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, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 3, 2025 (“2024 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 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, but not limited to, are those relating to opening clinics, availability of personnel and the insurance 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; • private third-party payors for our services may adopt payment policies that could limit our future revenue and profitability; • 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; • compliance with state laws and regulations relating to the corporate practice of medicine and fee splitting, 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; • certain of our acquisition agreements contain put-rights related to a future purchase of significant equity interests in our subsidiaries or 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; • the ability to control variable interest entities for which we do not have a direct ownership; • 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; 33 Table of Contents • 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 the 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; • 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, industrial injury prevention related 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; • 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. EXECUTIVE SUMMARY We operate our business through two reportable business segments. 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 industrial injury prevention services (“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 the IIP services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. IIP services are performed through Industrial Sports Medicine Professionals with specialized training related to the musculoskeletal system. 34 Table of Contents During the three months ended March 31, 2025, and for the year ended December 31, 2024, we completed the acquisitions of clinic practices and IIP businesses detailed below: % Interest Number of Acquisition Date Acquired Clinics February 2025 Acquisition February 28, 2025 65% 3 November 2024 Acquisition November 30, 2024 75% 8 October 2024 Acquisition October 31, 2024 50% 50 August 2024 Acquisition August 31, 2024 70% 8 April 2024 Acquisition April 30, 2024 ** * March 2024 Acquisition March 29, 2024 50% 9 * IIP business. ** On April 30, 2024, one of our IIP businesses, Briotix Health Limited Partnership, acquired 100% of an IIP business. The following table provides a roll forward of our clinic count for the periods presented. Clinic Count Roll Forward (1) Three Months Ended March 31, 2025 March 31, 2024 Number of clinics owned or managed, beginning of period 729 671 Additions (2) 14 14 Closed or sold (7 ) (6 ) Number of clinics owned or managed, end of period 736 679 (1) The Company also manages clinics owned by third parties through management contracts. In addition to the clinic count shown above, as of March 31, 2025, the Company managed 37 clinics bringing the total owned/managed clinics to 773. As of March 31, 2024, the Company managed 41 clinics bringing the total owned/managed clinics to 720. (2) Includes clinics added through 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 $0.45 per share payable on June 13, 2025, to shareholders of record on May 23, 2025. On April 30, 2025, we acquired an outpatient home care physical, occupational and speech therapy practice through our 50% owned subsidiary, MSO Metro, LLC (“Metro”). The practice currently generates approximately $2.1 million in annual revenue. Metro acquired an 80% interest in the acquired company with the existing owners retaining a 20% ownership interest. 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 2024 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. 35 Table of Contents 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 for 2025 decreased Medicare reimbursement for therapy services by approximately 2.9% 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 Glossary of terms 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, 2024, and are still operating as of the balance sheet date. • 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. • 2025 First Quarter refers to the three months ended March 31, 2025. • 2024 First Quarter refers to the three months ended March 31, 2024. 36 Table of Contents 2025 First Quarter versus 2024 First Quarter Three Months Ended Variance March 31, 2025 March 31, 2024 $ % (In thousands, except percentages) (1 ) (1 ) Net patient revenue $ 152,547 83.0 % $ 131,075 84.2 % $ 21,472 16.4 % Other revenue 31,241 17.0 % 24,600 15.8 % 6,641 27.0 % Net revenue 183,788 100.0 % 155,675 100.0 % 28,113 18.1 % Operating Cost: Salaries and related costs 111,249 60.5 % 93,731 60.2 % 17,518 18.7 % Rent, supplies, contract labor and other 33,844 18.4 % 27,904 17.9 % 5,940 21.3 % Depreciation and amortization 5,540 3.0 % 3,885 2.5 % 1,655 42.6 % Provision for credit losses 1,848 1.0 % 1,627 1.0 % 221 13.6 % Clinic closure costs - lease and other 242 0.1 % 127 0.1 % 115 * Total operating cost 152,723 83.1 % 127,274 81.8 % 25,449 20.0 % Gross Profit 31,065 16.9 % 28,401 18.2 % 2,664 9.4 % Gain on change in fair value of contingent earn-out consideration (4,822 ) -2.6 % (612 ) -0.4 % (4,210 ) 687.9 % Corporate office costs 16,245 8.8 % 14,085 9.0 % 2,160 15.3 % Operating Income 19,642 10.7 % 14,928 9.6 % 4,714 31.6 % Other (expense) income: Interest expense, debt and other (2,279 ) -1.2 % (1,968 ) -1.3 % (311 ) 15.8 % Interest income from investments 24 0.0 % 1,543 1.0 % (1,519 ) -98.4 % Change in revaluation of put-right liability (404 ) -0.2 % (80 ) -0.1 % (324 ) 405.0 % Equity in earnings of unconsolidated affiliate 393 0.2 % 271 0.2 % 122 45.0 % Loss on sale of a partnership (123 ) -0.1 % - 0.0 % (123 ) * Other 75 0.0 % 62 0.0 % 13 21.0 % Total other expense (2,314 ) -1.3 % (172 ) -0.1 % (2,142 ) 1245.3 % Income before taxes 17,328 9.4 % 14,756 9.5 % 2,572 17.4 % Provision for income taxes 3,860 2.1 % 3,139 2.0 % 721 23.0 % Net income 13,468 7.3 % 11,617 7.5 % 1,851 15.9 % Less: Net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity (2,012 ) -1.1 % (2,227 ) -1.4 % 215 -9.7 % Non-controlling interest - permanent equity (1,557 ) -0.8 % (1,344 ) -0.9 % (213 ) 15.8 % (3,569 ) -1.9 % (3,571 ) -2.3 % 2 -0.1 % Net income attributable to USPH shareholders $ 9,899 5.4 % $ 8,046 5.2 % $ 1,853 23.0 % * Not meaningful (1) Represents the percentage of net revenue for the periods presented Total net revenue for the 2025 First Quarter increased $28.1 million, or 18.1%, to $183.8 million from $155.7 million for the 2024 First Quarter while operating costs increased $25.4 million, or 20.0%, to $152.7 million from $127.3 million over the same periods, respectively. This increase was due to the increase in visits from the 53 net clinics added since the comparable prior year period and an increase in net rate per patient visit. Net rate per patient visit for the 2025 First Quarter was $105.66, increasing $2.29 per visit from $103.37 for the 2024 First Quarter, despite the approximate 2.9% Medicare rate reduction which went into effect on January 1, 2025. Net rate per patient visit also increased sequentially by $0.93 from $104.73 for the three months ended December 31, 2024. The increase in net rate per patient visit reflects our strategic priority of increasing reimbursement rates through contract negotiations with commercial and other payors as well as growing workers compensation as a percent of our overall mix of business. Gross profit which included $0.2 million of costs associated with seven clinic closures, in the 2025 First Quarter, was $31.1 million, or 16.9% of net revenue, during the 2025 First Quarter compared to $28.4 million, or 18.2% of net revenue, for the 2024 First Quarter. Our Net Income was $9.9 million for the 2025 First Quarter compared to $8.0 million in the 2024 First Quarter. In accordance with GAAP, the revaluation of noncontrolling 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 was $0.80 for the 2025 First Quarter compared to $0.46 for the 2024 First Quarter 37 Table of Contents The following table provides a calculation of earnings per share. Three Months Ended March 31, 2025 March 31, 2024 Earnings per Share (In thousands, except per share data) Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 9,899 $ 8,046 Charges to retained earnings: Revaluation of redeemable non-controlling interest 2,903 (1,439 ) Tax effect at statutory rate (federal and state) (742 ) 368 $ 12,060 $ 6,975 Earnings per share (basic and diluted) $ 0.80 $ 0.46 Shares used in computation: Basic and diluted earnings per share - weighted-average shares 15,132 15,017 Non-GAAP Measures 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. The tables also provide a reconciliation of additional non-GAAP measures to the most comparable GAAP measure. We believe providing Adjusted EBITDA and Operating Results to investors is useful 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. 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. 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, changes in revaluation of put-right liability, equity-based awards compensation expense, clinic closure costs, business acquisition related costs, costs related to a one-time financial systems upgrade, loss on sale of a partnership 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, clinic closure costs, loss on sale of a partnership, changes in fair value of contingent earn-out consideration, business acquisition related costs, costs related to a one-time financial systems upgrade 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, Operating Results and other non-GAAP measures 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. 38 Table of Contents ADJUSTED EBITDA AND OPERATING RESULTS (IN THOUSANDS, EXCEPT PER SHARE DATA) (unaudited) Three Months Ended March 31, 2025 March 31, 2024 (In thousands, except per share data) Adjusted EBITDA (a non-GAAP measure) Net income attributable to USPH shareholders $ 9,899 $ 8,046 Adjustments: Provision for income taxes 3,860 3,139 Depreciation and amortization 5,867 4,095 Interest expense, debt and other, net 2,279 1,968 Interest income from investments (24 ) (1,543 ) Equity-based awards compensation expense 1,771 1,997 Change in revaluation of put-right liability 404 80 Gain on change in fair value of contingent earn-out consideration (4,822 ) (612 ) Clinic closure costs (1) 242 126 Business acquisition related costs (2) 480 - ERP implementation costs (3) 62 - Loss on sale of a partnership 123 - Other loss (income) (75 ) (62 ) Allocation to non-controlling interests (527 ) (463 ) $ 19,539 $ 16,771 Operating Results (a non-GAAP measure) Net income attributable to USPH shareholders $ 9,899 $ 8,046 Adjustments: Gain on change in fair value of contingent earn-out consideration (4,822 ) (612 ) Change in revaluation of put-right liability 404 80 Clinic closure costs (1) 242 126 Business acquisition related costs (2) 480 - ERP implementation costs (3) 62 - Loss on sale of a partnership 123 - Allocation to non-controlling interest (10 ) (16 ) Tax effect at statutory rate (federal and state) 935 108 $ 7,313 $ 7,732 Operating Results per share (a non-GAAP measure) $ 0.48 $ 0.51 (1) Costs associated with the closure of seven and six clinics during the 2025 First Quarter and the 2024 First Quarter, respectively. (2) Primarily consists of legal and consulting expenses related to the acquisition of equity interest in certain partnerships. (3) Consists of costs related to a one-time financial systems upgrade. 39 Table of Contents A reconciliation of additional non-GAAP measures to the most comparable GAAP measures are presented in the tables below. Three Months Ended March 31, 2025 As Reported (GAAP) Adjustments (1) As Adjusted (Non-GAAP) (in thousands, except percentages) Segment information - Physical Therapy Operations Salaries and related costs, clinics (2) $ 91,799 $ (75 ) $ 91,724 Operating costs, clinics (2) $ 128,971 $ (75 ) $ 128,896 Gross profit $ 25,468 $ 75 $ 25,543 Gross margin 16.3 % * 16.3 % Number of visits 1,443,805 1,443,805 Salaries and related costs per visit, clinics $ 63.58 $ (0.05 ) $ 63.53 Operating costs per visit, clinics $ 89.33 $ (0.05 ) $ 89.28 (1) Certain incentive costs related to the Metro acquisition. We believe that presenting this information will allow investors to evaluate the performance of the Company’s business more objectively. (2) Excludes costs related to management contracts. * Not meaningful Adjusted EBITDA, a non- GAAP measure, was $19.5 million for the 2025 First Quarter, an increase of $2.8 million, or 16.5%, from $16.8 million in the 2024 First Quarter primarily driven by acquisitions since the prior year period and an increase in net patient revenue per visit. Operating Results, a non-GAAP measure, was $7.3 million in the 2025 First Quarter compared to $7.7 million in the 2024 First Quarter. On a per share basis, Operating Results was $0.48 in the 2025 First Quarter compared to $0.51 in the 2024 First Quarter. 40 Table of Contents Physical Therapy Operations Three Months Ended Variance March 31, 2025 March 31, 2024 $ % (In thousands, except percentages) Revenue related to: Mature Clinics (1) $ 126,620 $ 128,501 $ (1,881 ) (1.5 )% Clinic additions (2) 25,667 44 25,623 * (7 ) Clinics sold or closed (3) 260 2,530 (2,270 ) * (7 ) Net patient revenue 152,547 131,075 21,472 16.4 % Other (4) 3,861 3,350 511 15.3 % Total 156,408 134,425 21,983 16.4 % Operating costs (5) 130,940 110,361 20,579 18.6 % Gross profit $ 25,468 $ 24,064 $ 1,404 5.8 % Financial and operating metrics (not in thousands): Net rate per patient visit (1) $ 105.66 $ 103.37 $ 2.29 2.2 % Patient visits (1) 1,443,805 1,268,002 175,803 13.9 % Average daily visits per clinic (1) 31.4 29.5 1.9 6.4 % Gross margin 16.3 % 17.9 % Salaries and related costs per visit, clinics (6) $ 63.53 $ 61.42 $ 2.11 3.4 % Operating costs per visit, clinics (6) $ 89.28 $ 85.50 $ 3.78 4.4 % (1) See Glossary of Terms - Revenue Metrics for definition. (2) Includes 14 clinics added during the 2025 First Quarter and 103 added during the year ended December 31, 2024. (3) Includes 7 clinics closed during the 2025 First Quarter and 45 clinics closed during the year ended December 31, 2024. (4) Includes revenues from management contracts. (5) Includes costs from management contracts. (6) Excludes costs from management contracts and $0.1 million of certain incentive costs related to the Metro acquisition. Please refer to the reconcilliation of non-GAAP measures to the most comparable GAAP measure on page 40. (7) Not meaningful. Revenues Net revenue from physical therapy operations increased $22.0 million, or 16.4%, to $156.4 million for the 2025 First Quarter from $134.4 million for the 2024 First Quarter. This increase was due to the increase in visits from the 53 net clinics added since the comparable prior year period and an increase in net rate per patient visit, which reflects our strategic priority of increasing reimbursement rates through contract negotiations with commercial and other payors as well as growing workers compensation as a percent of our overall mix of business. Net rate per patient visit for the 2025 First Quarter was $105.66, increasing $2.29 per visit from $103.37 for the 2024 First Quarter, despite the approximate 2.9% Medicare rate reduction which went into effect on January 1, 2025. Net rate per patient visit also increased sequentially by $0.93 from $104.73 for the three months ended December 31, 2024. Other revenues increased by $0.5 million, or 15.3%, to $3.9 million for the 2025 First Quarter from $3.4 million for the 2024 First Quarter. Operating costs Operating costs from physical therapy operations increased $20.6 million, or 18.6%, to $130.9 million in the 2025 First Quarter from $110.4 million in the 2024 First Quarter primarily driven by the 53 net new clinics added since the comparable prior year period. The total operating costs per visit (excluding management contracts and certain incentive costs related to Metro) was $89.28 compared to $85.50 over the same periods, respectively. Salaries and related costs, clinics (excluding management contracts) increased to $91.8 million in the 2025 First Quarter from $77.9 million in the 2024 First Quarter, an increase of $13.9 million, or 17.9% mostly due to the net clinics added since the comparable prior year period. Salaries and related costs per visit (excluding management contracts and certain incentive costs related to Metro) increased to $63.53 for the 2025 First Quarter from $61.42 for the 2024 First Quarter. 41 Table of Contents Rent, supplies, contract labor and other costs, related to clinics (excluding management contracts) increased to $30.1 million in the 2025 First Quarter from $25.1 million in the 2024 First Quarter, an increase of $5.0 million, or 19.9% mostly due to clinic additions. Rent, supplies, contract labor and other per visit (excluding management contracts), related to clinics increased to $24.47 for the 2025 First Quarter from $22.87 for the 2024 First Quarter. Depreciation and amortization related to physical therapy operations increased to $5.2 million in 2025 First Quarter from $3.8 million in the 2024 First Quarter, an increase of $1.4 million, or 33.5%, primarily due to the larger number of clinics in the 2025 First Quarter compared to the 2024 First Quarter. The provision for credit losses was $1.8 million for the 2025 First Quarter and $1.6 million for the 2024 First Quarter. As a percentage of net revenues, the provision for credit losses were 1.0% for the same periods. Gross Profit Gross profit from physical therapy operations in the 2025 First Quarter was $25.5 million with a gross profit margin of 16.3% compared to $24.1 million with a gross profit margin of 17.9% in the 2024 First Quarter. Industrial Injury Prevention Services Three Months Ended Variance March 31, 2025 March 31, 2024 $ % (In thousands, except percentages) Net revenue $ 27,380 $ 21,250 $ 6,130 28.8 % Operating costs 21,783 16,913 4,870 28.8 % Gross profit $ 5,597 $ 4,337 $ 1,260 29.1 % Gross margin 20.4 % 20.4 % IIP revenue increased $6.1 million, or 28.8%, to $27.4 million for the 2025 First Quarter as compared to $21.3 million for the 2024 First Quarter. Gross profit from IIP operations in the 2025 First Quarter increased $1.3 million, or 29.1%, to $5.6 million from $4.3 million in the 2024 First Quarter. The gross profit margin from IIP operations was 20.4% in each of the 2025 First Quarter and 2024 First Quarter. Excluding the IIP acquisition made in April 2024, IIP revenue increased by $3.2 million or 15.1% in the 2025 First Quarter and gross profit increased $0.6 million or 13.1% in the 2025 First Quarter over the comparable prior year period. Corporate Office Costs Corporate office costs increased to $16.2 million in the 2025 First Quarter from $14.1 million in the 2024 First Quarter. This increase was primarily to support the larger number of clinics as well as expenses related to the integration of our recent acquisitions. As a ratio to net revenue, corporate office costs improved to 8.8% in the 2025 First Quarter compared to 9.0% in the 2024 Fourth Quarter. Change in fair value of contingent earn-out consideration We revalued contingent earn-out consideration related to certain acquisitions resulting in a gain of $4.8 million for the 2025 First Quarter compared to a gain of $0.6 million for the 2024 First Quarter. Operating Income Operating income was $19.6 million for the 2025 First Quarter compared to $14.9 million for the 2024 First Quarter. Other (Expenses) Income Interest Expense, Debt and Other Interest expense increased by $0.3 million to $2.3 million for the 2025 First Quarter compared to $2.0 million in the 2024 First Quarter due to a higher average outstanding balance on our revolving credit facility in the 2025 First Quarter. The interest rate on our credit facility was 4.9% for the 2025 First Quarter and 4.7% for the 2024 First Quarter, with an all-in effective interest rate, including all associated costs of 5.5% and 5.3% over the same periods, respectively. 42 Table of Contents Interest income from investment Interest income was less than $0.1 million during the 2025 First Quarter compared to $1.5 million in the 2024 First Quarter as the cash on the balance sheet at the end of the 2024 First Quarter has been deployed into acquisitions since that time. Change in revaluation of put-right liability We recorded an expense of $0.4 million on the revaluation of a put right liability for the 2025 First Quarter compared to an expense of $0.1 million for the 2024 First Quarter. 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 an income of $0.4 million for the 2025 First Quarter compared to $0.3 million for the 2024 First Quarter 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 $3.9 million in the 2025 First Quarter compared to $3.1 million during the 2024 First Quarter while the effective tax rate was 28.1% in each of the same periods. Three Months Ended March 31, 2025 March 31, 2024 (In thousands, except percentages) Income before taxes $ 17,328 $ 14,756 Less: Net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity (2,012 ) (2,227 ) Non-controlling interest - permanent equity (1,557 ) (1,344 ) $ (3,569 ) $ (3,571 ) Income before taxes less net income attributable to non-controlling interest $ 13,759 $ 11,185 Provision for income taxes $ 3,860 $ 3,139 Effective income tax rate 28.1 % 28.1 % Net Income Attributable to Non-controlling Interest Net income attributable to non-controlling interest (temporary and permanent) was $3.6 million in each of the 2025 First Quarter and 2024 First Quarter, respectively. 43 Table of Contents 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 $39.2 million as of March 31, 2025, compared to $41.4 million as of December 31, 2024, and $132.3 million at March 31, 2024. Additionally, we had $164.9 million of outstanding borrowings and $147.0 million in available credit under our credit facilities as of March 31, 2025, compared to $151.6 million of outstanding borrowings and $164.0 million in available credit under our credit facilities as of December 31, 2024. 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, 2026. 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 March 31, 2025, 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. Three Months Ended March 31, 2025 March 31, 2024 Net cash (used in) provided by operating activities $ (4,675 ) $ 4,419 Net cash (used in) investing activities (6,628 ) (20,464 ) Net cash provided by (used in) financing activities 9,124 (4,490 ) Operating Activities Cash used by operating activities was $4.7 million for the 2025 First Quarter as compared to $4.4 million provided by operating activities for the 2024 First Quarter. 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 2025 First Quarter totaled $6.6 million and primarily consisted of $5.1 million used in the purchase of interests in businesses and non-controlling interests (temporary and permanent), and $2.6 million of fixed assets purchases. These uses were partially offset by $0.7 million in proceeds from the sale of non-controlling interests (temporary and permanent), and $0.3 million of distributions received from an unconsolidated affiliate. 44 Table of Contents Financing Activities Cash provided by financing activities for the 2025 First Quarter totaled $9.1 million and primarily comprised of $17.0 million in proceeds from our Revolving Facility (as defined below) offset by $3.7 million in distributions to non-controlling interests (temporary and permanent) and payments of $4.2 million related to notes payable and the Term Facility. 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, , in whole or in part, at any time without premium or penalty, subject to certain conditions. 45 Table of Contents The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends, and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets. The Credit Agreement includes certain financial covenants which include the Consolidated Fixed Charge Coverage Ratio and the Consolidated Leverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains customary events of default. As of March 31, 2025, 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. As of March 31, 2025, $135.9 million (net of unamortized debt issuance costs of $1.0 million) was outstanding on the Term Facility while $28.0 million was outstanding under the Revolving Facility resulting in $147.0 million of credit availability. The interest rate on the Senior Credit Facilities was 4.9% for the 2025 First Quarter and 4.7% for the 2024 First Quarter, with an all-in effective interest rate, including all associated costs, of 5.5% and 5.3% 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 or Bank of America’s prime rate 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 March 31, 2025, the fair value of the interest rate swap was $2.4 million, a decrease of $1.0 million, net of a $0.3 million income tax effect, as compared to December 31, 2024. The fair value of the interest rate swap is included in Other assets (current and long term) in our consolidated balance sheet while the decrease in fair value is presented as an unrealized loss in our unaudited consolidated statements of comprehensive income. The interest rate swap arrangement has generated $0.5 million in interest savings for the 2025 First Quarter. 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 March 31, 2025, our remaining outstanding balance on these notes aggregated $2.6 million, of which $1.6 million is payable in 2025, $0.9 million is payable in 2026 and $0.1 is payable in 2027. 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 February 28, 2025, we acquired 65% interest in a physical practice with three clinic locations. The prior owners retained a 35% ownership interest. The purchase price for the 65% interest was approximately $3.8 million which was paid in cash. As part of this transaction, we agreed to additional consideration if future operational objectives are met. The maximum amount of additional contingent consideration due under this agreement is $1.3 million. The contingent consideration is valued at $1.3 million as of March 31, 2025. On November 30, 2024, we acquired a 75% equity interest in an eight-clinic physical therapy practice. The owner of the practice retained 25% of the equity interests. The purchase price for the 75% equity interest was approximately $15.9 million, of which $15.7 million was paid in cash, and $0.2 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and interest is payable in one installment which is due on December 1, 2026. 46 Table of Contents On October 31, 2024, we acquired a 50% interest in MSO Metro, LLC (“Metro”) pursuant to a 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. We paid a purchase price of approximately $76.5 million, $75.0 million of which was funded by our cash on hand and the remaining $1.5 million through the issuance of 18,358 shares of the Company’s common stock based on a trailing five-day average as of the day immediately prior to closing. The shares of the Company’s common stock were issued in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act. The Purchase Agreement also included an earnout where the sellers can earn up to $20.0 million of additional consideration if certain performance criteria relating to the Metro business are achieved. The value of the contingent consideration at March 31, 2025 was $7.4 million. On August 31, 2024, we acquired a 70% equity interest in an eight-clinic practice physical therapy and the original practice owners retained a 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 amount of additional contingent consideration due under this agreement is $3.6 million. The contingent consideration was valued at $2.1 million on March 31, 2025. 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 in May 2025. As part of the transaction, we agreed to additional contingent consideration if future operational objectives are met by the business. The maximum amount of additional contingent consideration due under this agreement is $10.0 million. The contingent consideration was valued at $2.0 million as of March 31, 2025. 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 at 4.5% per annum and the principal and the interest are payable on March 29, 2026. As part of the transaction, we agreed to additional contingent consideration if future operational and financial objectives are met. There is no maximum payout. The contingent consideration was valued at $0.8 million on March 31, 2025. Redeemable Non-Controlling Interest Certain limited partnership agreements and limited liability company 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 March 31, 2025, was $260.0 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. 47 Table of Contents