U S PHYSICAL THERAPY INC /NV 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of U.S. Physical Therapy, Inc. 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. 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”). 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: • changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certification and/or enrollment status; • revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction; • changes in reimbursement rates or payment methods from third party payors including government agencies, and changes in the deductibles and co-pays owed by patients; • compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure to comply; • competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certain clinics and thereby incur losses and/or closure costs including the possible write-down or write-off of goodwill and other intangible assets; • 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; • the impact of future vaccinations and/or testing mandates at the federal, state and/or local level, which could have an adverse impact on staffing, revenue, costs and the results of operations; • our debt and financial obligations could adversely affect our financial condition, our ability to obtain future financing and our ability to operate our business; • changes as the result of government enacted national healthcare reform; • business and regulatory conditions including federal and state regulations; • governmental and other third party payor inspections, reviews, investigations and audits, which may result in sanctions or reputational harm and increased costs; • revenue and earnings expectations; • 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; • general economic conditions, including but not limited to inflationary and recessionary periods; • 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; • our business depends on hiring, training, and retaining qualified employees; • availability and cost of qualified physical therapists; 31 Table of Contents • competitive environment in the IIP 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 and preserve data privacy; • 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, or may interfere with our ability to file and process claims for payment which could interfere with our collection of revenues from third party payors; • maintaining clients for which we perform management, IIP 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; • enforcing our noncompetition covenants with employed therapists; • maintaining adequate internal controls; • maintaining necessary insurance coverage; • availability, terms, and use of capital; and • weather and other seasonal factors. Many factors are beyond our control. 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. 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. 32 Table of Contents EXECUTIVE SUMMARY 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 a variety of orthopedic-related disorders, and sports-related injuries, and rehabilitation of injured workers. Services provided by the IIP segment include onsite services for clients’ employees including injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. These services are performed through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers. During the nine months ended September 30, 2024, and for the year ended December 31, 2023, we completed the acquisitions of clinic practices and IIP businesses detailed below: Acquisition Date % Interest Acquired Number of Clinics August 2024 Acquisition August 31, 2024 70 % 8 April 2024 Acquisition April 30, 2024 ** * March 2024 Acquisition March 29, 2024 50 % 9 October 2023 Acquisition October 31, 2023 *** * September 2023 Acquisition 1 September 29, 2023 70 % 4 September 2023 Acquisition 2 September 29, 2023 70 % 1 July 2023 Acquisition July 31, 2023 70 % 7 May 2023 Acquisition May 31, 2023 45 % 4 February 2023 Acquisition February 28, 2023 80 % 1 * IIP business. ** On April 30, 2024, one of our IIP businesses, Briotix Health Limited Partnership, acquired 100% of an 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. For the Three Months Ended For the Nine Months Ended September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 Number of clinics, beginning of period 681 656 671 640 Additions (1) 12 19 33 40 Closed or sold (32 ) (3 ) (43 ) (8 ) Number of clinics, end of period 661 672 661 672 (1) Includes clinics added through acquisitions. We also manage clinics owned by third parties through management contracts. In addition to the clinic count shown above, as of September 30, 2024, we managed 39 clinics bringing the total owned/managed clinics to 700. 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 December 6, 2024, to shareholders of record on November 15, 2024. On October 31, 2024, we completed the acquisition of a 50% interest in MSO Metro, LLC (“Metro”) pursuant to the Equity Interest Purchase Agreement (the “Purchase Agreement”) dated October 7, 2024 among U.S. Physical Therapy, Ltd. (a subsidiary of the Company), Metro, the members of Metro, and Michael G. Mayrsohn, as Sellers' Representative. We also became the managing member of Metro. At the closing, we paid the purchase price of approximately $76.5 million, $75 million of which was funded by its cash on hand and the remaining $1.5 million through the issuance of 18,358 shares of our common stock based on a trailing five-day average as of the day immediately prior to closing. The shares of our common stock were issued in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act. The Purchase Agreement also includes an earnout where the sellers can earn up to another $20.0 million of consideration if certain performance criteria relating to the Metro business are achieved. 33 Table of Contents 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 information below should be read in conjunction with the more detailed discussion of regulations contained in our 2023 Annual Report. Medicare Reimbursement The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”). 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. For calendar years 2021, 2022 and 2023, Centers for Medicare and Medicaid Services (“CMS”) 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). The MPFS proposed by CMS for 2025, if enacted, is expected to decrease Medicare reimbursement for therapy services by approximately 2.8% as compared to the reimbursement rates in effect for most of 2024. 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 proposed 2025 MPFS final rule does not contain any policy changes concerning the modifiers for services provided by physical therapy and occupational therapist 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, 2023, and are still operating as of September 30, 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 periods presented. • Patient visits is the number of unique patient visits 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. • 2024 Third Quarter refers to the three months ended September 30, 2024. • 2023 Third Quarter refers to the three months ended September 30, 2023. • 2024 Nine Months refers to the nine months ended September 30, 2024. • 2023 Nine Months refers to the nine months ended September 30, 2023. USPH Net Income was $6.6 million for the 2024 Third Quarter. In accordance with Generally Accepted Accounting Principles (“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. 34 Table of Contents Earnings per share for the 2024 Third Quarter was $0.39. USPH Net Income and earnings per share included a charge of $2.5 million, net of $1.0 million tax, or $0.16 per share, associated with the closure of 32 clinics during the 2024 Third Quarter. Excluding the clinic closure costs, USPH Net Income was $9.1 million (1) compared to $9.3 million (1) in the comparable prior year period while earnings per share was $0.55 (1) and $0.51 (1) over the same periods, respectively. USPH Net Income was $22.2 million for the 2024 Nine Months as compared to $27.6 million for the 2023 Nine Months while earnings per share was $1.32 for the 2024 Nine Months compared to $1.72 for the 2023 Nine Months. USPH Net Income and earnings per share included a charge of $2.9 million, net of $1.2 million tax, or $0.20 per share, associated with the closure of 43 clinics during the 2024 Nine Months. Excluding the clinic closure costs, USPH Net Income was $25.1 million (1) compared to $27.7 million (1) in the comparable period while earnings per share was $1.52 (1) and $1.73 (1) over the same periods, respectively. The following table provides a calculation of earnings per share. For the Three Months Ended For the Nine Months Ended September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 (In thousands, except per share data) Earnings per share Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 6,628 $ 9,254 $ 22,180 $ 27,583 Charges to retained earnings: Revaluation of redeemable non-controlling interest (1,097 ) (2,242 ) (3,158 ) (4,988 ) Tax effect at statutory rate (federal and state) 280 573 807 1,274 $ 5,811 $ 7,585 $ 19,829 $ 23,869 Earnings per share (basic and diluted) $ 0.39 $ 0.51 $ 1.32 $ 1.72 Shares used in computation - basic and diluted 15,077 14,987 15,055 13,918 (1) These are non-GAAP Measures. See below for the reconciliation of non-GAAP measures to the most directly comparable GAAP measure. Non-GAAP Measures Adjusted EBITDA a non-GAAP measure, 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, payments received from the federal government under the Corona virus Aid, Relief and Economic Security Act (“Relief Funds”), changes in revaluation of put-right liability, equity-based awards compensation expense, clinic closure costs, business acquisition related costs and other income 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 a put-right liability, Relief Funds, clinic closure costs, changes in fair value of contingent earn-out consideration, business acquisition related costs 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. 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, Operating Results and other non-GAAP measures. Management believes providing Adjusted EBITDA and Operating Results to investors is useful information for 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. Management uses Adjusted EBITDA, Operating Results, and other non-GAAP measures, 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. 35 Table of Contents Adjusted EBITDA, Operating Results and the other non-GAAP measures presented 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. For the Three Months Ended For the Nine Months Ended September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 (In thousands, except per share data) Adjusted EBITDA (a non-GAAP measure) Net income attributable to USPH shareholders $ 6,628 $ 9,254 $ 22,180 $ 27,583 Adjustments: Provision for income taxes 2,559 3,557 8,781 10,757 Depreciation and amortization 4,387 3,966 12,996 11,582 Interest expense, debt and other, net 2,018 2,101 5,966 7,293 Equity-based awards compensation expense 1,921 1,859 5,837 5,451 Interest income from investments (1,018 ) (1,673 ) (3,635 ) (2,191 ) Change in revaluation of put-right liability (168 ) (187 ) 136 (197 ) Change in fair value of contingent earn-out consideration 1,899 145 5,332 344 Relief Funds - - - (467 ) Clinic closure costs (1) 3,432 29 4,109 161 Business acquisition related costs (2) 314 - 314 - Other income (90 ) (78 ) (261 ) (305 ) Allocation to non-controlling interests (811 ) (361 ) (1,789 ) (1,138 ) $ 21,071 $ 18,612 $ 59,966 $ 58,873 Operating Results (a non-GAAP measure) Net income attributable to USPH shareholders $ 6,628 $ 9,254 $ 22,180 $ 27,583 Adjustments: Change in fair value of contingent earn-out consideration 1,899 145 5,332 344 Change in revaluation of put-right liability (168 ) (187 ) 136 (197 ) Clinic closure costs (1) 3,432 29 4,109 161 Business acquisition related costs (2) 314 - 314 - Relief Funds - - (467 ) Allocation to non-controlling interests (429 ) (3 ) (513 ) (19 ) Tax effect at statutory rate (federal and state) (1,290 ) 4 (2,396 ) 46 $ 10,386 $ 9,242 $ 29,162 $ 27,451 Operating Results per share (a non-GAAP measure) $ 0.69 $ 0.62 $ 1.94 $ 1.97 (1) Costs associated with the closure of 32 clinics during the 2024 Third Quarter and 43 clinics during the 2024 Nine Months. Closure costs in the 2023 Third Quarter and 2023 Nine Months were not material. (2) Primarily consists of legal and consulting expenses related to the acquisition of 50% equity interest in a management services organization that provides management and administrative services to 50 physical therapy clinics. 36 Table of Contents A reconciliation of additional non-GAAP measures to the most comparable GAAP measures are presented in the tables below. For the Three Months Ended September 30, 2024 September 30, 2023 As Reported (GAAP) Closure Costs (1) As Adjusted (Non-GAAP) As Reported (GAAP) Closure Costs (1) As Adjusted (Non-GAAP) (in thousands, except per share data, and percentages) Operating costs $ 138,902 $ (3,432 ) $ 135,470 $ 122,078 $ (29 ) $ 122,049 Gross profit 29,131 3,432 32,563 27,929 29 27,958 Gross margin 17.3 % * 19.4 % 18.6 % * 18.6 % Operating income 14,746 3,432 18,178 15,881 29 15,910 Provision for taxes 2,559 (958 ) 1,601 3,557 (8 ) 3,549 USPH Net Income 6,628 2,474 9,102 9,254 21 9,275 Earnings per share $ 0.39 0.16 $ 0.55 $ 0.51 - $ 0.51 Segment information - Physical Therapy Operations Operating costs $ 119,207 (3,432 ) 115,775 $ 107,016 (29 ) 106,987 Gross profit 23,507 3,432 26,939 23,505 29 23,534 Gross margin 16.5 % * 18.9 % 18.0 % * 18.0 % For the Nine Months Ended September 30, 2024 September 30, 2023 As Reported (GAAP) Closure Costs (1) As Adjusted (Non-GAAP) As Reported (GAAP) Closure Costs (1) As Adjusted (Non-GAAP) (in thousands, except per share data, and percentages) Operating costs $ 399,504 $ (4,109 ) $ 395,395 $ 359,008 $ (161 ) $ 358,847 Gross profit 91,394 4,109 95,503 90,993 161 91,154 Gross margin 18.6 % * 19.5 % 20.2 % * 20.3 % Operating income 48,675 4,109 52,784 52,941 161 53,102 Provision for taxes 8,781 (1,167 ) 7,614 10,757 (45 ) 10,712 USPH Net Income 22,180 2,942 25,122 27,583 116 27,699 Earnings per share $ 1.32 0.20 $ 1.52 $ 1.72 0.01 $ 1.73 Segment information - Physical Therapy Operations Operating costs $ 344,270 (4,109 ) 340,161 $ 313,104 (161 ) 312,943 Gross profit 76,355 4,109 80,464 78,815 161 78,976 Gross margin 18.2 % * 19.1 % 20.1 % * 20.2 % (1) Costs associated with the closure of 32 and 43 clinics during the 2024 Third Quarter and 2024 Nine Months, respectively. Closure costs for the comparable prior year periods were not material. We believe that presenting this information will allow investors to evaluate the performance of the Company's business more objectively. * Not meaningful 37 Table of Contents 2024 Third Quarter versus 2023 Third Quarter For the Three Months Ended Variance September 30, 2024 September 30, 2023 $ % (In thousands, except percentages) Net patient revenue $ 139,146 82.8 % $ 127,243 84.8 % $ 11,903 9.4 % Other revenue 28,887 17.2 % 22,764 15.2 % 6,123 26.9 % Net revenue 168,033 100.0 % 150,007 100.0 % 18,026 12.0 % Operating Cost: Salaries and related costs 99,835 59.4 % 89,846 59.9 % 9,989 11.1 % Rent, supplies, contract labor and other 33,914 20.2 % 30,678 20.5 % 3,236 10.5 % Provision for credit losses 1,721 1.0 % 1,525 1.0 % 196 12.9 % Clinic closure costs - lease and other 3,432 2.0 % 29 0.0 % 3,403 * Total operating cost 138,902 82.7 % 122,078 81.4 % 16,824 13.8 % Gross Profit 29,131 17.3 % 27,929 18.6 % 1,202 4.3 % Corporate office costs 14,385 8.6 % 12,048 8.0 % 2,337 19.4 % Operating Income 14,746 8.8 % 15,881 10.6 % (1,135 ) -7.1 % Other (expense) income: Interest expense, debt and other (2,018 ) -1.2 % (2,101 ) -1.4 % 83 -4.0 % Interest income from investments 1,018 0.6 % 1,673 1.1 % (655 ) -39.2 % Change in fair value of contingent earn-out consideration 168 0.1 % 187 0.1 % (19 ) -10.2 % Change in revaluation of put-right liability (1,899 ) -1.1 % (145 ) -0.1 % (1,754 ) 1209.7 % Equity in earnings of unconsolidated affiliate 231 0.1 % 206 0.1 % 25 12.1 % Other 90 0.1 % 78 0.1 % 12 15.4 % Total other (expense) income (2,410 ) -1.4 % (102 ) -0.1 % (2,308 ) 2262.7 % Income before taxes 12,336 7.3 % 15,779 10.5 % (3,443 ) -21.8 % Provision for income taxes 2,559 1.5 % 3,557 2.4 % (998 ) -28.1 % Net income 9,777 5.8 % 12,222 8.1 % (2,445 ) -20.0 % Less: Net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity (1,998 ) -1.2 % (1,976 ) -1.3 % (22 ) 1.1 % Non-controlling interest - permanent equity (1,151 ) -0.7 % (992 ) -0.7 % (159 ) 16.0 % (3,149 ) -1.9 % (2,968 ) -2.0 % (181 ) 6.1 % Net income attributable to USPH shareholders $ 6,628 3.9 % $ 9,254 6.2 % $ (2,626 ) -28.4 % * Not meaningful Total net revenue for the 2024 Third Quarter increased $18.0 million, or 12.0%, to $168.0 million from $150.0 million for the 2023 Third Quarter while operating costs increased $16.8 million, or 13.8%, to $138.9 million from $122.1 million over the same periods, respectively. As a percentage of total net revenue, total operating cost was 82.7% for the 2024 Third Quarter, as compared to 81.4% for the 2023 Third Quarter. Gross profit for the 2024 Third Quarter was $29.1 million, or 17.3% of net revenue, compared to $27.9 million, or 18.6% of net revenue, for the 2023 Third Quarter. Excluding closure costs (1) of $3.4 million , gross profit from physical therapy operations was $26.9 million, an increase of $3.4 million, or 14.5%, over the 2023 Third Quarter, and the gross profit margin from physical therapy operations was 18.9% in the 2024 Third Quarter, an increase of 90 basis points from 18.0% in the 2023 Third Quarter. Adjusted EBITDA, a non-GAAP measure, was $21.1 million for the 2024 Third Quarter, an increase of $2.5 million from $18.6 million in the 2023 Third Quarter. Operating Results, a non-GAAP measure, was $10.4 million in the 2024 Third Quarter, an increase of $1.1 million from $9.2 million in the 2023 Third Quarter. On a per share basis, Operating Results was $0.69 in the 2024 Third Quarter compared to $0.62 in the 2023 Third Quarter. (1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information. 38 Table of Contents Physical Therapy Operations For the Three Months Ended Variance September 30, 2024 September 30, 2023 $ % (In thousands, except percentages) Revenue related to: Mature Clinics (1) $ 126,173 $ 120,612 $ 5,561 4.6 % Clinic additions (2) 11,337 3,585 7,752 * (9 ) Clinics sold or closed (3) 1,636 3,046 (1,410 ) * (9 ) Net Patient Revenue 139,146 127,243 11,903 9.4 % Other (4) 3,568 3,278 290 8.8 % Total 142,714 130,521 12,193 9.3 % Operating costs (4)(7) 119,207 107,016 12,191 11.4 % Gross profit (7) $ 23,507 $ 23,505 $ 2 0.0 % Financial and operating metrics (not in thousands): Net rate per patient visit (1) $ 105.65 $ 102.37 $ 3.28 3.2 % Patient visits (1) 1,317,051 1,242,954 74,097 6.0 % Average daily visits per clinic (1) 30.1 29.7 0.4 1.3 % Gross margin 16.5% 18.0% Gross margin, excluding closure costs, non-GAAP (6)(8) 18.9% 18.0% Salaries and related costs per visit, clinics (5) $ 62.47 $ 60.35 $ 2.12 3.5 % Operating costs per visit, clinics (5)(7) $ 88.98 $ 84.49 $ 4.49 5.3 % Operating costs per visit, clinics, excluding closure costs (5)(6) $ 86.37 $ 84.47 $ 1.90 2.2 % (1) See Glossary of Terms - Revenue Metrics for definitions. (2) Includes 33 clinics added during the nine months ended September 30, 2024 and 46 clinic added during the year ended December 31, 2023. (3) Includes 43 clinics closed during the nine months ended September 30, 2024 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) Excludes $3.4 million of costs associated with the closure of 32 clinics during the 2024 Third Quarter. (7) Includes $3.4 million of costs associated with the closure of 32 clinics during the 2024 Third Quarter. (8) Refer to reconcilliation of non-GAAP measures to most comparable GAAP measures for more information. (9) Not meaningful Revenues Net revenue from physical therapy operations increased $12.2 million, or 9.3%, to $142.7 million for the 2024 Third Quarter from $130.5 million for the 2023 Third Quarter. This increase was due primarily to the increase in visits from the 21 net clinics added since the comparable prior year period, a 2.4% increase in visits at mature clinics and an increase in net rate per patient visit. Total patient visits increased 74,097, or 6.0%, to 1,317,051 in the 2024 Third Quarter from 1,242,954 in the 2023 Third Quarter. Average daily visits per clinic was 30.1 for the 2024 Third Quarter compared to 29.7 in the comparable prior year quarter. Net rate per patient visit for the 2024 Third Quarter increased to $105.65 from $102.37 for the 2023 Third Quarter, an increase of 3.2%, despite the 1.8% Medicare rate reduction which went into effect at the beginning of 2024. The increase in net rate per patient visit 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 our total net patient revenues. Other revenues increased approximately $0.3 million, or 8.8%, to $3.6 million for the 2024 Third Quarter from $3.3 million for the 2023 Third Quarter primarily due to the increase in management contract revenue since the comparable prior year period. 39 Table of Contents Operating costs Operating costs from physical therapy operations increased $12.2 million, or 11.4%, to $119.2 million in the 2024 Third Quarter from $107.0 million in the 2023 Third Quarter primarily driven by the 21 net new clinics added since the comparable prior year period and $3.4 million of costs associated with the closure of 32 clinics during the 2024 Third Quarter. Excluding the clinic closure costs, operating costs increased 8.2% (1) , while total operating costs per visit was $88.98 compared to $84.49 over the same periods, respectively. Excluding the clinic closure costs, operating costs per visit was $86.37 in the 2024 Third Quarter. Salaries and related costs (including management contracts) increased to $84.2 million in the 2024 Third Quarter compared to $77.0 million, in the 2023 Third Quarter, an increase of $7.2 million, or 9.4%. Salaries and related costs per visit (excluding management contracts), increased to $62.47 for the 2024 Third Quarter from $60.35 for the 2023 Third Quarter. Total rent, supplies, contract labor and other costs related to clinics (excluding management contracts) increased to $29.8 million in the 2024 Third Quarter from $28.5 million in the 2023 Third Quarter, an increase of $1.6 million, or 5.7%. On a per visit basis, rent, supplies, contract labor and other costs (excluding management contracts costs), decreased slightly to $22.59 for the 2024 Third Quarter compared to $22.90 for the 2023 Third Quarter. The provision for credit losses was $1.7 million for the 2024 Third Quarter and $1.5 million for the 2023 Third Quarter. As a percentage of net revenues, the provision for credit losses was 1.2% for both the 2024 Third Quarter and the 2023 Third Quarter. Gross Profit Gross profit from physical therapy operations in the 2024 Third Quarter was $23.5 million with a gross profit margin of 16.5%. Excluding closure costs, gross profit from physical therapy operations was $26.9 million (1) , an increase of $3.4 million, or 14.5%, over the 2023 Third Quarter, and the gross profit margin from physical therapy operations was 18.9% (1) in the 2024 Third Quarter, an increase of 90 basis points from 18.0% in the 2023 Third Quarter. (1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information. Industrial Injury Prevention Services For the Three Months Ended Variance September 30, 2024 September 30, 2023 $ % (In thousands, except percentages) Net revenue $ 25,319 $ 19,486 $ 5,833 29.9 % Operating costs 19,695 15,062 4,633 30.8 % Gross profit $ 5,624 $ 4,424 $ 1,200 27.1 % Gross margin 22.2% 22.7% IIP revenues increased $5.8 million, or 29.9%, to $25.3 million for the 2024 Third Quarter as compared to $19.5 million for the 2023 Third Quarter. Excluding our IIP acquisitions during the years 2023 and 2024, IIP revenues increased 12.9%. Gross profit from IIP operations in the 2024 Third Quarter increased $1.2 million, or 27.1%, to $5.6 million from $4.4 million in the 2023 Third Quarter. Excluding our IIP acquisitions during the years 2023 and 2024, IIP gross profit increased 13.2%. The gross profit margin from IIP operations was 22.2% in the 2024 Third Quarter compared to 22.7% in the 2023 Third Quarter. Corporate Office Costs Corporate office costs were $14.4 million, or 8.6% of net revenue, in the 2024 Third Quarter compared to $12.0 million, or 8.0% of revenue in the 2023 Third Quarter. Operating Income Operating income was $14.7 million for the 2024 Third Quarter compared to $15.9 million for the 2023 Third Quarter. Excluding the clinic closure costs, operating income was $18.2 million (1) in the 2024 Third Quarter. 40 Table of Contents Other (Expenses) Income Interest Expense, Debt and Other Interest expense decreased $0.1 million to $2.0 million for the 2024 Third Quarter compared to $2.1 million in the 2023 Third Quarter due to a lower outstanding balance on our term loan. The interest rate on our credit facility was 4.7% for the 2024 Third Quarter and 4.9% for the 2023 Third Quarter, with an all-in effective interest rate, including all associated costs of 5.4% and 5.6% over the same periods, respectively. Interest income from investment Interest income from investing excess cash (primarily proceeds from the secondary offering sale of our stock completed in May 2023) in a high-yield savings account decreased to $1.0 million during the 2024 Third Quarter from $1.7 million in the 2023 Third Quarter as a result of our lower cash balance, due to cash used for acquisitions, since the comparable prior year period. Change in fair value of contingent earn-out consideration and put-right liability We revalued contingent and put-right liabilities related to certain acquisitions and recognized a net non-cash expense (an increase in the related liabilities) of $1.7 million in the 2024 Third Quarter and less than $0.1 million in the comparable 2023 Third Quarter. The put-right (expiring in 2027) relates to the potential future purchase of a company within our IIP business. The company 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 Third Quarter and the 2023 Third Quarter, we recognized income of $0.2 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 $2.6 million in the 2024 Third Quarter compared to $3.6 million during the 2023 Third Quarter while the effective tax rates were 27.9% and 27.8% for the 2024 Third Quarter and the 2023 Third Quarter respectively. For the Three Months Ended September 30, 2024 September 30, 2023 (In thousands, except percentages) Income before taxes $ 12,336 $ 15,779 Less: Net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity (1,998 ) (1,976 ) Non-controlling interest - permanent equity (1,151 ) (992 ) $ (3,149 ) $ (2,968 ) Income before taxes less net income attributable to non-controlling interest $ 9,187 $ 12,811 Provision for income taxes $ 2,559 $ 3,557 Effective income tax rate 27.9% 27.8% Net Income Attributable to Non-controlling Interest Net income attributable to redeemable non-controlling interest (temporary equity) was $2.0 million for both the 2024 Third Quarter and the 2023 Third Quarter. Net income attributable to non-controlling interest (permanent equity) was $1.2 million for the 2024 Third Quarter and $1.0 million for the 2023 Third Quarter. (1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information. 41 Table of Contents 2024 Nine Months versus 2023 Nine Months For the Nine Months Ended Variance September 30, 2024 September 30, 2023 $ % (In thousands, except percentages) Net patient revenue $ 410,492 83.6 % $ 383,104 85.1 % $ 27,388 7.1 % Other revenue 80,406 16.4 % 66,897 14.9 % 13,509 20.2 % Net revenue 490,898 100.0 % 450,001 100.0 % 40,897 9.1 % Operating Cost: Salaries and related costs 289,900 59.1 % 262,757 58.4 % 27,143 10.3 % Rent, supplies, contract labor and other 100,430 20.5 % 91,490 20.3 % 8,940 9.8 % Provision for credit losses 5,065 1.0 % 4,600 1.0 % 465 10.1 % Clinic closure costs - lease and other 4,109 0.8 % 161 0.0 % 3,948 2452.2 % Total operating cost 399,504 81.4 % 359,008 79.8 % 40,496 11.3 % Gross Profit 91,394 18.6 % 90,993 20.2 % 401 0.4 % Corporate office costs 42,719 8.7 % 38,052 8.5 % 4,667 12.3 % Operating Income 48,675 9.9 % 52,941 11.8 % (4,266 ) -8.1 % Other (expense) income: Interest expense, debt and other (5,966 ) -1.2 % (7,293 ) -1.6 % 1,327 -18.2 % Interest income from investments 3,635 0.7 % 2,191 0.5 % 1,444 65.9 % Change in fair value of contingent earn-out consideration (136 ) 0.0 % 197 0.0 % (333 ) -169 % Change in revaluation of put-right liability (5,332 ) -1.1 % (344 ) -0.1 % (4,988 ) 1450.0 % Equity in earnings of unconsolidated affiliate 750 0.2 % 806 0.2 % (56 ) -6.9 % Relief Funds - 0.0 % 467 0.1 % (467 ) -100.0 % Other 261 0.1 % 305 0.1 % (44 ) -14.4 % Total other (expense) income (6,788 ) -1.4 % (3,671 ) -0.8 % (3,117 ) 84.9 % Income before taxes 41,887 8.5 % 49,270 10.9 % (7,383 ) -15.0 % Provision for income taxes 8,781 1.8 % 10,757 2.4 % (1,976 ) -18.4 % Net income 33,106 6.7 % 38,513 8.6 % (5,407 ) -14.0 % Less: Net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity (7,539 ) -1.5 % (7,616 ) -1.7 % 77 -1.0 % Non-controlling interest - permanent equity (3,387 ) -0.7 % (3,314 ) -0.7 % (73 ) 2.2 % (10,926 ) -2.2 % (10,930 ) -2.4 % 4 0.0 % Net income attributable to USPH shareholders $ 22,180 4.5 % $ 27,583 6.1 % $ (5,403 ) -19.6 % * Not meaningful Total net revenue for the 2024 Nine increased $40.9 million, or 9.1%, to $490.9 million from $450.0 million for the 2023 Nine Months while operating costs increased $40.5 million, or 11.3%, to $399.5 million from $359.0 million over the same periods, respectively. Gross profit, which included $4.1 million of costs associated with the closure of 43 clinics, was $91.4 million, or 18.6% of net revenue, during the 2024 Nine Months compared to $91.0 million, or 20.2% of net revenue, for the 2023 Nine Months. Excluding the clinic closure costs, gross profit for the 2024 Nine Months was $95.5 million (1) or 19.5% (1) of net revenue, compared to $91.1 (1) million, or 20.3% (1) of net revenue, for the 2023 Nine Months. Non-GAAP Adjusted EBITDA (1) increased $1.1 million to $60.0 million for the 2024 Nine Months from $58.9 million in the 2023 Nine Months while non-GAAP Operating Results (1) increased $1.7 million to $29.2 million, or $1.94 per share, in the 2024 Nine Months from $27.5 million, or $1.97 per share, in the 2023 Nine Months. (1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information. 42 Table of Contents Physical Therapy Operations For the Nine Months Ended Variance September 30, 2024 September 30, 2023 $ % (In thousands, except percentages) Revenue related to: Mature Clinics (1) $ 375,301 $ 367,146 $ 8,155 2.2 % Clinic additions (2) 28,982 5,867 23,115 * (9 ) Clinics sold or closed (3) 6,209 10,091 (3,882 ) (38.5 )% Net Patient Revenue 410,492 383,104 27,388 7.1 % Other (4) 10,133 8,815 1,318 15.0 % Total 420,625 391,919 28,706 7.3 % Operating costs (4)(7) 344,270 313,104 31,166 10.0 % Gross profit (7) $ 76,355 $ 78,815 $ (2,460 ) (3.1 )% Financial and operating metrics (not in thousands): Net rate per patient visit (1) $ 104.71 $ 102.50 $ 2.21 2.2 % Patient visits (1) 3,920,388 3,737,584 182,804 4.9 % Average daily visits per clinic (1) 30.0 30.0 Gross margin 18.2 % 20.1 % Gross margin excluding closure costs, non-GAAP (6)(8) 19.1 % 20.2 % Salaries and related costs per visit, clinics (5) $ 61.17 $ 59.01 $ 2.16 3.7 % Operating costs per visit, clinics (5)(7) $ 86.32 $ 82.35 $ 3.97 4.8 % Operating costs per visit, clinics, excluding closure costs (5)(6) $ 85.27 $ 82.31 $ 2.96 3.6 % (1) See Glossary of Terms - Revenue Metrics for definitions. (2) Includes 33 clinics added during the nine months ended September 30, 2024 and 46 clinic added during the year ended December 31, 2023. (3) Includes 43 clinics closed during the nine months ended September 30, 2024 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) Excludes $4.1 million of costs associated with the closure of 43 clinics closed during the nine months ended September 30, 2024 and $0.2 million of costs associated with the 15 clinics closed during the year ended December 31, 2023. (7) Includes $4.1 million of costs associated with the closure of 43 clinics closed during the nine months ended September 30, 2024 and $0.2 million of costs associated with the 15 clinics closed during the year ended December 31, 2023. (8) Refer to reconcilliation of non-GAAP measures to most comparable GAAP measures for more information. (9) Not meaningful Revenues Revenues from physical therapy operations increased $28.7 million, or 7.3%, to $420.6 million in the 2024 Nine Months compared to $391.9 million in the 2023 Nine Months. This increase was primarily due to the increase in volume from the 21 net clinics added since the comparable prior year period as well as an increase in net rate per patient visit to $104.71 for 2024 Nine Months from $102.50 for 2023 Nine Months. Total patient visits increased 182,804, or 4.9%, to 3,920,388 in the 2024 Nine Months from 3,737,584 in the 2023 Nine Months. Average daily visits per clinic was 30.0 for both 2024 Nine Months and the comparable prior year period. Other revenues increased $1.3 million, or 15.0%, to $10.1 million for the 2024 Nine Months from $8.8 million for the 2023 Nine Months due to an increase in management contract revenue since the comparable prior year period. Operating costs Operating costs from physical therapy operations increased by $31.2 million, or 10.0% to $344.3 million in the 2024 Nine Months from $313.1 million in the 2023 Nine Months primarily driven by costs associated with the 21 net new clinics added since the comparable prior year period. On a per visit basis, operating costs (excluding management contracts) increased to $86.32 for the 2024 Nine Months from $82.35 for the 2023 Nine Months. Total salaries and related costs for physical therapy operations increased to $245.4 million in the 2024 Nine Months from $225.3 million, in the 2023 Nine Months, an increase of $20.1 million, or 8.9%. Salaries and related costs per visit (excluding management contracts) increased to $61.17 for the 2024 Nine Months from $59.01 for the 2023 Nine Months. Total rent, supplies, contract labor and other costs related to clinics (excluding management contracts) increased to $89.4 million in the 2024 Nine Months from $82.4 million in the 2023 Nine Months, an increase of $7.0 million, or 8.5%. On a per visit, rent, supplies, contract labor and other costs (excluding management contract costs) increased to $22.80 for the 2024 Nine Months compared to $22.04 for the 2023 Nine Months. The provision for credit losses was $5.1 million for the 2024 Nine Months and $4.6 million for the 2023 Nine Months. As a percentage of net revenues, the provision for credit losses was 1.2% for both the 2024 Nine Months and 2023 Nine Months. 43 Table of Contents Gross Profit Gross profit from physical therapy operations, which included $4.1 million of costs associated with the 43 clinic closures, was $76.4 million, or 18.2% of net revenue, for the 2024 Nine Months compared to $78.8 million, or 20.2% of net revenue, for the 2023 Nine Months. Excluding the clinic closure costs, physical therapy gross profit was $80.5 million (1) , or 19.1% of net revenue (1) , in the 2024 Nine Months compared to $79.0 million (1) , or 20.2% of net revenue (1) , in the 2023 Nine Months. (1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information. Industrial Injury Prevention Services For the Nine Months Ended Variance September 30, 2024 September 30, 2023 $ % (In thousands, except percentages) Net revenue $ 70,273 $ 58,082 $ 12,191 21.0 % Operating costs 55,234 45,904 9,330 20.3 % Gross profit $ 15,039 $ 12,178 $ 2,861 23.5 % Gross margin 21.4 % 21.0 % Revenues from IIP operations increased $12.2 million, or 21.0%, to $70.3 million for the 2024 Nine Months from $58.1 million for the 2023 Nine Months. Gross profit from IIP operations increased $2.9 million, or 23.5%, to $15.0 million for the 2024 Nine Months from $12.2 million for the 2023 Nine Months while the gross profit margin from IIP operations increased to 21.4% for the 2024 Nine Months from 21.0% for the 2023 Nine Months. Corporate Office Costs Corporate office costs were $42.7 million, or 8.7% of net revenue, in the 2024 Nine Months, compared to $38.1 million, or 8.5% of net revenue, in the 2023 Nine Months. Operating Income Operating income was $48.7 million for the 2024 Nine Months compared to $52.9 million for the 2023 Nine Months. Excluding the clinic closure costs, operating income was $52.8 million (1) in the 2024 Nine Months. Other (Expenses) Income Interest Expense, Debt and Other Interest expense was $6.0 million in the 2024 Nine Months compared to $7.3 million in the 2023 Nine Months, with the decrease primarily related to lower outstanding borrowings over the comparative periods. Interest income from investment Interest income from investing excess cash (primarily proceeds from the secondary offering sale of our stock completed in May 2023) in a high-yield savings account was $3.7 million during the 2024 Nine Months compared to $2.2 million during the 2023 Nine Months. Change in fair value of contingent earn-out consideration We revalued contingent earn-out consideration related to certain acquisitions resulting in a loss of $5.3 million for the 2024 Nine Months compared to a loss of $0.3 million in the comparative prior year period. 44 Table of Contents Change in Revaluation of Put-Right Liability We recorded an expense of $0.1 million on the revaluation of a put right liability for 2024 Nine Months and a gain of $0.2 million for the 2023 Nine Months. The put-right relates to the potential future purchase of a company that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. Equity in earnings of unconsolidated affiliate We recognized income of $0.8 million from a joint venture which provides physical therapy services for patients at hospitals for both the 2024 Nine Months and the 2023 Nine Months. 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 $8.8 million in the 2024 Nine Months compared to $10.8 million during the 2023 Nine Months while the effective tax rates were 28.4% and 28.1% over the same periods, respectively. For the Nine Months Ended September 30, 2024 September 30, 2023 (In thousands, except percentages) Income before taxes $ 41,887 $ 49,270 Less: Net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity (7,539 ) (7,616 ) Non-controlling interest - permanent equity (3,387 ) (3,314 ) $ (10,926 ) $ (10,930 ) Income before taxes less net income attributable to non-controlling interest $ 30,961 $ 38,340 Provision for income taxes $ 8,781 $ 10,757 Effective income tax rate 28.4 % 28.1 % Net Income Attributable to Non-controlling Interest Net income attributable to redeemable non-controlling interest (temporary equity) was $7.5 million in the 2024 Nine Months compared to $7.6 million in the 2023 Nine Months. Net income attributable to non-controlling interest (permanent equity) was $3.4 million for the 2024 Nine Months and $3.3 million for the 2023 Nine Months. (1) These are Non-GAAP Measures. Refer to reconciliation of non-GAAP measures to most comparable GAAP measures for more information. LIQUIDITY AND CAPITAL RESOURCES We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. Total cash and cash equivalents were $117.0 million as of September 30, 2024, and $152.8 million as of December 31, 2023. We had $140.6 million of outstanding borrowings and $175.0 million in available credit under our Revolving Facility as of September 30, 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. 45 Table of Contents 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 September 30, 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 acquisitions. We 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. We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts. Claims are submitted to payors daily, weekly or monthly in accordance with our policy or payor’s requirements. When possible, we submit our claims electronically. The collection process is time-consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting CMS approval initially may not be submitted for six months or more. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-pay payor type receivables, the write-off generally occurs after the account receivable has been outstanding for 120 days or longer. As of September 30, 2024, we have accrued $6.8 million related to credit balances, a portion of which is due to patients and payors. Cash Flow A summary of our operating, investing and financing activities is discussed below. For the Nine Months Ended September 30, 2024 September 30, 2023 (in thousands) Net cash provided by operating activities $ 55,531 $ 55,143 Net cash used in investing activities (54,597 ) (36,601 ) Net cash (used in) provided by financing activities (36,800 ) 97,549 Operating Activities Cash provided by operating activities was $55.5 million for the 2024 Nine Months as compared to $55.1 million for the 2023 Nine Months. This decrease in cash provided was mostly due to the timing of payments related to payables and accrued expenses. Investing Activities Cash used in investing activities for the 2024 Nine Months totaled $54.6 million and primarily consisted of $48.9 million used in the purchase of interests in businesses and non-controlling interests (temporary and permanent), and $6.7 million of fixed assets purchases. These uses were partially offset by $0.3 million in proceeds from the sale of non-controlling interests (temporary and permanent), and $0.8 million distributions received from an unconsolidated affiliate. Financing Activities Cash used in financing activities for the 2024 Nine Months, totaled $36.8 million and primarily comprised of $19.9 million of cash dividends paid to shareholders, $11.4 million in distributions to non-controlling interests (temporary and permanent) and payments of $5.5 million related to notes payable and the term note. 46 Table of Contents 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. The Credit Agreement, which matures on June 17, 2027, provides for loans in an aggregate principal amount of $325 million. Such loans will be available through the following facilities (collectively, the “Senior Credit Facilities”): 1) Revolving Facility: $175 million, five-year, revolving credit facility (“Revolving Facility”), which includes a $12 million sublimit for the issuance of standby letters of credit and a $15 million sublimit for swingline loans (each, a “Swingline Loan”). 2) Term Facility: $150 million term loan facility (the “Term Facility”). The Term Facility amortizes in quarterly installments of: (a) 0.625% in each of the first two years, (b) 1.250% in the third and fourth year, and (c) 1.875% in the fifth year of the Credit Agreement. The remaining outstanding principal balance of all term loans is due on the maturity date. The proceeds of the Revolving Facility have been and shall continue to be used by us for working capital and other general corporate purposes of our Company and its subsidiaries, including to fund future acquisitions and invest in growth opportunities. The proceeds of the Term Facility were used by us to refinance the indebtedness outstanding under the Second Amended and Restated Credit Agreement, to pay fees and expenses incurred in connection with the loan facilities transactions, for working capital and other general corporate purposes. We 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. The Credit Agreement also contains customary events of default. As of September 30, 2024, we were in compliance with all of the covenants contained in the Credit Agreement. 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. 47 Table of Contents As of September 30, 2024, $139.5 million (net of unamortized debt issuance costs of $1.2 million) was outstanding on the Term Facility while none was outstanding under the Revolving Facility resulting in $175.0 million of credit availability. The interest rate on the Senior Credit Facilities was 4.7% for the 2024 Third Quarter and 4.9% for the 2023 Third Quarter, with an all-in effective interest rate, including all associated costs, of 5.4% and 5.6% over the same periods, respectively. The interest rate on our Senior Credit Facilities was 4.7% for the 2024 Nine Months and 5.7% for the 2023 Nine Months, with an all-in effective interest rate, including all associated costs, of 5.4% and 6.9% 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. 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, 2024, the fair value of the interest rate swap was $1.8 million, a decrease of $1.4 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. The interest rate swap arrangement has generated $2.8 million in interest savings for the nine months ended September 30, 2024. The average interest rate for the term facility, net of the savings from the swap, in both the 2024 Third Quarter and 2024 Nine Months 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, 2024, our remaining outstanding balance on these notes amounted to $3.1 million, of which $0.8 million is due by December 31, 2024, $1.8 million is due in 2025 and $0.5 million is due 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 4.0% to 8.5% per annum. On August 31, 2024, we acquired a 70% equity interest in an eight-clinic practice physical therapy with the original practice owners retaining 30% equity interest. The purchase price for the 70% equity interest was approximately $2.0 million. As part of the transaction, we agreed to additional contingent consideration if future operational and financial objectives are met. The maximum payout is $3.6 million. The contingent consideration was valued at $3.6 million on August 31, 2024. On April 30, 2024, we acquired 100% of an IIP business through one of its primary IIP businesses, Briotix Health Limited Partnership, for a purchase price of approximately $24.0 million, of which $0.5 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and the interest are payable on May 1, 2025. As part of the transaction, we agreed to pay additional contingent consideration if future operational objectives are met. There is no maximum payout. The contingent consideration was valued at $2.4 million as of September 30, 2024. We contributed the capital for this purchase and as a result, our interest in the IIP business of Briotix Health Limited Partnership increased to 92.1% subsequent to this transaction. 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. The contingent consideration was valued at $0.5 million as of September 30, 2024. 48 Table of Contents 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 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 $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. On July 1, 2024, the note payable of $0.3 million was paid in full ($0.2 million was paid by us and $0.1 million was paid by the local partner). 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 note accrues interest at 4.5% per annum and the principal and interest are payable on February 28, 2025. 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. Once triggered, the put right and the call right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon the exercise of either the put right or the call right is calculated per the terms of the respective agreements and classified as redeemable non-controlling interest (temporary equity) in our consolidated balance sheets. The fair value of the redeemable non-controlling interests on September 30, 2024 was $186.6 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.