What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-02-29 compared with 2023-02-28 · 1270 added, 1128 removed, 597 unchanged (80% of the section changed)

2 unchanged sentences

Our indebtedness as of December 31, 2023, was the outstanding balance of seller notes from our acquisitions

of $6.4 million, and an outstanding balance on our Credit Agreement of $179.1 million, which includes a term note with a balance now of $148.1 million and $31.0 million drawn under our Revolving Facility.

The Revolving Facility is subject to

of $3.8 million, and an outstanding balance on our Credit Agreement of $144.4 million, which includes a term note with a balance of $144.4 million.

The Revolving Facility does not have a balance as of December 31, 2023, and is subject to

fluctuating interest rates.

1 unchanged sentence

See Note 10 to our consolidated financial statements included in Item 8.

STATEMENTS AND SUPPLEMENTARY DATA.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PHYSICAL THERAPY, INC.

4 unchanged sentences

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Net Income for the years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021

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Board of Directors and Shareholders

U.S Physical Therapy, Inc.

Physical Therapy, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of U.S Physical Therapy, Inc.

We have audited the accompanying consolidated balance sheets of U.S.

Physical Therapy, Inc.

(a Nevada corporation) and subsidiaries (the “Company”) as of December 31,

2022 and 2021, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule

2023 and 2022, the related consolidated statements of net income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule

included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the

results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the financial statements present fairly, in all material

respects, the financial position of the Company as of December 31, 2023 and 2022 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with

accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over

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We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities

and Exchange Commission and the PCAOB.

federal securities laws and the applicable rules and regulations of the

Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

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whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,

and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or

fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits also included evaluating the accounting

principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

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Measurement of Patient Revenue Net of Contractual Adjustments

As discussed in Note 2 to the consolidated financial statements, revenues are recognized in the period in which services are rendered.

Net patient revenues (patient

revenues less estimated contractual adjustments) are 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.

As further discussed in Note 2 to the consolidated financial statements, revenues are recognized in the period in which services are rendered.

Net patient revenues

(patient revenues less estimated contractual adjustments) are 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

The Company has agreements with third-party payors that provide for payments at amounts different from its established rates.

Each month the Company estimates its contractual adjustment for each clinic based on the terms of third-party payor

contracts and the historical collection and write-off experience of the clinic and applies a contractual adjustment reserve percentage to the gross accounts receivable balances.

The Company then performs a comparison of cash collections to

corresponding net revenues for the prior twelve months.

Each month the Company estimates its contractual adjustment for each clinic based on the terms of

third-party payor contracts and the historical collection and write-off experience of the clinic and applies a contractual adjustment reserve percentage to the gross accounts receivable balances.

The Company then performs a comparison of cash

collections to corresponding net revenues for the prior twelve months.

We identified the measurement of contractual adjustments as a critical audit matter.

The principal consideration for our determination that the measurement of contractual adjustments is a critical audit matter is that the estimate requires a high

degree of auditor subjectivity in evaluating management’s assumptions related to projecting future collection patterns across the various clinic locations.

The principal consideration for our determination that the measurement of patient revenue net of contractual adjustments is a critical audit matter is that the

estimate requires a high degree of auditor subjectivity in evaluating management’s assumptions related to developing future collection patterns across the various clinic locations.

Our audit procedures related to the Company’s measurement of contractual adjustments included the following, among others .

We tested the design and operating effectiveness of controls relating to billing and cash collections, net rate trend analysis by clinic and cash

collections versus net revenue trend analysis.

For a sample of patient visits, we inspected and compared underlying documents for each transaction, which included gross billing rates and cash collected

(net revenue).

For a sample of patient visits, we traced gross billings and net revenue to net revenue recorded in the general ledger and to each report used in

determining and assessing the contractual adjustment calculation.

We compared cash collections to recorded net revenue over the twelve month period ended December 31, 2022 and again for the twelve month period ended in

the first month subsequent to period end, to identify whether there were unusual trends that would indicate that the usage of historical collection patterns would no longer be reasonable to predict future collection patterns.

Goodwill Impairment assessment – fair value of a reporting unit

As discussed in Note 2 to the financial statements, goodwill is tested by the Company’s management for impairment at least annually or more frequently if events or

circumstances indicate potential impairment.

Goodwill is tested for impairment at the reporting unit level.

For the year ended December 31, 2022, management prepared

a quantitative impairment analysis for a reporting unit included in the industrial injury prevention services segment.

The Company engaged a third-party valuation specialist for the estimation of fair values of the reporting unit.

identified the estimation of the fair value of this reporting unit as a critical audit matter.

The principal consideration for our determination that the estimation of the fair value of this reporting unit is a critical audit matter is that there was high

estimation uncertainty due to significant judgments with respect to assumptions used to project the future cash flows, including revenue growth rates, EBITDA and EBITDA margins, as well as the discount rate and the valuation methodologies applied

by the third-party valuation specialist.

We tested the design and operating effectiveness of controls relating to billing and cash collections, net rate trend analysis and cash collections versus net revenue trend

For a sample of patient visits, we inspected and compared underlying documents for each transaction, which included gross billing rates and cash collected (net revenue).

For a sample of patient visits, we traced gross billings and net revenue to net revenue recorded in the general ledger and to each report used in determining and assessing the

contractual adjustment calculation.

We compared cash collections to recorded net revenue over the twelve month period ended December 31, 2023 and again for the twelve month period ended in the first month

subsequent to period end, to identify whether there were unusual trends that would indicate that the usage of historical collection patterns would no longer be reasonable to predict future collection patterns.

Impairment Assessments – Fair Value of a Certain Reporting Unit and Other Indefinite-lived Intangible Assets

As further discussed in Note 2 to the financial statements, goodwill and other indefinite-lived intangible assets are tested by the Company’s management for

impairment at least annually or more frequently if events or circumstances indicate potential impairment.

Goodwill and other indefinite-lived intangible assets are tested for impairment at the reporting unit level.

For the year ended December 31, 2023 management prepared a quantitative impairment analysis for a reporting unit included in the industrial injury prevention services segment.

engaged a third-party valuation specialist for the estimation of fair value of the reporting unit.

We identified the estimation of the fair value of this reporting unit as a critical audit matter.

The principal consideration for our determination that the estimation of the fair value of a certain reporting unit and other indefinite-lived intangible assets is a

critical audit matter is that the estimate requires a high degree of auditor subjectivity due to significant judgments with respect to assumptions used to project the future cash flows, including revenue growth rates, EBITDA and EBITDA margins,

royalty rate, as well as the discount rate and the valuation methodologies applied by the third-party valuation specialist.

Our audit procedures related to the estimation of the fair value of this reporting unit included the following, among others.

We tested the design and operating effectiveness of controls over management’s review of the assumptions used to project future cash flows, the selection

of an appropriate discount rate, and valuation methodologies applied.

We tested the design and operating effectiveness of controls over management’s review of the assumptions used to project future cash flows, the selection of appropriate discount

rate, royalty rates, and valuation methodologies applied.

We utilized valuation specialists to evaluate:

The appropriateness of the methodologies applied,

the reasonableness of the discount rate, and

The reasonableness of the discount rate, royalty rates, and

The qualifications of the third-party valuation specialist engaged by the Company based on their credentials and experience.

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We have served as the Company’s auditor since 2004.

Houston, Texas

February 29, 2024

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Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of U.S.

audited the internal control over financial reporting of U.S.

Physical Therapy, Inc.

(a Nevada corporation) and subsidiaries (the “Company”) as of

December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring

Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial

statements of the Company as of and for the year ended December 31, 2022, and our report dated February 28, 2023 expressed an unqualified opinion on those financial statements.

(a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated

Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023,

based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2023, and our report dated

February 29, 2024 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of

internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial

reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was

maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating

effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report

on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required

to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all

material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control

based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting

and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as

necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management

and directors of the company;

A company’s internal control over financial reporting is a process designed to provide reasonable assurance

regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those

policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions

are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of

management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation

of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect

misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures

may deteriorate.

/s/ GRANT THORNTON LLP

Houston, Texas

GRANT THORNTON LLP

February 29, 2024

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AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

BALANCE SHEETS

( IN THOUSANDS, EXCEPT

SHARE AND PER SHARE AMOUNTS )

December 31, 2023

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Cash and cash equivalents

Patient accounts receivable, less allowance for credit losses of $ 2,829 and $ 2,768 , respectively

Patient accounts receivable, less provision for credit losses of $ 2,736 and $ 2,829 , respectively

Accounts receivable - other

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Notes payable, net of current portion

Revolving line of credit

Revolving facility

Term loan, net of current portion and deferred financing costs

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par value, 500,000 shares authorized, no shares issued and outstanding

Common stock, $ 0.01 par value, 20,000,000 shares authorized, 15,216,326 and 15,126,160 shares issued, respectively

Common stock, $ 0.01 par value, 20,000,000 shares authorized, 17,202,291 and 15,216,326 shares

issued, respectively

Additional paid-in capital

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Retained earnings

Treasury stock at cost, 2,214,737 shares

Treasury stock at cost, 2,214,737

Total USPH shareholders’ equity

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non-controlling interest - permanent equity

See notes to consolidated financial statements.

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

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

CONSOLIDATED STATEMENTS OF

( IN THOUSANDS, EXCEPT

PER SHARE AMOUNTS )

For the Year Ended

December 31, 2023

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Total operating cost

Goodwill impairment

Corporate office costs

Impairment of goodwill and other intangible assets

Operating income

Other income and expense

Gain on sale of partnership interest and clinics

Settlement of a legal matter

Resolution of a payor matter

Other (expense) income

Interest expense, debt and other

Interest income from investments

Change in fair value of contingent earn-out consideration

Equity in earnings of unconsolidated affiliate

Interest and other income, net

Change in revaluation of put-right liability

Interest expense - debt and other

Total other income and expense

Equity in earnings of unconsolidated affiliate

Settlement of a legal matter

Resolution of a payor matter

Total other (expense) income

Income before taxes

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Dividends declared per common share

See notes to consolidated financial statements.

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

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE

(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENTS

COMPREHENSIVE INCOME

(IN THOUSANDS)

December 31, 2023

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December 31, 2021

Other comprehensive income

Unrealized gain on cash flow hedge

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

Other comprehensive loss

Unrealized (loss) gain on cash flow hedge

Tax effect at statutory rate (federal and state)

Comprehensive income

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Comprehensive income attributable to USPH shareholders

See notes to consolidated financial statements.

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

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

CONSOLIDATED STATEMENTS OF CHANGES IN

( IN THOUSANDS )

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Paid-In Capital

Comprehensive Loss

Comprehensive Gain

Balance January 1, 2021

Net income attributable to USPH shareholders

Net income attributable to non-controlling interest - permanent equity

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Revaluation of redeemable non-controlling interest

Purchase of non-controlling interest

Sale of non-controlling interest

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

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

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

Short swing profit settlement

Balance December 31, 2021

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Comprehensive Gain

Balance Jan 1, 2021

Balance January 1, 2022

Net income attributable to USPH shareholders

Net income attributable to non-controlling interest - permanent equity

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Revaluation of redeemable non-controlling interest

Purchase of non-controlling interest

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

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

Transfer of compensation liability for certain stock

Dividends paid to USPH shareholders

Distributions to non-controlling interest partners - permanent equity

Short swing profit settlement

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

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

Other comprehensive gain

Balance December 31, 2022

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Paid-In Capital

Comprehensive Gain

Balance Jan 1, 2022

Comprehensive Loss

Balance January 1, 2023

Net income attributable to USPH shareholders

Net income attributable to non-controlling interest - permanent equity

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Issuance of common stock, pursuant to the secondary public offering, net of issuance costs

Revaluation of redeemable non-controlling interest

Compensation expense - equity-based awards

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

Sale of non-controlling interest

Purchase of partnership interests - non-controlling interest

Sale of non-controlling interest, net of purchases

Dividends paid to USPT shareholders

Dividends payable 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 gain

Other comprehensive loss

Balance December 31, 2023

See notes to consolidated financial statements.

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

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF

( IN THOUSANDS )

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OPERATING ACTIVITIES

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

Net income including non-controlling interest

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

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Equity-based awards compensation expense

Deferred income taxes

Gain on sale of partnership interest

Derecognition (write-off) of goodwill - closed clinics

Amortization of debt issue costs

Change in deferred income taxes

Change in revaluation of put-right liability

Change in fair value of contingent earn-out consideration

(Gain) loss on sale of clinics and fixed assets

Impairment of Goodwill

Earnings in unconsolidated affiliate

Equity of earnings in unconsolidated affiliate

Loss (gain) on sale of clinics and fixed assets

Impairment of goodwill and other intangible assets

Changes in operating assets and liabilities:

Increase in patient accounts receivable

(Increase) decrease in accounts receivable - other

(Decrease) increase in other assets

Increase in accounts receivable - other

Increase (decrease) in other current and long term assets

Decrease (increase) in accounts payable and accrued expenses

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Purchase of non controlling interest, permanent equity

Proceeds on sale of partnership interest - redeemable non-controlling interest

Sales of partnership interest, clinics and fixed assets

Proceeds on sale of non-controlling interest, permanent equity

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

Distributions from unconsolidated affiliate

Sale of non-controlling interest - permanent

Proceeds on sale of partnership interest, clinics and fixed assets

Net cash used in investing activities

FINANCING ACTIVITIES

Proceeds from issuance of common stock pursuant to the secondary public offering, net of issuance costs

Proceeds from revolving facility

Distributions to non-controlling interest, permanent and temporary equity

Cash dividends paid to shareholders

Proceeds from revolving line of credit

Proceeds from term loan

Payments on revolving line of credit

Payments on term loan

Payments on revolving facility

Principal payments on notes payable

(Payment) receipt of Medicare Accelerated and Advance Funds

Payments on term loan

Proceeds from term loan

Payment of deferred financing costs

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Payment of Medicare Accelerated and Advance Funds

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents - beginning of period

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Purchase of businesses - seller financing portion

Liabilities assumed associated with a purchase of a business

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

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

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

Notes receivable related to sale of partnership interest

consolidated financial statements.

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

Notes receivable related to sale of redeemable non-controlling interest, temporary equity

Notes receivable related to the sale of non-controlling interest, permanent equity

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

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL

YEARS ENDED DECEMBER 31, 2023, 2022 and 2021

Organization, Nature of Operations and Basis of Presentation

The consolidated financial statements include the accounts of U.S.

Organization, Nature of Operations and

Basis of Presentation

consolidated financial statements include the accounts of U.S.

Physical Therapy, Inc.

1 unchanged sentence

All significant intercompany transactions and balances have been eliminated.

The Company operates its business through two reportable business segments.

The Company’s reportable segments include the physical therapy operations segment and the industrial injury prevention services segment (“IIP”).

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

injured workers and neurological injuries.

Services provided by the IIP segment include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments.

Prior to the second quarter of 2020, the Company operated as a

single segment.

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

See Note 14 - Segment Information.

During the last three years we completed the acquisitions of eleven

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

operates its business through two reportable business segments.

The Company’s reportable segments include the physical therapy

operations segment and the industrial injury prevention services (“IIP”) segment.

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

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

Services provided by the IIP segment include onsite injury prevention and rehabilitation, performance optimization

and ergonomic assessments.

the last three years, the Company completed the acquisitions of the following clinic practices and IIP businesses detailed below:

October 2023 Acquisition

October 31, 2023

September 2023 Acquisition 1

September 29, 2023

September 2023 Acquisition 2

September 29, 2023

July 2023 Acquisition

July 31, 2023

May 2023 Acquisition

February 2023 Acquisition

February 28, 2023

November 2022 Acquisition

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March 31, 2021

November 2020 Acquisition

November 30, 2020

September 2020 Acquisition

September 30, 2020

February 2020 Acquisition

February 27, 2020

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.

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.

The Company’s limited partnership interests generally range from

65 % to 75 % (the range is

10 % - 99 %) in the Clinic

Partnerships.

The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of the clinics (hereinafter referred to as “Clinic Partnerships”).

To a lesser extent, the Company operates some

clinics, through wholly-owned subsidiaries, under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”).

The Company continues to seek to attract for employment physical therapists who have established relationships with physicians and

other referral sources, by offering these therapists a competitive salary and incentives based on the profitability of the clinic that they manage.

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

prior owners typically continue on as employees to manage the clinic operations, retain a non-controlling ownership interest in the clinics and receive a competitive salary for managing the clinic operations.

In addition, the Company has developed

satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location.

the multi-clinic acquisitions referenced in the table above, during 2022 and 2021, we purchased the assets and business of three and

seven physical therapy clinics, respectively, in separate transactions.

During the year ended December 31, 2022, the Company sold five clinics.

The aggregate sales price was $ 0.3 million.

the year ended December 31, 2021, we sold 2 clinics.

The aggregate sales price was $ 0.1 million.

During the year ended December 31, 2020, we sold 14

previously closed clinics.

The aggregate sales price was $ 1.1 million of which $ 0.7 million was paid in cash and $ 0.4 million in a note

receivable due in two equal installments of principal and any accrued interest.

The first payment was received in June 2021 and the

second payment was received in June 2022.

Clinic Partnerships

For non-acquired Clinic Partnerships, the earnings and liabilities attributable to the non-controlling interests, typically owned

by the managing therapist, directly or indirectly, are recorded within the balance sheets and income statements as non-controlling interest—permanent equity .

For acquired Clinic Partnerships with redeemable

non-controlling interests, the earnings attributable to the redeemable non-controlling interests are recorded within the consolidated balance sheets and income statements as redeemable non-controlling interest — temporary equity .

Wholly-Owned Facilities

For Wholly-Owned Facilities with profit sharing arrangements, an appropriate accrual is recorded for the amount of profit sharing

due the clinic partners/directors.

The amount is expensed as compensation and included in clinic operating costs—salaries and related costs.

The respective liability is included in current liabilities— accrued expenses on the consolidated balance sheets.

Industrial Injury Prevention Services

Services provided in the IIP segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional

capacity evaluations, and ergonomic assessments.

The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies.

Other clients include large insurers and their contractors.

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

On October 31, 2023, the Company

concurrently acquired 100 % of an IIP business and a 55 % equity interest in the ergonomics software business (“October 2023 Acquisition”).

May 2023, the Company completed a secondary offering of 1,916,667 shares of its common stock at an offering price of $ 90.00 per share.

Upon completion of the offering, the Company received net proceeds of approximately $ 163.6 million, after deducting an underwriting discount of $ 8.6

million and recognizing related fees and expenses of $ 0.2 million.

A portion of the net proceeds was used to repay the $ 35.0 million then outstanding under the Company’s credit facility while the remainder is expected to be used primarily for additional acquisitions.

Impact of COVID-19

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 year ended December 31, 2021 and December 31, 2020, the Company recorded income of approximately $ 4.6

million and $ 13.5 million of payments respectively, under the CARES Act (“Relief Funds”).

Under the Company’s 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, the Company can attest and comply with the terms and conditions.

The Company will continue to monitor the evolving guidelines and may record adjustments as

additional information is released.

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.

The Company applied for and received approval to receive MAAPP Funds from Centers for Medicare

& Medicaid Services in April 2020.

The Company recorded the $ 14.1 million in advance payments received as a liability.

the quarter ended March 31, 2021, the Company repaid the MAAPP funds of $ 14.1 million rather than applying them to future services

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 year ended December 31, 2021, the Company recorded income of approximately $ 4.6 million under

the CARES Act (“Relief Funds”).

Under the Company’s accounting policy, these payments were recorded as Other income – Relief Funds.

Significant Accounting Policies

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The Company maintains its cash and cash equivalents at financial institutions.

The Company considers all highly liquid investments

with a maturity of three months or less when purchased to be cash equivalents.

The combined account balances at several institutions typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a

concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.

The Company considers all highly liquid investments with a maturity

of three months or less when purchased to be cash equivalents.

The combined account balances at several institutions typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of

credit risk related to amounts on deposit in excess of FDIC insurance coverage.

Management believes that this risk is not significant.

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Fixed assets are stated at cost.

Depreciation is computed on the straight-line method over the estimated useful lives of the

related assets.

Depreciation is computed on the straight-line method over the estimated useful lives of the related assets.

Estimated useful lives for furniture and equipment range from three to eight years and for software purchased from three to seven years .

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three to five years .

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company reviews property and equipment

and intangible assets with finite lives for impairment upon the occurrence of certain events or circumstances that indicate the related amounts may be impaired.

Assets to be disposed of are reported at the lower of the carrying amount or fair value

less costs to sell.

Impairment of Long-Lived Assets

The Company reviews property and equipment and intangible assets with finite lives for

impairment upon the occurrence of certain events or circumstances that indicate the related amounts may be impaired.

Goodwill and Other Indefinite-Lived Intangible Assets

Goodwill represents the excess of the amount paid and fair value of

the non-controlling interests over the fair value of the acquired business assets, which include certain identifiable intangible assets.

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;

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.

The Company evaluates indefinite-lived tradenames in conjunction with our annual

goodwill impairment test.

The Company operates its business through two segments consisting of physical therapy

clinics and industrial injury prevention services business.

For purposes of goodwill impairment analysis, the segments are further broken down into reporting units.

or a sale or disposition of a significant portion of a reporting unit.

The occurrence of one of these events

or conditions could significantly impact an impairment assessment, necessitating an impairment charge.

The Company evaluates indefinite-lived tradenames in conjunction with our annual goodwill impairment test.

The Company operates its business through two segments consisting of physical therapy clinics and an IIP

For the purposes of goodwill impairment analysis, the segments are further broken down into reporting units.

Reporting units within our physical therapy business are comprised of six 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.

part of the impairment analysis, the Company is first required to assess qualitatively if it can conclude whether goodwill is more likely than not impaired.

If goodwill is more likely than not impaired, it is then required to complete a

quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount.

In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company considers

relevant events or circumstances that affect the fair value or carrying amount of a reporting unit.

The Company considers both the income and market approach in determining the fair value of its reporting units when performing a quantitative

In addition to the six

regions, in 2023 and 2022, the IIP business consisted of two reporting units.

As part of the impairment analysis, the Company is first required to assess qualitatively if it can conclude whether goodwill is more likely than not impaired.

If goodwill is

more likely than not impaired, it is then required to complete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount.

In evaluating whether it is more likely than not that the fair value of a reporting

unit is less than its carrying amount, the Company considers relevant events or circumstances that affect the fair value or carrying amount of a reporting unit.

The Company considers both the income and market approach in determining the fair value

of its reporting units when performing a quantitative analysis.

An impairment loss generally would be recognized when the

carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets, exceeds the estimated fair value of the reporting unit.

The evaluation of goodwill in 2021 and 2020 did not result in any

goodwill amounts that were deemed impaired.

In 2022, the Company 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 market inputs based on current market conditions, including the higher interest rate environment.

No impairment was recognized as a result of our annual assessment of goodwill and tradenames for the other seven reporting units.

The Company also noted no impairment to long-lived

assets for all reporting units.

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

The evaluation of goodwill in 2021 did not result in any goodwill amounts

that were deemed impaired.

The Company recorded a charge for goodwill impairment of $ 15.8 million and $ 9.1 million in the

years ended December 31, 2023, and December 31, 2022, respectively.

The Company also recorded a charge of $ 1.7 million for impairment of a tradename during the year ended December 31, 2023.

The charges for impairment related to one reporting unit in the IIP business.

During the year ended December 31, 2023, the Company did no t recognize any additional impairment as a result of the Company’s annual assessment of goodwill and tradenames for the other seven reporting units.

The Company also noted no

impairment to long-lived assets for all reporting units.

The Company will continue to monitor for any triggering

events or other indicators of impairment.

Investment in unconsolidated affiliates

Investments in unconsolidated affiliates in which the Company has less than a controlling interest, are accounted for under the equity method of accounting

and, accordingly, are adjusted for capital contributions, distributions and the Company’s equity in net earnings or loss of the respective joint venture.

Investments in unconsolidated affiliates, in which the Company has less than a controlling interest, are accounted for under the equity method of accounting and, accordingly,

are adjusted for capital contributions, distributions and the Company’s equity in net earnings or loss of the respective joint venture.

Redeemable Non-Controlling Interest

The non-controlling interest that is

reflected as redeemable non-controlling interest in the consolidated financial statements consists of those in which the owners and the Company have certain redemption rights, whether currently exercisable or not, and which currently, or in the

future, require that the Company purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met.

The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months

earnings performance as defined in the respective limited partnership agreements.

The non-controlling interest that is reflected as redeemable

non-controlling interest in the consolidated financial statements consists of those in which the owners and the Company have certain redemption rights, whether currently exercisable or not, and which currently, or in the future, require that the

Company purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met.

The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined

in the respective limited partnership agreements.

The redemption rights can be triggered by the owner or the Company at such time as both of the following events have occurred:

1) termination of the owner’s

employment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three

to five years , as defined in the limited partnership agreement.

The redemption rights are not automatic or mandatory (even upon death)

and require either the owner or the Company to exercise its rights when the conditions triggering the redemption rights have been satisfied.

On the date the Company acquires a

controlling interest in a partnership, and the limited partnership agreement for such partnership contains redemption rights not under the control of the Company, the fair value of the non-controlling interest is recorded in the consolidated

balance sheet under the ca ption—Redeemab le non-controlling interests.

Then, in each reporting period thereafter until it is purchased by the Company, the redeemable non-controlling interest is adjusted to the greater of

its then current redemption value or initial carrying value, based on the predetermined formula defined in the respective limited partnership agreement.

As a result, the value of the non-controlling interest is not adjusted below its initial

carrying value.

The Company records any adjustment in the redemption value, net of tax, directly to retained earnings and are not reflected in the consolidated statements of income.

Although the adjustments are not reflected in the consolidated

statements of income, current accounting rules require that the Company reflects the adjustments, net of tax, in the earnings per share calculation.

The amount of net income attributable to redeemable non-controlling interest owners is included in

consolidated net income on the face of the consolidated statements of income.

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 redemption rights are not automatic or mandatory (even upon death) and require either

the owner or the Company to exercise its rights when the conditions triggering the redemption rights have been satisfied.

On the date the Company acquires a controlling interest in a

partnership, and the limited partnership agreement for such partnership contains redemption rights not under the control of the Company, the fair value of the non-controlling interest is recorded in the consolidated balance sheet under the ca ption—Redeemab le

non-controlling interest – temporary equity.

Then, in each reporting period thereafter until it is purchased by the Company, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial carrying

value, based on the predetermined formula defined in the respective limited partnership agreement.

As a result, the value of the non-controlling interest is not adjusted below its initial carrying value.

The Company records any adjustment in the

redemption value, net of tax, directly to retained earnings and are not reflected in the consolidated statements of net income.

Although the adjustments are not reflected in the consolidated statements of net income, current accounting rules

require that the Company reflects the adjustments, net of tax, in the earnings per share calculation.

The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the

consolidated statements of net income.

Management believes the redemption value (i.e.

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Non-Controlling Interest

The Company recognizes non-controlling interest, in which the Company has no obligation but the right to purchase the

non-controlling interest, as permanent equity in the 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 statements of income.

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

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

The amount of net income attributable to non-controlling interests is included in consolidated net income on the face of the statements of net

Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest.

recognizes a gain or loss in net income when a subsidiary is deconsolidated.

The Company recognizes a gain or loss

in net income when a subsidiary is deconsolidated.

Such gain or loss is measured using the fair value of the non-controlling equity investment on the deconsolidation date.

When the purchase price of a non-controlling interest by the Company exceeds the book value at the time of purchase, any excess or

shortfall is recognized as an adjustment to additional paid-in capital.

When the purchase price of a non-controlling interest by the Company exceeds the book value at the time of purchase, any excess or shortfall is

recognized as an adjustment to additional paid-in capital.

Additionally, operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner.

Revenue Recognition

In May 2014, March 2016, April 2016, and December 2016, the Financial Accounting

Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with

Customers, Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow Scope Improvements and Practical Expedients, and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from

Contracts with Customer (collectively the “standards”), respectively, which supersede most of the current revenue recognition requirements (“ASC 606”).

The core principle of the new guidance is that an entity should recognize revenue to depict the

transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company implemented the new standards beginning January 1, 2018, using a modified

retrospective transition method.

The principal change relates to how the new standard requires healthcare providers to estimate the amount of variable consideration to be included in the transaction price up to an amount which is probable that a

significant reversal will not occur.

The most common forms of variable consideration the Company experiences are amounts for services provided that are ultimately not realizable from a customer.

There were no changes to revenues or other revenues

upon implementation.

Under the new standards, the Company’s estimate for unrealizable amounts will continue to be recognized as a reduction to revenue.

The bad debt expense historically reported will not materially change.

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, workers’ compensation) which

establish the amounts the third parties pay on behalf of the patients for covered services rendered.

While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided

to the patients covered by the third-party payors.

The payor contracts do not indicate performance obligations for us, but indicate reimbursement rates for patients who are covered by those payors when the services are provided.

At that time, the

Company is obligated to provide services for the reimbursement rates stipulated in the payor contracts.

The execution of the contract alone does not indicate a performance obligation.

For self-paying customers, the performance obligation exists

when we provide the services at established rates.

The difference

between the Company’s established rate and the anticipated reimbursement rate is accounted for as an offset to revenue — contractual allowance.

Payments for services rendered are typically due 30 to 120 days after receipt of the

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

December 31, 2022

December 31, 2021

December 31, 2020

Net patient revenue

Other revenue

Net patient revenue from physical therapy operations

Revenue from management contracts

Revenue from industrial injury prevention services

Total revenue

Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606.

For ASC 606, 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, workers’ compensation) which establish the amounts the third parties pay on behalf of the patients for covered services rendered.

While these agreements are not

considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third-party payors.

The payor contracts do not indicate performance obligations for us but indicate

reimbursement rates for patients who are covered by those payors when the services are provided.

At that time, the Company is obligated to provide services for the reimbursement rates stipulated in the payor contracts.

The execution of the

contract alone does not indicate a performance obligation.

For self-paying customers, the performance obligation exists when we provide the services at established rates.

The difference between the Company’s established rate and the anticipated reimbursement rate is accounted for as an offset to revenue — contractual allowance.

Payments for services rendered are typically due 30 to 120 days after receipt of the invoice.

Patient revenue

Net patient revenue consists of revenues for

physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related

Net patient revenues (patient revenues less estimated contractual adjustme nts, see – Contractual Adjustments , f or additional information) ar e

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.

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.

revenues (patient revenues less estimated contractual adjustme nts, see – Contractual Adjustments , f or additional information) ar e 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.

Company has agreements with third-party payors that provide for payments to the Company at amounts different from its established rates.

Medicare Reimbursement

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.

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, 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

Based on various provisions in the 2021 Act, the Medicare rate reduction for 2022 was 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 the 2023 MPFS Proposed Rule published on July 7, 2022, CMS proposed a 4.5 % reduction in the Physician Fee Schedule conversion factor.

However, this reduction was addressed in the Consolidated Appropriations Act, 2023

(“2023 Act”) signed into law on December 29, 2022.

The provisions of the 2023 Act increase the conversion factor by 2.5 % for 2023 and

by 1.25 % for 2024.

This results in an overall reduction of approximately 2 % in the 2023 Physician Fee Schedule conversion factor for 2023.

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

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

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

In 2013, a 2 % reduction to

Medicare payments was implemented.

The Bipartisan Budget Act of 2015 extended the 2 % reductions to Medicare payments through fiscal

The Bipartisan Budget Act of 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, and the

Consolidated Appropriations Act, 2021 further suspended the 2 % payment reduction through March 2021.

In April 2021, additional

legislation was enacted that waived the 2 % payment reduction for the remainder of calendar 2021.

The 2021 Act included a three-month extension of the 2 %

sequester relief applied to all Medicare payments through March 2022, followed by three months of 1 % sequester relief through June 30,

Sequester relief ended on June 30, 2022.

Beginning in 2021, payments to individual therapists (Physical/Occupational

Therapist in Private Practice) paid under the fee schedule may be subject to adjustment based on performance in the Merit Based Incentive Payment System (“MIPS”), which measures performance based on certain quality metrics, resource use, and

meaningful use of electronic health records.

Therapists eligible to participate in MIPS include only those therapists who are enrolled with Medicare as private practice providers and does not include therapists in facility-based providers, such

as our clinics enrolled as certified rehabilitation agencies.

Less than 3 % of the Company’s therapist providers currently participate

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 determined the payment adjustment in 2021.

For those therapist providers who actually participated in MIPS during 2019 and 2020, the resulting average payment adjustment in 2021

and 2022 was an increase of 1 %.

The 2023 adjustment for those therapist providers who participated in MIPS during 2021 is expected to

remain at an average 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 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.

CMS adopted a multiple

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

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

speech-language pathology.

Under the policy, the Medicare program pays 100 % of the practice expense component of the Relative Value

Unit (“RVU”) for the therapy procedure with the highest practice expense RVU, then reduces the payment for the practice expense component for the second and subsequent therapy procedures or units of service furnished during the same day for the

same patient, regardless of whether those therapy services are furnished in separate sessions.

In 2013, the practice expense component for the second and subsequent therapy service furnished during the same day for the same patient was reduced by

Medicare claims for outpatient therapy services furnished by therapist assistants on

or after January 1, 2020, must include a modifier indicating the service was furnished by a therapist assistant.

Outpatient therapy services furnished on or after January 1, 2022, in whole or part by a therapist assistant 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 it 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 December 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 years ended December 31, 2022 and 2021, respectively, net patient revenue from Medicare were approximately $ 154.9 million and $ 134.4 million,

respectively.

The Company has

agreements with third-party payors that provide payments to the Company at amounts different from its established rates.

Other Revenue

Management contract revenue, which is included in other revenue, is derived from contractual arrangements whereby the Company manages a clinic for third party

The Company does not have any ownership interest in these clinics.

Typically, revenue is determined based on the number of visits conducted at the clinic and recognized at a point in time when services are performed.

Costs, typically

salaries for the Company’s employees, are recorded when incurred.

Revenue from the IIP business, 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 , post-offer employment testing and

performance optimization.

Revenue from the Company’s 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

the company expects to receive in exchange for providing injury prevention services to its clients.

Revenue from the IIP business, which is included in other revenue in the consolidated statements of net income, is derived from onsite services

the Company provides to clients’ employees including injury prevention, rehabilitation, ergonomic assessments , post-offer employment testing and performance optimization.

from the Company’s IIP business is recognized when obligations under the terms of the contract are satisfied.

Revenues are recognized at an amount equal to the consideration the company expects to receive in exchange for providing injury prevention

services to its clients.

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

Additionally, other revenue from physical therapy operations includes services the

Company provides on-site at locations such as schools and industrial worksites for physical or occupational therapy services, athletic trainers and gym membership fees.

Contract terms and rates are agreed to in advance between the Company and the

third parties.

Management contract

revenue, which is also included in other revenue, is derived from contractual arrangements whereby the Company manages a clinic for third party owners.

The Company does not have any ownership interest in these clinics.

Typically, revenue is

determined based on the number of visits conducted at the clinic and recognized at a point in time when services are performed.

Costs, typically salaries for the Company’s employees, are recorded when incurred.

Management contract revenue was $ 8.6 million, $ 8.1 million and $ 9.9 million for the years ended December 31, 2023, December 31, 2022, and December 31, 2021, respectively.

Additionally, other revenue from physical therapy operations includes services the Company provides

on-site at locations such as schools and industrial worksites for physical or occupational therapy services, athletic trainers and gym membership fees.

Contract terms and rates are agreed to in advance between the Company and the third parties.

Services are typically performed over the contract period and revenue is recorded at the point of service.

If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and

recognized at the point in time, when the services are performed.

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.

Contractual Allowances

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

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

Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services.

regulations and the various third-party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in Company clinics.

The Company estimates contractual allowances based

on its interpretation of the applicable regulations, payor contracts and historical calculations.

Each month the Company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the

clinic and applies an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic.

Based on the Company’s historical experience, calculating the contractual allowance reserve

percentage at the payor level is sufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates.

However, the services authorized and provided and related reimbursement are subject to interpretation

that could result in payments that differ from the Company’s estimates.

Medicare regulations and the

various third-party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in Company clinics.

The Company estimates contractual allowances based on its interpretation

of the applicable regulations, payor contracts and historical calculations.

Each month the Company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies an

appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic.

Based on the Company’s historical experience, calculating the contractual allowance reserve percentage at the payor level

is sufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates.

However, the services authorized and provided and related reimbursement are subject to interpretation that could result in payments

that differ from the Company’s estimates.

Payor terms are periodically revised necessitating continual review and assessment of the estimates made by management.

The Company’s billing system does not capture the exact

change in its contractual allowance reserve estimate from period to period in order to assess the accuracy of its revenues and hence its contractual allowance reserves.

Management regularly compares its cash collections to corresponding net

revenues measured both in the aggregate and on a clinic-by-clinic basis.

In the aggregate, historically the difference between net revenues and corresponding cash collections for any fiscal year has generally reflected a difference within

approximately 1 % to 1.5 %

of net revenues.

Additionally, analysis of subsequent periods’ 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.

The Company’s billing system does not capture the exact change in its contractual

allowance reserve estimate from period to period in order to assess the accuracy of its revenues and hence its contractual allowance reserves.

Management regularly compares its cash collections to corresponding net revenues measured both in the

aggregate and on a clinic-by-clinic basis.

In the aggregate, historically the difference between net revenues and corresponding cash collections for any fiscal year has generally reflected a difference within approximately 1 % to 1.5 % of net revenues.

Additionally, analysis of subsequent periods’ 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, the Company believes that a change in the contractual allowance reserve estimate would not likely be more than 1.0 % to 1.5 % of gross billings included in accounts receivable each at

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

provision for credit losses is included in operating costs in the consolidated statements of income.

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

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

The provision for

credit losses is included in operating costs in the consolidated statements of net income.

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

includes only those amounts the Company estimates to be collectible.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the

future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and

liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax

rates is recognized in income in the period that includes the enactment date.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority

would more likely than not sustain the position following an audit.

For tax positions meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent

likelihood of being realized upon ultimate settlement with the relevant tax authority.

Deferred tax assets and liabilities are recognized for the future tax

consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are

measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized

in income in the period that includes the enactment date.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely

than not sustain the position following an audit.

For tax positions meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being

realized upon ultimate settlement with the relevant tax authority.

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

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

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

income taxes payable during the year ended December 31, 2022.

Company records interest or penalties in interest and other expense, in the consolidated statements of income.

ASC 740, Income Taxes

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

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

payable during the year ended December 31, 2023.

Company records interest or penalties in interest and other expense, in the consolidated statements of net income.

The Company did no t

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Fair Value of Financial Instruments

Fair value is defined as the price that

would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Assets and liabilities measured at fair value are classified using the following hierarchy, which

is based upon the transparency of inputs to the valuation at the measurement date.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Assets and liabilities measured at fair value are

classified using the following hierarchy, which is based upon the transparency of inputs to the valuation at the measurement date.

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

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Level 3 – Unobservable inputs based on the Company’s 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

under the Credit Agreement approximates the fair value due to the proximity of the debt issue date and the balance sheet date and the variable component of interest on debt.

The interest rate on the Credit Agreement is tied to the Secured

Overnight Financing Rate (“SOFR”).

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

potential future purchase of the separate company in the November 2021 acquisition are both marked to fair value on a recurring basis using Level 3 inputs.

The redemption value of redeemable non-controlling interests approximates the fair

The put right associated with the potential future purchase of the separate company in the November 2021 acquisition is determined using a Monte Carlo simulation model utilizing unobservable inputs such as asset volatility and discount

The unobservable inputs in the valuation include asset volatility of 25 % and a discount rate of 11.32 %.

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 Credit Agreement approximates the fair value due to the proximity of the debt issue date and the balance sheet date

and the variable component of interest on debt.

The interest rate on the Credit Agreement is tied to the Secured Overnight Financing Rate (“SOFR”).

The put right associated with the potential future purchase of the separate company in the November 2021 acquisition are both is also marked to fair value on a recurring basis using Level 3 inputs.

The put right associated with the

potential future purchase of the separate company in the IIP business is determined using a Monte Carlo simulation model utilizing unobservable inputs such as asset volatility and discount rates.

The unobservable inputs in the valuation include

asset volatility of 25.0 % and a discount rate of 11.22 %.

The value of the put right associated with the potential future purchase of a company in the IIP business decreased $ 2.6 million from $ 3.6 million on December 31, 2022 to approximately $ 1.0 million on December 31, 2023.

Accordingly, the Company recognized a gain of $ 2.6 million on this change in revaluation for the twelve months ended December 31, 2023.

The valuations of the Company’s interest rate derivative is

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

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

Level 2 fair value measurement.

The fair value of the interest rate swap on December 31, 2023, was $ 3.7 million, of which $ 2.6 million has been included within Other current assets and $ 1.1 million has been included in Other assets in the accompanying Consolidated Balance Sheet.

The impact of the interest rate swap on the accompanying Consolidated Statements of

Comprehensive Income was an unrealized loss of $ 1.2 million, net of tax, for the year ended December 31, 2023.

The redemption value of redeemable non-controlling interests

approximates the fair value.

See Note 6 for the changes in the fair value of Redeemable non-controlling interest.

There were no changes in the fair value of the put

right associated with the potential future purchase of the separate company in the November 2021 acquisition for the year ended December 31, 2022.

The valuations of the Company’s

interest rate derivative is measured as the present value of all expected future cash flows based on SOFR-based yield curves.

The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the

Company and its counterparty which is a Level 2 fair value measurement.

The fair value of the interest rate swap on December 31, 2022, was $ 5.4

million, of which $ 2.9 million has been included within Other current assets and $ 2.5 million has been included in Other assets 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 year ended December 31, 2022.

The consideration for some of the

Company’s acquisitions include future payments that are contingent upon the occurrence of future operational objectives being met.

The Company estimates the fair value of contingent consideration obligations through valuation models designed

to estimate the probability of such contingent payments based on various assumptions and incorporating estimated success rates.

The consideration for some of the Company’s acquisitions

include future payments that are contingent upon the occurrence of future operational objectives being met.

The Company estimates the fair value of contingent consideration obligations through valuation models designed to estimate the probability

of such contingent payments based on various assumptions and incorporating estimated success rates.

These fair value measurements are based on significant inputs not observable in the market.

Substantial judgment

is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.

Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense

the Company records in any given period.

The Company determined the fair value of its contingent consideration obligations to be $ 8.3

million and $ 3.5 million on December 31, 2022, and 2021.

Substantial judgment is employed in determining the

appropriateness of these assumptions as of the acquisition date and for each subsequent period.

Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given

period.The Company determined the fair value of its contingent consideration obligation to be $ 9.8 million and $ 8.3 million on December 31, 2023 and 2022.

Segment Reporting

Operating segments are components of an enterprise for which

separate financial information is available that is evaluated regularly by chief operating decision makers in determining the allocation of resources and in assessing performance.

Operating segments are components of an enterprise for which separate financial

information is available that is evaluated regularly by chief operating decision makers in determining the allocation of resources and in assessing performance.

The Company currently operates through two segments:

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Use of Estimates

In preparing the Company’s consolidated financial statements, management makes certain estimates and assumptions, especially in

relation to, but not limited to, goodwill impairment, tradenames, allocations of purchase price, allowance for receivables, tax provision and contractual allowances, that affect the amounts reported in the consolidated financial statements and

related disclosures.

In preparing the Company’s consolidated financial statements, management makes certain estimates and assumptions, especially in relation to, but

not limited to, goodwill impairment, tradenames, allocations of purchase price, allowance for receivables, tax provision and contractual allowances, that affect the amounts reported in the consolidated financial statements and related disclosures.

Actual results may differ from these estimates.

Self-Insurance Program

The Company utilizes a self-insurance plan for its employee group health and dental insurance coverage administered by a third

The Company utilizes a self-insurance plan for its employee group health and dental insurance coverage administered by a third party.

Predetermined loss limits have been arranged with the insurance company to minimize the Company’s maximum liability and cash outlay.

Accrued expenses include the estimated incurred but unreported costs to settle unpaid claims and estimated

future claims.

Accrued expenses include the estimated incurred but unreported costs to settle unpaid claims and estimated future

Management believes that the current accrued amounts are sufficient to pay claims arising from self-insurance claims incurred through December 31, 2023.

Restricted Stock

Restricted stock issued to employees and directors is subject to continued employment or continued service on the board,

respectively.

Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following four

anniversaries of the date of grant.

For those shares granted to directors, the restrictions will lapse in equal quarterly installments during the first

year after the date of grant.

Restricted stock issued to employees and directors is subject to continued employment or continued service on the board, respectively.

restrictions on the stock granted to employees lapse in equal annual installments on the following four anniversaries of the date of

For those shares granted to directors, the restrictions will lapse in equal quarterly installments during the first year after

the date of grant.

For those granted to officers, the restriction will lapse in equal quarterly installments during the four years

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restricted stock issued is included in basic and diluted shares for the earnings per share computation.

Reclassification of Prior Period Presentation

Certain prior year amounts have been

reclassified for consistency with the current year presentation.

These reclassifications had no effect on the reported results of operations.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses , which

added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses.

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

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

The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low

risk of loss.

The standard is required to be applied using the modified retrospective approach with a cumulative-effect adjustment to retained earnings, if any, upon adoption.

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

The financial instruments subject to ASU 2016-13 are the Company’s accounts

receivable derived from contracts with customers.

A significant portion of the Company’s accounts receivable are from highly-solvent, creditworthy payors including governmental programs such as Medicare and Medicaid, and highly regulated commercial

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

earnings on the adoption date of the standard.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test

for Goodwill Impairment (Topic 350), which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge.

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

within those years, beginning after December 15, 2019.

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

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

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

amendments in thi s ASU are effective

for fiscal years beginning after December 15, 2020, and early adoption was permitted.

The Company completed the adoption of ASU 2020-06 effective January 1, 2021 and there was no material impact on the Company’s financial statements.

In August 2020, the FASB issued ASU 2020-06 Debt—Debt

with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the

accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

As part of this update, convertible instruments are to be included in diluted

earnings per share using the if-converted method, rather than the treasury stock method.

Further, contracts which can be settled in cash or shares, excluding liability-classified share-based payment awards, are to be included in diluted earnings

per share on an if-converted basis if the effect is dilutive, regardless of whether the entity or the counterparty can choose between cash and share settlement.

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

stated policy.

This pronouncement was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021.The Board

specified that an entity should adopt the guidance at the beginning of its annual fiscal year.

The objective of ASU 2019-12 is to simplify the accounting for income taxes by removing

certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements.

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

The Company completed the adoption of ASU 2020-06

effective January 1, 2021 and there was no material impact on the Company’s financial statements.

In August 2020, the FASB issued ASU 2020-06 Debt—Debt with

Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting

for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

As part of this update, convertible instruments are to be included in diluted earnings per

share using the if-converted method, rather than the treasury stock method.

Further, contracts which can be settled in cash or shares, excluding liability-classified share-based payment awards, are to be included in diluted earnings per share on an

if-converted basis if the effect is dilutive, regardless of whether the entity or the counterparty can choose between cash and share settlement.

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

This pronouncement was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021.The Board specified that an

entity should adopt the guidance at the beginning of its annual fiscal year.

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

The use of either the modified retrospective or fully retrospective method of transition

is permitted.

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

Recently Issued Accounting Guidance

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform

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

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

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 .

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 is allowed to elect to apply the amendments prospectively through December 31, 2022.

Borrowings under the Amended Credit

Agreement (as defined in Note 9) bear interest based on SOFR, an alternate base rate.

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 Company’s Credit Agreement

bear interest based on SOFR.

Recently Issued Accounting Guidance

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-01, Leases (Topic 842):

Common Control Arrangements,

which requires companies to amortize leasehold improvements associated with related party leases under common control over the useful life of the leasehold improvement to the common control group.

The ASU is effective for annual reporting periods

beginning on or after December 15, 2023;

however, early adoption is permitted.

The ASU can either be applied prospectively or retrospectively.

The adoption of ASU 2023-01 did not have a material effect on the Company’s financial statements.

Earnings Per Share

The computations of basic and diluted earnings per share for the years ended December 31, 2022, 2021 and 2020 are as follows (in

thousands, except per share data):

The computations of basic and diluted earnings are as follows.

For the Year Ended

December 31, 2023

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December 31, 2021

(In thousands, except per share data)

Computation of earnings per share - USPH shareholders:

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Revaluation of redeemable non-controlling interest

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

Tax effect at statutory rate (federal and state)

Earnings per share (basic and diluted)

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Acquisitions of Businesses

During 2022, 2021 and 2020, the Company acquired a majority interest in the following businesses:

November 2022 Acquisition

November 30, 2022

The Company’s strategy is to continue acquiring

multi-clinic outpatient physical therapy practices, to develop outpatient physical therapy clinics as satellites in existing partnerships and to continue acquiring companies that provide and serve the IIP sector.

The consideration paid for each

acquisition is derived through arm’s length negotiations and funded through working capital, borrowings under the Company’s revolving credit facilities or proceeds from the recently completed secondary offering discussed in Note 1.

The finalized purchase prices plus the fair value of the

non-controlling interests for the acquisitions in 2022 and 2021 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, i.e.

trade names, referral relationships and non-compete agreements, and

liabilities assumed based on the fair values at the acquisition date, with the amount exceeding the fair values being recorded as goodwill.

For some of the acquisitions in 2023, the Company is in the process of completing its formal valuation

analysis to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed.

Thus, the final allocation of the purchase price may differ from the preliminary estimates used at December 31,

2023 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.

does not expect the adjustments to be material.

The results of operations of the acquisitions below have been

included in the Company’s consolidated financial statements since their respective date of acquisition.

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

aggregate, were not material to current operations.

For the 2023, 2022 and 2021 acquisitions, total current

assets primarily represent patient accounts receivable.

Total non-current assets are fixed assets, primarily equipment, used in the practices.

During 2023, 2022 and 2021, the Company acquired a majority

interest in the following businesses:

2023 Acquisitions

October 2023 Acquisition

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September 29, 2023

August 2022 Acquisition

August 31, 2022

March 2022 Acquisition

March 31, 2022

December 2021 Acquisition

December 31, 2021

November 2021 Acquisition

November 30, 2021

September 2023 Acquisition2

September 29, 2023

June 2021 Acquisition

June 30, 2021

March 2021 Acquisition

March 31, 2021

July 2023 Acquisition

July 31, 2023

May 2023 Acquisition

February 2023 Acquisition

February 28, 2023

On October 31,

2023, the Company concurrently acquired 100 % of an IIP business and a 55 % equity interest in the ergonomics software business (“October 2023 Acquisition”).

On October 31, 2023, the Company concurrently acquired 100 % of an IIP business and a 55 %

equity interest in the ergonomics software business.

The previous owner of the ergonomics software business retained a 45 % equity

The total purchase price of the combined businesses was approximately $ 4.0 million and was paid in cash.

On September 29, 2023, the Company acquired a 70 % equity interest in a four -clinic

physical therapy practice.

The owner of the practice retained 30 % of the equity interests.

The purchase price for the 70 % equity interest was approximately $ 6.0

million, of which $ 5.4 million was paid in cash, and $ 0.6 million was in the form of a note payable.

The note accrues interest at 5.0 %

per annum and the principal and interest are payable in two installments.

The first payment of principal and interest of $ 0.3 million was paid in January 2024, and the second installment of $ 0.3 million is due on September 30, 2025.

In a separate transaction, on September 29, 2023, the Company

acquired a 70 % equity interest in a single

clinic physical therapy practice.

The owner of the practice retained 30 % of the equity interests.

The purchase price for the 70 % equity interest was approximately $ 7.8

million, of which $ 7.4 million was paid in cash and $ 0.4 million is a deferred payment due on June 30, 2025.

On July 31, 2023, the Company acquired a 70 % equity interest in a five -clinic

The practice’s owners retained a 30 % equity interest.

The purchase price for the 70 % equity interest was approximately $ 2.1 million, of which $ 1.8 million was paid in cash and $ 0.3

million is a deferred payment due on June 30, 2025.

On May 31, 2023, the Company and a local partner together

acquired a 75 % interest in a four -clinic

physical therapy practice.

After the transaction, the Company’s ownership interest is 45 %, the Company’s local partner’s ownership

interest is 30 %, and the practice’s pre-acquisition owners have a 25 % ownership interest.

The purchase price for the 75 % equity interest was

approximately $ 3.1 million, of which $ 1.7

million was paid in cash by the Company, $ 1.1 million was paid in cash by the local partner, and $ 0.3 million was in the form of a note payable, (of which $ 0.2

million will be paid by the Company and $ 0.1 million will be paid by the local partner).

The note will be paid on July 1, 2024.

Company guaranteed the full payment of $ 0.3 million on its due date.

On February 28, 2023, the Company acquired an 80 % interest in a one -clinic physical

therapy practice.

The practice’s owners retained 20 % of the equity interests.

The purchase price for the 80 % equity interest was approximately $ 6.2

million, of which $ 5.8 million was paid in cash and $ 0.4 million in the form of a note payable.

The note accrues interest at 4.5 %

per annum and the principal and interest are payable on February 28, 2025.

The purchase prices for the 2023 acquisitions have been preliminarily allocated as

For the Year Ended December 31, 2023

Physical Therapy

(In thousands)

Cash paid, net of cash acquired

Deferred payments

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

Non-compete agreement

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

Total current assets

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

For the acquisitions in

2023, the values assigned to the customer and referral relationships and non-compete agreement are being amortized on a straight-line basis over their respective estimated lives.

For customer and referral relationships, the weighted-average

amortization period is 12.0 years.

For the non-compete agreements, the weighted-average amortization period is 5.1 years.

The values assigned to tradenames are tested annually for impairment.

2022 Acquisitions

November 2022 Acquisition

November 30, 2022

October 2022 Acquisition

October 31, 2022

September 2022 Acquisition

September 30, 2022

February 2020 Acquisition

February 27, 2020

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.

August 2022 Acquisition

August 31, 2022

March 2022 Acquisition

March 31, 2022

On November 30, 2022, the Company acquired an 80 %

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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.

As part of the acquisition, the Company agreed to additional contingent consideration up to $ 1.3 million if future operational objectives

The Company is currently evaluating the fair market value of this contingency.

The note accrues interest at 7.0 % per annum and

the principal and interest are payable on November 30, 2024.

On October 31, 2022, the Company acquired an 60 % interest

in a fourteen -clinic physical therapy practice.

The note accrues interest

at 7.0 % per annum and the principal and interest are payable on November 30, 2024.

As part of the acquisition, the Company agreed to

additional contingent consideration of up to $ 1.6 million if future operational objectives were met.

The additional contingent

consideration was valued at $ 1.6 million on December 31, 2023, and was paid in full in January 2024.

On October 31, 2022, the Company acquired a 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 additional contingent consideration valued at $ 8.3 million on December 31, 2022, to be paid at a later date based on the performance of the business.

The purchase price for the 60 %

equity interest was approximately $ 19.5 million, with additional contingent consideration valued at $ 9.8 million on December 31, 2023, to be paid at a later date based on the performance of the business.

There is no maximum payout.

The estimate of this contingent consideration

will continue to be marked at fair value based on the practice’s operational results and updated market inputs.

The estimate of this

contingent consideration will continue to be marked at fair value based on the practice’s operational results and updated market inputs.

On September 30, 2022, the Company acquired an 80 %

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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.

The note accrues interest

at 5.5 % per annum and the principal and interest are payable on September 30, 2024.

On August 31, 2022, the Company acquired a 70 % interest

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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, the Company acquired a 70 % interest in

a six -clinic physical therapy practice.

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, 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 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.

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

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.

The purchase price for the 2022 acquisitions has been allocated as follows.

Physical Therapy

(In thousands)

Cash paid, net of cash acquired

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

On December 31, 2021, the Company acquired a 75 % interest 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 is payable on December 31, 2023.

Total current assets

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

The purchase price

plus the fair value of the non-controlling interests for the acquisitions in 2022 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, (i.e.

trade names, referral relationships and non-compete

agreements) and liabilities assumed based on the fair values at the acquisition date, with the amount exceeding the fair values being recorded as goodwill.

For the acquisitions

in 2022, the values assigned to the customer and referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives.

For customer and referral relationships, the weighted-average

amortization period is 12.2 years.

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

The values assigned to tradenames are tested annually for impairment.

2021 Acquisitions

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

On December 31, 2021, the Company acquired a 75 %

interest 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 accrued interest at 3.25 % per annum and the principal and interest was paid on December 31, 2023.

On November 30, 2021, the Company acquired an approximate 70 % interest in a leading provider of industrial injury prevention services (“IIP Acquisition”).

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in approximately five years , with such right having a $ 1.2 million value on December 31, 2023, 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 more than 50% 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 the aforementioned reasons, and based on current accounting guidance, the Company did not consolidate the separate company through the variable interest

or voting interest model.

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.

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

The Company acquired the company’s assets at a purchase price of approximately $ 3.3 million (which includes the obligation

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

operational objectives are met), and contributed those assets to Briotix Health.

The initial purchase price, not inclusive of the $ 0.6

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

of a note payable.

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

Company revalued the contingent earn-out consideration related to the acquisition during the year ended December 31, 2022, resulting in the elimination of the $ 0.6 million liability previously booked.

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

The purchase price was approximately $ 10.3

million, of which $ 9.0 million was paid in cash, $ 1.0 million is payable based on the achievement of certain business criteria and $ 0.3 million is in

the form of a note payable.

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

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

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

The 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 more than 50% 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 the aforementioned reasons, and based on current accounting guidance, the Company did not consolidate the separate company

through the variable interest or voting interest model.

The Company revalued the contingent earn-out consideration related to the acquisition during the year ended December 31, 2022, resulting in a gain of $ 2.0 million and the reduction of the liability to $ 0 .

On September 30, 2021, the Company acquired a company that specializes in return-to-work and ergonomic services, among other offerings.

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

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

objectives are met), and contributed those assets to Briotix Health.

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

The note accrued interest at 3.25 % per annum and the principal and interest was paid in September 2023.

revalued the contingent earn-out consideration related to the acquisition during the year ended December 31, 2022, resulting in the elimination of the $ 0.6

million liability previously booked to $ 0 .

On June 30, 2021, the Company acquired a 65 %

interest in an eight -clinic physical therapy with the previous owners retaining 35 %.

The purchase price was approximately $ 10.3 million, of

which $ 9.0 million was paid in cash, $ 1.0

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

accrued interest at 3.25 % per annum and the principal and interest and was paid in June 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 previous owners retaining 30 %.

The earn-out payment valued at $ 0.8 million on December 31, 2023, will subsequently be remeasured to fair value each reporting date.

On March 31, 2021, the Company acquired a 70 %

interest in a five -clinic physical therapy practice with the previous owners retaining 30 %.

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

The purchase price for the 70 % interest was approximately $ 12.0

million, of which $ 11.7 million was paid in cash and $ 0.3 million in the form of a note payable.

The note accrues interest at 3.25 %

per annum and the principal and interest is payable on March 31, 2023.

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

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

million in the form of a note payable.

The note accrued interest at 3.25 % per annum and the principal and interest was paid in

The purchase price for the 2021 acquisitions has been allocated as follows.

Physical Therapy

(In thousands)

Cash paid, net of cash acquired

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

injury prevention services business

On November 30, 2020, the Company acquired a 75 % interest in a three -clinic physical therapy practice with the previous owners retaining 25 %.

The purchase price for the 75 %

interest was $ 8.9 million (net of cash acquired), of which $ 8.6 million was paid in cash and $ 0.3 million in the form of a

note payable that is payable in two principal installments totaling $ 162,500 each.

The first principal payment plus accrued interest was paid in November 2021 with the second installment paid in November 2022 totaling $ 162,500 .

The note accrues interest at 3.25 %

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

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

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

The remaining note payable of $ 0.2 million was paid on September

On February 27, 2020, the Company acquired interests in a four -clinic physical therapy practice.

The four clinics are in four separate partnerships.

The Company’s interests in the four

partnerships range from 10.0 % to 83.8 %,

with an overall 65.0 % based on the initial purchase transaction.

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

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

The note accrues interest at 4.75 % per annum and the principal and interest was paid in February 2022.

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

Physical Therapy

Cash paid, net of cash acquired

Total consideration

Estimated fair value of net tangible assets acquired:

Total current assets

Total non-current assets

Total liabilities

Net tangible assets acquired

Referral relationships

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

The finalized purchase prices plus the fair value of the non-controlling interests for the acquisitions in 2021 and 2020 were

allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, i.e.

trade names, referral relationships and non-compete agreements, and liabilities assumed based on the fair values at the acquisition date, with the

amount exceeding the fair values being recorded as goodwill.

For some of the acquisitions in 2022, the Company is in the process of completing its formal valuation analysis to identify and determine the fair value of tangible and identifiable

intangible assets acquired and the liabilities assumed.

Thus, the final allocation of the purchase price may differ from the preliminary estimates used at December 31, 2022 based on additional information obtained and completion of the valuation of

the identifiable intangible assets.

Changes in the estimated valuation of the tangible assets acquired, the completion of the valuation of identifiable intangible assets and the completion by the Company of the identification of any unrecorded

pre-acquisition contingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustments to goodwill.

The Company does not expect the adjustments to be material.

For the acquisitions in 2022, the values assigned to the customer and referral relationships and non-compete agreements are being

amortized to expense equally over the respective estimated lives.

For customer and referral relationships, the weighted-average amortization period is 12.0

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

The values assigned to tradenames are tested

annually for impairment.

For the acquisitions in 2021 and 2020, the values assigned to the referral relationships and non-compete agreements are being

amortized to expense equally over the respective estimated lives.

For referral relationships, the weighted average amortization period was 14.0

and 12.0 years at December 31, 2021 and December 31, 2020, respectively.

For non-compete agreements, the weighted average amortization

period was 5.6 years and 6.0

years at December 31, 2021 and December 31, 2020, respectively.

Generally, the values assigned to tradenames are tested annually for impairment.

For the 2022, 2021 and 2020 acquisitions, total current assets primarily represent patient accounts receivable.

Total non-current

assets are fixed assets, primarily equipment, used in the practices.

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

Funding for the cash portions was

derived from proceeds from the Company’s revolving credit facility.

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

Unaudited proforma

consolidated financial information for the acquisitions in 2022, 2021 and 2020, have not been included as the results are immaterial individually and in the aggregate.

Acquisitions and Sale of Non-Controlling Interests

During 2022, the Company acquired additional interests in three partnerships which are included in

non-controlling interest.

During 2023, the Company acquired additional interests in three

partnerships which are included in non-controlling interests - permanent equity.

The additional interests purchased in each of the partnerships ranged from 0.15 % to 35.0 %.

The aggregated purchase price for these acquired interests was $ 0.3 million.

2021, the Company acquired additional interests in five partnerships which are included in non-controlling interest.

The aggregated purchase price for these acquired interests was

$ 0.5 million.

The Company also sold interests in four partnerships for an aggregate price of $ 0.6 million.

The non-controlling

interests - permanent equity sold in each of the partnerships ranged from 0.5 % to 8.0 %.

2022, the Company acquired additional interests in three partnerships which are included in non-controlling interest.

The additional

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The aggregated purchase price for these acquired interests was $ 0.3

During 2021, the

Company acquired additional interests in five partnerships which are included in non-controlling interest.

The additional interests

purchased in each of the partnerships ranged from 5 % to 35 %.

The aggregated purchase price for these acquired interests was $ 1.3

The Company also sold an interest in a partnership for $ 0.1 million.

During 2020, the Company acquired additional interests in five partnerships which are included in non-controlling interest.

The additional interests purchased in each of the partnerships ranged from 20 % to 35 % .

The aggregated purchase price for these acquired interests was $ 0.3 million .

The Company also sold an interest in a partnership for $ 0.1

During 2020, the Company also sold 14 previously closed clinics.

The aggregate sales price was $ 1.1 million, of which $ 0.7 million was paid in cash and $ 0.4 million in a note receivable payable in two equal

installments of principal and any accrued interest.

The first payment was received in June 2021 and the next payment was received in June 2022.

Redeemable Non-Controlling Interest

Therapy Practice Acquisitions

Since October 2017, when the Company acquires a majority interest (the “Acquisition”) in a physical therapy clinic (referred to as

“Therapy Practice”), these Therapy Practice transactions occur in a series of steps which are described below.

When the Company acquires a majority interest (the “Acquisition”) in a physical therapy clinic (referred to as “Therapy Practice”), these Therapy

Practice transactions occur in a series of steps which are described below.

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

The Seller Entity is owned by one or more individuals

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

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

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

Therefore, in this step, NewCo becomes a

wholly-owned subsidiary of the Seller Entity.

The Company enters into an agreement (the “Purchase Agreement”) to acquire from the Seller

Entity a majority (ranges from 50 % to 90 %) of the limited partnership interest and in all cases 100 % of the general partnership interest in NewCo .

The Company does not

purchase 100 % of the limited partnership interest because the Selling Shareholders, through the Seller Entity, want to maintain an

ownership percentage.

The consideration for the Acquisition is primarily payable in the form of cash at closing and a two-year

note in lieu of an escrow (the “Purchase Price”).

The Purchase Agreement usually 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 Acquired Therapy Practice and provide physical therapy services to patients.

In conjunction with the Acquisition, the Seller Entity contributes the acquired Therapy Practice into a newly-formed limited partnership

(“NewCo”), in exchange for one hundred percent ( 100 %) of the limited and general partnership interests in NewCo.

Therefore, in

this step, NewCo becomes a wholly-owned subsidiary of the Seller Entity.

The Company enters into an agreement (the “Purchase Agreement”) to acquire from the Seller Entity a majority (ranges from 50 % to 90 %) of the limited partnership interest and in all cases 100 % of the general partnership interest in NewCo .

The Company does not purchase 100 %

of the limited partnership interest because the Selling Shareholders, through the Seller Entity, want to maintain an ownership percentage.

The consideration for the Acquisition is primarily payable in the form of cash at closing and a two-year note in lieu of an escrow (the “Purchase Price”).

The Purchase Agreement usually 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

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

of the limited partnership interest in NewCo (“Seller Entity Interest”).

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

initial term that ranges from three to five years (the “Employment Term”), with automatic one-year renewals,

unless employment is terminated prior to the end of the Employment Term.

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

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

The employment of an Employed Selling Shareholder can be terminated

by the Employed Selling Shareholder or NewCo, with or without cause, at any time.

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

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

Entity as of the closing of the Acquisition.

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

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

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

agreement (the “Non-Compete Agreement”) which restricts the Selling Shareholder from engaging in competing Therapy Practice 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 Therapy Practice during the Non-Compete Term.

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 Therapy Practice 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 Therapy Practice 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

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.

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

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

That is, an Employed Selling

Shareholder is permitted to engage in competing Therapy Practicees or activities outside the designated geography (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholder who is not employed by NewCo

immediately is permitted to engage in the competing Therapy Practice or activities outside the designated geography.

The Partnership Agreement contains provisions for the redemption of the Seller Entity Interest, either at the option of the Company

(the “Call Right”) or at the option of the Seller Entity (the “Put Right”) as follows:

In the event that any Selling Shareholder’s employment is terminated under certain circumstances prior to the fifth anniversary of the Closing Date, the Seller

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

In the event that any Selling Shareholder is not employed by NewCo as of the fifth anniversary of the Closing Date and the Company has not exercised its Call

Right with respect to the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, Seller Entity thereafter has 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 fifth anniversary of the Closing Date, the

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

If any Selling Shareholder’s employment by NewCo is terminated prior to the fifth anniversary of the Closing Date, the Company thereafter has an irrevocable

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

In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifth anniversary of the Closing Date, the Company

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

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

before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of NewCo (the “Redemption Amount”).

NewCo’s earnings are distributed monthly based on

available cash within NewCo; therefore, the undistributed earnings amount is small, if any.

The Purchase Price for the initial equity interest purchased by the Company 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.

an Employed Selling Shareholder is permitted to engage in competing Therapy Practices or activities outside the designated geography (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholder who is

not employed by NewCo immediately is permitted to engage in the competing Therapy Practice or activities outside the designated geography.

The Partnership Agreement contains provisions for the redemption of the Seller Entity Interest, either at the option of the Company (the

“Call Right”) or at the option of the Seller Entity (the “Put Right”) as follows:

In the event that any Selling Shareholder’s employment is terminated under certain circumstances prior to the fifth anniversary of the

Closing Date, the Seller Entity thereafter may have an irrevocable right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price

described in “3” below.

In the event that any Selling Shareholder is not employed by NewCo as of the fifth anniversary of the Closing Date and the Company has not

exercised its Call Right with respect to the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, Seller Entity thereafter has 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 fifth anniversary of

the Closing Date, the Seller Entity has the Put Right, and upon the exercise of the Put Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price

described in “3” below.

If any Selling Shareholder’s employment by NewCo is terminated prior to the fifth anniversary of the Closing Date, the Company thereafter

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

In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifth anniversary of the

Closing Date, the Company has the Call Right, and upon the exercise of the Call Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in

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.

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.

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 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.

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.

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.

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.

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

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

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

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

the membership interests in Progressive NewCo.

Prior to the acquisition, the Progressive Subsidiaries were owned by a legal entity (“Progressive Parent”) controlled by its

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

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

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

of the membership interests in Progressive NewCo.

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

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

membership interest in Progressive NewCo.

The consideration for the acquisition is primarily payable in the form of cash at closing, a relatively small portion paid in cash after the closing contingent on certain performance criteria, and

a small note in lieu of an escrow (the “Progressive Purchase Price”).

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

sets forth the rights and obligations of the members of Progressive NewCo.

As noted above, the Company did not purchase 100 %

of the membership interests in Progressive NewCo and the Progressive Selling Shareholders retained a portion of the membership interest in Progressive NewCo (“Progressive Selling Shareholders’ Interest”).

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

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

The Progressive Non-Compete Term commences as of the date of the closing of the Progressive acquisition (the “Progressive Closing Date”) and expires on the later

Two years after the date a Progressive Selling

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

Seven years from the Progressive Closing Date.

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

majority of the membership interest in Progressive NewCo.

The consideration for the acquisition is primarily payable in the form of cash at closing, a relatively small portion paid in cash after the closing contingent on certain

performance criteria, and a small note in lieu of an escrow (the “Progressive Purchase Price”).

The Company and the Progressive Selling Shareholders also executed an operating agreement (the “Progressive Operating Agreement”) for

Progressive NewCo that sets forth the rights and obligations of the members of Progressive NewCo.

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

Selling Shareholders’ Interest”).

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

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

The Progressive Non-Compete Term commences as of the date of the closing of the Progressive acquisition (the “Progressive Closing

Date”) and expires on the later of:

Two years after the

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

Seven years from the

date of the acquisition.

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

Progressive Operating Agreement contains provisions for the redemption of the Progressive Selling Shareholder’s Interest, either at the option of the Company (the “Progressive Call Right”) or at the option of the Progressive Selling Shareholder

(the “Progressive Put Right”) as follows:

The Progressive Put Right (as defined below) and the Progressive Call Right (as defined below) do not have an expiration date.

Shareholder (the “Progressive Put Right”) as follows:

Progressive Put Right

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

In the event that any Progressive Selling Shareholder terminates his management relationship with Progressive NewCo for any reason on or after the seventh

anniversary of the Progressive Closing Date, the Progressive Selling Shareholder has the Progressive Put Right, and upon the exercise of the Progressive Put Right, the Progressive Selling Shareholder’s Interest shall be redeemed by the

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

In the event that any Progressive Selling Shareholder terminates his management relationship with Progressive NewCo for any reason on

or after the seventh anniversary of the Closing Date, the Progressive Selling Shareholder has the Progressive Put Right, and upon the exercise of the Progressive Put Right, the Progressive Selling Shareholder’s Interest shall be

redeemed by the Company at the purchase price described in “3” below.

Progressive Call Right

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

irrevocable right to purchase from such Progressive Selling Shareholder his Interest, in each case at the purchase price described in “3” below.

For the Progressive Put Right and the Progressive Call Right, the purchase price is derived from a formula based on a specified multiple of Progressive

NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of Progressive NewCo (the “Progressive

Redemption Amount”).

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

shall have an irrevocable right to purchase from such Progressive Selling Shareholder his Interest, in each case at the purchase price described in “3” below.

For the Progressive Put Right and the Progressive Call Right, the purchase price is derived from a formula based on a specified

multiple of Progressive NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of Progressive

NewCo (the “Progressive Redemption Amount”).

Progressive NewCo’s earnings are distributed monthly based on available cash within Progressive NewCo; therefore, the undistributed earnings amount is small, if any.

The Progressive Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple of the trailing

twelve-month earnings that is used in the Progressive Put Right and the Progressive Call Right noted above.

The Progressive Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple

of the trailing twelve-month earnings that is used in the Progressive Put Right and the Progressive Call Right noted above.

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

Neither the Progressive Operating Agreement nor the Progressive Non-Compete Agreement contain any provision to escrow or “claw

back” the equity interest in Progressive NewCo held by the Progressive Selling Shareholders, in the event of a breach of the operating agreement or non-compete terms, or the management services agreement pursuant to which the Progressive Selling

Shareholders perform services on behalf of Progressive NewCo.

Neither the Progressive Operating Agreement nor the Progressive Non-Compete Agreement contain any provision to escrow or “claw back” the equity

interest in Progressive NewCo held by the Progressive Selling Shareholders, in the event of a breach of the operating agreement or non-compete terms, or the management services agreement pursuant to which the Progressive Selling Shareholders

perform services on behalf of Progressive NewCo.

The Company’s only recourse against the Progressive Selling Shareholder for breach of any of these agreements is to seek damages and other legal remedies under such agreements.

no conditions in any of the arrangements with a Progressive Selling Shareholder that would result in a forfeiture of the equity interest in Progressive NewCo held by a Progressive Selling Shareholder.

An employed Progressive Selling Shareholder’s ownership of his or her equity interest in the Progressive Parent and Progressive

NewCo predates the Progressive Acquisition and the Company’s purchase of its partnership interest in Progressive NewCo.

The Progressive Employment Agreement and the Progressive Non-Compete Agreement do not contain any provision to escrow or “claw

back” the equity interest held by the Progressive Parent in Progressive NewCo, in the event of a breach of the employment or non-compete terms.

More specifically, even if the Employed Progressive Selling Shareholder is terminated for “cause” by

Progressive NewCo, such Employed Progressive Selling Shareholder does not forfeit his or her right to his or her full equity interest in the Progressive Parent and the Progressive Parent does not forfeit its right to any portion of its equity

interest in Progressive NewCo.

The Company’s only recourse against the Employed Selling Shareholder for breach of either the Progressive Employment Agreement or the Progressive 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 Progressive Parent or of the equity interest in Progressive NewCo held by

the Progressive Parent.

For the years ended December 31, 2022, 2021 and 2020, the following table details the changes in the carrying amount (fair value) of

the redeemable non-controlling interests (in thousands):

conditions in any of the arrangements with a Progressive Selling Shareholder that would result in a forfeiture of the equity interest in Progressive NewCo held by a Progressive Selling Shareholder.

For both scenarios described above, an employed Progressive Selling Shareholder’s ownership of his or her equity interest in the Seller Entity

predates the Progressive 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.

Carrying Amounts of Redeemable Non-Controlling Interests

For the years ended December 31, 2023, 2022 and 2021, the following table details the changes in the carrying amount (fair value) of the

redeemable non-controlling interests.

For the Year Ended

December 31, 2023

1 unchanged sentence

December 31, 2021

(In thousands)

Beginning balance

Operating results allocated to redeemable non-controlling interest partners

Net income allocated to redeemable non-controlling interest

Distributions to redeemable non-controlling interest partners

3 unchanged sentences

Contributed capital

Sales of redeemable non-controlling interest - temporary equity

Notes receivable related to sales of redeemable non-controlling interest - temporary equity

Adjustments in notes receivable related to the the sales of redeemable non-controlling interest -

temporary equity

Sales of redeemable non-controlling interest

Changes in notes receivable related to redeemable non-controlling interest

Adjustments in notes receivables related to the sales of redeemable non-controlling interest

Ending balance

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

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

As of the Year Ended

December 31, 2023

1 unchanged sentence

December 31, 2021

(In thousands)

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

2 unchanged sentences

Holder’s employment has terminated and contractual time period has not expired

The changes in the carrying amount of goodwill as of December 31, 2022 and 2021 consisted of the following (in thousands):

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

For the Year Ended

December 31, 2023

December 31, 2022

(In thousands)

Beginning balance

Goodwill acquired

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

Goodwill impairment

Adjustments for purchase price allocation of businesses acquired in prior year

Impairment of goodwill

Ending balance

year ended December 31, 2022, the Company recorded a charge for goodwill impairment of $ 9.1 million related to the IIP Acquisition.

impairment is related to a change in the IIP Acquisition’s current and projected operating income as well as various market inputs based on current market conditions, including the higher interest rate environment.

years ended December 31, 2023, and December 31, 2022, the Company recorded a charge for goodwill impairment of $ 15.8 million and $ 9.1 million respectively, related to an IIP Acquisition.

The impairment is related to a change in an IIP subsidiary’s current and projected operating

income as well as various market inputs based on current market conditions.

Intangible Assets, net

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

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

As of the Year Ended

December 31, 2023

December 31, 2022

Customer and referral relationships, net of accumulated amortization of $ 23,736 and $ 17,762 , respectively

(weighted average amortization period 12.9 years)

Non-compete agreements, net of accumulated amortization of $ 6,999 and $ 6,450 respectively (weighted average

amortization period 5.6 years)

(In thousands)

Customer and referral relationships

Non-compete agreements

Tradenames, customer and referral relationships and non-compete agreements are related to the businesses acquired.

The value assigned to tradenames has an indefinite

life and is tested at least annually for impairment using the relief from royalty method in conjunction with the Company’s annual goodwill impairment test.

The value assigned to customer and referral relationships is being amortized over their

respective estimated useful lives which range from 6 to 16 years .

The value assigned to tradenames has an indefinite life and is tested at least annually

for impairment using the relief from royalty method in conjunction with the Company’s annual goodwill impairment test.

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

range from 6 to 14 years .

Non-compete agreements are amortized over the respective term of the agreements which range from 5 to 6 years .

The following table details the amount of amortization expense recorded for intangible assets for the years ended December 31, 2022, 2021 and 2020 (in thousands):

The weighted average amortization period for customer and referral relationships was 12.7 years for the year ended December 31, 2023 and 12.9 years for the year

ended December 31, 2022.

The weighted average amortization period for non-compete agreements was 5.6 years for the years ended

December 31, 2023, and December 31, 2022.

During the year ended December 31, 2023, the Company recognized a charge of $ 1.7 million

related to the impairment of a tradename related to an IIP acquisition.

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

For the Year Ended

December 31, 2023

1 unchanged sentence

December 31, 2021

Customer and referral relationships

Non-compete agreements

The remaining balances of the customer and referral relationships and non-compete agreements are expected to be amortized as follows (in thousands):

(In thousands)

Customer and referral relationships

Non-compete agreements

Annual Amount

Ending December 31,

The remaining balances of the customer and referral relationships and non-compete agreements are expected to be amortized as follows.

For the Year Ended December 31,

Referral Relationships

(In thousands)

Accrued Expenses

Accrued expenses as of December 31, 2022

and 2021 consisted of the following (in thousands):

Accrued expenses consisted of the following.

As of the Year Ended

December 31, 2023

December 31, 2022

(In thousands)

Salaries and related costs

1 unchanged sentence

Group health insurance claims

Federal income taxes payable

Contingency payable

Other property taxes payable

Interest payable

Closure costs

Federal taxes payable

Contingent payments related to acquisition

Settlement of a legal matter

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 $ 2.8 million, of which $ 2.6 million was recorded as an expense in 2021.

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

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”).

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 December 31, 2022, and December 31, 2021 consisted of the following (in thousands):

Amounts outstanding under the Credit Agreement (as defined above) and notes payable consisted of the following.

As of the Year Ended

December 31, 2023

December 31, 2022

debt issuance

Revolving Facilitiy

Unamortized Debt

Issuance Cost

Unamortized Debt

Issuance Cost

(In thousands)

Term Facility

Current portion of long-term debt

Total long-term debt, net of current portion

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

Revolving Facilitiy

Current portion of long-term

Long-term debt, net of current portion

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

Effective December 5,

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

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

On June 17, 2022, the Company entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”) among Bank of

America, N.A., as administrative agent (“Administrative Agent”) and the lenders from time-to-time party thereto.

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

Such loans were made available through the following facilities (collectively, the “Senior Credit Facilities”):

10 unchanged sentences

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.

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.

Company is also required to pay to the Administrative Agent, for the account of each lender under the Revolving Facility, a commitment fee equal to the actual daily excess of each lender’s commitment over its outstanding credit exposure under

the Revolving Facility (“unused fee”).

The applicable margin for Term SOFR borrowings ranges from 1.50 % to 2.25 %, and the applicable margin for alternate base rate borrowings ranges from 0.50 % to 1.25 %, in each case, based on the Consolidated Leverage Ratio of the Company and its

subsidiaries.

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

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

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

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

The Company may prepay and/or repay the revolving loans and the

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

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

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

thresholds and baskets.

The 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

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 December 31, 2023, $ 144.4

million was outstanding on the Senior Credit Facilities, resulting in $ 145.9 million of availability.

As of December 31, 2022, the

Company was in compliance with all of the covenants contained in the Credit Agreement.

million was outstanding on the Term Facility while none was outstanding under the Revolving Facility resulting in $ 175.0 million of credit availability.

As of December 31, 2023, the Company was in compliance with all of the covenants contained in the Credit

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 $ 4.6 million of which an aggregate principal payment of $ 0.2 million is due in 2023, and $ 2.0

million is due in 2024.

Interest accrues in the range of 3.25 % to 7.0 % per annum and is payable with each principal installment.

In conjunction with these

transactions in 2023 and 2022, the Company entered into notes payable in the aggregate amount of $ 4.7 million of which an aggregate

principal payment of $ 0.9 million was paid in 2023, $ 2.5 million is due in 2024, and $ 1.3 million is due in 2025.

Interest accrues

in the range of 3.25 % to 7.0 %

per annum and is payable with each principal installment.

Derivative Instruments

10 unchanged sentences

The swap has 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.

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

Beginning in July 2022, the Company receives a 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 year ended December

31, 2022, and 2021 are presented in the table below (in thousands):

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.

Savings from the interest rate swap arrangement totaled $ 3.3

million for the year ended December 31, 2023, and less than $ 0.1 million for the year ended December 31, 2022.

These savings reduce the

amount of interest expense, debt and other in the accompanying consolidated statements of income.

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

For the Year Ended

1 unchanged sentence

December 31, 2022

Other comprehensive loss

Unrealized gain on cash flow hedge

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

(In thousands)

Other comprehensive (loss) gain

Unrealized (loss) gain on cash flow hedge

Tax effect at statutory rate (federal and state)

Comprehensive income

1 unchanged sentence

Comprehensive income attributable to USPH shareholders

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

yield curves.

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

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

As of the Year Ended

December 31, 2023

December 31, 2022

Interest rate swap:

(In thousands)

Other current assets

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

The Company determines if an arrangement is a

lease at the inception of a contract.

Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent net present value of the Company’s obligation to make lease payments

arising from the lease.

The Company determines if an arrangement is a lease at the

inception of a contract.

Right-of-use assets and operating lease liabilities are recognized at commencement date based on the net present value of the fixed lease payments over the lease term.

2 unchanged sentences

As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Operating fixed lease expense is recognized on a straight-line basis over the lease term.

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

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

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

lease components.

The Company has elected the practical expedient to account for separate lease components of a contract as a single lease cost thus causing all fixed payments to be capitalized.

Non-lease and variable cost components are not included

in the measurement of the right-of-use assets or operating lease liabilities.

The Company also elected the package of practical expedients permitted within ASC 842, which among other things, allows the Company to carry forward historical lease

classification.

Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage are not included in the right-of-use assets or operating lease

Operating fixed lease expense is recognized on a straight-line basis over the lease term.Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or

usage are not included in the right-of-use assets or operating lease liabilities.

These are expensed as incurred and recorded as variable lease expense.

For the years ended December 31, 2022, 2021 and 2020, the components of

lease expense were as follows (in thousands):

The components of lease expense were as follows.

For the Year Ended

December 31, 2023

1 unchanged sentence

December 31, 2021

(In thousands)

Operating lease cost

3 unchanged sentences

Sublease income was immaterial.

Lease costs are reflected in the consolidated statements of net income in

the line item—rent, supplies, contract labor and other.

For the years ended December 31, 2022, 2021 and 2020, supplemental cash

flow information related to leases was as follows (in thousands):

Lease costs are reflected in the consolidated statements of net income in the

line item — rent, supplies, contract labor and other.

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

For the Year Ended

December 31, 2023

1 unchanged sentence

December 31, 2021

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

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

The aggregate

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

(In thousands)

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

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

The aggregate future lease payments for

operating leases as of December 31, 2023, were as follows.

(In thousands)

2028 and thereafter

3 unchanged sentences

Average lease terms and discount rates were as follows:

As of the Year Ended

December 31, 2023

1 unchanged sentence

December 31, 2021

Weighted-average remaining lease term - Operating leases

Weighted-average discount rate - Operating leases

Significant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31, 2022 and

2021 were as follows (in thousands):

Weighted-average remaining lease term

Weighted-average discount rate

Significant components of deferred tax assets and liabilities included in the consolidated balance sheets as of the periods below were as follows.

As of the Year Ended

December 31, 2023

December 31, 2022

(In thousands)

Deferred tax assets:

6 unchanged sentences

Gain on cash flow hedge

Change in revaluation of put-right liability

Deferred tax liabilities

Net deferred tax liability

Net deferred tax liabilities

The deferred tax assets and liabilities related to purchased interests not yet finalized may result in an immaterial adjustment.

During 2022, the Company recorded net deferred tax assets of $ 0.4 million related to the revaluation of redeemable non-controlling interests and acquisitions of non-controlling interests.

In addition, during 2022, the Company recorded an

adjustment to the deferred tax assets of $ 0.3 million as a result of a detailed reconciliation of its federal and state taxes payable and

receivable accounts along with its federal and state deferred tax asset and liability accounts with its federal and state tax returns for 2021.

The offset of this adjustment was an increase to the previously reported state income tax receivable and

to federal income tax.

As of December 31, 2022, the Company has a federal tax receivable of $ 3.9 million and state tax receivables of $ 0.7 million.

The federal and state income tax receivable is included in other current assets on the accompanying consolidated balance sheets.

The differences between the federal tax rate and the Company’s effective tax rate for the years ended December 31, 2022, 2021 and

2020 were as follows (in thousands):

As of December 31, 2023, the Company has a federal tax payable of $ 1.0 million and state tax receivables of $ 2.1 million.

The federal and state

income tax receivable is included in other current assets on the accompanying consolidated balance sheets.

The differences between the federal tax rate and the Company’s effective tax rate for the years ended December 31, were as follows for the periods

For the Year Ended

December 31, 2023

1 unchanged sentence

December 31, 2021

(In Thousands)

tax at statutory rate

2 unchanged sentences

Non-deductible expenses

Significant components of the provision for income taxes for the years ended December 31, 2022, 2021 and 2020 were as follows (in

Return to provision adjustments

Significant components of the provision for income taxes were as follows for the periods presented.

For the Year Ended

December 31, 2023

1 unchanged sentence

December 31, 2021

(In Thousands)

Total current

1 unchanged sentence

Total income tax provision

For 2022, 2021 and 2020, the Company performed a detailed reconciliation of its federal and state taxes payable and receivable

accounts along with its federal and state deferred tax asset and liability accounts.

The adjustments were immaterial.

Each year, the Company

performs a detailed reconciliation of its federal and state taxes payable and receivable accounts along with its federal and state deferred tax asset and liability accounts.

This process resulted in a $ 1.0 million increase in income tax expense in 2023.

The Company considers this reconciliation process to be an annual control.

The Company is required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it

is more likely than not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary

differences become deductible.

The Company is required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely

than not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences

become deductible.

Management considers the projected future taxable income and tax planning strategies in making this assessment.

Based upon the level of historical taxable income and projections for future taxable income in the periods

which the deferred tax assets are deductible, management believes that a valuation allowance is not required, as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax

Based upon the level of historical taxable income and projections for future taxable income in the periods which the

deferred tax assets are deductible, management believes that a valuation allowance is not required, as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

The Company’s U.S.

1 unchanged sentence

state jurisdictions are open for periods ranging from 2019 through 2022 .

The Company does not believe that it has any significant uncertain tax positions at December 31, 2022 and December 31, 2021, nor is

this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation.

The Company did no t

have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the years ended December 31, 2022, 2021 and 2020.

The Company does not believe that it has any significant uncertain tax positions at December 31, 2023 and December 31, 2022, nor is this expected to

change within the next twelve months due to the settlement and expiration of statutes of limitation.

The Company did no t have any

accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the years ended December 31, 2023, 2022 and 2021.

Segment Information

The Company’s reportable segments include the physical therapy

operations segment and the industrial injury prevention services segment.

Also included in the physical therapy operations segment are revenues from management contract services and other services which include services the Company provides

on-site, such as schools for athletic trainers .

The Company evaluates performance of the segments based on gross

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

the IIP segment.

Also included in the physical therapy operations segment are revenues from management contract services and other services which include services the Company provides on-site, such as athletic

trainers for schools .

Physical Therapy Operations

The physical therapy operations segment primarily operates through subsidiary clinic partnerships (“Clinic Partnerships”), in which the Company generally owns a 1 % general partnership interest in all the Clinic Partnerships.

The Company’s limited partnership interests generally range from 65 % to 75 % (the range is 10 % - 99 %) in the Clinic Partnerships.

The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of the clinics (hereinafter referred to as “Clinic Partnerships”).

To a lesser extent, the Company operates some clinics,

through wholly-owned subsidiaries, under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”).

The Company continues to seek to attract for employment physical therapists who have established relationships with physicians and other referral sources, by offering these therapists a competitive salary and incentives

based on the profitability of the clinic that they manage.

For multi-site clinic practices in which a controlling interest is acquired by the Company, the prior owners typically continue on as employees to manage the clinic operations, retain a

non-controlling ownership interest in the clinics and receive a competitive salary for managing the clinic operations.

In addition, the Company has developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned

Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic

Besides the multi-clinic acquisitions referenced in the table above, during 2023 and 2022, we purchased the assets and businesses of nine and three physical therapy clinics, respectively, in separate transactions.

Clinic Partnerships

For non-acquired Clinic Partnerships, the earnings and liabilities attributable to the non-controlling interests, typically owned by the managing therapist, directly or indirectly, are recorded within the balance sheets and

income statements as non-controlling interest—permanent equity .

For acquired Clinic Partnerships with redeemable non-controlling interests, the earnings attributable to the redeemable non-controlling

interests are recorded within the consolidated balance sheets and income statements as redeemable non-controlling interest—temporary equity .

Wholly-Owned Facilities

For Wholly-Owned Facilities with profit sharing arrangements, an appropriate accrual is recorded for the amount of profit sharing due the clinic partners/directors.

The amount is expensed as compensation and included in

clinic operating costs—salaries and related costs.

The respective liability is included in current liabilities— accrued expenses on the consolidated balance sheets.

Industrial Injury Prevention Services

Services provided in the IIP segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, and ergonomic assessments.

The majority of

these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies.

Other clients include large insurers and their contractors.

The Company performs these services through Industrial Sports Medicine

Professionals, consisting primarily of specialized certified athletic trainers (“ATCs”).

October 31, 2023, the Company purchased a 100 % interest in an IIP business and a 55 % equity interest in an ergonomics software business for a total purchase price of approximately $ 4.0 million.

Segment Financials

evaluates the performance of the segments based on gross profit.

The Company has provided additional information regarding its reportable segments which contributes to the understanding of the Company and provides useful information.

T he following table summarizes selected financial data for the

Company’s reportable segments.

Prior year results presented herein have been changed to conform to the current presentation .

December 31, 2022

December 31, 2021

December 31, 2020

Net operating revenue:

T he following table summarizes selected financial data for the Company’s reportable segments.

year results presented herein have been changed to conform to the current presentation .

For the Year Ended December 31,

( In thousands)

Physical therapy operations

1 unchanged sentence

Total Company

Operating Costs:

Salaries and related costs:

Physical therapy operations

Industrial injury prevention services

Total salaries and related costs

Rent supplies, contract labor

Physical therapy operations

Industrial injury prevention services

Total rent, supplies, contract labor and other

Provision for credit losses:

Physical therapy operations

Industrial injury prevention services

Total provision for credit losses

Total Company

Gross profit:

1 unchanged sentence

Industrial injury prevention services

Total Company

Total Assets:

3 unchanged sentences

Investment in Unconsolidated Affiliate

Through one of its subsidiaries, the Company has a 49 % joint venture interest in a company which provides physical therapy services for patients at hospitals.

Since the Company is deemed to not have a controlling interest in the company, the Company’s investment is accounted for using the equity method of accounting.

The investment balance of this joint venture as of December 31, 2022, is $ 12.1 million and the earnings amounted to $ 1.2

Through one of its subsidiaries, the Company has a 49 %

joint venture interest in a company which provides physical therapy services for patients at hospitals.

The Company is deemed to not have a controlling interest in the company, and therefore the Company’s investment is accounted for using the equity method of accounting.

The investment balance of this joint venture as of December 31, 2023, is $ 12.3 million and the earnings amounted to approximately $ 1.0 million.

The investment balance of this joint venture as of December 31, 2022, was $ 12.1

million and the earnings amounted to approximately $ 1.2 million .

Equity Based Plans

The Company has the following equity-based plans with outstanding equity grants:

The Amended and Restated 1999 Employee Stock Option Plan (the “Amended 1999 Plan”) permits the Company to grant to non-employee

directors and employees of the Company up to 600,000 non-qualified options to purchase shares of common stock and restricted stock

(subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions).

Stock-based compensation expense was approximately $ 7.2

million, $ 7.3 million, and $ 7.8

million for the years ended December 31, 2023, 2022 and 2021 respectively.

As of December 31, 2023, the remaining $ 9.8 million of

compensation expense will be recognized over a weighted average period of 1.75 years.

Stock Incentive Plans

Amended and Restated 1999 Employee Stock Option Plan

The Amended and Restated 1999 Employee Stock Option Plan (the “Amended 1999 Plan”) permits the Company to grant to non-employee directors and employees of the Company up to 600,000 non-qualified options to purchase shares of common stock and restricted stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate

transactions).

The exercise prices of options granted under the Amended 1999 Plan are determined by the Compensation Committee.

The period within

which each option will be exercisable is determined by the Compensation Committee.

The Amended 1999 Plan was approved by the shareholders of the Company at the 2008 Shareholders Meeting on May 20, 2008.

The Amended and Restated 2003 Stock Option Plan (the “Amended 2003 Plan”) permits the Company to grant to key employees and outside

directors of the Company incentive and non-qualified options and shares of restricted stock covering up to 2,600,000 shares of common

stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions).

The material terms of the Amended 2003 Plan was reapproved by the shareholders of the Company at the 2015 Shareholders Meeting

on May 19, 2015 and an increase in the number of shares authorized for issuance from 2,100,000 to 2,600,000 was approved at the 2022 Shareholders Meeting on March 17, 2022.

A cumulative summary of equity plans as of December 31, 2022 follows:

Stock Options

Shares Available

Stock Options

Amended 1999 Plan

Amended 2003 Plan

During 2022, 2021 and 2020, the Company granted the following shares of restricted stock to directors, officers and employees

pursuant to its equity plans as follows:

The period within which each option will be exercisable is determined by the Compensation Committee.

As of December 31,

2023, there were less than 0.1 million shares remaining that can be subject to new awards under the Amended 1999 Plan.

Amended and Restated 2003 Stock Option Plan

The Amended and Restated 2003 Stock Option Plan (the “Amended 2003 Plan”) permits the Company to grant to key employees and outside directors of the Company incentive and non-qualified options and shares of restricted stock covering up to 2,600,000 shares of common stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions).

December 31, 2023, there were 0.5 million shares remaining that can be subject to new awards under the Amended 2003 Plan.

Restricted Stock Awards

During 2023, 2022 and 2021, the Company granted the following shares

of restricted stock to directors, officers, and employees pursuant to its equity plans as follows:

Weighted Average Fair

11 unchanged sentences

following the date of grant.

There were 124,939

and 102,682 shares outstanding as of December 31, 2022, and December 31, 2021, respectively, for which restrictions had not lapsed.

restrictions will lapse in 2023 through 2026 .

Compensation expense for grants of restricted stock is recognized based on the fair value on the date of grant.

Compensation expense

for restricted stock grants was $ 7.3 million, $ 7.8

million, and $ 7.9 million, respectively, for 2022, 2021 and 2020.

As of December 31, 2022, the remaining $ 9.8 million of compensation expense will be recognized from 2023 through 2026.

There were 124,638 and 124,939 shares outstanding as of December 31, 2023, and December 31, 2022, respectively, for which restrictions had not lapsed.

The restrictions will

lapse from 2024 through 2027 .

Preferred and Common Stock

Preferred Stock

The Board is empowered, without approval of the shareholders, to cause shares of preferred stock to be issued in one or more series

and to establish the number of shares to be included in each such series and the rights, powers, preferences and limitations of each series.

There are no provisions in the Company’s Articles of Incorporation specifying the vote required by the

holders of preferred stock to take action.

All such provisions would be set out in the designation of any series of preferred stock established by the Board.

The bylaws of the Company specify that, when a quorum is present at any meeting, the vote of

the holders of at least a majority of the outstanding shares entitled to vote who are present, in person or by proxy, shall decide any question brought before the meeting, unless a different vote is required by law or the Company’s Articles of

Incorporation.

Because the Board has the power to establish the preferences and rights of each series, it may afford the holders of any series of

preferred stock, preferences, powers, and rights, voting or otherwise, senior to the right of holders of common stock.

The Board is empowered, without approval of the shareholders, to cause shares of preferred stock to be issued in one or more series and to establish the number of shares to be included in each such series and the rights, powers, preferences, and

limitations of each series.

There are no provisions in the Company’s Articles of Incorporation specifying the vote required by the holders of preferred stock to take action.

All such provisions would be set out in the designation of any series of

preferred stock established by the Board.

The bylaws of the Company specify that, when a quorum is present at any meeting, the vote of the holders of at least a majority of the outstanding shares entitled to vote who are present, in person or by

proxy, shall decide any question brought before the meeting, unless a different vote is required by law or the Company’s Articles of Incorporation.

Because the Board has the power to establish the preferences and rights of each series, it may afford the holders of any series of preferred stock, preferences, powers, and rights, voting or otherwise, senior to the right of holders of common

The issuance of the preferred stock could have the effect of delaying or preventing a change in control of 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.

In March 2009, the Board authorized the repurchase of up to

10 % or approximately 1,200,000

shares of its common stock (“March 2009 Authorization”).

The Amended Credit Agreement permits share repurchases of up to $ 15,000,000 ,

subject to compliance with covenants.

The Company is required to retire shares purchased under the March 2009 Authorization.

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.

In March 2009, the Board authorized the repurchase of up to 10 % or approximately 1,200,000 shares of

its common stock (“March 2009 Authorization”).

Under the March 2009 Authorization, the Company has purchased a total of 859,499 shares.

There is no expiration date for the share repurchase program.

There are currently an additional estimated 185,117 shares (based on the closing price of $ 81.03 on December 30, 2022, the

last business day in 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 is required to retire shares purchased under the March 2009 Authorization.

In November 2023, the Board terminated the March 2009 Authorization such that any such proposed repurchase of our common stock would be considered

and determined by the Board at such time.

The Company did no t purchase any shares of its common stock during 2023, 2022 or 2021.

In May 2023, the Company completed a secondary offering of 1,916,667 shares of its common stock at an offering price of $ 90.00 per share.

Upon completion of the

offering, the Company received net proceeds of approximately $ 163.6 million, after deducting an underwriting discount of $ 8.6 million and recognizing related fees and expenses of $ 0.2

A portion of the net proceeds was used to repay the $ 35.0 million then outstanding under the Company’s credit facility while the

remainder is expected to be used primarily for additional acquisitions.

Defined Contribution Plan

4 unchanged sentences

make any discretionary contributions for the years ended December 31, 2023, 2022 and 2021.

The Company matching contributions totaled $ 2.0 million, $ 1.9 million and $ 1.9 million, respectively, for the years ended December 31, 2022, 2021 and 2020.

Commitments and Contingencies

Employment Agreements

On December 31, 2022, the

Company had outstanding employment agreements with five of its executive officers.

Each of the agreements have a two-year term, however, each of these agreements provide for an automatic two-year renewal at the conclusion of the expiring term or renewal term.

In addition, the Company

has outstanding employment agreements with most of the managing physical therapist partners of the Company’s physical therapy clinics and with certain other clinic employees which obligate subsidiaries of the Company to pay compensation of $ 58.6 million in 2023 and $ 5.7 million in

In addition, many of the employment agreements with the managing physical therapists provide for monthly bonus payments calculated as a percentage of each clinic’s net revenues (not in excess of operating profits) or operating profits.

The Company matching contributions totaled $ 2.2 million, $ 2.0 million and $ 1.9 million, respectively, for the years ended

December 31, 2023, 2022 and 2021.

Contingencies

The Company is a party to various legal actions, proceedings, and claims (some of which are

not insured), and regulatory and other governmental audits and investigations in the ordinary course of our business.

Prior Florida Legal Matter

In 2019, a qui tam lawsuit (“the Complaint”) was filed by a relator on behalf of the United States against the Company and one of our Florida majority-owned subsidiaries (the “Hale Partnership”).

This whistleblower lawsuit was filed in the U.S.

District Court for the Southern District of Texas, seeking damages and civil penalties under the federal False Claim Act.

The U.S Government declined to intervene in the case and unsealed the Complaint in July 2019.

The Complaint alleged that the

Hale Partnership engaged in conduct to purposely “upcode” its billings for services provided to Medicare patients.

The plaintiff-relator also claimed that similar false claims occurred on other days and at other Company-owned partnerships.

In January 2022, the Company entered into a settlement agreement with the plaintiff-relator.

In the settlement agreement, the plaintiff-relator released all defendants from liability for all conduct alleged in the Complaint, and the Company admitted no liability or wrongdoing.

In connection with the settlement, the Office of the United

States Attorney for the Southern District of Texas agreed to a dismissal of the claims against the Hale Partnership and the Company.

Under the terms of the settlement, the Company agreed to make aggregate payments to the government, the

plaintiff-relator and her counsel of $ 2.8 million.

Party Transactions

Settlement of Short Swing

For the year ended December 31, 2021, the Company recorded approximately $ 20,000 related to the short swing profit settlement remitted by a shareholder of the Company under Section 16(b) of the Securities Exchange Act of 1934, as amended.

recognized the proceeds as an increase to additional paid-in-capital in the consolidated balance sheets as of December 31, 2021, and consolidated statements of stockholder’s equity, as well as in cash provided by financing activities included in

Other, in the consolidated statements of cash flows, for the year ended December 31, 2021.

Reclassification of Prior Period Presentation

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

presentation.

These reclassifications had no effect on the reported results of operations.

For the year ended December 31, 2021, the Company recorded

approximately $ 20 ,000 related to the short swing profit settlement remitted by a shareholder of the Company under Section 16(b) of the

Securities Exchange Act of 1934, as amended.

The Company recognized the proceeds as an increase to additional paid-in-capital in the consolidated balance sheets as of December 31, 2021, and consolidated statements of stockholder’s equity, as well

as in cash provided by financing activities included in Other, in the consolidated statements of cash flows, for the year ended December 31, 2021.

Subsequent Event

On February 28, 2023, the Company

acquired an 80 % interest in a physical therapy clinic with the previous owner retaining 20 %.

The purchase price was approximately $ 6.2 million, of which

$ 5.8 million was paid in cash, and $ 0.4

million is in the form of a note payable.

The note accrues interest at 4.5 % per annum and the principal and interest is payable on

February 28, 2025.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE.

On February 27, 2024, the Company’s Board of Directors declared a dividend of $ 0.44 per share which will be paid

on April 5, 2024 to shareholders of record as of March 12, 2024 .

CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule

13a-15(e) promulgated under the Exchange Act) as of the end of the fiscal period covered by this report.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and

procedures are effective in ensuring that the information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms

of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act.

Therapy, Inc.

and subsidiaries’ (the “Company”) internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external

purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and

expenditures are being made only in accordance with authorizations of the Company’s management and directors; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations.

Internal control over financial reporting

is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures.

Internal control over financial reporting can also be circumvented by collusion or improper management

Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.

Also, projections of any evaluation of effectiveness to future

periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

However, these inherent limitations are known features of the

financial reporting process.

Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk.

Management conducted an assessment of the effectiveness of our internal control over financial reporting as of

December 31, 2023.

In making this assessment, management used the criteria described in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment,

management concluded that our internal control over financial reporting was effective as of December 31, 2023.

The Company’s internal control over financial reporting has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report included on page 40.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control

over financial reporting.

OTHER INFORMATION.

Not applicable.

DISCLOSURE REGARDING FOREIGN JURISDICATIONS THAT PREVENT INSPECTION

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required in response to this Item 10 is incorporated herein by reference to our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders to be filed with the

SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.

EXECUTIVE COMPENSATION

The information required in response to this Item 11 is incorporated herein by reference to our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders to be filed with the

SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMEMNT AND RELATED STOCKHOLDER MATTERS

The information required in response to this Item 12 is incorporated herein by reference to our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders to be filed with the

SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required in response to this Item 13 is incorporated herein by reference to our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders to be filed with the

SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required in response to this Item 14 is incorporated herein by reference to our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders to be filed with the

SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Documents filed as a part of this report:

Financial Statements

Reference is made to the Index to Financial Statements and Related Information under Item 8 in Part II hereof, where these documents are listed.

Financial Statement Schedules

See page 85 for Schedule II — Valuation and Qualifying Accounts.

All other schedules are omitted because of the absence of conditions under which they are required or because the required information is shown in the financial statements or notes thereto.

The exhibits listed in List of Exhibits on the next page are filed or incorporated by reference as part of this report.

EXHIBIT INDEX

LIST OF EXHIBITS

Underwriting Agreement, dated May 24, 2023, by and between U.S.

Physical Therapy, and BofA Securities, Inc.

Morgan Securities LLC., as

representatives of the several underwriters named therein.

[incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 25, 2023.]

Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference].

Amendment to the Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference].

Bylaws of the Company, as amended [filed as an exhibit to the Company’s Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference—Commission File Number—1-11151].

Description of Company Securities [filed herewith the Company’s Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.]

1999 Employee Stock Option Plan (as amended and restated May 20, 2008) [incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 17, 2008].

Physical Therapy, Inc.

2003 Stock Incentive Plan, (as amended and restated effective March 26, 2016) [incorporated herein by reference to Appendix A to the Company's Definitive Proxy Statement on Schedule

14A filed with the SEC on April 7, 2016.]

First Amendment to U.S.

Physical Therapy, Inc.

2003 Stock Incentive Plan, (as amended and restated effective March 26, 2016) effective on March 1, 2022 [incorporated herein by reference to Appendix A to the

Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on April 4, 2022.]

Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016].

Objective Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.]

Discretionary Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.]

Third Amended and Restated Employment Agreement by and between the Company and Christopher J.

Reading dated effective May 21, 2019 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on

Form 8-K filed with the SEC on May 22, 2019]

Amended & Restated Employment Agreement commencing by and between the Company and Graham Reeve dated effective May 21, 2019 [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form

8-K filed with the SEC on March 22, 2019]

Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019]

Physical Therapy, Inc.

Objective Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed

with the SEC on March 6, 2020].

Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Christopher Reading [incorporated by reference to Exhibit 10.3 to the Company Current Report on Form 8-K filed

with the SEC on March 26, 2020].

Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Graham Reeve [incorporated by reference to Exhibit 10.4 to the Company Current Report on Form 8-K filed with the

SEC on March 26, 2020].

Employment Agreement by and between the Company and Eric Williams entered into on December 3, 2020 and commencing as of July 1, 2021 [filed by reference to Exhibit 10.1 to the Company Current Report on Form 8-K

filed with the SEC on December 7, 2020.]

Physical Therapy, Inc.

Objective Long-Term Incentive Plan for Senior Management for 2021, effective March 17, 2021 [incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed by U.S.

Physical Therapy, Inc.

on March 16, 2021]

Physical Therapy, Inc.

Discretionary Long-Term Incentive Plan for Senior Management for 2021, effective March 17, 2021 [incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K filed by

Physical Therapy, Inc.

on March 16, 2021]

Third Amended and Restated Credit Agreement dated as of June 17, 2022 among the Company, as the borrower, and Bank of America, N.A., as Administrative Agent, Regions Capital Markets as Syndication Agent, BofA

Securities Inc.

and Regions Capital Markets as Joint Load Arrangers, BofA Securities Inc., as Sole Bookrunner and the lenders named therein.

[incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 10-Q filed

with the SEC on June 21, 2022]

Employment Agreement by and between the Company and Rick Binstein entered into on March 23, 2022 [incorporated by reference to Exhibit 10.1 to the Company Current Report

on Form 8-K filed with the SEC on March 23, 2022]

Physical Therapy, Inc.

Objective Long-Term Incentive Plan for Senior Management for 2022, effective March 14, 2022 [incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed by U.S.

Physical Therapy, Inc.

on March 14, 2022]

Physical Therapy, Inc.

Discretionary Long-Term Incentive Plan for Senior Management for 2022, effective March 14, 2022 [incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K filed by

Physical Therapy, Inc.

on March 14, 2022]

Physical Therapy, Inc.

Objective Cash/RSA Bonus Plan for Senior Management for 2022, effective March 14, 2022 [incorporated by reference to Exhibit 99.3 of the Current Report on Form 8-K filed by U.S.

Physical Therapy, Inc.

on March 14, 2022]

Physical Therapy, Inc.

Discretionary Cash/RSA Bonus Plan for Senior Management for 2022, effective March 14, 2022 [incorporated by reference to Exhibit 99.4 of the Current Report on Form 8-K filed by U.S.

Physical Therapy, Inc.

on March 14, 2022]

Physical Therapy, Inc.

Objective Long-Term Incentive Plan for Senior Management for 2023, effective March 2, 2023 [incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed by U.S.

Physical Therapy, Inc.

on March 8, 2023]

Physical Therapy, Inc.

Discretionary Long-Term Incentive Plan for Senior Management for 2023, effective March 2, 2023 [incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K filed by

Physical Therapy, Inc.

on March 8, 2023]

Physical Therapy, Inc.

Objective Cash/RSA Bonus Plan for Senior Management for 2023, effective March 2, 2023 [incorporated by reference to Exhibit 99.3 of the Current Report on Form 8-K filed by U.S.

Physical Therapy, Inc.

on March 8, 2023]

Physical Therapy, Inc.

Discretionary Cash/RSA Bonus Plan for Senior Management for 2023, effective March 2, 2023 [incorporated by reference to Exhibit 99.4 of the Current Report on Form 8-K filed by U.S.

Physical Therapy, Inc.

on March 8, 2023]

Employment Agreement entered into as of November 9, 2020 by and between U.S.

Physical Therapy and Carey Hendrickson [incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filed with

the SEC on September 23, 2020.]

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting Firm—Grant Thornton LLP

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

Certification of Periodic Report of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C.

Section 1350, as adopted

pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Physical Therapy Compensation Clawback Policy

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith

Management contract or compensatory plan or arrangement.

FINANCIAL STATEMENT SCHEDULE*

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

(In Thousands)

Beginning of Period

Additions Charged

to Costs and Expenses

Additions Charged

to Other Accounts

End of Period

YEAR ENDED DECEMBER 31, 2023 :

Reserves and allowances deducted from asset accounts:

Allowance for credit losses (1)

YEAR ENDED DECEMBER 31, 2022 :

Reserves and allowances deducted from asset accounts:

Allowance for credit losses

YEAR ENDED DECEMBER 31, 2021 :

Reserves and allowances deducted from asset accounts:

Allowance for credit losses

Related to patient accounts receivable and accounts

receivable-other.

Uncollectible accounts written off, net of

All other schedules are omitted because of the absence of conditions under which they are required or because the required information is

shown in the financial statements or notes thereto.

FORM 10-K SUMMARY

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly

PHYSICAL THERAPY, INC.

/s/ Carey Hendrickson

Carey Hendrickson

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

February 29, 2024

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of the

date indicated above.

/s/ Carey Hendrickson

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

February 29, 2024

Carey Hendrickson

Chief Executive Officer, President and Director

(Principal Executive Officer)

February 29, 2024

/s/ Edward L.

Chairman of the Board

February 29, 2024

/s/ Bernard A.

February 29, 2024

/s/ Kathleen A.

February 29, 2024

/s/ Anne Motsenbocker

February 29, 2024

Anne Motsenbocker

/s/ Reginald E.

February 29, 2024

/s/ Clayton K.

February 29, 2024

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-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk