U S PHYSICAL THERAPY INC /NV 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We maintain an interest rate swap arrangement which is considered a derivative instrument. Our indebtedness as of December 31, 2023, was the outstanding balance of seller notes from our acquisitions 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. A 1% change in the interest rate would yield an additional $1.5 million of interest expense. See Note 10 to our consolidated financial statements included in Item 8. 46 Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND RELATED INFORMATION Reports of Independent Registered Public Accounting Firm—Grant Thornton LLP (PCAOB ID Number 248 ) 48 Audited Financial Statements: Consolidated Balance Sheets as of December 31, 2023 and 2022 51 Consolidated Statements of Net Income for the years ended December 31, 2023, 2022 and 2021 52 Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021 53 Consolidated Statements of Changes in Equity for the years ended December 31, 2023, 2022 and 2021 54 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 55 Notes to Consolidated Financial Statements 56 47 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders U.S. Physical Therapy, Inc. Opinion on the financial statements 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, 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, 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 financial reporting 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”), and our report dated February 29, 2024 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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. 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. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Measurement of Patient Revenue Net of Contractual Adjustments 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 satisfied. 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. We identified the measurement of contractual adjustments as a critical audit matter. 48 Table of Contents 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 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, 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. The Company 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 appropriate discount rate, royalty rates, and valuation methodologies applied. • We utilized valuation specialists to evaluate: o The appropriateness of the methodologies applied, o The reasonableness of the discount rate, royalty rates, and o The qualifications of the third-party valuation specialist engaged by the Company based on their credentials and experience. • We assessed the reasonableness of assumptions applied by management in their future cash flows, including revenue growth rates, EBITDA, and EBITDA margins. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2004. Houston, TX February 29, 2024 49 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders U.S. Physical Therapy, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of U.S. Physical Therapy, Inc. (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. 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, 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. 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; 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 statements. 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 February 29, 2024 50 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ( IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS ) December 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 152,825 $ 31,594 Patient accounts receivable, less provision for credit losses of $ 2,736 and $ 2,829 , respectively 51,866 51,934 Accounts receivable - other 17,854 16,671 Other current assets 10,830 11,067 Total current assets 233,375 111,266 Fixed assets: Furniture and equipment 63,982 62,074 Leasehold improvements 46,941 42,877 Fixed assets, gross 110,923 104,951 Less accumulated depreciation and amortization ( 84,821 ) ( 80,203 ) Fixed assets, net 26,102 24,748 Operating lease right-of-use assets 103,431 103,004 Investment in unconsolidated affiliate 12,256 12,131 Goodwill 509,571 494,101 Other identifiable intangible assets, net 109,682 108,755 Other assets 2,821 4,149 Total assets $ 997,238 $ 858,154 LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, USPH SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTEREST Current liabilities: Accounts payable - trade $ 3,898 $ 3,300 Accounts payable - due to seller of acquired business - 3,204 Accrued expenses 55,344 37,413 Current portion of operating lease liabilities 35,252 33,709 Current portion of term loan and notes payable 7,691 7,863 Total current liabilities 102,185 85,489 Notes payable, net of current portion 1,289 1,913 Revolving facility - 31,000 Term loan, net of current portion and deferred financing costs 137,702 142,918 Deferred taxes 24,815 21,303 Operating lease liabilities, net of current portion 76,653 77,934 Other long-term liabilities 2,356 13,029 Total liabilities 345,000 373,586 Redeemable non-controlling interest - temporary equity 174,828 167,515 Commitments and Contingencies U.S. Physical Therapy, Inc. (“USPH”) shareholders’ equity: Preferred stock, $ 0.01 par value, 500,000 shares authorized, no shares issued and outstanding - - Common stock, $ 0.01 par value, 20,000,000 shares authorized, 17,202,291 and 15,216,326 shares issued, respectively 172 152 Additional paid-in capital 281,096 110,317 Accumulated other comprehensive gain 2,782 4,004 Retained earnings 223,772 232,948 Treasury stock at cost, 2,214,737 shares ( 31,628 ) ( 31,628 ) Total USPH shareholders’ equity 476,194 315,793 Non-controlling interest - permanent equity 1,216 1,260 Total USPH shareholders’ equity and non-controlling interest - permanent equity 477,410 317,053 Total liabilities, redeemable non-controlling interest, USPH shareholders’ equity and non-controlling interest - permanent equity $ 997,238 $ 858,154 The accompanying notes are an integral part of these Consolidated Financial Statements. 51 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF NET INCOME ( IN THOUSANDS, EXCEPT PER SHARE AMOUNTS ) For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Net patient revenue $ 514,556 $ 464,590 $ 438,330 Other revenue 90,246 88,554 56,692 Net revenue 604,802 553,144 495,022 Operating cost: Salaries and related costs 353,390 319,191 278,469 Rent, supplies, contract labor and other 123,731 116,381 94,066 Provision for credit losses 6,172 5,548 5,305 Total operating cost 483,293 441,120 377,840 Gross profit 121,509 112,024 117,182 Corporate office costs 51,953 46,111 46,533 Impairment of goodwill and other intangible assets 17,495 9,112 - Operating income 52,061 56,801 70,649 Other (expense) income Interest expense, debt and other ( 9,303 ) ( 5,779 ) ( 942 ) Interest income from investments 3,774 - - Change in fair value of contingent earn-out consideration ( 1,550 ) 2,520 - Change in revaluation of put-right liability 2,582 ( 5 ) - Equity in earnings of unconsolidated affiliate 955 1,175 112 Relief Funds 467 - 4,597 Settlement of a legal matter - - ( 2,635 ) Resolution of a payor matter - - 1,216 Other 390 859 199 Total other (expense) income ( 2,685 ) ( 1,230 ) 2,547 Income before taxes 49,376 55,571 73,196 Provision for income taxes 12,156 12,164 15,272 Net income 37,220 43,407 57,924 Less: Net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity ( 4,426 ) ( 6,902 ) ( 11,358 ) Non-controlling interest - permanent equity ( 4,555 ) ( 4,347 ) ( 5,735 ) ( 8,981 ) ( 11,249 ) ( 17,093 ) Net income attributable to USPH shareholders $ 28,239 $ 32,158 $ 40,831 Basic and diluted earnings per share attributable to USPH shareholders $ 1.28 $ 2.25 $ 2.41 Shares used in computation - basic and diluted 14,188 12,985 12,898 Dividends declared per common share $ 1.72 $ 1.64 $ 1.46 The accompanying notes are an integral part of these Consolidated Financial Statements. 52 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS) Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Net income $ 37,220 $ 43,407 $ 57,924 Other comprehensive loss Unrealized (loss) gain on cash flow hedge ( 1,642 ) 5,378 - Tax effect at statutory rate (federal and state) 420 ( 1,374 ) - Comprehensive income $ 35,998 $ 47,411 $ 57,924 Comprehensive income attributable to non-controlling interest ( 8,981 ) ( 11,249 ) ( 17,093 ) Comprehensive income attributable to USPH shareholders $ 27,017 $ 36,162 $ 40,831 The accompanying notes are an integral part of these Consolidated Financial Statements. 53 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY ( IN THOUSANDS ) U.S. Physical Therapy, Inc. Common Stock Additional Accumulated Other Retained Treasury Stock Total Shareholders’ Non-Controlling Shares Amount Paid-In Capital Comprehensive Gain Earnings Shares Amount Equity Interests Total Balance January 1, 2021 15,066 $ 151 $ 95,622 $ - $ 212,015 ( 2,215 ) $ ( 31,628 ) $ 276,160 $ 1,470 $ 277,630 Net income attributable to USPH shareholders - - - - 40,831 - - 40,831 - 40,831 Net income attributable to non-controlling interest - permanent equity - - - - - - - - 5,735 5,735 Issuance of restricted stock, net of cancellations 60 - - - - - - - - - Revaluation of redeemable non-controlling interest - - - - ( 9,686 ) - - ( 9,686 ) - ( 9,686 ) Purchase of non-controlling interest - - ( 918 ) - - - - ( 918 ) ( 60 ) ( 978 ) Sale of non-controlling interest - - 96 - - - - 96 2 98 Compensation expense - equity-based awards - - 7,867 - - - - 7,867 - 7,867 Dividends paid to USPH shareholders - - - - ( 18,765 ) - - ( 18,765 ) - ( 18,765 ) Distributions to non-controlling interest partners - permanent equity - - - - - - - - ( 5,572 ) ( 5,572 ) Short swing profit settlement - - 20 - - - - 20 - 20 Other - - 1 - - - - 1 - 1 Balance December 31, 2021 15,126 $ 151 $ 102,688 $ - $ 224,395 ( 2,215 ) $ ( 31,628 ) $ 295,606 $ 1,575 $ 297,181 U.S. Physical Therapy, Inc. Common Stock Additional Accumulated Other Retained Treasury Stock Total Shareholders’ Non-Controlling Shares Amount Paid-In Capital Comprehensive Gain Earnings Shares Amount Equity Interests Total Balance January 1, 2022 15,126 $ 151 $ 102,688 $ - $ 224,395 ( 2,215 ) $ ( 31,628 ) $ 295,606 $ 1,575 $ 297,181 Net income attributable to USPH shareholders - - - - 32,158 - - 32,158 - 32,158 Net income attributable to non-controlling interest - permanent equity - - - - - - - - 4,347 4,347 Issuance of restricted stock, net of cancellations 90 1 - - - - - 1 - 1 Revaluation of redeemable non-controlling interest - - - - ( 2,896 ) - - ( 2,896 ) - ( 2,896 ) Purchase of non-controlling interest - - ( 353 ) - - - - ( 353 ) ( 101 ) ( 454 ) Compensation expense - equity-based awards - - 7,264 - - - - 7,264 - 7,264 Transfer of compensation liability for certain stock - - 707 - - - - 707 - 707 Dividends paid to USPH shareholders - - - - ( 21,321 ) - - ( 21,321 ) - ( 21,321 ) Distributions to non-controlling interest partners - permanent equity - - - - - - - - ( 5,246 ) ( 5,246 ) Deferred taxes related to redeemable non-controlling interest - temporary equity - - - - 613 - - 613 - 613 Other comprehensive gain - - - 4,004 - - - 4,004 - 4,004 Other - - 11 - ( 1 ) - - 10 685 695 Balance December 31, 2022 15,216 $ 152 $ 110,317 $ 4,004 $ 232,948 ( 2,215 ) $ ( 31,628 ) $ 315,793 $ 1,260 $ 317,053 U.S. Physical Therapy, Inc. Common Stock Additional Accumulated Other Retained Treasury Stock Total Shareholders’ Non-Controlling Shares Amount Paid-In Capital Comprehensive Loss Earnings Shares Amount Equity Interests Total Balance January 1, 2023 15,216 $ 152 $ 110,317 $ 4,004 $ 232,948 ( 2,215 ) $ ( 31,628 ) $ 315,793 $ 1,260 $ 317,053 Net income attributable to USPH shareholders - - - - 28,239 - - 28,239 - 28,239 Net income attributable to non-controlling interest - permanent equity - - - - - - - - 4,555 4,555 Issuance of restricted stock, net of cancellations 70 - - - - - - - - - Issuance of common stock, pursuant to the secondary public offering, net of issuance costs 1,916 20 163,626 - - - - 163,646 - 163,646 Revaluation of redeemable non-controlling interest - - - - ( 13,564 ) - - ( 13,564 ) - ( 13,564 ) Compensation expense - equity-based awards - - 7,236 - - - - 7,236 - 7,236 Sale of non-controlling interest - - - - - - - - 4 4 Purchase of partnership interests - non-controlling interest - - ( 83 ) - - - - ( 83 ) ( 36 ) ( 119 ) Dividends payable to USPH shareholders - - - - ( 24,128 ) - - ( 24,128 ) - ( 24,128 ) Distributions to non-controlling interest partners - permanent equity - - - - - - - - ( 4,567 ) ( 4,567 ) Deferred taxes related to redeeemable non-controlling interest - temporary equity - - - - 587 - - 587 - 587 Other comprehensive loss - - - ( 1,222 ) ( 2 ) - - ( 1,224 ) - ( 1,224 ) Other - - - - ( 308 ) - - ( 308 ) - ( 308 ) Balance December 31, 2023 17,202 $ 172 $ 281,096 $ 2,782 $ 223,772 ( 2,215 ) $ ( 31,628 ) $ 476,194 $ 1,216 $ 477,410 The accompanying notes are an integral part of these Consolidated Financial Statements . 54 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ( IN THOUSANDS ) Year Ended December 31, 2023 December 31, 2022 December 31, 2021 OPERATING ACTIVITIES Net income including non-controlling interest $ 37,220 $ 43,407 $ 57,924 Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: Depreciation and amortization 15,695 14,743 11,591 Provision for credit losses 6,172 5,548 5,305 Equity-based awards compensation expense 7,236 7,264 7,867 Amortization of debt issue costs 420 305 56 Change in deferred income taxes 4,490 4,309 5,688 Change in revaluation of put-right liability ( 2,582 ) 5 - Change in fair value of contingent earn-out consideration 1,550 ( 2,520 ) - Equity of earnings in unconsolidated affiliate ( 955 ) ( 1,175 ) ( 112 ) Loss (gain) on sale of clinics and fixed assets 166 ( 643 ) - Impairment of goodwill and other intangible assets 17,495 9,112 - Other - ( 83 ) ( 134 ) Changes in operating assets and liabilities: Increase in patient accounts receivable ( 5,645 ) ( 10,279 ) ( 9,417 ) Increase in accounts receivable - other ( 356 ) ( 307 ) ( 1,538 ) Increase (decrease) in other current and long term assets ( 197 ) ( 5,940 ) ( 633 ) Decrease (increase) in accounts payable and accrued expenses 15 ( 7,755 ) 4,657 Decrease (increase) in other long-term liabilities 1,254 2,546 ( 4,848 ) Net cash provided by operating activities 81,978 58,537 76,406 INVESTING ACTIVITIES Purchase of fixed assets ( 9,294 ) ( 8,248 ) ( 8,201 ) Purchase of majority interest in businesses, net of cash acquired ( 26,582 ) ( 59,788 ) ( 86,823 ) Purchase of redeemable non-controlling interest, temporary equity ( 10,986 ) ( 14,987 ) ( 28,465 ) Purchase of non controlling interest, permanent equity ( 281 ) ( 280 ) ( 1,274 ) Proceeds on sale of non-controlling interest, permanent equity 102 - 131 Proceeds on sale of partnership interest - redeemable non-controlling interest, temporary equity 875 402 69 Distributions from unconsolidated affiliate 830 1,259 152 Proceeds on sale of partnership interest, clinics and fixed assets - 373 275 Other 321 - - Net cash used in investing activities ( 45,015 ) ( 81,269 ) ( 124,136 ) FINANCING ACTIVITIES Proceeds from issuance of common stock pursuant to the secondary public offering, net of issuance costs 163,646 - - Proceeds from revolving facility 24,000 101,000 316,000 Distributions to non-controlling interest, permanent and temporary equity ( 16,100 ) ( 15,348 ) ( 16,931 ) Cash dividends paid to shareholders ( 24,128 ) ( 21,321 ) ( 18,765 ) Payments on revolving facility ( 55,000 ) ( 184,000 ) ( 218,000 ) Principal payments on notes payable ( 4,400 ) ( 930 ) ( 4,899 ) Payments on term loan ( 3,750 ) ( 1,875 ) - Proceeds from term loan - 150,000 - Payment of deferred financing costs - ( 1,779 ) - Payment of Medicare Accelerated and Advance Funds - - ( 14,054 ) Other - 12 28 Net cash provided by financing activities 84,268 25,759 43,379 Net increase in cash and cash equivalents 121,231 3,027 ( 4,351 ) Cash and cash equivalents - beginning of period 31,594 28,567 32,918 Cash and cash equivalents - end of period $ 152,825 $ 31,594 $ 28,567 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes $ 4,926 $ 7,615 $ 12,214 Interest paid $ 8,655 $ 5,687 $ 1,352 Non-cash investing and financing transactions during the period: Purchase of businesses - seller financing portion $ 1,815 $ 1,574 $ 3,050 Liabilities assumed associated with a purchase of a business $ 524 $ - $ - Notes payable related to purchase of redeemable non-controlling interest, temporary equity $ 1,087 $ 1,074 $ 1,759 Notes payable related to the purchase of non-controlling interest, permanent equity $ 200 $ 296 $ - Notes receivable related to sale of redeemable non-controlling interest, temporary equity $ 4,136 $ 1,580 $ 914 Notes receivable related to the sale of non-controlling interest, permanent equity $ 458 $ - $ - The accompanying notes are an integral part of these Consolidated Financial Statements. 55 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2023, 2022 and 2021 1. Organization, Nature of Operations and Basis of Presentation The consolidated financial statements include the accounts of U.S. Physical Therapy, Inc. and its subsidiaries (the “Company”). 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 (“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. During the last three years, the Company completed the acquisitions of the following clinic practices and IIP businesses detailed below: % Interest Number of Acquisition Date Acquired Clinics October 2023 Acquisition October 31, 2023 ** * September 2023 Acquisition 1 September 29, 2023 70 % 4 September 2023 Acquisition 2 September 29, 2023 70 % 1 July 2023 Acquisition July 31, 2023 70 % 7 May 2023 Acquisition May 31, 2023 45 % 4 February 2023 Acquisition February 28, 2023 80 % 1 November 2022 Acquisition November 30, 2022 80 % 13 October 2022 Acquisition October 31, 2022 60 % 14 September 2022 Acquisition September 30, 2022 80 % 2 August 2022 Acquisition August 31, 2022 70 % 6 March 2022 Acquisition March 31, 2022 70 % 6 December 2021 Acquisition December 31, 2021 75 % 3 November 2021 Acquisition November 30, 2021 70 % * September 2021 Acquisition September 30, 2021 100 % * June 2021 Acquisition June 30, 2021 65 % 8 March 2021 Acquisition March 31, 2021 70 % 6 * IIP business ** 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”). 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 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 Relief Funds In March 2020 in response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $ 100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19. For the 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. 56 Table of Contents 2. Significant Accounting Policies Cash Equivalents 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. Management believes that this risk is not significant. Long-Lived Assets Fixed assets are stated at cost. 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 . Leasehold improvements are amortized over the shorter of the related lease term or estimated useful lives of the assets, which is generally three to five years . 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. Historically, goodwill has been derived from acquisitions and, prior to 2009 , from the purchase of some or all of a particular local management’s equity interest in an existing clinic. Effective January 1, 2009 , if the purchase price of a non-controlling interest by the Company exceeds or is less than the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital. Goodwill and other indefinite-lived intangible assets are not amortized but are instead subject to periodic impairment evaluations. The fair value of goodwill and other identifiable intangible assets with indefinite lives are evaluated for impairment at least annually and upon the occurrence of certain events or conditions and are written down to fair value if considered impaired. These events or conditions include but are not limited to a significant adverse change in the business environment, regulatory environment, or legal factors; a current period operating, or cash flow loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. The Company evaluates indefinite-lived tradenames in conjunction with our annual goodwill impairment test. 57 Table of Contents The Company operates its business through two segments consisting of physical therapy clinics and an IIP business. 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 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 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. 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 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. 58 Table of Contents 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. the carrying amount) and fair value are the same. 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 net income. Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the non-controlling equity investment on the deconsolidation date. When the purchase price of a non-controlling interest by the Company exceeds the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital. Additionally, operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner. Revenue Recognition The 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 injuries. 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. Generally, this occurs as the Company provides physical and occupational therapy services, as each service provided is distinct and future services rendered are not dependent on previously rendered services. The Company has agreements with third-party payors that provide payments to the Company at amounts different from its established rates. 59 Table of Contents Other Revenue Revenue from the IIP business, which is included in other revenue in the consolidated statements of net income, is derived from onsite services the Company provides to clients’ employees including injury prevention, rehabilitation, ergonomic assessments , post-offer employment testing and performance optimization. Revenue from the Company’s IIP business is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal to the consideration the company expects to receive in exchange for providing injury prevention services to its clients. The revenue is determined and recognized based on the number of hours and respective rate for services provided in a given period. Management contract revenue, which is also included in other revenue, is derived from contractual arrangements whereby the Company manages a clinic for third party owners. The Company does not have any ownership interest in these clinics. Typically, revenue is determined based on the number of visits conducted at the clinic and recognized at a point in time when services are performed. Costs, typically 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. Contractual Allowances The allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience. Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services. Medicare regulations and the various third-party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in Company clinics. The Company estimates contractual allowances based on its interpretation of the applicable regulations, payor contracts and historical calculations. Each month the Company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on the Company’s historical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates. However, the services authorized 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. 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 December 31, 2023 and December 31, 2022. Allowance for Credit Losses The Company determines allowances for credit losses based on the specific agings and payor classifications at each clinic. The provision for credit losses is included in operating costs in the consolidated statements of net income. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for credit losses, includes only those amounts the Company estimates to be collectible. 60 Table of Contents Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The CARES Act includes changes to certain tax law related to net operating losses and the deductibility of interest expense and depreciation. ASC 740, Income Taxes requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. The legislation had no effect on the Company’s deferred income taxes and current income taxes payable during the year ended December 31, 2023. The Company records interest or penalties in interest and other expense, in the consolidated statements of net income. The Company did no t have any interest or penalties in each of the years ended December 31, 2023, 2022 and 2021. 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. • Level 1 – Quoted prices in active markets for identical assets or liabilities. • Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. • Level 3 – Unobservable inputs based on the Company’s own assumptions. The carrying amounts reported in the balance sheets for cash and cash equivalents, 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. 61 Table of Contents 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. 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 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. The Company currently operates through two segments: physical therapy operations and industrial injury prevention services. 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. 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 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. 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. For those granted to officers, the restriction will lapse in equal quarterly installments during the four years following the date of grant. Compensation expense for grants of restricted stock is recognized based on the fair value per share on the date of grant amortized over the vesting period. The Company recognizes any forfeitures as they occur. The restricted stock issued is included in basic and diluted shares for the earnings per share computation. 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. 62 Table of Contents Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)–Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The objective of ASU 2019-12 is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and early adoption was permitted. The 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. 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 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. 3. Earnings Per Share The computations of basic and diluted earnings are as follows. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands, except per share data) Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 28,239 $ 32,158 $ 40,831 Charges to retained earnings: Revaluation of redeemable non-controlling interest ( 13,565 ) ( 3,890 ) ( 13,011 ) Tax effect at statutory rate (federal and state) 3,466 994 3,324 $ 18,140 $ 29,262 $ 31,144 Earnings per share (basic and diluted) $ 1.28 $ 2.25 $ 2.41 Shares used in computation: Basic and diluted earnings per share - weighted-average shares 14,188 12,985 12,898 63 Table of Contents 4. Acquisitions of Businesses 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. The Company 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 % Interest Number of Acquisition Date Acquired Clinics October 2023 Acquisition October 31, 2023 ** * September 2023 Acquisition1 September 29, 2023 70 % 4 September 2023 Acquisition2 September 29, 2023 70 % 1 July 2023 Acquisition July 31, 2023 70 % 7 May 2023 Acquisition May 31, 2023 45 % 4 February 2023 Acquisition February 28, 2023 80 % 1 * IIP business ** On October 31, 2023, the Company concurrently acquired 100 % of an IIP business and a 55 % equity interest in 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 interest. The total purchase price of the combined businesses was approximately $ 4.0 million and was paid in cash. On September 29, 2023, the Company acquired a 70 % equity interest in a four -clinic physical therapy practice. The 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. 64 Table of Contents In a separate transaction, on September 29, 2023, the Company acquired a 70 % equity interest in a single clinic physical therapy practice. The owner of the practice retained 30 % of the equity interests. The purchase price for the 70 % equity interest was approximately $ 7.8 million, of which $ 7.4 million was paid in cash and $ 0.4 million is a deferred payment due on June 30, 2025. On July 31, 2023, the Company acquired a 70 % equity interest in a five -clinic practice. The practice’s owners retained a 30 % equity interest. The purchase price for the 70 % equity interest was approximately $ 2.1 million, of which $ 1.8 million was paid in cash and $ 0.3 million is a deferred payment due on June 30, 2025. On May 31, 2023, the Company and a local partner together acquired a 75 % interest in a four -clinic physical therapy practice. After the transaction, the Company’s ownership interest is 45 %, the Company’s local partner’s ownership interest is 30 %, and the practice’s pre-acquisition owners have a 25 % ownership interest. The purchase price for the 75 % equity interest was approximately $ 3.1 million, of which $ 1.7 million was paid in cash by the Company, $ 1.1 million was paid in cash by the local partner, and $ 0.3 million was in the form of a note payable, (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. The 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 follows. For the Year Ended December 31, 2023 Physical Therapy IIP Operations Total (In thousands) Cash paid, net of cash acquired $ 3,955 $ 22,627 $ 26,582 Seller note - 985 985 Deferred payments - 830 830 Contingent payments - 200 200 Total consideration $ 3,955 $ 24,642 $ 28,597 Estimated fair value of net tangible assets acquired: Total current assets $ 392 $ 1,141 $ 1,533 Total non-current assets 335 3,149 3,484 Total liabilities ( 41 ) ( 3,163 ) ( 3,204 ) Net tangible assets acquired 686 1,127 1,813 Customer and referral relationships 757 6,819 7,576 Non-compete agreement 37 329 366 Tradenames 187 1,680 1,867 Goodwill 2,562 25,521 28,083 Fair value of non-controlling interest (classified as redeemable non-controlling interest) ( 274 ) ( 10,834 ) ( 11,108 ) $ 3,955 $ 24,642 $ 28,597 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. 65 Table of Contents 2022 Acquisitions % Interest Number of Acquisition Date Acquired Clinics November 2022 Acquisition November 30, 2022 80 % 13 October 2022 Acquisition October 31, 2022 60 % 14 September 2022 Acquisition September 30, 2022 80 % 2 August 2022 Acquisition August 31, 2022 70 % 6 March 2022 Acquisition March 31, 2022 70 % 6 On November 30, 2022, the Company acquired an 80 % interest in a thirteen -clinic physical therapy practice. The practice’s owners retained 20 % of the equity interests. The purchase price for the 80 % equity interest was approximately $ 25.0 million, of which $ 24.2 million was paid in cash and $ 0.8 million in the form of a note payable. The note accrues interest at 7.0 % per annum and the principal and interest are payable on November 30, 2024. 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 $ 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. On September 30, 2022, the Company acquired an 80 % interest in a two -clinic physical therapy practice. The practice’s owners retained 20 % of the equity interests. The purchase price for the 80 % equity interest was approximately $ 4.2 million, of which $ 3.9 million was paid in cash and $ 0.3 million in the form of a note payable. The note accrues interest at 5.5 % per annum and the principal and interest are payable on September 30, 2024. On August 31, 2022, 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 $ 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 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. 66 Table of Contents The purchase price for the 2022 acquisitions has been allocated as follows. Physical Therapy Operations (In thousands) Cash paid, net of cash acquired $ 59,788 Seller notes 1,574 Contingent payments 10,000 Total consideration $ 71,362 Estimated fair value of net tangible assets acquired: Total current assets $ 1,329 Total non-current assets 7,798 Total liabilities ( 10,930 ) Net tangible assets acquired ( 1,803 ) Customer and referral relationships 18,062 Non-compete agreements 934 Tradenames 5,445 Goodwill 75,525 Fair value of non-controlling interest (classified as redeemable non-controlling interest) ( 26,801 ) $ 71,362 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 % Interest Number of Acquisition Date Acquired Clinics December 2021 Acquisition December 31, 2021 75 % 3 November 2021 Acquisition November 30, 2021 70 % * September 2021 Acquisition September 30, 2021 100 % * June 2021 Acquisition June 30, 2021 65 % 8 March 2021 Acquisition March 31, 2021 70 % 6 * IIP business 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”). In each case, the previous owners retained the remaining interest. The purchase price for the approximate 70 % equity interest, not inclusive of a contingent payment up to $ 2.0 million , was approximately $ 63.2 million of which $ 60.7 million was paid in cash and $ 1.0 million in the form of a note payable. The note accrues interest at 3.25 % per annum and the principal and interest is payable on November 30, 2023. As part of the transaction, the Company also agreed to the potential future purchase of a separate company under the same ownership that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. The current owners have the right to put this transaction to the Company in approximately five years , with such right having 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 a gain of $ 2.0 million and the reduction of the liability to $ 0 . 67 Table of Contents On September 30, 2021, the Company acquired a company that specializes in return-to-work and ergonomic services, among other offerings. The Company acquired the company’s assets at a purchase price of approximately $ 3.3 million (which includes the obligation to pay an amount up to $ 0.6 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met), and contributed those assets to 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 accrued interest at 3.25 % per annum and the principal and interest was paid in September 2023. The Company revalued the contingent earn-out consideration related to the acquisition during the year ended December 31, 2022, resulting in the elimination of the $ 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. The note 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 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 accrued interest at 3.25 % per annum and the principal and interest was paid in March 2023. 68 Table of Contents The purchase price for the 2021 acquisitions has been allocated as follows. Physical Therapy IIP Operations Total (In thousands) (In thousands) (In thousands) Cash paid, net of cash acquired $ 63,193 $ 23,630 $ 86,823 Seller notes 1,250 800 2,050 Contingent payments 2,520 837 3,357 Other payable - 1,000 1,000 Seller put right 3,522 - 3,522 Total consideration $ 70,485 $ 26,267 $ 96,752 Estimated fair value of net tangible assets acquired: Total current assets $ 5,588 $ 1,885 $ 7,473 Total non-current assets 12,620 7,014 19,634 Total liabilities ( 4,842 ) ( 8,313 ) ( 13,155 ) Net tangible assets acquired 13,366 586 13,952 Customer and referral relationships 21,127 7,969 29,096 Non-compete agreements 500 415 915 Tradenames 5,141 2,144 7,285 Goodwill 58,257 27,109 85,366 Fair value of non-controlling interest (classified as redeemable non-controlling interest) ( 27,906 ) ( 11,956 ) ( 39,862 ) $ 70,485 $ 26,267 $ 96,752 5. Acquisitions and Sale of Non-Controlling Interests 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 $ 0.5 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 %. During 2022, the Company acquired additional interests in three partnerships which are included in non-controlling interest. The additional interests purchased in each of the partnerships ranged from 10 % to 35 %. The aggregated purchase price for these acquired interests was $ 0.3 million. 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 million. The Company also sold an interest in a partnership for $ 0.1 million. 6. Redeemable Non-Controlling Interest Physical Therapy Practice Acquisitions When the Company acquires a majority interest (the “Acquisition”) in a physical therapy clinic (referred to as “Therapy Practice”), these Therapy Practice transactions occur in a series of steps which are described below. 1. 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. 2. 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. 3. 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. 69 Table of Contents 4. 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. 5. 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”). 6. In most cases, some or all of the Selling Shareholders enter into an employment agreement (the “Employment Agreement”) with NewCo with an initial term that ranges from three to five years (the “Employment Term”), with automatic one-year renewals, unless employment is terminated prior to the end of the Employment Term. As a result, a Selling Shareholder becomes an employee (“Employed Selling Shareholder”) of NewCo. The employment of an Employed Selling Shareholder can be terminated by the Employed Selling Shareholder or NewCo, with or without cause, at any time. In a few situations, a Selling Shareholder does not become employed by NewCo and is not involved with NewCo following the closing; in those situations, such Selling Shareholders sell their entire ownership interest in the Seller Entity as of the closing of the Acquisition. 7. 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. 8. 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. 9. The Non-Compete Term commences as of the date of the Acquisition and expires on the later of: a. Two years after the date an Employed Selling Shareholders’ employment is terminated (if the Selling Shareholder becomes an Employed Selling Shareholder) or b. Five to six years from the date of the Acquisition, as defined in the Non-Compete Agreement, regardless of whether the Selling Shareholder is employed by NewCo. 10. The Non-Compete Agreement applies to a restricted region which is defined as a mileage radius from the Acquired Therapy Practice. That is, an Employed Selling Shareholder is permitted to engage in competing Therapy Practices or activities outside the designated geography (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholder who is not employed by NewCo immediately is permitted to engage in the competing Therapy Practice or activities outside the designated geography. The Partnership Agreement contains provisions for the redemption of the Seller Entity Interest, either at the option of the Company (the “Call Right”) or at the option of the Seller Entity (the “Put Right”) as follows: 1. Put Right a. 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. 70 Table of Contents b. 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. c. 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. 2. Call Right a. 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. b. 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. 3. 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. 4. 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. 5. The Put Right and the Call Right do not have an expiration date. 6. 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. 71 Table of Contents 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. 1. 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. 2. 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. 3. 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”). 4. 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. 5. 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”). 6. 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”). 7. 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: a. Two years after the date a Progressive Selling Shareholder no longer is involved in the management of Progressive NewCo or b. Seven years from the date of the acquisition. 8. The Progressive Non-Compete Agreement applies to the entire United States. 9. The Progressive Put Right (as defined below) and the Progressive Call Right (as defined below) do not have an expiration date. The Progressive Operating Agreement contains provisions for the redemption of the Progressive Selling Shareholder’s Interest, either at the option of the Company (the “Progressive Call Right”) or at the option of the Progressive Selling Shareholder (the “Progressive Put Right”) as follows: 1. Progressive Put Right a. 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 72 Table of Contents b. 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. 2. Progressive Call Right a. 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. 3. 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. 4. 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. 5. The Progressive Put Right and the Progressive Call Right do not have an expiration date. Neither the Progressive Operating Agreement nor the Progressive Non-Compete Agreement contain any provision to escrow or “claw back” the equity interest in Progressive NewCo held by the Progressive Selling Shareholders, in the event of a breach of the operating agreement or non-compete terms, or the management services agreement pursuant to which the Progressive Selling Shareholders perform services on behalf of Progressive NewCo. The Company’s only recourse against the Progressive Selling Shareholder for breach of any of these agreements is to seek damages and other legal remedies under such agreements. There are no conditions in any of the arrangements with a Progressive Selling Shareholder that would result in a forfeiture of the equity interest in Progressive NewCo held by a Progressive Selling Shareholder. For both scenarios described above, an employed 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. 73 Table of Contents 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 December 31, 2022 December 31, 2021 (In thousands) Beginning balance $ 167,515 $ 155,262 $ 132,340 Net income allocated to redeemable non-controlling interest 4,426 6,902 11,358 Distributions to redeemable non-controlling interest partners ( 11,533 ) ( 10,102 ) ( 11,359 ) Changes in the fair value of redeemable non-controlling interest 13,565 3,862 13,011 Purchases of redeemable non-controlling interest ( 12,073 ) ( 16,061 ) ( 30,204 ) Acquired interest 11,007 26,746 39,862 Contributed capital - 231 - Sales of redeemable non-controlling interest 5,012 1,982 982 Changes in notes receivable related to redeemable non-controlling interest ( 3,091 ) ( 1,901 ) ( 914 ) Adjustments in notes receivables related to the sales of redeemable non-controlling interest - 594 186 Ending balance $ 174,828 $ 167,515 $ 155,262 The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interests. As of the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Contractual time period has lapsed but holder’s employment has not terminated $ 96,876 $ 75,688 $ 80,781 Contractual time period has not lapsed and holder’s employment has not terminated 77,952 91,827 74,481 Holder’s employment has terminated and contractual time period has expired - - - Holder’s employment has terminated and contractual time period has not expired - - - $ 174,828 $ 167,515 $ 155,262 7. Goodwill 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 $ 494,101 $ 434,679 Acquisitions 28,083 72,674 Adjustments for purchase price allocation of businesses acquired in prior year 3,187 ( 4,140 ) Impairment of goodwill ( 15,800 ) ( 9,112 ) Ending balance $ 509,571 $ 494,101 During the 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. 8. Intangible Assets, net The Company’s intangible assets, net, consisted of the following. As of the Year Ended December 31, 2023 December 31, 2022 Gross Amount Accumulated Amortization Net Carrying Amount Gross Amount Accumulated Amortization Net Carrying Amount (In thousands) Customer and referral relationships $ 93,658 $ ( 30,414 ) $ 63,244 $ 86,974 $ ( 23,736 ) $ 63,238 Tradenames 44,573 - 44,573 43,373 - 43,373 Non-compete agreements 9,459 ( 7,594 ) 1,865 9,143 ( 6,999 ) 2,144 $ 147,690 $ ( 38,008 ) $ 109,682 $ 139,490 $ ( 30,735 ) $ 108,755 74 Table of Contents 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 14 years . Non-compete agreements are amortized over the respective term of the agreements which range from 5 to 6 years . 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 December 31, 2022 December 31, 2021 (In thousands) Customer and referral relationships $ 6,678 $ 5,974 $ 3,240 Non-compete agreements 595 549 458 $ 7,273 $ 6,523 $ 3,698 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, Customer and Referral Relationships Non-Compete Agreements (In thousands) 2024 $ 6,967 $ 599 2025 6,823 533 2026 6,356 393 2027 6,192 232 2028 5,923 102 Thereafter $ 30,983 $ 6 9. Accrued Expenses Accrued expenses consisted of the following. As of the Year Ended December 31, 2023 December 31, 2022 (In thousands) Salaries and related costs $ 25,641 $ 22,912 Credit balances due to patients and payors 8,847 8,094 Group health insurance claims 2,301 1,666 Federal income taxes payable 1,006 - Contingency payable 12,285 620 Other property taxes payable 355 277 Interest payable 235 273 Closure costs 231 243 Other 4,443 3,328 $ 55,344 $ 37,413 75 Table of Contents 10. Borrowings 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 Principal Amount Unamortized Debt Issuance Cost Net Debt Principal Amount Unamortized Debt Issuance Cost Net Debt (In thousands) Term Facility $ 144,375 $ ( 1,468 ) $ 142,907 $ 148,125 $ ( 1,861 ) $ 146,264 Revolving Facilitiy - - - 31,000 - 31,000 Other (1) 3,775 - 3,775 6,430 - 6,430 Total debt 148,150 ( 1,468 ) 146,682 185,555 ( 1,861 ) 183,694 Less: Current portion of long-term debt 8,111 ( 420 ) 7,691 8,271 ( 408 ) 7,863 Long-term debt, net of current portion $ 140,039 $ ( 1,048 ) $ 138,991 $ 177,284 $ ( 1,453 ) $ 175,831 (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”): 1) Revolving Facility: $ 175 million , five-year , revolving credit facility (“Revolving Facility”), which includes a $ 12 million sublimit for the issuance of standby letters of credit and a $ 15 million sublimit for swingline loans (each, a “Swingline Loan”). 2) Term Facility: $ 150 million term loan facility (the “Term Facility”). The Term Facility amortizes in quarterly installments of: (a) 0.625 % in each of the first two years, (b) 1.250 % in the third and fourth year, and (c) 1.875 % in the fifth year of the Credit Agreement. The remaining outstanding principal balance of all term loans is due on the maturity date. The proceeds of the Revolving Facility shall be used by the Company for working capital and other general corporate purposes of the Company and its subsidiaries, including to fund future acquisitions and invest in growth opportunities. The proceeds of the Term Facility were used by the Company to refinance the indebtedness outstanding under the Amended Credit Agreement, to pay fees and expenses incurred in connection with the transactions involving the loan facilities, for working capital and other general corporate purposes of the Company and its subsidiaries. The Company is permitted to increase the Revolving Facility and/or add one or more tranches of term loans in an aggregate amount not to exceed the sum of (i) $ 100 million plus (ii) an unlimited additional amount, provided that (in the case of clause (ii)), after giving effect to such increases, the pro forma Consolidated Leverage Ratio (as defined in the Credit Agreement) would not exceed 2.0 :1.0, and the aggregate amount of all incremental increases under the Revolving Facility does not exceed $ 50,000,000 . The interest rates per annum applicable to the Senior Credit Facilities (other than in respect of Swingline Loans) will be Term SOFR (as defined in the Credit Agreement) plus an applicable margin or, at the option of the Company, an alternate base rate plus an applicable margin. Each Swingline Loan shall bear interest at the base rate plus the applicable margin. The applicable margin for Term SOFR borrowings ranges from 1.50 % to 2.25 %, and the applicable margin for alternate base rate borrowings ranges from 0.50 % to 1.25 %, in each case, based on the Consolidated Leverage Ratio of the Company and its subsidiaries. Interest is payable at the end of the selected interest period but no less frequently than quarterly and on the date of maturity. The Company 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. 76 Table of Contents The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets. The Credit Agreement includes certain financial covenants which include the Consolidated Fixed Charge Coverage Ratio, and the Consolidated Leverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains customary events of default. The Company’s obligations under the Credit Agreement are guaranteed by its wholly-owned material domestic subsidiaries (each, a “Guarantor”), and the obligations of the Company and any Guarantors are secured by a perfected first priority security interest in substantially all of the existing and future personal property of the Company and each Guarantor, subject to certain exceptions. As of December 31, 2023, $ 144.4 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 Agreement. The Company generally enters into various notes payable as a means of financing a portion of its acquisitions and purchasing of non- controlling interests. In conjunction with these transactions in 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. 11. Derivative Instruments The Company is exposed to certain market risks during the ordinary course of business due to adverse changes in interest rates. The exposure to interest rate risk primarily results from the Company’s variable-rate borrowing. The Company may elect to use derivative financial instruments to manage risks from fluctuations in interest rates. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in interest rates can be volatile and the Company’s risk management activities do not eliminate these risks. Interest Rate Swap In May 2022, the Company entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A. The swap has a $ 150 million notional value adjusted concurrently with scheduled principal payments made on the term loan. The swap has a maturity date of June 30, 2027 . 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. 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. 77 Table of Contents 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 December 31, 2023 December 31, 2022 (In thousands) Net income $ 37,220 $ 43,407 Other comprehensive (loss) gain Unrealized (loss) gain on cash flow hedge ( 1,642 ) 5,378 Tax effect at statutory rate (federal and state) 420 ( 1,374 ) Comprehensive income $ 35,998 $ 47,411 Comprehensive income attributable to non-controlling interest ( 8,981 ) ( 11,249 ) Comprehensive income attributable to USPH shareholders 27,017 36,162 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 (In thousands) Other current assets $ 2,663 $ 2,858 Other assets $ 1,073 $ 2,520 3,736 5,378 12. Leases The Company has operating leases for its corporate offices and operating facilities. The Company determines if an arrangement is a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent net present value of the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at commencement date based on the net present value of the fixed lease payments over the lease term. The Company’s operating lease terms are generally five years or less. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating fixed lease expense is recognized on a straight-line basis over the lease term.Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage are not included in the right-of-use assets or operating lease liabilities. These are expensed as incurred and recorded as variable lease expense. The components of lease expense were as follows. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Operating lease cost $ 38,559 $ 35,154 $ 32,021 Short-term lease cost 1,353 1,049 1,160 Variable lease cost 8,912 6,287 7,057 Total lease cost * $ 48,824 $ 42,490 $ 40,238 * 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. 78 Table of Contents The supplemental cash flow information related to leases was as follows. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Cash paid for amounts included in the measurement of operating lease liabilities $ 39,813 $ 36,136 $ 33,192 Right-of-use assets obtained in exchange for new operating lease liabilities $ 36,264 $ 40,502 $ 46,088 The aggregate future lease payments for operating leases as of December 31, 2023, were as follows. Fiscal Year Amount (In thousands) 2024 $ 38,809 2025 30,628 2026 22,845 2027 15,275 2028 and thereafter 13,174 Total lease payments $ 120,731 Less: imputed interest 8,826 Total operating lease liabilities $ 111,905 Average lease terms and discount rates were as follows: As of the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Weighted-average remaining lease term 3.9 years 4.1 Years 4.2 Years Weighted-average discount rate 4.0 % 2.9 % 2.8 % 13. Income Taxes 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: Compensation $ 1,680 $ 1,464 Allowance for credit losses 574 605 Lease obligations - including closed clinics 28,592 28,525 Deferred tax assets $ 30,846 $ 30,594 Deferred tax liabilities: Depreciation and amortization $ ( 27,290 ) $ ( 23,836 ) Operating lease right-of-use assets ( 26,427 ) ( 26,318 ) Gain on cash flow hedge ( 955 ) ( 1,373 ) Change in revaluation of put-right liability ( 586 ) - Other ( 403 ) ( 370 ) Deferred tax liabilities ( 55,661 ) ( 51,897 ) Net deferred tax liabilities $ ( 24,815 ) $ ( 21,303 ) The deferred tax assets and liabilities related to purchased interests not yet finalized may result in an immaterial adjustment. 79 Table of Contents 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 presented: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In Thousands) U. S. tax at statutory rate $ 8,483 21.0 % $ 9,307 21.0 % $ 11,782 21.0 % State income taxes, net of federal benefit 2,135 5.3 % 2,079 4.7 % 2,478 4.4 % Shortfall (excess) equity compensation deduction 123 0.3 % 149 0.3 % ( 246 ) - 0.4 % Non-deductible expenses 710 1.8 % 629 1.4 % 1,258 2.2 % Return to provision adjustments 705 1.7 % - 0.0 % - 0.0 % $ 12,156 30.1 % $ 12,164 27.4 % $ 15,272 27.2 % Significant components of the provision for income taxes were as follows for the periods presented. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In Thousands) Current: Federal $ 6,996 $ ( 770 ) $ 7,477 State 512 518 2,107 Total current 7,508 ( 252 ) 9,584 Deferred: Federal 3,819 9,933 4,866 State 829 2,483 822 Total deferred 4,648 12,416 5,688 Total income tax provision $ 12,156 $ 12,164 $ 15,272 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. 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 assets. The Company’s U.S. federal returns remain open to examination for 2020 through 2022 and U.S. 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, 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. 80 Table of Contents 14. Segment Information The Company’s reportable segments include the physical therapy operations segment and the IIP segment. Also included in the physical therapy operations segment are revenues from management contract services and other services which include services the Company provides on-site, such as athletic trainers for schools . Physical Therapy Operations The physical therapy operations segment primarily operates through subsidiary clinic partnerships (“Clinic Partnerships”), in which the Company generally owns a 1 % general partnership interest in all the Clinic Partnerships. The Company’s limited partnership interests generally range from 65 % to 75 % (the range is 10 % - 99 %) in the Clinic Partnerships. The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of the clinics (hereinafter referred to as “Clinic Partnerships”). To a lesser extent, the Company operates some clinics, through wholly-owned subsidiaries, under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”). The Company continues to seek to attract for employment physical therapists who have established relationships with physicians and other referral sources, by offering these therapists a competitive salary and incentives based on the profitability of the clinic that they manage. For multi-site clinic practices in which a controlling interest is acquired by the Company, the prior owners typically continue on as employees to manage the clinic operations, retain a non-controlling ownership interest in the clinics and receive a competitive salary for managing the clinic operations. In addition, the Company has developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location. 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”). On 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. 81 Table of Contents Segment Financials The Company 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 . For the Year Ended December 31, 2023 2022 2021 ( In thousands) Net revenue: Physical therapy operations $ 526,548 $ 476,092 $ 451,122 Industrial injury prevention services 78,254 77,052 43,900 Total Company $ 604,802 $ 553,144 $ 495,022 Operating Costs: Salaries and related costs: Physical therapy operations $ 302,765 $ 272,360 $ 251,256 Industrial injury prevention services 50,625 46,831 27,213 Total salaries and related costs $ 353,390 $ 319,191 $ 278,469 Rent supplies, contract labor and other: Physical therapy operations $ 112,547 $ 102,114 $ 88,073 Industrial injury prevention services 11,184 14,267 5,993 Total rent, supplies, contract labor and other $ 123,731 $ 116,381 $ 94,066 Provision for credit losses: Physical therapy operations $ 6,129 $ 5,517 $ 5,249 Industrial injury prevention services 43 31 56 Total provision for credit losses $ 6,172 $ 5,548 $ 5,305 Total Company $ 483,293 $ 441,120 $ 377,840 Gross profit: Physical therapy operations $ 105,064 $ 96,057 $ 106,488 Industrial injury prevention services 16,445 15,967 10,694 Total Company $ 121,509 $ 112,024 $ 117,182 Total Assets: Physical therapy operations $ 857,274 $ 708,662 $ 587,801 Industrial injury prevention services 139,964 149,492 161,625 Total Company $ 997,238 $ 858,154 $ 749,426 15. 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. 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 . 16. Equity Based Plans 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. 82 Table of Contents 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. 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). As of 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 Year Granted Number of Shares Value Per Share 2023 73,384 $ 102.79 2022 95,316 $ 100.08 2021 60,317 $ 131.29 During 2023, 2022 and 2021, the following shares were cancelled due to employee terminations prior to restrictions lapsing: Weighted Average Fair Year Cancelled Number of Shares Value Per Share 2023 4,086 $ 103.99 2022 5,180 $ 109.42 2021 439 $ 113.80 Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following four anniversaries of the date of grant. For those shares granted to directors, the restrictions will lapse in equal quarterly installments during the first year after the date of grant. For those granted to officers, the restriction will lapse in equal quarterly installments during the four years following the date of grant. 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 . 83 Table of Contents 17. 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 issuance of the preferred stock could have the effect of delaying or preventing a change in control of the Company. Common Stock 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. 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 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. 18. Defined Contribution Plan The Company has several 401(k) profit sharing plans covering all employees with three months of service. For certain plans, the Company makes matching contributions. The Company may also make discretionary contributions of up to 50 % of employee contributions. The Company did no t make any discretionary contributions for the years ended December 31, 2023, 2022 and 2021. 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. 19. 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. 84 Table of Contents 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. 20. Related Party Transactions 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. 21. Subsequent Event 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 . 85 Table of Contents ITEM 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. 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. U.S. Physical 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 override. 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. 86 Table of Contents 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. ITEM 9B. OTHER INFORMATION. Not applicable. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICATIONS THAT PREVENT INSPECTION Not applicable. PART III ITEM 10. 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. ITEM 11. 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. ITEM 12. 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. ITEM 13. 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. ITEM 14. 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. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Documents filed as a part of this report: 87 Table of Contents 1. 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. 2. 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. 3. Exhibits The exhibits listed in List of Exhibits on the next page are filed or incorporated by reference as part of this report. 88 Table of Contents EXHIBIT INDEX LIST OF EXHIBITS Number ​ Description 1.1 Underwriting Agreement, dated May 24, 2023, by and between U.S. Physical Therapy, and BofA Securities, Inc. and J.P. 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.] 3.1 ​ 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]. ​ 3.2 ​ 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]. ​ 3.3 ​ 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]. ​ 4.1* ​ 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.] ​ 10.1+ ​ 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]. ​ 10.2+ ​ U.S. 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.] 10.3+ ​ 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.] 10.4+ ​ 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]. 89 Table of Contents Number ​ Description ​ 10.5+ ​ 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.] ​ 10.6+ ​ 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.] ​ 10.7+ ​ 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] 90 Table of Contents Number ​ Description ​ 10.8+ ​ 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] ​ 10.9+ ​ 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] ​ 10.10+ ​ U. S. 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]. 10.11+ ​ 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]. ​ 10.12+ ​ 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]. ​ 10.13+ ​ 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.] ​ 10.14+ U. S. 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] 10.15+ U. S. 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 U.S. Physical Therapy, Inc. on March 16, 2021] 10.16+ 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] 10.17+ 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] 10.18+ U. S. 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] 10.19+ U. S. 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 U.S. Physical Therapy, Inc. on March 14, 2022] 10.20+ U. S. 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] 91 Table of Contents 10.21+ U. S. 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] 10.22+ U. S. 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] 10.23+ U. S. 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 U.S. Physical Therapy, Inc. on March 8, 2023] 10.24+ U. S. 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] 10.25+ U. S. 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] 10.26+ ​ 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.] 92 Table of Contents Number ​ Description 21.1* ​ Subsidiaries of the Registrant ​ 23.1* ​ Consent of Independent Registered Public Accounting Firm—Grant Thornton LLP ​ 31.1* ​ Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended ​ 31.2* ​ Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended ​ 32.1* ​ 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 ​ 97.1* ​ U.S. Physical Therapy Compensation Clawback Policy 101.INS* ​ XBRL Instance Document ​ 101.SCH* ​ XBRL Taxonomy Extension Schema Document ​ 101.CAL* ​ XBRL Taxonomy Extension Calculation Linkbase Document ​ 101.DEF* ​ XBRL Taxonomy Extension Definition Linkbase Document ​ 101.LAB* ​ XBRL Taxonomy Extension Label Linkbase Document ​ 101.PRE* ​ XBRL Taxonomy Extension Presentation Linkbase Document * Filed herewith + Management contract or compensatory plan or arrangement. 93 Table of Contents FINANCIAL STATEMENT SCHEDULE* SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES (In Thousands) Balance at Beginning of Period Additions Charged to Costs and Expenses Additions Charged to Other Accounts Deductions Balance at End of Period YEAR ENDED DECEMBER 31, 2023 : Reserves and allowances deducted from asset accounts: Allowance for credit losses (1) $ 2,829 $ 6,172 - $ 6,265 (2) $ 2,736 YEAR ENDED DECEMBER 31, 2022 : Reserves and allowances deducted from asset accounts: Allowance for credit losses $ 2,768 $ 5,548 - $ 5,487 (2) $ 2,829 YEAR ENDED DECEMBER 31, 2021 : Reserves and allowances deducted from asset accounts: Allowance for credit losses $ 2,008 $ 5,305 - $ 4,545 (2) $ 2,768 (1) Related to patient accounts receivable and accounts receivable-other. (2) Uncollectible accounts written off, net of recoveries. * 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. 94 Table of Contents ITEM 16. FORM 10-K SUMMARY None. 95 Table of Contents SIGNATURES 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 authorized. U.S. PHYSICAL THERAPY, INC. (Registrant) By: /s/ Carey Hendrickson Carey Hendrickson Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Date: 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 /s/ Chris J. Reading Chief Executive Officer, President and Director (Principal Executive Officer) February 29, 2024 Chris J. Reading /s/ Edward L. Kuntz Chairman of the Board February 29, 2024 Edward L. Kuntz /s/ Bernard A. Harris Director February 29, 2024 Dr. Bernard A. Harris, Jr. /s/ Kathleen A. Gilmartin Director February 29, 2024 Kathleen A. Gilmartin /s/ Anne Motsenbocker Director February 29, 2024 Anne Motsenbocker /s/ Reginald E. Swanson Director February 29, 2024 Reginald E. Swanson /s/ Clayton K. Trier Director February 29, 2024 Clayton K. Trier /s/ Nancy J. Ham Director February 29, 2024 Nancy J. Ham 96