What changed in this filing

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Item 1. Financial Statements

2022-05-09 compared with 2021-11-09 · 499 added, 574 removed, 595 unchanged (64% of the section changed)

4 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE DATA)

September 30, 2021

March 31, 2022

December 31, 2021

13 unchanged sentences

Operating lease right-of-use assets

Investment in unconsolidated affiliate

Other identifiable intangible assets, net

2 unchanged sentences

Accounts payable - trade

Accounts payable - due to seller of acquired business

Accrued expenses

29 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Three Months Ended

For the Nine Months Ended

September 30, 2021

September 30, 2020

September 30,2021

September 30, 2020

For the Three Months Ended

March 31, 2022

March 31, 2021

Net patient revenue

4 unchanged sentences

Provision for credit losses

Closure costs - lease and other

Closure costs - derecognition of goodwill

Total operating cost

2 unchanged sentences

Other income and expense

Gain on sale of partnership interest and clinics

Resolution of a payor matter

Equity in earnings of unconsolidated affiliate

Interest and other income, net

Gain on revaluation of put-right liability

Interest expense - debt and other

14 unchanged sentences

(IN THOUSANDS)

Nine Months Ended

September 30, 2021

September 30, 2020

Three Months Ended

March 31, 2022

March 31, 2021

OPERATING ACTIVITIES

Net income including non-controlling interest

Net income including non-controlling interest and earnings from unconsolidated affiliates, net

Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities:

3 unchanged sentences

Deferred income taxes

Loss on sale of fixed assets

Gain on sale of partnership interest

Derecognition (write-off) of goodwill - closed clinics

Gain on revaluation of put-right liability

Earnings in unconsolidated affiliate

Changes in operating assets and liabilities:

(Increase) decrease in patient accounts receivable

Increase in patient accounts receivable

(Increase) decrease in accounts receivable - other

1 unchanged sentence

Increase in accounts payable and accrued expenses

Increase (decrease) in other long-term liabilities

Decrease in other long-term liabilities

Net cash provided by operating activities

4 unchanged sentences

Purchase of non-controlling interest, permanent equity

Proceeds on sale of redeemable non-controlling interest, temporary equity

Proceeds on sales of partnership interest, clinics and fixed assets

Distributions from unconsolidated affiliate

Sales of non-controlling interest-permanent

7 unchanged sentences

(Payment) receipt of Medicare Accelerated and Advance Funds

Short swing profit settlement

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents - beginning of period

2 unchanged sentences

Cash paid during the period for:

Interest paid

Non-cash investing and financing transactions during the period:

Purchase of businesses - seller financing portion

Purchase of redeemable non-controlling interest - notes payable

Notes payable related to purchase of redeemable non-controlling interest, temporary equity

Notes payable due to purchase of non-controlling interest, permanent equity

Receivables related to sale of partnership interest

Note receivables related to sale of partnership interest

Notes receivable related to sale of partnership interest - redeemable non-controlling interest

Dividends payable to USPH shareholders

See notes to consolidated financial statements.

4 unchanged sentences

U.S.Physical Therapy, Inc.

Treasury Stock

Total Shareholders’

Non-Controlling

For the three months ended September 30 , 2021

Paid-In Capital

Balance June 30, 2021

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Compensation expense - equity-based awards

Purchase of non-controlling interest

of non-controlling interest, net of purchases

Dividends paid to USPT shareholders

Distributions to non-controlling interest partners - permanent equity

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance September 30 ,

U.S.Physical Therapy, Inc.

Treasury Stock

1 unchanged sentence

Non-Controlling

For the nine months ended September 30 , 2021

Paid-In Capital

For the three months ended March 31, 2022

Balance December 31, 2021

2 unchanged sentences

Compensation expense - equity-based awards

Purchase of non-controlling interest

of non-controlling interest, net of purchases

Dividends paid to USPT shareholders

Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans

Purchase of partnership interests - non-controlling interest

Sale of non-controlling interest, net of purchases and tax

Dividends payable to USPH shareholders

Distributions to non-controlling interest partners - permanent equity

Short swing profit settlement

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance September 30 ,

Balance March 31, 2022

U.S.Physical Therapy, Inc.

Treasury Stock

Total Shareholders’

Non-Controlling

For the three months ended September 30 , 2020

Paid-In Capital

Balance June 30, 2020

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Compensation expense - equity-based awards

Distributions to non-controlling interest partners - permanent equity

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance September 30 ,

U.S.Physical Therapy, Inc.

Treasury Stock

1 unchanged sentence

Non-Controlling

For the nine months ended September 30 , 2020

Paid-In Capital

For the three months ended March 31, 2021

Balance December 31, 2020

2 unchanged sentences

Compensation expense - equity-based awards

Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans

Dividends paid to USPT shareholders

Dividends payable to USPT shareholders

Distributions to non-controlling interest partners - permanent equity

Short swing profit settlement

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance September 30 ,

Balance March 31, 2021

See notes to consolidated financial statements.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

March 31, 2022

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

5 unchanged sentences

The Company operates its business through two reportable business segments.

The Company’s reportable segments include the physical therapy operations

segment and the industrial injury prevention services segment.

The Company’s physical therapy operations consist of physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic-related

disorders, sports-related injuries, preventive care, rehabilitation of injured workers and neurological injuries.

Services provided by the industrial injury prevention services segment include onsite injury prevention and rehabilitation,

performance optimization and ergonomic assessments.

Prior to the second quarter of 2020 , the Company

operated as a single segment.

All prior year segment information has been reclassified to conform to the current segment presentation.

See Note 11 - Segment Information.

The Company’s reportable segments include the physical therapy operations segment and the

industrial injury prevention services segment.

The Company’s physical therapy operations consist of physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic-related disorders,

sports-related injuries, preventive care, rehabilitation of injured workers and neurological injuries.

Services provided by the industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance

optimization and ergonomic assessments.

During the 2021 year and the three months ended March 31, 2022, the Company completed the acquisitions of four

multi-clinic practices and two industrial injury prevention businesses as detailed below.

March 2022 Acquisition

March 31, 2022

December 2021 Acquisition

December 31, 2021

November 2021 Acquisition

November 30, 2021

September 2021 Acquisition

September 30, 2021

June 2021 Acquisition

June 30, 2021

March 2021 Acquisition

March 31, 2021

Industrial injury prevention services business

As of March 31, 2022, the Company operated 601 clinics in 39 states.

The Company also manages physical therapy facilities for third parties,

primarily hospital and physicians, with 38 third-party facilities under management as of March 31, 2022.

Physical Therapy Operations

The physical therapy operations segment primarily operates through subsidiary clinic partnerships, in

which the Company generally owns a 1 % general partnership and limited partnership interests typically ranging from 49 % to 99 % in the Clinic Partnerships.

which the Company generally owns a 1 % general partnership interest in all the Clinic Partnerships.

Our limited partnership interests

typically range from 10 % to 35 %

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”).

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, retaining a non-controlling ownership interest in the clinics and receiving 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.

On June 30, 2021, the Company acquired a 65 % interest in an eight -clinic physical therapy practice with the practice founder retaining 35 % .

The purchase price was approximately $ 10.3 million, of which $ 9.0 million was paid in cash, $ 1.0 million is payable based on the achievement of certain business criteria and $ 0.3 million is in the form of a note payable.

The note accrues interest at 3.25 % per annum and the principal and interest is payable on June 30, 2023.

Additionally, the Company has an obligation to pay an additional amount up to $ 0.8 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met.

recorded acquisition-date fair value of this contingent liability based on the likelihood of the contingent earn-out payment.

The earn-out payment will subsequently be remeasured to fair value each reporting date.

On March 31, 2021 , the Company

acquired a 70 % interest in a five -clinic physical therapy practice with the practice founder retaining 30 % .

When acquired, the practice was developing a sixth clinic which has been completed.

The purchase price for the 70 % interest was approximately $ 12.0 million, of which $ 11.7 million was paid in cash and $ 0.3 million in the form of a note payable.

The note accrues interest at 3.25 % per annum and the principal and interest is payable on March 31, 2023 .

On November 30, 2020 , the Company

acquired a 75 % interest in a three -clinic physical therapy practice.

The purchase price for the 75 % interest was $ 8.9 million (net of cash acquired), of which $ 8.6 million was paid in cash and $ 0.3 million in the form of a note payable that is payable in two principal installments totaling $ 162,500 each.

The first principal payment

plus accrued interest is due to be paid in November 2021 with the second installment to be paid in November

The note accrues interest at 3.25 % per annum.

On September 30, 2020 , the Company

acquired a 70 % interest in an entity which holds six -management contracts that have been in place for a number of years.

The purchase price

for the 70 % interest was approximately $ 4.2 million, of which $ 3.7 million was paid in cash and $ 0.5 million in the form of two notes

One of the notes payable of $ 0.3 million was paid in November 2020.

The remaining note payable of $ 0.2 million was paid on September 30, 2021 .

On February 27, 2020 , the Company

acquired interests in a four -clinic physical therapy practice.

four clinics are operated in four separate partnerships.

The Company’s interests in the four partnerships range from 10.0 % to 83.8 % , with an overall 65.0 % based on the initial purchase transaction.

The aggregate purchase price was $ 11.9 million , of which $ 11.6 million

was paid in cash and $ 0.3 million in the form of a note payable.

The note accrues interest at 4.75 % per annum and the principal and

interest is payable in February 2022 .

During the nine months ended September

30, 2021 , the Company sold two clinics.

The aggregate sales price of $ 0.1 million was paid to the Company in cash.

As of September 30, 2021 , the

Company operated 579 clinics in 39 states.

The Company also manages physical therapy facilities for third parties, primarily hospital and physicians, with 35 third -party facilities under management as of September 30, 2021 .

For multi-site clinic practices in which a controlling interest is acquired by the Company, the prior owners typically continue 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

5 unchanged sentences

In accordance with current

accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is not included in net income but charged directly to retained earnings and is included in the earnings per basic and diluted share calculation .

Wholly-Owned Facilities

3 unchanged sentences

Industrial Injury Prevention Services

In March 2017, the Company acquired a 55 % interest in the

initial industrial injury prevention services business.

On April 30, 2018, the Company acquired a 65 % interest in another business in the

industrial injury prevention sector.

On April 30, 2018, the Company combined the two businesses.

After the combination, the Company owned

a 59.45 % interest in the combined business, Briotix Health, Limited Partnership (“Briotix Health”), the Company’s industrial injury

prevention services operation.

On April 11, 2019, the Company acquired 100 % of a third

company that is a provider of industrial injury prevention services.

The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services.

these services across a network in 45 states including onsite at eleven client locations.

The business was then combined with Briotix Health increasing the Company’s ownership position in the partnership to approximately 76.0 %.

On September 30, 2021, the Company acquired a

company that specializes in return-to-work and ergonomic services, among other offerings.

The business generates more than $ 2.0 million in

annual revenue.

USPH acquired the company’s assets at a purchase price of approximately $ 3.3 million (which includes the obligation to pay

an amount up to $ 0.6 million in contingent payment consideration in conjunction with the acquisition if specified future operational

objectives are met), and contributed those assets to industrial injury prevention services subsidiary.

The initial purchase price, not inclusive of the $ 0.6

million contingent payment, was approximately $ 2.7 million, of which $ 2.4 million was paid in cash, and $ 0.3 million is in the form of a

note payable.

The note accrues interest at 3.25 % per annum and the principal and interest is payable on September 30, 2023.

Subsequent to

this acquisition and the purchase of the redeemable non-controlling interest of one of the limited partners in the third quarter of 2021, the Company’s ownership in Briotix Health is approximately 85 %.

Services provided in the industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment

testing, functional capacity evaluations, and ergonomic assessments.

Services provided in the industrial injury prevention services 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

The Company performs these services through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs).

Other clients include large insurers and their contractors.

The Company performs these services through Industrial Sports Medicine Professionals, consisting of both physical therapists and certified athletic trainers.

Basis of Presentation

7 unchanged sentences

31, 2021 filed with the Securities and Exchange Commission on March 1, 2022 .

The Company believes, and the Chief Executive Officer, Chief Financial Officer and Corporate Controller have certified, that the financial statements included in this

report present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the interim periods presented.

The Company believes, and the Chief Executive Officer and Chief Financial Officer have certified, that the financial statements included in this report present fairly, in

all material respects, the Company’s financial position, results of operations and cash flows for the interim periods presented.

Operating results for the three

months and nine months ended September 30, 2021 are not necessarily indicative of the results the Company

expects for the entire year.

months ended March 31, 2022 are not necessarily indicative of the results the Company expects for the entire year.

Impact of COVID -19

As previously disclosed in a series of filings with the SEC and further described in

detail in the Company’s Quarterly Reports on Form 10 -Q for the first three quarters of 2020 and our Annual Report on Form 10 -K for the year ended December 31, 2020, the Company’s results were negatively

impacted by the effects of the COVID -19 pandemic in 2020.

For 2021 periods as compared to 2020 periods, the increase in revenues and expenses are primarily due to the Company

returning to and now exceeding pre-pandemic results.

The Company has put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps to keep employees and patients safe.

line with recommendations to reduce large gatherings and increase social distancing, the Company has continued to allow a large number of office-based employees to work remotely.

The Company is monitoring the situation and will adjust work

environments accordingly.

In March 2020 in response to the COVID -19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

The CARES Act provides numerous tax provisions and

other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment

requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the

retention of employees.

In 2020, the Company received a number of benefits under the CARES Act including, but not limited to :

The CARES Act allowed for qualified healthcare providers to receive advanced payments under the existing Medicare

Accelerated and Advance Payment Program (“MAAPP Funds”) during the COVID -19 pandemic.

Under this program, healthcare providers could choose to receive advanced payments

for future Medicare services provided.

The Company applied for and received approval from Centers for Medicare & Medicaid Services (“CMS”) in April 2020.

The Company recorded these payments as a liability;

however, during the first

quarter of 2021, the Company repaid the MAAPP Funds of $ 14.1 million rather than applying them to future services performed .

The Company elected to defer depositing the employer’s share of Social Security taxes for payments due from March

27, 2020 through December 31, 2020 , interest-free and penalty-free.

As of September 30, 2021 included in accrued liabilities is $ 4.1 million and in other long-term liabilities is $ 4.2 million related to these deferred payments.

The CARES Act provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $ 100.0 billion in appropriations for the Public Health and Social Services Emergency

Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are

attributable to COVID -19 .

In 2020 , the Company’s consolidated subsidiaries received approximately $ 13.5 million in payments under the CARES Act (“Relief Funds”).

In accordance with

GAAP, these payments were recorded as Other income – Relief Funds.

These funds are not required to be repaid upon attestation and compliance with certain terms and conditions, which could change materially based on evolving grant compliance

provisions and guidance provided by the U.S.

Department of Health and Human Services.

Currently, the Company can attest to and comply with the terms and conditions.

The Company will continue to monitor the evolving guidelines and may

record adjustments as additional information is released.

There were no Relief Funds received in the nine months ended September 30, 2021.

Medicare Accelerated and Advance

Payment Program (“MAAPP Funds”)

On March 27, 2020, in response to the COVID-19 pandemic, the federal government

approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

The CARES Act provided waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $ 100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for

preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19.

The CARES Act allowed for qualified healthcare providers to receive advanced payments under the MAAPP

Funds during the COVID -19 pandemic.

Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided.

applied for and received approval from Centers for Medicare & Medicaid Services (“CMS”) in April 2020.

The Company recorded the $ 14.1

million in advance payments received as a liability.

During the three months ended March 31, 2021, the Company repaid the MAAPP Funds of $ 14.1

million rather than applying them to future services performed .

During the three months ended March 31, 2022 and 2021, the Company did no t record any income from payments under the CARES Act.

Significant Accounting Policies

15 unchanged sentences

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

The Company did no t note an impairment to long-lived assets during the nine months ended September 30, 2021 .

Goodwill represents the excess of the amount paid and fair value of the non-controlling interest over the

The Company did no t note an impairment to long-lived assets during the three months ended March 31, 2022 .

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.

3 unchanged sentences

non-controlling interest 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 events or conditions, and are written

down to fair value if considered impaired.

Goodwill and other indefinite-lived intangible assets are not amortized but are instead subject to periodic

impairment evaluations.

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

loss combined with a history of such losses or a projection of continuing losses;

a current period operating or cash flow loss 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 events or conditions could significantly impact an impairment assessment, necessitating an impairment charge.

The Company evaluates indefinite lived tradenames using the relief from royalty method in conjunction with its annual goodwill

impairment test.

The Company operates a two segment business which is made up of various clinics within partnerships, and the other is industrial injury

prevention services business.

The partnerships are components of regions and are aggregated to the operating segment level for the purpose of determining the Company’s reporting units when performing its annual goodwill impairment test (there

were six regions in both 2020 and 2019 in the physical therapy operations segment).

In addition to the six regions mentioned prior, the impairment analysis included a separate analysis for the industrial injury

prevention services business, as a separate reporting unit.

The occurrence of one of these

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 Company has a two operating segment business which is made up of various clinics within partnerships, and an industrial injury prevention services business.

The partnerships are components of regions

and are aggregated to the operating segment level for the purpose of determining the Company’s reporting units when performing its annual goodwill impairment test.

In 2021 and 2020, there were six regions.

In addition to the six regions, the impairment analysis included a separate analysis for the industrial injury prevention services business, as a

separate reporting unit.

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.

7 unchanged sentences

The evaluation of goodwill in 2021 and 2020 did not result in any goodwill amounts that were deemed impaired.

During the nine months ended September 30, 2020, the Company derecognized (wrote-off) goodwill in the amount of $ 1.9 million related to closed clinics due to COVID-19.

As part of the annual assessment, the Company evaluated whether events or circumstances indicated that it was more likely than not that

the fair value of the reporting units were reduced below their carrying value as of December 31, 2021.

As a result of the assessment, the Company determined that it was not more likely than not that goodwill and tradenames of the reporting

units were impaired as of December 31, 2021.

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

Redeemable Non-Controlling Interest

21 unchanged sentences

Non-Controlling Interest

The Company recognizes non-controlling interests, in which the Company has no obligation but the right to purchase the non-controlling interests, as permanent equity in the

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

consolidated financial statements separate from the parent entity’s equity.

27 unchanged sentences

settlement with the relevant tax authority.

On March 27, 2020 , the CARES Act was

The CARES Act includes changes to certain tax law related to net operating losses and the deductibility of interest expense and depreciation.

ASC 740 , Income Taxes

requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted.

The legislation had no effect on the Company’s deferred income taxes and current income taxes payable

during the nine months ended September

The CARES Act includes changes to certain tax law related to net operating losses and the deductibility of

interest expense and depreciation.

ASC 740 , Income Taxes requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which

the legislation is enacted.

The legislation had no effect on the Company’s deferred income taxes and current income taxes payable during the three months ended March 31, 2022 .

The Company did no t have any accrued interest or

penalties associated with any unrecognized tax benefits no r was any interest expense recognized during the nine months ended September 30, 2021.

The Company records any interest or penalties, if required, in interest and other

expense, as appropriate.

penalties associated with any unrecognized tax benefits no r was any interest expense recognized during the three months ended March 31, 2022.

The Company records any interest or penalties, if required, in interest and other expense,

as appropriate.

Fair Value of Financial Instruments

1 unchanged sentence

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 under the Amended Credit Agreement and the redemption value of

Redeemable non-controlling interest approximate the respective fair values.

The fair value of the Company’s redeemable non-controlling interest is determined based on “Level 3 ”

The carrying amount under the Amended Credit Agreement (as defined in Note 9)

approximates the fair value.

The interest rate on the Amended Credit Agreement is tied to the London Interbank Offered Rate (“LIBOR”).

Provisions within the agreement currently provide the Company with the ability to replace LIBOR with a different reference rate in the

event LIBOR ceases to exist .

Provisions within the agreement currently provide the Company with the ability to replace LIBOR with a different

reference rate in the event LIBOR ceases to exist.

The redeemable non-controlling interest included on the consolidated balance sheets and the put right

associated with the potential future purchase of the separate company in the November 2021 acquisition (as described in Note 2) are both marked to fair value on a recurring basis using level 3 inputs.

The redemption value of redeemable

non-controlling interests approximates the fair value.

The put right associated with the potential future purchase of the separate company in the November 2021 acquisition is determined using a Monte Carlo simulation model utilizing unobservable

inputs such as asset volatility and discount rates.

The unobservable inputs in the valuation include asset volatility of 25 % and a

discount rate of 9.93 %.

See Note 5 for the changes in the fair value of redeemable non-controlling interest.

The put right decreased $ 603 thousand for the three months ended March 31, 2022 and was valued at $ 2.9

million on March 31, 2022.

Segment Reporting

14 unchanged sentences

Management believes that the current accrued

amounts are sufficient to pay claims arising from self-insurance claims incurred through September 30, 2021.

amounts are sufficient to pay claims arising from self-insurance claims incurred through March 31, 2022.

Restricted Stock

5 unchanged sentences

For those granted

to officers, the restrictions will lapse in equal quarterly installments during the four years following the date of grant.

to officers, the restriction will lapse in equal quarterly installments during the four years following the date of grant.

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.

3 unchanged sentences

Recently Adopted Accounting Guidance

In June 2016 , the FASB issued ASU

2016-13 , Financial Instruments – Credit Losses, which added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses

rather than incurred losses.

Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses.

The CECL model applies to most debt instruments, including trade receivables.

The CECL model does not have a minimum

threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss.

The standard is required to be applied using the modified retrospective approach with a

cumulative-effect adjustment to retained earnings, if any, upon adoption.

The Company completed the adoption of the standard on January 1, 2020 .

The financial instruments subject to ASU 2016-13 are the Company’s accounts receivable derived from contracts with customers.

A significant portion of the Company’s accounts receivable are from highly-solvent,

creditworthy payors including governmental programs such as Medicare and Medicaid, and highly regulated commercial insurers.

The Company’s estimate of expected credit losses as of January 1, 2020 , using its expected credit loss evaluation process, resulted in no adjustments to the allowance for credit losses and no cumulative-effect adjustment to retained earnings on the adoption date of the standard.

In January 2017 , the FASB issued ASU 2017-04 , Simplifying the Test for Goodwill Impairment (Topic 350 ), which eliminates the requirement to calculate the implied fair value of goodwill to measure a

goodwill impairment charge.

ASU 2017-04 is effective prospectively for fiscal years, and the interim

periods within those years, beginning after December 15, 2019 .

The Company completed the adoption of the

standard effective January 1, 2020 and there was no impact to goodwill from the Company’s adoption of this change.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)–Simplifying the Accounting for Income

Taxes (“ASU 2019-12”).

The objective of ASU 2019-12 is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of

financial statements.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and early adoption was permitted.

The adoption of ASU 2020-06 did not have a material impact on the Company’s financial statements.

In August 2020, the FASB issued ASU 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and

Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of

liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

As part of this update, convertible instruments are to be included in diluted earnings per share using the if-converted method, rather than the

treasury stock method.

Further, contracts which can be settled in cash or shares, excluding liability-classified share-based payment awards, are to be included in diluted earnings per share on an if-converted basis if the effect is dilutive,

regardless of whether the entity or the counterparty can choose between cash and share settlement.

The share-settlement presumption may not be rebutted based on past experience or a stated policy.

This pronouncement was effective for fiscal years, and for interim periods within those fiscal years,

beginning after December 15, 2021.The Board specified that an entity should adopt the guidance at the beginning of its annual fiscal year.

The Company adopted this pronouncement as of January 1, 2022.

The use of either the modified retrospective or

fully retrospective method of transition is permitted.

The adoption of ASU 2020-06 did not have a material impact on the Company’s financial statements.

Recently Issued Accounting Guidance

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LIBOR ceases to exist.

In August 2020 , the FASB issued ASU

2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20 ) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic

Accounting for Convertible Instruments and Contracts in an

Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and

contracts on an entity’s own equity.

As part of this update, convertible instruments are to be included in diluted earnings per share using the if-converted method, rather than the treasury stock method.

Further, contracts which can be settled in

cash or shares, excluding liability-classified share-based payment awards, are to be included in diluted earnings per share on an if-converted basis if the effect is dilutive, regardless of whether the entity or the counterparty can choose

between cash and share settlement.

The share-settlement presumption may not be rebutted based on past experience or a stated policy.

This pronouncement is effective for fiscal years, and for interim periods within those fiscal years,

beginning after December 15, 2021 .

The Company plans to adopt this pronouncement as of January 1, 2022 .

The use of either the modified retrospective or fully retrospective method of transition is permitted.

The Company is currently evaluating the impact of the adoption of ASU 2020-06 on the Company’s consolidated

financial statements .

ACQUISITIONS OF BUSINESSES

On September 30, 2021, the Company acquired a company that specializes in return-to-work and ergonomic

services, among other offerings.

The business generates more than $ 2.0 million in annual revenue.

USPH acquired the company’s assets at a

purchase price of approximately $ 2.7 million and contributed those assets to industrial injury prevention services subsidiary.

initial purchase price (not inclusive of the $ 0.6 million contingent payment in conjunction with the acquisition if specified future

operational objectives are met) was paid in cash of $ 2.4 million and $ 0.3 million in the form of a note payable.

The note accrues interest at 3.25 %

per annum and the principal and interest is payable on September 30, 2023.

On June 30, 2021, the Company acquired a 65 % interest in an

eight -clinic physical therapy practice with the practice founder retaining 35 %.

The purchase price was approximately $ 10.3 million, of which $ 9.0 million was paid in cash, $ 1.0 million

is payable based on the achievement of certain business criteria and $ 0.3 million is in the form of a note payable.

March 31, 2022, the Company acquired a 70 % interest in a six -clinic physical therapy practice in South Central Pennsylvania – Madden and Gilbert Physical Therapy, LLC.

The practice’s owners retained 30 % of the equity interests.

The purchase price for the 70 %

equity interest was approximately $ 11.5 million.

of which $ 11.2 million was paid in cash and $ 0.3 million in the form of a note payable.

The note accrues

interest at 3.25 % per annum and the principal and interest is payable on June 30, 2023.

Additionally, the Company has an obligation to pay an additional amount up to $ 0.8 million in contingent payment consideration in

conjunction with the acquisition if specified future operational objectives are met.

The Company recorded acquisition-date fair value of this contingent liability based on the likelihood of the contingent earn-out payment.

The earn-out payment will

subsequently be remeasured to fair value each reporting date.

On March 31, 2021, the Company acquired a 70 % interest in a five -clinic physical therapy practice with the practice founder retaining 30 % .

When acquired, the practice was developing a sixth clinic which has been completed.

The purchase price for the 70 % interest was approximately $ 12.0 million, of which $ 11.7 million was paid in cash and $ 0.3 million in the form of a note payable.

The note accrues interest at 3.25 % per annum and the principal and interest is payable on March 31, 2023.

The purchase price plus the fair value of the non-controlling interest for the acquisitions in 2021 was 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

The Company is in the process of completing its formal valuation analysis of the 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 at September 30, 2021 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.

For the acquisitions in 2021, the estimated values assigned to the referral relationships and non-compete

agreements are being amortized to expense equally over the respective estimated lives.

For referral relationships, the amortization period is 12.0

For non-compete agreements, the amortization period is 6.0 years.

T he results of operations of the acquired clinics have been included in the Company’s consolidated

financial statements since the date of their respective acquisitio n.

T he purchase price for the 2021 acquisitions has been preliminarily allocated as follows (in thousands) :

interest at 3.5 % per annum and the principal and interest are payable on March 31, 2024.

T he purchase price for the 2022 acquisition has been preliminarily allocated as follows (in thousands) :

Cash paid, net of cash acquired

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Estimated fair value of net tangible assets acquired:

Total current assets

Total non-current assets

Total liabilities

Net tangible assets acquired

Referral relationships

Customer and referral relationships

Non-compete agreements

Fair value of non-controlling interest (classified as redeemable non-controlling interest)

On November 30, 2020, the Company acquired a 75 % interest in a three -clinic physical therapy practice.

The purchase price for the 75 % interest was $ 8.9 million

(net of cash acquired), of which $ 8.6 million was paid in cash and

$ 0.3 million in the form of a note payable that is payable in two principal installments totaling $ 162,500 each.

The first principal payment plus accrued interest will be paid in November 2021 with the second

installment to be paid in November 2022.

The note accrues interest at 3.25 % per annum.

On September 30, 2020, the Company acquired a 70 % interest in an entity which holds six -management contracts that have been in place for a number of years.

The purchase price for the 70 % interest was approximately $ 4.2 million, of which $ 3.7 million was paid in cash and $ 0.5 million in the form of two notes payable.

One of the notes payable of $ 0.3 million was paid in November 2020.

The remaining note payable of $ 0.2 million was paid on September 30, 2021.

On February 27, 2020, the Company acquired interests in a four -clinic

physical therapy practice.

The four clinics are in four separate partnerships.

The Company’s interests in the four partnerships range from 10.0 % to 83.8 %, with an overall 65.0 % based on the initial purchase transaction.

The aggregate purchase price was $ 11.9 million, of which $ 11.6 million was paid in cash and $ 0.3 million in the form of a note payable.

The note accrues interest at 4.75 % per annum and the principal and interest is payable on February 2022.

T he results of operations of the acquired clinics have been included in the Company’s consolidated

financial statements since the date of their respective acquisition.

For the 2021 and 2020 acquisitions, a majority of total current assets primarily represents accounts

Total non-current assets are fixed assets and equipment used in the practic e.

The purchase price for the 2020 acquisitions has been allocated as follows (in thousands):

On December 31, 2021, the Company acquired a 75 % in three -clinic physical therapy practice with the practice

founder retaining 25 %.

The purchase price for the 75 % interest was approximately $ 3.7 million, of which $ 3.5 million was paid in cash and $ 0.2 million in the form of a

note payable.

The note accrues interest at 3.25 % per annum and the principal and interest are payable on December 31, 2023.

On November 30, 2021, the Company acquired an approximate 70 % interest in a leading provider of industrial injury prevention services.

The previous owners retained the remaining interest.

The purchase price for the approximate 70%

equity interest, not inclusive of a $ 2.0 million contingent payment, was approximately $ 63.2 million of which $ 62.2 million was paid in cash and $ 1.0 million in the form of a note payable.

The note accrues interest at 3.25 % per annum and the principal and interest is payable on November 30, 2023.

As part of the transaction, the Company also agreed to the potential future purchase of a separate company under the same ownership

that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area.

The current owners have the right to put this transaction to the Company in approximately five years , with such right having an initial fair value of $ 3.5 million value on December 31, 2021, as reflected on the Company’s consolidated balance sheet in Other long-term liabilities.

The value of this right will be adjusted in future periods, as appropriate, with any

change in value reflected in the Company’s consolidated statement of income.

The Company does not currently possess any of the controlling interests in this separate company, does not control this company through contract or governance rights and

currently does not exercise significant influence over this separate company.

Due to these reasons, and based on current accounting guidance, the Company did not consolidate the separate company through the variable interest or voting interest

On March 31, 2022, the fair value of this right was $ 2.9 million.

The decrease was reflected in the consolidated statement of

income in the line item - Gain on revaluation of put-right liability .

On September 30, 2021, the Company

acquired a company that specializes in return-to-work and ergonomic services, among other offerings.

The Company acquired the company’s assets at a purchase price of approximately $ 3.3 million (which includes the obligation to pay an amount up to $ 0.6

million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met) and contributed those assets to the industrial injury services business.

The initial purchase price, not inclusive

of the $ 0.6 million contingent payment, was approximately $ 2.7 million, of which $ 2.4 million was paid in cash, and $ 0.3 million is in the form of a note payable.

The note accrues interest at 3.25 % per annum and the principal and interest are payable on September 30, 2023.

On June 30, 2021, the Company

acquired a 65 % interest in an eight -clinic

physical therapy with the previous owners retaining 35 %.

The purchase price was approximately $ 10.3 million, of which $ 9.0 million was

paid in cash, $ 1.0 million is payable based on the achievement of certain business criteria and $ 0.3 million is in the form of a note payable.

The note accrues interest at 3.25 % per annum and the principal and interest are payable on June 30, 2023.

recorded acquisition-date fair value of this contingent liability based on the likelihood of the contingent earn-out payment.

The earn-out payment will subsequently be remeasured to fair value each reporting date.

On March 31, 2021, the Company

acquired a 70 % interest in a five -clinic

physical therapy practice with the previous owners retaining 30 %.

When acquired, the practice was developing a sixth clinic which has

been completed.

The purchase price for the 70 % interest was approximately $ 12.0 million, of which $ 11.7 million was paid in cash and $ 0.3 million in the form of a note payable.

The note accrues interest at 3.25 % per annum and the principal and interest are payable on March 31, 2023.

The purchase price for the 2021 acquisitions has been preliminarily allocated as follows (in thousands):

Physical Therapy

Cash paid, net of cash acquired

Contingent payments

Other payable

Seller put right

Total consideration

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Net tangible assets acquired

Referral relationships

Customer and referral relationships

Non-compete agreements

Fair value of non-controlling interest (classified as redeemable non-controlling interest)

Industrial injusry prevention services

The results of operations of the acquired clinics have been included in the Company’s consolidated financial statements since the date of their respective acquisition.

For the 2022 and 2021 acquisitions, a majority of total current assets primarily represents accounts receivable.

Total non-current assets are fixed assets and equipment

used in the practice.

The purchase prices plus the fair value of the non-controlling interests for the acquisitions in 2021 were allocated to the fair value of the assets acquired, inclusive of

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trade names, referral relationships and non-compete agreements, and liabilities assumed based on the fair values at the acquisition date, with the amount exceeding the fair values being recorded as goodwill.

For the acquisitions in 2020, the values assigned to the referral relationships and non-compete agreements

are being amortized to expense equally over the respective estimated lives.

For referral relationships, the weighted average amortization period w as 13.0 years at December 31, 2020.

For non-compete agreements, the weighted average amortization period was 6.0

years at December 31, 2020.

For the acquisitions in 2021, the values assigned to the customer and referral relationships and

non-compete agreements are being amortized to expense equally over the respective estimated lives.

For customer and referral relationships, the weighted-average amortization period w as 13.8 years.

For non-compete agreements, the weighted-average amortization period was 5.6 years at the end of the year.

The values assigned to tradenames are tested annually for impairment .

The consideration paid for each of the acquisitions was derived through arm’s length negotiations.

Funding for the cash portions was derived from proceeds from the

Company’s revolving credit facility.

The results of operations of the acquisitions have been included in the Company’s consolidated financial statements since their respective date of acquisition.

Unaudited proforma consolidated financial information

for the acquisitions in 2021 and 2020 have not been included, as the results, individually and in the aggregate, were not material to current operations.

The consideration paid for each of the

acquisitions was derived through arm’s length negotiations.

Funding for the cash portions was derived from proceeds from the Company’s revolving credit facility.

The results of operations of the acquisitions have been included in the Company’s

consolidated financial statements since their respective date of acquisition.

Unaudited proforma consolidated financial information for the acquisitions in 2022 and 2021 have not been included, as the results, individually and in the aggregate,

were not material to current operations.

The purchase price plus the fair

value of the non-controlling interest for the acquisitions in 2022 and those acquired after March 31, 2021 was 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 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 March 31, 2022 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 purchase price allocation for the March 2021 Acquisition has been finalized.

The Company continues to evaluate the components for the purchase price

allocations for other acquisitions in 2021.

For the acquisitions in 2022, the

values assigned to the customer and referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives.

For customer and referral relationships, the weighted-average amortization period is

For non-compete agreements, the weighted-average amortization period is 5.0 years.

The values assigned to tradenames are tested annually for impairment.

The results of operations of the acquired clinics have been included in the Company’s consolidated financial statements since the date of their respective acquisition.

REVENUE RECOGNITION

Revenues are recognized in the period in which services are rendered.

Net patient revenue consists of revenue 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) 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 for payments to the Company at amounts different from its established rates.

The allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience.

N et patient revenue consists of revenue 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) 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 for payments to the Company at amounts different from its established rates.

The allowance for estimated contractual adjustments is based on terms of

payor contracts and historical collection and write-off experience.

Management contract revenue, which is included in other revenue in the consolidated statements of net income, is derived from contractual arrangements whereby the Company

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Costs, typically salaries for our employees, are recorded when incurred.

Revenue from the industrial injury prevention services segment, which is also 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 and performance optimization.

Revenue from the industrial injury prevention services segment is recognized when obligations under

the terms of the contract are satisfied.

Revenue from the industrial injury prevention services segment, which is also 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 and performance optimization.

Revenue from the industrial injury prevention services segment is recognized when

obligations under the terms of the contract are satisfied.

Revenue is 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.

Additionally, other revenue includes services the Company provides on-site, such as schools, for physical or occupational therapy services, and fees from athletic trainers.

The revenue is determined

and recognized based on the number of hours and respective rate for services provided in a given period.

Additionally, other revenue includes services the Company provides on-site, such as schools, for physical or occupational therapy services, and fees from athletic

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 liability over the period of the agreement and recognized at the point in time, when the services are performed.

If the services are paid in advance,

revenue is recorded as a liability over the period of the agreement and recognized at the point in time, when the services are performed.

The Company determines credit losses based on the specific agings and payor classifications at each clinic.

The provision for credit losses is included in clinic operating cost in the statements of net income.

Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and provision for credit

losses, includes only those amounts the Company estimates to be collectible .

Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and provision for

credit losses, includes only those amounts the Company estimates to be collectibl e.

The following table details the revenue related to the various categories (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Net patient revenue

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Medicare Reimbursement

The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee

T he Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee

Schedule (“MPFS”).

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mandatory budget neutrality adjustment.

In the 2020 MPFS Final Rule, CMS revised coding, documentation guidelines, and increased the code values for

office/outpatient evaluation and management (E/M) codes and cuts to other codes to maintain budget neutrality of the MPFS beginning in 2021.

Under the 2021 MPFS Final Rule, CMS increased the values for the E/M office visit codes and cuts to other

specialty codes to maintain budget neutrality.

As a result, CMS

projected a 9 % decrease in fee schedule payment rates for therapy services set to take effect in 2021.

However, Congress intervened with passage of the Consolidated

Appropriations Act, 2021 and reimbur sement for the codes applicable to physical/occupational therapy services provided by our clinics received an estimated 3.5 % decrease in the aggregate in payment from Medicare in calendar year 2021 as compared

In the 2022 MPFS Final Rule published on November 2, 2021,

there is an approximately 3.75 % reduction to Medicare payments for physical/occupational therapy services.

This is due to the

the 2020 MPFS Final Rule, The Centers for Medicare and Medicaid Services (“CMS”) revised coding, documentation guidelines, and increased the code values for office/outpatient evaluation and management (“E/M”) codes and cuts to other codes to

maintain budget neutrality of the MPFS beginning in 2021.

Under the 2021 MPFS Final Rule, CMS increased the values for the E/M office visit codes and made cuts to other specialty codes to maintain budget neutrality.

As a result, CMS projected a 9 % decrease in fee schedule payment rates for therapy services set to take effect in 2021.

However, Congress intervened with passage of the

Consolidated Appropriations Act, 2021 and reimbursement for the codes applicable to physical/occupational therapy services provided by our clinics received an estimated 3.5 % decrease in the aggregate in payment from Medicare in calendar year 2021 as compared to 2020.

In the 2022 MPFS Final Rule published on November 2, 2021, there

was to be an approximately 3.75 % reduction to Medicare payments for physical/occupational therapy services.

This was due to the

expiration of the additional funding to the conversion factor provided by Congress in 2021 under the Consolidated Appropriations Act, 2021.

addition, without regulatory or Congressional action, we expect the Medicare payment rates in 2023 to be equal to the rates in 2022.

Further, without regulatory or Congressional action, we expect an additional approximately 3 % decrease in the aggregate payment from Medicare in calendar year 2024 as compared to 2023.

The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over

the next ten years , and requires automatic reductions in federal

spending by approximately $ 1.2 trillion.

Payments to Medicare

providers are subject to these automatic spending reductions, subject to a 2 % cap.

On April 1, 2013, a 2 % reduction to Medicare

payments was implemented.

The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2 % reductions to Medicare payments through fiscal year 2025.

The Bipartisan Budget Act of 2018, enacted on February 9, 2018, extends the 2 % reductions to Medicare payments through fiscal year 2027.

The CARES Act suspended the 2 % payment reduction to Medicare payments for dates of service from May 1, 2020 through

December 31, 2020.

However, this reduction was addressed in the Protecting Medicare and American Farmers from Sequester Cuts Act (“2021 Act”) signed into law on December 10, 2021.

Based on various provisions in the 2021 Act, the Company now estimates that the Medicare rate reduction for the full year of 2022 will be approximately 0.75 %.

The 2021 Act did not address the 15 % reduction in Medicare payments for services

performed by a physical or occupational therapist assistant, which began on January 1, 2022.

In addition, the Consolidated Appropriations Act, 2021 includes reductions in Medicare payment rates of approximately 3 % in each of calendar years 2023 and 2024, unless regulatory or Congressional action results in modifications to such rates as has occurred in

2021 and 2022.

The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions

over the next ten years and requires automatic reductions in federal spending by approximately $ 1.2 trillion.

Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2 % cap.

On April 1, 2013, a 2 % reduction to Medicare payments

was implemented.

The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2 % reductions to Medicare payments through

fiscal year 2025.

The Bipartisan Budget Act of 2018, enacted on February 9, 2018, extends the 2 % reductions to Medicare payments through

fiscal year 2027.

T he CARES Act suspended the 2 % payment reduction to Medicare payments for dates of service from May 1, 2020, through December 31, 2020.

The Consolidated Appropriations Act, 2021 further suspended the 2 % payment reduction until March 31, 2021.

On April 14, 2021, additional legislation was enacted that waived the 2 % payment reduction for the remainder of calendar 2021 .

Absent further legislative action, the 2 % reduction will be implemented on January 1, 2022.

On April 14, 2021, additional legislation was

enacted that waived the 2 % payment reduction for the remainder

of calendar 2021 .

The 2021 Act, which was signed into law on December 10, 2021, included a three-month extension of the 2 % sequester relief applied to all Medicare payments through March 31, 2022, followed by three months of 1 % sequester relief through June 30, 2022.

Sequester relief is scheduled to then end on June 30, 2022.

Beginning in 2021, payments to individual therapists (Physical/Occupational Therapist in Private Practice)

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providers currently participate in MIPS.

Under the MIPS requirements, a provider’s performance is assessed according to established performance standards each year and then is used to determine an adjustment factor that is applied to the

professional’s payment for the corresponding payment year.

The provider’s MIPS performance in 2019 will determine the payment adjustment in 2021.

For those therapist providers who actually participated in MIPS during 2019, the resulting average

payment adjustment was an increase of 1 % .

Under the MIPS requirements, a provider ’ s performance is assessed according to established performance standards each year and then is

used to determine an adjustment factor that is applied to the professional ’ s payment for the corresponding payment year.

The provider’s MIPS performance in 2019 will determine

the payment adjustment in 2021.

For those therapist providers who actually participated in MIPS during 2019, the resulting average payment adjustment was an increase of 1 % .

Under the Middle-Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients

who met or exceeded $3,700 in therapy expenditures during a calendar year have been subject to a manual medical review to determine whether applicable payment criteria are satisfied.

The $ 3,700 threshold is applied to Physical Therapy and Speech Language Pathology Services;

who met or exceede d $ 3,700 in therapy expenditures during a calendar year have been subject to a manual medical review to

determine whether applicable payment criteria are satisfied.

The $ 3,700 threshold is applied to Physical Therapy and Speech Language

Pathology Services;

a separate $ 3,700 threshold is applied to the Occupational Therapy.

The MACRA directed CMS to

modify the manual medical review process such that those reviews will no longer apply to all claims exceeding the $ 3,700 threshold and instead will be determined on a targeted basis based on a variety of factors that CMS considers

The MACRA directed CMS to modify the manual

medical review process such that those reviews will no longer apply to all claims exceeding the $ 3,700 threshold and instead will be

determined on a targeted basis based on a variety of factors that CMS considers appropriate.

The Bipartisan Budget Act of 2018 extends the targeted medical review indefinitely but reduces the threshold to $ 3,000 through December 31, 2027.

2028, the threshold amount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequent years the threshold amount will increase based on the corresponding percentage increase in the MEI for such

subsequent year.

For 2028, the threshold amount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequent

years the threshold amount will increase based on the corresponding percentage increase in the MEI for such subsequent year.

CMS adopted a multiple procedure payment reduction ( “ MPPR ” ) for therapy services in the final update to the MPFS for calendar year 2011.

The MPPR applied to all

outpatient therapy services paid under Medicare Part B — occupational therapy, physical therapy and speech-language pathology.

Under the policy, the Medicare program pays 100 % of the practice expense component of the Relative Value Unit (‘‘RVU’’) for the therapy procedure with the highest practice expense RVU, then reduces the payment for the practice expense component for the second

and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy services are furnished in separate sessions.

In 2013, the practice expense component for the second and

subsequent therapy service furnished during the same day for the same patient was reduced by 50 %.

The MPPR applied to all outpatient therapy services paid under Medicare Part B — occupational therapy, physical therapy and speech-language

Under the policy, the Medicare program pays 100 % of the practice expense component of the Relative Value Unit ( “ RVU ” ) for the therapy procedure with the highest practice expense RVU, then reduces the payment for the

practice expense component for the second and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy services are furnished in separate sessions.

practice expense component for the second and subsequent therapy service furnished during the same day for the same patient was reduced by 50 %.

Medicare claims for outpatient therapy services furnished by therapist assistants on or after January 1, 2020 must include a modifier indicating the service was furnished

by a therapist assistant.

Outpatient therapy services furnished on or after January 1, 2022 in whole or part by a therapist assistant will be paid at an amount equal to 85 % of the payment amount otherwise applicable for the service.

Outpatient therapy services furnished on or after January 1, 2022, in whole or part by a therapist assistant are paid at an amount equal to 85 % of the payment amount otherwise applicable for the service.

Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare

beneficiaries are complex and subject to interpretation.

We believe that we are in compliance, in all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations

of potential wrongdoing that would have a material effect on our financial statements as of September 30, 2021.

Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant

regulatory action including fines, penalties, and exclusion from the Medicare program.

For the three months ended September 30, 2021 and 2020, respectively, net patient revenue from Medicare were approximately $ 36.2 million and $ 27.5 million, respectively.

For the nine months ended September 30, 2021 and 2020, respectively, net patient

revenue from Medicare were approximately $ 98.3 million and $ 71.9 million, respectively.

Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare that

sufficiently compensate us for our services or, in some instances, cover our operating costs.

Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on our revenue, financial condition and results

of operations.

Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our business, financial condition and results of operations.

The Company believes that the Company is in compliance, in all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations

involving allegations of potential wrongdoing that would have a material effect on the Company ’ s financial statements as of March 31, 2022.

Compliance with such laws and

regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program.

For the three months ended March 31, 2022, and 2021,

respectively, net patient revenue from Medicare was approximately $ 35.6 million and $ 26.6 million, respectively.

Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, the Company may not continue to receive reimbursement rates from

Medicare that sufficiently compensate us for the Company ’ s services or, in some instances, cover the Company ’ s operating costs.

Limits on reimbursement rates or the scope of services being reimbursed could have a

material adverse effect on the Company ’ s revenue, financial condition and results of operations.

Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect the Company ’ s business, financial condition and results of operations.

Contractual Allowances

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allowance reserve estimate would not likely be more than 1.0 % to

1.5 % at September 30, 2021.

1.5 % at March 31, 2022.

A contract’s transaction price is allocated to each distinct performance obligation and recognized when, or as, the performance obligation is satisfied.

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services and satisfied its obligation to the customer for the reimbursement rates stipulated in the payor contracts (i.e.

the transaction price), the Company recognizes the revenue, net of contractual allowances, in the period in which the

services are rendered.

The Company recognizes the full amount of revenue and reports the contractual allowances as a contra (or offset) revenue account to report a net revenue number based on the expected collections.

the transaction price), the Company recognizes the revenue, net of contractual allowances, in the period in which the services

are rendered.

The Company recognizes the full amount of revenue and reports the contractual allowances as a contra (or offset) revenue account to report a net revenue number based on the expected collection s.

EARNINGS PER SHARE

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Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Computation of earnings per share - USPH shareholders:

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Revaluation of redeemable non-controlling interest

Tax effect at statutory rate (federal and state) of 25.55 % and 26.25 %, respectively

Tax effect at statutory rate (federal and state) of 25.55 %

Earnings per share (basic and diluted)

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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

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 small, 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 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 small, 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

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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”).

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

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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.

The Non-Compete Agreement applies to a restricted region which is defined as a 15-mile radius from the Therapy Practice.

The Non-Compete Agreement applies to a restricted region which is defined as a defined mile radius from the Therapy Practice.

That is, an Employed Selling Shareholder is permitted to

engage in competing businesses or activities outside the 15-mile radius (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 business or activities outside the 15-mile radius.

engage in competing businesses or activities outside the defined mileage (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 business or activities outside the defined mileage.

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

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NewCo.; Therefore, the undistributed earnings amount is small, if any.

The Purchase Price for the initial equity interest purchased by the Company is, in almost all cases, 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.

The Purchase Price for the initial equity interest purchased by the Company is, in almost all cases, 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.

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

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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 industrial injury prevention and therapy services businesses.

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 “Selling Shareholders”), who work in and manage the Progressive business.

In conjunction with the acquisition, the Selling Shareholders caused the Progressive Parent to transfer its ownership of the Progressive

Subsidiaries into a newly-formed limited liability company (“NewCo”), in exchange for one hundred percent ( 100 %) of the

membership interests in NewCo.

Therefore, in this step, NewCo became wholly-owned by the Selling Shareholders.

The Company entered into an agreement (the “Purchase Agreement”) to acquire from the Selling Shareholders a majority of the membership

interest in 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 “Purchase Price”).

The Company and the Selling Shareholders also executed an operating agreement (the “Operating Agreement”) for NewCo that sets forth the

rights and obligations of the members of NewCo.

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

The Company and the Selling Shareholders executed a non-compete agreement (the “Non-Compete Agreement”) which restricts the Selling

Shareholders from competing for a specified period of time (the “Non-Compete Term”).

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

Two years after the date a

Selling Shareholder no longer is involved in the management of NewCo or

Seven years from the

date of the acquisition.

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

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

The Operating Agreement contains provisions for the redemption of the Selling Shareholder’s Interest, either at the option of the Company (the “Call

Right”) or at the option of the Selling Shareholder (the “Put Right”) as follows:

Each of the 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 Selling Shareholder terminates his management relationship with NewCo for any reason on or after the seventh

anniversary of the Closing Date, the Selling Shareholder has the Put Right, and upon the exercise of the Put Right, the Selling Shareholder’s Interest shall be redeemed by the Company at the purchase price described in “3” below.

If any Selling Shareholder’s ceases to perform management services on behalf of NewCo, the Company thereafter shall have an

irrevocable right to purchase from such Selling Shareholder his Interest, in each case 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 is 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.

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

Neither the Operating Agreement nor the Non-Compete Agreement contain any provision to escrow or “claw back” the equity interest in NewCo held by the

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 Selling Shareholders perform services on behalf of NewCo.

The Company’s only recourse against

the 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 Selling Shareholder that would result in a forfeiture of the

equity interest in NewCo held by a Selling Shareholder.

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

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held in the Seller Entity or of the Seller Entity Interest.

For the three and nine months ended September 30, 2021 and 2020 , the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interest (in thousands):

For the dates indicated, the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interest (in thousand s):

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

December 31, 2021

Beginning balance

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

September 30 ,

Contractual time period has lapsed but holder’s employment has not been terminated

Contractual time period has not lapsed and holder’s employment has not been terminated

March 31, 2022

December 31, 2021

Contractual time period has lapsed but holder’s employment has not terminated

Contractual time period has not lapsed and holder’s employment has not terminated

Holder’s employment has terminated and contractual time period has expired

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The changes in the carrying amount of goodwill consisted of the following (in thousands):

Nine Months Ended

September 30, 2021

Three Months Ended

March 31, 2022

December 31, 2021

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Goodwill acquired

Goodwill derecognition (write-off) related to closed clinics

Goodwill adjustments for purchase price allocation of businesses acquired in prior year

Ending balance

The derecognition (write-off) o f goodwill in the amount of $ 1.9 million during the year 2020 was related to certain clinics that have been permanently closed.

INTANGIBLE ASSETS, NET

Intangible assets, net as of September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30, 2021

Intangible assets, net as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

March 31, 2022

December 31, 2021

Referral relationships, net of accumulated amortization of $ 16,934 and $ 14,522 , respectively

Customer and referral relationships, net of accumulated amortization of $ 19,959 and $ 17,762 , respectively

Non-compete agreements, net of accumulated amortization of $ 6,597 and $ 6,450 , respectively

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The value assigned to referral relationships is being amortized over their respective estimated useful lives

which range from six to thirteen years .

which range from six to fourteen years .

Non-compete agreements are amortized over the respective term of the agreements which range from five to six years .

The following table details the amount of amortization expense recorded for intangible assets for the three

and nine months ended September 30, 2021 and 2020 (in thousands) :

The following table details the amount of amortization expense recorded for intangible assets for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Referral relationships

Three Months Ended

March 31, 2022

March 31, 2021

Customer and referral relationships

Non-compete agreements

Based on the balance of referral relationships and non-compete agreements as of September 30, 2021, the

expected amount to be amortized in 2021 and thereafter by year is as follows (in thousands) :

Referral Relationships

Based on the balance of referral relationships and non-compete agreements as of

March 31, 2022, the expected amount to be amortized in 2022 and thereafter by year is as follows (in thousand s):

Customer and Referral Relationships

Non-Compete Agreements

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Ending December 31,

2021 (excluding the nine months ended September 30 , 2021 )

(excluding the three months ended March 31, 2022)

ACCRUED EXPENSES

Accrued expenses as of September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30, 2021

Accrued expenses as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

March 31, 2022

December 31, 2021

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Closure costs

Federal income taxes payable

MAAPP funds payable

Deferred employer payroll taxes - CARES ACT

See Note – 1 Basis of Presentation and Significant Accounting Policies – Impact of COVID-19 for a discussion of CARES Act and MAAPP funds.

Closure costs consist primarily

of remaining lease commitments related to closed clinics.

Federal taxes payable

Dividend payable to USPH shareholders

Contingent payments related to acquisition

Settlement of a legal matter

NOTES PAYABLE AND AMENDED CREDIT AGREEMENT

Amounts outstanding under the Amended Credit Agreement (as defined below) and notes payable as of September 30, 2021 and December 31, 2020 consisted of the following (in

September 30, 2021

Amounts outstanding under the Amended Credit Agreement (as defined below) and notes payable as of March 31, 2022 and December 31, 2021 consisted of the following (in

March 31, 2022

December 31, 2021

Credit Agreement average effective interest rate of 2.6 % for both September 30, 2021 and December 31, 2020, (inclusive of unused fee)

Credit Agreement average effective interest rate of 1.74 % for March 31, 2022 and December 31, 2021, (inclusive of unused fee)

Various notes payable with $ 4,927

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to as “Amended Credit Agreement”).

The Amended Credit Agreement is unsecured and has loan covenants, including requirements that the Company comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio.

Proceeds from the

Amended Credit Agreement may be used for working capital, acquisitions, purchases of the Company’s common stock, dividend payments to the Company’s common stockholders, capital expenditures and other corporate purposes.

The pricing grid is based on

the Company’s consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25 % to 2.0 % or the applicable spread over the Base Rate ranging from 0.1 % to 1 %.

Fees under the Amended Credit Agreement include an unused commitment

fee of 0.3 % of the amount of funds outstanding under the Amended Credit Agreement.

November 2021, the Company exercised the accordion feature in the Amended Credit Agreement to increase the limit on the facility from $ 125.0

million to $ 150.0 million, with an updated accordion feature providing for additional capacity of 25.0 million, therefore increasing the availability up to $ 175.0

The Amended Credit Agreement is unsecured and has loan covenants, including requirements that the Company comply with a consolidated fixed charge coverage ratio and

consolidated leverage ratio.

Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of the Company’s common stock, dividend payments to the Company’s common stockholders, capital expenditures and other

corporate purposes.

The pricing grid is based on the Company’s consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25 %

to 2.0 % or the applicable spread over the Base Rate ranging from 0.1 % to 1 %.

Fees under the Amended Credit Agreement include an

unused commitment fee of 0.3 % of the amount of funds outstanding under the Amended Credit Agreement.

The January 2021 amendment to the Amended Credit Agreement allows the cash and noncash consideration that the Company could pay with respect to acquisitions permitted under

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in an aggregate amount not to exceed $ 50,000,000 in any fiscal year.

The commitment remains at $ 125 million, however the accordion feature in the agreement was expanded to provide for capacity up to $ 150 million, and has a maturity date of November 30, 2025 .

The Amended Credit

Agreement is unsecured and includes certain financial covenants which include a consolidated fixed charge coverage ratio and a consolidated leverage ratio, as defined in the agreement.

As of September 30 , 2021, $ 33.0

million was outstanding on the Amended Credit Agreement, resulting in $ 92.0 million of availability.

As of September 30 , 2021, the Company was in compliance with all of the covenants contained in the Amended Credit Agreement.

The Amended Credit Agreement is unsecured and includes certain

financial covenants which include a consolidated fixed charge coverage ratio and a consolidated leverage ratio, as defined in the agreement.

As of March 31, 2022 , $ 118.0 million was outstanding on the Amended Credit Agreement, resulting in $ 32.0 million of availability.

As of March 31, 2022, the Company was in compliance with all of the covenants

contained in the Amended Credit Agreement.

The Company generally enters into various notes payable as a means of financing a portion of its acquisitions

and purchasing of non-controlling interests.

In conjunction with these transactions in 2020 and 2021, the Company entered into notes payable in the aggregate amount of $ 3.2 million of which an aggregate principal payment of $ 0.5 million is due in 2021, $ 0.6 million is due in 2022 and $ 2.1 million is due in 2023.

In conjunction with these transactions in 2022 and 2021, the Company entered into notes payable in the aggregate amount of $ 4.9 million of which an aggregate principal payment of $ 0.8 million is due in 2022, $ 4.1 million is due in 2023.

Interest accrues in the range of 3.25 % to 3.50 % per annum and is payable with each principal installment.

The balance of the various notes payable entered into prior to 2020 was $ 0.1 million which will be paid in the last two months

Subsequent aggregate annual payments of principal required pursuant to the Amended Credit Agreement and outstanding notes payable at September 30, 2021 are as follows (in

During the twelve months ended September 30, 2022

During the twelve months ended September 30, 2023

During the twelve months ended September 30, 2026

The outstanding amount under the Amended Credit Agreement facility (balance at September 30 , 2021 of $ 33.0 million) matures on November 30, 2025 .

Subsequent aggregate annual payments of principal required pursuant to the Amended Credit Agreement and outstanding notes payable at March 31, 2022 are as follows (in

During the twelve months ended March 31, 2022

During the twelve months ended March 31, 2023

During the twelve months ended March 31, 2025

The outstanding amount under the Amended Credit Agreement facility (balance on March 31, 2022 of $ 118.0 million) matures on November 30, 2025 .

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.

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.

Effective January 1, 2019, right-of-use assets and operating lease liabilities are included in the consolidated balance sheet.

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.

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.

In accordance with ASC 842, the Company records on its consolidated balance sheet leases with a term greater than 12 months.

The Company has elected, in compliance with

current accounting standards, not to record leases with an initial terms of 12 months or less in the consolidated balance sheet.

current accounting standards, not to record leases with an initial term of 12 months or less in the consolidated balance sheet.

ASC 842 requires the separation of the fixed lease components from the variable lease components.

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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.

For the three months and nine months ended September 30, 2021, the components of lease expense were as follows (in thousands):

These are expensed as incurred

and recorded as variable lease expense.

For the three months ended March 31, 2022, the components of lease expense were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30 , 2021

September 30 , 2020

September 30 , 2021

September 30 , 2020

March 31, 2022

March 31, 2021

Operating lease cost

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Total lease cost *

income was immaterial

* Sublease income was immaterial

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

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30 ,

March 31, 2022

March 31, 2021

Cash paid for amounts included in the measurement of operating lease liabilities (in thousands)

Right-of-use assets obtained in exchange for new operating lease liabilities (in thousands)

The aggregate future lease payments for operating leases as of September 30,

2021 were as follows (in thousands):

(excluding the nine months ended September 30 , 2021 )

The aggregate future lease payments for operating leases as of March 31, 2022 were as follows (in thousands):

2022 (excluding the three months ended March 31, 2022)

2027 and thereafter

Total lease payments

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Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30 ,

March 31, 2022

March 31, 2021

Weighted-average remaining lease term - Operating leases

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The Company’s reportable segments include the physical therapy operations segment and the industrial injury prevention services segment.

Included in the physical therapy

operations segment is revenue from management contract services and other services which include services the Company provides on-site, such as athletic trainers for schools.

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 schools for athletic trainers.

The Company evaluates performance of the segments based on gross profit.

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

Prior year results presented herein have been changed to conform to the

current presentation.

Three Months Ended September 30,

Nine Months Ended September 30,

Net operating revenue:

Three Months Ended March 31,

Net operating revenue:

Physical therapy operations

Industrial injury prevention services

Total Company

Gross profit:

Physical therapy operations (less closure costs) (a non-GAAP measure)

Industrial injury prevention services

Physical therapy operations

Industrial injury prevention services

Physical therapy operations - closure costs

Total Assets:

Physical therapy operations

Industrial injury prevention services

Total Company

RELATED PARTY TRANSACTIONS

Settlement of Short Swing Profit Claim

In the nine months ended September 30, 2021, the Company recorded approximately $ 20 ,000 related to the short swing profit settlement remitted by a shareholder of our company under Section 16(b) of the Securities Exchange Act of 1934, as amended.

The Company recognized the proceeds as an increase

to additional paid-in capital in the consolidated balance sheets as of September 30, 2021 and consolidated statements of stockholders’ equity, as well as in cash provided by financing activities included in Other, in the consolidated statements of

cash flows, for the nine months ended September 30, 2021.

INVESTMENT IN UNCONSOLIDATED AFFILIATE

Through one of the 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 March 31, 2022, is $ 12.4 million, of which $ 12.2 million related to the fair value at December 31, 2021.

The $ 12.4 million includes earnings of $ 339 thousand less a distribution received of $ 132 thousand.

From September 2001 through December 31, 2008, the Board authorized the Company to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of the Company’s common stock.

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There are currently an additional estimated 150,830 shares (based on

the closing price of $ 110.60 on September 30, 2021) that may be purchased from time to time in the open market or private transactions

depending on price, availability and the Company’s cash position.

The Company did no t purchase any shares of its common stock during the

nine months ended September 30, 2021.

the closing price of $ 99.45 on March 31, 2022) that may be purchased from time to time in the open market or private transactions depending

on price, availability and the Company’s cash position.

The Company did no t purchase any shares of its common stock during the three

months ended March 31, 2022.

RECLASSIFICATION OF PRIOR PERIOD PRESENTATION

Certain prior year amounts have been reclassified for consistency with the current year presentation.

Certain prior period amounts have been reclassified for consistency with the current period presentation.

These reclassifications had no effect on the reported results of

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements