What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-08 · 356 added, 583 removed, 142 unchanged (87% of the section changed)

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Physical Therapy, Inc.

and its subsidiaries (herein referred to as “we,” “us,” “our” and the “Company”) should be read in

conjunction with (i) our historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q;

(ii) our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the

Securities and Exchange Commission (the “SEC”) on February 28, 2023 (“2022 Annual Report”);

and (iii) our management’s discussion and analysis of financial condition and results of operations included in our 2022 Annual Report.

and its subsidiaries (herein referred to as “we,” “us,” “our” or the “Company”) should be read in conjunction with (i) our

historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q;

and (ii) our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and

Exchange Commission (the “SEC”) on February 29, 2024 (“2023 Annual Report”).

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

Actual results may differ substantially from the statements we make in this

section due to a number of factors that are discussed below.

Actual results may differ substantially from the statements we make in this section due to a

number of factors that are discussed below.

FORWARD – LOOKING STATEMENTS

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

(the “Exchange Act”).

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

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

These statements (often using words such as

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

Included among such statements are those relating to

opening new clinics, availability of personnel and the reimbursement environment.

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

forward-looking statements as a result of certain risks, uncertainties, and factors, which include, but are not limited to the following.

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

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

Included among such statements are those relating to opening new

clinics, availability of personnel and the reimbursement environment.

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

statements as a result of certain risks, uncertainties, and factors, which include, but are not limited to:

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

the impact of future public health crises and epidemics/pandemics, such as was the case with the novel strain of COVID-19 and its variants;

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

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

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

or write-off of goodwill and other intangible assets;

other intangible assets;

the impact of future public health crises and epidemics/pandemics, such as was the case with the novel strain of COVID-19 and its variants;

one of our acquisition agreements contains a put right related to a future purchase of a majority interest in a separate company;

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revenue and earnings expectations;

some of our acquisition agreements contain contingent consideration, the value of which may impact future financial results;

contingent consideration provisions in certain our acquisition agreements, the value of which may impact future financial results;

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

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actual or perceived events involving banking volatility or limited liability, defaults or other adverse developments that affect the U.S.

or international financial systems, may result in market wide

liquidity problems which could have a material and adverse impact on our available cash and results of operations;

or international financial systems, may result in market wide liquidity problems which could

have a material and adverse impact on our available cash and results of operations;

our business depends on hiring, training, and retaining qualified employees;

availability and cost of qualified physical therapists;

competitive environment in the industrial injury prevention services business, which could result in the termination or non-renewal of contractual service arrangements and other adverse financial

consequences for that service line;

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

competitive environment in the industrial injury prevention services business, which could result in the termination or non-renewal of contractual service arrangements and other adverse financial consequences for that service line;

our ability to identify and complete acquisitions, and the successful integration of the operations of the acquired businesses;

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

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

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

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

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

Act of 1996 of the Health Information Technology for Economic and Clinical Health Act, or may interfere with our ability to file and process claims for payment which could interfere with our collection of revenues from third party

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

than expected;

if our noncompetition covenants with employed therapists are nullified, we may lose staff to competitors;

maintaining adequate internal controls;

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

Please see the other sections of this report and our other

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

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

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

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

Except as required by

law, we are under no obligation to update any forward-looking statement, regardless of the reason the statement may no longer be accurate.

Except as required by law, we are

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

EXECUTIVE SUMMARY

We operate outpatient physical therapy clinics and an industrial injury prevention services (“IIP”) business.

Our reportable segments include the physical therapy operations segment and the IIP services segment.

Our physical therapy operations consist of physical therapy and occupational therapy

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

Services provided by the IIP segment include

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

During the nine months ended September 30, 2023 (“2023 Nine Months”) and for the year ended December 31, 2022, we completed the acquisitions of the following physical therapy practices.

We operate our business through our reportable segments which include (1) the physical therapy operations segment and (2) the industrial injury prevention services (“IIP”) segment.

Our 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

Services provided by the IIP segment include onsite injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional evaluations and ergonomic assessments.

The majority of these services are

contracted with and paid for directly by employers, including a number of Fortune 500 companies.

Other clients include large insurers and their contractors.

These services are performed through Industrial Sports Medicine Professionals,

consisting of both physical therapists and specialized certified athletic trainers.

During the three months ended March 31, 2024 (“2024 First Quarter”) and for the year ended December 31, 2023, we completed the acquisitions of clinic practices and IIP businesses detailed below:

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

On September 30, 2023, we operated 672 clinics in 42 states.

In addition to our ownership and operation of outpatient physical therapy clinics, we also manage physical therapy facilities for

third parties, such as physicians and hospitals, with 42 third-party facilities under management as of September 30, 2023.

IIP business.

On October 31, 2023, we concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business.

The following table provides a roll forward of our clinic count for the periods presented.

Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

Number of clinics, beginning of period

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Includes clinics added through acquisitions.

In May 2023, we completed a secondary public offering of common stock, in which we sold 1,916,667 shares.

The shares were sold at a public offering price of $90.00 per share.

Upon completion of

the offering, we 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 our credit facility while the remainder is expected to be used primarily to fund acquisitions.

Our strategy is to continue acquiring outpatient physical therapy practices, develop outpatient physical therapy clinics as satellites in existing partnerships, and continue acquiring companies that provide or

serve our IIP sector.

Our 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.

Regulatory Changes

The following is a discussion of some of the significant healthcare regulatory changes that have affected our financial performance in the periods covered by this report or are likely to affect

our financial performance and financial condition in the future.

The following is a discussion of some of the significant healthcare regulatory changes that have affected our financial performance in the periods covered by this report or are likely to affect our financial

performance and financial condition in the future.

The information below should be read in conjunction with the more detailed discussion of regulations contained in our 2023 Annual Report.

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The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”).

In 2021 the MPFS established by Centers for Medicare and Medicaid Services (“CMS”) resulted in an approximate 3.5% decrease in the reimbursement for the codes applicable to physical/occupational

therapy services provided by our clinics, as compared to 2020.

Since January 1, 2022, outpatient therapy services furnished in whole or part by a therapist assistant are paid at an amount equal to 85% of the payment amount otherwise applicable

for the service.

For 2022, the MPFS Final Rule was to be an approximately 3.75% reduction to Medicare payments for physical/occupational therapy services.

This was due to the expiration of the additional

funding to the conversion factor provided by Congress in 2021 under the Consolidated Appropriations Act, 2021.

However, this reduction was addressed in the Protecting Medicare and American Farmers from Sequester Cuts Act (“2021 Act”) signed into

law on December 10, 2021.

Based on various provisions in the 2021 Act, the Medicare rate reduction for 2022 was approximately 0.75%.

The 2021 Act did not address the 15% reduction in Medicare payments for services performed by a physical or

occupational therapist assistant, which began on January 1, 2022.

In the 2023 MPFS Proposed Rule, CMS proposed a 4.5% reduction in the Physician Fee Schedule conversion factor.

However, this reduction was later addressed in the Consolidated Appropriations

Act, 2023 (“2023 Act”).

The provisions of the 2023 Act increased the conversion factor by 2.5% for 2023 and by 1.25% for 2024, resulting in an overall reduction of approximately 2% in the 2023 Physician Fee Schedule conversion factor for 2023.

the 2024 MPFS Final Rule, CMS decreased the Physician Fee Schedule conversion factor by 3.39%, which is estimated to result in an approximately 3.5% reduction in reimbursement for the codes applicable to physical/occupational therapy services

provided by our clinics, as compared to 2023, unless these reductions are otherwise mitigated by action of Congress.

The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years and requires automatic reductions in federal spending by

approximately $1.2 trillion.

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

The Bipartisan Budget Act of 2018 extended the 2% reductions to Medicare payments through fiscal year 2027.

CARES Act suspended the 2% payment reduction to Medicare payments for dates of service from May 1, 2020, through December 31, 2020, and the Consolidated Appropriations Act, 2021 further suspended the 2% payment reduction through March 2021.

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

The 2021 Act included a three-month extension of the 2% sequester relief applied to all Medicare payments through March 2022,

followed by three months of 1% sequester relief through June 30, 2022.

Sequester relief ended on June 30, 2022.

Beginning in 2021, payments to individual therapists (Physical/Occupational Therapist in Private Practice) paid under the fee schedule may be subject to adjustment based on performance in the

Merit Based Incentive Payment System (“MIPS”), which measures performance based on certain quality metrics, resource use, and meaningful use of electronic health records.

Therapists eligible to participate in MIPS include only those therapists

who are enrolled with Medicare as private practice providers and does not include therapists in facility-based providers, such as our clinics enrolled as certified rehabilitation agencies.

Less than 3% of our therapist providers currently

participate in MIPS.

Under the MIPS requirements, a provider’s performance is assessed according to established performance standards each year and then is used to determine an adjustment factor that is applied to the professional’s payment for

the corresponding payment year.

The provider’s MIPS performance in 2019 determined the payment adjustment in 2021.

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

2021 and 2022 was an increase of 1%.

The 2023 adjustment for those therapist providers who participated in MIPS during 2021 is expected to remain at an average increase of 1%.

Under the Middle-Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients who met or exceeded $3,700 in therapy expenditures during a calendar year have been

subject to a manual medical review to determine whether applicable payment criteria are satisfied.

The $3,700 threshold is applied to Physical Therapy and Speech Language Pathology Services;

a separate $3,700 threshold is applied to the

Occupational Therapy.

The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) directed CMS to modify the manual medical review process such that those reviews will no longer apply to all claims exceeding the $3,700 threshold and

instead will be determined on a targeted basis based on a variety of factors that CMS considers appropriate.

The Bipartisan Budget Act of 2018 extended the targeted medical review indefinitely but reduces the threshold to $3,000 through December 31, 2027.

For 2028, the threshold amount will be

increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequent years the threshold amount will increase based on the corresponding percentage increase in the MEI for such subsequent year.

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

The MPPR applied to all outpatient therapy services paid

under Medicare Part B — occupational therapy, physical therapy and speech-language pathology.

Under the policy, the Medicare program pays 100% of the practice expense component of the Relative Value Unit (“RVU”) for the therapy procedure with the

highest practice expense RVU, then reduces the payment for the practice expense component for the second and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy

services are furnished in separate sessions.

In 2013, the practice expense component for the second and subsequent therapy service furnished during the same day for the same patient was reduced by 50%.

Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare that sufficiently

compensate it for our services or, in some instances, cover our operating costs.

Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on our revenue, financial condition and results of

Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our business, financial condition and results of operations.

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

We believe that we are in compliance, in

all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on our financial statements as of

September 30, 2023.

Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program.

nine months ended September 30, 2023, and 2022, respectively, net patient revenues from Medicare were approximately $128.5 million and $115.1 million, respectively.

Outpatient rehabilitation providers may enroll in Medicare as institutional outpatient

rehabilitation facilities (i.e., rehab agencies) or individual physical or occupational therapists in private practice.

The majority of our clinicians are enrolled as individual physical or occupational therapists in private practice while

the remaining balance of providers are reimbursed through enrolled rehab agencies.

The following is a summary of significant regulatory changes which have affected our results of operations as well as the policies and payment rates that may

affect our future results of operations.

For calendar years 2021, 2022 and 2023, CMS’s expected decreases in Medicare reimbursement were partially offset by one-time increases in payments as a result of other legislation passed by Congress., resulting

in decreases of approximately 3.5%, 0.75% and 2.0% in each of these years, respectively.

For January 1 through March 8 of 2024, CMS’s final rule resulted in an approximate 3.5% decrease in Medicare payments for the therapy specialty.

However, effective as of March 9, 2024, pursuant to the Consolidated Appropriations Act, 2024, Congress minimized the reduction in Medicare payments for therapy services for the balance of 2024, resulting in an approximate 1.8% reduction in

Medicare payments for therapy services (rather than the 3.5% decrease).

In the final 2020 MPFS rule, CMS clarified that when the physical therapist is involved for the entire duration of the service and the physical therapist assistant (“PTA”) provides skilled therapy alongside the

physical therapist, an identification of the PTA’s participation (as denoted by a “CQ modifier”) is not required.

Also, when the same service (code) is furnished separately by the physical therapist and PTA, CMS applies the de minimis standard

to each 15-minute unit of codes, not on the total physical therapist and PTA time of the service.

For dates of service on and after January 1, 2022, CMS pays for physical therapy and occupational therapy services provided by PTAs and

occupational therapist assistants (“OTAs”) at 85% of the otherwise applicable Part B payment amount.

CMS allows a timed service to be billed without a CQ (for PTA’s) or CO (for OTA’s) modifier when a PTA or OTA participates in providing care,

but the physical therapist or occupational therapist meets the Medicare billing requirements without including the PTA’s or OTA’s minutes.

This occurs when the physical therapist or occupational therapist provides more minutes than the

15-minute midpoint.

The calendar year 2024 MPFS final rule did not contain any policy changes concerning the modifiers for services provided by physical therapy and occupational therapy assistants.

RESULTS OF OPERATIONS

The defined terms, with their respective descriptions, used in the following discussions are listed below.

Mature clinics are clinics opened or acquired prior to January 1, 2022, and are still operating as of September 30, 2023.

Mature clinics are clinics opened or acquired prior to January 1, 2023, and are still operating as of March 31, 2024.

Net rate per patient visit is net patient revenue related to our physical therapy operations divided by total number of patient visits (defined below) during the

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Patient visits is the number of unique patient visits during the periods presented.

Average visits per day per clinic is patient visits divided by the number of days in which normal business operations were conducted during the periods presented

Average daily visits per clinic is patient visits divided by the number of days in which normal business operations were conducted during the periods presented

and further divided by the average number of clinics in operation during the periods presented.

2023 Third Quarter refers to the period three months ended September 30, 2023.

2022 Third Quarter refers to the period three months ended September 30, 2022.

2023 Nine Months refers to the period nine months ended September 30, 2023.

2022 Nine Months refers to the period nine months ended September 30, 2022.

Net income attributable to our shareholders, a Generally Accepted Accounting Principles (“GAAP”) measure, was $9.3 million for the 2023 Third Quarter

compared to $9.6 million for the 2022 Third Quarter.

In accordance with GAAP, the revaluation of non-controlling interest, net of taxes, is not included in net income but is charged directly to retained earnings;

however, this change is

included in the computation of earnings per share.

Basic and diluted earnings per share attributable to our shareholders were $0.51 for the 2023 Third Quarter as compared to $0.72 for the 2022 Third Quarter.

Net income attributable to our

shareholders was $27.6 million for the 2023 Nine Months compared to $29.6 million for the 2022 Nine Months.

Basic and diluted earnings per share attributable to our shareholders were $1.72 for the 2023 Nine Months as compared to $2.27 for the

2022 Nine Months.

2024 First Quarter refers to the three months ended March 31, 2024.

2023 First Quarter refers to the three months ended March 31, 2023.

2024 First Quarter versus 2023 First Quarter

Three Months Ended

March 31, 2024

March 31, 2023

(In thousands, except percentages)

Net patient revenue

Other revenue

Operating Cost:

Salaries and related costs

Rent, supplies, contract labor and other

Provision for credit losses

Total operating cost

Corporate office costs

Operating Income

Other (expense) income:

Interest expense, debt and other

Interest income from investments

Change in fair value of contingent earn-out consideration

Change in revaluation of put-right liability

Equity in earnings of unconsolidated affiliate

Total other (expense) income

Income before taxes

Provision for income taxes

Net income attributable to non-controlling interest:

Redeemable non-controlling interest - temporary equity

Non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Not meaningful.

Total net revenue for the 2024 First Quarter increased $7.2 million, or 4.8%, to $155.7 million from $148.5 million for the 2023 First Quarter while operating costs increased $9.6 million, or 8.2%, to $127.3

million from $117.7 million over the same periods, respectively.

Total operating cost was $127.3 million for the 2024 First Quarter, or 81.8% of total revenue, as compared to $117.7 million or 79.2% of total revenue for the 2023 First Quarter.

Gross profit for the 2024 First Quarter was $28.4 million, or 18.2% of net revenue, compared to $30.9 million for the 2023 First Quarter, or 20.8% of net revenue.

Net income attributable to our shareholders, a Generally Accepted Accounting Principle (“GAAP”) measure, was $8.0 million for the 2024 First Quarter compared to $7.4 million for the 2023 First Quarter.

In accordance with GAAP, the

revaluation of redeemable non-controlling interest, net of taxes, is not included in net income but is charged directly to retained earnings;

however, this change is included in the computation of earnings per share.

Earnings per share for the

2024 First Quarter was $0.46 compared to $0.58 for the 2023 First Quarter.

The following table provides a calculation of earnings per share.

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

Non-GAAP Measures

Adjusted EBITDA, a non-GAAP measure, is defined as net income attributable to USPH shareholders before interest income, interest expense, taxes, depreciation, amortization, change in fair value

of contingent earn-out consideration, Relief Funds (see “ 2023 Nine Months Compared to 2022 Nine Months – Other Income and Expense ” section below for definition), changes in revaluation of put-right

liability, equity-based awards compensation expense, and related portions for non-controlling interests.

Operating Results, a non-GAAP measure, equals net income attributable to our shareholders less changes in revaluation of put-right liability, Relief Funds, changes in fair value of contingent

earn-out consideration, and any allocations to non-controlling interests, all net of taxes.

Operating Results per share also exclude the impact of the revaluation of redeemable non-controlling interest and the associated tax impact.

We use Adjusted EBITDA and Operating Results, which eliminate certain items described above that can be subject to volatility and unusual costs, as the principal measures to evaluate and

monitor financial performance period over period.

We believe that Adjusted EBITDA and Operating Results are useful measures for investors to use in comparing our period-to-period results as well as for comparing with other similar businesses

since most do not have redeemable instruments and therefore have different equity structures.

The following tables provide details of the basic and diluted earnings per share computation and reconcile net income attributable to our shareholders calculated in accordance with GAAP to Adjusted EBITDA and

Operating Results (non-GAAP measures).

Management believes providing Adjusted EBITDA and Operating Results to investors is useful information for comparing the Company’s period-to-period results as well as for comparing with other similar

businesses since most do not have redeemable instruments and therefore have different equity structures.

Management uses Adjusted EBITDA and Operating Results, which eliminate certain items described above that can be subject to volatility and

unusual costs, as the principal measures to evaluate and monitor financial performance period over period.

Adjusted EBITDA is defined as net income attributable to our shareholders before interest income, interest expense, taxes, depreciation, amortization, change in fair value of contingent earn-out consideration,

Relief Funds, changes in revaluation of put-right liability, equity-based awards compensation expense, other income and related portions for non-controlling interests.

Operating Results equals net income attributable to our shareholders less, changes in revaluation of a put-right liability, Relief Funds, changes in fair value of contingent earn-out consideration, and any

allocations to non-controlling interests, all net of taxes.

Operating Results per share also excludes the impact of the revaluation of redeemable non-controlling interest and the associated tax impact.

Adjusted EBITDA and Operating Results are not measures of financial performance under GAAP.

Adjusted EBITDA and Operating Results should not be considered in isolation or as an alternative to,

or substitute for, net income attributable to our shareholders presented in the consolidated financial statements.

The following tables reconcile net income attributable to our shareholders calculated in accordance with GAAP to Adjusted EBITDA and Operating Results as well as the detail of the basic and diluted earnings per

share computation.

OPERATING RESULTS AND ADJUSTED EBITDA

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Adjusted EBITDA and Operating Results should not be considered in isolation or as an alternative to, or substitute for,

net income attributable to our shareholders presented in the consolidated financial statements.

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)

Adjusted EBITDA

Adjusted EBITDA (a non-GAAP measure)

Net income attributable to USPH shareholders

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Depreciation and amortization

Interest expense, debt and other

Interest expense, debt and other, net

Interest income from investments

Equity-based awards compensation expense

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Change in fair value of contingent earn-out consideration

Interest income

Other (income) expense

Allocation to non-controlling interests

Adjusted EBITDA (a non-GAAP measure)

Operating Results

Operating Results (a non-GAAP measure)

Net income attributable to USPH shareholders

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Change in revaluation of put-right liability

Allocation to non-controlling interest

Allocation to non-controlling interests

Tax effect at statutory rate (federal and state)

Operating Results (a non-GAAP measure)

Operating Results per share (a non-GAAP measure)

Earnings per share

Computation of earnings per share - USPH shareholders:

Net income attributable to USPH shareholders

Charges to retained earnings:

Revaluation of redeemable non-controlling interest

Tax effect at statutory rate (federal and state)

Earnings per share (basic and diluted)

Shares used in computation - basic and diluted

Revised to conform to current year presentation.

For the 2023 Third Quarter, Adjusted EBITDA, increased $1.6 million to $18.6 million from $17.0 million in the 2022 Third Quarter while Operating Results, increased $1.7 million to $9.2

million, or $0.62 per share, in the 2023 Third Quarter from $7.5 million, or $0.58 per share, in the 2022 Third Quarter.

The increase in both Adjusted EBITDA and Operating Results was primarily associated with clinic additions since the

comparable prior year period.

For the 2023 Nine Months, Adjusted EBITDA, a non-GAAP measure, was $58.7 million, an increase of $2.9 million, from $55.8 million for the 2022 Nine Months.

The increase in Adjusted EBITDA was

primarily associated with clinic additions since the comparable prior year period partially offset by higher corporate office costs.

Operating Results, also a non-GAAP measure, was $27.4 million, or $1.97 per share, in the 2023 Nine Months as

compared to $27.5 million, or $2.12 per share, in the 2022 Nine Months.

2023 Third Quarter Compared to 2022 Third Quarter Results

Our reportable segments include the physical therapy operations segment and the IIP segment.

Also included in the physical therapy operations segment are revenues from management contract

services and other services which include services we provide on-site, such as athletic trainers for schools.

The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated

financial statements:

Three Months Ended September 30,

(In thousands)

Physical therapy operations

Industrial injury prevention services

Total Company

Gross profit:

Physical therapy operations

Industrial injury prevention services

Total Company

Total Assets:

Adjusted EBITDA was $16.7 million for the 2024 First Quarter compared to $18.5 million in the 2023 First Quarter, with the variance due to the Medicare rate reductions that took effect at the beginning of the

year and the adverse impact of weather events in January 2024.

The Medicare rate reductions decreased Adjusted EBITDA by approximately $1.7 million while the adverse weather resulted in a decrease in Adjusted EBITDA of approximately $1.3

Operating Results was $7.7 million, or $0.51 per share, in the 2024 First Quarter as compared to $7.7 million, or $0.59 per share, in the 2023 First Quarter,

with the decrease attributable to the increase in shares outstanding associated with the Company's secondary offering completed in May 2023, as well as the Medicare rate reduction and adverse impact of weather events in January 2024.

Physical Therapy Operations

Industrial injury prevention services

Total Company

Total net revenue for 2023 Third Quarter was $150.0 million, an increase of 7.5%, compared to $139.6 million for the 2022 Third Quarter.

The following table provides a breakdown of total net revenue.

Three Months Ended September 30,

Three Months Ended

March 31, 2024

March 31, 2023

(In thousands, except percentages)

2 unchanged sentences

Clinic additions (2)

2022 clinic additions

Clinics sold or closed (3)

Net patient revenue from physical therapy operations

Other revenue

Physical therapy operations

Industrial injury prevention services

Management contracts

See above for defined terms.

Net Patient Revenue

Operating costs (4)

Financial and operating metrics (not in thousands):

Net rate per patient visit (1)

Patient visits (1)

Average daily visits per clinic (1)

Salaries and related costs per visit, clinics (5)

Operating costs per visit, clinics (5)

(1) See Glossary of Terms - Revenue Metrics for definitions.

(2) Includes 14 clinics added during the 2024 First Quarter and 46 clinic added during the year ended December 31, 2023.

(3) Includes six clinics closed during the 2024 First Quarter and 15 clinics closed during the year ended December 31, 2023.

(4) Includes revenues and costs from management contracts.

(5) Per visit costs excludes management contract costs.

(6) Not meaningful.

Revenue from closed clinics includes revenue from the eight and 16 clinics closed or sold during the nine months ended September 30, 2023 and the year ended December 31, 2022,

respectively.

Revenue from physical therapy operations increased $10.7 million, or 9.1%, to $128.1 million for the 2023 Third Quarter from $117.5 million for the 2022 Third Quarter.

The increase was primarily due to an

increase in the number of patient visits per day to 29.7 in the 2023 Third Quarter, a record-high average patient visits for a third quarter in our history, as compared to 28.8 for the 2022 Third Quarter, and an increase in volume from the 58

net new clinics added since the comparable prior year period, partially offset by a decrease in net rate per patient visit.

The number of patient visits increased 10.8% to 1,242,954 for the 2023 Third Quarter from 1,122,070 in the 2022 Third

Quarter, with visits at mature clinics up 1.3% over the same periods.

Net rate per patient visit was $102.37 in the 2023 Third Quarter as compared to $104.01 in the 2022 Third Quarter.

The decrease in net rate was due to the combined Medicare rate reductions in 2022 and 2023.

other payor categories, including commercial and workers compensation, increased as compared to the prior year.

Net rate per patient visit increased sequentially in the 2023 Third Quarter from the net rate of $102.03 in the three months ended

June 30, 2023.

IIP revenue decreased $0.7 million, or 3.3%, to $19.5 million for the 2023 Third Quarter as compared to $20.2 million for the 2022 Third Quarter.

Net revenue from physical therapy operations increased $5.3 million, or 4.1%, to $134.4 million for the 2024 First Quarter from $129.2 million for the 2023 First Quarter.

This increase was primarily due to the

increase in visits from the 32 net new clinics added since the comparable prior year period partially offset by an approximate $3.6 million adverse impact of weather in January 2024.

Additionally, net rate per patient visit increased to

$103.37 for the 2024 First Quarter from $103.12 for the 2023 First Quarter.

This increase was mainly driven by higher reimbursement rates from commercial and other payors as a result of contract negotiations and an increase in workers

compensation as a percent of the Company’s total net patient revenues, partially offset by the Medicare rate reductions that took effect at the beginning of the year which decreased net patient revenues by approximately $1.9 million for the

2024 First Quarter.

The Medicare rate reductions will be less impactful in future quarters as the Consolidated Appropriations Act of 2024 adjusted the Medicare rate reduction to 1.8% from 3.5%, effective on March 9, 2024.

Other revenues

increased $0.8 million, or 29.9%, to $3.4 million for the 2024 First Quarter from $2.6 million for the 2023 First Quarter due to the increase in the number of management contracts since the comparable prior year period.

Average daily visits per clinic was 29.5 for the 2024 First Quarter compared to 29.8 in the comparable prior year quarter.

Total patient visits were 1,268,002 in the 2024 First Quarter, a 3.3% increase from 2023

First Quarter.

Average daily visits per clinic in January 2024 of 27.4 were lower than the prior year of 28.9, while average daily visits per clinic in February and March of 2024 were higher than the prior year, the highest volumes for those

two months in the Company’s history.

Operating costs

Operating costs were $122.1 million for the 2023 Third Quarter, or 81.4% of net revenue, compared to $112.8 million, or 80.8% of net revenue, for the 2022 Third Quarter.

following table provides a breakdown of operating costs.

Three Months Ended September 30,

Operating costs related to:

(In thousands, except percentages)

Mature Clinics (1)

2023 Clinic additions

2022 Clinic additions

Clinics sold or closed (3)

Physical therapy operations

Operating costs from physical therapy operations increased by $8.3 million or 8.1% to $110.4 million in the 2024 First Quarter from $102.1 million in the 2023 First Quarter primarily driven by costs associated

with the 32 net new clinics added since the comparable prior year period.

Operating costs were 82.1% of net revenue for the 2024 First Quarter compared to 79.0% of net revenue for the 2023 First Quarter.

On a per visit basis (excluding

management contracts), operating costs increased to $85.50 for the 2024 First Quarter from $81.97 for the 2023 First Quarter.

Salaries and related costs related to clinics (excluding management contracts) increased to $77.9 million in the 2024 First Quarter from $72.6 million, in the 2023 First Quarter, an increase of $5.3 million, or

Salaries and related costs per visit, related to clinics increased to $61.42 for the 2024 First Quarter from $59.14 for the 2023 First Quarter.

Rent, supplies, contract labor and other costs related to clinics (excluding management contracts) increased to $28.9 million in the 2024 First Quarter from $26.5 million in the 2023 First Quarter, an increase

of $2.4 million, or 9.0% mostly due to the 32 net new clinics added since the comparable prior year period.

Rent, supplies, contract labor and other costs, increased on a per visit basis to $22.80 for the 2024 First Quarter compared to $21.60

for the 2023 First Quarter.

Operating costs related to management contracts increased $0.5 million from $1.4 million in the 2023 First Quarter to $1.9 million in the 2024 First Quarter.

The provision for credit losses was $1.6 million for the 2024 First Quarter and $1.5 million for the 2023 First Quarter.

As a percentage of net revenues, the provision for credit losses was 1.0% for both the

2024 First Quarter and the 2023 First Quarter.

Our provision for credit losses as a percentage of total patient accounts receivable was 5.0% on both March 31, 2024, and December 31, 2023.

Gross profit from physical therapy operations in the 2024 First Quarter decreased $3.0 million, or 11.2%, to $24.1 million from $27.1 million in the 2023 First Quarter.

The gross profit margin from physical

therapy operations decreased to 17.9% in the 2024 First Quarter from 21.0% in the 2023 First Quarter.

Industrial Injury Prevention Services

Management contracts

See above for defined terms.

Not meaningful.

Operating costs from closed clinics include costs from the eight and 16 clinics closed or sold during the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively.

Operating costs from physical therapy operations increased $9.5 million, or 9.9%, to $105.0 million in the 2023 Third Quarter from $95.5 million in the 2022 Third Quarter primarily driven by

costs associated with the 58 net new clinics since the comparable prior year period as well as increased patient visits at mature clinics.

On a cost per patient visit basis, total physical therapy operating costs were $84.49 in the 2023 Third

Quarter, a decrease of 0.8% from $85.14 in the 2022 Third Quarter.

Operating costs from the IIP segment were down $0.7 million, or 4.4%, versus the comparable prior year period.

Salaries and Related Costs

Salaries and related costs were $89.8 million or 59.9% of net revenue for the 2023 Third Quarter versus $81.8 million or 58.6% for the 2022 Third Quarter.

Salaries and related costs for

physical therapy operations were $75.3 million as compared to $68.4 million in the 2022 Third Quarter and 58.8% of physical therapy operations revenue in the 2023 Third Quarter and 58.3% in the 2022 Third Quarter.

On a cost per patient visit

basis, physical therapy salaries and related costs per visit were $60.35 in the 2023 Third Quarter, a decrease of 1.0% from $60.99 in the 2022 Third Quarter.

Salaries and related costs for the IIP business were $12.9 million in the 2023 Third

Quarter, or 66.1% of IIP revenue, as compared to $12.1 million in the 2022 Third Quarter, or 59.9% of IIP revenue.

Rent, Supplies, Contract Labor and Other

Rent, supplies, contract labor and other costs as a percentage of total revenue were $30.7 million or 20.5% for the 2023 Third Quarter versus $29.7 million or 21.3% for the 2022 Third Quarter.

Rent, supplies, contract labor and other costs for physical therapy operations were $28.2 million in the 2023 Third Quarter, or 22.0% of physical therapy operations revenue, as compared to $25.7 million in the 2022 Third Quarter, or 21.9% of

physical therapy operations revenue.

Rent, supplies, contract labor and other costs for the IIP services business were $2.2 million in the 2023 Third Quarter, or 11.2% of IIP revenue, as compared to $3.7 million in the 2022 Third Quarter, or

18.6% of net IIP revenue.

Provision for Credit Losses

The provision for credit losses as a percentage of net revenue were 1.0% in both the 2023 Third Quarter and the 2022 Third Quarter.

Our allowance for credit losses for patient accounts

receivable as a percentage of total patient accounts receivable was 4.7% on September 30, 2023, as compared to 5.4% on December 31, 2022.

Our days’ sales outstanding were 31 days on both September 30, 2023, and December 31, 2022.

Gross profit for the 2023 Third Quarter increased $1.1 million, or 4.3%, to $27.9 million from $26.8 million for the 2022 Third Quarter.

Gross profit margin decreased to 18.6% in the 2023 Third

Quarter from 19.2% in the 2022 Third Quarter.

The following table provides a detailed breakdown of gross profit and related gross profit margins.

Three Months Ended September 30,

Three Months Ended

March 31, 2024

March 31, 2023

(In thousands, except percentages)

Physical therapy operations

Industrial injury prevention services

Management contracts

Operating costs

IIP revenues increased $1.9 million, or 9.8%, to $21.3 million for the 2024 First Quarter as compared to $19.4 million for the 2023 First Quarter.

IIP operating costs increased $1.3 million, or 8.5%, versus the

comparable prior year period.

Gross profit from IIP operations in the 2024 First Quarter increased $0.6 million, or 15.1%, to $4.3 million from $3.8 million in the 2023 First Quarter.

The gross profit margin from IIP operations increased to

20.4% in the 2024 First Quarter from 19.5% in the 2023 First Quarter.

Corporate Office Costs

Corporate office costs were $12.0 million, or 8.0% of net revenue, for the 2023 Third Quarter compared to $11.9 million, or 8.5% of net revenue, for the 2022 Third Quarter.

Corporate costs increased $0.2 million, or 1.6%, to $14.1 million in the 2024 First Quarter from $13.9 million in 2023 First Quarter due to an increase in support costs related to the larger number of clinics and

the timing of certain expenses.

Operating Income

Operating income for the 2023 Third Quarter was $15.9 million, or 10.6% of net revenue, and $14.9 million, or 10.7% of net revenue, for the 2022 Third Quarter.

Other Income and Expense

Total other (expense) income, net, was ($0.1) million in the 2023 Third Quarter compared to $1.1 million in the 2022 Third Quarter.

Interest expense, net of $0.9 million savings from the interest rate swap arrangement discussed in the “Liquidity and Capital Resources – Interest Rate Swap” section below, was $2.1 million

for the 2023 Third Quarter compared to $2.0 million in the 2022 Third Quarter.

The interest rate on the Company’s credit facilities, net of the savings from the interest rate swap, was 4.9% for the 2023 Third Quarter, with an all-in

effective interest rate, including all associated costs, of 5.6%.

Interest income from investing excess cash (proceeds from the secondary offering sale of our stock completed in May 2023) in a high-yield savings account was $1.7 million during the 2023 Third Quarter.

We revalued contingent earn-out consideration related to acquisitions and recognized $0.2 million as income (a reduction in the related liability) in the 2023 Third Quarter compared to $2.0 million in the 2022 Third Quarter.

The revaluation of a put-right liability resulted in $0.1 million of expense (an increase in the related liability) for the 2023 Third Quarter compared to $0.8 million of income for the 2022 Third Quarter.

The put-right, which expires

in November 2026, relates to the potential future purchase of a company that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area.

Operating income was $14.3 million for the 2024 First Quarter compared to $17.0 million for the 2023 First Quarter.

Other (Expenses) Income

Interest Expense, Debt and Other

Interest expense decreased $0.6 million to $2.0 million (net of $0.9 million savings from the Company’s interest rate swap arrangement discussed below in the “ Liquidity and

Capital Resources – Interest Rate Swap” ) for the 2024 First Quarter compared to $2.6 million (net of $0.6 million savings from the interest rate swap arrangement) in the 2023 First Quarter due

to a lower outstanding balance on our revolver, which we paid down in May 2023.

The interest rate on the Company’s term loan was 4.7% for the 2024 First Quarter and 4.9% for the 2023 First Quarter, with an all-in effective interest rate,

including all associated costs, of 5.3% and 5.5% over the same periods, respectively.

Interest income from investment

Interest income from investing excess cash (primarily proceeds from the secondary offering sale of the Company’s stock completed in May 2023) in a high-yield savings account was $1.5 million during the 2024 First

Change in fair value of contingent earn-out consideration

We revalued contingent earn-out consideration related to certain acquisitions resulting in a gain of $0.6 million for the 2024 First Quarter compared to an expense of $0.7 million for the 2023 First Quarter.

Change in Revaluation of Put-Right Liability

We recorded an expense of $0.1 million on the revaluation of a put right liability for both 2024 First Quarter and 2023 First Quarter.

The put-right relates to a prior IIP acquisition and the potential future

purchase of a company that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area.

Equity in earnings of unconsolidated affiliate

For both the 2024 First Quarter and 2023 First Quarter, we recognized an income of $0.3 million from a joint venture which provides physical therapy services for patients at hospitals.

Since we are deemed to

not have a controlling interest in the joint venture, our investment is accounted for using the equity method of accounting.

Provision for Income Taxes

The provision for income taxes was $3.6 million in the 2023 Third Quarter compared to $3.2 million during the 2022 Third Quarter.

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

income attributable to non-controlling interest (effective tax rate) was 27.8% for the 2023 Third Quarter and 25.2% for the 2022 Third Quarter.

A computation of our effective income tax rate is as follows.

Three Months Ended September 30,

The provision for income taxes was $3.1 million in the 2024 First Quarter compared to $3.0 million during the 2023 First Quarter while the effective tax rates were 28.1% and 28.6% over the same periods,

respectively.

Three Months Ended

March 31, 2024

March 31, 2023

(In thousands, except percentages)

7 unchanged sentences

Net Income Attributable to Non-controlling Interest

Net income attributable to non-controlling interest (temporary and permanent) was $3.0 million in the 2023 Third Quarter compared to $3.3 million in the 2022 Third Quarter.

2023 Nine Months Compared to 2022 Nine Months Results.

Our reportable segments in the 2023 Nine Months include the physical therapy operations segment and the IIP segment.

Also included in the physical therapy operations segment are revenues from

management contract services and other services which include services we provide on-site, such as athletic trainers for schools.

The following table summarizes financial data by segment for the periods indicated and reconciles the data to our

consolidated financial statements:

Nine Months Ended September 30,

(In thousands)

Physical therapy operations

Industrial injury prevention services

Total Company

Gross profit:

Physical therapy operations

Industrial injury prevention services

Total Company

Total Assets:

Physical therapy operations

Industrial injury prevention services

Total Company

Total net revenue for the 2023 Nine Months was $450.0 million, an increase of 9.2%, compared to $412.0 million for the 2022 Nine Months.

The table below provides a breakdown of total net revenue.

Nine Months Ended September 30,

Revenue related to:

(In thousands, except percentages)

Mature Clinics (1)

2023 clinic additions

2022 clinic additions

Clinics sold or closed (3)

Net patient revenue from physical therapy operations

Other revenue

Physical therapy operations

Industrial injury prevention services

Management contracts

See defined terms above.

Not meaningful.

Revenue from closed clinics includes revenue from the eight and 16 clinics closed or sold during the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively.

Revenue from physical therapy operations increased $38.6 million, or 11.1%, to $385.6 million for the 2023 Nine Months from $347.0 million for the 2022 Nine Months primarily due to higher average visits per clinic

per day (30.0 for the 2023 Nine Months versus 28.7 for the 2022 Nine Months) and an increase in volume from the 58 net new clinics added since the comparable prior year period, partially offset by a decrease in net rate per visit.

The number of

patient visits increased 12.2% to 3,737,584 for the 2023 Nine Months from 3,331,143 for the 2022 Nine Months, with patient visits at our mature clinics up 3.2% over the same periods.

Net rate per patient visit decreased to $102.50 in the 2023 Nine Months from $103.40 in the 2022 Nine Months due to the combined Medicare rate

reductions in 2022 and 2023, including the discontinuation of sequestration relief on Medicare visits effective in July 2022.

Revenue from IIP decreased slightly to $58.1 million for the 2023 Nine Months as compared to $58.7 million for the 2022 Nine Months.

Operating Costs

Operating costs were $359.0 million for the 2023 Nine Months, or 79.8% of net revenue, compared to $327.8 million, or 79.6% of net revenue, for the 2022 Nine Months.

Nine Months Ended September 30,

Operating costs related to:

(In thousands, except percentages)

Mature Clinics (1)

2023 Clinic additions

2022 Clinic additions

Clinics sold or closed (3)

Physical therapy operations

Industrial injury prevention services

Management contracts

See Glossary of Terms - Revenue Metrics for the definition.

Not meaningful.

Operating costs from closed clinics include costs from the eight and 16 clinics closed or sold during the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively

Physical therapy operating costs increased $31.0 million, or 11.2%, to $307.8 million in the 2023 Nine Months from $276.8 million in the 2022 Nine Months primarily driven by costs associated with the 58 net new

clinics added since the comparable prior year period as well as the 3.2% increase in patient visits at mature clinics.

On a cost per patient visit basis, physical therapy operating costs were $82.35 for the 2023 Nine Months, a decrease of 0.9%

from $83.09 for the 2022 Nine Months.

Operating costs from IIP decreased slightly to $45.9 million during the 2023 Nine Months from $46.0 million during the 2022 Nine Months.

Salaries and Related Costs

Salaries and related costs were $262.8 million or 58.4% of net revenue for the 2023 Nine Months versus $236.9 million or 57.5% of net revenue for the 2022 Nine Months.

Salaries and related costs for physical

therapy operations were $220.6 million in the 2023 Nine Months, or 57.2% of physical therapy operations revenue, as compared to $197.7 million in the 2022 Nine Months, or 57.0% of physical therapy operations revenue.

On a cost per patient visit

basis, physical therapy salaries and related costs per visit were $59.01 for the 2023 Nine Months, a decrease of $0.6% from $59.34 for the 2022 Nine Months.

Salaries and related costs for our IIP business was

$37.5 million in the 2023 Nine Months, or 64.6% of IIP revenue, as compared to $34.8 million in the 2022 Nine Months, or 59.3% of IIP revenue.

Rent, Supplies, Contract Labor and Other

Rent, supplies, contract labor and other costs as a percentage of total revenue were $91.7 million or 20.4% for the 2023 Nine Months versus $86.7 million or 21.0% for the 2022 Nine Months.

Rent, supplies, contract labor and other costs for physical therapy operations were $82.4 million in the 2023 Nine Months, or 21.4% of physical therapy operations revenue, as compared to $75.0 million in the 2022 Nine Months, or 21.6% of physical

therapy operations revenue.

Rent, supplies, contract labor and other costs for the IIP business were $8.4 million in the 2023 Nine Months, or 14.5% of IIPrevenue, as compared to $11.1 million in the 2022 Nine Months, or 18.9% of net IIP revenue.

Provision for Credit Losses

The provision for credit losses as a percentage of total revenue was 1.0% in both the 2023 Nine Months and the 2022 Nine Months.

Gross profit increased $6.8 million, or 8.1%, to $91.0 million for the 2023 Nine Months from $84.2 million for the 2022 Nine Months.

Gross profit margin decreased slightly to 20.2% in the 2023 Nine Months from

20.4% in the 2022 Nine Months.

The following table provides a detailed breakdown of gross profit and related gross profit margins.

Nine Months Ended September 30,

(In thousands, except percentages)

Physical therapy operations

Industrial injury prevention services

Management contracts

Corporate Office Cost

Corporate office costs were $38.1 million, or 8.5% of net revenue, for the 2023 Nine Months compared to $34.2 million, or 8.3% of net revenue, for the 2022 Nine Months.

The increase of $3.9 million, or 11.3%, in

corporate office costs was primarily due to higher salaries related to merit increases, staff additions to support a larger number of clinics and inflationary and related impacts.

Operating Income

Operating income increased 5.9%, to $52.9 million, or 11.8% of net revenues, for the 2023 Nine Months from $50.0 million, or 12.1% of net revenues, in the 2022 Nine Months.

Other Income and Expense

Total other (expense) income was ($3.7) million during the 2023 Nine Months compared to $1.0 million during the 2022 Nine Months.

Interest expense, net of $2.3 million savings from the interest rate swap arrangement discussed in the “Balance Sheet and Cash Flow” section below, was $7.3 million for the 2023 Nine Months

compared to $3.5 million in the 2022 Nine Months.

The increase in interest expense was primarily due to a higher effective interest rate and increased borrowings to fund acquisitions.

The effective interest rate on the Company’s credit

facilities, net of the savings from the interest rate swap, was 5.1% for the 2023 Nine Months, with an all-in interest rate, including all associated costs, of 5.7%.

Interest income from investing excess cash (proceeds from the secondary offering sale of our stock completed in May 2023) in high-yield savings account was $2.2 million during the 2023 Nine Months.

We revalued contingent earn-out consideration related to acquisitions and recognized $0.2 million as income (a reduction in the related liability) in the 2023 Nine Months compared to $2.0 million in the 2022 Nine Months.

The revaluation of a put-right liability resulted in $0.3 million of expense (an increase in the related liability) for the 2023 Nine Months compared to $0.8 million of income (a decrease in the related liability) for the 2022 Nine

The put-right, which expires in November 2026, relates to the potential future purchase of a company that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area.

During the 2023 Nine Months, we 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.

We do not expect to receive or recognize any future Relief Funds.

No such income was recognized in the 2022 Nine Months.

Through a subsidiary, we have a 49% joint venture interest in a company that provides physical therapy services for patients at hospitals.

Since we are deemed to not have a controlling interest

in the joint venture, our investment is accounted for using the equity method of accounting.

The investment balance of this joint venture as of September 30, 2023, is $12.3 million.

Equity in earnings of this unconsolidated affiliate was $0.8

million and $1.0 million in the 2023 Nine Months and the 2022 Nine Months, respectively.

Provision for Income Taxes

The provision for income taxes was $10.8 million for the 2023 Nine Months compared to $11.0 million for the 2022 Nine Months.

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

attributable to non-controlling interest (effective tax rate) was 28.1% for the 2023 Nine Months and 27.0% for the 2022 Nine Months.

computation of our effective income tax rate is as follows:

Nine Months Ended September 30,

(In thousands, except percentages)

Income before taxes

net income attributable to non-controlling interest:

Redeemable non-controlling interest - temporary equity

Non-controlling interest - permanent equity

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

Provision for income taxes

Net Income Attributable to Non-controlling Interest

Net income attributable to non-controlling interest (temporary and permanent) was $10.9 million for the 2023 Nine Months and $10.5 million for the 2022 Nine Months.

Net income attributable to redeemable non-controlling interest (temporary equity) was $2.2 million in the 2024 First Quarter compared to $2.7 million in the 2023 First Quarter.

Net income attributable to

non-controlling interest (permanent equity) was $1.3 million for both the 2024 First Quarter and the 2023 First Quarter.

LIQUIDITY AND CAPITAL RESOURCES

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

On September 30, 2023, and December 31, 2022, we had $147.7 million and

$31.6 million, respectively, in cash and cash equivalents.

Additionally, we had $145.3 million of outstanding borrowings and $175.0 million in available credit under our revolving credit facilities as of September 30, 2023 compared to

$179.1 million of outstanding borrowings and $144.0 million in available credit under our Revolving Credit Facilities as of December 31, 2022.

As discussed above, in May 2023 we completed a secondary offering of our common stock resulting in net proceeds of $163.6 million, after deducting the underwriting discount and certain offering

A portion of the net proceeds was used to repay the $35.0 million then outstanding under our Revolving Credit Facility while the remainder is expected to be used primarily for acquisitions.

The Company’s cash is currently invested in a

high-yield savings account which generated interest income of approximately $1.7 million and $2.2 million in the three and nine months ended September 30, 2023, respectively.

We believe that our cash and cash equivalents and availability under our Credit Facilities are sufficient to fund the working capital needs of our operating subsidiaries through at least

September 30, 2024.

Total cash and cash equivalents were $132.3 million as of March 31, 2024 and $152.8 million as of December

Additionally, we had $143.4 million of outstanding borrowings and $175.0 million in available credit under our Revolving Facility as of March 31, 2024, compared to $144.4 million of outstanding borrowings and $175.0 million in

available credit under our Revolving Facility as of December 31, 2023.

We believe that our cash and cash equivalents and availability under our Senior Credit Facilities are sufficient to fund the working capital needs of our operating subsidiaries through at least March 31, 2025.

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

We plan to continue developing new clinics and making

additional acquisitions.

We have, from time to time, purchased the non-controlling interests of limited partners in our existing partnerships.

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

have, from time to time, purchased the non-controlling interests of limited partners in our existing partnerships.

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

Generally, any acquisition or

purchase of non-controlling interests is expected to be accomplished using our cash, financing, or a combination of the two.

Generally, any acquisition or purchase of non-controlling

interests is expected to be accomplished using our cash, financing, or a combination of the two.

We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts.

Claims are submitted to payors daily, weekly or monthly in

accordance with our policy or payor’s requirements.

Claims are submitted to payors daily, weekly or monthly in accordance with our

policy or payor’s requirements.

When possible, we submit our claims electronically.

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

dependent upon the payment of another payor.

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

payment of another payor.

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

Medicare and other payor claims relating to new clinics awaiting CMS approval initially may not be submitted for

six months or more.

Medicare and other payor claims relating to new clinics awaiting CMS approval initially may not be submitted for six months or more.

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

With managed care, commercial health plans and self-pay payor type receivables,

the write-off generally occurs after the account receivable has been outstanding for 120 days or longer.

As of September 30, 2023, we have accrued $8.0 million related to credit balances, a portion of which is due to patients and payors.

credit balances are expected to be resolved or paid in the next twelve months.

With managed care, commercial health plans and self-pay payor type receivables, the write-off

generally occurs after the account receivable has been outstanding for 120 days or longer.

As of March 31, 2024, we have accrued $7.9 million related to credit balances, a portion of which is due to patients and payors.

The credit balances

are expected to be resolved or paid in the next twelve months.

A summary of our operating, investing and financing activities is discussed below.

During the 2023 Nine Months, $55.1 million of cash was provided by operating activities, $36.6 million was used in investing activities, and $97.5 million was provided by financing activities.

The major uses of cash for investing activities

purchase of majority interest in businesses ($23.0 million), purchase of non-controlling interests from existing partners ($8.1 million) and purchase of fixed assets ($7.1 million), while cash provided by financing activities included:

proceeds from the secondary offering discussed above ($163.6 million) offset by net payments of borrowings under our credit facilities ($33.8 million), dividends paid to shareholders ($17.7 million), and distributions to non-controlling interests

($11.8 million).

Three Months Ended

March 31, 2024

March 31, 2023

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Operating Activities

Cash provided by operating activities was $4.4 million for the 2024 First Quarter as compared to $11.3 million for the 2023 First Quarter.

This decrease in cash provided was mostly due to the timing of

payments related to payroll.

Investing Activities

Cash used in investing activities for the 2024 First Quarter totaled $20.5 million and consisted of $19.2 million used in the purchase of interests in businesses and non-controlling interests (temporary and

permanent), and $1.8 million of fixed assets purchases.

These uses were partially offset by $0.1 million proceeds from the sale of non-controlling interests (temporary and permanent) and $0.4 million distributions received from an

unconsolidated affiliate.

Financing Activities

Cash used in financing activities for the 2024 First Quarter, totaled $4.5 million and was comprised primarily of $3.2 million in distributions to non-controlling interests (temporary and permanent) and

payments of $1.3 million related to notes payable and the term note.

Senior Credit Facilities

On December 5, 2013, we 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, we entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”) among Bank of America, N.A., as administrative agent

(“Administrative Agent”) and the lenders from time-to-time party thereto.

This agreement was amended and/or restated in August 2015, January

2016, March 2017, November 2017, and January 2021.

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

lenders from time-to-time party thereto.

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

Such loans will be available through the following facilities

(collectively, the “Senior Credit Facilities”):

Such loans will be available through the following facilities (collectively, the “Senior Credit Facilities”):

Revolving Facility:

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

and a $15 million sublimit for swingline loans (each, a “Swingline Loan”).

$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:

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The Term Facility amortizes in quarterly installments of:

(a) 0.625% in each of the first two years, (b)

1.250% in the third and fourth year, and (c) 1.875% in the fifth year of the Credit Agreement.

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

fourth year, and (c) 1.875% in the fifth year of the Credit Agreement.

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

The proceeds of the Revolving Facility have been and shall continue to be used by us for working capital and other general corporate purposes of our Company and its subsidiaries, including to

fund future acquisitions and invest in growth opportunities.

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

connection with the loan facilities transactions, for working capital and other general corporate purposes.

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

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

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

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

at our option, an alternate base rate plus an applicable margin.

The interest rate for the 2023 Nine Months on our Senior Credit Facilities, net of the savings from the interest rate swap described below, was 5.1%, with an all-interest rate,

including all associated costs, of 5.7%.

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

acquisitions and invest in growth opportunities.

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

with the loan facilities transactions, for working capital and other general corporate purposes.

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

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

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

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

alternate base rate plus an applicable margin.

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

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

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

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

penalty, subject to certain conditions.

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

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

The Credit Agreement includes

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

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

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

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

certain conditions.

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

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

The Credit Agreement includes certain financial

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

The Credit Agreement also contains customary events of default.

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

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

As of September 30, 2023, $143.7 million, net of unamortized debt issuance costs of $1.6 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, we were in compliance with all of the covenants contained in the Credit Agreement.

The average effective interest rate, net of the savings from interest rate swap

discussed below, for borrowings under the Senior Credit Facility, inclusive of all associated costs, were 5.6% and 5.7% for the 2023 Third Quarter and 2023 Nine Months respectively.

Our obligations under the Credit Agreement are guaranteed by our wholly owned material domestic subsidiaries (each, a “Guarantor”), and our obligations and any Guarantors are secured by a perfected first priority

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

As of March 31, 2024, $142.1 million, net of unamortized debt issuance costs of $1.4 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, we were 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 2024 First Quarter and 4.9% for the 2023

First Quarter, with an all-in effective interest rate, including all associated costs, of 5.3% and 5.5% over the same periods, respectively.

Interest Rate Swap

In May 2022, we entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A, which became effective on June 30, 2022.

It has a $150 million notional

value adjusted concurrently with scheduled principal payments made on the term loan and has a maturity date of June 30, 2027.

Beginning in July 2022, we receive 1-month SOFR, and pay a fixed rate of interest of 2.815% on 1-month SOFR on a

quarterly basis.

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

In May 2022, we entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A.

It has a $150 million notional value adjusted concurrently with scheduled principal payments

made on the term loan and has a maturity date of June 30, 2027.

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

The total interest rate in any period also

includes an applicable margin based on our consolidated leverage ratio.

In connection with the swap, no cash was exchanged between us and the counterparty.

We designated our interest rate swap as a cash flow hedge and structured it to be highly effective.

Consequently, unrealized gains and losses related to the fair value of the interest rate swap

are recorded to accumulated other comprehensive income (loss), net of tax.

As of September 30, 2023, the fair value of the interest rate swap was $7.7 million, an increase of $1.7 million, net of a $0.6 million, income tax effect, as compared to December 31, 2022.

fair value of the interest rate swap is included in other assets (current and long term) in our consolidated balance sheet while the increase in fair value is presented as unrealized gain in our unaudited consolidated statements of comprehensive

The interest rate swap arrangement has generated $2.3 million in interest savings since its inception.

The average interest rate for the term facility, net of the savings from the swap, in each of the 2023 Third Quarter and 2023 Nine

Months was 4.9%.

Notes Payable Related to Acquisitions

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.

As of March 31, 2024, the fair value of the interest rate swap was $5.5 million, an increase of $1.3 million, net of a $0.5 million, income tax effect, as compared to December 31, 2023.

The fair value of the

interest rate swap is included in Other assets (current and long term) in our consolidated balance sheet while the increase in fair value is presented as unrealized gain in our unaudited consolidated statements of comprehensive income.

interest rate swap arrangement has generated $0.9 million in interest savings for the period March 31, 2024.

The average interest rate for the term facility, net of the savings from the swap, in the 2024 First Quarter was 4.7%.

Notes Payable and Deferred Payments Related to Acquisitions

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

Our present outstanding notes payable primarily relate to the acquisitions of a business or acquisitions

of majority interests in such businesses.

At September 30, 2023, our remaining outstanding balance on these notes aggregated $5.3 million.

$1.6 million of the outstanding notes payable are payable in 2023, $2.4 million is payable in 2024, and

$1.3 million is payable in 2025.

Notes are generally payable in equal annual installments of principal over two years plus any accrued and unpaid interest.

Our present outstanding notes payable primarily relate to the acquisitions of a business or acquisitions of majority

interests in such businesses.

At March 31, 2024, our remaining outstanding balance on these notes aggregated $3.9 million, of which $3.1 million is payable in 2025, and $0.8 million is payable in 2026.

Notes are generally payable in equal

annual installments of principal over two years plus any accrued and unpaid interest.

Interest accrues at various interest rates ranging from 3.5% to 8.5% per annum.

On March 29, 2024, we 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 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 of 4.5% per annum and the principal and the interest are payable on March 29, 2026.

Additionally, we have an

obligation to pay an additional amount based on certain future operational objectives being met.

There is no maximum payout.

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

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

The purchase price for the

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

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

installments.

The first payment of principal and interest of $0.3 million is due on January 31, 2024, and the second installment of $0.3 million is due on September 30, 2025.

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.

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

In a separate transaction, on September 29, 2023, we acquired a 70% equity interest in a single clinic physical therapy practice.

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

The purchase price for the 70% equity interest was approximately $7.8 million, of which $7.4 million was paid in cash and $0.4 million is a deferred payment due on June 30, 2025.

On July 31, 2023, we acquired a 70% equity interest in a five-clinic practice.

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

The purchase price

for the 70% equity interest was approximately $7.8 million, of which $7.4 million was paid in cash and $0.4 million is a deferred payment due on June 30, 2025.

On July 31, 2023, we acquired a 70% equity interest in a five-clinic practice.

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

The purchase price for the 70% equity interest was approximately $2.1 million,

of which $1.8 million was paid in cash and $0.3 million is a deferred payment due on June 30, 2025.

On May 31, 2023, we and a local partner together acquired a 75% interest in a four-clinic physical therapy practice.

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

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

The purchase price for the 75% equity interest was approximately $3.1 million, of which $1.7 million was paid in cash by us, $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 us and $0.1 million will be paid by the local partner).

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

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

The purchase price for the 75% equity interest was approximately $3.1 million, of which $1.7 million was paid in cash by us, $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 us and $0.1 million will be paid by the local partner).

The note will be paid on July 1, 2024.

We guaranteed the full payment

of $0.3 million on its due date.

We guaranteed the full payment of $0.3

million on its due date.

On February 28, 2023, we acquired an 80% interest in a one-clinic physical therapy practice.

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

The purchase price

for the 80% equity interest was approximately $6.2 million, of which $5.8 million was paid in cash and $0.4 million in the form of a note payable.

The purchase price for the 80% equity interest was

approximately $6.2 million, of which $5.8 million was paid in cash and $0.4 million in the form of a note payable.

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

On November 30, 2022, we acquired an 80% interest in a thirteen-clinic physical therapy practice.

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

The purchase price for the 80%

equity interest was approximately $25.0 million, of which $24.2 million was paid in cash and $0.8 million in the form of a note payable.

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

On October 31, 2022, we acquired 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 a potential additional amount to be paid at a later date based on the performance of the business.

This contingent consideration had a fair value of $8.1 million on September 30, 2023.

The fair value

of this contingent consideration will be adjusted quarterly based on certain criteria and market inputs.

There is no maximum payout for this contingency.

On September 30, 2022, we acquired an 80% interest in a two-clinic physical therapy practice.

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

The purchase price for the 80% equity

interest was approximately $4.2 million, of which $3.9 million was paid in cash and $0.3 million in the form of a note payable.

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

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

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

The purchase price for the 70% equity

interest was approximately $3.5 million, of which $3.3 million was paid in cash and $0.2 million in the form of a note payable.

The note accrues interest at 5.5% per annum and the principal and interest are payable on August 31, 2024.

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

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

The purchase price for the 70% equity

interest was approximately $11.5 million, of which $11.2 million was paid in cash and $0.3 million is in the form of a note payable.

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

Redeemable Non-Controlling Interest

Certain limited partnership agreements, as amended, provide that, upon the triggering events, we have a call right and the selling entity or individual has a put right for the purchase and sale

of the limited partnership interest held by the partner.

Certain limited partnership agreements, as amended, provide that, upon the triggering events, we have a call right and the selling entity or individual has a put right for the purchase and sale of the limited

partnership interest held by the partner.

Once triggered, the put right and the call right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature.

The purchase price of the partner’s

limited partnership interest upon the exercise of either the put right or the call right is calculated per the terms of the respective agreements and classified as redeemable non-controlling interest (temporary equity) in our consolidated balance

The fair value of the redeemable non-controlling interest at September 30, 2023 was $174.7 million.

In the event that a limited minority partner’s employment ceases at any time after a specified date that is typically between three and five years from the acquisition date, we have agreed to

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

Share Repurchase Program

In March 2009, the Board authorized the repurchase of up to 10% of our common stock (“March 2009 Authorization”).

Our Credit Agreement permits share repurchases of up to $50.0 million in the

aggregate, subject to compliance with certain covenants.

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

There is no expiration date for the share repurchase program.

As of September 30, 2023, there are currently an additional estimated 163,523 shares (based on the closing price of $91.73 on September 30, 2023) that may be purchased from time to time in the

open market or private transactions depending on price, availability and our cash position.

We did not purchase any shares of our common stock during the three and nine months ended September 30, 2023, or during the year ended December 31, 2022.

The purchase price of the partner’s limited

partnership interest upon the exercise of either the put right or the call right is calculated per the terms of the respective agreements and classified as redeemable non-controlling interest (temporary equity) in our consolidated balance

The fair value of the redeemable non-controlling interests on March 31, 2024, was $190.7 million.

In the event that a limited non-controlling partner’s employment ceases at any time after a specified date that is typically between three and five years from the acquisition date, we have agreed to certain

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

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 2. Management’s Discussion and Analysis