjusted EBITDA ⁽¹⁾ increased $1.1 million to $60.0 million for the 2024 Nine Months from $58.9 million in the 2023 Nine Months while non-GAAP Operating Results ⁽¹⁾ increased $1.7 million to $29.2 million, or $1.94 per share, in the 2024 Nine Months from $27.5 million, or $1.97 per share, in the 2023 Nine Months.

(1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information.

Table of Contents

Physical Therapy Operations

	For the Nine Months Ended						Variance
	September 30, 2024			September 30, 2023			$			%
	(In thousands, except percentages)
Revenue related to:
Mature Clinics (1)	$	375,301		$	367,146		$	8,155			2.2	%
Clinic additions (2)		28,982			5,867			23,115			*		(9	)
Clinics sold or closed (3)		6,209			10,091			(3,882	)		(38.5	)%
Net Patient Revenue		410,492			383,104			27,388			7.1	%
Other (4)		10,133			8,815			1,318			15.0	%
Total		420,625			391,919			28,706			7.3	%
Operating costs (4)(7)		344,270			313,104			31,166			10.0	%
Gross profit (7)	$	76,355		$	78,815		$	(2,460	)		(3.1	)%


Financial and operating metrics (not in thousands):
Net rate per patient visit (1)	$	104.71		$	102.50		$	2.21			2.2	%
Patient visits (1)		3,920,388			3,737,584			182,804			4.9	%
Average daily visits per clinic (1)		30.0			30.0
Gross margin		18.2	%		20.1	%
Gross margin excluding closure costs, non-GAAP (6)(8)		19.1	%		20.2	%
Salaries and related costs per visit, clinics (5)	$	61.17		$	59.01		$	2.16			3.7	%
Operating costs per visit, clinics (5)(7)	$	86.32		$	82.35		$	3.97			4.8	%
Operating costs per visit, clinics, excluding closure costs (5)(6)	$	85.27		$	82.31		$	2.96			3.6	%

(1) See Glossary of Terms - Revenue Metrics for definitions.

(2) Includes 33 clinics added during the nine months ended September 30, 2024 and 46 clinic added during the year ended December 31, 2023.

(3) Includes 43 clinics closed during the nine months ended September 30, 2024 and 15 clinics closed during the year ended December 31, 2023.

(4) Includes revenues and costs from management contracts.

(5) Per visit costs excludes management contract costs.

(6) Excludes $4.1 million of costs associated with the closure of 43 clinics closed during the nine months ended September 30, 2024 and $0.2 million of costs associated with the 15 clinics closed during the year ended December 31, 2023.

(7) Includes $4.1 million of costs associated with the closure of 43 clinics closed during the nine months ended September 30, 2024 and $0.2 million of costs associated with the 15 clinics closed during the year ended December 31, 2023.

(8) Refer to reconcilliation of non-GAAP measures to most comparable GAAP measures for more information.

(9) Not meaningful

Revenues

Revenues from physical therapy operations increased $28.7 million, or 7.3%, to $420.6 million in the 2024 Nine Months compared to $391.9 million in the 2023 Nine Months. This increase was primarily due to the increase in volume from the 21 net clinics added since the comparable prior year period as well as an increase in net rate per patient visit to $104.71 for 2024 Nine Months from $102.50 for 2023 Nine Months. Total patient visits increased 182,804, or 4.9%, to 3,920,388 in the 2024 Nine Months from 3,737,584 in the 2023 Nine Months. Average daily visits per clinic was 30.0 for both 2024 Nine Months and the comparable prior year period.

Other revenues increased $1.3 million, or 15.0%, to $10.1 million for the 2024 Nine Months from $8.8 million for the 2023 Nine Months due to an increase in management contract revenue since the comparable prior year period.

Operating costs

Operating costs from physical therapy operations increased by $31.2 million, or 10.0% to $344.3 million in the 2024 Nine Months from $313.1 million in the 2023 Nine Months primarily driven by costs associated with the 21 net new clinics added since the comparable prior year period. On a per visit basis, operating costs (excluding management contracts) increased to $86.32 for the 2024 Nine Months from $82.35 for the 2023 Nine Months.

Total salaries and related costs for physical therapy operations increased to $245.4 million in the 2024 Nine Months from $225.3 million, in the 2023 Nine Months, an increase of $20.1 million, or 8.9%. Salaries and related costs per visit (excluding management contracts) increased to $61.17 for the 2024 Nine Months from $59.01 for the 2023 Nine Months.

Total rent, supplies, contract labor and other costs related to clinics (excluding management contracts) increased to $89.4 million in the 2024 Nine Months from $82.4 million in the 2023 Nine Months, an increase of $7.0 million, or 8.5%. On a per visit, rent, supplies, contract labor and other costs (excluding management contract costs) increased to $22.80 for the 2024 Nine Months compared to $22.04 for the 2023 Nine Months.

The provision for credit losses was $5.1 million for the 2024 Nine Months and $4.6 million for the 2023 Nine Months. As a percentage of net revenues, the provision for credit losses was 1.2% for both the 2024 Nine Months and 2023 Nine Months.

Table of Contents

Gross Profit

Gross profit from physical therapy operations, which included $4.1 million of costs associated with the 43 clinic closures, was $76.4 million, or 18.2% of net revenue, for the 2024 Nine Months compared to $78.8 million, or 20.2% of net revenue, for the 2023 Nine Months. Excluding the clinic closure costs, physical therapy gross profit was $80.5 million ⁽¹⁾, or 19.1% of net revenue ⁽¹⁾, in the 2024 Nine Months compared to $79.0 million ⁽¹⁾, or 20.2% of net revenue ⁽¹⁾, in the 2023 Nine Months.

(1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information.

Industrial Injury Prevention Services

	For the Nine Months Ended						Variance
	September 30, 2024			September 30, 2023			$		%
	(In thousands, except percentages)
Net revenue	$	70,273		$	58,082		$	12,191		21.0	%
Operating costs		55,234			45,904			9,330		20.3	%
Gross profit	$	15,039		$	12,178		$	2,861		23.5	%

Gross margin		21.4	%		21.0	%

Revenues from IIP operations increased $12.2 million, or 21.0%, to $70.3 million for the 2024 Nine Months from $58.1 million for the 2023 Nine Months. Gross profit from IIP operations increased $2.9 million, or 23.5%, to $15.0 million for the 2024 Nine Months from $12.2 million for the 2023 Nine Months while the gross profit margin from IIP operations increased to 21.4% for the 2024 Nine Months from 21.0% for the 2023 Nine Months.

Corporate Office Costs

Corporate office costs were $42.7 million, or 8.7% of net revenue, in the 2024 Nine Months, compared to $38.1 million, or 8.5% of net revenue, in the 2023 Nine Months.

Operating Income

Operating income was $48.7 million for the 2024 Nine Months compared to $52.9 million for the 2023 Nine Months. Excluding the clinic closure costs, operating income was $52.8 million ⁽¹⁾ in the 2024 Nine Months.

Other (Expenses) Income

Interest Expense, Debt and Other

Interest expense was $6.0 million in the 2024 Nine Months compared to $7.3 million in the 2023 Nine Months, with the decrease primarily related to lower outstanding borrowings over the comparative periods.

Interest income from investment

Interest income from investing excess cash (primarily proceeds from the secondary offering sale of our stock completed in May 2023) in a high-yield savings account was $3.7 million during the 2024 Nine Months compared to $2.2 million during the 2023 Nine Months.

Change in fair value of contingent earn-out consideration

We revalued contingent earn-out consideration related to certain acquisitions resulting in a loss of $5.3 million for the 2024 Nine Months compared to a loss of $0.3 million in the comparative prior year period.

Table of Contents

Change in Revaluation of Put-Right Liability

We recorded an expense of $0.1 million on the revaluation of a put right liability for 2024 Nine Months and a gain of $0.2 million for the 2023 Nine Months. 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.

Equity in earnings of unconsolidated affiliate

We recognized income of $0.8 million from a joint venture which provides physical therapy services for patients at hospitals for both the 2024 Nine Months and the 2023 Nine Months. 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.

Provision for Income Taxes

The provision for income taxes was $8.8 million in the 2024 Nine Months compared to $10.8 million during the 2023 Nine Months while the effective tax rates were 28.4% and 28.1% over the same periods, respectively.

	For the Nine Months Ended
	September 30, 2024			September 30, 2023
	(In thousands, except percentages)
Income before taxes	$	41,887		$	49,270

Less: Net income attributable to non-controlling interest:
Redeemable non-controlling interest - temporary equity		(7,539	)		(7,616	)
Non-controlling interest - permanent equity		(3,387	)		(3,314	)
	$	(10,926	)	$	(10,930	)

Income before taxes less net income attributable to non-controlling interest	$	30,961		$	38,340

Provision for income taxes	$	8,781		$	10,757

Effective income tax rate		28.4	%		28.1	%

Net Income Attributable to Non-controlling Interest

Net income attributable to redeemable non-controlling interest (temporary equity) was $7.5 million in the 2024 Nine Months compared to $7.6 million in the 2023 Nine Months. Net income attributable to non-controlling interest (permanent equity) was $3.4 million for the 2024 Nine Months and $3.3 million for the 2023 Nine Months.

(1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information.

LIQUIDITY AND CAPITAL RESOURCES

We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. Total cash and cash equivalents were $117.0 million as of September 30, 2024, and $152.8 million as of December 31, 2023. We had $140.6 million of outstanding borrowings and $175.0 million in available credit under our Revolving Facility as of September 30, 2024, compared to $144.4 million of outstanding borrowings and $175.0 million in available credit under our Revolving Facility as of December 31, 2023.

Table of Contents

We believe that our cash and cash equivalents and availability under our Senior Credit Facilities are sufficient to fund the working capital needs of our operating subsidiaries through at least September 30, 2025.

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 acquisitions. We have, from time to time, purchased the non-controlling interests of limited partners in our existing 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 our cash, financing, or a combination of the two.

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. As of September 30, 2024, we have accrued $6.8 million related to credit balances, a portion of which is due to patients and payors.

Cash Flow

A summary of our operating, investing and financing activities is discussed below.

	For the Nine Months Ended
	September 30, 2024			September 30, 2023
	(in thousands)
Net cash provided by operating activities	$	55,531		$	55,143
Net cash used in investing activities		(54,597	)		(36,601	)
Net cash (used in) provided by financing activities		(36,800	)		97,549

Operating Activities

Cash provided by operating activities was $55.5 million for the 2024 Nine Months as compared to $55.1 million for the 2023 Nine Months. This decrease in cash provided was mostly due to the timing of payments related to payables and accrued expenses.

Investing Activities

Cash used in investing activities for the 2024 Nine Months totaled $54.6 million and primarily consisted of $48.9 million used in the purchase of interests in businesses and non-controlling interests (temporary and permanent), and $6.7 million of fixed assets purchases. These uses were partially offset by $0.3 million in proceeds from the sale of non-controlling interests (temporary and permanent), and $0.8 million distributions received from an unconsolidated affiliate.

Financing Activities

Cash used in financing activities for the 2024 Nine Months, totaled $36.8 million and primarily comprised of $19.9 million of cash dividends paid to shareholders, $11.4 million in distributions to non-controlling interests (temporary and permanent) and payments of $5.5 million related to notes payable and the term note.

Table of Contents

Senior Credit Facilities

On December 5, 2013, we entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended and/or restated in August 2015, January 2016, March 2017, November 2017, and January 2021. On June 17, 2022, we entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”) among Bank of America, N.A., as administrative agent (“Administrative Agent”) and the lenders from time-to-time party thereto.

The Credit Agreement, which matures on June 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”).

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 are 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. 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. As of September 30, 2024, we were in compliance with all of the covenants contained in the Credit Agreement.

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.

Table of Contents

As of September 30, 2024, $139.5 million (net of unamortized debt issuance costs of $1.2 million) was outstanding on the Term Facility while none was outstanding under the Revolving Facility resulting in $175.0 million of credit availability. The interest rate on the Senior Credit Facilities was 4.7% for the 2024 Third Quarter and 4.9% for the 2023 Third Quarter, with an all-in effective interest rate, including all associated costs, of 5.4% and 5.6% over the same periods, respectively. The interest rate on our Senior Credit Facilities was 4.7% for the 2024 Nine Months and 5.7% for the 2023 Nine Months, with an all-in effective interest rate, including all associated costs, of 5.4% and 6.9% over the same periods, respectively.

Interest Rate Swap

In May 2022, we entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A. It has a $150 million notional value adjusted concurrently with scheduled principal payments made on the term loan and has a maturity date of June 30, 2027. Beginning in July 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.

As of September 30, 2024, the fair value of the interest rate swap was $1.8 million, a decrease of $1.4 million, net of a $0.5 million, income tax effect, as compared to December 31, 2023. The fair value of the interest rate swap is included in Other assets (current and long term) in our consolidated balance sheet while the increase in fair value is presented as unrealized gain in our unaudited consolidated statements of comprehensive income. The interest rate swap arrangement has generated $2.8 million in interest savings for the nine months ended September 30, 2024. The average interest rate for the term facility, net of the savings from the swap, in both the 2024 Third Quarter and 2024 Nine Months was 4.7%.

Notes Payable and Deferred Payments Related to Acquisitions

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 such businesses. At September 30, 2024, our remaining outstanding balance on these notes amounted to $3.1 million, of which $0.8 million is due by December 31, 2024, $1.8 million is due in 2025 and $0.5 million is due in 2026. 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 4.0% to 8.5% per annum.

On August 31, 2024, we acquired a 70% equity interest in an eight-clinic practice physical therapy with the original practice owners retaining 30% equity interest. The purchase price for the 70% equity interest was approximately $2.0 million. As part of the transaction, we agreed to additional contingent consideration if future operational and financial objectives are met. The maximum payout is $3.6 million. The contingent consideration was valued at $3.6 million on August 31, 2024.

On April 30, 2024, we acquired 100% of an IIP business through one of its primary IIP businesses, Briotix Health Limited Partnership, for a purchase price of approximately $24.0 million, of which $0.5 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and the interest are payable on May 1, 2025. As part of the transaction, we agreed to pay additional contingent consideration if future operational objectives are met. There is no maximum payout. The contingent consideration was valued at $2.4 million as of September 30, 2024. We contributed the capital for this purchase and as a result, our interest in the IIP business of Briotix Health Limited Partnership increased to 92.1% subsequent to this transaction.

On March 29, 2024, we acquired a 50% equity interest in a nine-clinic physical therapy and hand therapy practice. The original owners of the practice retained the remaining 50%. The purchase price for the 50% equity interest was approximately $16.4 million, of which $0.5 million was in the form of a note payable. The note accrues interest of 4.5% per annum and the principal and the interest are payable on March 29, 2026. Additionally, we have an obligation to pay an additional amount based on certain future operational objectives being met. There is no maximum payout. The contingent consideration was valued at $0.5 million as of September 30, 2024.

Table of Contents

On September 29, 2023, we acquired a 70% equity interest in a four-clinic physical therapy practice. The owner of the practice retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $6.0 million, of which $5.4 million was paid in cash, and $0.6 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and interest are payable in two installments. The first payment of principal and interest of $0.3 million was paid January 2024, and the second installment of $0.3 million is due on September 30, 2025.

In a separate transaction, on September 29, 2023, we acquired a 70% equity interest in a single clinic physical therapy practice. The owner of the practice retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $7.8 million, of which $7.4 million was paid in cash and $0.4 million is a deferred payment due on June 30, 2025.

On July 31, 2023, we acquired a 70% equity interest in a five-clinic practice. The practice’s owners retained a 30% equity interest. The purchase price for the 70% equity interest was approximately $2.1 million, of which $1.8 million was paid in cash and $0.3 million is a deferred payment due on June 30, 2025.

On May 31, 2023, we and a local partner together acquired a 75% interest in a four-clinic physical therapy practice. After the transaction, our ownership interest is 45%, our local partner’s ownership interest is 30%, and the practice’s pre-acquisition owners have a 25% ownership interest. The purchase price for the 75% equity interest was approximately $3.1 million, of which $1.7 million was paid in cash by us, $1.1 million was paid in cash by the local partner, and $0.3 million was in the form of a note payable. On July 1, 2024, the note payable of $0.3 million was paid in full ($0.2 million was paid by us and $0.1 million was paid by the local partner).

On February 28, 2023, we acquired an 80% interest in a one-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. 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 on February 28, 2025.

Redeemable Non-Controlling Interest

Certain 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 interests on September 30, 2024 was $186.6 million.

In the event that a limited non-controlling 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.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We maintain an interest rate swap arrangement which is considered a derivative instrument. Our indebtedness as of September 30, 2024 was the outstanding balance of seller notes from our acquisitions of $3.1 million, and an outstanding balance on our term note related to the Credit Agreement of $140.6 million. The Revolving Facility does not have a balance as of September 30, 2024, and is subject to fluctuating interest rates. A 1% change in the interest rate would yield no additional interest expense on the facility because of the interest rate swap described above. See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources for more information.

Table of Contents

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company’s management completed an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded (i) that our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure and (ii) that our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

We are a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of our business. We cannot predict the ultimate outcome of pending litigation, proceedings, and regulatory and other governmental audits and investigations. These matters could potentially subject us to sanctions, damages, recoupments, fines, and other penalties. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to our businesses in the future that may, either individually or in the aggregate, have a material adverse effect on our business, financial position, results of operations, and liquidity.

ITEM 1A.

RISK FACTORS.

The Company added the following risk factor in addition to our previously disclosed risk factors in Item 1A contained in Part I of our Annual Report on Form 10-K for the year ended December 31, 2023, and filed with the SEC on February 29, 2024.

If our noncompetition covenants with employed therapists are nullified, we may lose staff to competitors.

Many of our employed therapists have contractual non-competition agreements and covenants with the Company which, under certain circumstances, limit the employee’s ability to terminate their employment with the Company to perform similar services for competing organizations within a defined geography for a specified period time after such termination. The Federal Trade Commission recently passed a Rule which purports to prohibit many forms of non-competition agreements with employees and would require the Company, subject to certain exceptions, to nullify certain existing noncompetition agreements with employees. While a federal court recently ruled that the Rule is invalid and may not be enforced, if that decision is appealed successfully and the Rule in its current form or in a substantially similar form becomes effective, the Company could suffer a loss of staff which could have a material adverse effect on operations.

Table of Contents

ITEM 5.

OTHER INFORMATION.

Rule 105b-1 Trading Plans

The Company’s directors and executive officers do not currently have 10b5-1plans. During the three and nine months ended September 30, 2024, none of our directors or executive officers adopted or terminated or any contract, instruction, or written plan for the purchase or sale of our securities to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.

Amendment to Credit Agreement

On September 16, 2024, the Company entered into an amendment to the Credit Agreement in connection with the acquisition of a 50% interest in MSO Metro, LLC (“Metro”) pursuant to the Equity Interest Purchase Agreement”) dated October 7, 2024 among U.S. Physical Therapy, Ltd. (a subsidiary of the Company), Metro, the members of Metro, and Michael G. Mayrsohn, as Sellers’ Representative. Pursuant to the amendment, the lenders consented to the Metro acquisition exceeding certain covenant thresholds regarding total acquisition consideration.

Table of Contents

ITEM 6.

EXHIBITS.

Exhibit Number	Description
10.1*	Second Amendment to the Credit Agreement dated as of September 27, 2024 among the Company, as the borrower, and Bank of America, N.A., as Administrative Agent, Regions Capital Markets as Syndication Agent, BofA Securities Inc. and Regions Capital Markets as Joint Load Arrangers, BofA Securities Inc., as Sole Bookrunner and the lenders named therein.
31.1*	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2*	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32*	Certification Pursuant to 18 U.S.C 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*	Filed herewith

**	Management contract or compensatory arrangement

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.

	U.S. PHYSICAL THERAPY, INC.

Date: November 8, 2024	By:	/s/ Carey Hendrickson
		Carey Hendrickson
		Chief Financial Officer
		(Principal financial and accounting officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

September 30, 2024

September 30, 2023

Weighted-average remaining lease term - Operating leases

Weighted-average discount rate - Operating leases