What changed in this filing

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Item 1. Financial Statements

2024-05-08 compared with 2023-11-08 · 613 added, 681 removed, 482 unchanged (73% of the section changed)

2 unchanged sentences

AND SUBSIDIARIES

BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS )

September 30, 2023

March 31, 2024

December 31, 2023

1 unchanged sentence

Cash and cash equivalents

Patient accounts receivable, less allowance for credit

Patient accounts receivable, less provision for credit

losses of $ 2,936 and $ 2,736 ,

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Accounts payable - trade

Accounts payable - due to seller of acquired business

Accrued expenses

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Notes payable, net of current portion

Revolving facility

Term loan, net of current portion and deferred financing costs

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Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30,2023

September 30, 2022

March 31, 2024

March 31, 2023

Net patient revenue

7 unchanged sentences

Operating income

Other (expense) income

Other income (expense):

Interest expense, debt and other

Interest income

Interest income from investments

Change in fair value of contingent earn-out consideration

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Equity in earnings of unconsolidated affiliate

Total other (expense) income

Total other income (expense)

Income before taxes

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Dividends declared per common share

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE

(IN THOUSANDS)

Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Other comprehensive loss

Unrealized gain on cash flow hedge

March 31, 2024

March 31, 2023

Other comprehensive gain (loss):

Unrealized gain (loss) on cash flow hedge

Tax effect at statutory rate (federal and state)

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Comprehensive income attributable to USPH shareholders

The accompanying

notes are an integral part of these unaudited consolidated financial statements.

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

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF

UNAUDITED CONSOLIDATED STATEMENTS

(IN THOUSANDS)

Nine Months Ended

September 30, 2023

September 30, 2022

Three Months Ended

March 31, 2024

March 31, 2023

OPERATING ACTIVITIES

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Equity-based awards compensation expense

Amortization of debt issue costs

Change in deferred income taxes

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Equity of earnings in unconsolidated affiliate

Gain on sale of clinics and fixed assets

Loss on sale of fixed assets

Changes in operating assets and liabilities:

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Increase in accounts receivable - other

Increase (decrease) in other current and long term assets

(Decrease) increase in other current and long term assets

Decrease in accounts payable and accrued expenses

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Purchase of non controlling interest, permanent equity

Proceeds on sale of partnership interest, clinics and fixed assets

Proceeds on sale of non-controlling interest, permanent equity

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FINANCING ACTIVITIES

Distributions to non-controlling interest, permanent and temporary equity

Cash dividends paid to shareholders

Proceeds from revolving facility

Proceeds from term loan

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

Payments on revolving facility

Distributions to non-controlling interest, permanent and temporary equity

Principal payments on notes payable

Payments on term loan

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents - beginning of period

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Non-cash investing and financing transactions during the period:

Purchase of businesses - seller financing portion

Purchase of interest in businesses - seller financing portion

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

Offset of notes receivable associated with purchase of redeemable non-controlling interest

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

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

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

Dividends payable to USPH shareholders

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

1 unchanged sentence

AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF

CHANGES IN EQUITY

UNAUDITED CONSOLIDATED

STATEMENTS OF CHANGES IN EQUITY

(IN THOUSANDS)

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Non-Controlling

For the three months ended September 30, 2023

Paid-In Capital

Comprehensive Gain

Balance June 30, 2023

Revaluation of redeemable non-controlling interest, net of tax

Purchase of non-controlling interest

Sale of non-controlling interest

Compensation expense - equity-based awards

Dividends paid to USPH shareholders

Distributions to non-controlling interest partners - permanent equity

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

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

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Other comprehensive gain

Balance September 30, 2023

U .S.Physical Therapy, Inc.

Accumulated Other

Treasury Stock

Total Shareholders’

Non-Controlling

For the nine months ended September 30, 2023

Paid-In Capital

Comprehensive Gain

Balance December 31, 2023

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest

Purchase of non-controlling interest

Sale of non-controlling interest

Compensation expense - equity-based awards

Dividends paid to USPH shareholders

Distributions to non-controlling interest partners - permanent equity

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

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

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Other comprehensive gain

Balance September 30, 2023

U.S.Physical Therapy, Inc.

Accumulated Other

Treasury Stock

Total Shareholders’

Non-Controlling

For the three months ended September 30, 2022

Paid-In Capital

Comprehensive Loss

Balance June 30, 2022

Net income attributable to non-controlling interest - permanent equity

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Revaluation of redeemable non-controlling interest

Compensation expense - equity-based awards

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

Sale of non-controlling interest

Purchase of partnership interests - non-controlling interest

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

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Other comprehensive loss

Balance September 30, 2022

Other comprehensive gain

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

Balance March 31, 2024

U.S.Physical Therapy, Inc.

3 unchanged sentences

Non-Controlling

For the nine months ended September 30, 2022

Paid-In Capital

1 unchanged sentence

Balance December 31, 2022

Net income attributable to USPH shareholders

Net income attributable to non-controlling interest - permanent equity

Issuance of restricted stock, net of cancellations

1 unchanged sentence

Compensation expense - equity-based awards

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

Purchase of partnership interests - non-controlling interest

Dividends paid to USPH shareholders

Dividends payable to USPH shareholders

Distributions to non-controlling interest partners - permanent equity

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

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Other comprehensive loss

Balance September 30, 2022

Other comprehensive gain

Balance March 31, 2023

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

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Physical Therapy, Inc.

and its subsidiaries (the “Company ”, “USPH ”) operates its business through two reportable business

(a) physical therapy operations segment, and (b) 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.

As of September 30, 2023 , the Company operated 672 clinics in 42 states.

The Company also manages physical therapy facilities for third parties, primarily hospitals and physicians, with 42 third-party facilities under management as of September 30, 2023 .

D uring the nine months ended September 30, 2023, and for the year-ended

December 31, 2022, the Company completed the acquisitions of the following physical therapy practices .

and its subsidiaries (the “Company”) operates its business through two reportable business segments.

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.

As of March 31, 2024,

the Company operated 679 clinics in 42

In addition to the 679 clinics, the Company also managed 41 physical therapy practices for unrelated physician groups and hospitals as of March 31, 2024.

D uring the three months ended March 31, 2024, and for the year-ended December

31, 2023, the Company completed the acquisitions of the following clinic practices and IIP businesses:

March 2024 Acquisition

March 29, 2024

October 2023 Acquisition

October 31, 2023

September 2023 Acquisition 1

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February 28, 2023

November 2022 Acquisition

November 30, 2022

October 2022 Acquisition

October 31, 2022

September 2022 Acquisition

September 30, 2022

August 2022 Acquisition

August 31, 2022

March 2022 Acquisition

March 31, 2022

* See Note 3 for additional information on the

acquisitions in the tabl e .

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.

the nine months ended September 30, 2023, the Company recognized $ 0.5 million of income received under the Coronavirus Aid, Relief and

Economic Security Act (“Relief Funds”).

The Relief Funds were received in prior years but were subject to certain compliance requirements which were met in the first quarter of 2023.

The Company does not expect to receive or recognize any future

Relief Funds.

IIP business.

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

interest in an ergonomics software business.

Basis of Presentation

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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.

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

The Company currently operates through two segments:

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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 and other intangible assets, allocations of purchase price, allowance for credit losses, tax provision and contractual allowances, that affect the amounts reported in the consolidated financial statements and

goodwill impairment, tradenames and other intangible assets, 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.

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management’s equity interest in an existing clinic.

Effective January 1, 2009, in accordance with applicable accounting standards, 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.

Effective January 1, 2009, if the purchase price of a non-controlling interest, permanent equity 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 or upon the occurrence of certain triggering events or conditions and are

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 triggering events or conditions and are

written down to fair value, if considered impaired.

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impact an impairment assessment, necessitating an impairment charge.

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

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

The Company operates its business through two

segments consisting of physical therapy operations and its IIP business.

The reporting units within our physical therapy operations are comprised of six regions primarily based on each clinic’s location.

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

segments consisting of physical therapy operations and IIP.

The reporting units within the Company’s physical therapy business are comprised of six regions primarily based on each clinic’s location.

The IIP business consists of two reporting units.

As part of the impairment analysis, the Company is first required to assess qualitatively if it can

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

For the nine months ended September 30, 2023,

no triggering events or indicators were identified that would require impairment assessments for such period.

During the year ended December 31, 2022, the Company recorded a charge for goodwill impairment of $ 9.1 million related to one reporting unit in the IIP business acquired in November 2021 (the “ IIP Acquisition”).

The impairment is related to a change in the reporting unit’s current and projected operating income as well as various market inputs based on current

market conditions, including the higher interest rate environment.

No impairment was recognized as a result of our annual assessment

of goodwill and tradenames for the other seven reporting units.

For the three months ended March 31, 2024, no triggering events or indicators were identified that would require impairment assessments for such period.

During the three and twelve months ended December 31, 2023, the Company recorded a

charge of $ 15.8 million for goodwill impairment and a charge of $ 1.7 million for impairment of a tradename.

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

The impairment is related to a change in the reporting unit’s

current and projected operating income as well as various market inputs based on current market conditions.

The Company did no t

recognize any impairment as a result of the Company’s annual assessment of goodwill and tradename for the other seven reporting units.

The Company also noted no impairment to long-lived assets for all reporting units.

Company continues to monitor for any triggering events or other indicators of impairment.

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

Investment in unconsolidated affiliate

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

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

of net income.

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

consolidated 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.

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.

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Redeemable Non-Controlling Interest

Redeemable non-controlling interest consist of those that 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.

The non-controlling interest that is reflected as redeemable non-controlling interest in the unaudited consolidated financial statements consist 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

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

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

The Company records any adjustments in the redemption value directly to retained earnings and the adjustments are not reflected in

the unaudited consolidated statements of net income.

Although the adjustments are not reflected in the unaudited 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 Company records any adjustments in the redemption value, net of tax, directly to retained earnings and the adjustments are not

reflected in the unaudited consolidated statements of net income.

Although the adjustments are not reflected in the unaudited 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 unaudited consolidated statements of net income.

Management believes the

redemption value (i.e., the carrying amount) and fair value are the same.

believes the redemption value (i.e., the carrying amount) and fair value are the same.

Revenue Recognition

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

For ASC 606, there is an implied contract between the Company and the patient upon each patient visit.

Separate contractual arrangements exist between the

Company 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 the Company 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 the Company provides 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.

revenue (patient revenue less estimated contractual adjustments – as described below) is recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the

terms of the contract are satisfied.

There is an implied contract between us and the patient upon each patient visit.

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.

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

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 $ 2.4 million and $ 1.8 million for the three months ended March 31, 2024, and March 31, 2023, 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 for schools 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, 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 1.0 % 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 % on each balance sheet date.

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.

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

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settlement with the relevant tax authority.

On August 16, 2022, Inflation Reduction Act of 2022 was enacted and signed into law and includes targeted

tax provisions.

The Company has determined that these provisions will not have a material impact on the financial statements.

The Company did no t have any accrued interest or

penalties associated with any unrecognized tax benefits no r was any interest expense recognized during the three and nine months ended

September 30, 2023 and September 30, 2022.

The Company did no t have any accrued interest or penalties associated with any unrecognized tax benefits no r was any interest expense recognized during the three months ended March 31, 2024, and March 31, 2023.

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

Fair Value of Financial Instruments

Fair value is defined as an exit price, representing the amount that

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

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants

would use in pricing an asset or liability.

As a basis for considering such assumptions, a fair value hierarchy has been established that prioritizes the inputs used to measure fair value.

The hierarchy gives the highest priority to unadjusted

quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

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.

The three levels of the fair value hierarchy are as follows:

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

Level 2 – Quoted prices for similar instruments in active markets;

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

and model-derived valuations whose significant inputs are observable;

Level 3 – Unobservable inputs in which there is little or no market data

which require the reporting entity to develop its own assumptions.

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

of these financial instruments.

The carrying amount of the debt under the Third Amended and Restated Credit Agreement (defined as “Credit Agreement” in Note 9) approximates its fair value due to the variable interest rate which is tied to the

Secured Overnight Financing Rate (“SOFR”) .

In May 2022, the Company entered into an interest rate swap agreement, effective on June 30, 2022, with

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

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.

short-term maturity of these financial instruments.

The carrying amount of the debt under the Third Amended and Restated Credit Agreement (defined as “Credit Agreement” in Note 8) 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 an IIP acquisition in 2027 is 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 is determined using a

Monte Carlo simulation model utilizing unobservable inputs such as asset volatility and discount rates.

The unobservable inputs used in the valuation of the put right as of March 31, 2024, include asset volatility of 25.0 % and a discount rate of 11.6 %.

The value of this put right increased $ 80.0 thousand for the three months ended March 31, 2024.

The put right was valued at

approximately $ 1.0 million on March 31, 2024, and December 31, 2023.

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

primary inputs into the valuation of interest rate swaps are interest yield curves, interest rate volatility, and credit spreads.

The interest rate swap is classified within Level 2 of the fair value hierarchy, since all significant inputs are

corroborated by market observable data.

The fair value of the interest rate swap on September 30, 2023, was $ 7.7 million.

The impact of

the interest rate swap on the accompanying unaudited consolidated statements of comprehensive income was an unrealized gain of $ 1.0

million, net of tax, for the three months ended September 30, 2023, and an unrealized gain of $ 1.7 million, net of tax for the nine

months ended September 30, 2023.

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 March 31, 2024, was $ 5.5 million, of which $ 3.0 million has been included within

Other current assets and $ 2.5 million has been included in Other assets in the accompanying unaudited Consolidated Balance Sheet.

impact of the interest rate swap on the accompanying unaudited Consolidated Statements of Comprehensive Income was an unrealized gain of $ 1.3

million, net of tax, for the three months ended March 31, 2024.

See Note 9 for more information on the Company’s interest rate derivative.

The put right associated with the potential future purchase of the separate company in the IIP Acquisition

is marked to fair value on a recurring basis using Level 3 inputs.

The fair value of the put right associated with the potential future purchase of a company is determined using a Monte Carlo simulation model utilizing unobservable inputs such as

asset volatility and discount rates.

The unobservable inputs used in the valuation of the put right as of September 30, 2023 include asset volatility of 25.0 % and a discount rate of 11.9 % .

The put right value increased $ 0.1 million for

the three months ended September 30, 2023 and $ 0.3 million for the nine months ended September 30, 2023.

The put right was valued at $ 3.9 million on September 30, 2023 and $ 3.5 million on December 31, 2022.

On October 31, 2022, the Company acquired a 60 % interest in a fourteen -clinic physical therapy practice.

purchase price included additional contingent consideration to be paid at a later date based on performance of the business.

There is no maximum payout.

The additional contingent payment is determined using a Monte Carlo simulation model utilizing

unobservable inputs such as asset volatility and discount rates and is accordingly classified within Level 3 of the fair value hierarchy.

The unobservable inputs used in the valuation of the contingent consideration as of September 30, 2023 include

asset volatility of 35 % and a discount rate of 8.7 %.

The additional contingent consideration was valued at $ 8.1 million on September 30, 2023, and $ 8.3 million on December 31, 2022.

The additional contingent consideration related to the October 2022 acquisition decreased $ 0.2 million for both the three months and nine months ended September 30, 2023.

Recently Adopted Accounting Guidance

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 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.

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

alternative reference rates.

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

Borrowings under the Third Amended and Restated Credit Agreement bear interest

based on SOFR.

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

See Note 4 for the changes in the fair value of Redeemable non-controlling interest.

The consideration for some of the Company’s acquisitions includes future payments that are contingent upon the occurrence of future operational objectives being met.

The Company estimates the fair value of contingent consideration

obligations through valuation models designed to estimate the probability of such contingent payments based on various assumptions and incorporating estimated success rates.

These fair value measurements are based on significant inputs not

observable in the market.

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

Accordingly, changes in assumptions could have a material impact on the

amount of contingent consideration expense the Company records in any given period.

The Company determined the fair value of its contingent consideration obligations to be $ 10.8 million on March 31, 2024, and $ 12.5 million on December

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.

New Accounting Pronouncements

In March 2023, the FASB issued ASU 2023-01, Leases (Topic

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.

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.

In November 2023, the FASB issued ASU 2023-07 Segment

Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires disclosure on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker and included within

the reported measure of segment profit or loss.

In addition, the ASU requires disclosure of other segment expenses by reportable segment and a description of their composition to permit the reconciliation between segment revenue, significant

segment expenses and the reported segment measure of profit or loss.

The ASU also requires disclosure of the name and title of the chief operating decision maker.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and

interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted.

The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires disclosure on an annual basis, a tabular reconciliation, including both amount and percentage of specific

categories of the effective tax rate reconciliation, including state and local income taxes (net of Federal taxes), foreign taxes, effects of changes in tax laws and regulations, effects of cross-border tax laws, tax credits, changes in valuation

allowances, nontaxable and nondeductible items and changes in unrecognized tax benefits.

Additional disclosures are required for certain items exceeding five percent of income from continuing operations multiplied by the statutory income tax

The standard also requires disclosure of income taxes paid between Federal, state and foreign jurisdictions, including further disaggregation of those payments exceeding five percent of the total income taxes paid.

ASU 2023-09 is effective

for fiscal years beginning after December 15, 2024, and early adoption is permitted.

The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

Earnings Per Share

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the earnings per basic and diluted share calculation.

The following table

provides a detail of the basic and diluted earnings per share computation.

The computation of basic and diluted earnings per share are as follows.

Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

(In thousands, except per share data)

Earnings per share

Computation of earnings per share - USPH shareholders:

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Earnings per share (basic and diluted)

Shares used in computation:

Basic and diluted earnings per share - weighted-average shares

Shares used in computation - basic and diluted

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 industrial injury prevention services 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, Basis of Presentation and Significant Accounting Policies .

The purchase price plus the fair value of the non-controlling interest for the acquisitions after September 30, 2022 were allocated to the

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

tradenames, referral relationships and non-compete agreements) and liabilities assumed based on the estimated fair values at the acquisition date, with the amount

in excess of fair values being recorded as goodwill.

The Company is in the process of completing its formal valuation analysis of the acquisitions, to identify and determine the fair value of tangible and identifiable intangible assets acquired and

the liabilities assumed.

Thus, the final allocation of the purchase price may differ from the preliminary estimates used on September 30, 2023, based on additional information obtained and completion of the valuation of the identifiable intangible

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’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 facility or proceeds from completed secondary equity offerings.

The purchase price plus the fair value of the non-controlling interest for the acquisitions after March 31, 2023, were allocated to the fair value of the assets acquired, inclusive of

identifiable intangible assets (i.e.

tradenames, referral relationships and non-compete agreements) and liabilities assumed based on the estimated fair values at the acquisition date, with the amount in excess of fair values being recorded as

The Company is in the process of completing its formal valuation analysis of the acquisitions, to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed.

Thus, the final

allocation of the purchase price may differ from the preliminary estimates used on March 31, 2024, 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 Company continues to evaluate the components for the purchase

price allocations for other acquisitions in 2022 and 2023.

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.

The Company continues to evaluate the components for the purchase price allocations for other acquisitions in

2023 and 2024.

The results of operations of the acquisi tions below have been included in the Company’s unaudited 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.

During the three months ended March 31, 2024, the Company acquired a majority interest in the following businesses:

2024 Acquisitions

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.

March 2024 Acquisition

March 29, 2024

On March 29, 2024, the Company acquired a 50 % equity interest in a nine -clinic

physical therapy and hand therapy practice.

The original owners of the practice retained the remaining 50 %.

The purchase price for the

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 is due on January 31, 2024, and the second installment of $ 0.3 million is due on September 30, 2025.

50 % equity interest was approximately $ 16.4

million, of which $ 0.5 million was in the form of a note payable.

The note accrues interest at 4.5 % per annum and the principal and the interest are payable on March 29, 2026.

As part of the transaction, the Company agreed to additional

contingent consideration if future operational objectives are met.

There is no maximum payout.

The contingent consideration is valued at $ 0.5

million as of March 31, 2024.

Besides the multi-clinic acquisition referenced above, the Company purchased the assets and business of two physical therapy clinics, which were tucked into larger partnerships in separate transactions.

Physical Therapy

(In thousands)

Cash paid, net of cash acquired

Deferred payments

Contingent payments

Total consideration

Estimated fair value of net tangible assets acquired:

Total current assets

Total non-current assets

Total liabilities

Net tangible assets acquired

Customer and referral relationships

Non-compete agreement

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

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

For the acquisitions in 2024, 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

The values assigned to tradenames are tested annually for impairment.

2023 Acquisitions

October 2023 Acquisition

October 31, 2023

September 2023 Acquisition 1

September 29, 2023

September 2023 Acquisition 2

September 29, 2023

July 2023 Acquisition

July 31, 2023

May 2023 Acquisition

February 2023 Acquisition

February 28, 2023

IIP business.

On October 31, 2023, the Company concurrently acquired 100 %

of an IIP business and a 55 % equity interest in an ergonomics software business.

October 31, 2023, the Company concurrently acquired 100 % of an IIP business and a 55 % equity interest in an 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.

September 29, 2023, the Company acquired a 70 % equity interest in a four -clinic physical therapy practice.

The original owner of the practice retained 30 %

of the equity interests.

The purchase price for the 70 % equity interest was approximately $ 6.0 million, of which $ 5.4 million was paid in cash, and $ 0.6 million was in the form of a note payable.

The note accrues interest at 5.0 % per annum and the principal and interest are payable in two

installments.

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

In a separate transaction, on September 29, 2023, the Company acquired a 70 %

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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 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

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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).

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

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

The note will be paid on July 1, 2024.

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

The Company guaranteed

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.

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The note accrues interest at 4.5 % per annum and the principal and interest are payable on February 28, 2025.

The aggregate purchase price for the

2023 acquisitions has been preliminarily allocated as follows:

The aggregate purchase price for the 2023 acquisitions has been

preliminarily allocated as follows:

Physical Therapy

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

Besides the multi-clinic acquisitions referenced in the table

above, the Company purchased the assets and business of eight physical therapy clinics in separate transactions.

Total current assets primarily represent accounts receivable

1 unchanged sentence

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.

customer and referral relationships and non-compete agreements 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.

1 unchanged sentence

The values assigned to tradenames are tested annually for impairment.

2022 Acquisitions

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.

As part of the acquisition, the Company agreed to additional contingent consideration of up to $ 1.6 million if future operational objectives are met.

The additional contingent consideration is currently valued at $ 1.6 million.

The note accrues interest at 7.0 %

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

On October 31, 2022, the Company acquired a 60% interest in a fourteen -clinic physical therapy practice.

The practice’s owners retained

40 % of the equity interests.

The purchase price for the 60 % equity interest was approximately $ 19.5 million, with additional contingent

consideration valued at $ 8.1 million on September 30, 2023, to be paid at a later date based on the performance of the business.

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.

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.

The purchase prices for the 2022 acquisitions have been preliminarily allocated as follows:

Physical Therapy

(In thousands)

Cash paid, net of cash acquired

Contingent payments

Total consideration

Estimated fair value of net tangible assets acquired:

Total current assets

Total non-current assets

Total liabilities

Net tangible assets acquired

Customer and referral relationships

Non-compete agreements

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

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

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 12.0 years.

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

The values assigned to tradenames are tested annually for impairment.

REVENUE RECOGNITION

Revenues are recognized in the period in which services are

Net patient revenue consists of revenues for physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care,

rehabilitation of injured workers and neurological-related injuries.

Net patient revenue (patient revenues less estimated contractual adjustments – as described below) is recognized at the estimated net realizable amounts from third-party payors,

patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied.

There is an implied contract between us and the patient upon each patient visit.

Separate contractual arrangements exist between

us and third-party payors (e.g.

insurers, managed care programs, government programs, and workers’ compensation programs) which establish the amounts the third parties pay on behalf of the patients for covered services rendered.

agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third-party payors.

The payor contracts do not indicate performance obligations for

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

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

The execution of the

contract alone does not indicate a performance obligation.

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

The difference between our established rate and the anticipated reimbursement

rate is accounted for as an offset to revenue—contractual allowance.

The payment for the services rendered is due to the Company based on the respective payor contract.

Typically, we receive payment within thirty to forty-five days of service .

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

Company manages a clinic owned by a third party.

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

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

services are performed.

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

Management contract revenue is

typically due the month following the service provided .

Revenue from the IIP segment, which is

included in other revenue in the consolidated statements of net income, is derived from onsite services the Company provides to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performance optimization.

Revenue from the IIP segment is recognized when obligations under the terms of the contract are satisfied.

Revenue is recognized at an amount equal to the consideration the Company expects to receive in exchange for providing injury prevention

services to its clients.

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

Payment for services rendered is typically within thirty days .

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

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

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

If the services are paid in advance,

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

The Company determines credit losses based on the specific aging and payor classifications at each

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

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

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

The following table details the revenue related to the various categories:

Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Revenue related to:

(In thousands)

Net patient revenue

Other revenue

Physical therapy operations

Industrial injury prevention services

Management contracts

Contractual Allowances

Contractual allowances result from the differences between the rates charged for services performed and

expected reimbursements by both insurance companies and government sponsored healthcare programs for such services.

Medicare regulations and the various third-party payors and managed care contracts are often complex and may include multiple

reimbursement mechanisms payable for the services provided in 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 has generally reflected a difference within approximately 1.0 % to 1.5 %

of net revenue.

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 % on each balance sheet date.

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

the transaction price, the Company includes the effects of any variable consideration, such as the probability of collecting that amount.

The Company applies established rates to the services provided, and adjusts for the terms of payor contracts,

as applicable.

These contracted amounts are different from the Company’s established rates.

The Company has established a “contractual allowance” for this difference.

The allowance is based on the terms of payor contracts, historical and current

reimbursement information and current experience with the clinic and partners.

The Company’s established rates less the contractual allowance is the revenue that is recognized in the period in which the service is rendered.

This revenue is deemed

the transaction price and stated as “Net Patient Revenue” on the Company’s consolidated statements of income.

The Company’s performance obligations are satisfied at a point in time.

After the clinic has provided

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

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

services are rendered.

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

Redeemable Non-Controlling Interest

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

Acquisitions occur in a series of steps which are described below.

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.

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

The Seller Entity is owned by one or more individuals

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

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

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

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

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

The 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 does not contain any future earn-out or other contingent consideration that is payable to the Seller

5 unchanged sentences

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

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

term that ranges from three to five years (the “Employment Term”), with automatic one-year renewals, unless employment is terminated prior to the

end of the Employment Term.

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

ranges from three to five years

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

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

The employment of an Employed Selling Shareholder can be terminated by the Employed Selling Shareholder or NewCo,

with or without cause, at any time.

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

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

in those situations, such Selling Shareholders sell their entire ownership

interest in the Seller Entity as of the closing of the Acquisition.

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

Entity as of the closing of the Acquisition.

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

9 unchanged sentences

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

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

That is, an Employed Selling Shareholder is permitted to engage in

competing businesses or activities outside the defined mileage (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholder who is not employed by NewCo immediately is permitted to engage in the

competing business or activities outside the defined mileage.

The Non-Compete Agreement applies to a restricted region which is a defined mileage radius from the 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:

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

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

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

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

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

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

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

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

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

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

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

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.

NewCo’s earnings are distributed monthly based on available cash within NewCo.

Therefore, the

undistributed earnings amount is small, if any.

The Purchase Price for the initial equity interest purchased by the Company is, in almost all cases, also based on the same specified multiple of the trailing twelve-month earnings that

is used in the Put Right and the Call Right noted above.

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

the Put Right or the Call Right is exercised.

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

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

ProgressiveHealth

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 IIP and therapy services businesses.

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

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

who work in and manage the Progressive business.

In conjunction with the acquisition, the 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

NewCo’s earnings are distributed monthly based on

available cash within NewCo;

therefore, the undistributed earnings amount is small, if any.

The Purchase Price for the initial equity interest purchased by the Company , also based on

the same specified multiple of the trailing twelve-month earnings that is used in the Put Right and the Call Right noted above.

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

Seller Entity unless either the Put Right or the Call Right is exercised.

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

Shareholders sell their entire ownership interest in the Seller Entity at the closing of the Acquisition.

ProgressiveHealth Acquisition

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

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

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

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

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

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

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

of the membership interests in Progressive NewCo.

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

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

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

(the “Progressive Purchase Price”).

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

obligations of the members of Progressive NewCo.

As noted above, the Company did not purchase 100 % of the membership

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

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

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

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

majority of the membership interest in Progressive NewCo.

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

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

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

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

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

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

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

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

Two years after the date a Progressive Selling Shareholder no longer is

involved in the management of Progressive NewCo or

Seven years from the date of the acquisition.

Two years after the date

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

Seven years from the

date of the acquisition.

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

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:

The Progressive Put Right (as defined below) and the Progressive Call Right (as defined below) do not have an expiration

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:

Progressive Put Right

Each of the Progressive Selling Shareholders has the right to sell 30 %

of their respective residual interests on each of the 4th and 5th anniversaries of the acquisition closing, and then 10 % on

each of the 6th and 7th anniversaries.

In the event that any Progressive Selling Shareholder terminates his management relationship with Progressive NewCo for any reason on or after the seventh anniversary of

the Closing Date, the Progressive Selling Shareholder has the 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.

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 acquisition closing, and then 10 % on each of the 6th and 7th anniversaries.

In the event that any Progressive Selling Shareholder terminates his management relationship with Progressive NewCo for any

reason on or after the seventh anniversary of the Closing Date, the Progressive Selling Shareholder has the Put Right, and upon the exercise of the Progressive Put Right, the Progressive Selling Shareholder’s Interest shall be

redeemed by the Company at the purchase price described in “3” below.

Progressive Call Rights

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

purchase from such Progressive Selling Shareholder his Interest, in each case at the purchase price described in “3” below.

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

trailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of Progressive NewCo.

Progressive NewCo’s

earnings are distributed monthly based on available cash within Progressive NewCo; therefore, the undistributed earnings amount is small, if any.

The Progressive Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple of the trailing twelve-month

earnings that is used in the Progressive Put Right and the Progressive Call Right noted above.

The Progressive 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

If any Progressive Selling Shareholder’s ceases to perform management services on behalf of Progressive NewCo, the Company

thereafter shall have an irrevocable right to purchase from such Progressive Selling Shareholder his Interest, in each case at the purchase price described in “3” below.

For the Progressive Put Right and the Progressive Call Right, the purchase price is derived from a formula based on a specified

multiple of Progressive NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of

Progressive NewCo.

Progressive NewCo’s earnings are distributed monthly based on available cash within Progressive NewCo; therefore, the undistributed earnings amount is small, if any.

The Progressive Purchase Price for the initial equity interest purchased by the Company is also based on the same specified

multiple of the trailing twelve-month earnings that is used in the Progressive Put Right and the Progressive Call Right noted above.

The Progressive 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.

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 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.

The Employment Agreement and the Non-Compete Agreement do not contain any provision to escrow or “claw back” the equity interest in the Seller Entity held by such Employed Selling Shareholder,

nor the Seller Entity Interest in NewCo, in the event of a breach of the employment or non-compete terms.

More specifically, even if the Employed Selling Shareholder is terminated for “cause” by NewCo, such Employed Selling Shareholder does not

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

The Company’s only recourse against the Employed Selling Shareholder for

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

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

forfeiture of the equity interest held in the Seller Entity or of the Seller Entity Interest.

Carrying Amounts of Redeemable Non-Controlling Interests

The following table

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

The following table details the changes in the carrying amount (fair value) of the Company’s redeemable non-controlling interests:

Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

March 31, 2024

December 31, 2023

(In thousands)

Beginning balance

Operating results allocated to redeemable non-controlling interest partners

Net income allocated to redeemable non-controlling interest partners

Distributions to redeemable non-controlling interest partners

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Acquired interest

Sales of redeemable non-controlling interest - temporary equity

Changes in notes receivable related to redeemable non-controlling interest - temporary equity

Sales of redeemable non-controlling interest

Changes in notes receivable related to redeemable non-controlling interest

Ending balance

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

Nine Months Ended

September 30, 2023

September 30, 2022

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

March 31, 2024

December 31, 2023

(In thousands)

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The changes in the carrying amount of goodwill consisted of the following:

Nine Months Ended

September 30, 2023

Three Months Ended

March 31, 2024

December 31, 2023

1 unchanged sentence

Beginning balance

Goodwill acquired

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

Goodwill impairment

Adjustments for purchase price allocation of businesses acquired in prior year

Impairment of goodwill

Ending balance

three and nine months ended September 30, 2023 and 2022, no triggering events or indicators were identified that would require impairment assessments as of such periods.

During the year ended December 31, 2022, the Company recorded a charge for

goodwill impairment of $ 9.1 million related to the IIP Acquisition in November 2021.

The impairment was related to a change in the IIP

Acquisition’s current and projected operating income as well as various market inputs based on current market conditions, including the higher interest rate environment.

three months ended March 31, 2024 and 2023, no triggering events or indicators were identified that would require impairment assessments as of such periods.

During the year ended December 31, 2023, the Company recorded a charge for goodwill

impairment of $ 15.8 million related to an IIP acquisition.

Intangible Assets, Net

Intangible assets, net consisted of the following:

September 30, 2023

The Company’s intangible assets, net, consisted of the following:

March 31, 2024

December 31, 2023

Accumulated Amortization

(In thousands)

Customer and referral relationships, net of accumulated amortization of $ 28,708 and $ 23,736 , respectively (weighted average amortization period 13.0 years)

Non-compete agreements, net of accumulated amortization of $ 7,449 and $ 6,999 respectively (weighted average amortization period 6.0 years)

Customer and referral relationships

Non-compete agreements

Tradenames, customer and referral relationships and non-compete agreements are related to the businesses acquired.

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Non-compete agreements are amortized over the respective term of the agreements which range from 5.0

The following table details the amount of amortization expense recorded for

intangible assets for the three and nine months ended September 30, 2023, and 2022 :

to 6.0 years.

For the three months ended March 31, 2024, the weighted average amortization period for customer and referral relationships

was 12.7 years and the weighted average amortization period for non-compete agreements was 5.5 years.

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:

Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Customer and referral relationships

Non-compete agreements

Based on the balance of referral relationships and non-compete agreements as of September 30, 2023, the

expected amount to be amortized in 2023 and thereafter by year is as follows :

March 31, 2024

March 31, 2023

(In thousands)

Customer and referral relationships

Non-compete agreements

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

March 31, 2024, the expected amount to be amortized in 2024 and thereafter by year is as follows:

For the Year Ended December 31,

Customer and Referral

Relationships

(In thousands)

Annual Amount

Ending December 31,

2023 (excluding the nine months ended September 30 , 2023 )

(excluding the three months ended March 31, 2024)

Accrued Expenses

Accrued expenses as of September 30, 2023, and December 31, 2022 consisted of the following:

September 30, 2023

Accrued expenses consisted of the following:

March 31, 2024

December 31, 2023

2 unchanged sentences

Credit balances due to patients and payors

Dividend payable

Group health insurance claims

Closure costs

Federal income taxes payable

Contingency payable

Interest payable

Other property taxes payable

Amounts outstanding under the Company’s Senior Credit Facilities (as defined below) and notes payable consisted of the following as of the dates indicated.

September 30 , 2023

Purchase of redeemable non-controlling interests

Interest payable

Closure costs

Amounts outstanding under the Company’s Senior Credit Facilities (as defined below) and notes payable

consisted of the following:

March 31, 2024

December 31, 2023

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Term Facility

Revolving Facilitiy

Revolving Facility

Current portion of long-term debt

Long-term debt, net of current portion

Senior Credit Facilities

On 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 $ 325.0 million .

Such loans were made available through the

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

The long-term portion is included as part of Other Long-Term Liabilities in the

unaudited 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”):

Revolving Facility:

$ 175.0 million , five-year , revolving credit facility (“Revolving Facility”), which includes a $ 12.0 million sublimit for the issuance of standby letters

of credit and a $ 15.0 million

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

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

Term Facility:

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

The Term Facility

amortizes in quarterly installments of:

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 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

2 unchanged sentences

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 .

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

2 unchanged sentences

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 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.

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.

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

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

4 unchanged sentences

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 September 30, 2023, $ 145.3

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 September 30, 2023, the Company was in compliance with all of the covenants contained in the Credit Agreement.

The average effective interest rate, net of savings under the interest rate swap discussed in Note 10, Derivative Instruments, for borrowings under the Senior Credit Facilities was 5.6 % and 5.7 % in the three and nine

months ended September 30, 2023, respectively.

Notes Payable Related to

The Company generally enters into various notes payable as a means of financing a portion of its acquisitions and purchasing of non-controlling interests.

payable related to acquisitions amounted to a balance of $ 5.3 million as of September 30, 2023.

In conjunction with acquisitions in the

nine months ended September 30, 2023, the Company entered into notes payable in the aggregate amount of $ 1.8 million.

principal payments of $ 2.9 million related to these notes payable were paid in the nine months ended September 30, 2023.

balance, $ 1.6 million is due later in 2023, $ 2.4 million is due in 2024 and $ 1.3 million is due in 2025.

Interest accrues

in the range of 3.25 % to 8.0 %

per annum and is payable with each principal installment.

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 March 31, 2024, $ 143.4 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 March 31, 2024, the Company was in compliance with all of the covenants contained in the Credit Agreement.

The interest rate on the Company’s term loan was 4.7 % for the three months ended March 31, 2024, and 4.9 % for the three months ended March 31, 2023, with an all-in effective interest rate, including all associated costs, of 5.3 % and 5.5 % over the same periods,

respectively.

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 acquisitions in the years ended December 31, 2022, 2023 and 2024, the Company entered into notes payable in the aggregate amount of $ 3.9 million, of which $ 3.1 million is

due in 2025 and $ 0.8 million is due in 2026.

Interest accrues in the range of 3.5 % to 8.5 % per annum and is payable with each principal

Derivative Instruments

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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 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.

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

activities do not eliminate these risks.

Interest Rate Swap

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

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

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

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

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

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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, net of tax.

impact of the Company’s derivative instruments on the accompanying Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 are presented in the table below:

For the Three Months Ended

For the Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

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

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

Consolidated Statements of Comprehensive Income are presented in the table below.

Three Months Ended

March 31, 2024

March 31, 2023

(In thousands)

Other comprehensive loss

Unrealized gain on cash flow hedge

Other comprehensive gain (loss):

Unrealized gain (loss) on cash flow hedge

Tax effect at statutory rate (federal and state)

Comprehensive income

Comprehensive income attributable to non-controlling interest

Comprehensive

income attributable to USPH shareholders

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

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

The 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 September 30, 2023, was $ 7.7

million , of which $ 3.5 million has been included within Other current assets and $ 4.2 million has been included in Other assets, in the accompanying unaudited consolidated balance sheet.

The fair value of the interest rate swap on December 31, 2022, was $ 5.4 million , of which $ 2.9 million was included in Other current assets and $ 2.5 million was included in Other assets in the accompanying audited consolidated balance sheet.

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.

Interest rate swap:

(In thousands)

Other current assets

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

The Company determines if an arrangement is a lease at the inception of a contract.

Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent net present value of the Company’s obligation to make lease payments arising from the lease.

assets and operating lease liabilities are recognized at commencement date based on the net present value of the fixed lease payments over the lease term.

The Company’s operating lease terms are generally five years or less.

The Company’s lease terms include options to extend or terminate the

lease when it is reasonably certain that the option will be exercised.

As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date

in determining the present value of lease payments.

Operating fixed lease expense is recognized on a straight-line basis over the lease term.

The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

As most of the

Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Operating fixed lease expense is

recognized on a straight-line basis over the lease term.

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.

Three Months Ended

Nine Months Ended

September 30 , 2023

September 30 , 2022

September 30 , 2023

September 30 , 2022

March 31, 2024

March 31, 2023

(In thousands)

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* Sublease income was immaterial

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

information related to leases was as follows:

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

The supplemental cash flow information related to leases was as follows.

Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30 ,

March 31, 2024

March 31, 2023

(In thousands)

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

The aggregate future lease payments for operating leases as of September 30, 2023 were as follows:

The aggregate future lease payments for operating leases as of March 31, 2024, were as follows.

(In thousands)

2023 (excluding the nine months ended September 30, 2023)

2027 and therafter

2024 (excluding the three months ended March 31, 2024)

2028 and thereafter

Total lease payments

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Average lease terms and discount rates were as follows.

The weighted-average remaining operating lease term was 3.9 years and 4.2 years as of September 30, 2023 and September 30, 2022, respectively, while the average discount rate for operating leases was 3.8 % and 2.7 % over the same periods, respectively.

March 31, 2024

March 31, 2023

Weighted-average remaining lease term - Operating leases

Weighted-average discount rate - Operating leases

Segment Information

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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 the three months ended March 31, 2024 and the year ended December 31, 2023, the Company

purchased the assets and businesses of two and eight 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.

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.

performs these services through Industrial Sports Medicine Professionals, consisting primarily of specialized certified athletic trainers (“ATCs”).

Segment Financials

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Three Months Ended

March 31, 2024

March 31, 2023

(In thousands)

2 unchanged sentences

Total Company

Operating Costs:

Salaries and related costs:

Physical therapy operations

Industrial injury prevention services

Total salaries and related costs

Rent supplies, contract labor and other:

Physical therapy operations

Industrial injury prevention services

Total rent, supplies, contract labor and other

Provision for credit losses:

Physical therapy operations

Industrial injury prevention services

Total provision for credit losses

Total Company

Gross profit:

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

The investment balance of this joint venture as of September 30, 2023, is $ 12.3 million and the earnings amounted to $ 0.2 million and $ 0.8

million for the three and nine months ended September 30, 2023, respectively.

The investment balance of this joint venture as of March 31, 2024, is $ 12.2 million and the earnings amounted to

approximately $ 0.3 million.

Subsequent Events

The Company’s Board of Directors declared a quarterly dividend of $ 0.43 per share payable on December 8, 2023 , to shareholders of record on November 16, 2023 .

October 31, 2023, the Company,

through one of its IIP subsidiaries, acquired an IIP services and ergonomics software business for approximately $ 4.0 million.

Company’s IIP subsidiary purchased all of the IIP services business and 55 % of the ergonomics software business.

RECLASSIFICATION OF PRIOR PERIOD

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

These reclassifications had no effect on the reported results of

On May 7, 2024, the Company’s Board of Directors declared a quarterly dividend of $ 0.44 per share payable on June 14, 2024 , to shareholders of record on May 23, 2024 .

2024, one of the Company’s primary IIP businesses, Briotix Health Limited Partnership, acquired 100 % of an IIP business for a closing

purchase price of $ 24.0 million, with provision for additional purchase price based on the financial performance of the acquired

business during the 12-month period after closing.

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

What changed 10-Q

Item 1. Financial Statements