US Physical Therapy, Inc. (NYSE:USPH) Q2 2023 Earnings Conference Call August 9, 2023 10:30 AM ET Company Participants Christopher Reading - President, CEO & Director Jake Martinez - SVP, Finance & Accounting Carey Hendrickson - CFO Eric Williams - COO, East Conference Call Participants Brian Tanquilut - Jefferies Joanna Gajuk - Bank of America Merrill Lynch Lawrence Solow - CJS Securities Madeline Mollman - William Blair & Company Operator Good day, and thank you for standing by. Welcome to the U.S. Physic ...

PART I—FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The financial statements for the three months ended March 31, 2023, show a 12.8% increase in net revenue to $148.5 million compared to the prior year period. However, net income attributable to shareholders decreased to $7.4 million from $8.8 million, primarily due to higher operating costs and a significant increase in interest expense. The balance sheet reflects growth in total assets to $868.1 million, driven by acquisitions which increased goodwill. Cash flow from operations remained stable at $11.3 million [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2023, total assets increased to $868.1 million from $858.2 million at year-end 2022, primarily due to a $7.2 million increase in goodwill from acquisitions. Total liabilities rose to $384.4 million from $373.6 million, mainly driven by a $7.0 million increase in the revolving line of credit. Total USPH shareholders' equity saw a modest increase to $318.1 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $117,794 | $111,266 | | **Goodwill** | $501,347 | $494,101 | | **Total Assets** | **$868,127** | **$858,154** | | **Total Current Liabilities** | $90,833 | $85,489 | | **Revolving line of credit** | $38,000 | $31,000 | | **Total Liabilities** | **$384,368** | **$373,586** | | **Total USPH shareholders' equity** | $318,058 | $315,793 | [Consolidated Statements of Net Income](index=4&type=section&id=Consolidated%20Statements%20of%20Net%20Income) For the three months ended March 31, 2023, net revenue increased 12.8% year-over-year to $148.5 million. Despite a higher gross profit of $30.9 million, net income attributable to USPH shareholders declined to $7.4 million from $8.8 million in the prior-year period. This was primarily due to a significant increase in interest expense from $0.5 million to $2.6 million. Consequently, diluted earnings per share fell to $0.58 from $0.67 Q1 2023 vs Q1 2022 Income Statement (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Revenue | $148,509 | $131,704 | | Gross Profit | $30,857 | $26,588 | | Operating Income | $16,998 | $15,032 | | Interest Expense | ($2,560) | ($540) | | Net Income Attributable to USPH Shareholders | $7,410 | $8,799 | | Diluted EPS | $0.58 | $0.67 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the first quarter of 2023, net cash provided by operating activities was $11.3 million, nearly flat compared to $11.6 million in the prior year. Net cash used in investing activities was $12.7 million, primarily for the purchase of businesses ($5.8 million) and redeemable non-controlling interests ($5.2 million). Financing activities provided a net $2.3 million, resulting in a total net increase in cash of $1.0 million for the period Q1 2023 vs Q1 2022 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $11,349 | $11,649 | | Net Cash used in Investing Activities | ($12,681) | ($15,944) | | Net Cash from (used in) Financing Activities | $2,343 | ($43) | | **Net Increase (Decrease) in Cash** | **$1,011** | **($4,338)** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies and operational structure, which includes two segments: physical therapy operations and industrial injury prevention services. As of March 31, 2023, the company operated 647 clinics. A key event was the February 2023 acquisition of an 80% interest in a single-clinic practice for approximately $6.2 million. The notes also cover revenue recognition, significant goodwill balances, debt facilities, and segment performance, highlighting the ongoing impact of Medicare reimbursement changes on revenue - The company operates through two segments: physical therapy operations and industrial injury prevention services. As of March 31, 2023, it operated **647 clinics** and managed **35 third-party facilities**[23](index=23&type=chunk)[25](index=25&type=chunk) - In February 2023, the company acquired an **80% interest** in a one-clinic physical therapy practice for approximately **$6.2 million**[64](index=64&type=chunk) - Net patient revenue from Medicare was approximately **$41.9 million** for Q1 2023, up from **$35.6 million** in Q1 2022[103](index=103&type=chunk) Segment Revenue and Gross Profit (Q1 2023, in thousands) | Segment | Net Operating Revenue | Gross Profit | | :--- | :--- | :--- | | Physical therapy operations | $129,159 | $27,089 | | Industrial injury prevention services | $19,350 | $3,768 | | **Total Company** | **$148,509** | **$30,857** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 12.8% year-over-year revenue growth in Q1 2023 to acquisitions and a 15.4% increase in patient visits. While operating income grew 13.1% to $17.0 million, net income attributable to shareholders declined from $8.8 million to $7.4 million, primarily due to a $2.0 million increase in interest expense from higher rates and increased borrowings. The company maintains sufficient liquidity with $32.6 million in cash and $137.0 million available under its revolving credit facility. Non-GAAP Adjusted EBITDA rose to $18.5 million from $17.5 million Q1 2023 vs Q1 2022 Key Metrics | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Net Revenue | $148.5M | $131.7M | | Operating Income | $17.0M | $15.0M | | Net Income (to shareholders) | $7.4M | $8.8M | | Diluted EPS | $0.58 | $0.67 | | Adjusted EBITDA (Non-GAAP) | $18.5M | $17.5M | - Revenue from physical therapy operations increased **15.4%** to **$127.4 million**, driven by a **15.4% increase in patient visits**. Net patient revenue per visit was stable at **$103.12**[197](index=197&type=chunk) - Interest expense increased significantly to **$2.6 million** from **$0.5 million** year-over-year, primarily due to a higher effective interest rate (**5.5%**) and increased borrowings to fund acquisitions[213](index=213&type=chunk) - As of March 31, 2023, the company had **$32.6 million** in cash and **$137.0 million** of availability on its Revolving Facility, indicating sufficient liquidity[222](index=222&type=chunk)[235](index=235&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The company's primary market risk exposure is to interest rate fluctuations on its variable-rate debt, specifically the $38.0 million drawn on its Revolving Facility. To mitigate this risk on its term loan, the company utilizes an interest rate swap. A hypothetical 1% change in interest rates would result in an approximate $0.4 million annual change in interest expense on the outstanding revolving credit balance - The main market risk is from fluctuating interest rates on variable-rate debt, particularly the **$38.0 million** outstanding on the Revolving Facility[251](index=251&type=chunk) - A **1% change** in the interest rate would impact annual interest expense by approximately **$0.4 million**[251](index=251&type=chunk) - The company uses an interest rate swap to manage interest rate risk associated with its **$147.2 million** term note[251](index=251&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation conducted by management, including the CEO and CFO, the company concluded that its disclosure controls and procedures were effective as of March 31, 2023. There were no material changes in the company's internal control over financial reporting during the first quarter - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures are effective[253](index=253&type=chunk) - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[254](index=254&type=chunk) PART II—OTHER INFORMATION [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal actions, proceedings, and governmental audits in the ordinary course of business. The ultimate outcome of these matters cannot be predicted and could potentially result in sanctions, damages, or other penalties - The company is party to various legal actions and regulatory investigations in the ordinary course of business, with unpredictable outcomes[255](index=255&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K, with the exception of a new risk factor. This new risk addresses the potential adverse impact of banking volatility on the company's available cash, particularly funds exceeding FDIC insurance limits, and its ability to obtain future financing - A new risk factor has been added concerning banking volatility and its potential to impact the company's access to cash held in operating accounts and its ability to secure future debt or equity financing[257](index=257&type=chunk) - Other than the new banking volatility risk, there have been no material changes to the risk factors previously disclosed in the 2022 Form 10-K[256](index=256&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the quarterly report. Key exhibits include certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act, and interactive data files (XBRL) - The report includes required CEO and CFO certifications (Exhibits 31.1, 31.2, 32) and XBRL data files[259](index=259&type=chunk)

Financial Data and Key Metrics Changes - The company reported adjusted EBITDA of $18.5 million for Q1 2023, an increase of $1 million from $17.5 million in Q1 2022 [14] - Total company revenues increased by 12.8%, from $131.7 million in Q1 2022 to $148.5 million in Q1 2023 [14] - Operating income rose by $2 million, from $15 million in Q1 2022 to $17 million in Q1 2023 [14] - The average visits per clinic per day reached 29.8, the highest first-quarter volume in the company's history [15] - The net rate increased to $113.12, up $0.12 from the previous year despite a 2% Medicare rate reduction [15][16] Business Line Data and Key Metrics Changes - Physical therapy revenues were $127.4 million in Q1 2023, a 15.6% increase from Q1 2022 [16] - Same-store revenue growth was 5.8%, driven by a 6% increase in visits compared to the prior year [16] - Operating costs for physical therapy were $100.6 million, a 13.9% increase year-over-year, but the cost per visit decreased from $83.09 to $81.97 [17] - The industrial injury prevention business generated revenues of $19.4 million, up $300,000 from Q1 2022, but the margin decreased to 19.5% from 21.8% [19] Market Data and Key Metrics Changes - The company experienced nearly 16% revenue growth in physical therapy, alongside double-digit operating income improvement [6] - The company is focusing on renegotiating or terminating low-margin contracts, particularly in Medicare Advantage, to improve profitability [8][16] Company Strategy and Development Direction - The company is committed to dropping low-margin business, particularly in Medicare Advantage contracts, to focus on more profitable opportunities [8][30] - There is an ongoing effort to improve employee retention and reduce turnover, particularly in clinical positions, which has shown significant improvement [10][31] - The company plans to continue expanding its injury prevention business, although growth may be slower this year due to economic uncertainties [11][42] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about maintaining strong volume growth, with expectations for continued improvement in staffing and operational efficiency [23][24] - The company anticipates achieving its adjusted EBITDA guidance of $75 million to $80 million for the year, excluding potential acquisitions [21] - Management acknowledged the challenges posed by inflation and labor scarcity but highlighted the team's resilience and adaptability [3][4] Other Important Information - The company has a strong balance sheet with a $150 million term loan and a $175 million revolving credit facility, maintaining a favorable interest rate environment [20][21] - The company is actively working on front-desk automation to improve employee retention and operational efficiency [10] Q&A Session Summary Question: What factors contributed to the strong same-store volume growth? - Management attributed the growth to favorable weather conditions and improved staffing availability, which allowed for better patient service [22][24] Question: Is the company gaining market share or is the industry recovering? - Management suggested that while the industry may be seeing a recovery, they believe they are also gaining market share due to improved staffing and operational capabilities [27][28] Question: What is the status of rate renegotiations? - Management indicated they are in the early stages of renegotiating rates, with mixed responses from payers, but are willing to walk away from under-paying contracts [29][30] Question: How is the injury prevention business performing? - Management noted that while the injury prevention business remains strong, growth may slow this year due to economic uncertainties affecting new contracts [11][42] Question: What is the expected impact of dropping low-margin contracts? - Management expects the impact to be several million dollars in revenue, but they are confident in replacing that volume with better-paying contracts [38]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-11151 U.S. PHYSICAL THERAPY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEVADA 76-0364866 (STATE OR OTHER JURISDICTION ...

Financial Data and Key Metrics Changes - The company reported total revenue of $553.1 million for 2022, an increase of 11.7% from $495 million in 2021 [14] - Adjusted EBITDA for Q4 2022 was $17.9 million, up 2.8% from $17.4 million in Q4 2021 [13] - Operating results for Q4 2022 were $0.58 per share, with a full-year result of $2.70 per share [14] - Interest expense increased significantly from $191,000 in Q4 2021 to $2.2 million in Q4 2022 due to higher debt and interest rates [22] Business Line Data and Key Metrics Changes - Physical therapy revenues for Q4 2022 were $121 million, a 6% increase from the previous year [18] - Industrial injury prevention (IIP) revenues reached $18.9 million in Q4 2022, a 37.6% increase year-over-year [19] - IIP revenue for the full year increased by 75.5%, with operating income up 49.3% [19] Market Data and Key Metrics Changes - The average visits per clinic per day were 29.1 for Q4 2022, marking the second-highest volume in the company's history [15] - The net rate for physical therapy operations improved to $104.28 in Q4 2022, up from $103.53 in Q4 2021 [15][17] - The company experienced a slight decrease in physical therapy operating costs per visit, down $1.09 from Q3 2022 [18] Company Strategy and Development Direction - The company is focusing on renegotiating contracts with payers to ensure fair compensation for services, including dropping low-margin contracts [8][9] - There is an ongoing strategy to expand through acquisitions, with five acquisitions completed in 2022 and plans for further development in 2023 [10][11] - The company aims to leverage automation in operations to improve efficiency and reduce costs, particularly in front office functions [31][32] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about strong volume momentum and expects adjusted EBITDA to be in the range of $75 million to $80 million in 2023 [25] - The company anticipates challenges from a 2% Medicare rate reduction and the phase-out of sequestration relief, impacting revenue by approximately $44.3 million in 2023 [24] - Management noted improvements in staffing and hiring, indicating a better position entering 2023 compared to the previous year [29] Other Important Information - The company recorded a $9.1 million impairment related to an acquisition in the industrial injury prevention sector [21] - Corporate office costs as a percentage of revenue remained stable at 8.4% in Q4 2022, compared to 8.3% in Q4 2021 [20] - The company increased its quarterly dividend rate from $0.41 to $0.43 per share [23] Q&A Session Summary Question: Market share opportunities amidst competitor struggles - Management acknowledged that tough operating environments affect providers differently and noted opportunities to acquire distressed assets [27] Question: Labor market challenges and hiring - Management indicated improvements in hiring qualified candidates and a reduction in time to fill positions, although labor pressures remain [29][30] Question: Volume growth expectations for 2023 - Management expressed confidence in volume growth for 2023, citing strong early performance and improvements in staffing [34][35] Question: Pricing negotiations with payers - Management is focused on renegotiating contracts to ensure fair compensation and is prepared to opt out of low-margin contracts [40][42] Question: Acquisition strategy and leverage - Management is open to increasing leverage for the right deals but emphasizes the importance of smart deal-making [38][39] Question: Progress with GPO and partner engagement - Management reported positive reception of the GPO rollout, set to go live at 180 locations [48]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____TO _____ COMMISSION FILE NUMBER 1-11151 U.S. PHYSICAL THERAPY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Indicate by check mark whe ...

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q3 2022 was reported at $17 million with operating results per share of $0.58 [24] - Physical therapy revenues reached $117.5 million, an increase of $4.4 million or 3.9% from Q3 2021 [31] - Total salaries and related costs were 58.6% of revenues compared to 56% in the same quarter last year [18] - Interest expense increased from $268,000 in Q3 2021 to $2 million in Q3 2022 due to higher debt and interest rates [36] Business Line Data and Key Metrics Changes - Patient visits per clinic per day averaged 28.8% in Q3 2022, with a 2.8% increase from the prior year quarter [13][26] - Injury prevention revenue reached an all-time high of $20.2 million, a 92.1% increase compared to Q3 2021 [33] - Gross profit for the injury prevention business increased 64.6% year-over-year [17] Market Data and Key Metrics Changes - The payer mix for the quarter included 45.7% commercial insurance, 34.4% Medicare, 4.1% Medicaid, and 9.5% workers' compensation [81] - The average rate for physical therapy operations was $104.1, up from $102.93 in Q3 2021 [29] Company Strategy and Development Direction - The company is focused on reducing administrative burdens and ensuring an adequate supply of therapists to meet the needs of an aging population [5] - There is an ongoing effort to negotiate better payer contracts, with early signs of progress noted [49][50] - The company is actively pursuing acquisitions and has announced a recent acquisition of 14 clinics, indicating a strategy for growth [85] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges due to inflation and labor costs but expressed confidence in strong volumes and rates [25][44] - The company expects full-year results to be within previous guidance ranges despite elevated costs [44] - Management is optimistic about the potential for improved reimbursement rates and is actively working on legislative efforts to support this [76][79] Other Important Information - The company has a strong balance sheet with $150 million in term loans and a $175 million revolving credit facility, providing flexibility for growth opportunities [39][41] - Corporate office costs decreased to $11.9 million, down from $12.9 million in Q3 2021 [34] Q&A Session Summary Question: Is the recent rate growth a sign of progress in negotiating better rates with payers? - Management indicated that it is early progress and that there is still much work to be done on this front [49][50] Question: How are discussions with acquisition targets evolving in the current environment? - Management noted that conversations have not changed significantly, but the environment has shifted, and multiples may need to adjust [52][53] Question: What is the current situation regarding clinician turnover and recruitment? - Management reported improvements in recruitment efforts and noted that while it is not easy, the situation is feeling better than a few months ago [56][57] Question: Can you quantify the impact of cost control efforts and the outlook for contract labor costs? - Management acknowledged that contract labor will continue to be a factor and that cost control efforts are ongoing but will take time to fully implement [62][63] Question: What is the leverage ratio the company aims to maintain regarding acquisitions? - Management stated that they aim to stay below a leverage ratio of 3x, currently operating around 6x [67][68] Question: What is the current view on reimbursement rates for 2023? - Management expressed hope for rational reimbursement approaches and indicated ongoing efforts to advocate for better rates [74][76]

Financial Performance - For the second quarter of 2022, the company reported a net income of $11.2 million, a decrease of 9.0% from $12.4 million in the same period of 2021[183]. - Total revenue for the second quarter of 2022 was $140.7 million, representing a 10.8% increase compared to $126.9 million in the second quarter of 2021[192]. - Revenue from physical therapy operations increased by $4.9 million, or 4.3%, to $119.1 million for the second quarter of 2022 from $114.2 million for the same period in 2021[192]. - Revenue from the industrial injury prevention services business surged 93.7% to $19.4 million in the second quarter of 2022 compared to $10.0 million in the second quarter of 2021[195]. - The company's Operating Results for the second quarter of 2022 was $11.7 million, or $0.90 per diluted share, compared to $12.4 million, or $0.96 per diluted share, in the second quarter of 2021[184]. - Net operating revenue for the first six months of 2022 was $272.4 million, an increase of 13.8% from $239.3 million in the same period of 2021[213]. - Revenue from industrial injury prevention services surged 92.1% to $38.5 million in the first six months of 2022 compared to $20.0 million in 2021[216]. - Operating income for Q2 2022 was $20.1 million, representing 14.3% of total revenue, down from $22.2 million or 17.5% in Q2 2021[206]. - Operating income for the 2022 Six Months was $35.1 million, which is 12.9% of total revenue, down from $37.3 million or 15.6% in the 2021 Six Months[228]. Patient Metrics - The average net patient revenue per visit decreased to $103.18 in the second quarter of 2022 from $104.46 in the second quarter of 2021[193]. - Total patient visits increased by 5.7% to 1,145,554 in the second quarter of 2022 compared to 1,084,070 in the same period of 2021[193]. - Total patient visits increased by 8.7% to 2,209,073 in the first six months of 2022 from 2,031,858 in the same period of 2021[214]. - Average net patient revenue per visit was $103.09 for the first six months of 2022, down from $104.58 in the same period of 2021[214]. Operating Costs - Total operating cost for Q2 2022 was $109.8 million, representing 78.1% of total revenue, up from $92.6 million or 73.0% in Q2 2021[197]. - Total operating cost for the 2022 Six Months was $215.0 million, representing 78.9% of total revenue, compared to $179.1 million or 74.8% for the 2021 Six Months[219]. - Salaries and related costs for physical therapy operations increased to $66.7 million in Q2 2022, accounting for 56.1% of physical therapy operations revenue, compared to 53.1% in Q2 2021[198]. - Salaries and related costs were 56.9% of net revenue for the 2022 Six Months, up from 55.4% in the 2021 Six Months, with physical therapy operations salaries at $129.2 million[220]. - Corporate office costs decreased to $10.7 million in Q2 2022, representing 7.6% of total revenue, down from 9.5% in Q2 2021[205]. Profitability - Gross profit for Q2 2022 decreased to $30.8 million, a decline of 10.2% from $34.3 million in Q2 2021, with a gross profit percentage of 21.9% compared to 27.0%[204]. - Gross profit for the 2022 Six Months was $57.4 million, a decrease of $2.8 million or approximately 4.6% from $60.2 million in the 2021 Six Months, with a gross profit percentage of 21.1%[226]. Tax and Legal Matters - The provision for income tax was $4.2 million in Q2 2022, with an effective tax rate of 27.5%, slightly up from 26.9% in Q2 2021[209]. - Provision for income tax was $7.7 million for the 2022 Six Months, with an effective tax rate of 27.9%, compared to $7.5 million and 26.7% for the 2021 Six Months[231]. - The company is involved in various legal actions and regulatory audits that could potentially have a material adverse effect on its business and financial position[278]. - The company may face qui tam lawsuits under the federal False Claims Act, which can involve significant monetary damages and penalties[279]. Acquisitions and Growth Strategy - The company expects to continue adding personnel to support growth and potential acquisitions[182]. - The company completed acquisitions of four multi-clinic practices and two industrial injury services businesses during the 2021 year and the first half of 2022[175]. - The company plans to continue developing new clinics and making additional acquisitions, funded through a combination of cash and financing[254]. - The company acquired a 70% interest in a six-clinic physical therapy practice for approximately $11.5 million, with $11.2 million paid in cash and $0.3 million as a note payable[245]. - A 75% interest in a three-clinic physical therapy practice was acquired for about $3.7 million, with $3.5 million in cash and $0.2 million as a note payable[246]. - The company secured a $150 million term loan facility, amortizing at rates of 0.625% for the first two years, 1.250% for the third and fourth years, and 1.875% in the fifth year[247]. - An acquisition of a leading provider of industrial injury prevention services was made for approximately $63.2 million, generating annual revenue of about $27.0 million at a 20% margin[248]. - The company acquired a company specializing in return-to-work services for approximately $3.3 million, with an annual revenue exceeding $2.0 million[249]. - A 65% interest in an eight-clinic physical therapy practice was purchased for about $10.3 million, with an additional contingent payment of up to $0.8 million based on future operational objectives[250]. Financial Position and Credit Facilities - Cash and cash equivalents increased by $20.4 million from December 31, 2021, to June 30, 2022, totaling $48.6 million[235]. - The company entered into a Third Amended and Restated Credit Agreement providing for loans of $325 million, maturing on June 17, 2027[236]. - The interest rate for the Senior Credit Facilities is currently 4.665%[240]. - The provision for credit losses as a percentage of net revenue was 1.0% in the 2022 Second Quarter, down from 1.1% in the comparable period in 2021[224]. - As of June 30, 2022, the balance on outstanding notes payable was $5.7 million, with interest rates ranging from 3.25% to 5.5% per annum[257]. - The company has accrued $7.9 million related to credit balances due to patients and payors, expected to be paid in the next twelve months[259]. Risk Management and Internal Controls - The company entered into an interest rate swap agreement with a notional value of $150 million, effective June 30, 2022, maturing on June 30, 2027, receiving 1-month SOFR and paying a fixed interest rate of 2.815% plus an additional margin[273]. - The interest rate swap is designated as a cash flow hedge, with unrealized gains and losses recorded in accumulated other comprehensive income (loss), net of tax[274]. - The company's management evaluated the effectiveness of disclosure controls and procedures, concluding they are designed to ensure timely and accurate reporting as required by the SEC[276]. - There have been no changes in internal control over financial reporting that materially affected the company's financial reporting during the covered period[277].

Financial Data and Key Metrics Changes - The company reported operating results per share of $0.90, marking the second highest quarterly amount in its history [16] - Adjusted EBITDA for Q2 was $21.3 million, slightly down from $24 million in Q2 2021 [17] - Physical therapy revenues reached $119.1 million, an increase of $5 million or 4.3% from the previous year [20] - Gross profit was $30.8 million, down from $34.3 million in Q2 2021, with a gross profit margin of 21.9% [22] - Interest expense increased from $237,000 in Q2 2021 to $987,000 in Q2 2022 due to higher debt and interest rates [23] Business Line Data and Key Metrics Changes - Industrial injury prevention revenue reached an all-time high of $19.4 million, a 93.7% increase year-over-year [21] - Physical therapy patient volumes per day per clinic were 29.5, up from 27.9 in Q1 but slightly below the 30.0 in Q2 2021 [18] - Total visits increased by 5.7% from 1,084,070 in Q2 2021 to 1,145,554 in Q2 2022 [19] Market Data and Key Metrics Changes - The company experienced rising labor and ancillary costs due to the tight labor market and inflationary pressures [10] - The net rate for physical therapy operations was $103.18, down from $104.46 in Q2 2021, attributed to Medicare rate changes [19] Company Strategy and Development Direction - The company secured a new $325 million credit facility to enhance its borrowing capacity for long-term growth plans [9][25] - Investments were made in rate negotiations with payers and in the work comp area to improve recruitment and identify acquisition targets [11] - The company is focused on streamlining operations and improving efficiency, particularly in front desk operations [14][56] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from rising interest rates and inflation but expressed confidence in the company's resilience and ability to navigate these issues [5][10] - The company anticipates a return to normal seasonal patterns in patient volumes as schools reopen and vacations conclude [13][38] - Guidance for adjusted EBITDA for the full year is set between $73.5 million to $75.4 million, considering inflationary impacts [28] Other Important Information - The company is actively pursuing M&A opportunities, expecting to capitalize on the current market environment to acquire smaller providers facing financial pressures [61][69] - The company has a strong balance sheet, with cash on hand of $48.6 million and no amounts drawn on its revolver as of June 30 [25] Q&A Session Summary Question: Guidance and Volume Trends - Management discussed the impact of seasonal patterns on volumes, noting a decline in June but expecting a rebound as schools reopen [34][36] Question: Rate Negotiations - Management confirmed ongoing efforts to negotiate better rates with payers, with some recent successes expected to impact 2023 more than 2022 [41][42] Question: M&A Strategy - Management expressed confidence in pursuing M&A opportunities, highlighting the potential for consolidation in the industry due to economic pressures on smaller providers [60][69] Question: Labor and Wage Pressures - Management detailed the mix of labor availability and wage pressures, indicating that vacation-related absences are transitory while wage pressures are more persistent [51][52] Question: Economic Downturn Impact - Management reflected on past performance during economic downturns, indicating a strong position to navigate potential challenges ahead [72]

PART I—FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements.) The financial statements detail the company's Q1 2022 financial position and performance, showing total assets of **$763.9 million**, net revenue of **$131.7 million**, and net income of **$8.8 million** [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$763.9 million** by March 31, 2022, driven by acquisitions, while total liabilities also rose to **$303.6 million** Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $24,229 | $28,567 | | Goodwill | $443,692 | $434,679 | | Total assets | $763,863 | $749,426 | | Revolving line of credit | $118,000 | $114,000 | | Total liabilities | $303,639 | $296,983 | | Total USPH shareholders' equity | $300,971 | $295,606 | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net revenue increased **17.2%** to **$131.7 million** in Q1 2022, with net income attributable to shareholders rising to **$8.8 million** Q1 2022 vs. Q1 2021 Income Statement (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net revenue | $131,704 | $112,368 | | Gross profit | $26,588 | $25,896 | | Operating income | $15,032 | $15,022 | | Net income attributable to USPH shareholders | $8,799 | $8,173 | | Basic and diluted EPS | $0.67 | $0.21 | | Dividends declared per common share | $0.41 | $0.35 | [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations decreased to **$11.6 million** in Q1 2022, with **$15.9 million** used in investing activities, ending the quarter with **$24.2 million** cash Q1 2022 vs. Q1 2021 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,649 | $17,674 | | Net cash used in investing activities | ($15,944) | ($13,203) | | Net cash used in financing activities | ($43) | ($19,452) | | Net decrease in cash and cash equivalents | ($4,338) | ($14,981) | | Cash and cash equivalents - end of period | $24,229 | $17,937 | [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, acquisitions, and financial instruments, highlighting **601 clinics**, a new **6-clinic acquisition**, and **Medicare rate changes** - The company operates through two reportable segments: physical therapy operations and industrial injury prevention services. As of March 31, 2022, the company operated **601 clinics** in 39 states and managed 38 third-party facilities[20](index=20&type=chunk)[23](index=23&type=chunk) - On March 31, 2022, the company acquired a **70% interest** in Madden and Gilbert Physical Therapy, a **six-clinic practice**, for approximately **$11.5 million**[73](index=73&type=chunk) - The company estimates the Medicare rate reduction for the full year of 2022 will be approximately **0.75%**, with a **15% reduction** for services by physical or occupational therapist assistants effective January 1, 2022[100](index=100&type=chunk) - Goodwill increased from **$434.7 million** at year-end 2021 to **$443.7 million** at March 31, 2022, primarily due to **$11.5 million** in goodwill from a new acquisition[128](index=128&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2022 revenue growth of **17.2%** to **$131.7 million**, driven by acquisitions, with gross profit margin declining to **20.2%** due to higher costs [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Total revenue grew **17.2%** to **$131.7 million** in Q1 2022, driven by acquisitions, but operating costs increased, leading to a gross profit margin decline to **20.2%** Q1 2022 Revenue Breakdown (in thousands) | Revenue Source | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Physical therapy operations | $110,410 | $99,800 | | Industrial injury prevention services | $19,068 | $10,009 | | **Total Revenue** | **$131,704** | **$112,368** | - The average net patient revenue per visit decreased slightly to **$103.00** in Q1 2022 from **$104.72** in Q1 2021, while total patient visits increased **12.2%** to **1,063,519**[174](index=174&type=chunk) - Total operating costs rose to **79.8%** of total revenue in Q1 2022, compared to **77.0%** in Q1 2021, driven by higher salaries and acquisition-related costs[179](index=179&type=chunk) - The gross profit margin declined to **20.2%** in Q1 2022 from **23.0%** in Q1 2021, with physical therapy operations at **20.0%** and industrial injury prevention services at **21.8%**[186](index=186&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company ended Q1 2022 with **$24.2 million** cash and **$32.0 million** available under its **$150 million** credit facility, with cash primarily used for acquisitions - As of March 31, 2022, the company had **$24.2 million** in cash and **$32.0 million** available under its revolving credit facility[193](index=193&type=chunk)[198](index=198&type=chunk) - The credit facility was increased to **$150.0 million** in November 2021, with an accordion feature for an additional **$25.0 million**[195](index=195&type=chunk) - During Q1 2021, the company repaid **$14.1 million** in MAAPP Funds received under the CARES Act[207](index=207&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The company's primary market risk is interest rate exposure on its **$118.0 million** variable-rate credit agreement, with a **1%** change impacting annual interest expense by **$1.18 million** - The company is exposed to interest rate risk from its variable-rate Amended Credit Agreement, which had **$118.0 million** outstanding as of March 31, 2022[220](index=220&type=chunk) - A hypothetical **1%** change in the interest rate would impact annual interest expense by **$1.18 million**[220](index=220&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures are effective[222](index=222&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[223](index=223&type=chunk) PART II—OTHER INFORMATION [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company settled a *qui tam* lawsuit in January 2022 for **$2.75 million** related to billing practices, admitting no liability to avoid litigation costs - In January 2022, the company settled a *qui tam* lawsuit concerning alleged 'upcoding' of billings for Medicare patients at a Florida partnership[227](index=227&type=chunk) - The settlement amount was **$2.75 million**, with the company admitting no liability; the expense was primarily recorded in 2021[228](index=228&type=chunk) [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including employment agreements and CEO/CFO certifications - Exhibits filed include CEO and CFO certifications as required by the Sarbanes-Oxley Act of 2002[230](index=230&type=chunk) [Signatures](index=40&type=section&id=Signatures) The report was duly authorized and signed on May 9, 2022, by Carey Hendrickson, Chief Financial Officer - The Form 10-Q was signed on May 9, 2022, by Carey Hendrickson, Chief Financial Officer[234](index=234&type=chunk)