What changed in this filing

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Item 1. Financial Statements

2022-08-08 compared with 2022-05-09 · 1194 added, 366 removed, 728 unchanged (68% of the section changed)

4 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE DATA)

March 31, 2022

June 30, 2022

December 31, 2021

21 unchanged sentences

Current portion of operating lease liabilities

Current portion of notes payable

Current portion of term loan and notes payable

Total current liabilities

1 unchanged sentence

Revolving line of credit

Term Loan, net of current portion and deferred financing costs

Deferred taxes

11 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive loss

Retained earnings

10 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE DATA)

For the Three Months Ended

March 31, 2022

March 31, 2021

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

Net patient revenue

10 unchanged sentences

Interest and other income, net

Gain on revaluation of put-right liability

Loss on revaluation of put-right liability

Interest expense - debt and other

12 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Three Months Ended

For the Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Other comprehensive loss

Unrealized loss on cash flow hedge

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

Comprehensive income

Comprehensive income attributable to non-controlling interest

Comprehensive income attributable to USPH shareholders

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

June 30, 2022

June 30, 2021

OPERATING ACTIVITIES

5 unchanged sentences

Deferred income taxes

Gain on revaluation of put-right liability

Loss on revaluation of put-right liability

(Gain) loss on sale of clinics and fixed assets

Earnings in unconsolidated affiliate

3 unchanged sentences

(Increase) decrease in other assets

Increase in accounts payable and accrued expenses

Decrease in other long-term liabilities

Decrease in accounts payable and

accrued expenses

(Decrease) increase in other long-term liabilities

Net cash provided by operating activities

6 unchanged sentences

Distributions from unconsolidated affiliate

Sales of non-controlling interest-permanent

Proceeds on sales of redeemable non-controlling interest-temporary

Net cash used in investing activities

3 unchanged sentences

Proceeds from revolving line of credit

Proceeds from term loan

Payments on revolving line of credit

1 unchanged sentence

(Payment) receipt of Medicare Accelerated and Advance Funds

Payment of deferred financing costs

Net cash used in financing activities

7 unchanged sentences

Purchase of businesses - seller financing portion

Purchase of businesses - contingent consideration

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

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

Notes receivable 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.

5 unchanged sentences

Paid-In Capital

Accumulated Other

Comprehensive Loss

Treasury Stock

1 unchanged sentence

Non-Controlling

For the three months ended March 31, 2022

For the three months ended June 30, 2022

Balance March 31, 2022

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Compensation expense - equity-based awards

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

Purchase of partnership interests - non-controlling interest

Dividends paid to USPH shareholders

Distributions to non-controlling interest partners - permanent equity

Deferred taxes related to redeeemable non-controlling interest - temporary equity

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Other comprehensive loss

Balance June 30, 2022

U.S.Physical Therapy, Inc.

Paid-In Capital

Accumulated Other

Comprehensive Loss

Treasury Stock

Total Shareholders’

Non-Controlling

For the six months ended June 30, 2022

Balance December 31, 2021

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Purchase of partnership interests - non-controlling interest

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

Dividends payable to USPH shareholders

Dividends paid to USPH shareholders

Distributions to non-controlling interest partners - permanent equity

Deferred taxes related to redeeemable non-controlling interest - temporary equity

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Other comprehensive loss

Balance June 30, 2022

U.S.Physical Therapy, Inc.

Paid-In Capital

Accumulated Other

Comprehensive Loss

Treasury Stock

Total Shareholders’

Non-Controlling

For the three months ended June 30, 2021

Balance March 31, 2021

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Compensation expense - equity-based awards

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 June 30, 2021

U.S.Physical Therapy, Inc.

Paid-In Capital

Accumulated Other

Comprehensive Loss

Treasury Stock

1 unchanged sentence

Non-Controlling

For the three months ended March 31, 2021

For the six months ended June 30, 2021

Balance December 31, 2020

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Compensation expense - equity-based awards

Dividends payable to USPT shareholders

Dividends paid to USPT shareholders

Distributions to non-controlling interest partners - permanent equity

2 unchanged sentences

Net income attributable to USPH shareholders

Balance March 31, 2021

Balance June 30, 2021

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

June 30, 2022

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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optimization and ergonomic assessments.

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

During the 2021 year and the six months ended June 30, 2022, the Company completed the acquisitions of four

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

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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.

As of June 30 , 2022, the Company operated 608

clinics in 39 states.

The Company also manages physical therapy facilities for third parties, primarily hospital and physicians, with

33 third-party facilities under management as of June 30 , 2022.

During the six months ended June 30, 2022, the Company closed three clinics and sold five clinics.

Physical Therapy Operations

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

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

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

Our limited partnership interests

typically range from 10 % to 35 %

generally range from 65 % to 75 %

in the Clinic Partnerships.

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

Operating results for the three and

six months ended June 30 , 2022 , are not necessarily indicative of the results the Company expects for the entire year.

In addition to the risk factors described in our Annual Report on Form 10-K for the year ended December 31,

2021 filed with the SEC on March 1, 2022, see Item 1A in Part II of this report.

Impact of COVID -19

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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.

During the six months ended June 30, 2022, and 2021, the Company did no t record any income from payments under the CARES Act.

Significant Accounting Policies

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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 three months ended March 31, 2022 .

The Company did no t note an impairment to long-lived assets during the three and six months ended June 30 , 2022 .

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

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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.

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.

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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 legislation had no effect on the Company’s deferred income taxes and current income taxes payable during the three and six months ended June 30,

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 three months ended March 31, 2022.

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 and six months ended June 30, 2022.

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

expense, as appropriate.

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheets for cash and cash equivalents, contingent earn-out

payments, accounts receivable, accounts payable and notes payable approximate their fair values due to the short-term maturity of these financial instruments.

The carrying amount 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.

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a

market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, a fair value hierarchy has been established that prioritizes

the inputs used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3

measurement).

The three levels of the fair value hierarchy

are as follows:

Level 1 – Quoted prices in active markets for

identical assets or liabilities;

Level 2 – Quoted prices for similar instruments

in active markets;

quoted prices for identical or similar instruments in markets that are not active;

and model-derived valuations whose significant inputs are observable;

Level 3 – Unobservable inputs in which there is

little or no market data which require the reporting entity to develop its own assumptions.

The carrying amounts reported in the balance sheets for cash and cash equivalents, contingent earn-out payments, accounts receivable, accounts payable and notes payable approximate their fair values

due to the short-term maturity of these financial instruments.

The carrying amount of the debt under the Third Amended and Restated Credit Agreement (defined as “Credit Agreement” in Note 9) approximates the fair value.

The interest rate on the

debt under the Third Amended and Restated Amended Credit Agreement is tied to the Secured Overnight Financing Rate (“SOFR”) .

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

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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.

The put right increased $ 0.6 million for the three months ended June 30, 2022 and was valued at $ 3.5 million on June 30, 2022.

The valuations of the Company’s interest rate derivatives are measured as the present value of all expected future cash flows based on SOFR-based yield curves.

The present value calculation uses discount rates that have been

adjusted to reflect the credit quality of the Company and its counterparty which is a Level 2 fair value measurement.

The carrying and fair value of the Company’s interest rate derivative as of June 30, 2022, was $ 0.5 million, which is included in current liabilities in the Company’s consolidated balance sheet.

See Note 10 for changes in the fair value of the

interest rate swap .

Segment Reporting

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Management believes that the current accrued

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

amounts are sufficient to pay claims arising from self-insurance claims incurred through June 30, 2022.

Restricted Stock

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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.

The Company adopted this pronouncement as of January 1, 2021.

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

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In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

ASU provides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to

alternative reference rates.

The new guidance was effective upon issuance, and the Company is allowed to elect to apply the amendments prospectively through December 31, 2022 .

Borrowings under the Amended Credit Agreement bear interest based on LIBOR or an alternate base rate.

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.

Facilitation of the Effects

of Reference Rate Reform on Financial Reporting.

This ASU provides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market

transition from LIBOR and other interbank offered rates to alternative reference rates.

The new guidance was effective upon issuance, and the Company has elected to apply the amendments prospectively through December 31, 2022.

Borrowings under

the Third Amended and Restated Credit Agreement bear interest based on SOFR.

The interest rate applicable to the Third Amended and Restated Credit Agreement is tied to SOFR.

ACQUISITIONS OF BUSINESSES

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.

March 31, 2022, the Company acquired a 70 % interest in a six -clinic physical therapy practice.

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

The purchase price for the 70 %

equity interest was approximately $ 11.5 million.

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

The note accrues

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) :

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

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

Physical Therapy

Cash paid, net of cash acquired

Contingent payments

Total consideration

Estimated fair value of net tangible assets acquired:

Total current assets

Total non-current assets

Total liabilities

Net tangible assets acquired

Customer and referral relationships

1 unchanged sentence

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

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

the practice founder retaining 25 %.

The purchase price for the 75 % interest was approximately $ 3.6 million, of which $ 3.4 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 purchase price for the approximate 70 % equity interest, not inclusive of a $ 2.0

million contingent payment, was approximately $ 65.2 million of which $ 60.7 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 .

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

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 model.

On June 30, 2022, the fair value of this put right was $ 3.5 million.

The increase was reflected in the consolidated statement of income in the line item – Loss

on revaluation of put-right liability .

On September 30, 2021, the Company

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The purchase price was approximately $ 10.7 million, of which $ 8.6 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.

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.

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

The business criteria were met and accordingly $ 1.0 million was paid in July 2022.

The note accrues interest at 3.25 %

per annum and the principal and interest are 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.

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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 purchase price for the 70 % interest was approximately $ 11.6 million, of which $ 11.3 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 March 31, 2023.

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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.

value of the non-controlling interest for the acquisitions in 2022 and those acquired after June 30, 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 June 30, 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

The Company does not expect the adjustments to be material.

The purchase price allocation for the March 2021 Acquisition has been finalized.

The purchase price allocation for the March 2021 and the June 2021 Acquisitions have been finalized.

The Company continues to evaluate the components for the purchase price

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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.

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.

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.

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 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

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.

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 collectibl e.

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 .

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

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Net patient revenue

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Medicare Reimbursement

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

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

Schedule (“MPFS”).

For services provided in 2017 through 2019, a 0.5 % increase was applied to the fee schedule payment rates before applying the mandatory budget neutrality adjustment.

For services provided in 2020 through 2025 no adjustment is expected to be applied each year to the fee schedule payment rates, before applying the

mandatory budget neutrality adjustment.

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.

For services provided in 2020 through 2025 no adjustment is expected to be applied each year to the fee schedule payment rates, before applying the mandatory budget

neutrality adjustment.

In 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.

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 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.

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.

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 %.

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 the 2023 MPFS Proposed Rule published on July 7, 2022, CMS proposed a 4.4 % reduction in the Physician Fee Schedule conversion factor.

In addition, the Consolidated Appropriations Act, 2021 included a reduction in Medicare payment rates of approximately 3 % in 2024.

These payment reductions are expected to take effect 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.

The 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 .

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.

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

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;

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;

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 appropriate.

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.

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.

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

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 %.

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 %.

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

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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.

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.

Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation.

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 June 30, 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 six months ended June 30, 2022, and 2021, respectively, net patient revenue from Medicare was approximately $ 74.9

million and $ 62.1 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.

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 March 31, 2022.

1.5 % on June 30, 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 collection s.

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.

EARNINGS PER SHARE

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Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Computation of earnings per share - USPH shareholders:

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Prior to the Acquisition, the Therapy Practice exists as a separate legal entity (the “Seller Entity”).

The Seller Entity is owned by one or more individuals (the “Selling

Shareholders”) most of whom are physical therapists that work in the Therapy Practice and provide physical therapy services to patients.

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

Therefore, in this step, NewCo becomes a wholly-owned subsidiary of the Seller

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 and the Seller Entity also execute a partnership agreement (the “Partnership Agreement”) for NewCo that sets forth the rights and obligations of the limited and general

partners of NewCo.

The Seller Entity is owned by one or more individuals

(the “Selling Shareholders”) most of whom are physical therapists that work in the Therapy Practice and provide physical therapy services to patients.

In conjunction with the Acquisition, the Seller Entity contributes the Therapy Practice into a newly-formed limited partnership (“NewCo”), in exchange for one

hundred percent ( 100 %) of the limited and general partnership interests in NewCo.

Therefore, in this step, NewCo becomes a

wholly-owned subsidiary of the Seller Entity.

The Company enters into an agreement (the “Purchase Agreement”) to acquire from the Seller Entity a majority (ranges from 50 % to 90 %) of the limited

partnership interest and in all cases 100 % of the

general partnership interest in NewCo.

The Company does not purchase 100 % of the limited partnership interest because the Selling

Shareholders, through the Seller Entity, want to maintain an ownership percentage.

The consideration for the Acquisition is primarily payable in the form of cash at closing and a 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 partners of NewCo.

After the Acquisition, the Company is the general partner of NewCo.

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

(“Seller Entity Interest”).

In most cases, some or all of the Selling Shareholders enter into an employment agreement (the “Employment Agreement”) with NewCo with an initial term that ranges from three to five years (the

“Employment Term”), with automatic one-year renewals, unless employment is terminated prior to the end of the Employment Term.

a result, a Selling Shareholder becomes an employee (“Employed Selling Shareholder”) of NewCo.

The employment of an Employed Selling Shareholder can be terminated by the Employed Selling Shareholder or NewCo, with or without cause, at any

As noted above, the Company does not purchase 100 %

of the limited partnership interests in NewCo and the Seller Entity retains a portion of the limited partnership interest in NewCo (“Seller Entity Interest”).

In most cases, some or all of the Selling Shareholders enter into an employment agreement (the “Employment Agreement”) with NewCo with an initial term that

ranges from three to five years

(the “Employment Term”), with automatic one-year renewals, unless employment is terminated prior to the end of the Employment

As a result, a Selling Shareholder becomes an employee (“Employed Selling Shareholder”) of NewCo.

The employment of an Employed Selling Shareholder can be terminated by the Employed Selling Shareholder or NewCo, with or without cause,

In a few situations, a Selling Shareholder does not become employed by NewCo and is not involved with NewCo following the closing;

in those situations, such Selling Shareholders sell their entire ownership interest in the Seller Entity

as of the closing of the Acquisition.

The compensation of each Employed Selling Shareholder is specified in the Employment Agreement and is customary and commensurate with his or her responsibilities based on other

employees in similar capacities within NewCo, the Company and the industry.

The Company and the Selling Shareholder (including both Employed Selling Shareholders and Selling Shareholders not employed by NewCo) execute a non-compete agreement (the

“Non-Compete Agreement”) which restricts the Selling Shareholder from engaging in competing business activities for a specified period of time (the “Non-Compete Term”).

A Non-Compete Agreement is executed with the Selling Shareholders in all

in those situations, such Selling Shareholders sell their entire ownership interest in the Seller

Entity as of the closing of the Acquisition.

The compensation of each Employed Selling Shareholder is specified in the Employment Agreement and is customary and commensurate with his or her responsibilities

based on other employees in similar capacities within NewCo, the Company and the industry.

The Company and the Selling Shareholder (including both Employed Selling Shareholders and Selling Shareholders not employed by NewCo) execute a non-compete

agreement (the “Non-Compete Agreement”) which restricts the Selling Shareholder from engaging in competing business activities for a specified period of time (the “Non-Compete Term”).

A Non-Compete Agreement is executed with the Selling

Shareholders in all cases.

That is, even if the Selling Shareholder does not become an Employed Selling Shareholder, the Selling Shareholder is restricted from engaging in a competing business during the Non-Compete Term.

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

Two years after the date an Employed Selling Shareholders’ employment

is terminated (if the Selling Shareholder becomes an Employed Selling Shareholder) or

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

Two years after the date an Employed Selling

Shareholders’ employment is terminated (if the Selling Shareholder becomes an Employed Selling Shareholder) or

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

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 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

The Non-Compete Agreement applies to a restricted region which is 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 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

the Seller Entity (the “Put Right”) as follows:

In the event that any Selling Shareholder’s employment is terminated under certain circumstances prior to a specified date (the “Specified Date”), the Seller Entity thereafter may

have an irrevocable right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below.

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

of the Seller Entity (the “Put Right”) as follows:

In the event that any Selling Shareholder’s employment is terminated under certain circumstances prior to a specified date (the “Specified Date”), the Seller Entity thereafter may have an

irrevocable right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below.

In the event that any Selling Shareholder is not employed by NewCo as of the Specified Date and the Company has not exercised its Call Right with respect to the Terminated Selling

Shareholder’s Allocable Percentage of Seller Entity’s Interest, Seller Entity thereafter shall have the Put Right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s

Interest at the purchase price described in “3” below.

In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the Specified Date, the Seller Entity shall have the Put Right, and upon

the exercise of the Put Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.

Entity’s Interest at the purchase price described in “3” below.

In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the Specified Date, the Seller Entity shall have the Put Right, and upon the

exercise of the Put Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.

If any Selling Shareholder’s employment by NewCo is terminated prior to the Specified Date, the Company thereafter shall have an irrevocable right to purchase from Seller Entity the

Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, in each case at the purchase price described in “3” below.

In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after Specified Date, the Company shall have the Call Right, and upon the

exercise of the Call Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.

In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after Specified Date, the Company shall have the Call Right, and upon the exercise of

the Call Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.

For the Put Right and the Call Right, the purchase price is derived from a formula based on a specified multiple of NewCo’s trailing twelve months of earnings before interest, taxes,

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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, 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

either the Put Right or the Call Right is exercised.

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

the Put Right or the Call Right is exercised.

The Put Right and the Call Right never apply to Selling Shareholders who do not become employed by NewCo, since the Company requires that such Selling Shareholders sell their entire

ownership interest in the Seller Entity at the closing of the Acquisition.

ProgressiveHealth Acquisition

On November 30, 2021, the Company acquired a majority interest in ProgressiveHealth Companies, LLC (“Progressive”), which owns a majority interest in

certain subsidiaries (“Progressive Subsidiaries”) that operate in the 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”).

ProgressiveHealth

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.

Progressive transaction was completed in a series of steps which are described below.

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

Progressive business.

In conjunction with the acquisition, the Selling Shareholders caused the Progressive Parent to transfer its ownership of the Progressive Subsidiaries into a newly-formed limited liability company (“Progressive

NewCo”), in exchange for one hundred percent ( 100 %) of the membership interests in NewCo.

Therefore, in this step, NewCo became

wholly-owned by the Selling Shareholders.

The Company entered into an agreement (the “Progressive 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 “Progressive Purchase Price”).

The Company and the Selling Shareholders also executed an operating agreement (the “Progressive 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 (“Progressive Selling Shareholders’ Interest”).

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

“Progressive 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.

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 (as defined below) and the Call Right (as defined below) 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 “Progressive Call Right”) or at the option of the Selling Shareholder (the “Progressive 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

interest in NewCo.

The Employment Agreement and the Non-Compete Agreement do not contain any provision to escrow or “claw back” the equity interest in the Seller Entity held by such Employed Selling Shareholder, nor the Seller Entity Interest in

NewCo, in the event of a breach of the employment or non-compete terms.

More specifically, even if the Employed Selling Shareholder is terminated for “cause” by NewCo, such Employed Selling Shareholder does not forfeit his or her right to his or her

full equity interest in the Seller Entity and the Seller Entity does not forfeit its right to any portion of the Seller Entity Interest.

The Company’s only recourse against the Employed Selling Shareholder for breach of either the Employment

Agreement or the Non-Compete Agreement is to seek damages and other legal remedies under such agreements.

There are no conditions in any of the arrangements with an Employed Selling Shareholder that would result in a forfeiture of the equity interest

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

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):

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 interest in NewCo.

The Employment Agreement and the Non-Compete Agreement do not contain any provision

to escrow or “claw back” the equity interest in the Seller Entity held by such Employed Selling Shareholder, nor the Seller Entity Interest in NewCo, in the event of a breach of the employment or non-compete terms.

More specifically, even if the

Employed Selling Shareholder is terminated for “cause” by NewCo, such Employed Selling Shareholder does not forfeit his or her right to his or her full equity interest in the Seller Entity and the Seller Entity does not forfeit its right to any

portion of the Seller Entity Interest.

The Company’s only recourse against the Employed Selling Shareholder for breach of either the Employment Agreement or the Non-Compete Agreement is to seek damages and other legal remedies under such agreements.

There are no conditions in any of the arrangements with an Employed Selling Shareholder that would result in a forfeiture of the equity interest held in the Seller Entity or of the Seller Entity Interest.

For the dates indicated, the following table

details the changes in the carrying amount (fair value) of the redeemable non-controlling interest (in thousands):

Three Months Ended

March 31, 2022

December 31, 2021

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Beginning balance

9 unchanged sentences

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

March 31, 2022

December 31, 2021

Six Months Ended

June 30, 2022

June 30, 2021

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

3 unchanged sentences

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

Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

December 31, 2021

4 unchanged sentences

INTANGIBLE ASSETS, NET

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

March 31, 2022

Intangible assets, net as of June 30, 2022, and December 31, 2021 consisted of the following (in thousand s):

June 30, 2022

December 31, 2021

7 unchanged sentences

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 months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

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

assets for the three months ended June 30, 2022, and 2021 (in thousand s):

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Customer and referral relationships

Non-compete agreements

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):

Based on the balance of referral relationships and non-compete agreements as of June 30, 2022, the expected

amount to be amortized in 2022 and thereafter by year is as follows (in thousands) :

Customer and Referral Relationships

4 unchanged sentences

Ending December 31,

(excluding the three months ended March 31, 2022)

2022 (excluding the six months ended June 30 , 2022 )

ACCRUED EXPENSES

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

March 31, 2022

Accrued expenses as of June 30, 2022 and December 31, 2021 consisted of the following (in thousands):

June 30, 2022

December 31, 2021

4 unchanged sentences

Federal taxes payable

Dividend payable to USPH shareholders

Contingent payments related to acquisition

Settlement of a legal matter

In January 2022, to avoid the legal fees and discovery costs in defending a legal matter and the uncertainty of protracted litigation, the Company entered into a settlement agreement.

The Company admitted no

liability or wrongdoing.

Under the terms of the settlement, the Company agreed to make payments which amounted to $ 2.75

million , of which $ 2.6 million was recorded as an expense in 2021.

NOTES PAYABLE AND AMENDED CREDIT AGREEMENT

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 1.74 % for March 31, 2022 and December 31, 2021, (inclusive of unused fee)

Various notes payable with $ 4,927

plus accrued interest due in the next year, interest accrues in the range of 3.25 % through 3.5 % per annum

Less current portion

Long term portion

Effective December 5, 2013, the Company entered into an Amended and Restated Credit Agreement with a commitment for a $ 125.0 million revolving credit facility.

This agreement was amended and/or restated in August 2015, January 2016, March 2017, November 2017 and January 2021 (hereafter referred

to as “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

the Amended Credit Agreement to $ 50,000,000 for any fiscal year, and the amount the Company may pay in cash dividends to its shareholders

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

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 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.

This agreement was amended

and/or restated in August 2015, January 2016, March 2017, November 2017, January and 2021 (hereafter referred to as (“Amended Credit Agreement”).

On June 17, 2022, the Company entered into the Third

Amended and Restated Credit Agreement (the “Credit Agreement”) among Bank of America, N.A., as administrative agent (“Administrative Agent”) and the lenders from time-to-time party thereto.

Amounts outstanding under the Amended Credit Agreement and Credit Agreement (as

defined above) and notes payable as of June 30, 2022 and

December 31, 2021 consisted of the following (in

June 30, 2022

December 31, 2021

Unamortized discount

and debt issuance cost

Unamortized discount

and debt issuance cost

Revolving Facilitiy

Term Facility

Current portion of long-term debt

Total long-term debt, net of current portion

The Credit Agreement, which matures on June 17, 2027 , provides for loans in an aggregate principal amount of $ 325 million .

Such loans were made available through the following

facilities (collectively, the “Senior Credit Facilities”):

Revolving Facility:

$ 175 million , five-year , revolving credit facility (“Revolving Facility”), which includes a $ 12 million sublimit for the issuance of standby letters of credit and a $ 15 million sublimit for swingline loans (each, a

“Swingline Loan”).

Term Facility:

$ 150 million term loan facility (the “Term Facility”).

The Term Facility

amortizes in quarterly installments of:

(a) 0.625 % in each of the first two years, (b) 1.250 % in the third and fourth year, and (c) 1.875 % in the fifth year of the Credit Agreement.

The remaining

outstanding principal balance of all term loans is due on the maturity date.

The proceeds of the Revolving Facility shall be used by the Company for working capital and other general corporate purposes of the Company and

its subsidiaries, including to fund future acquisitions and invest in growth opportunities.

The proceeds of the Term Facility were used by the Company to refinance the indebtedness outstanding under the Amended Credit Agreement, to pay fees and

expenses incurred in connection with the transactions involving the loan facilities, for working capital and other general corporate purposes of the Company and its subsidiaries.

The Company is permitted to increase the Revolving Facility and/or add one or more tranches of term loans in an aggregate amount not to exceed the sum of (i) $ 100 million plus (ii) an unlimited additional amount, provided that (in the case of clause (ii)), after giving effect to

such increases, the pro forma Consolidated Leverage Ratio (as defined in the Credit Agreement) would not exceed 2.0 :

1.0, and the aggregate amount of all incremental increases under the

Revolving Facility does not exceed $ 50,000,000 .

The interest rates per annum applicable to the Senior Credit Facilities (other

than in respect of Swingline Loans) will be Term SOFR (as defined in the Credit Agreement) plus an applicable margin or, at the option of the Company, an alternate base rate plus an applicable margin.

Each Swingline Loan shall bear interest at

the base rate plus the applicable margin.

The applicable margin for Term SOFR borrowings ranges from 1.50 % to 2.25 %, and the applicable margin for alternate

base rate borrowings ranges from 0.50 % to 1.25 % , in each case, based on the Consolidated Leverage Ratio of the Company and its subsidiaries.

Interest is payable at the

end of the selected interest period but no less frequently than quarterly and on the date of maturity.

The Company will also pay to the Administrative Agent, for the account of each

lender under the Revolving Facility, a commitment fee equal to the actual daily excess of each lender’s commitment over its outstanding credit exposure under the Revolving Facility (“unused fee”).

Such unused fee will range between 0.25 % and 0.35 % per annum and is also based on the Consolidated Leverage Ratio of the Company and

its subsidiaries.

The Company may prepay and/or repay the revolving loans and the term loans, and/or terminate the revolving loan commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions.

The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of

liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions,

thresholds and baskets.

The Credit Agreement includes certain financial covenants which include the Consolidated Fixed Charge Coverage Ratio, and the Consolidated Leverage Ratio, as defined in the Credit Agreement.

The Credit Agreement also

contains customary events of default.

The Company’s obligations under the Credit Agreement are guaranteed by its

wholly-owned material domestic subsidiaries (each, a “Guarantor”), and the obligations of the Company and any Guarantors are secured by a perfected first

priority security interest in substantially all of the existing and future personal property of the Company and each Guarantor, subject to certain exceptions.

As of June 30, 2022, $ 150.0

million was outstanding on the Senior Credit Facilities, resulting in $ 175.0 million of availability.

As of June 30, 2022, the Company was in compliance with all of the covenants contained in the 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.

is due in 2023.

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

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 .

DERIVATIVE INSTRUMENTS

The Company is

exposed to certain market risks during the ordinary course of business due to adverse changes in interest rates.

The exposure to interest rate risk primarily results from the Company’s variable-rate borrowing.

The Company may elect to use

derivative financial instruments to manage risks from fluctuations in interest rates.

The Company does not purchase or hold derivatives for trading or speculative purposes.

Fluctuations in interest rates can be volatile and the Company’s risk

management activities do not eliminate these risks.

Interest Rate Swap

In May 2022, the Company entered into an interest rate swap agreement, effective on

June 30, 2022, with Bank of America, N.A, which has a $ 150 million notional value, and a maturity date of June 30, 2027 .

Beginning in July 2022, the Company receives 1-month SOFR, and pays a fixed rate of interest of 2.815 % on 1-month SOFR on a quarterly basis.

The total interest rate in any period will also include an applicable margin based on the Company’s consolidated

leverage ratio.

In connection with the swap, no cash was exchanged between the Company and the

counterparty.

The Company designated its interest rate swap as a cash flow hedge and structured

it to be highly effective.

Consequently, unrealized gains and losses related to the fair value of the interest rate swap are recorded to accumulated other comprehensive income (loss), net of tax.

The impacts of the Company’s derivative instruments on the accompanying

Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2022 are presented in the table below (in thousands):

Three Months Ended

For the Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Unrealized loss on cash flow hedge

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

Other Comprehensive loss

The valuations of the Company’s interest rate derivatives are measured as the

present value of all expected future cash flows based on SOFR-based yield curves.

The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparty which is a Level 2 fair

value measurement.

The carrying and fair value of the Company’s interest rate derivatives (included in

current liabilities) were as follows:

June 30, 2022

June 30, 2021

Interest rate swap

The Company has operating leases for its corporate offices and operating facilities.

22 unchanged sentences

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

These are expensed as

incurred and recorded as variable lease expense.

For the three and six months ended June 30, 2022, the components of lease expense were as follows (in thousands):

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

June 30 , 2022

June 30 , 2021

June 30 , 2022

June 30 , 2021

Operating lease cost

2 unchanged sentences

Total lease cost *

* Sublease income was immaterial

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

March 31, 2022

March 31, 2021

Six Months Ended

June 30, 2022

June 30, 2021

June 30 , 2022

June 30 , 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 March 31, 2022 were as follows (in thousands):

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

2027 and thereafter

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

2022 were as follows (in thousands):

(excluding the six months ended June 30 , 2022 )

Total lease payments

3 unchanged sentences

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

June 30, 2022

June 30, 2021

June 30 , 2022

June 30 , 2021

Weighted-average remaining lease term - Operating leases

8 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net operating revenue:

9 unchanged sentences

Total Company

INVESTMENT IN UNCONSOLIDATED AFFILIATE

INVESTMENT IN UNCONSOLIDATED

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.

Since the Company is deemed to not have a controlling interest in the joint venture, the Company’s investment is accounted for using the equity

method of accounting.

The investment balance of this joint venture as of June 30, 2022, is $ 12.3 million.

For the six months ended June

30, 2022, the earnings amounted to$ 679 thousand and $ 548 thousand was distributed to the Company.

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.

6 unchanged sentences

There are currently an additional estimated 137,363 shares (based on

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

the closing price of $ 109.20 on June 30, 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

and six months ended June 30, 2022.

RECLASSIFICATION OF PRIOR PERIOD

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

These reclassifications had no effect on the reported results of

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

The following is a discussion of our historical consolidated financial condition and results of operations, and should be read in conjunction with (i) our historical consolidated financial statements and accompanying notes

thereto included elsewhere in this Quarterly Report on Form 10-Q;

(ii) our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2022 (“2021 Annual Report”);

(iii) our management’s discussion and analysis of financial condition and results of operations included in our 2021 Annual Report.

This discussion includes forward-looking statements that are subject to risk and uncertainties.

Actual results may

differ substantially from the statements we make in this section due to a number of factors that are discussed in “Forward-Looking Statements” herein and in Part II, Item 1A.

Risk Factors of this report.

References to “we,” “us,” “our” and the “Company” shall mean U.S.

Physical Therapy, Inc.

and its subsidiaries.

EXECUTIVE SUMMARY

We operate outpatient physical therapy clinics that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders and sports-related injuries, neurologically-related injuries and

rehabilitation of injured workers.

We also operate an industrial injury prevention services (“IIPS”) business which includes onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments services.

Selected Operating and Financial Data

Our reportable segments include the physical therapy operations segment and the industrial injury prevention services segment.

Our physical operations consist of physical therapy and occupational therapy clinics that

provide pre-and post-operative care and treatment for orthopedic-related disorders, sports-related injuries, preventive care, rehabilitation of injured workers and neurological injuries.

Services provided by industrial injury prevention services

segment include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments.

At June 30, 2022, we operated 608 clinics in 39 states.

In addition to our ownership and operation of outpatient physical therapy clinics, we also manage physical therapy facilities for third parties, such as physicians

and hospitals, with 33 such third-party facilities under management as of June 30, 2022.

During the 2021 year and for the six months ended June 30, 2022, we completed the acquisitions of four multi-clinic practices and two industrial injury services 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

During the six months ended June 30, 2022, we closed three clinics and sold five clinics.

Our strategy is to acquire physical therapy practices, develop outpatient physical therapy clinics as satellites within existing partnerships, acquire industrial injury prevention services businesses,

and to continue to support the growth of our existing businesses requires a talented workforce that can grow with us.

As of June 30, 2022 we employed approximately 5,809 people nationwide, of which approximately 3,158 were full-time employees.

It is crucial that we continue to attract and retain top talent.

To attract and retain talented employees, we strive to make our corporate office and all of our practices and businesses a diverse and

healthy workplace, with opportunities for our employees to receive continuing education, skill development, encouragement to grow and develop their career, all supported by competitive compensation, incentives, and benefits.

professionals are all licensed and a vast majority have advanced degrees.

Our operational leadership teams have long-standing relationships with local and regional universities, professional affiliations, and other applicable sources that provide our

practices with a talent pipeline.

We provide competitive compensation and benefits programs to help meet our employees’ needs in the practices and communities in which they serve.

These programs (which can vary by practice and

employment classification) include incentive compensation plans, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, education assistance, mental health, and other employee

assistance benefits.

We invest resources to develop the talent needed to support our business strategy.

Resources include a multitude of training and development programs delivered internally and externally, online and

instructor-led, and on-the-job learning formats.

We expect to continue adding personnel in the future as we focus on potential acquisition targets and organic growth opportunities.

RESULTS OF OPERATIONS

Summary of 2022 Second Quarter Compared to the 2021 Second Quarter Results

For the three months ended June 30, 2022 (“2022 Second Quarter”), our net income attributable to our shareholders was $11.2 million as compared to $12.4 million for the three months ended June 30, 2021 (“2021 Second

In accordance with Generally Accepted Accounting Principles (“GAAP”), the revaluation of redeemable non-controlling interest, net of taxes, is not included in net income but charged directly to retained earnings;

however, the charge for

this change is included in the earnings per basic and diluted share calculation.

Inclusive of the charge for revaluation of non-controlling interest, net of taxes, the amount is $11.4 million, or $0.87 per diluted share, for the 2022 Second Quarter,

and $10.5 million, or $0.82 per diluted share, for the 2021 Second Quarter.

For the 2022 Second Quarter, our Operating Results, a non-GAAP measure, was $11.7 million, or $0.90 per diluted share, the second highest quarterly amount in our Company’s history, as compared to $12.4 million, or $0.96 per

diluted share, for the 2021 Second Quarter, the highest quarterly amount in our Company’s history.

For the six months ended June 30, 2022 (“2022 Six Months”), our net income attributable to our shareholders was $20.0 million and was $20.6 million for the six months ended June 30, 2022 (“2021 Six Months”).

the charge for revaluation of non-controlling interest, net of taxes, the amount is $20.0 million, or $1.55 per diluted share, for the 2022 Six Months, and $13.3 million, or $1.03 per diluted share, for the 2021 Six Months.

For the 2022 Six Months, our Operating Results, a non-GAAP measure, was $20.0 million, or $1.54 per diluted share, a decrease of 3.0%, as compared to $20.6 million, or $1.60 per diluted share, for the 2021 Second Quarter.

We believe providing Operating Results is useful to investors for comparing our period-to-period results and for comparing with other similar businesses since most do not have redeemable instruments and therefore have

different equity structures.

We use Operating Results, which eliminates certain items described above that can be subject to volatility and unusual costs, as one of the principal measures to evaluate and monitor financial performance.

Operating Results is not a measure of financial performance under GAAP and should not be considered in isolation or as an alternative to, or substitute for, net income attributable to our shareholders presented in the

consolidated financial statements.

The following tables provide detail of the diluted earnings per share computation and reconcile net income attributable to our shareholders calculated in accordance with GAAP to Operating Results (in thousands, except per

Three Months Ended June 30,

Computation of earnings per share - USPH shareholders:

Net income attributable to USPH shareholders

Credit (charges) to retained earnings:

Revaluation of redeemable non-controlling interest

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

Earnings per share (basic and diluted)

Change in revaluation of put-right liability

Revaluation of redeemable non-controlling interest

Tax effect at statutory rate (federal and state)

Operating Results (a non-GAAP measure)

Basic and diluted Operating Results per share (a non-GAAP measure)

Shares used in computation - basic and diluted

Six Months Ended June 30,

Computation of earnings per share - USPH shareholders:

Net income attributable to USPH shareholders

Credit (charges) to retained earnings:

Revaluation of redeemable non-controlling interest

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

Earnings per share (basic and diluted)

Change in revaluation of put-right liability

Revaluation of redeemable non-controlling interest

Tax effect at statutory rate (federal and state)

Operating Results (a non-GAAP measure)

Basic and diluted Operating Results per share (a non-GAAP measure)

Shares used in computation - basic and diluted

The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements (in thousands):

Three Months Ended June 30,

Net operating revenue:

Physical therapy operations

Industrial injury prevention services

Total Company

Gross profit:

Physical therapy operations

Industrial injury prevention services

Total Assets:

Physical therapy operations

Industrial injury prevention services

Total Company

Reported total revenue for the 2022 Second Quarter was $140.7 million, an increase of 10.8% as compared to $126.9 million for the 2021 Second Quarter.

See table below for a detail of reported total

revenue (in thousands):

Three Months Ended

June 30, 2022

June 30, 2021

Revenue related to Mature Clinics

Revenue related to 2022 Clinic Additions

Revenue related to 2021 Clinic Additions

Revenue from clinics sold or closed in 2022

Revenue from clinics sold or closed in 2021

Net patient revenue from physical therapy operations

Other revenue

Revenue from physical therapy operations

Revenue - Management contracts

Revenue - Industrial injury prevention services

Total Revenue

Revenue from physical therapy operations increased $4.9 million, or 4.3%, to $119.1 million for the 2022 Second Quarter from $114.2 million for the 2021 Second Quarter.

Net patient revenue related to

clinics opened or acquired prior to 2021 and still in operation on June 30, 2022 (“Mature Clinics”) decreased $1.5 million, or 1.4%, to $108.6 million for the 2022 Second Quarter compared to $110.1 million for the 2021 Second Quarter, due mostly to

the decrease in average net patient revenue per visit.

Visits for Mature Clinics (same store) for the 2022 Second Quarter decreased slightly (0.2%) as compared to the 2021 Second Quarter.

The average net patient revenue per visit was $103.18 for the 2022 Second Quarter as compared to $104.46 for the 2021 Second Quarter.

Total patient visits increased 5.7% to 1,145,554 for the 2022 Second Quarter from

1,084,070 for the 2021 Second Quarter.

Net patient revenue is based on established billing rates less allowances for patients covered by contractual programs and workers’ compensation.

Net patient revenue is determined after contractual and other

adjustments relating to patient discounts from certain payors.

Payments received under contractual programs and workers’ compensation are based on predetermined rates and are generally less than the established billing rates.

Revenue from the industrial injury prevention services business increased 93.7% to $19.4 million for the 2022 Second Quarter as compared to $10.0 million for the 2021 Second Quarter.

Excluding $6.8 million of revenue

related to the IIPS acquisition in November 2021, IIPS revenue increased 25.5% in the 2022 Second Quarter as compared to the 2021 Second Quarter.

Revenue from management contracts decreased 22.4% to $2.1 million for the 2022 Second Quarter as compared to $2.7 million for the 2021 Second Quarter due to the termination of five management contracts.

Operating Cost

Total operating cost was $109.8 million for the 2022 Second Quarter, or 78.1% of total revenue, as compared to $92.6 million, or 73.0% of total revenue, for the 2021 Second Quarter.

Operating cost

related to Mature Clinics increased by $4.0 million or 5.0%, for the 2022 Second Quarter compared to the 2021 Second Quarter.

In addition, operating cost related to the IIPS business increased by $7.8 million of which $5.7 million related to our

November 2021 IIPS acquisition.

Physical therapy total operating costs were $81.09 per visit in the 2022 Second Quarter as compared to $76.50 per visit in the 2021 Second Quarter, an increase of 6.0%.

See table below for a detail of operating cost

(in thousands):

Three Months Ended

June 30, 2022

June 30, 2021

Operating cost related to Mature Clinics

Operating cost related to 2022 Clinic Additions

Operating cost related to 2021 Clinic Additions

Operating cost related to clinics sold or closed in 2022

Operating cost related to clinics sold or closed in 2021

Operating cost related to physical therapy operations

Operating cost related to management contracts

Operating cost related to industrial injury prevention services

Total operating cost

Each component of operating cost is discussed below:

Operating Cost—Salaries and Related Costs

Salaries and related costs, including physical therapy operations and the industrial injury prevention services business, was 56.8% of net revenue for the 2022 Second Quarter versus 54.3% for the 2021 Second Quarter.

Salaries and related costs for the physical therapy operations was $66.7 million in the 2022 Second Quarter, or 56.1% of physical therapy operations revenue, as compared to $60.6 million in the 2021 Second Quarter, or 53.1% of physical therapy

operations revenue.

Included in salaries and related costs for the physical therapy operations for the 2022 Second Quarter was $4.9 million related to 2022 and 2021 Clinic Additions.

Adjusted for the salaries and related costs for clinics closed or

sold in 2022 and 2021 of $0.2 million in the Second Quarter and $0.4 million in 2021 Second Quarter, salaries and related costs related to Mature Clinics increased by $2.7 million in the 2022 Second Quarter compared to the 2021 Second Quarter.

Physical therapy salaries and related costs were $58.29 per visit in the 2022 Second Quarter as compared to $55.95 per visit in the Second Quarter 2021, an increase of 4.2%.

Salaries and related costs related to management contracts decreased by $0.4

million for the 2022 Second Quarter.

Salaries and related costs for the industrial injury prevention services business was $11.6 million in the 2022 Second Quarter, or 59.9% of industrial injury prevention services revenue, as compared to $6.2 million in the

2021 Second Quarter, or 62.2% of industrial injury prevention services revenue.

Operating Cost—Rent, Supplies, Contract Labor and Other

Rent, supplies, contract labor and other costs, including physical therapy operations and the IIPS business, was 20.2% of net revenue in the 2022 Second Quarter versus 17.6% in the 2021 Second Quarter.

Rent, supplies,

contract labor and other costs for the physical therapy operations was $24.7 million in the 2022 Second Quarter, or 20.7% of physical therapy operations revenue, as compared to $20.9 million in the 2021 Second Quarter, or 18.3% of physical therapy

operations revenue.

Included in rent, supplies, contract labor and other costs related to physical therapy operations for the 2022 Second Quarter was $2.7 million related to 2022 and 2021 Clinic Additions.

Adjusted for the rent, supplies, contract

labor and other costs for clinics related to the clinics closed or sold in 2022 and 2021 of $0.1 million in the 2022 Second Quarter and $0.2 million in the 2021 Second Quarter, rent, supplies, contract labor and other costs for Mature Clinics

increased by $1.9 million in the 2022 Second Quarter compared to the 2021 Second Quarter.

Rent, supplies, contract labor and other costs, related to management contracts decreased $0.1 million in the 2022 Second Quarter.

Rent, supplies, contract labor and other costs for the industrial injury prevention services business was $3.5 million in the 2022 Second Quarter, or 18.2% of industrial injury prevention services

revenue, as compared to $1.2 million in the 2021 Second Quarter, or 12.5% of net industrial injury prevention services revenue.

Operating Cost—Provision for Credit Losses

The provision for credit losses as a percentage of net revenue was 1.1% in the 2022 Second Quarter and for the comparable period in 2021.

Our provision for credit losses for patient accounts receivable as a percentage of total patient accounts receivable was 5.51% on June 30, 2022, as compared to 5.64% on December 31, 2021.

Our days’ sales outstanding was 33

days on June 30, 2022 and 32 days on December 31, 2021.

Gross profit for the 2022 Second Quarter, was $30.8 million, a decrease of $3.5 million, or approximately 10.2%, as compared to $34.3 million for the 2021 Second Quarter.

The gross profit percentage was 21.9% of total

revenue for the 2022 Second Quarter as compared to 27.0% for the 2021 Second Quarter.

The gross profit percentage for our

physical therapy operations was 22.0% for the 2022 Second Quarter as compared to 27.4% for the 2021 Second Quarter.

The gross profit percentage on management contracts was 23.7% for the 2022 Second Quarter as compared to

19.6% for the 2021 Second Quarter.

The gross profit percentage for the industrial injury prevention services business was 21.2% for the 2022 Second Quarter as compared to 25.3% for the 2021 Second Quarter.

The IIPS margin in 2022 has been impacted

by the lower margin profile of the Company’s November 2021 IIPS acquisition The table below details the gross profit (in thousands):

Three Months Ended

June 30, 2022

June 30, 2021

Physical therapy operations

Management contracts

Industrial injury prevention services

Corporate Office Costs

Corporate office costs were $10.7 million for the 2022 Second Quarter compared to $12.1 million for the 2021 Second Quarter.

Corporate office costs were 7.6% of total revenue for the 2022 Second Quarter as compared to 9.5%

for the 2021 Second Quarter.

The decrease was primarily due to lower estimated bonus expense in the 2022 Second Quarter compared to the 2021 Second Quarter.

Operating Income

Operating income for the 2022 Second Quarter was $20.1 million and $22.2 million for the 2021 Second Quarter.

Operating income as a percentage of total revenue was 14.3% for the 2022 Second Quarter as compared to 17.5% for

the 2021 Second Quarter.

Loss on Revaluation of Put-Right Liability

The loss on revaluation of put-right liability was $617,000.

As part of the IIPS business acquisition on November 30, 2021, we 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 owners have the right to put this transaction to us in approximately five years, with such right having a $3.5

million value at June 30, 2022, as reflected on our consolidated balance sheet in Other long-term liabilities.

The value of this right will continue to be adjusted in future periods, as appropriate.

Provision for Income Taxes

The provision for income tax was $4.2 million for the 2022 Second Quarter and $4.6 million for the 2021 Second Quarter.

The provision for income tax as a percentage of income before taxes less net income attributable to

non-controlling interest (effective tax rate) was 27.5% for the 2022 Second Quarter and 26.9% for the 2021 Second Quarter.

See table below ($ in thousands):

See table below detailing calculation of the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest ($ in thousands):

Three Months Ended

June 30, 2022

June 30, 2021

Income before taxes

net income attributable to non-controlling interest:

Redeemable non-controlling interest - temporary equity

Non-controlling interest - permanent equity

Income before taxes less net income attributable to non-controlling interest

Provision for income taxes

Net Income Attributable to Non-controlling Interest

Net income attributable to redeemable non-controlling interest (temporary equity) was $2.6 million for the 2022 Second Quarter and $3.6 million for the 2021 Second Quarter.

Net income attributable to non-controlling

interest (permanent equity) was $1.4 million for the 2022 Second Quarter and million for the 2021 Second Quarter.

2022 Six Months Compared to 2021 Six Months

The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements (in thousands):

Six Months Ended June 30,

Net operating revenue:

Physical therapy operations

Industrial injury prevention services

Total Company

Gross profit:

Physical therapy operations

Industrial injury prevention services

Total Assets:

Physical therapy operations

Industrial injury prevention services

Total Company

Reported total revenue for the 2022 Six Months was $272.4 million, an increase of 13.8% as compared to $239.3 million for the 2021 Six Months.

See table below for a detail of

reported total revenue (in thousands):

For the Six Months Ended

June 30, 2022

June 30, 2021

Revenue related to Mature Clinics

Revenue related to 2022 Clinic Additions

Revenue related to 2021 Clinic Additions

Revenue from clinics sold or closed in 2022

Revenue from clinics sold or closed in 2021

Net patient revenue from physical therapy operations

Other revenue

Revenue from physical therapy operations

Revenue - Management contracts

Revenue - Industrial injury prevention services

Total Revenue

Revenue from physical therapy operations increased $15.5 million, or 7.3%, to $229.5 million for the 2022 Six Months from $214.0 million for the 2021 Six Months.

The average net patient revenue per visit was $103.09 for the 2022 Six Months as compared to $104.58 for the 2021 Six Months.

Total patient visits increased 8.7% to 2,209,073 for the 2022 Six Months from 2,031,858 for the

2021 Six Months.

Net patient revenue is based on established billing rates less allowances for patients covered by contractual programs and workers’ compensation.

Net patient revenue is determined after contractual and other adjustments relating to

patient discounts from certain payors.

Payments received under contractual programs and workers’ compensation are based on predetermined rates and are generally less than the established billing rates.

Net patient revenue related to Mature Clinics increased $2.7 million, or 1.3%, to $211.2 million for the 2022 Six Months compared to $208.5 million for the 2021 Six Months.

for Mature Clinics (same store) for the 2022 Six Months increased 3.0% as compared to the 2021 Six Months.

The increase in visits was partially offset by a reduction in the net patient revenue per visit.

Revenue from the industrial injury prevention services business increased 92.1% to $38.5 million for the 2022 Six Months as compared to $20.0 million for the 2021 Six Months.

Excluding $13.7 million of revenue related to

the IIPS acquisition in November 2021, IIPS revenue increased 24.0% in the 2022 Six Months as compared to the 2021 Six Months.

Revenue from management contract revenue decreased 17.9% to $4.4 million for the 2022 Six Months as compared to $5.3 million for the 2021 Six Months due to the termination of certain management contracts.

Operating Cost

Total operating cost was $215.0 million for the 2022 Six Months, or 78.9% of total revenue, as compared to $179.1 million, or 74.8% of total revenue, for the 2021 Six Months.

Operating cost related to Mature Clinics

increased by $10.1 million for the 2022 Six Months compared to the 2021 Six Months.

In addition, operating cost related to the industrial injury prevention services business increased by $15.5 million of which $11.3 million related to the recent

IIPS acquisition.

See table below for a detail of operating cost (in thousands):

Six Months Ended

June 30, 2022

June 30, 2021

Operating cost related to Mature Clinics

Operating cost related to 2022 Clinic Additions

Operating cost related to 2021 Clinic Additions

Operating cost related to clinics sold or closed in 2022

Operating cost related to clinics sold or closed in 2021

Operating cost related to physical therapy operations

Operating cost related to management contracts

Operating cost related to industrial injury prevention services

Total operating cost

Each component of operating cost is discussed below:

Operating Cost—Salaries and Related Costs

Salaries and related costs, including physical therapy operations and the industrial injury prevention services business, was 56.9% of net revenue for the 2022 Six Months versus 55.4% for the 2021 Six Months.

related costs for the physical therapy operations was $129.2 million in the 2022 Six Months, or 56.3% of physical therapy operations revenue, as compared to $116.2 million in the 2021 Six Months, or 54.3% of physical therapy operations revenue.

Included in salaries and related costs for the physical therapy operations for the 2022 Six Months was $8.1 million related to 2022 and 2021 Clinic Additions.

Adjusted for the salaries and related costs for clinics closed or sold in 2022 and 2021 of

$0.1 million in the 2022 Six Months and $0.9 million in 2021 Six Months, salaries and related costs related to Mature Clinics increased by $6.6 million in the 2022 Six Months compared to the 2021 Six Months.

Salaries and related costs related to

management contracts decreased by $0.8 million for the 2022 Six Months.

Salaries and related costs for the industrial injury prevention services business was $22.7 million in the 2022 Six Months, or 59.0% of industrial injury prevention services revenue, as compared to $12.5 million in the 2021

Six Months, or 62.3% of industrial injury prevention services revenue.

Operating Cost—Rent, Supplies, Contract Labor and Other

Rent, supplies, contract labor and other costs, including physical therapy operations and the industrial injury prevention services business, was 20.9% of net revenue in the 2022 Six Months versus 18.3% in the 2021 Six

Rent, supplies, contract labor and other costs for the physical therapy operations was $49.3 million in the 2022 Six Months, or 21.5% of physical therapy operations revenue, as compared to $41.0 million in the 2021 Six Months, or 19.2% of

physical therapy operations revenue.

Included in rent, supplies, contract labor and other costs related to physical therapy operations for the 2022 Six Months was $4.7 million related to 2022 and 2021 Clinic Additions.

Adjusted for the rent,

supplies, contract labor and other costs for clinics related to the clinics closed or sold in 2022 and 2021 of $0.3 million in the 2022 Six Months and $0.5 million in the 2021 Six Months, rent, supplies, contract labor and other costs for Mature

Clinics increased by $4.6 million in the 2022 Six Months compared to the 2021 Six Months.

Rent, supplies, contract labor and other costs, related to management contracts decreased $0.2 million in the 2022 Six Months.

Rent, supplies, contract labor and other costs for the industrial injury prevention services business was $7.4 million in the 2022 Six Months, or 19.1% of industrial injury prevention services revenue,

as compared to $2.3 million in the 2021 Six Months, or 11.4% of net industrial injury prevention services revenue.

Operating Cost—Provision for Credit Losses

The provision for credit losses as a percentage of net revenue was 1.0% in the 2022 Second Quarter and 1.1% for the comparable period in 2021.

Our provision for credit losses for patient accounts receivable as a percentage of total patient accounts receivable was 5.51% at June 30, 2022, as compared to 5.64% at December 31, 2021.

Our days’ sales outstanding was 33

days at June 30, 2022 and 32 days at December 31, 2021.

Gross profit for the 2022 Six Months, was $57.4 million, a decrease of $2.8 million, or approximately 4.6%, as compared to $60.2 million for the 2021 Six Months.

The gross profit percentage was 21.1% of total revenue for

the 2022 Six Months as compared to 25.2% for the 2021 Six Months.

The gross profit percentage for our physical therapy operations was 21.0% for the 2022 Six Months as compared to 25.3% for the 2021 Six Months.

The gross profit percentage on

management contracts was 20.6% for the 2022 Six Months as compared to 16.0% for the 2021 Six Months.

The gross profit percentage for industrial injury prevention services was 21.5% for the 2022 Six Months as compared to 26.3% for the 2021 Six

The IIPS margin in 2022 has been impacted by the lower margin profile of our November 2021 IIPS acquisition.

The table below details the gross profit (in thousands):

Six Months Ended

June 30, 2022

June 30, 2021

Physical therapy operations

Management contracts

Industrial injury prevention services

Corporate Office Costs

Corporate office costs were $22.3 million for the 2022 Six Months compared to $22.9 million for the 2021 Six Months.

Corporate office costs were 8.2% of total revenue for the 2022 Six Months as compared to 9.6% for the 2021

The decrease was primarily due to lower estimated bonus expense in the 2022 Six Months than the 2021 Six Months.

Operating Income

Operating income for the 2022 Six Months were $35.1 million and $37.3 million for 2021 Six Months.

Operating income as a percentage of total revenue was 12.9% for the 2022 Six Months

as compared to 15.6% for the 2021 Six Months.

Loss on Revaluation of Put-Right Liability

The loss on revaluation of the put-right liability was $14,000.

As part of the IIPS business acquisition on November 30, 2021, we 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 owners have the right to put this transaction to us in approximately five years, with such right having a $3.5

million value at June 30, 2022, as reflected on our consolidated balance sheet in Other long-term liabilities.

The value of this right will continue to be adjusted in future periods, as appropriate.

Provision for Income Taxes

The provision for income tax was $7.7 million for the 2022 Six Months and $7.5 million for the 2021 Six Months.

The provision for income tax as a percentage of income before taxes less net income attributable to

non-controlling interest (effective tax rate) was 27.9% for the 2022 Six Months and 26.7% for the 2021 Six Months.

See table below detailing calculation of the provision for income taxes as a percentage of income before taxes less net income

attributable to non-controlling interest ($ in thousands):

Six Months Ended

June 30, 2022

June 30, 2021

Income before taxes

net income attributable to non-controlling interest:

Redeemable non-controlling interest - temporary equity

Non-controlling interest - permanent equity

Income before taxes less net income attributable to non-controlling interest

Provision for income taxes

Net Income Attributable to Non-controlling Interest

Net income attributable to redeemable non-controlling interest (temporary equity) was $5.2 million for the 2022 Six Months and $6.1 million for the 2021 Six Months.

Net income attributable to non-controlling interest

(permanent equity) was $2.1 million for the 2022 Six Months and $2.7 million for the 2021 Six Months.

Other Comprehensive Loss

Concurrently with the Credit Agreement (as defined below), we entered into an interest rate swap agreement in May 2022, which has a $150 million notional value, a maturity date of June 30, 2027 and was

effective on June 30, 2022.

Beginning in July 2022, we pay a fixed rate of interest of 2.815% on 1-month SOFR on a quarterly basis.

The total interest rate in any period will also include an applicable margin based on our consolidated leverage ratio.

Currently, our interest rate including the applicable margin is 4.665%.

Unrealized gains and losses related to the fair value of the interest rate swap are recorded to accumulated other comprehensive income (loss), net of tax.

The fair value of the

interest rate swap at June 30, 2022, was $0.5 million, which has been included within current liabilities in the accompanying Consolidated Balance Sheet.

The impact of the interest rate swap on the accompanying Consolidated Statement of Comprehensive

Income for the three and six months ended June 30, 2022 was an unrealized loss of $0.4 million, net of tax.

LIQUIDITY AND CAPITAL RESOURCES

We believe that our business has sufficient cash to allow us to meet our short-term cash requirements.

At June 30, 2022 and December 31, 2021, we had $48.6 million and $28.6 million, respectively, in cash.

We believe that

our cash and cash equivalents and availability under our Credit Facilities are sufficient to fund the working capital needs of our operating subsidiaries through at least June 30, 2023.

Cash and cash equivalents increased by $20.4 million from December 31, 2021 to June 30, 2022.

During the 2022 Six Months, $27.5 million was provided by operations and $211.0 million from proceeds on our Amended Credit

Agreement (described below).

The major uses of cash for investing and financing activities included:

payments on our Revolving Facility ($175.0 million), distributions to non-controlling interests inclusive of those classified as redeemable

non-controlling interest ($7.2 million), dividends paid to shareholders ($10.7 million), purchase of business and non-controlling interest ($20.4 million), and purchase of fixed assets ($4.6 million).

On June 17, 2022, we entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”) among Bank of America, N.A., as administrative agent (“Administrative Agent”) and the lenders from time-to-time

party thereto.

The Credit Agreement, which matures on June 17, 2027, provides for loans in an aggregate principal amount of $325 million.

Such loans will be available through the following facilities (collectively, the “Senior Credit

Facilities”):

Revolving Facility:

$175 million, five-year, revolving credit facility (“Revolving Facility”), which includes a $12 million sublimit for the issuance of standby letters of credit and a $15 million sublimit for

swingline loans (each, a “Swingline Loan”).

Term Facility:

$150 million term loan facility (the “Term Facility”).

The Term Facility amortizes in quarterly installments of:

(a) 0.625% in each of the first two years, (b) 1.250% in the third and fourth year, and

The remaining outstanding principal balance of all term loans is due on the maturity date.

The proceeds of the Revolving Facility shall be used by us for working capital and other general corporate purposes of the Company and its subsidiaries, including to fund future acquisitions and

invest in growth opportunities.

The proceeds of the Term Facility were used by us to refinance the indebtedness outstanding under the Second Amended and Restated Credit Agreement, to pay fees and expenses incurred in connection with the loan

facilities transactions, for working capital and other general corporate purposes of our Company and its subsidiaries.

We will be permitted to increase the Revolving Facility and/or add one or more tranches of term loans in an aggregate amount not to exceed the sum of (i) $100 million plus (ii)

an unlimited additional amount, provided that (in the case of clause (ii)), after giving effect to such increases, the pro forma Consolidated Leverage Ratio (as defined in the Credit Agreement) would not exceed 2.0:1.0, and the aggregate amount of

all incremental increases under the Revolving Facility does not exceed $50,000,000.

The interest rates per annum applicable to the Senior Credit Facilities (other than in respect of Swingline Loans) will be Term SOFR as defined in the agreement plus an applicable margin or, at our

option, an alternate base rate plus an applicable margin.

Currently, our interest rate including the applicable margin is 4.665%.

Interest is payable at the end of the selected interest period but no less frequently than quarterly and on the date

We will also pay to the Administrative Agent, for the account of each lender under the Revolving Facility, a commitment fee equal to the actual daily excess of each lender’s commitment over its

outstanding credit exposure under the Revolving Facility (“unused fee”).

The Company may prepay and/or repay the revolving loans and the term loans, and/or terminate the revolving loan commitments, in whole or in part, at any time without premium

or penalty, subject to certain conditions.

The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and

dissolutions, sales of assets, dividends and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets.

The Credit Agreement includes

certain financial covenants which include the Consolidated Fixed Charge Coverage Ratio and the Consolidated Leverage Ratio, as defined in the Credit Agreement.

The Credit Agreement also contains customary events of default.

Our obligations under the Credit Agreement are guaranteed by its wholly-owned material domestic subsidiaries (each, a “Guarantor”), and the obligations of the Company and any Guarantors are secured by

a perfected first priority security interest in substantially all of the existing and future personal property of the Company and each Guarantor, subject to certain exceptions.

On June 30, 2022, $150.0 million was outstanding on the Term Loan and the Revolving Facility remains available resulting in $175.0 million of availability.

As of June 30, 2022, we were in compliance with all of the

covenants thereunder.

On March 31, 2022, we acquired a 70% interest in a six-clinic physical therapy practice.

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

The purchase price for the 70% equity interest was approximately $11.5

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

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

On December 31, 2021, we acquired a 75% interest in a 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, we acquired an approximate 70% interest in a leading provider of industrial injury prevention services.

The previous owners retained the remaining interest.

initial purchase price for the 70% equity interest, not inclusive of the $2.0 million contingent payment in conjunction with the acquisition if specified future operational objectives are met, was approximately $63.2 million, of which $62.2 million

was paid in cash, and $1.0 million is in the form of a note payable.

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

The business generates approximately $27.0 million in annual revenue at a margin

of approximately 20%.

As part of the transaction, we also agreed to the 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

The current owners have the right to put this transaction to us in approximately five years, with such put right having an initial $3.5 million fair value on June 30, 2022, 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 fair value reflected in the Company’s consolidated statement of income.

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.

We 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 are 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 founders retaining 35%.

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

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

The business criteria were met and accordingly $1.0 million was paid in July 2022.

The note accrues interest at

3.25% per annum and the principal and interest are 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 founders retaining 30%.

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

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 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 March 31, 2023.

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 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.

T he Company recorded the $14.1 million in advance

payments received as a liability.

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

Historically, we have generated sufficient cash from operations to fund our development activities and to cover operational needs.

We plan to continue developing new clinics and making additional acquisitions.

time to time purchased the non-controlling interests of limited partners in our Clinic Partnerships.

We may purchase additional non-controlling interests in the future.

Generally, any acquisition or purchase of non-controlling interests is expected

to be accomplished using a combination of cash and financing.

Any large acquisition would likely require financing.

We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts, in a consistent manner for all payor types.

Claims are submitted to payors daily, weekly or

monthly in accordance with our policy or payor’s requirements.

When possible, we submit our claims electronically.

The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may

be dependent upon the payment of another payor.

Claims under litigation and vehicular incidents can take a year or longer to collect.

Medicare and other payor claims relating to new clinics awaiting payor credentialing approval initially may be

delayed for a relatively short transition period.

When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms.

With managed care, commercial health plans and self-pay

payor type receivables, the write-off generally occurs after the accounts receivable has been outstanding for at least 120 days.

We generally enter into various notes payable as a means of financing our acquisitions.

Our outstanding notes payable as of June 30, 2022 relate to certain of the acquisitions of businesses and purchases of redeemable

non-controlling interest that occurred in 2018 through June 2022.

Typically, the notes are payable over two years plus any accrued and unpaid interest.

Interest accrues at various interest rates ranging from 3.25% to 5.5% per annum, subject to

At June 30, 2022, the balance on these notes payable was $5.7 million.

In addition, we assumed leases with remaining terms of 1 month to 6 years for the operating facilities.

In conjunction with the above-mentioned acquisitions, in the event that a limited minority partner’s employment ceases at any time after a specified date that is typically between three and five years from the acquisition

date, we have agreed to certain contractual provisions which enable such minority partners to exercise their right to trigger our repurchase of that partner’s non-controlling interest at a predetermined multiple of earnings before interest and taxes.

As of June 30, 2022, we have accrued $7.9 million related to credit balances due to patients and payors.

This amount is expected to be paid in the next twelve months.

From September 2001 through December 31, 2008, our Board of Directors (“Board”) authorized us to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of our common stock.

2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of our common stock (“March 2009 Authorization”).

Our Amended Credit Agreement permits share repurchases of up to $15,000,000, subject to compliance with

We are required to retire shares purchased under the March 2009 Authorization.

There is no expiration date for the share repurchase program.

As of June 30, 2022, there are currently an additional estimated 137,363 shares (based on the closing price of $109.20 on June 30, 2022) that may be purchased

from time to time in the open market or private transactions depending on price, availability and our cash position.

We did not purchase any shares of our common stock during the six months ended June 30, 2022.

FACTORS AFFECTING FUTURE RESULTS

The risks related to our business and operations include:

the multiple effects of the impact of public health crises and epidemics/pandemics, such as the novel strain of COVID-19 and its variants, for which the total financial magnitude cannot be currently estimated;

changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certification and/or enrollment status;

revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction;

changes in reimbursement rates or payment methods from third party payors including government agencies, and changes in the deductibles and co-pays owed by patients;

compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure to comply;

competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certain clinics and thereby incur losses and/or closure costs including the possible write-down or

write-off of goodwill and other intangible assets;

the impact of COVID-19 related vaccination and/or testing mandates at the federal, state and/or local level, which could have an adverse impact on staffing, revenue, costs and the results of operations;

changes as the result of government enacted national healthcare reform;

business and regulatory conditions including federal and state regulations;

governmental and other third party payor inspections, reviews, investigations and audits, which may result in sanctions or reputational harm and increased costs;

revenue and earnings expectations;

legal actions, which could subject us to increased operating costs and uninsured liabilities;

general economic conditions, including but not limited to inflationary and recessionary periods;

availability and cost of qualified physical therapists;

personnel productivity and retaining key personnel;

competitive environment in the industrial injury prevention services business, which could result in the termination or nonrenewal of contractual service arrangements and other adverse financial consequences for

that service line;

acquisitions, and the successful integration of the operations of the acquired businesses;

impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their non-controlling interest (minority interests);

maintaining our information technology systems with adequate safeguards to protect against cyber-attacks;

a security breach of our or our third party vendors’ information technology systems may subject us to potential legal action and reputational harm and may result in a violation of the Health Insurance Portability

and Accountability Act of 1996 of the Health Information Technology for Economic and Clinical Health Act;

maintaining clients for which we perform management and other services, as a breach or termination of those contractual arrangements by such clients could cause operating results to be less than expected;

maintaining adequate internal controls;

maintaining necessary insurance coverage;

availability, terms, and use of capital;

weather and other seasonal factors.

In addition to the above, see Risk Factors in Part 2 - Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 and the additional risk factor below:

Our debt and financial obligations could adversely affect our financial condition, our ability to obtain future financing, and our ability to

operate our business.

We have outstanding debt obligations that could adversely affect our financial condition and limit our ability to successfully implement our business strategy.

Furthermore, from time

to time, we may need additional financing to support our business and pursue our business strategy, including strategic acquisitions.

Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating

performance, the condition of the capital markets, and other factors.

We cannot assure that additional financing will be available to us on favorable terms when required, or at all.

Our loan agreements contain certain restrictions and requirements that among other things:

require us to maintain a quarterly fixed charge coverage ratio and minimum working capital ratio;

limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions, to fund growth or for general corporate purposes;

limit our future ability to refinance our indebtedness on terms acceptable to us or at all;

limit our flexibility in planning for or reacting to changes in our business and market conditions or in funding our strategic growth plan;

impose on us financial and operational restrictions.

Our ability to meet our debt service obligations will depend on our future performance, which will be affected by the other risk factors described in our Annual Report on Form 10-K

filed on March 1, 2022.

If we do not generate enough cash flow to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell our assets, borrow more money or raise equity.

There is no guarantee that we

will be able to take any of these actions on a timely basis, on terms satisfactory to us, or at all.

If we fail to satisfy our debt service obligations or the other restrictions and requirements in our loan agreements, we could be in default.

Unless cured or waived, a default would

permit lenders to accelerate the maturity of the debt under the credit agreement and to foreclose upon the collateral securing the debt.

Our outstanding loans bear interest at variable rates.

In response to the variable rates, we entered into entered into an interest rate swap agreement.

See above for further

discussion of this swap agreement.

Forward-Looking Statements

We make statements in this report that are considered to be forward-looking statements within the meaning given such term under Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

statements contain forward-looking information relating to the financial condition, results of operations, plans, objectives, future performance and business of our Company.

These statements (often using words such as “believes”, “expects”,

“intends”, “plans”, “appear”, “should” and similar words) involve risks and uncertainties that could cause actual results to differ materially from those we project.

Included among such statements are those relating to opening new clinics,

availability of personnel and the reimbursement environment.

The forward-looking statements are based on our current views and assumptions and actual results could differ materially from those anticipated in such forward-looking statements as a

result of certain risks, uncertainties, and factors, which include, but are not limited to the risks listed above.

Many factors are beyond our control.

Given these uncertainties, you should not place undue reliance on our forward-looking statements.

Please see the other sections of this report and our other periodic reports filed with

the Securities and Exchange Commission (the “SEC”) for more information on these factors.

Our forward-looking statements represent our estimates and assumptions only as of the date of this report.

Except as required by law, we are under no obligation

to update any forward-looking statement, regardless of the reason the statement may no longer be accurate.

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