U S PHYSICAL THERAPY INC /NV 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. EXECUTIVE SUMMARY Our reportable segments consist of the physical therapy operations segment and the industrial injury prevention services segment. Through our subsidiaries, we operate outpatient physical therapy clinics that provide pre-and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, treatment for neurological-related injuries and rehabilitation of injured workers. We also have majority interests in companies which are leading providers of industrial injury prevention services (“IIP”). Services provided in these businesses include onsite injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. These services are performed through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs). During the last three years, we completed the acquisitions of eleven multi-clinic practices and two industrial injury prevention services businesses as detailed below: % Interest Number of Acquisition Date Acquired Clinics November 2022 Acquisition November 30, 2022 80% 13 October 2022 Acquisition October 31, 2022 60% 14 September 2022 Acquisition September 30, 2022 80% 2 August 2022 Acquisition August 31, 2022 70% 6 March 2022 Acquisition March 31, 2022 70% 6 December 2021 Acquisition December 31, 2021 75% 3 November 2021 Acquisition November 30, 2021 70% * September 2021 Acquisition September 30, 2021 100% * June 2021 Acquisition June 30, 2021 65% 8 March 2021 Acquisition March 31, 2021 70% 6 November 2020 Acquisition November 30, 2020 75% 3 September 2020 Acquisition September 30, 2020 70% ** February 2020 Acquisition February 27, 2020 65% *** 4 * Industrial injury prevention services business ** The business includes six management contracts which have been in place for a number of years. As of the date acquired, the contracts had a remaining term of five years. *** The four clinics are in four separate partnerships. The Company's interest in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. Besides the multi-clinic acquisitions referenced in the table above, during 2022 and 2021, we purchased the assets and business of three individual physical therapy clinics in separate transactions. The clinics operate as satellite clinics of three of our existing clinic partnerships. During the year ended December 31, 2022, we sold five clinics and closed eleven clinics. The aggregate sales price was $0.3 million. During the year ended December 31, 2021, we sold two clinics for an aggregate sales price of $0.1 million, and we closed three clinics. During the year ended December 31, 2020, we closed 34 clinics, and we sold 14 previously closed clinics for an aggregate sales price was $1.1 million. Of the total sales price, $0.7 million was paid in cash and $0.4 million in a note receivable which was fully received in June 2022. We intend to continue to pursue additional acquisition opportunities as well as open new clinics and satellite clinics. 23 Table of Contents Impact of COVID-19 As previously disclosed in various filings with the Securities and Exchange Commission (the “SEC”), our results were negatively impacted by the effects of the COVID-19 pandemic especially in the years ended December 31, 2021 and 2020. The COVID-19 pandemic continues to evolve, and we cannot predict any future impact on our business, operating results, cash flows and financial condition. Relief Funds In March 2020 in response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19. For the years ended December 31, 2021 and 2020, we recorded income of approximately $4.6 million and $13.5 million of payments under the CARES Act (“Relief Funds”) respectively. Under our accounting policy, these payments were recorded as Other income – Relief Funds. These funds are not required to be repaid upon attestation and compliance with certain terms and conditions, which could change materially based on evolving grant compliance provisions and guidance provided by the U.S. Department of Health and Human Services. Currently, we can attest and comply with the terms and conditions. We will continue to monitor the evolving guidelines and may record adjustments as additional information is released. Medicare Accelerated and Advance Payment Program (“MAAPP Funds”) The CARES Act allowed for qualified healthcare providers to receive advanced payments under the existing MAAPP funds during the COVID-19 pandemic. Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided. We applied for and received approval to receive MAAPP Funds from Centers for Medicare & Medicaid Services in April 2020. We recorded the $14.1 million in advance payments received as a liability. During the quarter ended March 31, 2021, we repaid the MAAPP funds of $14.1 million rather than applying them to future services performed. CRITICAL ACCOUNTING POLICIES Critical accounting policies are those that have a significant impact on our results of operations and financial position involving significant estimates requiring our judgment. Our critical accounting policies are: Revenue Recognition. Revenues are recognized in the period in which services are rendered. Net patient revenue consists of revenues for physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. Net patient revenue (patient revenues less estimated contractual adjustments – described below) is recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There is an implied contract between us and the patient upon each patient visit. Separate contractual arrangements exist between us and third-party payors (e.g. insurers, managed care programs, government programs, and workers' compensation programs) which establish the amounts the third parties pay on behalf of the patients for covered services rendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third-party payors. The payor contracts do not indicate performance obligations for us but indicate reimbursement rates for patients who are covered by those payors when the services are provided. At that time, we are obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicate a performance obligation. For self-paying customers, the performance obligation exists when we provide the services at established rates. The difference between our established rate and the anticipated reimbursement rate is accounted for as an offset to revenue—contractual allowance. Management contract revenue, which is included in other revenue in the consolidated statements of net income, is derived from contractual arrangements whereby we manage a clinic owned by a third party. We do not have any ownership interest in these clinics. Typically, revenues are determined based on the number of visits conducted at the clinic and recognized at the point in time when services are performed. Costs, typically salaries for our employees, are recorded when incurred. Revenues from the industrial injury prevention services business, which are also included in other revenues in the consolidated statements of net income, are derived from onsite services we provide to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performance optimization. Revenue from the industrial injury prevention services business is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal to the consideration we expect to receive in exchange for providing injury prevention services to our clients. The revenue is determined and recognized based on the number of hours and respective rate for services provided in a given period. 24 Table of Contents Additionally, other revenue includes services we provide on-site at locations such as schools and industrial worksites for physical or occupational therapy services, athletic trainers and gym membership fees. Contract terms and rates are agreed to in advance between us and the third parties. Services are typically performed over the contract period and revenue is recorded at the point of service. If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time when the services are performed. We determine allowances for credit losses based on the specific agings of receivables and payor classifications at each clinic. The provision for credit losses is included in clinic operating costs in the statements of net income. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for credit losses, includes only those amounts we estimate to be collectible. The following table details the revenue related to the various categories (in thousands): Year Ended December 31, 2022 December 31, 2021 December 31, 2020 Net patient revenue $ 464,590 $ 438,330 $ 373,340 Other revenue 3,407 2,939 2,020 Net patient revenue from physical therapy operations $ 467,997 $ 441,269 $ 375,360 Revenue from management contracts 8,095 9,853 8,410 Revenue from industrial injury prevention services 77,052 43,900 39,199 Total revenue $ 553,144 $ 495,022 $ 422,969 Contractual Allowances. Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services. Medicare regulations and the various third-party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in our clinics. We estimate contractual allowances based on our interpretation of the applicable regulations, payor contracts and historical calculations. Each month we estimate our contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and apply an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on our historical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us to provide the necessary detail and accuracy with our collectability estimates. However, the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from our estimates. Payor terms are periodically revised necessitating continual review and assessment of the estimates made by management. Our billing systems may not capture the exact change in our contractual allowance reserve estimate from period to period. Therefore, in order to assess the accuracy of our revenues and hence our contractual allowance reserves, our management regularly compares our cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, the historical difference between net revenues and corresponding cash collections in any given fiscal year has generally reflected a difference within approximately 1.0% to 1.5% of net revenues. Additionally, analysis of subsequent period’s contractual write-offs on a payor basis reflects a difference within approximately 1.0% to 1.5% between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance. As a result, we believe that a reasonable likely change in the contractual allowance reserve estimate would not be more than 1% to 1.5% of gross billings in accounts receivable at December 31, 2022. For purposes of demonstrating the sensitivity of this estimate on our Company’s financial condition, a 1% to 1.5% increase or decrease in our aggregate contractual allowance reserve percentage would decrease or increase, respectively, net patient revenue by approximately $1.4 million to $1.3 million for the year ended December 31, 2022. Management believes the changes in the estimate of the contractual allowance reserve for the periods ended December 31, 2022, 2021 and 2020 have not been material to the statement of income. The following table sets forth information regarding our patient accounts receivable as of the dates indicated (in thousands): December 31, 2022 2021 Gross patient accounts receivable $ 144,758 $ 129,524 Less contractual allowances 89,995 80,484 Subtotal - accounts receivable 54,763 49,040 Less allowance for credit losses 2,829 2,768 Net patient accounts receivable $ 51,934 $ 46,272 25 Table of Contents The following table presents our patient accounts receivable aging by payor class as of the dates indicated (in thousands): December 31, 2022 December 31, 2021 Current to Current to Payor 120 Days 120+ Days Total 120 Days 120+ Days Total Managed Care/ Commercial Plans $ 16,439 $ 2,168 $ 18,607 $ 13,985 $ 2,381 $ 16,366 Medicare/Medicaid 15,987 1,657 17,644 13,442 1,636 15,078 Workers Compensation* 5,996 1,341 7,337 5,600 1,312 6,912 Self-pay 4,048 3,338 7,386 4,371 3,316 7,687 Other** 1,463 2,326 3,789 1,168 1,829 2,997 Totals $ 43,933 $ 10,830 $ 54,763 $ 38,566 $ 10,474 $ 49,040 * Workers compensation is paid by state administrators or their designated agents. ** Other includes primarily litigation claims and, to a lesser extent, vehicular insurance claims. Goodwill Goodwill represents the excess of the amount paid and fair value of the non-controlling interests over the fair value of the acquired business assets, which include certain identifiable intangible assets. Historically, goodwill has been derived from acquisitions and, prior to 2009, from the purchase of some or all of a particular local management’s equity interest in an existing clinic. Effective January 1, 2009, if the purchase price of a non-controlling interest by the Company exceeds or is less than the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital. Goodwill and other indefinite-lived intangible assets are not amortized but are instead subject to periodic impairment evaluations. The fair value of goodwill and other identifiable intangible assets with indefinite lives are evaluated for impairment at least annually and upon the occurrence of certain events or conditions and are written down to fair value if considered impaired. These events or conditions include but are not limited to a significant adverse change in the business environment, regulatory environment, or legal factors; a current period operating, or cash flow loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. We evaluate indefinite-lived tradenames in conjunction with our annual goodwill impairment test. We operate our business through two segments consisting of our physical therapy clinics and our industrial injury prevention services business. For purposes of goodwill impairment analysis, each of our segments is further broken down into reporting units. Reporting units within our physical therapy business comprise of regions primarily based on each clinic’s location. In addition to the six regions, in 2022 and 2021, the industrial injury prevention services businesses consisted of two reporting units. As part of the impairment analysis, we are first required to assess qualitatively if we can conclude whether goodwill is more likely than not impaired. If goodwill is more likely than not impaired, we are then required to complete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we consider relevant events or circumstances that affect the fair value or carrying amount of a reporting unit. We consider both the income and market approach in determining the fair value of its reporting units when performing a quantitative analysis. An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets, exceeds the estimated fair value of the reporting unit. The evaluation of goodwill in 2021 and 2020 did not result in any goodwill amounts that were deemed impaired. In 2022, we recorded a charge for goodwill impairment of $9.1 million related to one reporting unit in the industrial injury prevention services business. The impairment is related to a change in the reporting unit’s current and projected operating income as well as various inputs based on current market conditions, including the higher interest rate environment. No impairment was recognized as part of our annual assessment of goodwill for the other seven reporting units. Redeemable Non-Controlling Interest The non-controlling interests that are reflected as redeemable non-controlling interest in our consolidated financial statements consist of those owners, including us, that have certain redemption rights, whether currently exercisable or not, and which currently, or in the future, require that we purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met and the owners request the purchase (“Put Right”). We also have a call right (“Call Right”). The Put Right or Call Right may be triggered by the owner or us, respectively, at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three to five years, as defined in the limited partnership agreement. The Put Rights and Call Rights are not automatic (even upon death) and require either the owner or us to exercise our rights when the conditions triggering the Put or Call Rights have been satisfied. The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements. 26 Table of Contents On the date we acquire a controlling interest in a partnership and the limited partnership agreement for such partnerships contains redemption rights not under our control, the fair value of the non-controlling interest is recorded in the consolidated balance sheet under the caption— Redeemable non-controlling interest . Then, in each reporting period thereafter until it is purchased by us, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial value, based on the predetermined formula defined in the respective limited partnership agreement. As a result, the value of the non-controlling interest is not adjusted below its initial value. We record any adjustment in the redemption value, net of tax, directly to retained earnings and not in the consolidated statements of income. Although the adjustments are not reflected in the consolidated statements of income, current accounting rules require that we reflect the adjustments, net of tax, in the earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated statement of income . We believe the redemption value (i.e. the carrying amount) and fair value are the same. Non-Controlling Interest We recognize non-controlling interests, in which we have no obligation but the right to purchase the non-controlling interests, as equity in the consolidated financial statements separate from the parent entity’s equity. The amount of net income attributable to non-controlling interests is included in consolidated net income on the face of the consolidated statements of income. Operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner. When we purchase a non-controlling interest and the purchase differs from the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital. RESULTS OF OPERATIONS The defined terms with their respective description used in the following discussion are listed below: 2022 Year Year ended December 31, 2022 2021 Year Year ended December 31, 2021 Clinic Additions Clinics opened or acquired during the year ended December 31, 2022 and 2021 2022 Clinic Additions Clinics opened or acquired during the year ended December 31, 2022 2021 Clinic Additions Clinics opened or acquired during the year ended December 31, 2021 Clinics Additions Clinics opened or acquired during the year ended December 31, 2022 and 2021 Mature Clinics Clinics opened or acquired prior to January 1, 2021 and are still operating Selected Operating and Financial Data The following table presents selected operating and financial data, used by management as key indicators of our operating performance: For the Years Ended December 31, 2022 2021 Number of clinics at the end of period 640 591 Working Days 255 254 Average visits per day per clinic 28.7 29.1 Total patient visits 4,483,282 4,219,576 Net patient revenue per visit $ 103.63 $ 103.88 2022 Compared to 2021 For the 2022 Year, our net income attributable to our shareholders was $32.2 million as compared to $40.8 million for the 2021 Year. In accordance with current accounting guidance, 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. Including the charge for revaluation of redeemable non-controlling interest, net of taxes, the amount is $29.3 million, or earnings per diluted share of $2.25, for the 2022 Year, and $31.1 million, or earnings per diluted share of $2.41 for the 2021 Year. See table below (in thousands, except per share data): 27 Table of Contents Year Ended December 31, 2022 2021 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 32,158 $ 40,831 Charges to retained earnings: Revaluation of redeemable non-controlling interest (3,890 ) (13,011 ) Tax effect at statutory rate (federal and state) of 25.55% 994 3,324 $ 29,262 $ 31,144 Earnings per share (basic and diluted) $ 2.25 $ 2.41 Non-GAAP Measures Operating Results and Adjusted EBITDA are not measures of financial performance under GAAP. Adjusted EBITDA and Operating Results should not be considered in isolation or as an alternative to, or substitute for, net income attributable to USPH shareholders presented in the consolidated financial statements. Adjusted EBITDA is defined as net income attributable to our shareholders before interest income, interest expense, taxes, depreciation, amortization, goodwill impairment charges, change in fair value of contingent earn-out consideration, Relief Funds, changes in revaluation of put-right liability, equity-based awards compensation expense, settlement of a legal matter, and related portion for non-controlling interests. Operating Results, a non-GAAP measure, equals net income attributable to our diluted shareholders per the consolidated statements of income, less a goodwill impairment charge related to the industrial injury prevention services acquisition in November 2021 (“IIP Acquisition”), changes in fair value of contingent consideration, expenses related to executive officer transitions, settlement of a legal matter, and any allocations to non-controlling interests, all net of taxes. Operating Results per diluted share also exclude the impact of the revaluation of redeemable non-controlling interest and the associated tax impact. The tables (in thousands, except per share data) below reconcile net income attributable to our shareholders calculated in accordance with GAAP to Operating Results and Adjusted EBITDA, non-GAAP measures defined above. We use Operating Results and Adjusted EBITDA, which eliminate certain items described above that can be subject to volatility and unusual costs, as one the principal measures to evaluate and monitor financial performance period over period. We believe that Operating Results and Adjusted EBITDA are useful information for investors to use in comparing the Company's period-to-period results as well as for comparing with other similar businesses since most do not have redeemable instruments and therefore have different equity structures. 28 Table of Contents See table below for a detailed computation (in thousands, except per share data): Year Ended December 31, 2022 2021* Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 32,158 $ 40,831 Charges to retained earnings: Revaluation of redeemable non-controlling interest (3,890 ) (13,011 ) Tax effect at statutory rate (federal and state) of 25.55% 994 3,324 $ 29,262 $ 31,144 Earnings per share (basic and diluted) $ 2.25 $ 2.41 Adjustments: Goodwill impairment charge 9,112 - Change in fair value of contingent earn-out consideration (2,520 ) - Change in revaluation of put-right liability 5 - Expenses related to executive officer transitions - 1,301 Relief Funds - (4,597 ) Settlement of a legal matter - 2,635 Allocation to non-controlling interests (2,734 ) 676 Revaluation of redeemable non-controlling interest 3,890 13,011 Tax effect at statutory rate (federal and state) (1,981 ) (3,328 ) Operating Results (a non-GAAP measure) $ 35,034 $ 40,842 Relief Funds - 4,597 Allocation to non-controlling interests - (715 ) Tax effect at statutory rate (federal and state) of 25.55% - (992 ) Operating Results (including Relief Funds) (a non-GAAP measure) $ 35,034 $ 43,732 Basic and diluted Operating Results per share (a non-GAAP measure) Including Relief Funds $ 2.70 $ 3.39 Excluding Relief Funds $ 2.70 $ 3.17 Shares used in computation - basic and diluted 12,985 12,898 Year Ended December 31, 2022 2021 * Net income attributable to USPH shareholders $ 32,158 $ 40,831 Adjustments: Depreciation and amortization 14,743 11,591 Goodwill impairment 9,112 - Change in fair value of contingent earn-out consideration (2,520 ) - Settlement of a legal matter - 2,635 Other and interest income (859 ) (199 ) Change in revaluation of put-right liability 5 - Interest expense - debt and other, net 5,779 942 Provision for income taxes 12,164 15,272 Equity-based awards compensation expense 7,264 7,867 Allocation to non-controlling interests (4,185 ) (1,277 ) Adjusted EBITDA (a non-GAAP measure) 73,661 77,662 Relief Funds $ - $ (4,597 ) Allocation to non-controlling interests - 715 Adjusted EBITDA (excluding Relief Funds) (a non-GAAP measure) $ 73,661 $ 73,780 * Revised to conform to current year presentation. 29 Table of Contents For the 2022 Year, our Adjusted EBITDA, a non-GAAP measure, was $73.7 million, as compared to $73.8 million, excluding Relief Funds for the 2021 Year. Adjusted EBITDA including Relief Funds for the 2022 Year and 2021 Year was $73.7 million and $77.7 million, respectively. For the 2022 Year, the Company’s Operating Results, a non-GAAP measure, was $35.0 million, or $2.70 per diluted share, as compared to $40.8 million (excluding Relief Funds), or $3.17 per diluted share, for the 2021 Year. For the 2021 Year, the Company’s Operating Results including Relief Funds was $43.7 million, or $3.39 per diluted share. Reported total revenue Reported total revenue for the 2022 Year was $553.1 million, an increase of 11.7% as compared to $495.0 million for the 2021 Year. See table below for a detail of reported total revenue (in thousands): For the Year Ended December 31, 2022 December 31, 2021 Revenue related to Mature Clinics $ 421,806 $ 420,093 Revenue related to 2022 Clinic Additions 14,779 - Revenue related to 2021 Clinic Additions 25,211 12,638 Revenue from clinics sold or closed in 2022 2,794 5,143 Revenue from clinics sold or closed in 2021 - 456 Net patient revenue from physical therapy operations 464,590 438,330 Other revenue 3,407 2,939 Revenue from physical therapy operations 467,997 441,269 Revenue from management contracts 8,095 9,853 Revenue from industrial injury prevention services 77,052 43,900 Total revenue $ 553,144 $ 495,022 Net patient revenue from physical therapy operations Net patient revenue from physical therapy operations and other revenue from physical therapy operations increased $26.7 million, or 6.1%, to $468.0 million for the 2022 Year from $441.3 million in the 2021 Year. Included in net patient revenue from physical therapy operations are revenues related to clinics sold or closed of $2.8 million for the 2022 Year and $5.6 million for the 2021 Year. During the 2022 Year, we sold our interest in five clinics and closed eleven clinics. Excluding revenue from the clinics sold or closed, net patient revenue from physical therapy operations was approximately $461.8 million for the 2022 Year and $432.7 million for the 2021 Year, an increase of 5.0%. Revenue related to Mature Clinics increased $1.7 million, or 0.4%, for the 2022 Year compared to the 2021 Year. The average net patient revenue per visit was $103.63 for the 2022 Year as compared to $103.88 for the 2021 Year, including all clinics operational during such periods. Total patient visits were 4,483,282 for the 2022 Year and 4,219,576 for the 2021 Year, an increase of 6.2%. Other revenue from physical therapy operations, management contracts and industrial injury prevention services Other revenue was $3.4 million in the 2022 Year and $2.9 million in the 2021 Year. Revenues from management contracts were $8.0 million in the 2022 Year as compared to $9.9 million in the 2021 Year. IIP services revenue increased 75.5% to $77.1 million for the 2022 Year as compared to $43.9 million for the 2021 Year. The 2022 Year includes revenue of $26.7 million related to the IIP Acquisition, compared to $2.2 million in the 2021 Year. Operating cost Total operating cost was $441.1 million for the 2022 Year, or 79.7% of total revenue, as compared to $377.8 million or 76.3% of total revenue for the 2021 Year. Included in operating cost for the 2022 Year was $33.2 million related to Clinic Additions, of which $20.8 million was associated with the 2021 Clinic Additions. Included in operating cost for 2021 was $10.3 million related to 2021 Clinic Additions. Operating cost related to Mature Clinics increased by $16.7 million for the 2022 Year compared to the 2021 Year. Operating cost related to management contracts decreased by $1.9 million in the 2022 Year compared to the 2021 Year. In addition, operating cost related to the industrial injury prevention services business increased by $27.9 million for the comparable period of which $22.4 million related to the industrial injury prevention services acquisition in November 2021. We experienced pressure on labor rates and other costs in the 2022 Year due to the inflationary economic environment. 30 Table of Contents See table below for a detail of operating cost (in thousands): For the Year Ended December 31, 2022 December 31, 2021 Operating cost related to Mature Clinics $ 337,606 $ 320,882 Operating cost related to 2022 Clinic Additions 12,425 74 Operating cost related to 2021 Clinic Additions 20,792 10,299 Operating cost related to clinics sold or closed in 2022 2,810 4,561 Operating cost related to clinics sold or closed in 2021 - 512 Operating cost related to physical therapy operations 373,633 336,328 Operating cost related to management contracts 6,402 8,306 Operating cost related to industrial injury prevention services 61,085 33,206 Total operating cost $ 441,120 $ 377,840 Operating Cost—Salaries and Related Costs Salaries and related costs increased to $319.2 million for the 2022 Year from $278.5 million in 2021, an increase of $40.7 million, or 14.6%. Included in salaries and related costs related to 2022 Clinic Additions for the 2022 Year was $8.0 million. Salaries and related costs for clinics sold or closed in the 2022 Year and the 2021 Year were $1.8 million and $3.3 million in 2022 and 2021, respectively. Salaries and related costs for Mature Clinics increased $9.2 million in the 2022 Year compared to the 2021 Year. Salaries and related costs for management contracts decreased $1.7 million in the 2022 Year compared to the 2021 Year. Salaries and related costs for the industrial injury prevention services business increased $19.6 million for the comparable periods. Salaries and related costs as a percentage of net revenues were 57.7% for the 2022 Year and 56.3% for the 2021 Year. Salaries and related costs for physical therapy operations were $59.52 per visit in the 2022 Year as compared to $57.20 per visit in the 2021 Year, an increase of $2.32. See table below for a detail of salaries and related costs (in thousands): For the Year Ended December 31, 2022 December 31, 2021 Physical therapy operations Salaries and related costs related to Mature Clinics $ 243,131 $ 233,951 Salaries and related costs related to 2022 Clinic Additions 8,059 - Salaries and related costs related to 2021 Clinic Additions 13,688 6,668 Salaries and related costs related to clinics sold or closed in 2022 1,848 3,073 Salaries and related costs related to clinics sold or closed in 2021 - 248 Salaries and related costs related to physical therapy operations 266,726 243,940 Salaries and related costs related to management contracts 5,634 7,316 Salaries and related costs related to industrial injury prevention services 46,831 27,213 Total salaries and related costs $ 319,191 $ 278,469 Operating Cost—Rent, Supplies, Contract Labor and Other Rent, supplies, contract labor and other costs increased to $116.4 million in the 2022 Year from $94.1 million in the 2021 Year, an increase of $22.3 million, or 23.7%. Included in rent, supplies, contract labor and other costs for 2022 and 2021 related to Clinic Additions was $10.9 million in 2022 and $3.6 million in 2021. Rent, supplies, contract labor and other costs for clinics related to partnership interests closed or sold in 2022 and 2021 were $0.9 million and $1.7 million, respectively. Rent, supplies, contract labor and other costs related to Mature Clinics increased by $7.8 million in the 2022 Year compared to the 2021 Year. Rent, supplies, contract labor and other costs as a percent of net revenues was 21.0% for 2022 and 19.0% for 2021. Rent, supplies, contract labor and other costs for physical therapy operations were $19.53 per visit in 2022 as compared to $18.77 per visit in 2021, an increase of $0.78 per visit. See table below for a detail of rent, supplies, contract labor and other costs (in thousands): 31 Table of Contents For the Year Ended December 31, 2022 December 31, 2021 Physical therapy operations Rent, supplies, contract labor and other costs related to Mature Clinics $ 89,534 $ 81,750 Rent, supplies, contract labor and other costs related to 2022 Clinic Additions 4,167 71 Rent, supplies, contract labor and other costs related to 2021 Clinic Additions 6,777 3,539 Rent, supplies, contract labor and other costs related to clinics sold or closed in 2022 868 1,422 Rent, supplies, contract labor and other costs related to clinics sold or closed in 2021 - 301 Total Physical therapy operations 101,346 87,083 Rent, supplies, contract labor and other costs related to physical therapy management contracts 768 990 Rent, supplies, contract labor and other costs related to industrial injury prevention services 14,267 5,993 Total rent, supplies, contract labor and other costs $ 116,381 $ 94,066 Operating Cost—Provision for Credit Losses The provision for credit losses for net patient receivables was $5.5 million for 2022 and $5.3 million for 2021. As a percentage of net patient revenues, the provision for credit losses was 1.0% for 2022 and 1.1% for 2021. The provision for credit losses at the end of each period is based on a detailed, clinic-by-clinic review of overdue accounts and is regularly reviewed in the aggregate in light of historical experience. Our provision for credit losses as a percentage of total patient accounts receivable was 5.17% on December 31, 2022, and 5.64% at December 31, 2021. The average accounts receivable days outstanding was 31 days on December 31, 2022 and 32 days on December 31, 2021. Net patient receivables in the amounts of $5.5 million and $4.6 million were written-off in 2022 and 2021, respectively. Gross Profit Gross profit was $112.0 million for 2022, a decrease of $5.2 million, or 4.4% as compared to $117.2 million for 2021. The gross profit percentage was 20.3% of total revenue for 2022 as compared to 23.7% for 2021. The gross profit percentage for our physical therapy operations was 20.2% for 2022 as compared to 23.8% for 2021. The gross profit percentage on management contracts was 20.9% for 2022 as compared to 15.7% for 2021. The gross profit percentage for industrial injury prevention services was 20.7% for 2022 as compared to 24.4% for 2021. Gross profit in the 2022 Year was affected by pressure on labor rates and other costs due to the inflationary economic environment. The IIP margin in 2022 was impacted by the lower margin profile of the IIP Acquisition. The table below details the gross profit (in thousands): For the Year Ended December 31, 2022 December 31, 2021 Physical therapy operations $ 94,364 $ 104,941 Management contracts 1,693 1,547 Industrial injury prevention services 15,967 10,694 Gross profit $ 112,024 $ 117,182 Goodwill Impairment In 2022, we recorded a charge for goodwill impairment of $9.1 million related to the IIP Acquisition. The impairment is related to a change in the IIP Acquisition’s current and projected operating income as well as various inputs based on current market conditions, including the higher interest rate environment. Corporate Office Costs Corporate office costs were $46.1 million for 2022 compared to $46.5 million for 2021. Corporate office costs were 8.3% of total revenue for 2022 as compared to 9.4% for 2021. The decrease was primarily due to lower estimated bonus expense in 2022 as compared to 2021. Operating Income Operating income for 2022 was $56.8 million, and $70.6 million for 2021. Operating income as a percentage of total revenue was 10.3% for 2022 as compared to 14.3% for 2021. 32 Table of Contents Change in fair value of contingent earn-out consideration We revalued contingent earn-out consideration related to some of our acquisitions resulting in the elimination of $2.5 million of liabilities previously booked in 2022. Equity in earnings of unconsolidated affiliate Through a subsidiary, we have a 49% joint venture interest in a company which provides physical therapy services for patients at hospitals. Since we are deemed to not have a controlling interest in the joint venture, our investment is accounted for using the equity method of accounting. The investment balance of this joint venture as of December 31, 2022, is $12.1 million. For 2022, we recognized income of $1.2 million on this joint venture. Change in Revaluation of Put-Right Liability For the 2022 Year, the valuation of the put-right liability remained relatively the same. The put right relates to the potential future purchase of a company that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. The owners have the right to put this transaction to us in approximately five years from November 2021 with such right having a $3.5 million value as of both December 31, 2022 and 2021, 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. Other and interest income Other and interest income amounted to $0.9 million primarily derived from a gain of $0.6 million from the sales of various clinics during the 2022 Year. Other and interest income was $0.2 million in the 2021 Year. Interest Expense—Debt and Other, net Interest expense—debt, net and other primarily from the $150 million term loan and revolving credit facility entered into in June 2022, details of which are disclosed in Note 10 to our financial statements included in Item 8, amounted to $5.8 million mostly due to higher borrowings. See discussion of Other Comprehensive Income below. Interest expense, primarily from our revolving line of credit, was $0.9 million for the 2021 Year. Provision for Income Taxes The provision for income tax was $12.2 million for 2022 and $15.3 million for 2021. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 27.4% for 2022 and 27.2% for 2021. See table below ($ in thousands): For the Year Ended December 31, 2022 December 31, 2021 Income before taxes $ 55,571 $ 73,196 Less: net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity (6,902 ) (11,358 ) Non-controlling interest - permanent equity (4,347 ) (5,735 ) $ (11,249 ) $ (17,093 ) Income before taxes less net income attributable to non-controlling interest $ 44,322 $ 56,103 Provision for income taxes $ 12,164 $ 15,272 Percentage 27.4 % 27.2 % Net Income Attributable to Non-controlling Interest Net income attributable to redeemable non-controlling interest (temporary equity) was $6.9 million for 2022 and $11.4 million for 2021. Net income attributable to non-controlling interest (permanent equity) was $4.3 million for 2022 and $5.7 million for 2021. During 2022, $2.7 million of the goodwill impairment charge related to redeemable non-controlling interest (temporary equity). 33 Table of Contents Other Comprehensive Income We entered into an interest rate swap agreement in May 2022, which became effective on June 30, 2022. The maturity date of the swap agreement is June 30, 2027. It has a $150 million notional value adjusted concurrently with scheduled principal payments made on the term loan. Beginning in July 2022, we pay a fixed one-month Secured Overnight Financing Rate (“SOFR”) of interest of 2.815%. The total interest rate in any period also includes an applicable margin based on the Company’s consolidated leverage ratio. In the 2022 Year, our interest rate including the applicable margin was 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 December 31, 2022, was $5.4 million, which has been included within Other assets (current and long term) in the accompanying Consolidated Balance Sheet. The impact of the interest rate swap on the accompanying Consolidated Statements of Comprehensive Income was an unrealized gain of $4.0 million, net of tax, for the 2022 Year. LIQUIDITY AND CAPITAL RESOURCES We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. On December 31, 2022, and December 31, 2021, we had $31.6 million and $28.6 million, respectively, in cash and cash equivalents. 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 December 31, 2023. Cash and cash equivalents increased by $3.0 million from December 31, 2021, to December 31, 2022. During the 2022 Year, $58.5 million was provided by operations and $65.1 million, net of payments, was provided by proceeds on our Credit Agreement (described below). The major uses of cash for investing and financing activities included: distributions to non-controlling interests inclusive of those classified as redeemable non-controlling interest ($15.3 million), dividends paid to our shareholders ($21.3 million), purchase of non-controlling interest ($74.8 million), and purchase of fixed assets ($8.2 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”): 1) Revolving Facility: $175 million, five-year, revolving credit facility (“Revolving Facility”), which includes a $12 million sublimit for the issuance of standby letters of credit and a $15 million sublimit for swingline loans (each, a “Swingline Loan”). 2) 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 have been and shall continue to be used by us for working capital and other general corporate purposes of our Company and its subsidiaries, including to fund future acquisitions and invest in growth opportunities. The proceeds of the Term Facility were used by us to refinance the indebtedness outstanding under the Second Amended and Restated Credit Agreement, to pay fees and expenses incurred in connection with the loan facilities transactions, for working capital and other general corporate purposes. We 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 of maturity. We will also pay to the Administrative Agent, for the account of each lender under the Revolving Facility, a commitment fee equal to the actual daily excess of each lender’s commitment over its outstanding credit exposure under the Revolving Facility (“unused fee”). We may prepay and/or repay the revolving loans and the term loans, and/or terminate the revolving loan commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions. The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends, and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets. The Credit Agreement includes certain financial covenants which include the Consolidated Fixed Charge Coverage Ratio and the Consolidated Leverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains customary events of default. 34 Table of Contents Our obligations under the Credit Agreement are guaranteed by our wholly owned material domestic subsidiaries (each, a “Guarantor”), and our obligations and any Guarantors are secured by a perfected first priority security interest in substantially all of our existing and future personal property and each Guarantor, subject to certain exceptions. In May 2022, we entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A, which became effective on June 30, 2022. It has a $150 million notional value adjusted concurrently with schedule principal payments made on the term loan, and has a maturity date of June 30, 2027. Beginning in July 2022, we receive 1-month SOFR, and pay a fixed rate of interest of 2.815% on 1-month SOFR on a quarterly basis. The total interest rate in any period also includes an applicable margin based on our consolidated leverage ratio. In connection with the swap, no cash was exchanged between us and the counterparty. We designated 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. On December 31, 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 December 31, 2022, we were in compliance with all of the covenants thereunder. Through the date of this report, we have drawn $31.0 million on the Revolving Facility. On November 30, 2022, we acquired an 80% interest in a thirteen-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately $25.0 million, of which $24.2 million was paid in cash and $0.8 million in the form of a note payable. The note accrues interest at 7.0% per annum and the principal and interest are payable on November 30, 2024. On October 31, 2022, we acquired an 60% interest in a fourteen-clinic physical therapy practice. The practice’s owners retained 40% of the equity interests. The purchase price for the 60% equity interest was approximately $19.5 million, with a potential additional amount to be paid at a later date based on the performance of the business. This contingent consideration had a fair value of $8.3 million on December 31, 2022. The fair value of this contingent consideration will be adjusted quarterly based on certain criteria and market inputs. On September 30, 2022, we acquired an 80% interest in a two-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately $4.2 million, of which $3.9 million was paid in cash and $0.3 million in the form of a note payable. The note accrues interest at 5.5% per annum and the principal and interest are payable on September 30, 2024. On August 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 $3.5 million, of which $3.3 million was paid in cash and $0.2 million in the form of a note payable. The note accrues interest at 5.5% per annum and the principal and interest are payable on August 31, 2024. 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 approximately 70% interest in a leading provider of industrial injury prevention services. The previous owners retained the remaining interest. The initial purchase price for the 70% equity interest was $63.2 million not inclusive of additional contingent consideration of $2.0 million if certain operational objectives were met, 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 Company revalued the contingent earn-out consideration related to the acquisition during the year ended December 31, 2022, resulting in the elimination of the $2.0 million liability previously booked. As part of this transaction, the previous owners have a put right which relates to the potential future purchase of a company that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. The owners have the right to put this transaction to us in approximately five years from November 2021, with such put right having a fair value of $3.5 million on November 30, 2021. The fair value of this put right remained $3.5 million on December 31, 2022 , as reflected on our 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 our consolidated statement of income. 35 Table of Contents On September 30, 2021, we 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 our IIP 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, we 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, we have 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. We 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, we 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 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 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. 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. We have from 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. Claims are submitted to payors daily, weekly or monthly in accordance with our policy or payor’s requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting CMS approval initially may not be submitted for six months or more. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-pay payor type receivables, the write-off generally occurs after the account receivable has been outstanding for 120 days or longer. We have future obligations for debt repayments, employment agreements and future minimum rentals under operating leases. The obligations as of December 31, 2022 are summarized as follows (in thousands): Total 2023 2024 2025 2026 2027 Thereafter Credit Agreement $ 179,126 3,751 4,687 7,500 9,375 $ 153,813 $ - Notes Payable 6,430 4,516 1,914 - - - - Interest Payable 292 221 71 - - - - Employee Agreements 64,311 58,624 5,687 - - - - Operating Leases 143,740 45,074 35,572 26,440 18,081 10,613 7,960 $ 393,899 $ 112,186 $ 47,931 $ 33,940 $ 27,456 $ 164,426 $ 7,960 We generally enter into various notes payable as a means of financing our acquisitions. Our present outstanding notes payable primarily relate to the acquisitions of a business or acquisitions of majority interests in businesses. At December 31, 2022, our remaining outstanding balance on these notes aggregated $6.4 million. The notes payable for the acquisition of businesses of $6.4 million are payable in 2023 and 2024. Notes are generally payable in equal annual installments of principal over two years plus any accrued and unpaid interest. See above table for a detail of future principal payments. Interest accrues at various interest rates ranging from 3.25% to 7.0% per annum. The limited partnership agreements, as amended, provide that, upon the triggering events, we have a Call Right and the selling entity or individual has a Put Right for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the Put Right and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements and classified as redeemable non-controlling interest (temporary equity) in our consolidated balance sheets. The fair value of the redeemable non-controlling interest at December 31, 2022 was $167.5 million. As of December 31, 2022, we have accrued $8.1 million related to credit balances and overpayments due to patients and payors. This amount is expected to be paid in 2023. 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. In March 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 in the aggregate, subject to compliance with covenants. We are required to retire shares purchased under the March 2009 Authorization. There is no expiration date for the share repurchase program. As of December 31, 2022, there are currently an additional estimated 185,117 shares (based on the closing price of $81.03 on December 31, 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 years ended December 31, 2022, and 2021. We have an investment in a joint venture that is accounted for using the equity method of accounting. 36 Table of Contents 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; • one of our acquisition agreements contains a Put Right related to a future purchase of a majority interest in a separate company; • the impact of 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: • our debt and financial obligations could adversely affect our financial condition, our ability to obtain future financing and our ability to operate our business; • changes as the result of government enacted national healthcare reform; • business and regulatory conditions including federal and state regulations; • governmental and other third party payor inspections, reviews, investigations and audits, which may result in sanctions or reputational harm and increased costs; • revenue and earnings expectations; • 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; • our business depends on hiring, training, and retaining qualified employees • availability and cost of qualified physical therapists; • competitive environment in the industrial injury prevention services business, which could result in the termination or non-renewal 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, industrial injury prevention related services, and other services, as a breach or termination of those contractual arrangements by such clients could cause operating results to be less than expected; • maintaining adequate internal controls; • maintaining necessary insurance coverage; • availability, terms, and use of capital; and • weather and other seasonal factors. See also Risk Factors in Item 1A of this Annual Report on Form 10-K.