U.S. Physical Therapy, Inc. Stock

Good day, and thank you for standing by. Welcome to the U.S. Physical Therapy Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please be advised that today's conference is being recorded. I'd now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

Thank you. Good morning, and welcome, everyone, to our U.S. Physical Therapy Second Quarter 2026 Earnings Call. With me on the line include Eric Williams, our President and Chief Operating Officer, East; Jason Curtis, our Interim CFO, also serving as our Senior Vice President of Finance and Accounting; Rick Binstein, our Executive Vice President and General Counsel; Graham Reeve, our Chief Operating Officer, West; and Kate Ventin, our Vice President of Accounting and our Controller.

Before we make some prepared remarks on the quarter as well as the year, we need to cover a brief disclosure statement. Kate, if you would, please.

Thank you, Chris. This presentation includes forward-looking statements, which involve certain risks and uncertainties. The forward-looking statements are based on the company's current views and assumptions. The company's actual results may vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information. This presentation also contains certain non-GAAP measures as defined in Regulation G, and the related reconciliations can be found in the company's earnings release and the company's presentation on its website. Back to you, Chris.

Thanks, Kate. So this morning, I'm going to spend a little time talking about where we are going with a heavy concentration around these hospital affiliation arrangements and try to dovetail that into our results for the quarter as well as look forward because it's all intertwined.

For starters, volumes across the company are and have been very strong. This includes our Metro partnership, now part of our long-term NYU Langone affiliation. For some perspective, visits per clinic per day were at an all-time high this quarter at 33.5 per day.

For the past 24 consecutive months and 37 out of the last 42 months, we have set visit per clinic per day record volumes, including those at our hospital-affiliated clinics. They're all very strong. This is important because part of our cost equation in Q2 is related to upfront hiring with the expectation of referral and volume translation within these partnerships. In short, the transition of our NYU-affiliated clinics has gone very well.

By the end of this month, we will have transitioned all 60 of our metro clinics and will benefit from approximately 50 clinicians hired in advance, which will drive the opportunity for growth going forward. That was at the expense of some short-term cost absorption. However, once those facilities are transitioned, that creates nothing but upside opportunity with no cost downside based on how these agreements work with our hospital partners. And just another point of perspective, I talked to Michael earlier this morning. Our year-over-year growth at Metro from a volume perspective significantly exceeds 100,000 visits, and that was before we had the support of our NYU Langone affiliated partners.

So we're looking forward to a great year ahead. We had an opportunity to hire clinicians coming out of school who were available, and we know we're going to be in a position to grow this business, so we jumped on that. Another indicator of building strength was demonstrated in our best ever net rate this quarter, finishing the quarter at $107.59, up $2.26 from the year ago quarter and trending solidly within the quarter itself.

Once these hospital clinics are fully onboarded, that will provide additional lift as we finish the year and head into 2027. Embedded in that rate lift are increases across commercial, Medicare and workers' comp in addition to the lift provided by the limited number of clinics transitioned inside of the quarter into our hospital affiliations. That clinic number will grow significantly in quarter 3 with approximately half of the busiest metro clinics transitioning in the current period as well as the Gulf Coast partnership, which is expected to go forward by the end of this month.

One of the areas dragging against us a bit so far this year has to do with our self-insured health care costs. Due to a small number of very significant claims across our employee base, we're running well ahead of our usual cost and our claims experience this year, and it's against a much better-than-average experience in 2025 when claim volume was lighter than normal. That swing from last year to this year above the average is an approximately $3.2 million difference between the years so far, and that we have factored into our decision to guide as we have for the remainder of the year.

PT revenue growth supported by visit strength and record net rate grew by 8.4% with industrial injury prevention revenue growing by over 9% year-over-year. Same-store revenue growth for PT was north of 3% for the quarter with a nice progression since early last year back to a historically strong average.

Margins for our IIP business were steady, slightly above 20%, while PT margins were pressured on a combination of our internal benefits-related health care costs and some front-loading of those hospital implementation costs that I just mentioned.

With continued WelcomeWare rollout and expected takeouts there, and strong performance from our hospital-affiliated clinics, we expect that we can influence or offset some of these headwinds between now and year-end.

On the development front, we have just very recently announced 12 clinic partnership acquisition in a great new state, some young hungry partners who know how to deliver great care. And that follows several earlier announced acquisitions in the PT as well as IIP areas. We continue to pursue good accretive opportunities where care is superior and the forward trajectory looks good in both the PT and the injury prevention spaces.

On the hospital development front, our pipeline of opportunities continues to grow, and we expect further relationships like the one with NYU, which will positively impact 2027 our 2027 outlook in a meaningful way.

Finally, we are working on our own digital and hybrid opportunities for 2027 and have recently hired a very accomplished well-known to our senior leader to work with our team to identify the right partners around which to make that happen.

Our primary focus at this time is to build the foundation that we need in order to accelerate our opportunity later this year and into 2027 and forward. With the help of an increased Medicare rate projected for 2027 in combination with continued commercial rate lift and the extraordinary lift associated with our hospital affiliations, we expect very good things in the coming year and beyond.

So that concludes my prepared comments. I'll ask Jason to cover the financials in a little bit more granular detail before we open things up for questions. Jason, go ahead.

Thanks, Chris, and good morning, everyone. Total revenue for Q2 2026 was $214 million, an 8.5% increase over last year. Physical therapy revenue for Q2 2026 was $182 million, an 8.4% increase over last year, including a nice 3.5% increase in mature clinics.

Q2 2026 physical therapy revenue includes $5.6 million from the initial phases of our hospital affiliation rollout. Q2 2026 visits were 1,662,000, a 6.6% increase, inclusive of hospital affiliation visits. Average daily visits per clinic was 33.5 in Q2 2026 compared to 32.7 in Q2 2025.

Q2 2026 physical therapy revenue per visit, inclusive of hospital affiliation revenue and visits was $107.59, a $2.26 increase versus last year. Medicare revenue per visit increased 3.7% in Q2 2026.

Year-to-date 2026 Medicare revenue per visit compared to full year 2025, which provides for a longer measurement period to smooth quarterly variability is approximately in line with our expectations.

As a reminder, the 2026 guidance includes a 1.75% increase in Medicare, which equates to a 1.1% increase after taking into account the mix of Medicare Advantage plans. The expected revenue lift for Medicare increases in full year 2026 is $2.5 million, equating to a $0.35 in revenue per visit lift.

Commercial payers and workers' compensation revenue per visit also delivered healthy increases in Q2 2026 of 1.2% and 2.0%, respectively. Q2 2026 adjusted salaries and related costs as a percent of revenue was 57.5% compared to 56.4% in Q2 2025. This increase is largely attributable to higher-than-average medical costs in the current quarter compared to lower-than-average medical costs in Q2 2025.

Reporting salaries and related costs as a percent of revenue replaces the company's previous methodology of reporting salaries and related costs per visit. For clinics operating in hospital affiliations, salaries and related costs of licensed staff are fully reimbursed by the hospital systems with the reimbursement recognized as revenue for USPH. This structure allows USPH to invest in additional staffing without the risk of negatively impacting bottom line profitability. As a result, utilizing a percentage of revenue is a more meaningful metric.

Adjusted physical therapy gross profit margin in Q2 2026 was 19.9% compared to 21.4% in Q2 2025. As noted, employee medical costs in Q2 2026 compared to Q2 2025 were a headwind. During Q2 2026, the company integrated 31 existing clinics into hospital affiliations. The remaining 39 existing clinics are expected to integrate during the third quarter.

IIP revenue for Q2 2026 was $32 million, a 9.1% increase over last year, including a 3.6% increase in comparable partnerships. IIP margin was 20.4% in Q2 2026 compared to 20.3% in Q2 2025.

Adjusted corporate expense as a percent of revenue was 8.4% in Q2 2026 compared to 8.7% in Q2 2025. The company is continuing its effort to upgrade its finance and HR systems with an expected go-live at the beginning of 2027. This upgrade will improve efficiency throughout the organization and position USPH for future growth.

Interest expense was $3.2 million in Q2 2026 compared to $2.4 million in Q2 2025. In Q2 2026, the all-in effective interest rate, including all associated costs, was 5.3%. Income tax rate in Q2 2026 was 29.6%. Year-to-date 2026 income tax rate is 30.5%, approximately in line with full year 2026 expectations.

Adjusted EBITDA for Q2 2026 was $27.0 million compared to $26.9 million in Q2 2025. Adjusted operating results were $11.3 million for Q2 2026 compared to $12.4 million for Q2 2025. Adjusted operating results per share were $0.75 in Q2 2026 compared to $0.81 in Q2 2025. Net income attributable to USPA shareholders was $9.9 million in Q2 2026 compared to $12.4 million in Q2 2025.

Included in net income was a loss on change in fair value of contingent earn-out considerations of $992,000 in Q2 2026 compared to a gain of $790,000 in Q2 2025. Improving results in recent acquisitions with contingent earn-outs increases the associated liability, resulting in a charge to the P&L. As such, a loss on change in fair value of earn-out consideration reflects improving underlying performance of impacted acquisitions.

Earnings per share were $0.25 in Q2 2026 compared to $0.58 in Q2 2025. Under GAAP, changes in the value of redeemable noncontrolling interests are excluded from net income but are included in the earnings per share calculation. Improving performance in partnerships with redeemable noncontrolling interest has a dilutive impact on earnings per share.

Turning to the balance sheet. Cash and cash equivalents were $25 million at the end of Q2 2026 compared to $36 million at the end of year 2025. Credit facility borrowings were $221 million at the end of Q2 2026 compared to $162 million at the end of year 2025.

Reflecting the impact of the previously announced upsized $450 million credit facility, revolver availability at the end of Q2 2026 was $229 million compared to $145 million prior year. In addition to increasing revolver availability, the new credit facility also contains $125 million accordion, providing sufficient liquidity to fund sizable future acquisitions.

During the quarter, the company repurchased 306,000 shares on the open market for a total consideration of $19.2 million at an average share price of $62.80. Including share repurchases made in 2025, the company has materially concluded repurchases under its current $25 million authorization. Year-to-date Q2 2026 operating cash flow was $38 million compared to $30 million for year-to-date Q2 2025.

As Chris mentioned, subsequent to the end of the second quarter, the company completed the acquisition of a 12-clinic physical therapy practice for a purchase price of $16.4 million. This practice currently generates $12 million in annual revenue and 112,000 annual visits.

Including the 2 previously announced Q1 2026 acquisitions, the cumulative purchase price of our 3 announced 2026 acquisitions is $38 million with a combined annualized revenue of $27 million. Taking into account the year-to-date 2026 results and the expected increasing benefit of hospital affiliations in the back half of the year, we are reaffirming our full year 2026 adjusted EBITDA guidance of $102 million to $106 million.

With that, I will turn the call back to Chris.

Thanks, Jason. Great job. Appreciate it. Operator, we're going to go ahead and open it up for questions.

[Operator Instructions] And we will take our first question from Benjamin Rossi with JPMorgan.

So just on the back half ramp implied for the remainder of the year, it sounds like that's going to be more weighted towards 4Q once those remaining facilities have been integrated in 3Q. You also mentioned the additional 50 hires being front-loaded. Can you just walk us through the specific initiatives that you're expecting to deliver margin lift during the back half of the year? And then how should we be thinking about the timing of associated costs and benefits during 3Q and 4Q?

Yes. So we have a number of things. I mean the WelcomeWare initiative we've talked about earlier that involves the semi-virtualization of our front desk and aggregation of certain functions to potentially remote site that we know results in our ability to take out headcount at the front desk. So that will continue to ramp. We're more than halfway through our expected ramp in there. And then the big impact then is just the impact from getting these hospital facilities fully loaded. As Jason mentioned, we have close to 40, 39, I believe, that will flow in this quarter. Some of those are already in the works. Many of them are with a few to remain here this next month. That's going to give us a good solid lift. And then the other things, like I said, we're working on for next year. But those are the big impact things between now and year-end.

Great. I appreciate the color there. I guess a couple of clarifications on that $5.6 million in revenue you reported from the hospital affiliation during 2Q. Can you just walk through the mechanics of the hospital affiliation revenue recognition, how flows through your P&L? And then is there any ballpark for how many visits those clinics are currently seeing? Like we're assuming those volumes are coming in at a slight premium to your consolidated revenue per visit. Is it fair to think of this group currently representing maybe 50,000 patient visits? Or is that overstating volumes?

Jason, do you want to take a swing at the revenue recognition part and the pieces parts associated with that? And then Eric, maybe we can touch base on the number of -- the visit number of this remaining group.

Sure.

So the $5.6 million comes from 2 components of the agreement with the hospitals. One is a per visit fee. So for every visit that we see -- every patient that we see, we receive a fee and income from the hospitals. And then additionally, as Chris mentioned, we receive a reimbursement for the licensed clinical staff who are treating those patients. So the sum of those 2 income streams is the $5.6 million.

And that would, just for clarity, replace the net patient revenue that we would have previously seen when they were operating pre-hospital affiliations. So the $5.6 million is the hospital increase. there would be a reduction to net patient revenue, but it would be less than the increase we're seeing from the $5.6 million increase.

Yes. I appreciate the additional details there.

In terms of the volume going through those metro clinics, just the outpatient clinics, we're averaging about 45 visits per day per clinic in our New York market and expect that to continue to increase with our NYU relationship.

Just to provide a little perspective, prior to the NYU Lango opportunity, we were able to grow on a year-over-year basis about -- these are round numbers, but about 120,000 visits year-over-year. That was '25 to current period '26. That's without the support of that hospital. So those clinicians that we hired, we fully expect to get them very busy and to produce very significant growth between now and the same time next year, including additional clinics, potential tuck-ins and other things that we have in the works.

And we'll move next to Larry Solow with CJS Securities.

So just a follow-up on that one. So the 50 clinicians that you hired in advance essentially this quarter, and if I do the math, that -- I mean if they're making $100,000 a year, that would be like $2 million in the quarter or something like that. So maybe it's more than that. But does that -- will that be reimbursed under the alliance or essentially, it should be, right?

Yes, it doesn't -- it's not going to rise our Q2 expense. But as soon as those clinics are rolled in the arrangement, that cost gets picked up and effectively supplemented by NYU. So that's -- it was important for us to make that decision. Michael made a good decision, I think schools produce graduates at certain times of the year. And based on our confidence in our ability to grow, we kind of have to reap those opportunities when they're available. And so that hurt us a bit in Q2.

Right. And is my number, is that right, a couple of million dollars, plus or minus? Is that like a fair ballpark?

Well, I think the $100,000 per person is probably in the ballpark when you look at benefits and sign-on bonuses and other things, maybe a little bit more than that, but I think it's probably close enough.

Okay. And the year-to-date, you mentioned -- a little over $3 million higher insurance. Was that mostly felt this quarter? Or was it already running higher in Q1?

It was running -- was -- the bigger impact was Q2. Jason has the quarterly breakdown. We ran light all of '25, and we knew we were running light. We budgeted to a median number where we've averaged for '26, and we've pretty significantly exceeded that number on these handful of semi-catastrophic cases that we have.

About 80% of the $3 million that Chris referenced was the second quarter when you think about the spread between the higher-than-average experience in the second quarter of 2026 versus lower-than-average experience in the second quarter 2025.

Got you. So it's like a couple of million between that and the pre-hiring or the hiring in advance, that's probably could all in $2.5 million, $3 million in the quarter or something on your operating profit. Okay. No, that's -- I appreciate that clarification. And the volumes were nice, really strong, and it's good to see Medicare pricing finally coming through here.

Just on the commercial side, a little bit light, a little over 1% increase. Anything have been running around 2%. Anything -- I don't want to split hairs on 1 quarter, but anything to call out there?

No, it could move around a little bit. It's going to depend on when deals went into effect and quarterly timing. And just like we talked about kind of the catch-up on the Medicare side, which gets us to a more normal average. We really look at it over the course of the year. So we're kind of where we expect it to be. And we have more to come, but it's a little bit lumpy here and there depending on the size of the contracts and the timing.

We were up 3.4% in the first quarter on commercial.

Okay. So year-to-date, you're still running over 2%. Okay. Great. And then just lastly, you mentioned you recently refinanced, increased the size of your credit facility. And then I think you also -- you mentioned the accordion you added. It sounds like you're pretty confident in terms of continuing to do acquisitions and potentially even increase that activity. Is that fair?

Yes, it's all fair. I mean we're going to use the same filter that we've always used. So we're not going to spend differently just because we have money available. We're not going to be imprudent, but it gives us the room to do some -- to do the things that are available if we feel like it's the right thing to do.

And we'll move next to Jack Slevin with Jefferies.

I guess I want to touch maybe not on the interim seems you've covered enough on sort of the moving pieces near term around the hospital partnerships. But on some of the comments you made, Chris, as far as 2027 goes in the pipeline, can you maybe give a little more color on sort of what that looks like and sort of when you think maybe some of the next announcements of partnerships could start to come off?

And then secondly, if you think very long term and you look across your whole portfolio, it's obviously a very exciting opportunity. How do you think about across the whole base of clinics you have, how many of these could potentially be eligible based on the market or potential hospital partners, et cetera, of sort of how far you could potentially push into hospital partnerships on a longer-term basis?

Yes. So I'll take the second part of that first. On a longer-term basis, I think slowly and steadily, we can push into a pretty good subset of our portfolio. And so when you look at right now, the top 30 or 40 partnerships in our company, they already aggregate 75% or 80% of our earnings. And these are partnerships typically in MSA markets where there's good population support, multiple hospital systems and where we have good brand recognition and reputation. And so we can't address all the markets all at once, these deals take -- I wish they could move as fast as we can move because we can move very fast.

I have a great team. Our General Counsel is fantastic, and he can move quickly with these and operations teams can move quickly. We're dealing with hospital systems that when they think they're moving quickly, we think we're watching paint dry a little bit sometimes. And so they're going to happen. You're going to get some additional announcements. I can't predict the absolute cadence of these. I would be over my skis and outside my point of control to be able to do that. But we feel confident that 2027 is going to look meaningfully different with the next few of these.

Okay. Really helpful. And then just a follow-up maybe on -- this deal coming through in 3Q with the 12 clinics. I know entering the year, you're pretty bullish on sort of potential opportunities on the inorganic side of things via M&A. Can you speak to maybe if there are more to come on this front, other things that you guys have in the pipeline right now? Would love to hear about sort of the current state of M&A.

Yes. We continue to have good discussions. We're in diligence on some things right now. We -- it's difficult for me to be particularly descriptive and not kind of put us in the corner on these because we're going through our process, and we're in discussions with a number of people, both on the injury prevention side and on the PT side. And we know that there are some things that are coming to market that this year, probably late in the year that are going to be a little bit bigger.

And so we'll see. I think we'll produce a good development year. And we're excited, particularly once we get these hospital partnerships under the tent, it gives us the ability to truly transform what we do because we're able to go out and find -- in the case of New York, there's some really high-volume practices that, practically speaking, on their own, don't make a lot of money, wouldn't be acquisition targets right now that when you pull together the alliance we have with NYU Langone and the rate differential and the additional referral support we can get those done all day long. And they can have a meaningful impact as meaningful of an impact as a larger acquisition might have historically where we're paying a lot of money.

These were not going to have to pay a lot of money for because they don't have big profit line to begin with. And so I think it opens up a front of ours that potentially accelerates cash flow just based on the opportunity at hand and the way the numbers work. So we're excited about that, too.

Got it. Really helpful color, Chris. One just touch up on the model for Jason here. I don't know if I missed this, but can you just speak to the -- from a same-store perspective in PT, the breakdown of visits and rate in that like just over 3% number you gave?

Yes. I mean I think as we were talking, the math that you were talking about is a pretty reasonable one. So the total increase, the mature clinic increase is 3.5% and then the net rate increase is 2.1%. So you're looking at around 1.5% coming out of visits, I think, is a reasonable assumption to make.

And we will move next to Joanna Gajuk with Bank of America.

This is Joaquin Agota-Martinez on for Joanna. Just wanted to ask quickly on the payer mix and how you guys saw self-pay increase throughout the quarter or decrease.

Jason, do you have that one?

Yes. I mean we saw a small decrease in that particular line item. I think it's very important to note that from a total percentage of the payer mix, self-pay is significantly less than 5%, runs in like the 3.5%, 3.5% to 4% range. So commercial, Medicare and workers' comp are really where the needle movers occur.

Yes. Understanding the underpinnings to that question, we've gotten some questions related to hospital call-outs on increase for uninsured and things like that. We really don't see big swings to our payer mix, and we've never really ever seen a big swing in our or underinsured populations. So we've been very steady and volume has been very good, as we've mentioned, and that part of our business is pretty steady as well. It's not a big part.

Okay. And could you talk about your workers' comp mix and what your average workers' comp revenue per visit increase was? And are there more contracts you plan on bringing in or bring in over the last quarter?

Yes. So our workers' comp in terms of the penetration is holding steady at about 10%. And as I mentioned, we saw a nice increase of 2% in the second quarter in terms of revenue per visit.

Eric, I don't know -- I don't have in front of me or off the top of my head even any new contracts that would have influenced that one way or the other. I don't know if you do.

Yes. I'll tell you what's been driving rate and volume, and this has been a big initiative for us over the last couple of years, and we've seen an increase in visits. We've seen an increase in rate. And if you flash back 3-plus years ago, we really had fixed agreements that were driving the bulk of our work comp business. and those were network agreements. And we brought someone on to lead this initiative for us. I think we've had somewhere around 22 or 23 agreements over the course of the last 3 years.

We have another 4 to 5 agreements that are going to come online here over the balance of 2026. And there is a difference between what those different contracts pay. The networks pay a little bit lower, the PPL agreements that we have pay a little bit higher, and that's what we're seeing more of is the PPL business on our door and it's having an impact on rate.

And to Jason's point, in Q2, we finished with a rate of $155.32 on work comp. It was 2% higher than prior year. So I think we'll continue to see traction here on the rate and volume side as we continue to move forward.

[Operator Instructions] And we'll take our next question from Mike Petusky with Barrington Research.

I guess, Chris, I don't think I heard you, but if I did forgive, any comments on the proposed pricing for next year?

Yes, we didn't touch on that, and I appreciate -- I called it out at the end. We have -- but I wasn't specific. So we have the benefit of knowing that CMS intends to give modest price increase for next year, somewhere between, we think, around 1.5%. And so that increase would, of course, affect our traditional Medicare, wouldn't necessarily affect our Medicare Advantage. It affects a percentage of those contracts, but not all. While it's not a big increase, it is an increase.

The other thing that they've done, which they haven't done in a long time is through our APTQI alliance, there was an indicator or an influencer of some of the rate movement around the particular indicator that I hadn't heard about before. It's called an IPC multiplier has to do with the subset of specialists who use the codes that are in your code set and the relative, call it, aggregate reimbursement to those physicians.

So said a different way, if in our code set, we know we have the majority of its physical and occupational therapists who make on an income basis, a pretty low amount when you look across the whole physician fee schedule.

But we also have orthopedic surgeons. We have interventional pain management specialists. We have physical medicine and rehabilitation doctors who make a great deal of money. we were the -- when we discovered this a year or so ago, a year ago, we were the only group in the physician fee schedule who's that IPI factor that I mentioned who didn't take into account the full width and breadth of everyone who uses that code. So again, said differently, we were being treated differently than all.

We brought that to CMS' attention a year ago. They seem surprised by it. They did their own work. They've given us an early indication that in 2028, we'll see the beginning of some -- what we hope to be not clear yet, and it's not set yet completely, but a resolution of that difference in the form of some more positive momentum going forward into the 2028 year. So stay tuned on that. We've got more work to do, but that's a positive indicator as we look forward.

Okay. That's terrific. That's helpful. Chris, I'm just curious on the industrial injury prevention business. The organic growth in the quarter seemed a little softer than what you guys have been putting up some big numbers. I'm just curious, were there -- was there a business loss there? Or can you just comment on that?

Yes, a couple of different things. So I think if I remember right, going back last year, Q2, we had an 18% organic growth rate, so pretty high comp, number one, on last year. We had one contract with an automobile manufacturer contract. We got notice on this more than a year ago. It was a Japanese manufacturer, where we had a long-standing good relationship. They changed the hierarchy of who in that company made the decisions about health care.

We had very good local relationship at the plants where we provided service. Those people wanted to continue to keep us yet somebody outside the market made the decision to move to a different provider. So that happened in this year. I think we're feeling most of that in Q2. That's been replaced by Nissan Motors contract and the largest grocery store chain in Texas, that contract, which is also expanding.

But there was -- we don't lose many contracts. We have -- that's really the one impact that we've had since we've been in this business is with that particular employer. It created a little bit of a dent, but we filled it in and we're going forward. And I will say we just hired what sounds like a great new salesperson for one of our partnerships who is embarking on trying to be more aggressive in the market. And so we're excited about that, and we'll see where that goes. But we are a little lighter than normal, but we think it's temporary.

Yes, Chris, I'll add a little additional color commentary on there for one of our injury prevention businesses. And their pipeline continues to be very, very strong. However, they had a number of open positions that have been taking longer to fill, so they haven't been able to execute against driving revenue with some of that pipeline, and they've recently filled a number of those positions. So to Chris' point, we believe this is temporary and we'll pick back up momentum.

Great. If I could sneak one more in, and then I'll turn it over to somebody else. Just on the expectations around adjusted EBITDA contribution from the hospital agreements. I think when these were first announced, you sort of said $7.3 million for '27 in terms of adjusted EBITDA contribution. And I honestly don't even recall what you said for this year. I think it was very modest. Can you just sort of update -- I guess, first, if you could help me with '26 potential contribution? And then is 7.3% still your view? Or has that been adjusted?

Let me speak to '27, and then I'll have Jason walk you through the mechanics of '26 because, frankly, off the top of my head, I'm not confident I'm going to remember it exactly. But we will update the market as we always do at the end of the year with what we expect those opportunities to do in 2027. But we're very confident that the early results are going to position us for a greater number in 2027. And let me explain the reason behind that. When we guided, our Board was comfortable giving guidance because this was so new.

Our guidance was based on a trailing 12 months visit rate at the time we enacted that contract. So it didn't include a run rate at the time. It also didn't include any takeouts in the business. Takeouts would be as the business transitions and as we work down accounts receivable, we won't have the need for billing and collections inside these partnerships over a long period of time.

Now Metro will continue to keep billing collections for their home care business, but we won't need billing collections for the outpatient business. So that cost goes away. We didn't include that. We were very conservative with how we guided. We'll give a more specific number when we guide for '27, but it's going to be bigger than what we originally said.

Yes. And I would say for 2026, as we talked about in the second quarter, we did see some revenue that began to flow in from the hospital affiliations, although we did have that offset from some of the pull forwards of hiring to get ourselves ready for the additional volume that we expect on a go-forward basis. If you take that $7.3 million and assume that it's going to be something higher than that and divided by 4, you're getting something like $1.5 million to $2 million impact in Q4. Q3 is going to be somewhere in between those 2 numbers as we're continuing to ramp in the remaining clinics.

At this time, this concludes our question-and-answer session. I will now turn the meeting back to Chris Reading for any additional or closing remarks.

Thank you. Listen, we appreciate your time this morning. We're available over the next days and week or weeks for any follow-up that you need. And we thank you for your interest and your support. Have a great day. Bye now.

This concludes today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.

Good day and thank you for standing by. Welcome to the U.S. Physical Therapy First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

Welcome to our 2026 first quarter earnings call. With me on the line this morning include Jason Curtis, our Interim CFO, Senior Vice President, Finance and Accounting. I look forward to many of you getting to meet Jason for the first time around this earnings process and call, and subsequent investor calls and meetings.

He's done just a tremendous job jumping in really without a lot of warning and keeping all the plates spinning in his normal job and doing a terrific job, both with reporting and the Board and all the many things, including the redo of our credit agreement, very instrumental in all that. So, I look forward to you guys getting to know him a little bit.

Along with Jason, Eric Williams, our President and COO; Rick Binstein, our Executive Vice President and General Counsel; and Kate Venturina, our Vice President and Controller. Before we discuss the results for this past quarter, as usual, we need to cover a brief disclosure statement.

So, Kate, if you would, please.

Thank you, Chris. Today's presentation includes forward-looking statements, which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions. The company's actual results may vary materially from those anticipated.

Please see the company's filings with the Securities and Exchange Commission for more information. This presentation also includes certain non-GAAP measures as defined in Regulation G, and the related reconciliations can be found in the company's earnings release and the company's presentations on our website.

Chris?

Thanks, Kate. So let me start off by covering some of the key objectives that we are neck deep in and working on and established as priorities prior to the start of the year. These objectives include semi virtualization of our front desk, which is and will produce savings in both labor as well as overall efficiency and improved authorization consistency, the latter of which ultimately has an impact on rate.

AI-assisted ambient listening documentation technology, which will help our clinicians spend less head downtime on their computers. Obviously, that has an impact both potential impact on productivity and rate through unit capture, again, with direct patient interface.

Reengagement with remote therapeutic monitoring for our traditional Medicare population after CMS revised the rules in late 2025, beginning 2026 this year in January.

Expansion of our cash-based programs across a great number of our top partnerships. We initially rolled this out last year in the spring, another partner meeting in April this year with a large swath of our top 30, top 40 partners where a significant part of our growth in income comes from surrounding that were growth opportunities and one of those was cash-based program deployment. So that is rolling out as we speak.

And finally, a strong investment and effort directionally to create opportunity with large hospitals and systems similar to the two that were previously announced, including NYU and another one in the Gulf Coast region. Those efforts are going very well. And in fact, we just started the NYU transition process for our initial set of clinics and we'll be rolling facilities in over the next few months across both opportunities.

These initiatives are on track, and we believe will produce the results we have discussed as the year progresses. This, in combination with continuing ramp-up of visits across the company gives us the confidence to reaffirm our original guidance. In fact, we finished Q1 right on budget. And for some of you, I know you had a different Q1 expectation, but we were where we expected to be exiting this first quarter.

First quarter highlights include revenue increase in physical therapy of 7.3% with a 2.5% same-store increase. This was driven from a 6.9% bump in patient volume, which for the quarter increased our visits per clinic per day to 31.8%. And I'll note just for some perspective that demand was strong this Q1. We lost over 31,000 visits to weather, which, as you know, impacts not just revenue, but the vast majority of our highest state people, we have to pay to sit at home during these events, which has a drag on margins. All of that is now in the rearview mirror as we ramp into the busiest period of the year.

The net rate for the quarter rose to $106.49, up from $105.66 prior year. The biggest positive influencers there include a nice 3.4% year-over-year increase in our commercial rates, coupled with a small Medicare pricing increase that we are ramping into as the year begins. Pulling against that a little bit on a blended basis was a small drop in our Medicaid rate. We're going to have to watch that also as the year progresses.

Injury prevention saw a number of good things for the quarter. Revenue increased 11.8%, which included a partial quarter contribution from our latest IIP New York-based acquisition earlier announced. Same-store revenue increased 8.2%, while margin increased 180 basis points compared to our Q1 2025 numbers.

On the development front, in addition to the New York City-based IIP deal, we added in a Nine-Clinic therapy partnership in the Pacific Northwest. It's going to do very well for us. In addition, we opened seven de novo clinics in the quarter, we have more to come in both the hospital area as well as acquisitions.

Recently, and we have already announced this, but I'll cover it, we completed the renegotiation of our five-year credit facility, which in addition to providing even better pricing and terms compared to what we had before, which was already a very favorable facility, but we were able to expand our capacity so that we can continue to invest in growth opportunities without compromise.

Finally, in the quarter, as Jason will later discuss, related to the credit facility and our borrowings, we repurchased equity in two very strong partnerships with a total spend of a little more than $14 million, where we continue to have strong founding partners who are taking some chips off the table due to their extraordinary growth over time in one case and another at a point of planned retirement with a strong owner base still intact.

Our strong capital structure allows us to be flexible and take advantage of these opportunities without compromising our ability to run the company or pursue a variety of growth opportunities. Part of the reason we feel confident in our ability to continue to grow through organic as well as acquisition-related partner-centric development is that we have a great balance sheet.

As we've discussed, our improved and expanded credit facility gives us the dry powder to make good decisions about our growth and provides us with the resources and capital that we need to run the company, grow and expand where it makes sense in PT and industrial injury prevention and invest in new technologies, resources and people to make our growth plan happen, all of which we are doing in real time. This, along with our continued high demand for our services and our progress across key initiatives gives us the confidence to reaffirm our guidance for 2026.

As I wrap up my prepared comments, as I always do, it's important to do because our clinicians, our partners, they're doing such a great job around the country every day to make a difference in the lives of our patients who they are positively impacting, make a difference in the lives of our injury prevention clients and their workers, keep them safe and healthy. And all of that helps us to attract the kinds of new opportunities, including our hospital partners like NYU and others, which will be an accelerant to our growth rate as we finish this year and look forward, especially into 2027.

Jason, please go ahead and walk through the financials in a little bit more detail before we open it up for questions.

Thanks, Chris, and good morning, everyone. Turning to the details of the first quarter 2026 income statement. Total revenue was $198 million, a 7.9% increase versus 2025. Daily visits per clinic increased to 31.8 in the first quarter 2026 compared to 31.2 in Q1 2025. Total patient visits in the first quarter 2026 were 1,543,000, a 6.9% increase versus last year.

Net patient revenue per visit was $106.49 in the first quarter of 2026, an $0.83 increase versus the prior year. This growth was driven by a 3.4% increase in commercial revenue per visit. This lift is made even more meaningful by the fact that commercial payers represent nearly 50% of our total payer mix.

We also benefited from the early impact of our expected 1.75% Medicare rate increase. As a reminder, the majority of the benefit from the hospital initiatives will impact net revenue per visit and first quarter results do not yet include any impact from these affiliations.

Total first quarter 2026 physical therapy revenue was $168 million, a 7.2% increase versus prior year first quarter. Mature clinic revenue increased 2.5% in Q1 2026, continuing the sequential quarter-over-quarter build from 2025.

Adjusted physical therapy payroll cost per visit were $64.20 in the first quarter of 2026 compared to $63.53 in the first quarter of 2025. Adjusted physical therapy operating cost per visit were $90.31 in the first quarter of 2026 compared to $88.77 in the first quarter 2025. Adjusted physical therapy margin decreased to 16.1% in Q1 2026 compared to 16.8% in Q1 2025.

IFP revenue was $31 million in Q1 2026, an 11.8% increase versus the prior year. Excluding the Q1 2026 IIP acquisition, IIP revenue increased 8.2%. IIP margin increased to 20.4% in Q1 2026 compared with 18.6% in Q1 2025. Adjusted corporate expense as a rate to revenue was 8.8% in Q1 2026 compared to 8.5% in Q1 2025.

We continue to make progress on our Workday ERP implementation and expect to go live at the beginning of 2027. We are implementing Workday in both human resources and finance and are looking forward to modernizing our systems, increasing efficiency and improving the user experience.

Interest expense was $2.8 million in the first quarter of 2026 compared to $2.3 million in Q1 2025. The increase was driven by cash usage associated with the two first quarter acquisitions as well as $14 million in purchases of non-controlling interest, as Chris mentioned.

Income tax in Q1 2026 was 32.3% compared to 28.1% in Q1 2025. The Q1 2026 tax rate is elevated due to the negative impact of discrete tax items on comparatively lower pretax income. Adjusted EBITDA in Q1 2026 was $20.2 million, a $0.7 million increase compared to Q1 2025. Operating results per share was $0.46 in the first quarter of 2026 compared to $0.48 in the first quarter of 2025. Net income attributable to USPH shareholders was $5 million in Q1 2026 compared to $9.9 million for Q1 2025.

Included in pretax income for Q1 2026 was a loss on change in fair value of contingent earn-out considerations of $2 million versus a gain of $4.8 million in Q1 2025. The Q1 2026 loss was driven by stronger performance in recent acquisitions, which increases our earn-out liability.

GAAP loss per share was $0.12 in the first quarter 2026 compared to earnings per share of $0.80 in the first quarter of 2025. Earnings per share in Q1 2026 was negatively impacted by revaluation of redeemable non-controlling interest compared to a benefit in Q1 2025. Under GAAP, increases or decreases in the value of redeemable non-controlling interest are not included in net income but are included in the calculation of per share metrics. Stronger performance in Q1 2026 increased the value of these ownership interest, negatively impacting per share metrics.

As Chris mentioned, we completed two significant acquisitions in the first quarter. At the beginning of January, we acquired a 50% interest in an Eight-Clinic Physical Therapy practice with $8 million in revenue and 66,000 visits. At the end of January, we acquired a 70% interest in an industrial injury prevention business with $7 million in business.

Turning to the balance sheet. Cash and cash equivalents at the end of Q1 2026 were $28 million compared to $36 million at the end of 2025. Borrowings on our credit facility were $204 million in Q1 2026 compared to $162 million at the end of 2025. As noted, the increase in borrowings was driven by our two first quarter acquisitions as well as the $14 million in purchases of non-controlling interest.

On April 15, 2026, we announced a five-year $450 million credit facility with a maturity date of April 14, 2031. Based on strong lender support, the facility was upsized from its initial $400 million launch amount, and we achieved improved pricing compared to our previous facility. Our lender group consists of Bank of America, Regions, JPMorgan Chase, Citizens, U.S. Bank and BankUnited. This larger facility compared to our previous $325 million facility provides us with additional flexibility as we need to grow our portfolio of partnerships and return capital to shareholders. The June 2027 maturity date for our existing interest rate swap remains unchanged.

Our first quarter results were in line with our expectations, and we expect the impact of the 2026 objectives which Chris discussed to ramp up throughout the course of the year. As such, we are reaffirming our full year 2026 adjusted EBITDA guidance of $102 million to $106 million.

With that, I will turn the call back to Chris.

Thanks, Jason. Great job. Operator let's go ahead -- I know we'll have questions. So let's go ahead and open up the line.

[Operator Instructions] And we can take our first question from Joanna Gajuk with Bank of America.

So, first, I guess, on Q1, the guidance, Chris, but -- so you said the weather was $3 million to $4 million revenues, right, and you cut your cost. So, kind of how should we think about the EBITDA headwind? And importantly, was this quarter sort of as you had included in your guidance? Because I think when you gave the guidance, kind of knew about the January weather situation. So, kind of explain to us how this quarter came versus your original expectations? And how should we think about what was the actual headwind to cost to EBITDA really.

So first of all, importantly, the quarter came in almost exactly where we had budgeted the quarter to be. Now there were a couple of puts and takes. But at the end of the day, from an earnings perspective, we came in right where we expected to be. We lost about 31,000 visits, some of those coming in some of our high net rate markets like New York, which also, by the way, impacted our injury prevention acquisition right out of the gate a little bit with weather and mobile units there.

And so, when we look at that blended average rate, it's somewhere north of $3 million, $3.3 million if you use our average rate. And understanding that we've got to pay most of our folks, maybe not everybody, every dollar with some of our hourly people, although occasionally, we do that as well, depending on circumstances. But our salary people get paid regardless. So, demand was high for the first quarter. It was a tough weather quarter, but that's behind us. Demand has continued to build, meaning volumes have built, and we're not going to have weather anymore.

And so, coming out of it in combination, we made some investments and continue to make some investments in some of these initiatives. Those investments include both people and other investments in products and other things. That's in the cost numbers as well, but we feel confident those are going to bear the fruit that we expect them to bear and that we've begun to see already as things ramp up. So, I don't know if that answers your question, Joanna.

That's helpful. Right. So, you did kind of assume this was a headwind in your guidance originally that you gave us and the quarter was sort of in line. So yes, you want to comment on that. Okay. Good.

And then from here, right, how should we think about the ramp of the rest of the year? I mean it sounds like, yes, you guys are kind of up a couple of things, but I don't know if there's some numbers to put around because when you do that the rough math, so Q1 EBITDA was about, call it, 19% of the full year guidance. But the last couple of years, it was more like 20% or above 20%. So, I guess it was lower than typical.

And then if you would kind of assume typical seasonality, which obviously things get skewed because there's different level of acquisitions and things like that. But if we do some rough math, we can get to like maybe less than $100 million for the year. Then obviously, you have like the hospital alliances. So, if you also could maybe quantify how much actually like in this year because you do talk about $7 million, but that's obviously when you like fully annualize it and fully ramped up. So, I don't know if there's something like in this guidance included for this.

And lastly, there are also these acquisitions. I want to make sure like they were already in guidance and how much, if anything, they add also the rest of the year? Because essentially, what I'm trying to bridge is from Q1, how are you going to get to your $102 million to $106 million for the year because I'm getting more like a couple of million dollars short, I'm thinking maybe that's the hospitals and acquisitions that help explain the delta.

Yes. A couple of things. So, to try to tease that apart. So, the acquisitions, I believe, which closed in January and the end of February were included in our guidance numbers. We gave our guidance, I don't remember exactly, first week of March, end of February, first week of March. And so those were included in the guidance numbers. We have more activity to come, the activity to come certainly not been included.

And in terms of the hospital ramp-up, Jason, I don't know if you have that at your fingertips, but we're estimating we gave the $7 million 2027 number on the full year basis, we had to estimate when these would begin to phase in. And so just literally last week, we began to phase in our very first Metro facilities into the NYU deal. And things are going well, but we've got a lot more to do.

On the Gulf Coast opportunity, the other hospital opportunity, that depending upon how things go over the next couple of weeks, could begin in June or could begin in July. And so, there's several million dollars worth of additional hospital contribution. But obviously, we're not getting a full year. We're getting a half year at most or part year, not even really fully a half year because we've got to layer in these facilities, and that will take a few months, particularly in Metro's case.

But all that was fully baked into our guidance when we did it originally. I can't give you a whole lot more granularity by quarter just because we don't do it. I mean we have those numbers, but we haven't guided by quarter in a long time. And I understand we're a little out of sync with you guys this first quarter, but that's where we are.

Jason, do you have the -- if you don't, that's fine. We can follow up. The estimated contribution on the hospital contracts this year? I know we announced it on the last call.

Yes. So we talked about there being a portion of the annualized $7 million impact. And the way I would think about it, Joanna, is we are in the process right now in the second quarter of implementing these clinics, converting these clinics to the hospital affiliations. We expect to be materially complete by the end of the third quarter. So in the fourth quarter, you'll begin to see something like the full impact of the fourth quarter impact of the $7 million. So the benefit of the hospital initiatives will ramp up sequentially quarter-over-quarter as we proceed throughout 2026.

And we will move next to Jack Slevin with USPH.

Jack from Jefferies here. Maybe one, just to needle a little bit tightly on the numbers. The rent supplies and other line ran a little bit hot to what we were expecting. I guess, as did the corporate expenses. Just a little curious. I know you talked about some of the things you're doing to modernize the business. But on those two lines, anything to call out in terms of what's driving some of the year-over-year growth in those expense lines?

Yes. Q1, again, we had a little bit worse weather impacts, a little bit lighter revenue than we expected, although in the balance, came out at the end of the day where we thought. But we did have in a few partnerships a little bit more contract labor than we expected to deal with the volume that we had in those particular partnerships. And so that was part of the expense car.

Jason, I don't know if you have anything else that you want to add.

I would just say that we are making some upfront investments in our 2026 initiatives that are going to pay off as we ramp up the benefit throughout the balance of the year as well as the weather impact that Chris mentioned would have a greater impact in terms of deleveraging on the fixed costs, some of the stuff you were mentioning, Jack, that will not continue as the -- we enter into the summer -- spring and summer season, and we don't have these weather headwinds against us.

Got it. Yes, I totally appreciate that. That makes a ton of sense. And maybe one more to follow up, Chris. I think the messaging sounded very positive on your confidence in potentially more hospital partnerships and on the M&A front rolling through the year. Is there any way to think about the cadence of that? Or can you just give a little bit more color on sort of what's driving the level of confidence in those two things to be able to keep adding via those two avenues?

Yes. Look, the cadence for you guys, and I'm sure for some it's frustrating, is not going to be something that's absolutely predictable because good opportunities sometimes take a little time to bring them fully together. But I do feel confident given the number and the depth and the range of conversations that we're having -- that we're going to have more things done on the hospital side. And while we don't get fully granular on what we have from an acquisition perspective, you'll see us continue to be active there as well.

And as we have in the past. So no real deviation there. But these hospital opportunities, they're chunky and they make a really nice difference. And so it do take a little while to put together. We're dealing with big academic, in some cases, medical center institutions with a lot of constituents and big legal teams, and they do their appropriate work and it takes a little time. But as we continue to add more of these, as you will see, I think you'll understand the impact as we go forward. It's a nice impact.

And we will move next to Larry Solow with CJS Securities.

Just following up on that question on the hospital alliances, and I realize the cadence and timing is impossible to predict and especially the share. But ultimately, I think if you do the math, it's like 10% today if you do with these two initial alliances. What's the potential? How many total clinics do you think that could be using rough numbers over a three- to five-year period that you think you could potentially line up with big hospital organizations?

And also the second question on that one is just on the volume growth that you can potentially drive as you join up with these hospitals? Because I know your EBITDA assumptions are based on just current volumes, right? But that's -- so if you could just give us a little bit more color on potential volume growth as you line up with these hospital partners.

Yes. So it's a little bit of a tricky question, and I have to be a little bit careful. And for one reason that I don't know for sure. But if you took what we've done just in the last year and you say, "Okay, with these two, that represents X," and you mentioned 10%.

So Metro was 550,000 or 600,000 visits in a year, probably be significantly more than that when we get to the end of this year, it will be the other group of clinics with, I think, a 10 clinic group, smaller number of clinics. But if you blend those two together, and if you could do that level every year over three years or five years, it's a pretty good increase.

And so, we're looking to do these where we can where it makes sense, where we can generate interest. And so far, interest has been strong. And so, I think it will get to be a decent chunk of what we do in the foreseeable future for sure. I know that doesn't help you do the model, although we sent your model around a couple of weeks ago, which I thought was, again, hypothetical, but pretty realistic overview. And so I think you have a pretty good handle.

Okay. Good. I appreciate the confidence. Just second question, just on the -- I know the quarter was relatively in line. It sounds like right in line with your expectations. You don't guide for the quarter. I think the Street clearly probably led by me kind of underestimated the impact of weather.

But just curious, the pricing also, I know you've kind of discussed that the price per patient -- revenue per patient was up less than 1% and commercial was really strong. Medicare, it sounds like you got a little bit not the full benefit. But I guess the Medicaid piece, which is a much smaller piece, right, I think 5% of business. Is that a drag? Are you worried about that continuing for the year? And could that -- pricing outlook.

Yes. So again, for the first quarter, you blend -- it's like a vegetable soup, you blend it all together and you get what you expected, but the proportionality in some cases, was a little bit slightly different than we thought. And one of those areas was rate was a little bit less than we expected.

Medicare was not the full benefit of the 1.7% as we look back, I think understandably, number one, our Medicare patients don't pay as quickly as the first of the year because they're trying to sort out their deductibles and there's just kind of a delay. So, the way we do our contractual adjustments has to do, in some cases, with our payment and payment timing.

So, in Q1, you're straddling there you gave in December, which comes in the form of payment in January. It takes time to upload the new fee schedule. So, there's a lag and a delay and things get pushed out. So, we have a data point that we expect to continue to increase to around that 1.75% number as the year progresses, and we saw that last year.

And then around Medicaid, I think Medicaid was down a few percent. It was a single-digit number. Again, not a big part of our business. One data point, we'll have to watch it. So we'll have to watch in Q2 to see if it was -- we'll have to do a little bit more work on it to see if it was a regional mix, which changed, which kind of skewed the blended number or whether there's some pricing differences in there as a result of states, which have made some changes.

So, I wish I could tell you exactly at this point. We'll do more work on that as we have more color, we'll get with you guys and try to give you an update. But it's not going to be a big driver, particularly as Medicare is fully in there and commercial is strong. more comp, frankly, continues to be strong overall in general. And so may move a little bit, but I don't think it will swing.

Right. And I know price moved around a little bit. And I imagine Q1 the resets on deductibles and seasonality already low. I imagine that kind of could skew this one way or the other, too.

I mean if you look at last year, we had some pricing build through the year. We budgeted a pricing build through this year. We expect that we'll see that. Again, it's tough when you have just one data point, but we fully expect we'll get to where we thought we would be.

We will now move to Benjamin Rossi with JPMorgan.

I'm thinking about PT operating costs on a cost per visit basis were just north of, call it, like $90 a visit during 1Q. As we're thinking about this back half ramp, how should we be thinking about the run rate for operating cost per visit into 2Q and into the back half as you have your volumes been really normalizing and then some of your technology and hospital initiatives are scaling in there as well?

Yes. I think to what probably you guys expected it to be in a more normal rate and basis, a little bit high degree for Q1 we won't have any of the weather that we experienced in Q2. Visits have picked up even comparatively beyond that. And so, I think that will normalize.

One of the things that we've worked really hard on the operations team, Eric Williams worked really hard on with our recruiting group is number one, the recruiting side of the business, but we've really focused on the retention side. And I'll tell you that for the first quarter, and the numbers have come down, down being in a good direction in terms of turnover. For the first quarter, those numbers are now sub 18%, which is as low as we've ever had since we've been measuring it in terms of turnover.

And so we're doing a better job hanging on to our people. That will make a difference during the blow and go months when we're the busiest, which is currently Q2 right now is a great example. So I think those cost numbers will normalize.

We have invested at the corporate office in some of these initiatives in terms of both people and resources, I'll call them. And so while there's a little bit of a displacement between when revenue begins and when resource allocation has to come in, in order to make those other good things happen downstream, those two will eventually catch up.

Okay. So some normalization and the turnover to impact the labor side. I suppose flipping over to the weather-related drag. You mentioned the 31,000 visits lost due to weather. Can you break that impact down by month? Did you see volumes rebound in March? And then do you have any commentary on how volumes trended to exit the quarter and have started in April so far as you enter this busier season?

Yes. I don't have a month-by-month breakdown, unfortunately, at my fingertips to be able to give you. But I will tell you that visits have rebounded nicely in April and in fact, even progressed within the month. And that has been really good to see. So I don't -- I apologize, but I don't have a month-by-month below-by-blow allocation on the lost visits.

[Operator Instructions] We'll go next to Constantine Davides with Citizens.

One more follow-up on the hospital and health system side. And I appreciate your commentary around those being chunky and hard to predict. But when you look at the pipeline, are there other NYU sized opportunities in there? Or is the Gulf Coast deal you alluded to perhaps more representative of the scale of the partnerships that you're exploring right now?

Let me answer it this way. So there are bigger opportunities in NYU. Part of the reason NYU in and of itself, when you look at that enterprise value of what that's going to do, it's a big opportunity. Is that the biggest opportunity that we'll have? I don't -- it won't be.

Part of the reason that the impact to us is smaller even on the big NYU opportunity is we only own 50% of that business. In other parts of our company where we own 70%, 80%, even 90% of some of these partnerships, large partnerships, if you took just and dropped in, again, using NYU as an example, the NYU lift from an enterprise perspective and you apply that to a partnership where we had an 85% or 90% ownership interest, obviously, the impact to us is much more significant.

But to answer the question broadly, there are markets where we think the opportunity is going to be even greater than the NYU deal and it will not necessarily follow a typical small lift like the Gulf Coast deal.

Great. And then in the beginning of the call, I think you've touched on this in the past, but I just wanted to flesh out the cash-based program initiative and a little more color on what programs have been deployed and the traction there.

Yes. I'm going to kick it, Eric, if you're able, you're front and center with this initiative, you and Graham. And so you want to go ahead and take that.

Yes, sure. And again, something we've really been pushing with all of our partners. It was the main focal point for the partner meeting that we held in April of 2025, and we just had 30 of our top 40 partnerships in Houston in April with a whole list of items that we covered, including the rollout of welcome ware and the AI documentation and the other centerpiece again was cash-based programs.

The two that people are the most excited about and the one that definitely has the most traction are laser programs. You've probably seen lasers utilized in a variety of different settings. It's a cash-based service, not reimbursed by insurance companies. And we see a lot of patients coming in with the typical commercial insurance who have add-on services provided, laser shockwave probably being the biggest two and then dry needling is something we've been doing for a while, but we have a lot more partners being trained on that.

So I would tell you that those are the three biggest ones that people are flashing out to right now. And we've got partners who've been enormously successful on it, running hundreds of thousands of dollars a year in cash-based services starting from zero. And as much as we talk about it, when our partners hear other partners talking about it and how they've been able to implement it and get their clinicians to buy in and get patients to have an interest really carries a lot of weight.

And right after the partner meeting, we had a bunch of partners who really not launch cash-based programs, reach out and have an interest in finding out more about the lasers, where to get them and how to launch the program. So it's going to be something that we continue to push. We're certainly not the only ones in the industry that are pushing this. But I think we have a pretty good approach in terms of how we're going to expand it.

And let me just say this, and I think it's important to just get this out there and Eric believes in this as well. This isn't -- for you guys, you're interested in what are the economics and what's the possibility.

For us, the reason to do this is because it works. It works for patients. It has great patient response, as Eric reflected. It has great patient demand. They see patients on the table next to them getting treatment and talking about the difference they made from the treatment before and they want to sign up. And so like anything else, sometimes it takes a while for insurance companies to kind of get the drift, they don't want to pay. There are technologies out there that are very, very clinically effective. That's why they're used.

And secondarily, we're able to monetize that because it works, and that's the foundational element to all of it.

That's a great call. I mean the clinical efficacy behind all of these programs is well supported and documented. And that's the first thing that's presented to our partners around the opportunity to utilize these different types of services.

And there are no additional questions at this time. I'd like to turn the program back to Chris Reading for any other comments.

Okay. Listen, thanks, everybody. I know I've got follow-up meetings, Jason and I do with a number of you over the next several days, and we're happy to spend time on the phone. So let us know. We thank you for your time and attention today, and we hope you have a great rest of your week. Take care. Bye now.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the U.S. Physical Therapy Fourth Quarter 2025 and Full Year Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded.

I'd now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

Yes. Thank you. Good morning, and welcome, everyone, to our U.S. Physical Therapy earnings call this morning, where we will discuss our performance for Q4 and year ending 2025 as well as to look forward as we discuss our excitement for the new year to come.

With me on the call this morning are the usual cast, Carey Hendrickson, our Chief Financial Officer; Eric Williams, our President and Chief Operating Officer Graham Reeve, our Chief Operating Officer, West; Rick Binstein, our Executive Vice President and General Counsel; and Jason Curtis, our Senior Vice President, Finance and Accounting.

Before we begin our call today, I'll ask Jason to cover a brief disclosure.

Thank you, Chris. The presentation includes forward-looking statements, which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions. The company's actual results may vary materially from those anticipated. Please see the company's filing with the Securities and Exchange Commission for more information.

This presentation also contains certain non-GAAP measures as defined in Regulation G, and the related reconciliations can be found in the company's earnings release and the company presentations on our website.

Thanks, Jason. So this morning, I'll begin with some highlights for the year, then review briefly our fourth quarter, which provided us with a strong finish to 2025 and then discuss our plan for 2026.

For the year ending 2025, adjusted EBITDA increased $13.2 million, which translates to a 16.2% improvement over the prior year period. Net revenue increased similarly, up 16.3%. That increased a portion 16% in our physical therapy and 18% for our injury prevention businesses. Gross profit in our PT operations increased approximately 21% and gross profit was up over 20% in our injury prevention business. And across both business lines, we saw modest margin improvement year-over-year.

Operating income improved 18.4%. And I want to remind everyone that these results, which our team feels very good about, were delivered in an environment in 2025 with continued Medicare rate reductions. And in spite of that, across every measure, we delivered progress in a very good year overall. And as you might imagine, as we look ahead into this next year, we are excited to close the book on Medicare chapter while having some significant opportunities coming together, which we will further discuss here shortly.

Fourth quarter highlights. Again, strong revenue and visit growth in our physical therapy business. Demand continues unabated and for the fourth quarter, and I believe every quarter in 2025, new records for visits per clinic per day. Demand, coupled with rate improvement and cost discipline drove a gross profit increase for the final quarter of 2025, up over 25% compared to Q4 of 2024.

Also notable, since our last quarterly report, we made several acquisitions one great one in the Pacific Northwest with a very capable team, one home care addition and a really great, very talented and capable injury prevention team, which adds service offering capabilities to our growing injury prevention segment. Also notable is that it further strengthens our New York City presence with a lot of excitement going to that market.

So on that note, very recently, we announced 2 significant hospital arrangements. These are very long-term arrangements, which will further improve our patient reach in these important markets and will positively impact volume, margins, growth opportunities along with care access as well. These strategic relationships will begin a phase-in for our 60 metro clinics and our 10 second market facilities sometime around midyear with an expectation that all 70-plus -- 70 clinics, plus what we have scheduled to open will be under these strategic affiliations by year-end.

And as discussed in our release, those original clinics will provide an enterprise lift for these 2 partnerships of at least $14 million in EBITDA in 2027 and the USPH portion after minority interest of over $7 million. And I will let you know that we have added to our senior team to further strengthen this area of growth for us in the future where there is a lot of excitement and growth potential.

And second, for 2026, we have some very clear initiatives which will continue to build on our success in 2025. Among them, continued rollout across our facility network of ambient listening documentation support, semi-virtualization of our front desk and intake operations, further cash-based program expansion, which gained good initial traction in 2025, a return to pressing forward with remote therapeutic monitoring after some needed and very impactful changes implemented by CMS beginning in 2026, and the continued pursuit of large market strategic hospital alliances, which is gaining steam and traction with the 2 very important recent wins and discussions in multiple markets around the country. And of course, ongoing de novo and acquisition-related development in both PT and injury prevention segments for 2026.

In closing, before turning things over to Carey, I'd like to thank for his work with us over these past 5 years. I also want to thank the tireless work of our clinicians who deliver world-class care in nearly 800 clinics around the country as well as in the homes of those who can't get out to see us. Every day, they are delivering exceptional care that results in our world-class Net Promoter Score. These from our patients who are able to return to things that they love to do.

Our therapists and all therapists should be recognized as the musculoskeletal experts, the primary care of musculoskeletal treatment, who every day deliver complex restorative care for an unbelievable and unmatched value. That care allows people of all ages to move again pain-free, to return to the activities that they love to do, to return to more complete social engagement, which is also very important to mental health as well as to overall well-being to deliver for themselves and their families an income through work and a purpose that they can again fulfill.

And when we think about the many, many challenges in the world today, we are blessed to have work in a purpose where we get to make the world a little better every day across the hundreds of communities we serve and the hundreds of thousands of patients who cross our thresholds each year. That feels really, really good. And I just want our partners and all of our caregivers to know how very grateful all of us are for your care and service.

In closing, let me say how very excited we are for the year ahead. We've worked tirelessly these past few years with a lot of headwinds in our face. And despite that, we found a way to grow as well as to make significant additions and improvements that will strengthen us for our future. These established as well as newly announced initiatives will begin to bear fruit for us in the year to come and accelerate greatly, especially in the hospital focus area for 2027.

Thank you for your belief in our team and our vision. We appreciate your support greatly. Carey, go ahead and give us a deeper dive on our financial performance before we open it up for questions and comments. And again, thank you.

Will do. Thank you, Chris, and good morning, everyone. As Chris noted, 2025 was an excellent year for USPH from really every standpoint and particularly from a financial standpoint. And importantly, the efforts we made on key initiatives in 2025 that Chris noted in his remarks sets USPH up for even greater growth and financial results in 2026 and beyond.

Let me highlight a few performance metrics that drove our strong results in the fourth quarter and full year 2025. Our average visits per clinic per day in the fourth quarter was 32.7. That's the highest fourth quarter volume per clinic per day in our company's history. And Chris noted the consecutive numbers of record level quarterly visit numbers. It's actually 7 consecutive quarters that we've had a record number of visits on a per day basis. For the full year of 2025, our average visits per clinic per day was 32.2, which was a record annual volume number. Our total patient visits increased 11.2% year-over-year with the full year of the Metro acquisition in New York that we made in late 2024 and other additions made in 2026, along with -- 2025, excuse me, along with the 1.5% increase in visits at our mature clinics.

Despite the 2.9% Medicare rate reduction effective throughout 2025, our net rate per patient visit increased 1% from $104.71 in full year 2024 to $105.76 in full year 2025, with our net rate accelerating through the year and ending at $106.49 for the fourth quarter, which was an increase of 1.7% from the previous year's fourth quarter.

We maintained good control with our total physical therapy operating costs down $0.50 per visit in the fourth quarter and up only 1.1% for the full year. Our IIP income grew by double digits again this quarter, up 11.5% and up 20.2% for the full year 2025. That 11.5% is pure organic growth and the 20.2% has some acquisition in it from the first part of the year.

And finally, our adjusted EBITDA increased $3 million from $21.8 million in the fourth quarter of 2024 to $24.8 million in the fourth quarter of '25, while our full year adjusted EBITDA increased 16.1% from 2024 to 2025 from $81.8 million to $95 million.

Turning to patient volumes. We recorded 1,560,603 clinic visits in the fourth quarter, along with 32,733 home care visits. Our average visits per clinic per day was 32.8 in October. It was 33.5 in November and then 31.7 in December. Our home care visits continued to build nicely through the year, moving from 22,943 in the first quarter of 2025 to the almost 33,000 home care visits that we had in the fourth quarter.

As I noted, our net rate per patient visit for the fourth quarter was $106.49 compared to $104.73 in the fourth quarter of '24, and all 3 months in the fourth quarter of 2025 were above the $106 mark. Our physical therapy revenues were $173.8 million in the fourth quarter of 2025, which is an increase of $20 million or 13% from the previous year. Physical therapy operating costs totaled $138.6 million in the fourth quarter, an increase of $12.9 million or 15.3% compared to the same quarter last year.

Importantly, as I noted, we managed cost effectively. Our salaries and related cost per visit decreased by 1.1% in the fourth quarter from $62.85 per visit in the fourth quarter of 2024, down to $62.15 in the fourth quarter of '25. And our total operating cost per visit decreased 0.6% in the fourth quarter, moving from just above $86 last year to $85.56 this year, which we view as a particularly strong result given the inflationary environment. Our physical therapy adjusted gross margin was 20.5% in the fourth quarter, which was up almost 200 basis points from 18.6% in the fourth quarter of 2024.

Our IIP team delivered another strong performance in the fourth quarter. IIP net revenues increased $2.3 million or 8.7% compared to the same quarter last year, while IIP income rose $510,000 or 11.5%. Importantly, this fourth quarter growth is all organic. We didn't make any acquisitions between the fourth quarter of '24 and the fourth quarter of '25. Our IIP margin for the fourth quarter increased from 16.7% in the fourth quarter of '24 to 17.1% in 4Q '25.

Our corporate costs remained in line with expectations. Corporate expenses were 8.5% of net revenue in the fourth quarter, and they were 8.6% of net revenue for the full year. As I mentioned on the third quarter earnings call, we're in the process of implementing a new enterprise-wide financial and human resources system. We started the implementation process in September of 2025 with a go-live on the new system targeted for January 1, 2027. During the fourth quarter, we incurred about $600,000 in implementation costs related to this project. And consistent with our practice for similar nonrecurring items, we add those costs back to our adjusted EBITDA calculation.

One note on GAAP EPS. GAAP EPS includes the change in the revaluation of our noncontrolling interest. And this revaluation is not included in our net income, but it is included in the calculation of GAAP EPS. It's counterintuitive. Counterintuitively, when our partnerships perform well, our redeemable noncontrolling interest increases and that change resulting from improved performance reduces our GAAP EPS. The short summary is that the better we do, the worse our EPS looks. GAAP EPS is the only metric that includes that revaluation of our noncontrolling interest.

As I noted earlier, our adjusted EBITDA increased by $3 million in the fourth quarter of 2025 over the previous year quarter, and our full year adjusted EBITDA increased $13.2 million or 16.1% in 2025 over 2024. Operating results for the fourth quarter were $10.2 million, an increase of $2.5 million from $7.8 million in the previous year. And on a per share basis, our operating results were $0.67 compared with $0.51 in the same quarter last year.

Our balance sheet remains in excellent shape. We currently have $131 million on our term loan with a swap agreement in place that fixes the interest rate at 4.77% through mid-2027. In addition, we have a $175 million revolving credit facility with $30.5 million drawn at the end of the year, and we ended the quarter with $35.6 million in cash.

Looking to 2026, we currently expect adjusted EBITDA to be in the range of $102 million to $106 million for 2026. That includes $2.5 million in incremental revenue related to the Medicare rate increase that went into effect on January 1, 2026. We've included a modest amount in our guidance related to the hospital affiliations that Chris talked about in his remarks, given that the affiliations will begin midyear of 2026 and then they'll phase in over the second half of the year. We're very positive about the contribution these agreements will make to our revenue, our EBITDA and our margins when they're fully implemented.

When fully implemented, which we expect to happen by year-end 2026, these 2 hospital affiliation agreements are expected to contribute at least $14 million on a combined basis to our PT revenue and income with a corresponding impact to USPH's adjusted EBITDA of at least $7.3 million, reflecting our ownership interest in these 2 partnerships.

With that, I'll turn the call back over to you, Chris.

Yes. Thanks, Carey. Great job. Okay. Operator, we want to go ahead and open it up for questions and comments.

[Operator Instructions] And we'll go first to Larry Solow with CJS Securities.

First question, I guess, just on the strategic alliances. So is the move for outsourcing of physical therapy services or just the general move from -- across medical in hospital services to outsource -- or out-service facilities. Is that what's helping drive the motivation from the hospital side of these?

And then a second question on that is it sounds like lots of opportunities. Just curious when you build this number, this $14 million number, kind of does that just assume current volumes that you expect? Or how do you kind of get to that? And are there other opportunities, I imagine, lots across the country?

Yes. So second part of that question, the numbers that we provided do assume current volumes and not additional facilities, and there will be additional facilities planned in these relationships. There are additional facilities planned. And so that will be additive.

And the motivation on the hospital is multipart. One, it gives them a much broader reach for the Metro facilities, it's between -- and this is just on a historic basis, between 500,000 and 600,000 visits in a year across the 60-facility network, which gives them a lot of patient reach. As I mentioned earlier, patient interaction and the efficacy and how the patients feel about the care at the end of it is outstanding. And so that accrues to the hospital's benefit as well.

And then it just helps them in their musculoskeletal product line in general, further cement that important product line. And so it's kind of a multipart reason. And we're excited about it, and we're going to do more of these for sure.

Okay. And then I guess just a question for Carey. Just in terms of -- there's been some concern in the market that there's some wage inflationary pressures and stuff and maybe a slowdown in PT volumes. Again, your wage inflation, though your numbers are absolutely -- look pretty strong there. So just curious of any thoughts as we look out to '26.

And just on the volume side, I noticed mature clinics continue to be a little bit slower. Any thoughts on that and just overall volume outlook as we look out to '26?

Sure. looking at -- thinking about those -- the first question, the salaries, I mean, we've got a normal kind of inflationary number in our budget for 2026 related to salaries. We don't see any particularly high pressure on wages. There's always -- it's always -- we're always trying to do what we can to attract the best physical therapies to our operations, but we feel like we can control that number again in 2026, just like we did in 2025, have a good control. So we feel good about that.

And remind me what the other question was, Larry, I'm sorry.

Just on the mature clinics a little slower -- and the overall volume outlook, yes, yes, yes.

Yes. But the volumes actually picked up in the fourth quarter on our mature clinics. And so we were really pleased to see that. We had a 1.5% increase in visits in our mature clinics in the fourth quarter. And that's beginning to build some momentum, and I feel like we feel good about that as we head into 2026. So yes, it was stronger in the fourth quarter than it has been in many other quarters this year.

And Larry, I would tell you that the initiatives around the virtualization of the front desk will make us more efficient and that efficiency will translate through to cost. The AI documentation as that gets fully rolled out will impact both revenue production as well as cost on an incremental basis. And so those things alone as we scale, along with remote therapeutic monitoring, which will have a revenue impact, again, on an equivalent basis, those things will help us to balance the cost and revenue side of things.

And with the hospital relationships, again, which will phase in, in time, we do expect margin expansion there. So I think, we're okay.

And we'll go next to Mike Petusky with Barrington Research.

So I guess just in terms of pricing, obviously, the price tailwind in the quarter was great considering the Medicare bump didn't start within that quarter. And I'm just curious, as you sort of look out at the non-Medicare pricing, I mean, is sort of 1.5% to 2% positive a reasonable guesstimate for what that part of your business could be in addition to the 1.75% from Medicare? I mean, is that the right way to think about it?

Mike, I think that's right. I think we can do -- I think we can achieve something in that range, 1.5% to 2% on everything that's not Medicare. And then the 1.75% is the increase in Medicare rates. Just one note on that. That applies a 1.75% increase to all of our traditional Medicare visits and then a portion of our Medicare Advantage visits. Not all of those are necessarily tied to the current schedule by CMS. So all in all, for us, it's probably overall about a 1.1% increase if you take all of those Medicare visits. But the increase is approximately 1.75% on the ones that it applies to.

Okay. Great. That's actually helpful. And then just in terms of workers' comp, I know that can sort of be helpful in terms of pricing as well. Can you just sort of -- I guess, you give the payer mix and then any comments around workers' comp and progress or lack thereof?

Sure. Yes. Pretty consistent -- actually very consistent with the third quarter, our payer mix was our commercial was just above 48%, Medicare about just a little above 33%, workers' comp was 9.7%, and then there's the rest. Those are the 3 biggest categories. And the volume, the number of visits for workers' comp was really right in line with the third quarter. So a very similar mix of visits and then of revenue in the fourth quarter to the third quarter.

And each of our categories in the fourth quarter of 2025 increased by double-digit amounts from the fourth quarter of 2024. So there wasn't any -- like they all increased in pretty good units and somewhere between -- all of them increased between 10% and 15%. So that was good. There's no rate shift mix that impacted our rate really in the fourth quarter.

Okay. Great. And Last one, if I could just sneak one quick one in. In terms of the gross margin in the injury prevention, you showed a year-over-year increase, but sequentially, it was down quite a bit. I'm just curious, I know you signed some larger deals that are lower margin, but is there a new normal there that we should be thinking about in terms of gross margin? Or is this -- or is there some kind of seasonality at play here? Or can you guys just talk about what's going on inside of the gross margin piece of injury prevention?

Yes, I'll go ahead and take that. So we have a couple of things which make you all's job a little bit harder. And it's generally -- it's forward good news, but we did sign a couple of big contracts, really big contracts that probably were -- that definitely will provide us with more profitability, but maybe a little margin dilutive. One of those contracts started really in the fourth quarter where we had to staff up for that, Mike, add significant number of staff ahead of the revenue-generating part when each of these contracts actually go live. So there's got to be an up-staffing and training. And so that squeezed us a little bit.

And then just in general, I'll remind everybody that from a seasonal perspective, fourth quarter is usually a little bit light because in some of these big manufacturing facilities, these manufacturers go dark for a week or several weeks, in some cases, right at year-end. And so that combination maybe gives the appearance of a little pressure, but we feel good about where we're headed. And I will say that the acquisition that we did in New York on the injury prevention side, again, different business, different segment, gives us a wider a wider ability to serve a broader group of patients, really, really strong margin profile there.

Excellent. Great quarter and particularly congrats on those hospital deals. They sound very exciting.

And we'll go next to Joanna Gajuk with Bank of America.

This is Joaquin on for Joanna. So I wanted to ask about the 2026 guide. What do you guys assume for like same-store revenues.

Same-store revenues. Well, we typically don't break that out in our guidance. But we would say -- I would say, we expect our visits to be -- our visits and our rate combined to be somewhere around a 3% increase in same-store is kind of what we're looking at for both -- because we've got a little more rate momentum this year in 2026 given the Medicare rate increase. So we're hopeful we can get somewhere between that 2.5% to 3% kind of level.

Okay. And then just last one. How much is deal contribution in the guide, if you guys can provide any color on that?

Yes. We don't specifically break that out. We have 2 acquisitions that we included in there, the ones we've made this year already, and that's the only acquisitions we have in there. That is one PT group and one -- and then the IIP group. And so what I would do for that is look at the revenue that we provided in our guidance -- in our releases related to those 2 items and assume a margin on that, and that's about what the impact would be in our 2026 guide. With Chris -- as Chris noted, the margin on that IIP business is a bit higher than our normal margins though in that business, so.

We'll go next to Constantine Davides with Citizens.

On the hospital alliances, just a few questions. First on rate. Are these, the kind of outpatient rates, how we should be thinking about those? Second, is there a kind of a profit headwind in the first part of the year as you work to sort of stand those up by midyear? And if so, can you kind of quantify that for us? And then lastly, are these exclusive relationships? Like are you the only independent outpatient provider that's going to be in their networks?

So let me walk through no profit headwind as we stand them up. We continue to have strong operations in these markets. There will obviously be a lot of work involved on both with our hospital partner and us, but no profit, [ one. ]

In terms of the rate, you should think about it as kind of a hospital outpatient rate, not a traditional outpatient rate. And I'm trying to remember the last part of that question, the one I didn't get.

Yes, are they exclusive?

Well, exclusive, yes. We'll be the partner for these hospitals with respect to the outpatient business as it will kick off and then grow and expand forward.

And how does that -- how should we think about that rate relative to like your blended average today around $106?

Yes. I don't know that we're prepared to speak to it with a lot of granularity because the rate is going to vary by market pretty considerably, just like it does within our own PT portfolio, but meaningfully better.

What we've done instead is really directed you, as Carey and I both mentioned, to the EBITDA contribution on a very base case basis in 2027. So while we don't speak to rate directly, which is going to bounce market to market, we do have a very good insight in terms of what the contribution will be in terms of lift.

Got it. With respect to IIP, in your prepared remarks, you mentioned new service offerings capabilities with that recent acquisition. I'm just wondering if you can expand a bit on that.

Yes. So just broadly speaking, over the years, we started this IIP business in early 2017. We did a couple of things primarily. We did some ergonomic work, which is a small, but important part of our business, engineering and retooling and those kind of things. And then we did what we call industrial sports medicine or the prevention part of our business, largely with an athletic training and PT staff embedded not to provide treatment, but to prevent injuries.

Over the years, with a variety of different acquisitions really every year, we've been able to broaden our service offering to include full-service medical clinics and testing around the country on a post-operative basis. This most recent acquisition provides us a different kind of testing capability.

And so in New York, particularly in many of our largest cities around the country, there are a massive number, tens and hundreds of billions of dollars worth of infrastructure projects. Those infrastructure projects are everything from sand blasting, some of our nation's most important and oldest steel bridge structures. That sand blasting creates lead exposures and a variety of different things. And so tunneling underground for subway expansion and a whole host of things.

And so, we have in this business a mobile network of facilities that serves these infrastructure teams and projects in a variety of testing, OSHA testing, DOT testing, various exposures, drug and alcohol testing to ensure that the worksite places -- the workplaces are safe and the environment overall is safe. We do physicals and physical demand and other things. That general capability, that blood work and related testing, we haven't done before. And we're in the process of knitting together and overlaying our injury prevention relationships to see where and how we might be able to cross-pollinate those a bit more.

And so we're excited. It's a great team, and it's a great business. It's got, like I said, great margins, new for us in terms of this particular aspect of testing that we're excited about. But it just builds on what we've been doing over the last 7, 8, 9 years.

Do you have a -- that's interesting color on the medical front. Do you have a preference at this point for M&A between the 2 segments? I mean, obviously, you have a lot going on rolling out the hospital partnerships. But just kind of wondering if you could talk about your M&A pipeline preference between the 2 segments?

And then I guess within PT, is there anything kind of chunkier out there along the lines of a Metro? Or should we be thinking about those opportunities as maybe single-digit clinic type opportunities?

Yes. So preference, I'm a little bit agnostic, but I'll tell you, and I'm going to qualify this a little bit. Injury prevention naturally by virtue of the fact that injury prevention has a little bit better embedded organic growth. We start with an employer or a location or maybe a few locations and these employers sometimes are national employers. And so you start with the worst problem and you grow with them over time. The organic part of that is really good.

The challenge in injury prevention is there aren't that many companies to go buy. And we're trying to meet everybody that we can meet and be aware of all of these, some of which occur quietly and niches in the market. And so we love injury prevention. There aren't as many deals there as there are in PT. And of course, historically and forever, we're a PT company. And so, we're still finding great opportunities there.

In terms of the size, I'll point to 2 different directions that will be our company's focus. We're going to continue to look for opportunities like a Metro, and in particular, in markets where we may be able to then, as we've done with Metro, loop in a hospital partner and further strengthen that marketplace. There'll be this year at some point, and I don't know what our participation will be necessarily, but we know there are going to be a number of deals that come forward in this year. We continue to be active in both areas.

And then around the hospital side, in general, think about it this way. So we'll take New York, for instance. Our -- without the hospital affiliation and prior to the hospital affiliation, compared to smaller private practices in and around the area that we operate in New York, New York City, we typically enjoyed anywhere from a $20 to $30 higher net rate per visit than our smaller competitors. And so we are able, at a very efficient level, to buy smaller clinics, but have them be immediately accretive and impactful. And that will even be greater opportunity as we layer in these hospital relationships. And so, you're going to see pieces, parts of all of that show up in our financials.

And we'll move next to Jack Slevin with Jefferies.

A lot of mine have been asked so far. I guess maybe to just take a step back, right, the margins are up year-over-year in the quarter for the whole business. They've been in a bit of a decline, and obviously, the Medicare rate has been part of that as well as labor inflation. I guess looking forward -- and a lot of exciting opportunities you have in front of you at the clinic level on efficiencies and other things, I guess I'd love to just get your perspective on what we should be looking for if we're to think that margins could possibly inflect going forward or sort of how you wrap your head around that equation?

Yes. So this year, and I don't know that I can -- I'm not necessarily prepared to quantify it exactly. We've factored some margin improvement in our guidance. This year, we'll see, I think, some modest improvement. Next year, as these hospital agreements kick in, we'll see that accelerate. And the goal is to get particularly with more hospital arrangements to get margins back up where they were a number of years ago before we had the Medicare headwinds and some of the other challenges. So we have work to do to get there, but we're going to see forward movement that will begin to accelerate in 2027.

Thank you. And at this time, there are no further questions in queue. I will now turn the meeting back to our presenters for any additional or closing remarks.

Okay. Thanks, operator. And listen, thank you, everyone, for your time this morning. As always, Carey and I will be available over the next couple of days. I know we got the next -- I'm beginning to speak, probably both are. We have some conferences coming up, but you can get us on the phone. I appreciate your time today and again thank you for your support. Have a great day.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the U.S. Physical Therapy Third Quarter 2025 and Full Year Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions]

I'd now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

Thank you. Good morning, and welcome, everyone, to U.S. Physical Therapy's third quarter 2025 earnings call. We've got a few of our executive team on the line with me this morning, including Carey Hendrickson, our Chief Financial Officer; Eric Williams, our President and COO of East; Rick Binstein, our Executive VP and General Counsel; Jason Curtis, our Senior Vice President of Accounting and Treasury.

Before we begin to discuss our quarter and our year-to-date performance, I know we need to cover a brief disclosure. So Jason, if you would, please.

Thank you, Chris. The presentation includes forward-looking statements, which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions.

The company's actual results may vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information.

This presentation also includes certain non-GAAP measures as defined in Regulation G and the related reconciliations can be found on the company's earnings release and the company's presentations on our website.

Thanks, Jason. So I'm going to start out, provide a little color on the quarter, also talk about some things that we're working on and how we kind of are looking into next year. I have some prepared comments that I'm going to touch on. I'm also going to go off script a little bit.

I came out to my office this morning. I hadn't really thought about it before this morning. And I think if I'm right, this is my 84th earnings call. So this week on my 22nd anniversary with the company, 21 years since I took over in November of 2004. So a bunch of these.

I looked at our stock as the market opened. I was a little bit surprised at the reaction, frankly. I want to hit some highlights.

I want to talk about what we're working on and how we look at things going forward. So I think we're looking at things maybe a little bit differently. But -- so volume has continued to be strong for us.

For the quarter, we're up 18%. But certainly, a bunch of that is Metro, which you know we completed that acquisition in November. I believe it was November of last year. They're doing great.

But what I want to point out is we've added a total of 84 PT facilities. So a lot more than just Metro in this last year. And that's 84 net. So we've added actually more than that and that number is net of closures.

So this last quarter, visits per clinic per day produced a new record for us for Q3 of 32.2, underscoring our ability to continue to grow. What's driving all that is the care and the service and the amazing connections that our clinical people are making every day, not just the clinical people, the people who greet our patients as they come in the door, patients come in, they're in pain, they're frightened in some cases. They're worried about the ability to do the things they've always done.

As I mentioned last earnings call, last quarter, our net promoter score over 90, almost mid-90s with a 95% active promoter score for our -- across our entire company for our patients in our outpatient facilities, just incredible.

So look, none of this is perfect at any given point, but we are making a difference in a lot of patients' lives. Those patients recognize the value and the service they're getting from us. They pay their bills, collect their money and then we get them back later when pickleball happens or there's something else that causes their function to be impacted.

This quarter, again, maybe it's against the soft quarter a year ago a bit, but gross profit grew 30%. I haven't said those numbers in a long time. Even if you adjust out some of the noise from a year ago, still mid-teens gross profit increase number for PT. And that's in the middle of an inflationary period in a period where staff is more expensive.

We impacted our salary and related cost per visit. On a year-over-year basis, it actually went down some. We're working on a number of initiatives, including AI-driven documentation, including what I refer to as the semi-virtualization of our front desk operations and that's rolling out.

We have a target for that by year-end of 200 facilities, about halfway there, but we're beginning to see some impact from both of those things. And we've got more to come. We're just on the front end of the number of these things, which take some time.

As we look at the year, one of the big headwinds we've been faced with quite honestly now for 5 years is this Medicare headwind. CMS produced a final rule on Friday. It came out as it often does, there were some incorrect tables in our part and that we had to contact CMS about and took them a couple of days.

They looked at it. In fact, they were incorrect. They updated those tables. It's gotten a little bit better than last time we talked.

I think last time -- and we're not done with our analysis. Last time, we said it was going to be about a 1.5% increase, probably a little better than that right now. This year is more complicated than most because of the significance and the change in the geographic index factors that kind of shuffled all around the country.

One of the things that swung for us, it's a net positive manual therapy, which is when we put our hands on our patients, when we mobilize joints, when we restore motion again through that very upfront and close personal contact, very precise ways. We do that on almost every patient that comes in the door.

Manual therapy was slated to go down. We challenged their assumptions. And in this final rule, manual therapy will go up slightly. So it reversed from a negative to a slight positive. So that's positive for us as we re-sort the impact of this final rule.

The other thing that I think will be meaningfully positive is that in 2024, we went and began to roll out remote therapeutic monitoring, which was a new code for us. And the rules around that code, I'm not going to go through all of it, but it required a lot of visits and a lot of monitoring, which we did with the partner, Limber, great guys and has done a great job.

And -- but it was clunky. It took a little while. We had to integrate Limber's tool into our EMR system. That took some considerable time, wasn't within our control, frankly. And by the end of the year, we hadn't gotten the traction with our partnerships that we had hoped.

Now what CMS has appreciated, which is what we've appreciated, the patients who go through and have as part of their care remote therapeutic monitoring actually get better outcomes, they're more engaged with their home program and they're more adherent to their total program, which helps in their exiting function.

And so CMS, again, with encouragement from groups like APTQI and others, they've reduced significantly the number of visits that it takes in order to get to a billable code. We now have a fully integrated working model through an app, which integrates well with our EMR. And so beginning 2026, this will be kind of a reinitiation of that opportunity for us, which we're just right now scanning the surface of.

So for the first time in a while, we're going to see some blue sky in 2026 in terms of -- particularly in terms of Medicare reimbursement. We see additional opportunity around remote therapeutic monitoring. And then we've got these internal initiatives to help with our efficiency and our patient flow and our cost overall. So that's very encouraging.

I want to shift gear a minute and talk a little bit about our injury prevention. Both of those teams are doing really well this year. I read a report that one of the reports that injury prevention for the quarter was disappointing.

Look, this quarter, we've lapped an acquisition that we had in the last quarter still as part of those numbers, which gave us mid-20s revenue growth. If I remember right, it's 14%, 15%. That's purely organic. Still strong revenue growth. That's where we've been.

We've got other injury prevention opportunities in the pipeline. We continue to love this business. Deals happen when we get them done. We don't talk about them and we don't put information out ahead of time.

But you're going to continue to see us grow this business because we have high confidence in our teams in both injury prevention partnerships. We have other things in the market that we like that we think are going to be impactful, help us to grow our industry verticals and help us to grow our service opportunities.

And we started this in 2017 and we had a great team, but we had a very small company, very narrow service line. That service -- those service lines have broadened significantly over the years.

Teams got even stronger and our industry verticals have gotten wider and wider as we've added more programs and services. So you're going to see that continue to be a strong focus for us.

So let me just say this in closing. I touched on a number of things. This is a team that doesn't give up. We've had a lot of headwinds over the year. We always find a way.

If you look at the Medicare cuts that we've absorbed in these last few years, they aggregate to over 11%. If you look at the impact just in this year, it's $25 million profit impact. And yet we found a way throughout all those years to continue and it's going to be gone.

We have some good things in the mix. We still have a great capital structure and we have a very, very strong resolve to take this company forward and do the things that we've said we're going to do.

So with that, I'm going to turn it over to Carey to cover the details, and we look forward to your questions. Thank you.

Great. Thank you, Chris. Appreciate it, and good morning, everyone. Let me highlight a few performance metrics that drove our strong results in the third quarter, some of which Chris has covered, but just to emphasize them.

Our average visits per clinic per day was 32.2 and that's the highest third quarter volume per clinic per day in our company's history.

Our total patient visits increased 18% year-over-year, supported by the 84 net owned clinic additions Chris mentioned, since the third quarter, 2.2% increase in visits in our mature clinics.

Our PT salaries and related costs per visit actually decreased this quarter. They decreased $0.40 per visit compared to the prior year. That's the first time we've seen a decline in our salaries and related costs since the fourth quarter of 2023.

And then our IIP revenue grew almost 15% and our IIP gross profit was up nearly 11%, which is all organic growth. And then finally, our adjusted EBITDA increased $2.8 million or 13.2% to $23.9 million.

Turning to patient visit volumes. We recorded 1,524,070 clinic visits in the third quarter, along with 30,137 home-care visits. Our average visits per clinic per day, as I mentioned, was 32.2.

That -- and it was 32.2 in July. It was 31.9 in August and then 32.7 in September, which follows our normal seasonal pattern with volumes typically picking up in September after the summer months.

Our home-care visits continue to build nicely. They moved from just under 23,000 in the first quarter to a little above 28,000 in the third quarter and now a little above 30,000 in the third quarter. So those continuing to build.

Our net rate per patient visit for the third quarter was $105.54. That was up modestly from the second quarter of this year, down slightly from the third quarter of last year.

September was our highest monthly net rate of the year, highest month of the quarter and certainly, the highest month of the year and that exceeded $106 per visit. So the trajectory there is good.

As a reminder, we absorbed a 2.9% Medicare rate reduction that took effect at the start of the year and we saw some rate mix shifts a little bit in the third quarter. Most of our year-over-year visit growth came in the commercial and Medicare categories.

So by payer category, commercial visits year-over-year and which are about $106 a visit, though slightly above our average rate, were up about 20% in the third quarter compared with last year.

Medicare visits, which averaged approximately $94 per visit, so that's below our average rate, increased 18%. And then workers' compensation visits at roughly $145 per visit increased at a lesser rate of 5%, partly because we're cycling some significant increases in our workers' comp business in the prior year.

And we're continuing to focus on expanding our higher rate workers' comp business and expect to add several new workers' comp network relationships before the end of this year.

Our physical therapy revenues were $168.1 million in the third quarter of 2025, which was an increase of $25.4 million or 17.8% from a year ago. Most of that growth came from acquisitions we completed since last year with Metro and PT in New York, which we acquired last November, contributing $19.5 million to our third quarter revenue.

Our PT operating costs totaled $136.9 million. That was an increase of $18.2 million or 15.3% compared to the same quarter last year. Importantly, as I mentioned, we managed cost effectively.

As I noted earlier, salaries and related costs per visit decreased year-over-year from $62.47 in the third quarter of '24 to $60.07 in the third quarter of '25.

Total operating cost per visit increased just 1%, moving from $86 per visit last year to $86.88 this year, which we view as a strong result given the inflationary environment. Our physical therapy operating margin was 18.6%.

As a reference point, we made a small reallocation of amortization between our PT and IIP segments in the third quarter and then we adjusted the prior year amounts to align with the current year presentation.

And we'll continue that approach going forward, making a prospective change on that. The change results in a slight increase of about 20 to 30 basis points in our PT margin across all periods and then a decrease of about 170 to 200 basis points in the IIP margin.

Speaking of IIP, as Chris mentioned, our IIP delivered another strong performance. In the third quarter IIP net revenues increased $3.7 million or 14.6%, while IIP income rose $546,000 or 10.7%. And again, emphasizing this growth is all organic. We have not made any IIP acquisitions since the third quarter of last year and our IIP margin for the third quarter was 19.6%.

Turning to corporate costs. They remained in line with expectations. Our corporate expenses were 8.5% of net revenue compared with 8.6% in the third quarter of 2024. As I mentioned last quarter, we're in the early stages of implementing a new enterprise-wide financial and human resources system.

During the third quarter, we incurred about $700,000 in implementation costs related to that project. And consistent with our practice for similar nonrecurring items, we add those costs back to our adjusted EBITDA calculation.

Operating results for the third quarter were $10.1 million, down slightly from $10.4 million a year ago. That small decline was mostly due to lower interest income of $1 million. We had excess cash on our balance sheet in the third quarter of last year, but that's now all been deployed into acquisitions. So we didn't get the interest income associated with that.

And then we also had higher interest expense of $400,000. That's associated with the higher debt balance this year because we made acquisitions and put a small amount on a revolver, which we didn't have anything on our revolver last year in the third quarter.

On a per share basis, operating results were $0.66 compared with $0.69 in the same quarter last year.

Our balance sheet remains in excellent shape. We currently have $132 million on our term loan with a swap agreement in place that fixes the interest rate at 4.7% through mid-2027. In addition, we have a $175 million revolving credit facility with $26.5 million drawn on it at September 30, 2025. We ended the quarter with $31.1 million in working capital cash.

We've not yet repurchased any shares under the share repurchase program we established in August. We view that as a prudent tool to have at our disposal, but acquisitions will continue to be our primary capital allocation priority, consistent with our long-term growth strategy.

Finally, as noted in our release, we reaffirmed our adjusted EBITDA guidance to be in the range of $93 million to $97 million for full year 2025, reflecting our third quarter results and then our current expectations for the remainder of the year.

And with that, I'll turn the call back over to Chris.

Thanks, Carey. Okay, operator, I know we have some questions. So let's go ahead and open up the lines and happy to take those questions.

[Operator Instructions] Our first question comes from Brian Tanquilut with Jefferies.

Maybe, Chris, I'll ask first. I mean, what are you seeing in the demand environment for physiotherapy? And then kind of like the other side of that, how are you seeing or what are you seeing in terms of clinician recruitment and retention?

I mean, I know you guys called out the decline in salary per visit. So just curious what are the dynamics that you're seeing there?

Yes. Demand has, for us, pretty much all year continued to be strong. I would say in the quarter, we had a little bit of a shift between July and August.

July was better -- much better than we expected. It actually was very similar to June, which doesn't normally happen. And then August was a little bit softer, concerned us a little bit and then we popped right back up in September.

And so I think what happened was we just -- we were busier in July than normal. We probably shifted some summer vacations into August, which impacted us a little bit. These are slight number shifts. Demand pretty much been good everywhere.

On the supply side, on the labor side, we made a number of investments over the last year plus in terms of our recruiting, new tracking, applicant tracking platform, new people and resources devoted toward developing more robust school relationships and services and programs, content actually for students that are still in school. And that, we think, is paying dividends.

Our time to fill down. Our turnover has been really good, really across all parts of the company. But we're definitely not paying people less. The market is not soft by any stretch. Young therapists still have a lot of debt when they come out of school and plenty of opportunity in terms of employment where they can go.

And so it's competitive in that regard. But I think we made some incremental positive strides over the last 12 to 15 months in terms of our infrastructure, our ability and our capability and we're seeing that pay off.

Got it. That makes sense. And then Carey, as I think about your cash generation, I mean, decently good cash flows in the quarter. I know you announced the buyback last quarter, but did not have that.

So just curious how you're thinking about opportunities on the M&A side versus weighing share buybacks. And also, I know you and I have had conversations about how IIP is a focus area for M&A. So maybe if you can just touch on that in terms of why that is.

Yes. Sure. On the repurchase side, as I mentioned in my remarks, I mean, we think that's a good tool to have at our disposal and we weigh that versus acquisitions, but certainly acquisitions at this point. We've got a number of them that are in process that we hope to get across the finish line in the relatively near term.

But it's just a much better use of our capital at this point or acquisitions because that's their -- the acquisitions we're looking at, to your point, are IIP acquisitions for the most part.

We're going to continue to do PT acquisitions, but we are focused on IIP because of the return dynamics. I mean, the growth prospects in that side of the business are just -- are better.

And so that's where we're really focusing a lot of our IIP. Our acquisition attention is on that side of the business with better revenue growth, better profit growth there. So -- and we need that segment to get larger. So that's what we're really looking at. Yes.

Our next question comes from Benjamin Rossi with JPMorgan.

So I was hoping you could discuss some of the competitive dynamics that you may be seeing across your markets and physical therapy, just given some of your commentary about the strong demand backdrop. I guess just when we think about existing market competition, your primary end markets in Medicare, commercial and workers' comp, can you just kind of walk through competitive dynamics this year?

And maybe if you're seeing any pressure from newer offerings or coverage [ models ] that have kind of changed some of your inbound demand?

Yes, Ben, it's hard to quantify. And particularly, it's hard to say, well, this year is different than prior years. I can tell you, and again, I'm going to speak in some generalities. I'm not going to call anybody out.

But across our market, we typically compete with small practices, mom-and-pops. We compete with hospital-based practices, where PT is often primarily not their top of the list in terms of product lines. And then we compete with other large providers and other consolidators in the market.

And really, since, I would say, since the latter part of 2022, some of the larger PE-backed companies have been balance sheet-constrained. And so we're seeing multiples on the acquisition side come down a little bit. That wasn't specifically your question, but we have seen an impact there.

In terms of boots on the ground and who gets which patient, really hard to measure. We all have relationships. We're all out there looking to try to get and keep the relationships that we have and expand into new relationships. It's a competitive market, but we're in as good a position as anybody just because our balance sheet is so good.

So we have the ability to deploy resources. We have the ability to make long-term investments and make decisions that aren't based upon acuity or crisis or other balance sheet-pressured things. And so I think over time, it's to our benefit, which is one of the reasons our visits per clinic per day continue to move up in spite of the general market challenges overall.

Got it. Okay. Appreciate the comments there. I guess, just thinking about the broader backdrop across your maybe mature cohort and the volume growth there, can you kind of just parse out core growth figures and maybe how that core growth looked across those main segments like Medicare, commercial and workers' comp or at least maybe like directionally, what was up or what was down year-over-year?

Yes. Sure. So within the mature clinic mix, commercial and Medicare were both up. Commercial was up in visits about 2.5% -- 2.5% to 3%. Medicare was up about 4.5%. So those visits both increases on -- to take those 2 together, it was about a 3.5% increase in commercial and Medicare.

Similar to our overall business, workers' comp dipped a little bit in their number of visits year-over-year in the third quarter. So that kind of affected the rate a little bit for the mature clinics there in the quarter.

So our visit growth was 2.2% and then our rate growth in mature clinics because of that -- a little bit of that mix shift I just talked about and the fact that commercial and Medicare are -- commercial is right at our rate. Medicare is a little bit low rate and that's where we saw the growth, but then workers' comp dipped a little bit, which is a high rate payer category.

That rate decreased 2% for -- it was 2.0% for the third quarter in mature clinics. So 2.2% visit growth, 2% revenue growth. So it was up just slightly from a revenue standpoint year-over-year. And that's my category that I'll see. Yes.

Our next question comes from Joanna Gajuk with Bank of America.

So just a very quick follow-up on the final Medicare rate being based on the proposal, you kind of estimated it will be, call it, $1.5 million to $2.5 million to adjusted EBITDA. So based on your, I guess, updated estimate of that impact, it sounds like it's not finally, but where do you land right now in terms of adjusted EBITDA tailwind?

So...

I don't think we're there yet.

Yes. We're not there yet.

It doesn't come out until Tuesday. So...

Yes. And it's a pretty complicated calculation. We have to go through by market. But I would say the increase we expect to be, I think, really more of a floor of 1.5% now, whereas we thought that may be kind of right where we ended up, I think that's kind of a floor of 1.5% and there could be -- it could be greater than that. And we'll certainly give more color on that on our next call. But the fact that it's a positive going into 2026 is really, really good.

All right. So I guess, yes, it's going to be a little bit better than that number. So that's, call it, 2% adjusted EBITDA growth next year just for that. I know you're not giving guidance and you said you're finalizing a lot of different things. But anything else we should be thinking about in terms of tailwinds and headwinds into next year?

Other than what we've talked about, we're working on some cost things. Obviously, those are beginning to come through AI-driven documentation, virtualization at the front desk.

We talked about remote therapeutic monitoring being now an update to our high priority work list for 2026, where there's some reimbursement that we're not tapping into right now just because of the complexities historically around how the government set up and funded this program. It's gotten much more logical and much more doable. And so we'll focus on that.

And then we got some things that we haven't talked about yet that we're not quite ready to talk about that will be very positive next year that we expect to give an update when we give guidance and talk about our year-end numbers. We think we'll be far enough along then to lay it all out.

Yes. And on the headwinds side, to give anything significant on the headwinds, we've had -- obviously, the big major headwind we've had the last 5 years has been the Medicare rate and we thankfully don't have that headwind going into 2026. So that's why at this point, we'll give the guidance later, but we feel good about kind of how things are shaping up for 2026.

Okay. And if I may, a different topic, different question. I noticed in the release, there's some additional reversals of the payouts from acquisitions. I think you had this in a couple of quarters in a row. So anything in particular? Like what's causing that reversal?

I'm sorry, that's on what, Joanna?

On the payouts from acquisitions. So you said, I think, $11 million this quarter.

Yes. That's really just -- it's a -- it's -- every quarter, we reproject kind of where we think they're going to end up for whatever the earn-out period is and we have to make adjustments based on the Monte Carlo simulation.

I just -- so it's really just based on actual performance. But we put lofty targets out there for our acquisitions to achieve and we expect them to achieve that. And if they don't quite get there, then we have to back it off a little bit. Chris, would you -- anything else you'd say about that?

No. I mean, it's just a quarter-to-quarter adjustment that predicts -- attempts to predict where we'll end up at the end of another period. It's -- to be honest, it's an exercise that I don't think is particularly meaningful, but we have to do it. And so it goes up and down every quarter. Not actually what we're spending at any given time.

[Operator Instructions] We'll go next to Larry Solow with CJS Securities.

Congrats on your 84th call. I think if I do the math, this is my 73rd one listening in. It's been a fun ride. I guess just first question, I appreciate all the color on the volumes.

Just in terms of the mature clinics, I know they were a little bit flat to last quarter and pretty flat this quarter on both the price and a volume, I guess. So net, just -- and you've discussed the pricing pretty well. You parsed that out pretty well. Just any thoughts on the flatter volumes and how you can maybe -- is that just a timing thing, staffing issue? Any color there?

Yes. I mean, my sense is that any time you're focused on trying to wring out cost, you probably wring out a little bit of volume. And so you kind of have to pick your poison and we're trying to obviously get it right in each and every situation and there are literally thousands upon thousands of those situations when you look at daily schedules and how many therapists we have and all of it.

And I don't look at 2.2% as flat, although it's -- I would rather it have been 3%, let's say, more on our average. And on the flip side, we made a little bit of an impact on the cost side.

So I think there's probably some impact there from trying to be as efficient as you can and not have slack resources. Slack resources allows you to take a walk up and have people just show up and be able to deal with them. And when you don't have slack resources, it makes it a little bit harder to do that. And so I think that's part of it probably.

And I know, appreciate that. In terms of the ERP, the new ERP system, which is, I guess, a modest headwind in terms of cost today, does that become a benefit, a lot of your other -- your AI virtual notes taking stuff like that, too. So maybe hard to isolate that by itself, but does that end up being an efficiency benefit at some point?

Certainly, Larry.

Go ahead, Carey.

It'll be a big efficiency positive for us in the finance and accounting area. And with the human resource side, too, so it'll be a really good tool for all of our employees to use for.

It'll be a kind of one-stop place they can go and get all their HR information and their financial information too if they have financials that they need to view. So everything will be viewed there is the same.

And I think what it does is just provide us more -- provides us quicker and probably more information to manage our business. But that -- from that perspective, it's going to create some efficiencies and positives for sure.

Great. If I could just switch gears from one last quickly on the injury prevention. It sounds like really knocking out of the park on the top line, mid-teens growth. I don't know, is that number hard to say sustainable over a multiyear period, but it does feel like you do expect that business to certainly grow faster than the PT business. I guess any color there?

And then the follow-up would be, there was a little bit of a gross margin came in a little bit, I guess, year-over-year. Anything we should be concerned about on the IIP side?

Carey, you take the gross margin one because you touched on that, so maybe reclarify that.

Yes. So gross margin, but when you look at it year-over-year, it did for IIP come down a little bit. It was 20.3% on the properly adjusted basis in 2024 and was 19.6% in the third quarter of this year. So a little bit of dip there, but that margin continues to be really, really strong and near that 20% mark.

Part of it is we have added some auto clients, which -- over the last year, which have a little bit lower margin, but that's good business. That's why you see that top line growing at 15%, but not quite as much on the bottom line growth, 11% because it kind of depends on the mix of the business there and what the margins are for those. But nothing really notable to point out related to the margin difference quarter-over-quarter.

Yes. And Larry, in terms of growth, I don't know if -- I don't pretend to have a perfect crystal ball, but in terms of [ 17% ] -- we've been growing at a pretty good clip. In the early first couple of years, year-over-year growth was more like 30% or 40% for a while.

As we get bigger, it gets a little bit harder and I think mid-teens is a pretty good number right now. But as we add these other companies and we pick up more services, it gives us a bigger opportunity to cross-sell.

So in that regard, I do think there's a sustainability element, particularly as we've added programs over the years that -- and our team has gotten better at cross-selling. And so I think we can grow certainly at an outsized rate compared to PT when you look at organic growth.

Our next question comes from Constantine Davides with Citizens.

Chris, just on the home-care visits, can you just talk about directionally how you think that's heading? Are these still largely confined to the Metro asset? Or have you expanded the model out to any of the other logos at this point?

Yes. Eric, do you want to take -- I'm going to let Eric speak to that. But yes, it's primarily Metro.

Yes. And it's really regional. So it's outside of New York. I mean, we've expanded into the New Jersey market. Michael had the biggest footprint, obviously, in home-care operating out of New York.

It's easy to expand as we go to city over and a state over. And so I still think that's going to be the area where we have the biggest expansion opportunity. But we are looking elsewhere within the portfolio around where we can replicate that and make an impact.

So we still believe that it can generate growth for us as we continue to grow forward. But right now, most of it will be in the Northeast.

And can you maybe speak to the relative margin differential between a home-based visit and just kind of historical level of margins on the core PT business?

I'll speak little specifically to New York, New Jersey. I mean, obviously, so it's -- they're -- we're treating Medicare. The Medicare reimbursement up in the Northeast is very, very favorable as compared to other parts of the country.

And doing home-care, you do generate pretty decent margins because your only real overhead associated with home-care is labor rates. And you pay a little bit more for home-care staff, but margins are held back and get you a number for you. I don't have that in front of me.

It won't be the case everywhere. I mean, there's markets where just based on cost of labor and Medicare rates it won't make as much sense for us. But right now, the Northeast is very, very healthy rate. We're able to find labor and generate economies of scale, which is another big part of the program.

I mean, when you bring home-care people on, while they're typically paid on a per visit basis, your ability to attract staff is really based on having the ability to give them a full schedule.

And so for us, it's easier to grow off of an existing program and expand as we move into different ZIP. A little bit lower margins, we're just starting up a program for the first time. So I hope that color helps a little bit.

No, it does. That's great. And then Chris, in your prepared remarks, you highlighted just the really strong growth in the number of facilities. And I guess I'm more focused on de novos here, but it looks like you're going to be pushing probably in the 35 to 40 range this year.

So I'm wondering what's the limiting factor on that? And is this kind of a new normal in terms of what you're targeting year in, year out? Or is this just -- is 2025 just a year of just more pronounced de novo growth?

No. No. So limiting factor first. Limiting factor, really not our ability to get de novos out of the ground. We could do more than we're doing. It's having the right person ready to take over that facility in a leadership position and then being able to backfill that person in the existing clinic.

And so that's part of it. And our partners have to be willing to take a near-term dip in distributions and other things, again, to fund that facility and get it up and out of the ground.

Having said that, we've got some things that we're working on behind the scenes. Again, this falls into the category of haven't fully lifted the curtain yet that will help us in certain markets accelerate our de novo opportunity and that's something we'll spend some time on, I think, in February when we release our year-end earnings and talk about what we expect to do going forward.

That's a general time frame when we're going to be ready to kind of talk about some of these other things. But I think in that 30 to 50 range is likely where we'll be.

[Operator Instructions] We'll go next to Mike Petusky with Barrington Research.

Okay. Carey, I know that you talked to the year-over-year decline in gross margin in IIP, but I'm actually more confused and you may have addressed this and I missed it, but confused by the sequential decline in that gross margin. Did you talk about that? Or could you talk about that?

Yes. So I mentioned it on the call that we had some amortization that was -- that had been being allocated to the PT segment that really should have been allocated to the IIP segment.

So we made that adjustment and we're going to make that on a prospective basis. And so it increased our PT margin a little bit by about 20% [Audio Gap]

decreases our IIP margin by 170 to 200 basis points.

So when you look -- so there -- so the last quarter that we actually reported is not apples to this third quarter. But as we go along, we'll just prospectively present that in the same manner going forward with that IIP amortization actually squarely placed in IIP.

So yes, but if you look at any of that, like the second quarter last -- of this year would have been 170 to 200 basis points less than what we showed in our report.

Got you. Okay. Perfect. And then in terms of workers' comp, what percentage of overall revenue was workers' comp in this quarter?

Yes, hold on one second. I believe it was -- it's right at 9.6%, I believe is what it was. 9.7%. It was 9.7%. And we did -- overall, we did see workers' comp growth just in visits. It was about a 5% increase in workers' comp visits for our total book of business, just mature clinics.

When I was speaking of mature clinics, it was down a little bit in mature clinics, but it is up overall 5%. It just didn't see as big a growth as commercial and Medicare, which were at 20% and about 18%, respectively. So we did see increase in workers' comp visits.

I'm happy to throw a little bit more color on the work comp side here. To Carey's point, the growth wasn't as robust as what we've been seeing over really 2024 and first couple of quarters this year, it was around 5% on the visit side.

It was around 5% year-over-year growth on the rate side. And Q3 revenues were up just under 10%, Q3 '25 compared to Q3 '24. On a year-to-date basis, revenues are up 19% in work comp, visits are up about 9% and rate has been up about 9.4%.

We signed 11 new contracts in 2025 with work comp, 2 of which came online in Q1, 4 of them Q2, 2 of them late Q3 and 3 of them are coming online in late Q4. So we still have growth opportunity that we're going to see on the work comp side.

There's also a concerted effort around volume pull-through and a focus on our PPO contracts which pay a higher rate than some of the work comp specialty networks. So we still foresee good growth on the work comp visit side as we move forward here into 2026.

Okay. Great. And just a couple more quick ones. The 1.5% is what you guys are calling probably a floor on the Medicare update for '26. I mean, could the ceiling be as high as 2%? Or are we really talking it's 1.5% or it's 1.6% or 1.7%, like pretty close?

My gut tells me it's going to be pretty close to 1.5%, 1.6%, 1.7% probably. I don't know that it gets to 2%. What could take it to 2% is if we can ramp up remote therapeutic monitoring and get that a meaningful percentage of our Medicare patients, that would pick us up a few dollars per visit over the course of the case. And so that would be a nice lift. That would be a difference maker.

But we think on the base -- the reason this is so complicated right now, so many of the geographic index factors, which normally don't move very much, moves a lot. And so we have to model not only kind of the historic look at what the changes would have done, but a prospective look.

We have to estimate what we think the migration will be from Medicare Advantage to Medicare. And frankly, it's not entirely precise. It requires some guesstimation. And so that's why we're being a little less precise around this because it's not quite easy to pin the tail on it as it has been in the past.

Okay. Fantastic. And then just the last thing and I may -- again, I may have missed this as well. July, August, September, did you give the visits per month there?

Yes. So I'll repeat them. Let me get that in front of me here. I know July was 32.2, yes, 32.2 July, 31.9 in August and then 32.7 in September.

And then just the last sort of second part of that question. As your -- there's a lot of talk in news media and around the elections about sort of affordability, people are getting squeezed by persisting inflation and all the rest of it.

Are you guys seeing any evidence of that impacting sort of people later in therapy? Are you hearing anything? Are you picking up anything on that?

I mean, what we have to look at is our duration of care, right? I mean, that's the one objective measure that we have to look at. And so duration of care hasn't dropped. It's not going backwards. It's been very steady. Eric, I don't know if you want to provide any other color on that.

No, Chris. That's spot on. I mean, even when we went through some of those difficult periods 2 years ago with rapidly rising inflation and a concern that people are going to kind of hang on to the dollars, we saw absolutely no variation in our durations and they continue to be strong and consistent throughout 2025 as well.

And our volumes in October have been really, really good. So that's -- we haven't seen a dip there.

And I'm showing no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

Okay. Well, thank you, everybody. We appreciate your time this morning. We always appreciate your questions. Carey and I are available later today, through the week and into next week, of course, for any follow-up. So I hope you have a great day. Thanks again. Bye-bye.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.