Item 2. Management’s Discussion and Analysis
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, 2025 filed with the
Securities and Exchange Commission (the “SEC”) on February 27, 2026 (“2025 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 a termination of one or more of the Company’s hospital affiliation arrangements, which could have an adverse impact on revenue and the results of operations;
•
the impact of future public health crises and epidemics/pandemics
•
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 of our acquisition agreements, the value of which may impact future financial results;
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•
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;
•
use of generative artificial intelligence;
•
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 segment consists of physical therapy, speech therapy and occupational therapy clinics
and home-care physical and speech therapy practices that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders, sports-related injuries, and rehabilitation of injured workers. Services provided by the
industrial injury prevention services (“IIP”) segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, ergonomic
assessments, occupational medicine testing services, and drug & alcohol testing. The majority of IIP is contracted with and paid for directly by employers, including a number of Fortune 500 companies. IIP is performed through Industrial
Sports Medicine Professionals with specialized training related to the musculoskeletal system.
During the three months ended March 31, 2026, and for the year ended December 31, 2025, we completed the acquisitions of clinic practices and IIP business detailed below:
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Acquisition
Date
% Interest
Acquired
Number of
Clinics
January 2026 Acquisition 2
January 31, 2026
70%
*
January 2026 Acquisition 1
January 2, 2026
50%
8
July 2025 Acquisition
July 31, 2025
60%
3
April 2025 Acquisition
April 30, 2025
40%**
***
February 2025 Acquisition
February 28, 2025
65%
3
* IIP business
** On April 30, 2025, the Company acquired an outpatient home care practice that provides speech and occupational therapy through its 50% owned subsidiary Metro. After the transaction, the Company’s
ownership interest is 40%, the local partners have an ownership interest of 40% and the practice’s preacquisition owners have a 20% ownership interest.
*** Home-care business
Our strategy is to continue acquiring multi-clinic outpatient physical therapy practices and home-care physical and speech therapy practices, to develop outpatient physical therapy clinics as satellites in existing
partnerships, and to continue acquiring companies that provide industrial injury prevention services.
The following table provides a roll forward of our clinic count for the periods presented.
Clinic Count Roll Forward (1)
2026
2025
Owned
Managed
Total
Owned
Managed
Total
Number of clinics, beginning of period
746
34
780
722
39
761
Q1 additions
13
2
15
14
-
14
Q1 closed or sold
(4
)
(8
)
(12
)
(7
)
(2
)
(9
)
Number of clinics, end of period
755
28
783
729
37
766
Q2 additions
6
-
6
Q2 closed or sold
(3
)
(1
)
(4
)
Number of clinics, end of period
732
36
768
Q3 additions
16
2
18
Q3 closed or sold
(3
)
(4
)
(7
)
Number of clinics, end of period
745
34
779
Q4 additions
11
-
11
Q4 closed or sold
(10
)
-
(10
)
Number of clinics, end of period
755
28
783
746
34
780
Q1 2026 and Q1 2025 additions
13
2
15
14
-
14
Q1 2026 and Q1 2025 closed or sold
(4
)
(8
)
(12
)
(7
)
(2
)
(9
)
(1) Excludes the home care business
On January 2, 2026, we acquired a 50% equity interest in an eight-clinic practice, with the original owners retaining the remaining 50% interest.
On January 31, 2026, we acquired a 70% equity interest in an industrial injury prevention business with the original owners retaining a 30% ownership interest.
Our Board of Directors declared a quarterly dividend of $0.46 per share payable on June 12, 2026, to shareholders of record on May 22, 2026.
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Table of Contents
Effective January 1, 2026, we implemented a planned regional realignment of reporting units in connection with planned leadership transitions. This change resulted in a revised composition of the
Company’s reporting units. The reorganization was administrative in nature and designed to enhance coordination, improve operational efficiency, and support long-term sustainability. The updated reporting unit structure continues to reflect
substantially similar economic characteristics to those under the prior organization.
On April 14, 2026, the Company closed a $450 million, five-year credit facility that includes a $175 million term loan and a $275 million revolver with a maturity date of April 14, 2031, which
replaces its then existing credit facility. See Liquidity and Capital Resources section for additional information.
Strategic Hospital Alliances
On February 2, 2026, we announced a 10-year strategic alliance between our subsidiary partner, Metro, and a prominent New York hospital system, whereby 60 of Metro’s existing outpatient physical
therapy clinics in New York will become part of the hospital system’s clinical services network.
On February 25, 2026, we announced a 10-year strategic alliance between another of our subsidiary partners and a local hospital system whereby our subsidiary partner’s existing 10 outpatient
physical therapy clinics will become part of the hospital system’s clinical services network.
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 2025 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 for 2025 decreased Medicare reimbursement for therapy services by approximately 2.9% as compared to the reimbursement
rates in effect for most of 2024. For 2026, the MPFS increased Medicare reimbursement for therapy services by approximately 1.75% as compared to the reimbursement rates for 2025.
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 since 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.
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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 (physical clinic locations and home-care business units) opened or acquired
prior to January 1, 2025, 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 for both physical clinic locations and home-care.
•
Average daily visits per clinic per day is patient visits (excluding home-care 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.
•
2026 First Quarter refers to the three months ended March 31, 2026.
•
2025 First Quarter refers to the three months ended March 31, 2025.
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Table of Contents
2026 First Quarter versus 2025 First Quarter
Three Months Ended
March 31, 2026
March 31, 2025
Variance
Amount
As a % of Net Revenue
Amount
As a % of Net Revenue
Amount
%
(In thousands, except percentages)
Net patient revenue
$
164,328
82.9
%
$
152,547
83.0
%
$
11,781
7.7
%
Other revenue
33,958
17.1
%
31,241
17.0
%
2,717
8.7
%
Net revenue
198,286
100.0
%
183,788
100.0
%
14,498
7.9
%
Operating Cost:
Salaries and related costs
119,488
60.3
%
111,249
60.5
%
8,239
7.4
%
Rent, supplies, contract labor and other
38,452
19.4
%
33,844
18.4
%
4,608
13.6
%
Depreciation and amortization
5,658
2.9
%
5,540
3.0
%
118
2.1
%
Provision for credit losses
2,004
1.0
%
1,848
1.0
%
156
8.4
%
Clinic closure costs - lease and other
(68
)
0.0
%
242
0.1
%
(310
)
*
Total operating cost
165,534
83.5
%
152,723
83.1
%
12,811
8.4
%
Gross Profit
32,752
16.5
%
31,065
16.9
%
1,687
5.4
%
Corporate office costs
18,274
9.2
%
16,245
8.8
%
2,029
12.5
%
Loss (gain) on change in fair value of contingent earn-out consideration
1,997
1.0
%
(4,822
)
-2.6
%
6,819
-141.4
%
Operating Income
12,481
6.3
%
19,642
10.7
%
(7,161
)
-36.5
%
Other (expense) income:
Interest expense, debt and other
(2,791
)
-1.4
%
(2,279
)
-1.2
%
(512
)
22.5
%
Interest income from investments
16
0.0
%
24
0.0
%
(8
)
-33.3
%
Change in revaluation of put-right liability
363
0.2
%
(404
)
-0.2
%
767
-189.9
%
Equity in earnings of unconsolidated affiliate
363
0.2
%
393
0.2
%
(30
)
-7.6
%
Loss on sale of a partnership
-
0.0
%
(123
)
-0.1
%
123
*
Other
131
0.1
%
75
0.0
%
56
74.7
%
Total other (expense)
(1,918
)
-1.0
%
(2,314
)
-1.3
%
396
-17.1
%
Income before taxes
10,563
5.3
%
17,328
9.4
%
(6,765
)
-39.0
%
Provision for income taxes
2,407
1.2
%
3,860
2.1
%
(1,453
)
-37.6
%
Net income
8,156
4.1
%
13,468
7.3
%
(5,312
)
-39.4
%
Less: Net income attributable to non-controlling interest:
Redeemable non-controlling interest - temporary equity
(2,514
)
-1.3
%
(2,012
)
-1.1
%
(502
)
25.0
%
Non-controlling interest - permanent equity
(604
)
-0.3
%
(1,557
)
-0.8
%
953
-61.2
%
(3,118
)
-1.6
%
(3,569
)
-1.9
%
451
-12.6
%
Net income attributable to USPH shareholders
$
5,038
2.5
%
$
9,899
5.4
%
$
(4,861
)
-49.1
%
* Not meaningful
Net income attributable to our shareholders (“USPH Net Income”) was $5.0 million for the 2026 First Quarter compared to $9.9 million for the 2025 First Quarter. Included in pretax income for the
2026 First Quarter was a loss on change in fair value of contingent earn out consideration of $2.0 million versus a gain of $4.8 million in the 2025 First Quarter. Under GAAP, changes in the value of redeemable noncontrolling interests,
representing our partners’ ownership stakes in subsidiaries not fully owned by us, are excluded from net income but are included in the calculation of earnings per share. Strong performance in the 2026 First Quarter increased the value of these
ownership interests which had a dilutive effect on earnings per share. Loss per share of $0.12 for the 2026 First Quarter, compared to earnings per share of $0.80 in the prior-year period.
Total net revenue for the 2026 First Quarter increased $14.5 million, or 7.9%, to $198.3 million from $183.8 million for the 2025 First Quarter while operating costs increased $12.8 million, or
8.4%, to $165.5 million from $152.7 million over the same periods, respectively.
Gross profit increased $1.7 million, or 5.4%, to $32.8 million in the 2026 First Quarter, compared to $31.1 million for the 2025 First Quarter.
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The following table provides a calculation of earnings per share.
Three Months Ended
March 31, 2026
March 31, 2025
Earnings per Share
(In thousands, except per share data)
Computation of earnings per share - USPH shareholders:
Net income attributable to USPH shareholders
$
5,038
$
9,899
Charges to retained earnings:
Revaluation of redeemable non-controlling interest
(9,369
)
2,903
Tax effect at statutory rate (federal and state)
2,487
(742
)
$
(1,844
)
$
12,060
(Loss) earnings per share (basic and diluted)
$
(0.12
)
$
0.80
Shares used in computation:
Basic and diluted earnings per share - weighted-average shares
15,167
15,132
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, Operating Results and other non-GAAP measures. We believe providing Adjusted EBITDA, Operating Results and other non-GAAP measures to investors is useful information for comparing our period-to-period results as well as for comparing them
with other similar businesses since most do not have redeemable instruments and therefore have different equity structures. Additionally, we believe that these non-GAAP measures provide useful supplemental information to investors, analysts, and
other stakeholders in assessing the Company’s operational performance and financial trends. We use 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.
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 and human
resources 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 and human resources 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, Operating Results and other non-GAAP measures 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.
The tables that follow define and reconcile non-GAAP Adjusted EBITDA and non-GAAP Operating Results to the most directly comparable GAAP measure.
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Table of Contents
ADJUSTED EBITDA AND OPERATING RESULTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
Three Months Ended
March 31, 2026
March 31, 2025
Adjusted EBITDA (a non-GAAP measure)
Net income attributable to USPH shareholders
$
5,038
$
9,899
Adjustments:
Provision for income taxes
2,407
3,860
Depreciation and amortization
6,000
5,867
Interest expense, debt and other, net
2,791
2,279
Interest income from investments
(16
)
(24
)
Equity-based awards compensation expense
2,310
1,771
Change in revaluation of put-right liability
(363
)
404
Loss (gain) on change in fair value of contingent earn-out consideration
1,997
(4,822
)
Clinic closure costs (1)
(68
)
242
Business acquisition related costs (2)
537
480
ERP implementation costs (3)
308
62
Loss on sale of a partnership
-
123
Other income
(131
)
(75
)
Allocation to non-controlling interests
(569
)
(527
)
$
20,241
$
19,539
Operating Results (a non-GAAP measure)
Net income attributable to USPH shareholders
$
5,038
$
9,899
Adjustments:
Loss (gain) on change in fair value of contingent earn-out consideration
1,997
(4,822
)
Change in revaluation of put-right liability
(363
)
404
Clinic closure costs (1)
145
242
Business acquisition related costs (2)
537
480
ERP implementation costs (3)
308
62
Loss on sale of a partnership
-
123
Allocation to non-controlling interest
(3
)
(10
)
Tax effect at statutory rate (federal and state)
(696
)
935
$
6,963
$
7,313
Operating Results per share (a non-GAAP measure)
$
0.46
$
0.48
1)
Costs associated with the closure of four and seven clinics (owned) during the 2026 First Quarter and the 2025 First Quarter, respectively and for purposes of Operating Results, also includes
accelerated depreciation related to closed clinics. See Clinic Count Roll Forward for additional information.
2)
Primarily consists of retention bonuses, as well as legal and consulting expenses related to the acquisition of equity interests in certain partnerships, and includes costs associated with
entering into hospital affiliation contracts.
3)
Consists of costs related to a one-time financial and human resources systems upgrade.
A reconciliation of additional non-GAAP measures to the most comparable GAAP measures are presented in the tables below.
42
Table of Contents
Three Months Ended
March 31, 2026
As Reported
(GAAP)
Clinic Closure
Costs (1)
Metro Incentive
Costs (2)
Business
Acquisition
Related Costs (3)
ERP
Implementation
Costs (4)
Change in Fair Value
of Contingent Earn-
out Consideration
As Adjusted
(Non-GAAP)
(in thousands, except per visit data and percentages)
Corporate office costs
$
18,274
$
-
$
-
$
(430
)
$
(308
)
$
-
$
17,536
Corporate office costs as a percentage of revenue
9.2
%
(0.2
%)
(0.2
%)
8.8
%
Operating income
$
12,481
$
145
$
260
$
537
$
308
$
1,997
$
15,728
Segment information - Physical Therapy Operations
Salaries and related costs, clinics (5)
$
99,325
$
-
$
(260
)
$
-
$
-
$
-
$
99,065
Operating costs, clinics (5)
$
139,872
$
(145
)
$
(260
)
$
(107
)
$
-
$
-
$
139,360
Gross profit
$
26,497
$
145
$
260
$
107
$
-
$
-
$
27,009
Gross profit margin
15.8
%
*
*
*
16.1
%
Number of visits
1,543,144
1,543,144
Salaries and related costs per visit (5)
$
64.37
$
-
$
(0.17
)
$
-
$
-
$
-
$
64.20
Operating costs per visit (5)
$
90.64
$
(0.09
)
$
(0.17
)
$
(0.07
)
$
-
$
-
$
90.31
(1) Costs associated with the closure of four clinics (owned) during the 2026 First Quarter. Also includes accelerated depreciation related to closed clinics. See Clinic Count Roll Forward for
additional information.
(2) Certain earnout bonuses and incentive costs related to the Metro acquisition.
(3) Includes expenses related to the acquisitions of equity interests in certain partnerships and includes costs associated with entering into hospital affiliation contracts.
(4) Includes costs related to a one-time financial and human resources systems upgrade.
(5) Excludes costs related to management contracts.
* Not meaningful
Three Months Ended
March 31, 2025
As Reported
(GAAP)
Clinic Closure
Costs (1)
Metro Incentive
Costs (2)
Business
Acquisition
Related Costs (3)
ERP
Implementation
Costs (4)
Change in Fair Value
of Contingent Earn-
out Consideration
As Adjusted
(Non-GAAP)
(in thousands, except per visit data and percentages)
Corporate office costs
$
16,245
$
-
$
-
$
(480
)
$
(62
)
$
-
$
15,703
Corporate office costs as a percentage of revenue
8.8
%
(0.3
%)
*
8.5
%
Operating income
$
19,642
$
242
$
75
$
480
$
62
$
(4,822
)
$
15,679
Segment information - Physical Therapy Operations
Salaries and related costs, clinics (5)
$
91,799
$
-
$
(75
)
$
-
$
-
$
-
$
91,724
Operating costs, clinics (5)(6)
$
128,479
$
(242
)
$
(75
)
$
-
$
-
$
-
$
128,162
Gross profit
$
25,959
$
242
$
75
$
-
$
-
$
-
$
26,276
Gross profit margin
16.6
%
*
*
16.8
%
Number of visits
1,443,805
1,443,805
Salaries and related costs per visit (5)
$
63.58
$
-
$
(0.05
)
$
-
$
-
$
-
$
63.53
Operating costs per visit (5) (6)
$
88.99
$
(0.17
)
$
(0.05
)
$
-
$
-
$
-
$
88.77
(1) Costs associated with the closure of seven clinics (owned) during the 2025 First Quarter. See Clinic Count Roll Forward for additional information.
(2) Certain earnout bonuses and incentive costs related to the Metro acquisition.
(3) Includes expenses related to the acquisitions of equity interests in certain partnerships.
(4) Includes costs related to a one-time financial and human resources systems upgrade.
(5) Excludes costs related to management contracts.
(6) Amortization of certain intangible assets was reallocated between the physical therapy operations and IIP segments for the 2025 First Quarter amounts to conform with current presentation.
* Not meaningful
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Segment Results
Three Months Ended
Variance
March 31, 2026
March 31, 2025
$
%
(In thousands, except percentages and per visit data)
Physical Therapy Operations
Revenue related to:
Mature Clinics (1)
$
153,579
$
149,866
$
3,713
2.5
%
Clinic additions (2)
10,540
847
9,693
*
(10)
Clinics sold or closed (3)
209
1,834
(1,625
)
*
(10)
Net patient revenue
164,328
152,547
11,781
7.7
%
Other (4)
3,348
3,861
(513
)
(13.3
)%
Total
167,676
156,408
11,268
7.2
%
Operating costs (5)(7)
141,179
130,449
10,730
8.2
%
Gross profit
$
26,497
$
25,959
$
538
2.1
%
IIP
Net revenue
$
30,610
$
27,380
$
3,230
11.8
%
Operating costs (7)
24,355
22,274
2,081
9.3
%
Gross profit
$
6,255
$
5,106
$
1,149
22.5
%
Financial and operating metrics (not in thousands):
Net rate per patient visit (1)
$
106.49
$
105.66
$
0.83
0.8
%
Patient visits (1)
1,543,144
1,443,805
99,339
6.9
%
Average daily visits per clinic (1)
31.8
31.2
0.6
1.9
%
Physical therapy operations gross profit margin (7)
15.8
%
16.6
%
Physical therapy operations adjusted gross profit margin (4)(5)(6)(7)(9)
16.1
%
16.8
%
IIP gross profit margin (7)
20.4
%
18.6
%
Adjusted salaries and related costs per visit (6)(8)
$
64.20
$
63.53
$
0.67
1.1
%
Adjusted operating costs per visit (6)(7)(8)(9)
$
90.31
$
88.77
$
1.54
1.7
%
(1) See Glossary of Terms - Revenue Metrics for definition.
(2) Includes 13 owned clinics added during the 2026 First Quarter and 47 owned clinics added during the year ended December 31, 2025. See Clinic Count Roll Forward included in the Supplemental Financial and
Performance Metrics table for additional information.
(3) Includes four owned clinics closed during the 2026 First Quarter and 23 owned clinics closed during the year ended December 31, 2025. See Clinic Count Roll Forward included in the Supplemental Financial and
Performance Metrics table for additional information.
(4) Includes revenues from management contracts.
(5) Includes costs from management contracts.
(6) Excludes incentive costs related to the Metro acquisition. See the section titled Reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
(7) Amortization of certain intangible assets was reallocated between the physical therapy operations and IIP segments for the 2025 First Quarter amounts to conform with current presentation.
(8) Per visit costs exclude management contract costs.
(9) Excludes certain legal costs related to business acquisitions and clinic closure costs. See the section titled Reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
(10) Not meaningful.
Physical Therapy Operations
Revenues
Net revenue from physical therapy operations increased $11.3 million, or 7.2%, to $167.7 million for the 2026 First Quarter from $156.4 million for the 2025 First Quarter. This growth was due to the increase in
visits and net rate per patient visit for the 2026 First Quarter of $106.49 compared to $105.66 for the 2025 First Quarter.
Total patient visits were 1,543,144, which includes home-care visits, for the 2026 First Quarter, a 6.9% increase from the 2025 First Quarter. Average daily patient visits per clinic, which does not include
home-care visits, was 31.8 for the 2026 First Quarter, compared to 31.2 for the 2025 First Quarter.
Other revenues decreased approximately $0.5 million, or 13.3%, to $3.3 million for the 2026 First Quarter from $3.9 million for the 2025 First Quarter.
Operating costs
Operating costs from physical therapy operations increased $10.7 million, or 8.2%, to $141.2 million for the 2026 First Quarter from $130.4 million for the 2025 First Quarter. Total adjusted operating costs per
visit was $90.31 in the 2026 First Quarter compared to $88.77 in the 2025 First Quarter. See the section titled Non-GAAP measures for a reconciliation of non-GAAP measures to the most directly comparable GAAP
measure.
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Salaries and related costs, clinics (excluding management contracts) increased to $99.3 million in the 2026 First Quarter from $91.8 million in the 2025 First Quarter, an increase of
$7.5 million, or 8.2%. Excluding certain incentive costs related to the Metro acquisition, adjusted salaries and related costs per visit decreased to $64.20 for the 2026 First Quarter from $63.53 for the
2025 First Quarter. See the section titled Non-GAAP measures for a reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
Rent, supplies, contract labor and other costs, related to clinics (excluding management contracts) increased to $33.9 million in the 2026 First Quarter from $29.9 million in the 2025 First Quarter,
an increase of $4.0 million, or 13.4%.
Depreciation and amortization related to physical therapy operations increased to $4.7 million in the 2026 First Quarter from $4.2 million in the 2025 First Quarter, an increase of $0.5 million, or
13.0%, primarily due to the larger number of clinics in the 2026 First Quarter compared to the 2025 First Quarter.
Clinic closure costs for the 2026 First Quarter resulted in a net gain of $0.1 million compared to $0.2 million in the 2025 First Quarter.
The provision for credit losses was $2.0 million for the 2026 First Quarter and $1.8 million for the 2025 First Quarter. As a percentage of net revenues, the provision for credit losses was 1.2%
over the same periods.
Gross Profit
Gross profit from physical therapy operations was $26.5 million, or 15.8% as a percent of net revenues, for the 2026 First Quarter as compared to $26.0 million, or 16.6% as a percent of net revenues, for the 2025
First Quarter. Adjusted gross profit margin (a non-GAAP measure) was 16.1% for the 2026 First Quarter compared to 16.8% for the 2025 First Quarter. See the section titled Non-GAAP measures for a reconciliation of
non-GAAP measures to the most directly comparable GAAP measure.
Industrial Injury Prevention Services
IIP revenue increased $3.2 million, or 11.8%, to $30.6 million for the 2026 First Quarter as compared to $27.4 million for the 2025 First Quarter, including an 8.2% increase in same store revenue over the
comparable periods. Gross profit from IIP operations for the 2026 First Quarter increased $1.1 million, or 22.5%, to $6.3 million from $5.1 million for the 2025 First Quarter. Gross
profit margin from IIP operations was 20.4% for the 2026 First Quarter compared to 18.6% for the 2025 First Quarter.
Corporate Office Costs
Corporate office costs increased to $18.3 million in the 2026 First Quarter, up from $16.2 million in the 2025 First Quarter,
driven by increased clinic count, expenses related to acquisition integration, and the implementation of a new financial and human resources system. Implementation costs associated with the new financial and human resources system are expected
to continue through the end of 2026. As a percentage of net revenue, corporate office costs was 9.2% for the 2026 First Quarter compared to 8.8% for the 2025 First Quarter. Excluding acquisition integration costs and the costs associated with
the implementation of the new financial and human resources system of $0.7 million, adjusted corporate office costs was 8.8% of net revenue for the 2026 First Quarter and 8.5% of net revenue in the 2025 First Quarter. See the section titled
Non-GAAP Measures for a Reconciliation of Non-GAAP Measures to the Most Directly Comparable GAAP measure.
Change in fair value of contingent earn-out consideration
Revaluation of contingent consideration related to certain acquisitions resulted in a net loss (an increase in the related liabilities) of $2.0 million for the 2026 First Quarter compared to a net gain (a decrease
in the related liabilities) of $4.8 million for the 2025 First Quarter.
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Operating Income
Operating income was $12.5 million for the 2026 First Quarter compared to $19.6 million for the 2025 First Quarter. Excluding certain costs described above, adjusted operating income (a
non-GAAP measure) was $15.7 million for both the 2026 First Quarter and the 2025 First Quarter. See the section titled Non-GAAP measures for a reconciliation of non-GAAP measures to the most directly comparable GAAP
measure.
Other (Expenses) Income
Interest Expense, Debt and Other
Interest expense increased by $0.5 million to $2.7 million for the 2026 First Quarter compared to $2.3 million for the 2025 First Quarter due to a higher average outstanding balance on
our revolving credit facility for the 2026 First Quarter. The interest rate associated with borrowings on our credit facilities was 4.9% for the 2026 First Quarter and 2025 First Quarter, respectively with
an all-in-effective interest rate (including all associated costs), and 5.5% over the same periods, respectively.
Change in revaluation of put-right liability
Revaluation of put-right liability related to the future purchase of an IIP business resulted in a net non-cash gain (a decrease in the related liability) of $0.4 million for the 2026
First Quarter compared to net non-cash expense (an increase in the related liability) of $0.4 million for the 2025 First Quarter .
Provision for Income Taxes
The provision for income taxes was $2.4 million for the 2026 First Quarter compared to $3.9 million during the 2025 First Quarter while the effective tax rate was 32.3% and 28.1% over the same
periods, respectively.
Three Months Ended
March 31, 2026
March 31, 2025
(In thousands, except percentages)
Income before taxes
$
10,563
$
17,328
Less: Net income attributable to non-controlling interest:
Redeemable non-controlling interest - temporary equity
(2,514
)
(2,012
)
Non-controlling interest - permanent equity
(604
)
(1,557
)
$
(3,118
)
$
(3,569
)
Income before taxes less net income attributable to non-controlling interest
$
7,445
$
13,759
Provision for income taxes
$
2,407
$
3,860
Effective income tax rate
32.3
%
28.1
%
Net Income Attributable to Non-controlling Interest
Net income attributable to non-controlling interest (temporary and permanent) was $3.1 million for the 2026 First Quarter compared to $3.6 million for the 2025 First Quarter.
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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 $28.4 million as of March 31, 2026, compared
to $35.6 million as of December 31, 2025. Additionally, we had $203.9 million of outstanding borrowings and $100.5 million in available credit under our credit facilities as of March 31, 2026, compared to $161.8 million of outstanding
borrowings and $144.5 million in available credit under our credit facilities as of December 31, 2025.
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, 2027.
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, 2026, we have accrued $6.1 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, 2026
March 31, 2025
Net cash provided by (used in) operating activities
$
3,808
$
(4,675
)
Net cash (used in) investing activities
(39,801
)
(6,628
)
Net cash provided by financing activities
28,862
9,124
Operating Activities
Cash provided by operating activities was $3.8 million for the 2026 First Quarter, compared to $4.7 million of net cash used in the 2025 First Quarter. The Company made a $7.5 million lump sum
income tax payment during the 2025 First Quarter applicable to tax year 2024 as a result of tax relief granted by the Internal Revenue Service to aid businesses impacted by hurricane Beryl.
Investing Activities
Cash used in investing activities for the 2026 First Quarter totaled $39.8 million and primarily consisted of $35.3 million used in the purchase of interests in businesses and non-controlling
interests (temporary and permanent), and $5.4 million of fixed assets purchases. Cash used in investing activities in the 2025 First Quarter was $6.6 million.
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Financing Activities
Cash provided by financing activities for the 2026 First Quarter totaled $28.9 million and primarily comprised of $44.0 million in net proceeds from our Revolving Facility (as defined below). Uses
included payments of $8.3 million of contingent consideration, $4.4 million in distributions to non-controlling interests (temporary and permanent), and payments of $2.5 million related to notes payable and the Company’s term loan. Cash used in
financing activities in the 2025 First Quarter was $9.1 million.
Credit Facilities
Third Amended and Restated Credit Facility
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, January 2021 and June 2022, which was set to expire on June 22, 2027 (“Prior Credit Facility”). The Prior Credit Facility provides for total borrowings of $325.0 million, consisting of a $175.0
million revolving credit facility and a $150.0 million term loan.
As of March 31, 2026, $128.9 million (net of unamortized debt issuance costs of $0.5 million) was outstanding on the Term Facility while $74.5 million was outstanding under the
Revolving Facility resulting in $100.5 million of credit availability on the Revolving Facility. The average interest rate on the Prior Credit Facility, including the impact of the interest rate swap, was 4.9% for the 2026 First Quarter and the
2025 First Quarter, with an all-in effective interest rate (including all associated costs), of 5.5% over the same periods, respectively.
As of March 31, 2026, we were in compliance with all of the covenants contained in the Prior Credit Facility.
Fourth Amended and Restated Credit Facility
On April 14, 2026, we entered into the Fourth 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 April 14, 2031, provides for loans in an aggregate principal amount of $450.0 million. Such loans will be available through the following facilities
(collectively, the “Senior Credit Facilities”):
1)
Revolving Facility: $275.0 million, five-year, revolving credit facility (“Revolving Facility”), which includes a $25.0 million sublimit for the issuance of standby letters of credit and a $25.0 million sublimit
for swingline loans (each, a “Swingline Loan”).
2)
Term Facility: $175.0 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 funding
future acquisitions and investing in growth opportunities. The proceeds of the Term Facility were used by us to refinance the indebtedness outstanding under the Third Amended and Restated Credit Agreement.
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) $125.0 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 2.5:1.0.
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.
The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and
dissolutions, sales of assets, dividends, and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets. The Credit Agreement includes
certain financial covenants which include the Consolidated Fixed Charge Coverage Ratio and the Consolidated Leverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains customary events of default.
Our obligations under the Credit Agreement are guaranteed by our wholly owned material domestic subsidiaries (each, a “Guarantor”), and our obligations and any Guarantors are secured by a perfected
first priority security interest in substantially all of our existing and future personal property and each Guarantor, subject to certain exceptions.
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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, 2026, the fair value of the interest rate swap was $1.3 million, an increase of $0.3 million, net of income tax effect, as compared to December 31, 2025. The fair value of the
interest rate swap is included in Other assets (current and long term) in our consolidated balance sheet while the changes in fair value are presented as an unrealized loss or gain in our unaudited consolidated statements of comprehensive income.
The interest rate swap arrangement has generated $0.3 million in interest savings for the 2026 First Quarter.
The average interest rate on the Prior Credit Facility, net of savings from the swap, was 4.9% for the 2026 First Quarter and 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, 2026, our remaining outstanding balance on these notes aggregated $1.5 million, of which $0.3 million is payable in 2026, $0.7 million is payable in 2027, and $0.5 million is payable in 2028.
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 4.5% to 8.5% per annum.
On January 2, 2026, we acquired a 50% equity interest in an eight-clinic practice with the practice owners retaining 50% ownership interest. The purchase price for the 50% equity interest was
approximately $6.2 million, of which $5.7 million was paid in cash and $0.5 million is in the form of a note payable. The note accrues interest at 5.0% per annum and the principle and interest is payable on January 1, 2028.
On September 30, 2025, together with a local partner, we acquired a 100% equity interest in a two-clinic practice for a purchase price of $0.4 million, which was paid in cash. As part of this
transaction, we agreed to additional consideration if future objectives are met. The contingent consideration was valued at less than $0.1 million as of March 31, 2026.
On July 31, 2025, we acquired a 60% equity interest in a three-clinic practice with the practice owners retaining a 40% equity interest. The purchase price for the 60% equity interest was approximately $7.9
million, of which $7.6 million was paid in cash and $0.3 million in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and interest is payable on July 31, 2027. As part
of this transaction, we agreed to additional consideration if future operational objectives are met. The contingent consideration was valued at $1.0 million as of March 31, 2026.
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Table of Contents
On April 30, 2025, we acquired an outpatient home-care physical and speech therapy practice through our 50%-owned subsidiary, Metro. After the transaction, our ownership interest is 40%, our local partners have an
partnership interest of 40% and the practice’s pre-acquisition owners have a 20% ownership interest. The purchase price for the 80% equity interest was approximately $2.3 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 $1.8 million. The contingent consideration was valued at
$1.1 million as of March 31, 2026.
On February 28, 2025, we acquired 65% interest in a physical therapy 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. In March 2026, the contingent payment was valued at $1.0 million, of which $0.8 million was paid in cash and $0.2 million in the form of a note payable. The note accrues interest at 5% per annum and the principal and interest is
payable on March 31, 2027.
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.
On October 31, 2024, we acquired a 50% interest in Metro pursuant to an 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 December 31, 2025, was $7.4 million. On March 6, 2026, we paid $7.4 million in full settlement of the earnout. As of March 31, 2026, no
further amounts are payable related to the Metro acquisition.
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. $3.6 million in contingent consideration was paid as full
settlement of contingent consideration in April 2026.
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 accrued interest at 4.5% per annum and the principal and interest was paid as of the 2026 First Quarter. As part of the
transaction, we agreed to additional contingent consideration if future operational and financial objectives are met. There is no maximum payout. In November 2025, we paid $2.5 million in full settlement of the contingent consideration. As of
March 31, 2026, no further amounts are payable related to this acquisition.
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, 2026 was $313.4 million.
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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 six 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.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We maintain an interest rate swap arrangement which is considered a derivative instrument. Our indebtedness as of March 31, 2026, was the outstanding balance of seller notes from our acquisitions of
$1.5 million, and an outstanding balance on our term note related to the Prior Credit Facility of $203.9 million. The Revolving Facility within our Senior Credit Facilities has a balance of $74.5 million as of March 31, 2026, and is subject to
fluctuating interest rates. A 1% change in the interest rate would result in a $0.7 million change in interest expense on the Senior Credit Facilities on an annualized basis. See Note 9 to our consolidated financial statements included in Item 1.
ITEM 4.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company’s management completed an evaluation, under the supervision and with the participation of our principal executive officer and
principal financial officer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded (i) that our disclosure controls and procedures are
designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure and (ii) that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
In January 2026, we completed an acquisition of an IIP business. As part of our ongoing integration activities, we are currently in the process of implementing internal controls and procedures at
the newly acquired entity.
Except for the integration of the newly acquired entity noted above, there were no changes in our internal control over financial reporting during the quarter ended March 31, 2026 that materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.