UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
☒☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2023MARCH 31, 2024
OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____TO _____
COMMISSION FILE NUMBER 1-11151

U.S. PHYSICAL THERAPY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

NEVADA 76-0364866
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)

1300 WEST SAM HOUSTON PARKWAY SOUTH, SUITE 300, HOUSTON, TEXAS
 77042
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 297-7000

Securities registered pursuant to SectionSECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:
OF THE EXCHANGE ACT:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valueUSPHNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒☑  Yes     ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and such files).   ☒☑  Yes     ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer☑Accelerated filer☐
Non-accelerated filer
☐
Smaller reporting company☐
  Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒☑  No

As of NovemberMay 8, 20232024, the number of shares outstanding (issued less treasury stock) of the registrant’s common stock, par value $.01 per share, was: 14,987,042.15,068,085.

TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION

PART I—FINANCIAL INFORMATION
Item 1.
Financial Statements.
3
   
 
Consolidated Balance Sheets as of September 30, 2023March 31, 2024, and December 31, 20222023
3
   
 
Unaudited Consolidated Statements of Net Income for the Three and Nine Months Ended September 30,March 31, 2024, and 2023 and 2022
4
   
 
Unaudited Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30,March 31, 2024, and 2023 and 2022
5
   
 
Unaudited Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2024, and 2023 and 2022
6
   
 
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30,March 31, 2024, and 2023 and 2022
7
   
 
Notes to Consolidated Financial Statements
8
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2930
   
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
4842
   
Item 4.
Controls and Procedures
4843
   
PART II—OTHER INFORMATION 
   
Item 1.
Legal Proceedings
4843
   
Item 1A.
Risk Factors
4843
   
Item 5.
4843
   
Item 6.
Exhibits
4944
 
 
 
Signatures
5045


2
PART I—I -FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.STATEMENTS

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 September 30, 2023  December 31, 2022 March 31, 2024  December 31, 2023 
ASSETS (unaudited)     (unaudited)    
Current assets:            
Cash and cash equivalents $147,685  $31,594  $132,290  $152,825 
Patient accounts receivable, less allowance for credit losses of $2,487 and $2,829, respectively
  52,958   51,934 
Patient accounts receivable, less provision for credit losses of $2,936 and $2,736, respectively
  55,363   51,866 
Accounts receivable - other  18,469   16,671   21,774   17,854 
Other current assets  9,387   11,067   11,715   10,830 
Total current assets  228,499   111,266   221,142   233,375 
Fixed assets:                
Furniture and equipment  64,507   62,074   65,550   63,982 
Leasehold improvements  46,212   42,877   47,458   46,941 
Fixed assets, gross  110,719   104,951   113,008   110,923 
Less accumulated depreciation and amortization  84,651   80,203   (86,757)  (84,821)
Fixed assets, net  26,068   24,748   26,251   26,102 
Operating lease right-of-use assets  102,665   103,004   102,113   103,431 
Investment in unconsolidated affiliate
  12,256   12,131   12,160   12,256 
Goodwill  522,907   494,101   534,271   509,571 
Other identifiable intangible assets, net  112,112   108,755   116,888   109,682 
Other assets  5,679   4,149   4,431   2,821 
Total assets $1,010,186  $858,154  $1,017,256  $997,238 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, USPH SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTEREST                
Current liabilities:                
Accounts payable - trade $4,509  $3,300  $4,866  $3,898 
Accounts payable - due to seller of acquired business
  -   3,204 
Accrued expenses  35,846   37,413   53,749   55,344 
Current portion of operating lease liabilities  34,446   33,709   34,699   35,252 
Current portion of term loan and notes payable  7,555   7,863   9,222   7,691 
Total current liabilities  82,356   85,489   102,536   102,185 
Notes payable, net of current portion  2,037   1,913   804   1,289 
Revolving facility
  -   31,000 
Term loan, net of current portion and deferred financing costs
  139,459   142,918   135,945   137,702 
Deferred taxes  26,487   21,303   27,337   24,815 
Operating lease liabilities, net of current portion  76,884   77,934   75,680   76,653 
Other long-term liabilities  14,758   13,029   2,988   2,356 
Total liabilities  341,981   373,586   345,290   345,000 
                
Redeemable non-controlling interest - temporary equity  174,697   167,515   190,733   174,828 
                
Commitments and Contingencies            
  
             
U.S. Physical Therapy, Inc. (“USPH”) shareholders’ equity:                
Preferred stock, $0.01 par value, 500,000 shares authorized, no shares issued and outstanding
  -   -   -   - 
Common stock, $0.01 par value, 20,000,000 shares authorized, 17,202,053 and 15,216,326 shares issued, respectively
  172   152 
Common stock, $0.01 par value, 20,000,000 shares authorized, 17,282,822 and 17,202,291 shares issued, respectively
  172   172 
Additional paid-in capital  279,124   110,317   283,546   281,096 
Accumulated other comprehensive gain
  5,746   4,004   4,108   2,782 
Retained earnings  238,557   232,948   223,573   223,772 
Treasury stock at cost, 2,214,737 shares
  (31,628)  (31,628)  (31,628)  (31,628)
Total USPH shareholders’ equity  491,971   315,793   479,771   476,194 
Non-controlling interest - permanent equity  1,537   1,260   1,462   1,216 
Total USPH shareholders’ equity and non-controlling interest - permanent equity  493,508   317,053   481,233   477,410 
Total liabilities, redeemable non-controlling interest, USPH shareholders’ equity and non-controlling interest - permanent equity $1,010,186  $858,154  $1,017,256  $997,238 

The accompanying notes are an integral part of these unaudited consolidated financial statements.Consolidated Financial Statements.

3
Table of Contents
U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF NET INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 Three Months Ended  Nine Months Ended 
  September 30, 2023  September 30, 2022  September 30,2023  September 30, 2022 
             
Net patient revenue $127,243  $116,710  $383,104  $344,444 
Other revenue  22,764   22,892   66,897   67,518 
Net revenue  150,007   139,602   450,001   411,962 
Operating cost:                
Salaries and related costs  89,846   81,786   262,757   236,874 
Rent, supplies, contract labor and other  30,707   29,696   91,651   86,703 
Provision for credit losses  1,525   1,336   4,600   4,192 
Total operating cost  122,078   112,818   359,008   327,769 
                 
Gross profit  27,929   26,784   90,993   84,193 
                 
Corporate office costs  12,048   11,889   38,052   34,186 
Operating income  15,881   14,895   52,941   50,007 
                 
Other (expense) income                
Interest expense, debt and other
  (2,101)  (2,013)  (7,293)  (3,540)
Interest income
  1,673   -   2,191   - 
Change in fair value of contingent earn-out consideration
  187   2,000   197   2,000 
Change in revaluation of put-right liability
  (145)  785   (344)  771 
Equity in earnings of unconsolidated affiliate  206   304   806   983 
Relief Funds  -   -   467   - 
Other
  78   65   305   790 
Total other (expense) income  (102)  1,141   (3,671)  1,004 
Income before taxes  15,779   16,036   49,270   51,011 
                 
Provision for income taxes  3,557   3,215   10,757   10,952 
Net income  12,222   12,821   38,513   40,059 
                 
Less: Net income attributable to non-controlling interest:                
Redeemable non-controlling interest - temporary equity  (1,976)  (2,037)  (7,616)  (7,220)
Non-controlling interest - permanent equity  (992)  (1,227)  (3,314)  (3,288)
   (2,968)  (3,264)  (10,930)  (10,508)
                 
Net income attributable to USPH shareholders $9,254  $9,557  $27,583  $29,551 
                 
Basic and diluted earnings per share attributable to USPH shareholders
 $0.51  $0.72  $1.72  $2.27 
                 
Shares used in computation - basic and diluted  14,987   13,001   13,918   12,979 
                 
Dividends declared per common share $0.43  $0.41  $1.29  $1.23 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4
Table of Contents
U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)

  Three Months Ended  Nine Months Ended 
  September 30, 2023
  September 30, 2022
  September 30, 2023
  September 30, 2022
 
             
Net income $12,222  $12,821  $38,513  $40,059 
Other comprehensive loss                
Unrealized gain on cash flow hedge  1,276   6,473   2,340   5,942 
Tax effect at statutory rate (federal and state)
  (326)  (1,654)  (598)  (1,518)
Comprehensive income $13,172  $17,640  $40,255  $44,483 
                 
Comprehensive income attributable to non-controlling interest  (2,968)  (3,264)  (10,930)  (10,508)
Comprehensive income attributable to USPH shareholders $10,204  $14,376  $29,325  $33,975 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
5

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

 Nine Months Ended 
  September 30, 2023  September 30, 2022 
OPERATING ACTIVITIES      
Net income including non-controlling interest
 $38,513  $40,059 
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities:        
Depreciation and amortization  11,582   10,950 
Provision for credit losses  4,600   4,192 
Equity-based awards compensation expense  5,451   5,462 
Change in deferred income taxes  5,393   6,077 
Change in revaluation of put-right liability  344   (771)
Change in fair value of contingent earn-out consideration
  (197)  (2,000)
Equity of earnings in unconsolidated affiliate
  (806)  (983)
Gain on sale of clinics and fixed assets
  (106)  (643)
Changes in operating assets and liabilities:        
Increase in patient accounts receivable  (5,415)  (7,585)
Increase in accounts receivable - other  (1,631)  (4,551)
Increase (decrease) in other current and long term assets
  2,489   (4,273)
Decrease in accounts payable and accrued expenses  (5,609)  (4,568)
Increase (decrease) in other long-term liabilities  535   (128)
Net cash provided by operating activities  55,143   41,238 
         
INVESTING ACTIVITIES        
Purchase of fixed assets  (7,074)  (7,290)
Purchase of majority interest in businesses, net of cash acquired  (22,994)  (18,573)
Purchase of redeemable non-controlling interest, temporary equity  (7,804)  (14,096)
Purchase of non controlling interest-permanent equity
  (262)  (280)
Proceeds on sale of partnership interest, clinics and fixed assets  7   740 
Proceeds on sale of non-controlling interest, permanent equity
  30   - 
Proceeds on sale of partnership interest - redeemable non-controlling interest, temporary equity  815   401 
Distributions from unconsolidated affiliate
  681   1,220 
Net cash used in investing activities  (36,601)  (37,878)
         
FINANCING ACTIVITIES        
Distributions to non-controlling interest, permanent and temporary equity  (11,777)  (11,760)
Cash dividends paid to shareholders  (17,683)  (15,990)
Proceeds from revolving facility  24,000   61,000 
Proceeds from term loan
  -   150,000 
Proceeds from issuance of common stock pursuant to the secondary public offering, net of issuance costs  163,646   - 
Payments on revolving facility
  (55,000)  (175,000)
Principal payments on notes payable  (2,874)  (496)
Payments on term loan
  (2,813)  (1,779)
Other
  50   12 
Net cash provided by financing activities  97,549   5,987 
         
Net decrease in cash and cash equivalents  116,091   9,347 
Cash and cash equivalents - beginning of period  31,594   28,567 
Cash and cash equivalents - end of period $147,685  $37,914 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Cash paid during the period for:        
Income taxes $2,731  $7,529 
Interest paid
 $
6,992  $
2,159 
Non-cash investing and financing transactions during the period:        
Purchase of businesses - seller financing portion $
1,860  $
824 
Notes payable related to purchase of redeemable non-controlling interest, temporary equity
 $
1,017  $
1,074 
Notes receivable related to sale of redeemable non-controlling interest, temporary equity
 $
3,064  $
1,580 
Notes payable related to the purchase of non-controlling interest, permanent equity $
200  $
576 
Notes receivable related to the sale of non-controlling interest, permanent equity
 $
397  $
- 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6
Table of Contents
U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYNET INCOME
(IN THOUSANDS)THOUSANDS, EXCEPT PER SHARE AMOUNTS)

  U.S.Physical Therapy, Inc.       
  Common Stock  Additional  Accumulated Other  Retained  Treasury Stock  Total Shareholders’  Non-Controlling    
For the three months ended September 30, 2023 Shares  Amount  Paid-In Capital  Comprehensive Gain  Earnings  Shares  Amount  Equity  Interests  Total 
                               
Balance June 30, 2023
  17,202  $172  $277,493  $4,796  $237,665   (2,215) $(31,628) $488,498  $1,500  $489,998 
Revaluation of redeemable non-controlling interest, net of tax  -   -   -   -   (2,242)  -   -   (2,242)  -   (2,242)
Purchase of non-controlling interest  -   -   (270)  -   -   -   -   (270)  21   (249)
Sale of non-controlling interest
  -   -   -   -   -   -   -   -   (30)  (30)
Compensation expense - equity-based awards  -   -   1,859   -   -   -   -   1,859   -   1,859 
Dividends paid to USPH shareholders  -   -   -   -   (6,445)  -   -   (6,445)  -   (6,445)
Distributions to non-controlling interest partners - permanent equity  -   -   -   -   -   -   -   -   (941)  (941)
Deferred taxes related to redeemable non-controlling interest - temporary equity  -   -   -   -   323   -   -   323   -   323 
Other  -   -   51   -   2   -   -   53   (5)  48 
Issuance of common stock, pursuant to the secondary public offering, net of issuance costs  -   -   (9)  -   -   -   -   (9)  -   (9)
Net income attributable to non-controlling interest - permanent equity  -   -   -   -   -   -   -   -   992   992 
Net income attributable to USPH shareholders  -   -   -   -   9,254   -   -   9,254   -   9,254 
Other comprehensive gain
  -   -   -   950   -   -   -   950   -   950 
Balance September 30, 2023
  17,202  $172  $279,124  $5,746  $238,557   (2,215) $(31,628) $491,971  $1,537  $493,508 
 Three Months Ended 
  March 31, 2024  March 31, 2023 
       
Net patient revenue $131,075  $126,581 
Other revenue  24,600   21,928 
Net revenue  155,675   148,509 
Operating cost:        
Salaries and related costs  93,731   86,040 
Rent, supplies, contract labor and other  31,916   30,100 
Provision for credit losses  1,627   1,512 
Total operating cost  127,274   117,652 
         
Gross profit  28,401   30,857 
         
Corporate office costs  14,085   13,859 
Operating income  14,316   16,998 
         
Other income (expense):        
Interest expense, debt and other
  (1,968)  (2,560)
Interest income from investments  1,543   64 
Change in fair value of contingent earn-out consideration  612   (698)
Change in revaluation of put-right liability
  (80)  (149)
Equity in earnings of unconsolidated affiliate
  271   274 
Relief Funds
  -   467 
Other
  62   - 
Total other income (expense)  440   (2,602)
Income before taxes  14,756   14,396 
         
Provision for income taxes  3,139   2,969 
         
Net income  11,617   11,427 
         
Less: Net income attributable to non-controlling interest:        
Redeemable non-controlling interest - temporary equity  (2,227)  (2,720)
Non-controlling interest - permanent equity  (1,344)  (1,297)
   (3,571)  (4,017)
         
Net income attributable to USPH shareholders $8,046  $7,410 
         
Basic and diluted earnings per share attributable to USPH shareholders (1)
 $0.46  $0.58 
         
Shares used in computation - basic and diluted  15,017
   13,025
 
         
Dividends declared per common share $0.44  $0.43 

  
U .S.Physical Therapy, Inc.
       
  Common Stock  Additional  Accumulated Other  Retained  Treasury Stock  Total Shareholders’  Non-Controlling  
 
For the nine months ended September 30, 2023 Shares  Amount  Paid-In Capital  Comprehensive Gain
  Earnings  Shares  Amount  Equity  Interests  Total 
                               
Balance December 31, 2022
  15,216  $152  $110,317  $4,004  $232,948   (2,215) $(31,628) $315,793  $1,260  $317,053 
Issuance of restricted stock, net of cancellations  70   -   -   -   -   -   -   -   -   - 
Revaluation of redeemable non-controlling interest
  -   -   -   -   (4,988)  -   -   (4,988)  -   (4,988)
Purchase of non-controlling interest  -   -   (320)  -   -   -   -   (320)  32   (288)
Sale of non-controlling interest
  -   -   -   -   -   -   -   -   (30)  (30)
Compensation expense - equity-based awards  -   -   5,451   -   -   -   -   5,451   -   5,451 
Dividends paid to USPH shareholders  -   -   -   -   (17,683)  -   -   (17,683)  -   (17,683)
Distributions to non-controlling interest partners - permanent equity  -   -   -   -   -   -   -   -   (3,035)  (3,035)
Deferred taxes related to redeemable non-controlling interest - temporary equity  -   -   -   -   697   -   -   697   -   697 
Other  -   -   50   -   -   -   -   50   -   50 
Issuance of common stock, pursuant to the secondary public offering, net of issuance costs  1,916   20   163,626   -   -   -   -   163,646   (4)  163,642 
Net income attributable to non-controlling interest - permanent equity  -   -   -   -   -   -   -   -   3,314   3,314 
Net income attributable to USPH shareholders  -   -   -   -   27,583   -   -   27,583   -   27,583 
Other comprehensive gain
  -   -   -   1,742   -   -   -   1,742   -   1,742 
Balance September 30, 2023
  17,202  $172  $279,124  $5,746  $238,557   (2,215) $(31,628) $491,971  $1,537  $493,508 

  U.S.Physical Therapy, Inc.       

 Common Stock  Additional  Accumulated Other  Retained  Treasury Stock  Total Shareholders’  Non-Controlling    
For the three months ended September 30, 2022 Shares  Amount  Paid-In Capital  Comprehensive Loss  Earnings  Shares  Amount  Equity  Interests  Total 
                               
Balance June 30, 2022
  15,219  $152  $106,801   (395) $232,247   (2,215) $(31,628) $307,177  $1,756  $308,933 
Issuance of restricted stock, net of cancellations  (3)  -   -   -   -   -   -   -   -   - 
Revaluation of redeemable non-controlling interest, net of tax  -   -   -   -   (147)  -   -   (147)  -   (147)
Compensation expense - equity-based awards  -   -   1,802   -   -   -   -   1,802   -   1,802 
Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans
  -   -   -   -   -   -   -   -   -   - 
Purchase of partnership interests -  non-controlling interest
  -   -   (88)  -   -   -   -   (88)  (6)  (94)
Dividends payable to USPH shareholders  -   -   -   -   (5,331)  -   -   (5,331)  -   (5,331)
Distributions to non-controlling interest partners - permanent equity  -   -   -   -   -   -   -   -   (1,519)  (1,519)
Deferred taxes related to redeemable non-controlling interest - temporary equity  -   -   -   -   (643)  -   -   (643)  -   (643)
Other  -   -   -   -   -   -   -   -   -   - 
Net income attributable to non-controlling interest - permanent equity  -   -   -   -   -   -   -   -   1,227   1,227 
Net income attributable to USPH shareholders  -   -   -   -   9,557   -   -   9,557   -   9,557 
Other comprehensive loss  -   -   -   4,819   -   -   -   4,819   -   4,819 
Balance September 30, 2022
  15,216  $152  $108,515  $4,424  $235,683   (2,215) $(31,628) $317,146  $1,458  $318,604 

  U.S.Physical Therapy, Inc.       
  Common Stock  Additional  Accumulated Other  Retained  Treasury Stock  Total Shareholders’  Non-Controlling    
For the nine months ended September 30, 2022 Shares  Amount  Paid-In Capital  Comprehensive Loss  Earnings  Shares  Amount  Equity  Interests  Total 
                               
Balance December 31, 2021
  15,126  $151  $102,688   -  $224,395   (2,215) $(31,628) $295,606  $1,575  $297,181 
Issuance of restricted stock, net of cancellations  90   1   -   -   -   -   -   1   -   1 
Revaluation of redeemable non-controlling interest, net of tax  -   -   -   -   (144)  -   -   (144)  -   (144)
Compensation expense - equity-based awards  -   -   5,462   -   -   -   -   5,462   -   5,462 
Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans
  -   -   707   -   -   -   -   707   -   707 
Purchase of partnership interests -  non-controlling interest
  -   -   (353)  -   -   -   -   (353)  (101)  (454)
Dividends paid to USPH shareholders  -   -   -   -   (15,990)  -   -   (15,990)  -   (15,990)
Distributions to non-controlling interest partners - permanent equity  -   -   -   -   -   -   -   -   (3,990)  (3,990)
Deferred taxes related to redeemable non-controlling interest - temporary equity  -   -   -   -   (2,129)  -   -   (2,129)  -   (2,129)
Other  -   -   11   -   -   -   -   11   686   697 
Net income attributable to non-controlling interest - permanent equity  -   -   -   -   -   -   -   -   3,288   3,288 
Net income attributable to USPH shareholders  -   -   -   -   29,551   -   -   29,551   -   29,551 
Other comprehensive loss              4,424   -           4,424       4,424 
Balance September 30, 2022
  15,216  $152  $108,515  $4,424  $235,683   (2,215) $(31,628) $317,146  $1,458  $318,604 

The accompanying notes are an integral part of these unaudited consolidated financial statements.Consolidated Financial Statements.

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U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)

  Three Months Ended 
  March 31, 2024
  March 31, 2023
 
       
Net income $11,617  $11,427 
Other comprehensive gain (loss):        
Unrealized gain (loss) on cash flow hedge  1,781   (1,817)
Tax effect at statutory rate (federal and state)
  (455)  464 
Comprehensive income $12,943  $10,074 
         
Comprehensive income attributable to non-controlling interest  (3,571)  (4,017)
Comprehensive income attributable to USPH shareholders $9,372  $6,057 

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
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U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

 Three Months Ended 
  March 31, 2024  March 31, 2023 
OPERATING ACTIVITIES      
Net income including non-controlling interest
 $11,617  $11,427 
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities:        
Depreciation and amortization  4,095   3,788 
Provision for credit losses  1,627   1,512 
Equity-based awards compensation expense  1,997   1,806 
Amortization of debt issue costs
  106   106 
Change in deferred income taxes  1,943   221 
Change in revaluation of put-right liability  80   149 
Change in fair value of contingent earn-out consideration
  (612)  698 
Equity of earnings in unconsolidated affiliate
  (271)  (274)
Loss on sale of fixed assets
  5   - 
Other
  -   19 
Changes in operating assets and liabilities:        
Increase in patient accounts receivable  (5,124)  (5,999)
Increase in accounts receivable - other  (3,985)  (796)
(Decrease) increase in other current and long term assets
  (433)  1,897 
Decrease in accounts payable and accrued expenses  (6,678)  (1,846)
Increase (decrease) in other long-term liabilities  52   (1,359)
Net cash provided by operating activities  4,419   11,349 
         
INVESTING ACTIVITIES        
Purchase of fixed assets  (1,838)  (2,059)
Purchase of majority interest in businesses, net of cash acquired  (15,971)  (5,796)
Purchase of redeemable non-controlling interest, temporary equity  (2,702)  (5,178)
Purchase of non controlling interest, permanent equity
  (498)  - 
Proceeds on sale of non-controlling interest, permanent equity
  23   - 
Proceeds on sale of partnership interest - redeemable non-controlling interest, temporary equity  67   107 
Distributions from unconsolidated affiliate
  367   245 
Other
  88   - 
Net cash used in investing activities  (20,464)  (12,681)
         
FINANCING ACTIVITIES        
Proceeds from revolving facility
  -   7,000 
Distributions to non-controlling interest, permanent and temporary equity  (3,160)  (3,297)
Principal payments on notes payable  (392)  (422)
Payments on term loan
  (938)  (938)
Net cash (used in) provided by financing activities  (4,490)  2,343 
         
Net (decrease) increase in cash and cash equivalents  (20,535)  1,011 
Cash and cash equivalents - beginning of period  152,825   31,594 
Cash and cash equivalents - end of period $132,290  $32,605 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Cash paid during the period for:        
Income taxes $367  $442 
Interest paid
 $1,844  $1,377 
Non-cash investing and financing transactions during the period:        
Purchase of interest in businesses - seller financing portion $500  $360 
Notes payable related to purchase of redeemable non-controlling interest, temporary equity
 $-  $611 
Offset of notes receivable associated with purchase of redeemable non-controlling interest
 $
75  $
- 
Notes receivable related to sale of redeemable non-controlling interest, temporary equity $315  $532 
Notes receivable related to the sale of non-controlling interest, permanent equity
 $243  $- 
Dividends payable to USPH shareholders
 $
6,630  $
5,617 

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

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U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(IN THOUSANDS)

  U.S.Physical Therapy, Inc.       
  Common Stock  Additional  Accumulated Other  Retained  Treasury Stock  Total Shareholders’  Non-Controlling    

 Shares  Amount  Paid-In Capital  Comprehensive Gain  Earnings  Shares  Amount  Equity  Interests  Total 
                               
Balance December 31, 2023  17,202  $172  $281,096  $2,782  $223,772   (2,215) $(31,628) $476,194  $1,216  $477,410 
Net income attributable to USPH shareholders
  -   -   -   -   8,046   -   -   8,046   -   8,046 
Net income attributable to non-controlling interest - permanent equity
  -   -   -   -   -   -   -   -   1,344   1,344 
Issuance of restricted stock, net of cancellations
  81   -   -   -   -   -   -   -   -   - 
Revaluation of redeemable non-controlling interest
  -   -   -   -   (1,439)  -   -   (1,439)  -   (1,439)
Compensation expense - equity-based awards
  -   -   1,997   -   -   -   -   1,997   -   1,997 
Sale of non-controlling interest  -   -   198   -   -   -   -   198   -   198 
Purchase of partnership interests - non-controlling interest
  -   -   (345)  -   -   -   -   (345)  (38)  (383)
Dividends payable to USPH shareholders  -   -   -   -   (6,630)  -   -   (6,630)  -   (6,630)
Distributions to non-controlling interest partners - permanent equity  -   -   -   -   -   -   -   -   (1,060)  (1,060)
Deferred taxes related to redeemable non-controlling interest - temporary equity  -   -   -   -   (175)  -   -   (175)  -   (175)
Other comprehensive gain
  -   -   -   1,326   -   -   -   1,326   -   1,326 
Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans
  -   -   600   -   -  -   -   600   -   600 
Other
  -   -   -   -   (1)  -   -   (1)  -   (1)
Balance March 31, 2024  17,283  $172  $283,546  $4,108  $223,573   (2,215) $(31,628) $479,771  $1,462  $481,233 

  U.S.Physical Therapy, Inc.       
  Common Stock  Additional  Accumulated Other  Retained  Treasury Stock  Total Shareholders’  Non-Controlling    

 Shares  Amount  Paid-In Capital  Comprehensive Loss
  Earnings  Shares  Amount  Equity  Interests  Total 
                               
Balance December 31, 2022 15,216  $152  $110,317  $4,004  $232,948   (2,215) $(31,628) $315,793  $1,260  $317,053 
Net income attributable to USPH shareholders  -   -   -   -   7,410   -   -   7,410   -   7,410 
Net income attributable to non-controlling interest - permanent equity  -   -   -   -   -   -   -   -   1,297   1,297 
Issuance of restricted stock, net of cancellations  61   -   -   -   -   -   -   -   -   - 
Revaluation of redeemable non-controlling interest, net of tax  -   -   -   -   (119)  -   -   (119)  -   (119)
Compensation expense - equity-based awards  -   -   1,806   -   -   -   -   1,806   -   1,806 
Dividends payable to USPH shareholders  -   -   -   -   (5,617)  -   -   (5,617)  -   (5,617)
Distributions to non-controlling interest partners - permanent equity  -   -   -   -   -   -   -   -   (1,139)  (1,139)
Deferred taxes related to redeemable non-controlling interest - temporary equity  -   -   -   -   137   -   -   137   -   137 
Other comprehensive gain  -   -   -   (1,353)  -   -   -   (1,353)  -   (1,353)
Other  -   -   -   -   1   -   -   1   -   1 
Balance March 31, 2023  15,277  $
152  $112,123  $2,651  $234,760   (2,215) $(31,628) $318,058  $1,418  $319,476 

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

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U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation and Significant Accounting Policies

Nature of Business

U.S. Physical Therapy, Inc. and its subsidiaries (the “Company”, “USPH”“Company”) operates its business through two reportable business segments: (a)segments. The Company’s reportable segments include the physical therapy operations segment and (b)the industrial injury prevention services (“IIP”) segment. The Company’s physical therapy operations consist of physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic-related disorders, sports-related injuries, preventive care, rehabilitation of injured workers and neurological injuries. Services provided by the IIP segment include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments.

As of September 30, 2023,March 31, 2024, the Company operated 672679 clinics in 42 states. TheIn addition to the 679 clinics, the Company also managesmanaged 41 physical therapy facilitiespractices for third parties, primarilyunrelated physician groups and hospitals and physicians, with 42 third-party facilities under management as of September March 31, 2024.
30, 2023.

During the ninethree months ended September 30, 2023,March 31, 2024, and for the year-ended December 31, 2022,2023, the Company completed the acquisitions of the following physical therapyclinic practices. and IIP businesses:


Acquisition Date 
% Interest
Acquired
 
Number of
Clinics
  Date 
% Interest
Acquired
 
Number of
Clinics
 
March 2024 Acquisition March 29, 2024  50%  9 
October 2023 Acquisition October 31, 2023  **  * 
September 2023 Acquisition 1 September 29, 2023  70%  4  September 29, 2023  70%  4 
September 2023 Acquisition 2 September 29, 2023  70%  1  September 29, 2023  70%  1 
July 2023 Acquisition July 31, 2023  70%  7  July 31, 2023  70%  7 
May 2023 Acquisition May 31, 2023  45%  4  May 31, 2023  45%  4 
February 2023 Acquisition February 28, 2023  80%  1  February 28, 2023  80%  1 
November 2022 Acquisition November 30, 2022  80%  13 
October 2022 Acquisition October 31, 2022  60%  14 
September 2022 Acquisition September 30, 2022  80%  2 
August 2022 Acquisition August 31, 2022  70%  6 
March 2022 Acquisition
 March 31, 2022  70%  6 

* See Note 3 for additional information on the acquisitions in the table.
*IIP business.
**On October 31, 2023, the Company concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business.


In May 2023, the Company completed a secondary offering of 1,916,667 shares of its common stock at an offering price of $90.00 per share.  Upon completion of the offering, the Company received net proceeds of approximately $163.6 million, after deducting an underwriting discount of $8.6 million and recognizing related fees and expenses of $0.2 million.  A portion of the net proceeds was used to repay the $35.0 million then outstanding under the Company’s credit facility while the remainder is expected to be used primarily for additional acquisitions.

During the nine months ended September 30, 2023, the Company recognized $0.5 million of income received under the Coronavirus Aid, Relief and Economic Security Act (“Relief Funds”). The Relief Funds were received in prior years but were subject to certain compliance requirements which were met in the first quarter of 2023. The Company does not expect to receive or recognize any future Relief Funds.

Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions for Form 10-Q. However, the statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Management believes this report contains all necessary adjustments (consisting only of normal recurring adjustments) to present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the interim periods presented. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022,2023, filed with the Securities and Exchange Commission on February 28, 2023.

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Interim results are not necessarily indicative of the results the Company expects for the entire year.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company. All significant intercompany transactions have been eliminated.

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Segment Reporting

Operating segments are components of an enterprise for which separate financial information is available thatand is evaluated regularly by chief operating decision makers in determining the allocation of resources and in assessing performance.  The Company currently operates through two segments: physical therapy operations and IIP.

Use of Estimates

In preparing the Company’s consolidated financial statements, management makes certain estimates and assumptions, especially in relation to, but not limited to, goodwill impairment, tradenames and other intangible assets, allocations of purchase price, allowance for credit losses,receivables, tax provision and contractual allowances, that affect the amounts reported in the consolidated financial statements and related disclosures. Actual results may differ from these estimates.

Goodwill and Other Indefinite-Lived Intangible Assets

Goodwill represents the excess of the amount paid and fair value of the non-controlling interests over the fair value of the acquired business assets, which include certain identifiable intangible assets. Historically, goodwill has been derived from acquisitions and, prior to 2009, from the purchase of some or all of a particular local management’s equity interest in an existing clinic. Effective January 1, 2009, in accordance with applicable accounting standards, if the purchase price of a non-controlling interest, permanent equity by the Company exceeds or is less than the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital.

Goodwill and other indefinite-lived intangible assets are not amortized but are instead subject to periodic impairment evaluations. The fair value of goodwill and other identifiable intangible assets with indefinite lives are evaluated for impairment at least annually orand upon the occurrence of certain triggering events or conditions and are written down to fair value, if considered impaired. These events or conditions include but are not limited to a significant adverse change in the business environment, regulatory environment, or legal factors; a current period operating, or cash flow, loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit. The occurrence of one of these triggering events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. The Company evaluates indefinite-lived tradenames in conjunction with ourits annual goodwill impairment test.

The Company operates its business through two segments consisting of physical therapy operations and its IIP business.IIP. The reporting units within ourthe Company’s physical therapy operationsbusiness are comprised of six regions primarily based on each clinic’s location. In 2022 and 2023, theThe IIP business consistedconsists of two reporting units.

As part of the impairment analysis, the Company is first required to assess qualitatively if it can conclude whether goodwill is more likely than not impaired. If goodwill is more likely than not impaired, it is then required to complete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company considers relevant events or circumstances that affect the fair value or carrying amount of a reporting unit. The Company considers both the income and market approach in determining the fair value of its reporting units when performing a quantitative analysis. An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets, exceeds the estimated fair value of the reporting unit.

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For the ninethree months ended September 30, 2023,March 31, 2024, no triggering events or indicators were identified that would require impairment assessments for such period.  During the yearthree and twelve months ended December 31, 2022,2023, the Company recorded a charge of $15.8 million for goodwill impairment and a charge of $9.1$1.7 million for impairment of a tradename. The charges for impairment were related to one reporting unit in the IIP business acquired in November 2021 (the “IIP Acquisition”).business. The impairment is related to a change in the reporting unit’s current and projected operating income as well as various market inputs based on current market conditions, including the higher interest rate environment. Noconditions. The Company did not recognize any impairment was recognized as a result of ourthe Company’s annual assessment of goodwill and tradenamestradename for the other seven reporting units. The Company also noted no impairment to long-lived assets for all reporting units.



The Company continueswill continue to monitor for any triggering events or other indicators of impairment.

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Investment in unconsolidated affiliate

Investments in unconsolidated affiliates, in which the Company has less than a controlling interest, are accounted for under the equity method of accounting and, accordingly, are adjusted for capital contributions, distributions and the Company’s equity in net earnings or loss of the respective joint venture.


Non-Controlling Interest



The Company recognizes non-controlling interest, in which the Company has no obligation but the right to purchase the non-controlling interest, as permanent equity in the unaudited consolidated financial statements separate from the parent entity’s equity. The amount of net income attributable to non-controlling interest is included in the consolidated net income on the face of the unaudited consolidated statements of net income. Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the non-controlling equity investment on the deconsolidation date.



When the purchase price of a non-controlling interest by the Company exceeds the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital. Additionally, operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner.



Redeemable Non-Controlling Interest

RedeemableThe non-controlling interest that is reflected as redeemable non-controlling interest in the unaudited consolidated financial statements consist of those thatin which the owners and the Company have certain redemption rights, whether currently exercisable or not, and which currently, or in the future, require that the Company purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met.  The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements.  The redemption rights can be triggered by the owner or the Company at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three to five years, as defined in the limited partnership agreement.  The redemption rights are not automatic or mandatory (even upon death) and require either the owner or the Company to exercise its rights when the conditions triggering the redemption rights have been satisfied.

On the date the Company acquires a controlling interest in a partnership, and the limited partnership agreement for such partnership contains redemption rights not under the control of the Company, the fair value of the non-controlling interest is recorded in the consolidated balance sheet under the caption – Redeemable non-controlling interest – temporary equity.  Then, in each reporting period thereafter until it is purchased by the Company, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial carrying value, based on the predetermined formula defined in the respective limited partnership agreement.  As a result, the value of the non-controlling interest is not adjusted below its initial carrying value.  The Company records any adjustments in the redemption value, net of tax, directly to retained earnings and the adjustments are not reflected in the unaudited consolidated statements of net income. Although the adjustments are not reflected in the unaudited consolidated statements of net income, current accounting rules require that the Company reflects the adjustments, net of tax, in the earnings per share calculation.  The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the unaudited consolidated statements of net income. Management believes the redemption value (i.e., the carrying amount) and fair value are the same.

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Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606. For ASC 606, there is an implied contract between the Company and the patient upon each patient visit. Separate contractual arrangements exist between the Company and third-party payors (e.g. insurers, managed care programs, government programs, workers’ compensation) which establish the amounts the third parties pay on behalf of the patients for covered services rendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third-party payors. The payor contracts do not indicate performance obligations for the Company but indicate reimbursement rates for patients who are covered by those payors when the services are provided. At that time, the Company is obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicate a performance obligation. For self-paying customers, the performance obligation exists when the Company provides the services at established rates. The difference between the Company’s established rate and the anticipated reimbursement rate is accounted for as an offset to revenue—contractual allowance. Payments for services rendered are typically due 30 to 120 days after receipt of the invoice.

Patient Revenue

Net patient revenue consists of revenues for physical therapy and occupational therapy clinics that provide pre- and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. Net patient revenue (patient revenue less estimated contractual adjustments – as described below) is recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There is an implied contract between us and the patient upon each patient visit. Generally, this occurs as the Company provides physical and occupational therapy services, as each service provided is distinct and future services rendered are not dependent on previously rendered services. The Company has agreements with third-party payors that provide payments to the Company at amounts different from its established rates.

Other Revenue

Revenue from the IIP business, which is included in other revenue in the consolidated statements of net income, is derived from onsite services the Company provides to clients’ employees including injury prevention, rehabilitation, ergonomic assessments, post-offer employment testing and performance optimization. Revenue from the Company’s IIP business is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal to the consideration the company expects to receive in exchange for providing injury prevention services to its clients. The revenue is determined and recognized based on the number of hours and respective rate for services provided in a given period.

Management contract revenue, which is also included in other revenue, is derived from contractual arrangements whereby the Company manages a clinic for third party owners. The Company does not have any ownership interest in these clinics. Typically, revenue is determined based on the number of visits conducted at the clinic and recognized at a point in time when services are performed. Costs, typically salaries for the Company’s employees, are recorded when incurred. Management contract revenue was $2.4 million and $1.8 million for the three months ended March 31, 2024, and March 31, 2023, respectively.

Additionally, other revenue from physical therapy operations includes services the Company provides on-site at locations such as schools and industrial worksites for physical or occupational therapy services, athletic trainers for schools and gym membership fees. Contract terms and rates are agreed to in advance between the Company and the third parties. Services are typically performed over the contract period and revenue is recorded at the point of service. If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time when the services are performed.

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Contractual Allowances

The allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience. Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services. Medicare regulations and the various third-party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in Company clinics. The Company estimates contractual allowances based on its interpretation of the applicable regulations, payor contracts and historical calculations. Each month the Company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on the Company’s historical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates. However, the services authorized, provided and related reimbursement are subject to interpretation that could result in payments that differ from the Company’s estimates. Payor terms are periodically revised necessitating continual review and assessment of the estimates made by management. The Company’s billing system does not capture the exact change in its contractual allowance reserve estimate from period to period in order to assess the accuracy of its revenues and hence its contractual allowance reserves. Management regularly compares its cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, historically the difference between net revenues and corresponding cash collections for any fiscal year has generally reflected a difference within approximately 1.0% to 1.5% of net revenues. Additionally, analysis of subsequent periods’ contractual write-offs on a payor basis reflects a difference within approximately 1.0% to 1.5% between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance. As a result, the Company believes that a change in the contractual allowance reserve estimate would not likely be more than 1.0% to 1.5% on each balance sheet date.

Allowance for Credit Losses

The Company determines allowances for credit losses based on the specific agings and payor classifications at each clinic. The provision for credit losses is included in operating costs in the consolidated statements of net income. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs, and allowance for credit losses, includes only those amounts the Company estimates to be collectible.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

On August 16, 2022, Inflation Reduction Act of 2022 was enacted and signed into law and includes targeted tax provisions. The Company has determined that these provisions will not have a material impact on the financial statements.

The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the three and nine months ended September 30, 2023March 31, 2024, and September 30, 2022.March 31, 2023. The Company records any interest or penalties, if required, in interest and other expense, as appropriate.

Fair Value of Financial Instruments

Fair value is defined as an exitthe price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such,participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is a market-basedbased upon the transparency of inputs to the valuation at the measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy has been established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).date.

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The three levels of the fair value hierarchy are as follows:

●Level 1 – Quoted prices in active markets for identical assets or liabilities;liabilities.

●Level 2 – Quoted prices for similar instruments in active markets;Inputs, other than  the quoted prices for identical or similar instruments in active markets, that are not active; and model-derived valuations whose significant inputs are observable; andobservable either directly or indirectly.

●Level 3 – Unobservable inputs in which there is little or no market data which requirebased on the reporting entity to develop itsCompany’s own assumptions.

The carrying amounts reported in the balance sheets for cash and cash equivalents, certain contingent earn-out payments, accounts receivable, accounts payable and notes payable approximate their fair values due to the short-term maturity of these financial instruments. The carrying amount of the debt under the Third Amended and Restated Credit Agreement (defined as “Credit Agreement” in Note 9)8) approximates itsthe fair value due to the proximity of the debt issue date and the balance sheet date and the variable component of interest on debt. The interest rate whichon the Credit Agreement is tied to the Secured Overnight Financing Rate (“SOFR”).

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In May 2022, the Company entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A, which had a $150 million notional value, and a maturity date of June 30, 2027. The valuations of the Company’s interest rate derivative is measured as the present value of all expected future cash flows based on SOFR-based yield curves. The primary inputs into the valuation of interest rate swaps are interest yield curves, interest rate volatility, and credit spreads. The interest rate swap is classified within Level 2 of the fair value hierarchy, since all significant inputs are corroborated by market observable data. The fair value of the interest rate swap on September 30, 2023, was $7.7 million. The impact of the interest rate swap on the accompanying unaudited consolidated statements of comprehensive income was an unrealized gain of $1.0 million, net of tax, for the three months ended September 30, 2023, and an unrealized gain of $1.7 million, net of tax for the nine months ended September 30, 2023. See Note 10 for more information on the Company’s interest rate derivative.

The put right associated with the potential future purchase of the separate company in thean IIP Acquisitionacquisition in 2027 is marked to fair value on a recurring basis using Level 3 inputs. The fair value of the put right associated with the potential future purchase of athe separate company is determined using a Monte Carlo simulation model utilizing unobservable inputs such as asset volatility and discount rates. The unobservable inputs used in the valuation of the put right as of September 30, 2023March 31, 2024, include asset volatility of 25.0% and a discount rate of 11.9%11.6%. The value of this put right value increased $0.1 million$80.0 thousand for the three months ended September 30, 2023 and $0.3 million for the nine months ended September 30, 2023.March 31, 2024. The put right was valued at $3.9approximately $1.0 million on September 30, 2023March 31, 2024, and $3.5December 31, 2023.

The valuations of the Company’s interest rate derivative is measured as the present value of all expected future cash flows based on SOFR-based yield curves. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparty, which is a Level 2 fair value measurement. The fair value of the interest rate swap on March 31, 2024, was $5.5 million, of which $3.0 million has been included within Other current assets and $2.5 million has been included in Other assets in the accompanying unaudited Consolidated Balance Sheet. The impact of the interest rate swap on the accompanying unaudited Consolidated Statements of Comprehensive Income was an unrealized gain of $1.3 million, net of tax, for the three months ended March 31, 2024. See Note 9 for more information on the Company’s interest rate derivative.

The redemption value of redeemable non-controlling interests approximates the fair value. See Note 4 for the changes in the fair value of Redeemable non-controlling interest.

The consideration for some of the Company’s acquisitions includes future payments that are contingent upon the occurrence of future operational objectives being met. The Company estimates the fair value of contingent consideration obligations through valuation models designed to estimate the probability of such contingent payments based on various assumptions and incorporating estimated success rates. These fair value measurements are based on significant inputs not observable in the market. Substantial judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period. The Company determined the fair value of its contingent consideration obligations to be $10.8 million on March 31, 2024, and $12.5 million on December 31, 2022.2023.

On October 31, 2022,
Restricted Stock

Restricted stock issued to employees and directors is subject to continued employment or continued service on the Company acquired a 60% interestboard, respectively. Generally, restrictions on the stock granted to employees lapse in a fourteen-clinic physical therapy practice. The purchase price included additional contingent consideration to be paid at a later date basedequal annual installments on performancethe following four anniversaries of the business. Theredate of grant. For those shares granted to directors, the restrictions will lapse in equal quarterly installments during the first year after the date of grant. For those granted to officers, the restriction will lapse in equal quarterly installments during the four years following the date of grant. Compensation expense for grants of restricted stock is no maximum payout. The additional contingent payment is determined using a Monte Carlo simulation model utilizing unobservable inputs such as asset volatility and discount rates and is accordingly classified within Level 3 ofrecognized based on the fair value hierarchy.per share on the date of grant amortized over the vesting period. The unobservable inputs usedCompany recognizes any forfeitures as they occur. The restricted stock issued is included in basic and diluted shares for the valuation of the contingent consideration as of September 30, 2023 include asset volatility of 35% and a discount rate of 8.7%. The additional contingent consideration was valued at $8.1 million on September 30, 2023, and $8.3 million on December 31, 2022. The additional contingent consideration related to the October 2022 acquisition decreased $0.2 million for both the three months and nine months ended September 30, 2023.
earnings per share computation.

Recently Adopted
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New Accounting GuidancePronouncements

In August 2020,March 2023, the FASB issued ASU 2020-06 Debt—Debt2023-01, Leases (Topic 842): Common Control Arrangements, which requires companies to amortize leasehold improvements associated with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifiesrelated party leases under common control over the accounting for certain financial instruments with characteristicsuseful life of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. As part of this update, convertible instruments arethe leasehold improvement to be included in diluted earnings per share using the if-converted method, rather than the treasury stock method. Further, contracts which can be settled in cash or shares, excluding liability-classified share-based payment awards, are to be included in diluted earnings per share on an if-converted basis if the effectcommon control group. The ASU is dilutive, regardless of whether the entity or the counterparty can choose between cash and share settlement. The share-settlement presumption may not be rebutted based on past experience or a stated policy. This pronouncement was effective for fiscal years, and for interimannual reporting periods within those fiscal years, beginning on or after December 15, 2021.2023; however, early adoption is permitted. The Board specified that an entity should adopt the guidance at the beginning of its annual fiscal year. The Company adopted this pronouncement as of January 1, 2022.ASU can either be applied prospectively or retrospectively. The adoption of ASU 2020-062023-01 did not have a material impacteffect on the Company’s financial statements.

In March 2020,November 2023, the FASB issued ASU 2020-04, Reference Rate Reform2023-07 Segment Reporting (Topic 848)280): FacilitationImprovements to Reportable Segment Disclosures, which requires disclosure on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker and included within the reported measure of segment profit or loss. In addition, the ASU requires disclosure of other segment expenses by reportable segment and a description of their composition to permit the reconciliation between segment revenue, significant segment expenses and the reported segment measure of profit or loss. The ASU also requires disclosure of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedientsname and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdenstitle of the expected market transition from LIBORchief operating decision maker. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and other interbank offered rates to alternative reference rates.interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The new guidance was effective upon issuance, andCompany is currently evaluating the Company has elected to apply the amendments prospectively through December 31, 2022. Borrowings under the Third Amended and Restated Credit Agreement bear interest basedimpact of this accounting standard on SOFR.
its consolidated financial statements.

12In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure on an annual basis, a tabular reconciliation, including both amount and percentage of specific categories of the effective tax rate reconciliation, including state and local income taxes (net of Federal taxes), foreign taxes, effects of changes in tax laws and regulations, effects of cross-border tax laws, tax credits, changes in valuation allowances, nontaxable and nondeductible items and changes in unrecognized tax benefits. Additional disclosures are required for certain items exceeding five percent of income from continuing operations multiplied by the statutory income tax rate. The standard also requires disclosure of income taxes paid between Federal, state and foreign jurisdictions, including further disaggregation of those payments exceeding five percent of the total income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.
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2. EARNINGS PER SHAREEarnings Per Share

Basic and diluted earnings per share is computed using the two-class method, which is an earnings allocation method that determines earnings per share for common shares and participating securities. The restricted stock the Company grants are participating securities containing non-forfeitable rights to receive dividends. Accordingly, any unvested restricted stock is included in the basic and diluted earnings per share computation. Additionally, in accordance with current accounting guidance, the revaluation of redeemable non-controlling interest (see Note 54 Redeemable Non-Controlling Interest), net of tax, charged directly to retained earnings is included in the earnings per basic and diluted share calculation.

The following table provides a detailcomputation of the basic and diluted earnings per share computation.are as follows.

 Three Months Ended  Nine Months Ended 
  September 30, 2023  September 30, 2022  September 30, 2023  September 30, 2022 
  (In thousands, except per share data) 
Computation of earnings per share - USPH shareholders:            
Net income attributable to USPH shareholders $9,254  $9,557  $27,583  $29,551 
Charges to retained earnings:                
Revaluation of redeemable non-controlling interest  (2,242)  (196)  (4,988)  (193)
Tax effect at statutory rate (federal and state)
  573   50   1,274   49 
  $7,585  $9,411  $23,869  $29,407 
                 
Earnings per share (basic and diluted) $0.51  $0.72  $1.72  $2.27 
                 
Shares used in computation:                
    Basic and diluted earnings per share - weighted-average shares
  14,987   13,001   13,918   12,979 
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 Three Months Ended 

 March 31, 2024  March 31, 2023 
  (In thousands, except per share data) 
Earnings per share      
Computation of earnings per share - USPH shareholders:      
Net income attributable to USPH shareholders $8,046  $7,410 
Charges to retained earnings:        
Revaluation of redeemable non-controlling interest  (1,439)  119 
Tax effect at statutory rate (federal and state)  368   (30)
  $6,975  $7,499 
         
Earnings per share (basic and diluted) $0.46  $0.58 
         
Shares used in computation - basic and diluted
  15,017
   13,025
 

3. ACQUISITIONS OF BUSINESSESAcquisitions of Businesses

TheCompany’s strategy is to continue acquiring multi-clinic outpatient physical therapy practices, to develop outpatient physical therapy clinics as satellites in existing partnerships and to continue acquiring companies that provide and serve the industrial injury prevention servicesIIP sector.  The consideration paid for each acquisition is derived through arm’s length negotiations and funded through working capital, borrowings under the Company’s revolving credit facilitiesfacility or proceeds from the recently completed secondary offering discussed in Note 1, equity offerings.Basis of Presentation and Significant Accounting Policies.

Thepurchase price plus the fair value of the non-controlling interest for the acquisitions after September 30, 2022March 31, 2023, were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets (i.e. tradenames, referral relationships and non-compete agreements) and liabilities assumed based on the estimated fair values at the acquisition date, with the amount in excess of fair values being recorded as goodwill. The Company is in the process of completing its formal valuation analysis of the acquisitions, to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed. Thus, the final allocation of the purchase price may differ from the preliminary estimates used on September 30, 2023,March 31, 2024, based on additional information obtained and completion of the valuation of the identifiable intangible assets. Changes in the estimated valuation of the tangible assets acquired, the completion of the valuation of identifiable intangible assets and the completion by the Company of the identification of any unrecorded pre-acquisition contingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustments to goodwill. The Company does not expect the adjustments to be material. The Company continues to evaluate the components for the purchase price allocations for other acquisitions in 20222023 and 2023.2024.

The results of operations of the acquisitionsacquisitions below have been included in the Company’s unaudited consolidated financial statements since their respective date of acquisition. Unaudited proforma consolidated financial information for the acquisitions have not been included, as the results, individually and in the aggregate, were not material to current operations.

During the three months ended March 31, 2024, the Company acquired a majority interest in the following businesses:

20232024 Acquisitions

       % Interest  Number of 
Acquisition Date Acquired  Clinics 
March 2024 Acquisition March 29, 2024  50%
  9 

On March 29, 2024, the Company acquired a 50% equity interest in a nine-clinic physical therapy and hand therapy practice. The original owners of the practice retained the remaining 50%. The purchase price for the 50% equity interest was approximately $16.4 million, of which $0.5 million was in the form of a note payable. The note accrues interest at 4.5% per annum and the principal and the interest are payable on March 29, 2026. As part of the transaction, the Company agreed to additional contingent consideration if future operational objectives are met. There is no maximum payout. The contingent consideration is valued at $0.5 million as of March 31, 2024.

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Besides the multi-clinic acquisition referenced above, the Company purchased the assets and business of two physical therapy clinics, which were tucked into larger partnerships in separate transactions.

  Physical Therapy 
  Operations 
  (In thousands) 
Cash paid, net of cash acquired $15,971 
Seller note  500 
Deferred payments  - 
Contingent payments  500 
Total consideration $16,971 
     
Estimated fair value of net tangible assets acquired:    
Total current assets $- 
Total non-current assets  476 
Total liabilities  (450)
Net tangible assets acquired  26 
Customer and referral relationships  6,790 
Non-compete agreement  328 
Tradenames  1,672 
Goodwill  25,056 
Fair value of non-controlling interest (classified as redeemable non-controlling interest)  (16,901)
  $16,971 

Total current assets primarily represent accounts receivable while total non-current assets consist of fixed assets and equipment used in the practice.

For the acquisitions in 2024, the values assigned to the customer and referral relationships and non-compete agreement are being amortized on a straight-line basis over their respective estimated lives. For customer and referral relationships, the weighted-average amortization period is 12.0 years. For the non-compete agreements, the weighted-average amortization period is 5.0 years. The values assigned to tradenames are tested annually for impairment.

2023 Acquisitions

           % Interest Number of 
Acquisition Date Acquired Clinics 
October 2023 Acquisition October 31, 2023 
**  * 
September 2023 Acquisition 1 September 29, 2023  70%  4 
September 2023 Acquisition 2 September 29, 2023  70%  1 
July 2023 Acquisition July 31, 2023  70%  7 
May 2023 Acquisition May 31, 2023  45%  4 
February 2023 Acquisition February 28, 2023  80%  1 

*IIP business.
**On October 31, 2023, the Company concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business.

On October 31, 2023, the Company concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business. The previous owner of the ergonomics software business retained a 45% equity interest. The total purchase price of the combined businesses was approximately $4.0 million and was paid in cash.

On September 29, 2023, the Company acquired a 70% equity interest in a four-clinic physical therapy practice. The original owner of the practice retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $6.0 million, of which $5.4 million was paid in cash, and $0.6 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and interest are payable in two installments. The first payment of principal and interest of $0.3 million is due onwas paid in January 31, 2024 and the second installment of $0.3 million is due on September 30, 2025.

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In a separate transaction, on September 29, 2023, the Company acquired a 70% equity interest in a single clinic physical therapy practice. The owner of the practice retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $7.8 million, of which $7.4 million was paid in cash and $0.4 million is a deferred payment due on June 30, 2025.

On July 31, 2023, the Company acquired a 70% equity interest in a five-clinic practice. The practice’s owners retained a 30% equity interest. The purchase price for the 70% equity interest was approximately $2.1 million, of which $1.8 million was paid in cash and $0.3 million is a deferred payment  due on June 30, 2025.

On May 31, 2023, the Company and a local partner together acquired a 75% interest in a four-clinic physical therapy practice. After the transaction, the Company’s ownership interest is 45%, the Company’s local partner’s ownership interest is 30%, and the practice’s pre-acquisition owners have a 25% ownership interest. The purchase price for the 75% equity interest was approximately $3.1 million, of which $1.7 million was paid in cash by the Company, $1.1 million was paid in cash by the local partner, and $0.3 million was in the form of a note payable, (of which $0.2 million will be paid by the Company and $0.1 million will be paid by the local partner). The note will be paid on July 1, 2024. The Company guaranteed the full payment of $0.3 million on its due date.

On February 28, 2023, the Company acquired an 80% interest in a one-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately $6.2 million, of which $5.8 million was paid in cash and $0.4 million in the form of a note payable. The note accrues interest at 4.5% per annum and the principal and interest are payable on February 28, 2025.

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The aggregate purchase price for the 2023 acquisitions has been preliminarily allocated as follows:

  Physical Therapy 
  IIP  Operations  Total 
  (In thousands) 
Cash paid, net of cash acquired $3,955  $22,627  $26,582 
Seller note  -   985   985 
Deferred payments  -   830   830 
Contingent payments  -   200   200 
Total consideration $3,955  $24,642  $28,597 
             
Estimated fair value of net tangible assets acquired:            
Total current assets $388  $1,079  $1,467 
Total non-current assets  335   3,150   3,485 
Total liabilities  (41)  (3,138)  (3,179)
Net tangible assets acquired  682   1,091   1,773 
Customer and referral relationships  757   7,285   8,042 
Non-compete agreement  37   359   396 
Tradenames  187   1,580   1,767 
Goodwill  2,566   25,160   27,726 
Fair value of non-controlling interest (classified as redeemable non-controlling interest)  (274)  (10,833)  (11,107)
  $3,955  $24,642  $28,597 

  Physical Therapy 
   Operations 
  (In thousands) 
Cash paid, net of cash acquired $22,994 
Seller note  985 
Deferred payments  830 
Contingent payments  200 
Total consideration $25,009 
     
Estimated fair value of net tangible assets acquired:    
Total current assets $566 
Total non-current assets  2,307 
Total liabilities  (1,861)
Net tangible assets acquired  1,012 
Customer and referral relationships  6,819 
Non-compete agreement  329 
Tradenames  1,680 
Goodwill  25,932 
Fair value of non-controlling interest (classified as redeemable non-controlling interest)  (10,763)
  $25,009 
Besides the multi-clinic acquisitions referenced in the table above, the Company purchased the assets and business of eight physical therapy clinics in separate transactions.

Total current assets primarily represent accounts receivable while total non-current assets consist of fixed assets and equipment used in the practice.

For the acquisitions in 2023, the values assigned to the customer and referral relationships and non-compete agreementagreements are being amortized on a straight-line basis over their respective estimated lives. For customer and referral relationships, the weighted-average amortization period is 13.012.0 years. For the non-compete agreements, the weighted-average amortization period is 5.05.1 years. The values assigned to tradenames are tested annually for impairment.

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2022 Acquisitions

On November 30, 2022, the Company acquired an 80% interest in a thirteen-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately $25.0 million, of which $24.2 million was paid in cash and $0.8 million in the form of a note payable. As part of the acquisition, the Company agreed to additional contingent consideration of up to $1.6 million if future operational objectives are met. The additional contingent consideration is currently valued at $1.6 million.  The note accrues interest at 7.0% per annum and the principal and interest are payable on November 30, 2024.

On October 31, 2022, the Company acquired a 60% interest in a fourteen-clinic physical therapy practice. The practice’s owners retained 40% of the equity interests. The purchase price for the 60% equity interest was approximately $19.5 million, with additional contingent consideration valued at $8.1 million on September 30, 2023, to be paid at a later date based on the performance of the business. There is no maximum payout. The estimate of this contingent consideration will continue to be marked at fair value based on the practice’s operational results and updated market inputs.

On September 30, 2022, the Company acquired an 80% interest in a two-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately $4.2 million, of which $3.9 million was paid in cash and $0.3 million in the form of a note payable. The note accrues interest at 5.5% per annum and the principal and interest are payable on September 30, 2024.


On August 31, 2022, the Company acquired a 70% interest in a six-clinic physical therapy practice. The practice’s owners retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $3.5 million, of which $3.3 million was paid in cash and $0.2 million in the form of a note payable. The note accrues interest at 5.5% per annum and the principal and interest are payable on August 31, 2024.

On March 31, 2022, the Company acquired a 70% interest in a six-clinic physical therapy practice. The practice’s owners retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $11.5 million, of which $11.2 million was paid in cash and $0.3 million in the form of a note payable.  The note accrues interest at 3.5% per annum and the principal and interest are payable on March 31, 2024.

The purchase prices for the 2022 acquisitions have been preliminarily allocated as follows:
  Physical Therapy 
   Operations 
  (In thousands)
 
Cash paid, net of cash acquired $59,788 
Seller notes  1,574 
Contingent payments  10,000 
Total consideration $71,362 
     
Estimated fair value of net tangible assets acquired:    
Total current assets $1,433 
Total non-current assets  7,619 
Total liabilities  (9,943)
Net tangible assets acquired  (891)
Customer and referral relationships  18,741 
Non-compete agreements  972 
Tradenames  4,871 
Goodwill  74,470 
Fair value of non-controlling interest (classified as redeemable non-controlling interest)  (26,801)
  $71,362 

Total current assets primarily represent accounts receivable while total non-current assets consist of fixed assets and equipment used in the practice.

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The purchase price plus the fair value of the non-controlling interests for the acquisitions in 2022 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, (i.e. trade names, referral relationships and non-compete agreements) and liabilities assumed based on the fair values at the acquisition date, with the amount exceeding the fair values being recorded as goodwill.

For the acquisitions in 2022, the values assigned to the customer and referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives. For customer and referral relationships, the weighted-average amortization period is 12.0 years. For non-compete agreements, the weighted-average amortization period is 5.0 years. The values assigned to tradenames are tested annually for impairment.

4. REVENUE RECOGNITION

Revenues are recognized in the period in which services are rendered. Net patient revenue consists of revenues for physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. Net patient revenue (patient revenues less estimated contractual adjustments – as described below) is recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There is an implied contract between us and the patient upon each patient visit. Separate contractual arrangements exist between us and third-party payors (e.g. insurers, managed care programs, government programs, and workers’ compensation programs) which establish the amounts the third parties pay on behalf of the patients for covered services rendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third-party payors. The payor contracts do not indicate performance obligations for us but indicate reimbursement rates for patients who are covered by those payors when the services are provided. At that time, we are obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicate a performance obligation. For self-paying customers, the performance obligation exists when we provide the services at established rates. The difference between our established rate and the anticipated reimbursement rate is accounted for as an offset to revenue—contractual allowance. The payment for the services rendered is due to the Company based on the respective payor contract. Typically, we receive payment within thirty to forty-five days of service.

Management contract revenue, which is included in other revenue in the consolidated statements of net income, is derived from contractual arrangements whereby the Company manages a clinic owned by a third party. The Company does not have any ownership interest in these clinics. Typically, revenue is determined based on the number of visits conducted at the clinic and recognized at the point in time when services are performed. Costs, typically salaries for our employees, are recorded when incurred. Management contract revenue is typically due the month following the service provided.

Revenue from the IIP segment, which is included in other revenue in the consolidated statements of net income, is derived from onsite services the Company provides to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performance optimization. Revenue from the IIP segment is recognized when obligations under the terms of the contract are satisfied. Revenue is recognized at an amount equal to the consideration the Company expects to receive in exchange for providing injury prevention services to its clients. The revenue is determined and recognized based on the number of hours and respective rate for services provided in a given period. Payment for services rendered is typically within thirty days.

Additionally, other revenue includes services the Company provides on-site, such as schools, for physical or occupational therapy services, and fees from athletic trainers. Contract terms and rates are agreed to in advance between the Company and the third parties. Services are typically performed over the contract period and revenue is recorded at the point of service. If the services are paid in advance, revenue is recorded as a liability over the period of the agreement and recognized at the point in time, when the services are performed.

The Company determines credit losses based on the specific aging and payor classifications at each clinic. The provision for credit losses is included in clinic operating cost in the statements of net income. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and provision for credit losses, includes only those amounts the Company estimates to be collectible.

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The following table details the revenue related to the various categories:

 Three Months Ended  Nine Months Ended 
  September 30, 2023  September 30, 2022  September 30, 2023  September 30, 2022 
Revenue related to:
 (In thousands)
 
Net patient revenue $127,243  $116,710  $383,104  $344,444 
Other revenue  889   753   2,479   2,523 
Physical therapy operations  128,132   117,463   385,583   346,967 
Industrial injury prevention services
  19,486   20,155   58,082   58,660 
Management contracts  2,389   1,984   6,336   6,335 

 $150,007  $139,602  $450,001  $411,962 

Contractual Allowances4. Redeemable Non-Controlling Interest

Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services. Medicare regulations and the various third-party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in Company clinics. The Company estimates contractual allowances based on its interpretation of the applicable regulations, payor contracts and historical calculations. Each month the Company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on the Company’s historical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates. However, the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from the Company’s estimates. Payor terms are periodically revised necessitating continual review and assessment of the estimates made by management. The Company’s billing system does not capture the exact change in its contractual allowance reserve estimate from period to period in order to assess the accuracy of its revenues and hence its contractual allowance reserves. Management regularly compares its cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, historically the difference between net revenues and corresponding cash collections has generally reflected a difference within approximately 1.0% to 1.5% of net revenue. Additionally, analysis of subsequent periods’ contractual write-offs on a payor basis reflects a difference within approximately 1.0% to 1.5% between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance. As a result, the Company believes that a change in the contractual allowance reserve estimate would not likely be more than 1.0% to 1.5%on each balance sheet date.Physical Therapy Practice Acquisitions

A contract’s transaction price is allocated to each distinct performance obligation and recognized when, or as, the performance obligation is satisfied. To determine the transaction price, the Company includes the effects of any variable consideration, such as the probability of collecting that amount. The Company applies established rates to the services provided, and adjusts for the terms of payor contracts, as applicable. These contracted amounts are different from the Company’s established rates.  The Company has established a “contractual allowance” for this difference. The allowance is based on the terms of payor contracts, historical and current reimbursement information and current experience with the clinic and partners. The Company’s established rates less the contractual allowance is the revenue that is recognized in the period in which the service is rendered. This revenue is deemed the transaction price and stated as “Net Patient Revenue” on the Company’s consolidated statements of income.

The Company’s performance obligations are satisfied at a point in time. After the clinic has provided services and satisfied its obligation to the customer for the reimbursement rates stipulated in the payor contracts (i.e. the transaction price), the Company recognizes the revenue, net of contractual allowances, in the period in which the services are rendered. The Company recognizes the full amount of revenue and reports the contractual allowances as a contra (or offset) revenue account to report a net revenue number based on the expected collections.

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5. REDEEMABLE NON-CONTROLLING INTEREST

Since October 2017, whenWhen the Company acquires a majority interest (the “Acquisition”) in a physical therapy clinic business (referred to as “Therapy Practice”), these AcquisitionsTherapy Practice transactions occur in a series of steps which are described below.

1.Prior to the Acquisition, the Therapy Practice exists as a separate legal entity (the “Seller Entity”). The Seller Entity is owned by one or more individuals (the “Selling Shareholders”) most of whom are physical therapists that work in the acquired Therapy Practice and provide physical therapy services to patients.


2.In conjunction with the Acquisition, the Seller Entity contributes the Therapy Practice into a newly-formed limited partnership (“NewCo”), in exchange for one hundred percent (100%) of the limited and general partnership interests in NewCo. Therefore, in this step, NewCo becomes a wholly-owned subsidiary of the Seller Entity.

3.
The Company enters into an agreement (the “Purchase Agreement”) to acquire from the Seller Entity a majority (ranges from 50% to 90%) of the limited partnership interest and in all cases 100% of the general partnership interest in NewCo. The Company does not purchase 100% of the limited partnership interest because the Selling Shareholders, through the Seller Entity, want to maintain an ownership percentage. The consideration for the Acquisition is primarily payable in the form of cash at closing and a small, two-year note in lieu of an escrow (the “Purchase Price”). The Purchase Agreement does not contain any future earn-out or other contingent consideration that is payable to the Seller Entity or the Selling Shareholders.

4.The Company and the Seller Entity also execute a partnership agreement (the “Partnership Agreement”) for NewCo that sets forth the rights and obligations of the limited and general partners of NewCo. After the Acquisition, the Company is the general partner of NewCo.


5.As noted above, the Company does not purchase 100% of the limited partnership interests in NewCo and the Seller Entity retains a portion of the limited partnership interest in NewCo (“Seller Entity Interest”).


6.
In most cases, some or all of the Selling Shareholders enter into an employment agreement (the “Employment Agreement”) with NewCo with an initial term that ranges from three to five years (the “Employment Term”), with automatic one-year renewals, unless employment is terminated prior to the end of the Employment Term. As a result, a Selling Shareholder becomes an employee (“Employed Selling Shareholder”) of NewCo. The employment of an Employed Selling Shareholder can be terminated by the Employed Selling Shareholder or NewCo, with or without cause, at any time. In a few situations, a Selling Shareholder does not become employed by NewCo and is not involved with NewCo following the closing; in those situations, such Selling Shareholders sell their entire ownership interest in the Seller Entity as of the closing of the Acquisition.

7.The compensation of each Employed Selling Shareholder is specified in the Employment Agreement and is customary and commensurate with his or her responsibilities based on other employees in similar capacities within NewCo, the Company and the industry.

8.The Company and the Selling Shareholder (including both Employed Selling Shareholders and Selling Shareholders not employed by NewCo) execute a non-compete agreement (the “Non-Compete Agreement”) which restricts the Selling Shareholder from engaging in competing business activities for a specified period of time (the “Non-Compete Term”). A Non-Compete Agreement is executed with the Selling Shareholders in all cases. That is, even if the Selling Shareholder does not become an Employed Selling Shareholder, the Selling Shareholder is restricted from engaging in a competing business during the Non-Compete Term.

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9.
The Non-Compete Term commences as of the date of the Acquisition and  expires on the later of :

a.Two years after the date an Employed Selling Shareholders’ employment is terminated (if the Selling Shareholder becomes an Employed Selling Shareholder) or

b.
Five to six years from the date of the Acquisition, as defined in the Non-Compete Agreement, regardless of whether the Selling Shareholder is employed by NewCo.

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10.
The Non-Compete Agreement applies to a restricted region which is a defined milemileage radius from the Therapy Practice. That is, an Employed Selling Shareholder is permitted to engage in competing businessesTherapy Practices or activities outside the defined mileagedesignated geography (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholder who is not employed by NewCo immediately is permitted to engage in the competing businessTherapy Practice or activities outside the defined mileage.
designated geography.

The Partnership Agreement contains provisions for the redemption of the Seller Entity Interest, either at the option of the Company (the “Call Right”) or at the option of the Seller Entity (the “Put Right”) as follows:

1.Put Right

a.
In the event that any Selling Shareholder’s employment is terminated under certain circumstances prior to a specified date (the “Specified Date”),the fifth anniversary of the Closing Date, the Seller Entity thereafter may have an irrevocable right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below.

b.
In the event that any Selling Shareholder is not employed by NewCo as of the Specifiedfifth anniversary of the Closing Date and the Company has not exercised its Call Right with respect to the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, Seller Entity thereafter shall have the Put Right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below.

c.
In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the Specifiedfifth anniversary of the Closing Date, the Seller Entity shall havehas the Put Right, and upon the exercise of the Put Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.

2.Call Right

a.
If any Selling Shareholder’s employment by NewCo is terminated prior to the Specifiedfifth anniversary of the Closing Date, the Company thereafter shall havehas an irrevocable right to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, in each case at the purchase price described in “3” below.

b.
In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after Specifiedthe fifth anniversary of the Closing Date, the Company shall havehas the Call Right, and upon the exercise of the Call Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.


3.
For the Put Right and the Call Right, the purchase price is derived from a formula based on a specified multiple of NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of NewCo.NewCo (the “Redemption Amount”). NewCo’s earnings are distributed monthly based on available cash within NewCo. Therefore,NewCo; therefore, the undistributed earnings amount is small, if any.

4.
The Purchase Price for the initial equity interest purchased by the Company is, in almost all cases,, also based on the same specified multiple of the trailing twelve-month earnings that is used in the Put Right and the Call Right noted above.

5.
The Put Right and the Call Right do not have an expiration date, and the Seller Entity Interest is not required to be purchased by the Company or sold by the Seller Entity unless either the Put Right or the Call Right is exercised.

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6.
The Put Right and the Call Right never apply to Selling Shareholders who do not become employed by NewCo, since the Company requires that such Selling Shareholders sell their entire ownership interest in the Seller Entity at the closing of the Acquisition.

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ProgressiveHealth Acquisition

On November 30, 2021, the Company acquired a majority interest in ProgressiveHealth Companies, LLC (“Progressive”), which owns a majority interest in certain subsidiaries (“Progressive Subsidiaries”) that operate in the IIP and therapy services businesses.  The Progressive transaction was completed in a series of steps which are described below.


1.
Prior to the acquisition, the Progressive Subsidiaries were owned by a legal entity (“Progressive Parent”) controlled by its individual owners (the “Progressive“ Progressive Selling Shareholders”), who work in and manage the Progressive business.


2.
In conjunction with the acquisition, the Progressive Selling Shareholders caused the Progressive Parent to transfer its ownership of the Progressive Subsidiaries into a newly-formed limited liability company (“Progressive NewCo”), in exchange for one hundred percent (100%) of the membership interests in Progressive NewCo. Therefore, in this step, Progressive NewCo became wholly-owned by the Progressive Selling Shareholders.


3.
The Company entered into an agreement (the “Progressive Purchase Agreement”) to acquire from the Progressive Selling Shareholders a majority of the membership interest in Progressive NewCo. The consideration for the acquisition is primarily payable in the form of cash at closing, a relatively small portion paid in cash after the closing contingent on certain performance criteria, and a small note in lieu of an escrow (the “Progressive Purchase Price”).


4.
The Company and the Progressive Selling Shareholders also executed an operating agreement (the “Progressive Operating Agreement”) for Progressive NewCo that sets forth the rights and obligations of the members of Progressive NewCo.


5.
As noted above, the Company did not purchase 100% of the membership interests in Progressive NewCo and the Progressive Selling Shareholders retained a portion of the membership interest in Progressive NewCo (“Progressive Selling Shareholders’ Interest”).


6.
The Company and the Progressive Selling Shareholders executed a non-compete agreement (the “Progressive Non-Compete Agreement”) which restricts the Progressive Selling Shareholders from competing for a specified period of time (the “Progressive Non-Compete Term”).


7.
The Progressive Non-Compete Term commences as of the date of the Progressive acquisition and expires on the later of:


a.
Two years after the date a Progressive Selling Shareholder no longer is involved in the management of Progressive NewCo or


b.
Seven years from the date of the acquisition.


8.
The Progressive Non-Compete Agreement applies to the entire United States.


9.
The Progressive Put Right (as defined below) and the Progressive Call Right (as defined below) do not have an expiration date. The Progressive Operating Agreement contains provisions for the redemption of the Progressive Selling Shareholder’s Interest, either at the option of the Company (the “Progressive Call Right”) or at the option of the Progressive Selling Shareholder (the “Progressive Put Right”) as follows:

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1.
Progressive Put Right


a.
Each of the Progressive Selling Shareholders has the right to sell 30% of their respective residual interests on each of the 4th and 5th anniversaries of the acquisition closing, and then 10% on each of the 6th and 7th anniversaries.

21

b.
In the event that any Progressive Selling Shareholder terminates his management relationship with Progressive NewCo for any reason on or after the seventh anniversary of the Closing Date, the Progressive Selling Shareholder has the Put Right, and upon the exercise of the Progressive Put Right, the Progressive Selling Shareholder’s Interest shall be redeemed by the Company at the purchase price described in “3” below.


2.
Progressive Call Rights


a.
If any Progressive Selling Shareholder’s ceases to perform management services on behalf of Progressive NewCo, the Company thereafter shall have an irrevocable right to purchase from such Progressive Selling Shareholder his Interest, in each case at the purchase price described in “3” below.


3.
For the Progressive Put Right and the Progressive Call Right, the purchase price is derived from a formula based on a specified multiple of Progressive NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of Progressive NewCo. Progressive NewCo’s earnings are distributed monthly based on available cash within Progressive NewCo; therefore, the undistributed earnings amount is small, if any.


4.
The Progressive Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple of the trailing twelve-month earnings that is used in the Progressive Put Right and the Progressive Call Right noted above.


5.
The Progressive Put Right and the Progressive Call Right do not have an expiration date.


Neither the Progressive Operating Agreement nor the Progressive Non-Compete Agreement contain any provision to escrow or “claw back” the equity interest in Progressive NewCo held by the Progressive Selling Shareholders, in the event of a breach of the operating agreement or non-compete terms, or the management services agreement pursuant to which the Progressive Selling Shareholders perform services on behalf of Progressive NewCo. The Company’s only recourse against the Progressive Selling Shareholder for breach of any of these agreements is to seek damages and other legal remedies under such agreements. There are no conditions in any of the arrangements with a Progressive Selling Shareholder that would result in a forfeiture of the equity interest in Progressive NewCo held by a Progressive Selling Shareholder.

For both scenarios described above, an Employed Selling Shareholder’s ownership of his or her equity interest in the Seller Entity predates the Acquisition and the Company’s purchase of its partnership interest in NewCo. The Employment Agreement and the Non-Compete Agreement do not contain any provision to escrow or “claw back” the equity interest in the Seller Entity held by such Employed Selling Shareholder, nor the Seller Entity Interest in NewCo, in the event of a breach of the employment or non-compete terms. More specifically, even if the Employed Selling Shareholder is terminated for “cause” by NewCo, such Employed Selling Shareholder does not forfeit his or her right to his or her full equity interest in the Seller Entity and the Seller Entity does not forfeit its right to any portion of the Seller Entity Interest. The Company’s only recourse against the Employed Selling Shareholder for breach of either the Employment Agreement or the Non-Compete Agreement is to seek damages and other legal remedies under such agreements. There are no conditions in any of the arrangements with an Employed Selling Shareholder that would result in a forfeiture of the equity interest held in the Seller Entity or of the Seller Entity Interest.

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Carrying Amounts of Redeemable Non-Controlling Interests

The following table details the changes in the carrying amount (fair value) of the Company’s redeemable non-controlling interest:
interests:

 Three Months Ended  Nine Months Ended Three Months Ended  Year Ended 
 September 30, 2023  September 30, 2022  September 30, 2023  September 30, 2022  March 31, 2024  December 31, 2023 
 (In thousands)  (In thousands) 
Beginning balance $165,513  $151,400  $167,515  $155,262  $174,828  $167,515 
Operating results allocated to redeemable non-controlling interest partners  1,976   2,037   7,616   7,220 
Net income allocated to redeemable non-controlling interest partners  2,227   4,426 
Distributions to redeemable non-controlling interest partners  (2,405)  (3,038)  (8,742)  (7,770)  (2,100)  (11,533)
Changes in the fair value of redeemable non-controlling interest  2,242   196   4,988   193   1,439   13,565 
Purchases of redeemable non-controlling interest  -   (5,574)  (8,821)  (15,170)  (2,777)  (12,073)
Acquired interest  6,465   2,552   10,358   7,498   16,901   11,007 
Sales of redeemable non-controlling interest - temporary equity  954   143   3,879   2,331 
Changes in notes receivable related to redeemable non-controlling interest - temporary equity  (48)  439   (2,096)  (1,409)
Sales of redeemable non-controlling interest  382   5,012 
Changes in notes receivable related to redeemable non-controlling interest  (167)  (3,091)
Ending balance $174,697  $148,155  $174,697  $148,155  $190,733  $174,828 

The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interest:interests:

 Nine Months Ended 
 September 30, 2023  September 30, 2022 March 31, 2024  December 31, 2023 
 (In thousands)  (In thousands) 
Contractual time period has lapsed but holder’s employment has not terminated
 
$
75,026
  
$
74,002
  $76,938  $96,876 
Contractual time period has not lapsed and holder’s employment has not terminated
  
99,671
   
74,153
   113,795   77,952 
Holder’s employment has terminated and contractual time period has expired
  
-
   
-
   -   - 
Holder’s employment has terminated and contractual time period has not expired
  
-
   
-
   -   - 
 
$
174,697
  
$
148,155
  $190,733  $174,828 

6. GOODWILL5. Goodwill

The changes in the carrying amount of goodwill consisted of the following:

 Nine Months Ended  Year Ended 
  September 30, 2023  December 31, 2022 
  (In thousands) 
Beginning balance $494,101  $434,679 
Goodwill acquired  25,932   72,674 
Goodwill adjustments for purchase price allocation of businesses acquired in prior year  2,874   (4,140)
Goodwill impairment
  -   (9,112)
Ending balance $522,907  $494,101 
 Three Months Ended  Year Ended 
  March 31, 2024  December 31, 2023 
  (In thousands) 
Beginning balance $509,571  $494,101 
Acquisitions
  25,056   28,083 
Adjustments for purchase price allocation of businesses acquired in prior year  (356)  3,187 
Impairment of goodwill  -   (15,800)
Ending balance $534,271  $509,571 

For the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, no triggering events or indicators were identified that would require impairment assessments as of such periods. During the year ended December 31, 2022,2023, the Company recorded a charge for goodwill impairment of $9.1$15.8 million related to thean IIP Acquisition in November 2021. The impairment was related to a change in the IIP Acquisition’s current and projected operating income as well as various market inputs based on current market conditions, including the higher interest rate environment.acquisition.

7. INTANGIBLE ASSETS, NET6. Intangible Assets, Net

Intangible The Company’s intangible assets, net, consisted of the following:

 September 30, 2023  December 31, 2022 
  (In thousands)
 
Tradenames $45,908  $43,373 
Customer and referral relationships, net of accumulated amortization of $28,708 and $23,736, respectively (weighted average amortization period 13.0 years)
  64,210   63,238 
Non-compete agreements, net of accumulated amortization of $7,449 and $6,999 respectively (weighted average amortization period 6.0 years)
  1,994   2,144 
  $112,112  $108,755 
  March 31, 2024
  December 31, 2023 
  Gross Amount  Accumulated Amortization  
Net Carrying
Amount
  Gross Amount  Accumulated Amortization  
Net Carrying
Amount
 
  (In thousands) 
Customer and referral relationships $100,914  $(32,231) $68,683  $93,658  $(30,414) $63,244 
Tradenames  46,145   -   46,145   44,573   -   44,573 
Non-compete agreements  9,818   (7,758)  2,060   9,459   (7,594)  1,865 
  $156,877  $(39,989) $116,888  $147,690  $(38,008) $109,682 

Tradenames, customer and referral relationships and non-compete agreements are related to the businesses acquired. The value assigned to tradenames has an indefinite life and is tested at least annually for impairment using the relief from royalty method in conjunction with the Company’s annual goodwill impairment test. The value assigned to customer and referral relationships is being amortized over their respective estimated useful lives which range from 77.0 to 1414.0 years. Non-compete agreements are amortized over the respective term of the agreements which range from 55.0 to 66.0 years. For the three months ended March 31, 2024, the weighted average amortization period for customer and referral relationships was 12.7 years and the weighted average amortization period for non-compete agreements was 5.5 years. During the year ended December 31, 2023, the Company recognized a charge of $1.7 million related to the impairment of a tradename related to an IIP acquisition.

2322
The following table details the amount of amortization expense recorded for intangible assets for the three and nine months ended September 30,2023, and 2022:periods presented:

 Three Months Ended  Nine Months Ended  
Three Months Ended
 
 September 30, 2023  September 30, 2022  September 30, 2023  September 30, 2022  March 31, 2024  March 31, 2023 
 
  (In thousands) 
Customer and referral relationships $1,669  $1,404  $4,972  $4,415  $1,818  $1,664 
Non-compete agreements  148   129   450   396   163   153 
 $1,817  $1,533  $5,422  $4,811  $1,981  $1,817 

Based on the balance of referral relationships and non-compete agreements as of September 30, 2023,March 31, 2024, the expected amount to be amortized in 20232024 and thereafter by year is as follows:follows:

Customer and Referral Relationships
  Non-Compete Agreements 
(In thousands)
 
Years Annual Amount  Years  Annual Amount 
Ending December 31,    Ending December 31,    
2023 (excluding the nine months ended September 30, 2023)
 $1,780  
2023 (excluding the nine months ended September 30, 2023)
  $159 
2024 $6,983  2024
  $607 
2025 $6,839  2025
  $541 
2026 $6,371  2026
  $401 
2027 $6,207  2027
  $234 
Thereafter $36,030  2028
  $51 
For the Year Ended December 31,
 
Customer and Referral
Relationships
  
Non-Compete
Agreements
 

 (In thousands)
 
2024 (excluding the three months ended March 31, 2024)
 $5,645  $497 
2025 
7,428  
605 
2026 
6,960  
465 
2027 
6,797  
303 
2028 
6,528  
169 
Thereafter $35,325  $21 

8. ACCRUED EXPENSES7. Accrued Expenses

Accrued expenses as of September 30, 2023, and December 31, 2022 consisted of the following:

 September 30, 2023  December 31, 2022 March 31, 2024  December 31, 2023 
 (In thousands)
  (In thousands)
 
Salaries and related costs $17,650  $22,912  $17,104  $25,641 
Credit balances due to patients and payors  8,183   8,094   7,905   8,847 
Dividend payable
  6,630   - 
Group health insurance claims  2,671   1,666   2,658   2,301 
Federal income taxes payable
  1,915   1,006 
Contingency payable
  10,074   12,285 
Other property taxes payable  386
   355
 
Purchase of redeemable non-controlling interests
  1,495   - 
Interest payable  255
   235
 
Closure costs  223   243   251   231 
Contingency payable
  2,437   620 
Interest payable
  272   - 
Other property taxes payable
  494   - 
Other  3,916   3,878   5,076   4,443 
Total $35,846  $37,413  $53,749  $55,344 

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9. BORROWINGS
8. Borrowings

Amounts outstanding under the Company’s Senior Credit Facilities (as defined below) and notes payable consisted of the following as of the dates indicated.following:

  March 31, 2024
  December 31, 2023
 
  
Principal
Amount
  
Unamortized
discount and
debt issuance
cost
  Net Debt  
Principal
Amount
  
Unamortized
discount and
debt issuance
cost
  Net Debt 
  
(In thousands)
 
Term Facility $143,437  $(1,350) $142,087  $144,375  $(1,468) $142,907 
Revolving Facility  -   -   -   -   -   - 
Other (1)
  3,884   -   3,884   3,775   -   3,775 
Total debt 
147,321  
(1,350) 
145,971  
148,150  
(1,468) 
146,682 
Less: Current portion of long-term debt  9,642   (420)  9,222   8,111   (420)  7,691 
Long-term debt, net of current portion $137,679  $(930) $136,749  $140,039  $(1,048) $138,991 

(1)The long-term portion is included as part of Other Long-Term Liabilities in the unaudited Consolidated Balance Sheet.
  
September 30, 2023
  
December 31, 2022
 
  
Principal
Amount
  
Unamortized
discount and
debt issuance
cost
  Net Debt  
Principal
Amount
  
Unamortized
discount and
debt issuance
cost
  Net Debt 
  
(In thousands)
 
Term Facility $145,313  $1,587  $143,726  $148,125  $1,861  $146,264 
Revolving Facilitiy  -   -   -   31,000   -   31,000 
Other  5,325   -   5,325   6,430   -   6,430 
Total debt $150,638  $1,587  $149,051  $185,555  $1,861  $183,694 
Less: Current portion of long-term debt  7,555   -   7,555   8,271   408   7,863 
Long-term debt, net of current portion $143,083  $1,587  $141,496  $177,284  $1,453  $175,831 

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Senior Credit Facilities

OnEffective December 5,2013, the Company entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended and/or restated in August 2015, January 2016, March 2017, November 2017, and January 2021. On June 17, 2022, the Company entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”) among Bank of America, N.A., as administrative agent (“Administrative Agent”) and the lenders from time-to-time party thereto.

The Credit Agreement, which matures on June 17, 2027, provides for loans in an aggregate principal amount of $325.0325 million. Such loans were made available through the following facilities (collectively, the “Senior Credit Facilities”):


1)Revolving Facility: $175.0175 million, five-year, revolving credit facility (“Revolving Facility”), which includes a $12.012 million sublimit for the issuance of standby letters of credit and a $15.015 million sublimit for swingline loans (each, a “Swingline Loan”).


2)
Term Facility: $150 million term loan facility (the “Term Facility”). The Term Facility amortizes in quarterly installments of: (a) 0.625% in each of the first two years, (b) 1.250% in the third and fourth year, and (c) 1.875% in the fifth year of the Credit Agreement. The remaining outstanding principal balance of all term loans is due on the maturity date.

The proceeds of the Revolving Facility shall be used by the Company for working capital and other general corporate purposes of the Company and its subsidiaries, including to fund future acquisitions and invest in growth opportunities. The proceeds of the Term Facility were used by the Company to refinance the indebtedness outstanding under the Amended Credit Agreement, to pay fees and expenses incurred in connection with the transactions involving the loan facilities, for working capital and other general corporate purposes of the Company and its subsidiaries.

The Company is permitted to increase the Revolving Facility and/or add one or more tranches of term loans in an aggregate amount not to exceed the sum of (i) $100 million plus (ii) an unlimited additional amount, provided that (in the case of clause (ii)), after giving effect to such increases, the pro forma Consolidated Leverage Ratio (as defined in the Credit Agreement) would not exceed 2.0:1.0, and the aggregate amount of all incremental increases under the Revolving Facility does not exceed $50,000,000.

The interest rates per annum applicable to the Senior Credit Facilities (other than in respect of Swingline Loans) will be Term SOFR (as defined in the Credit Agreement) plus an applicable margin or, at the option of the Company, an alternate base rate plus an applicable margin. Each Swingline Loan shall bear interest at the base rate plus the applicable margin. The applicable margin for Term SOFR borrowings ranges from 1.50% to 2.25%, and the applicable margin for alternate base rate borrowings ranges from 0.50% to 1.25%, in each case, based on the Consolidated Leverage Ratio of the Company and its subsidiaries. Interest is payable at the end of the selected interest period but no less frequently than quarterly and on the date of maturity.

24
The Company is also required to pay to the Administrative Agent, for the account of each lender under the Revolving Facility, a commitment fee equal to the actual daily excess of each lender’s commitment over its outstanding credit exposure under the Revolving Facility (“unused fee”). Such unused fee will range between 0.25% and 0.35% per annum and is also based on the Consolidated Leverage Ratio of the Company and its subsidiaries. The Company may prepay and/or repay the revolving loans and the term loans, and/or terminate the revolving loan commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions.

The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets. The Credit Agreement includes certain financial covenants which include the Consolidated Fixed Charge Coverage Ratio, and the Consolidated Leverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains customary events of default.
 
The Company’s obligations under the Credit Agreement are guaranteed by its wholly-ownedwholly owned material domestic subsidiaries (each, a “Guarantor”), and the obligations of the Company and any Guarantors are secured by a perfected first priority security interest in substantially all of the existing and future personal property of the Company and each Guarantor, subject to certain exceptions.
 
25
As of SeptemberMarch 30,31, 2023,2024, $145.3143.4 million was outstanding on the Term Facility while none was outstanding under the Revolving Facility resulting in $175.0 million of credit availability. As of SeptemberMarch 30,31, 2023,2024, the Company was in compliance with all of the covenants contained in the Credit Agreement.

The averageinterest rate on the Company’s term loan was 4.7% for the three months ended March 31, 2024, and 4.9% for the three months ended March 31, 2023, with an all-in effective interest rate, netincluding all associated costs, of  savings under5.3% and 5.5% over the interest rate swap discussed in Note 10, Derivative Instruments, for borrowings under the Senior Credit Facilities was 5.6% and 5.7% in the three and nine months ended September 30, 2023,same periods, respectively.

Notes Payable Related to Acquisitions

The Company generally enters into various notes payable as a means of financing a portion of its acquisitions and purchasing of non-controlling interests. Notes payable related to acquisitions amounted to a balance of $5.3 million as of September 30, 2023. In conjunction with acquisitions in the nine monthsyears ended September 30,December 31, 2022, 2023 and 2024, the Company entered into notes payable in the aggregate amount of $1.8 million. Aggregate principal payments$3.9 million, of $2.9 million related to these notes payable were paid in the nine months ended September 30, 2023. Of this balance, $1.6 million is due later in 2023, $2.4which $3.1 million is due in 20242025 and $1.3$0.8 million is due in 2025.2026. Interest accrues in the range of 3.25%3.5% to 8.0%8.5% per annum and is payable with each principal installment.

10.9. DERIVATIVE INSTRUMENTS
Derivative Instruments

The Company is exposed to certain market risks in the ordinary course of business due to adverse changes in interest rates. The exposure to interest rate risk primarily results from the Company’s variable-rate borrowing. The Company may elect to use derivative financial instruments to manage risks from fluctuations in interest rates. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in interest rates can be volatile and the Company’s risk management activities do not eliminate these risks.

Interest Rate Swap

In May 2022, the Company entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A, which had a $150 million notional value, and a maturity date of June 30, 2027. Beginning in July 2022, the Company receives 1-month SOFR, and pays a fixed rate of interest of  2.815% on 1-month SOFR on a quarterly basis. The total interest rate in any period will also include an applicable margin based on the Company’s consolidated leverage ratio. In connection with the swap, no cash was exchanged between the Company and the counterparty.

The Company designated its interest rate swap as a cash flow hedge and structured it to be highly effective. Consequently, unrealized gains and losses related to the fair value of the interest rate swap are recorded to accumulated other comprehensive income (loss), net of tax.

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The impact of the Company’s derivative instruments on the accompanying Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 are presented in the table below:below.

 For the Three Months Ended  For the Nine Months Ended  Three Months Ended 
 September 30, 2023  September 30, 2022  September 30, 2023  September 30, 2022  March 31, 2024  March 31, 2023 
 
(In thousands)
  (In thousands) 
Net income
 $12,222  $12,821  $38,513  $40,059  $11,617  $11,427 
Other comprehensive loss
                
Unrealized gain on cash flow hedge  
1,276
   
6,473
   
2,340
   
5,942
 
Other comprehensive gain (loss):
        
Unrealized gain (loss) on cash flow hedge  
1,781
   
(1,817
)
Tax effect at statutory rate (federal and state)
  
(326
)
  
(1,654
)
  
(598
)
  
(1,518
)
  
(455
)
  
464
 
Comprehensive income
 
$
13,172
  
$
17,640
  
$
40,255
  
$
44,483
   
12,943
   
10,074
 
        
Comprehensive income attributable to non-controlling interest  (3,571)  (4,017)
Comprehensive income attributable to USPH shareholders $9,372  $6,057 

The valuations of the Company’s interest rate derivatives are measured as the present value of all expected future cash flows based on SOFR-based yield curves. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparty which is a Level 2 fair value measurement.

The carrying and fair value of the Company’s interest rate swap on September 30,2023, was $7.7 million, of which $3.5 million has been included within Otherderivatives (included in other current assets and $4.2 million has been included in Other assets, in the accompanying unaudited consolidated balance sheet. The fair value of the interest rate swap on December 31,2022, was $5.4 million, of which $2.9 million was included in Other current assets and $2.5 million was included in Other assets in the accompanying audited consolidated balance sheet.other assets) were as follows.

  March 31, 2024  March 31, 2023 
Interest rate swap: (In thousands) 
Other current assets $2,979  $2,614 
Other assets  2,538   947 
  $5,517  $3,561 

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11. LEASES
10. Leases

The Company has operating leases for its corporate offices and operating facilities. The Company determines if an arrangement is a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent net present value of the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at commencement date based on the net present value of the fixed lease payments over the lease term. The Company’s operating lease terms are generally five years or less. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating fixed lease expense is recognized on a straight-line basis over the lease term. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage are not included in the right-of-use assets or operating lease liabilities. These are expensed as incurred and recorded as variable lease expense.

The components of lease expense were as follows:follows.

 Three Months Ended  Nine Months Ended  Three Months Ended 
 
September 30, 2023
  
September 30, 2022
    
   September 30, 2023
  
   September 30, 2022
 March 31, 2024  March 31, 2023 
 (In thousands)
  (In thousands) 
Operating lease cost $9,725  $8,870  $28,500  $25,974  $9,953  $9,365 
Short-term lease cost  292   210   851   790   265   274 
Variable lease cost  2,281   1,913   6,785   5,839   2,369   2,132 
Total lease cost * $12,298  $10,993  $36,136  $32,603  $12,587  $11,771 

*Sublease income was immaterial.immaterial

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Table of Contents
Lease cost iscosts are reflected in the consolidated statement of net income in the line item – rent, supplies, contract labor and other.


SupplementalThe supplemental cash flow information related to leases was as follows:follows.

  Three Months Ended 
 March 31, 2024  March 31, 2023 
  (In thousands) 
Cash paid for amounts included in the measurement of operating lease liabilities
 $10,338  $9,646 
         
Right-of-use assets obtained in exchange for new operating lease liabilities
 $7,727  $6,281 




 Three Months Ended  Nine Months Ended 
  September 30, 2023  September 30, 2022  
   September 30, 2023
  
  September 30, 2022
 

 (In thousands)
 
             
Cash paid for amounts included in the measurement of operating lease liabilities $10,007  $9,139  $29,418  $26,697 
                 
Right-of-use assets obtained in exchange for new operating lease liabilities $10,188  $8,011  $26,407  $29,618 



The aggregate future lease payments for operating leases as of September 30, 2023March 31, 2024, were as follows:follows.


Fiscal Year Amount 
  (In thousands) 
2023 (excluding the nine months ended September 30, 2023) $9,946 
2024  36,216 
2025  28,184 
2026  20,552 
2027 and therafter  24,877 
Total lease payments $119,775 
Less: imputed  interest  8,445 
Total operating lease liabilities $111,330 


Fiscal Year 
Amount
(In thousands)
 
2024 (excluding the three months ended March 31, 2024) $29,610 
2025  32,448 
2026  24,492 
2027  16,571 
2028 and thereafter  16,512 
Total lease payments $119,633 
Less: imputed  interest  9,254 
Total operating lease liabilities $110,379 

Average lease terms and discount rates were as follows:follows.

  March 31, 2024  March 31, 2023 
Weighted-average remaining lease term - Operating leases 3.9 years  
   4.0 years
 
       
Weighted-average discount rate - Operating leases 4.2%

 3.1%



The weighted-average remaining operating lease term was 3.9 years and 4.2 years as of September 30, 2023 and September 30, 2022, respectively, while the average discount rate for operating leases was 3.8% and 2.7% over the same periods, respectively.

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12. SEGMENT INFORMATION
11. Segment Information

The Company’s reportable segments include the physical therapy operations segment and the IIP segment. Also included in the physical therapy operations segment are revenues from management contract services and other services which include services the Company provides on-site, such as athletic trainers for schools.

Physical Therapy Operations

The physical therapy operations segment primarily operates through subsidiary clinic partnerships (“Clinic Partnerships”), in which the Company generally owns a 1% general partnership interest in all the Clinic Partnerships. The Company’s limited partnership interests generally range from 65% to 75% (the range is 10% - 99%) in the Clinic Partnerships. The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of the clinics (hereinafter referred to as “Clinic Partnerships”). To a lesser extent, the Company operates some clinics, through wholly-owned subsidiaries, under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”).

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The Company continues to seek to attract for employment physical therapists who have established relationships with physicians and other referral sources, by offering these therapists a competitive salary and incentives based on the profitability of the clinic that they manage. For multi-site clinic practices in which a controlling interest is acquired by the Company, the prior owners typically continue on as employees to manage the clinic operations, retain a non-controlling ownership interest in the clinics and receive a competitive salary for managing the clinic operations. In addition, the Company has developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location.

Besides the multi-clinic acquisitions referenced in the table above, during the three months ended March 31, 2024 and the year ended December 31, 2023, the Company purchased the assets and businesses of two and eight physical therapy clinics, respectively, in separate transactions.

Clinic Partnerships

For non-acquired Clinic Partnerships, the earnings and liabilities attributable to the non-controlling interests, typically owned by the managing therapist, directly or indirectly, are recorded within the balance sheets and income statements as non-controlling interest—permanent equity. For acquired Clinic Partnerships with redeemable non-controlling interests, the earnings attributable to the redeemable non-controlling interests are recorded within the consolidated balance sheets and income statements as redeemable non-controlling interest—temporary equity.

Wholly-Owned Facilities

For Wholly-Owned Facilities with profit sharing arrangements, an appropriate accrual is recorded for the amount of profit sharing due the clinic partners/directors. The amount is expensed as compensation and included in clinic operating costs—salaries and related costs. The respective liability is included in current liabilities—accrued expenses on the consolidated balance sheets.

Industrial Injury Prevention Services

Services provided in the IIP segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. The Company performs these services through Industrial Sports Medicine Professionals, consisting primarily of specialized certified athletic trainers (“ATCs”).

Segment Financials

The Company evaluates performance of the segments based on gross profit. The Company has provided additional information regarding its reportable segments which contributes to the understanding of the Company and provides useful information.

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The following table summarizes selected financial data for the Company’s reportable segments.segments:

 Three Months Ended September 30,  Nine Months Ended September 30, Three Months Ended
 
 2023  2022  2023  2022  March 31, 2024  March 31, 2023 
 (In thousands)  (In thousands)  (In thousands) 
Net revenue:                  
Physical therapy operations $130,521  $119,447  $391,919  $353,302  $134,425  $129,159 
Industrial injury prevention services  19,486   20,155   58,082   58,660   21,250   19,350 
Total Company $155,675  $148,509 
        
Operating Costs:
        
Salaries and related costs:        
Physical therapy operations
 $79,774  $73,886 
Industrial injury prevention services
  13,957   12,154 
Total salaries and related costs
 $93,731  $86,040 
Rent supplies, contract labor and other:
        
Physical therapy operations
 $28,960  $26,672 
Industrial injury prevention services
  2,956   3,428 
Total rent, supplies, contract labor and other
 $31,916  $30,100 
Provision for credit losses:
        
Physical therapy operations
 $1,627  $1,512 
Industrial injury prevention services
  -   - 
Total provision for credit losses
 $1,627  $1,512 
Total Company $150,007  $139,602  $450,001  $411,962  $127,274  $117,652 
                        
Gross profit:                        
Physical therapy operations
 $23,505  $22,379  $78,815  $71,513  $24,064  $27,089 
Industrial injury prevention services  4,424   4,405   12,178   12,680   4,337   3,768 
Total Company
 $27,929  $26,784  $90,993  $84,193  $28,401  $30,857 
                        
Total Assets:
                        
Physical therapy operations
         $
534,848  $
432,683  $872,976  $726,422 
Industrial injury prevention services
          475,338   367,025   144,280   141,705 
Total Company
         $
1,010,186  $
799,708  $1,017,256  $868,127 

13. INVESTMENT IN UNCONSOLIDATED AFFILIATE12. Investment in Unconsolidated Affiliate

Through one of its subsidiaries, the Company has a 49% joint venture interest in a company which provides physical therapy services for patients at hospitals. Since the Company is deemed to not have a controlling interest in the company, the Company’s investment is accounted for using the equity method of accounting. The investment balance of this joint venture as of September 30, 2023,March 31, 2024, is $12.3$12.2 million and the earnings amounted to $0.2 million and $0.8 million for the three and nine months ended September 30, 2023, respectively.approximately $0.3 million.

14. SUBSEQUENT EVENTS13. Subsequent Events

TheOn May 7, 2024, the Company’s Board of Directors declared a quarterly dividend of $0.43$0.44 per share payable on December 8, 2023,June 14, 2024, to shareholders of record on November 16, 2023.May 23, 2024. 

On October 31, 2023, the Company, throughApril 30, 2024, one of itsthe Company’s primary IIP subsidiaries,businesses, Briotix Health Limited Partnership, acquired 100% of an IIP services and ergonomics software business for approximately $4.0 million.  The Company’s IIP subsidiary purchased alla closing purchase price of $24.0 million, with provision for additional purchase price based on the financial performance of the IIP servicesacquired business and 55% ofduring the ergonomics software business.12-month period after closing.

15. RECLASSIFICATION OF PRIOR PERIOD INFORMATION

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

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Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of U.S. Physical Therapy, Inc. and its subsidiaries (herein referred to as “we,” “us,” “our” andor the “Company”) should be read in conjunction with (i) our historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q; and (ii) our Annual Report on Form 10-K for the year ended December 31, 20222023 filed with the Securities and Exchange Commission (the “SEC”) on February 28, 29, 2024 (“2023 (“2022 Annual Report”); and (iii) our management’s discussion and analysis of financial condition and results of operations included in our 2022 Annual Report..

This discussion includes forward-looking statements that are subject to risk and uncertainties. Actual results may differ substantially from the statements we make in this section due to a number of factors that are discussed below.

Forward-Looking StatementsFORWARD – LOOKING STATEMENTS

We make statements in this report that are considered to be forward-looking statements within the meaning given such term under Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements contain forward-looking information relating to the financial condition, results of operations, plans, objectives, future performance and business of our Company. These statements (often using words such as “believes”, “expects”, “intends”, “plans”, “appear”, “should” and similar words) involve risks and uncertainties that could cause actual results to differ materially from those we project. Included among such statements are those relating to opening new clinics, availability of personnel and the reimbursement environment.  The forward-looking statements are based on our current views and assumptions and actual results could differ materially from those anticipated in such forward-looking statements as a result of certain risks, uncertainties, and factors, which include, but are not limited to the following.to:

changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certification and/or enrollment status;
the impact of future public health crises and epidemics/pandemics, such as was the case with the novel strain of COVID-19 and its variants;
revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction;
changes in reimbursement rates or payment methods from third party payors including government agencies, and changes in the deductibles and co-pays owed by patients;
compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure to comply;
competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certain clinics and thereby incur losses and/or closure costs including the possible write-down or write-off of goodwill and other intangible assets;
the impact of future public health crises and epidemics/pandemics, such as was the case with the novel strain of COVID-19 and its variants;
one of our acquisition agreements contains a Put Rightput right related to a future purchase of a majority interest in a separate company;
the impact of future vaccinations and/or testing mandates at the federal, state and/or local level, which could have an adverse impact on staffing, revenue, costs and the results of operations;
our debt and financial obligations could adversely affect our financial condition, our ability to obtain future financing and our ability to operate our business;
changes as the result of government enacted national healthcare reform;
business and regulatory conditions including federal and state regulations;
governmental and other third party payor inspections, reviews, investigations and audits, which may result in sanctions or reputational harm and increased costs;
revenue and earnings expectations;
some of
contingent consideration provisions in certain our acquisition agreements, contain contingent consideration, the value of which may impact future financial results;
legal actions, which could subject us to increased operating costs and uninsured liabilities;
general economic conditions, including but not limited to inflationary and recessionary periods;
actual or perceived events involving banking volatility or limited liability, defaults or other adverse developments that affect the U.S. or international financial systems, may result in market wide liquidity problems which could have a material and adverse impact on our available cash and results of operations;

29
our business depends on hiring, training, and retaining qualified employeesemployees;

30
availability and cost of qualified physical therapists;
competitive environment in the industrial injury prevention services business, which could result in the termination or non-renewal of contractual service arrangements and other adverse financial consequences for that service line;
our ability to identify and complete acquisitions, and the successful integration of the operations of the acquired businesses;
impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their non-controlling interest (minority interests);
maintaining our information technology systems with adequate safeguards to protect against cyber-attacks;
a security breach of our or our third party vendors’ information technology systems may subject us to potential legal action and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 of the Health Information Technology for Economic and Clinical Health Act;Act, or may interfere with our ability to file and process claims for payment which could interfere with our collection of revenues from third party payors;
maintaining clients for which we perform management, IIP,industrial injury prevention services, and other services, as a breach or termination of those contractual arrangements by such clients could cause operating results to be less than expected;
if our noncompetition covenants with employed therapists are nullified, we may lose staff to competitors;
maintaining adequate internal controls;
maintaining necessary insurance coverage;
availability, terms, and use of capital; and
weather and other seasonal factors.

Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our forward-looking statements. Please see the other sections of this report and our other periodic reports filed with the Securities and Exchange Commission (the “SEC”) for more information on these factors. Our forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we are under no obligation to update any forward-looking statement, regardless of the reason the statement may no longer be accurate.

EXECUTIVE SUMMARY

Our Business

We operate outpatientour business through our reportable segments which include (1) the physical therapy clinicsoperations segment and an(2) the industrial injury prevention services (“IIP”)  business.

Our reportable segments include the physical therapy operations segment and the IIP services segment. Our physical therapy operations consist of physical therapy and occupational therapy clinics that provide pre-andpre- and post-operative care and treatment for orthopedic-related disorders, sports-related injuries, preventive care, rehabilitation of injured workers and neurological injuries. Services provided by the IIP segment include onsite injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional evaluations and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. These services are performed through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers.

During the ninethree months ended September 30, 2023March 31, 2024 (“2023 Nine Months”2024 First Quarter”) and for the year ended December 31, 2022,2023, we completed the acquisitions of the following physical therapy practices.clinic practices and IIP businesses detailed below:

    % Interest Number of
Acquisition Date Acquired Clinics
March 2024 Acquisition March 29, 2024 50% 9
October 2023 Acquisition October 31, 2023 ** *
September 2023 Acquisition 1 September 29, 2023 70% 4
September 2023 Acquisition 2 September 29, 2023 70% 1
July 2023 Acquisition July 31, 2023 70% 7
May 2023 Acquisition May 31, 2023 45% 4
February 2023 Acquisition February 28, 2023 80% 1

*IIP business.
**On October 31, 2023, we concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business.

3031
Acquisition Date 
% Interest
Acquired
 
Number of
Clinics
 
September 2023 Acquisition 1 September 29, 2023 70% 4 
September 2023 Acquisition 2 September 29, 2023 70% 1 
July 2023 Acquisition July 31, 2023 70% 7 
May 2023 Acquisition May 31, 2023 45% 4 
February 2023 Acquisition February 28, 2023 80% 1 
November 2022 Acquisition November 30, 2022 80% 13 
October 2022 Acquisition October 31, 2022 60% 14 
September 2022 Acquisition September 30, 2022 80% 2 
August 2022 Acquisition August 31, 2022 70% 6 
March 2022 Acquisition March 31, 2022 70% 6 

On September 30, 2023, we operated 672 clinics in 42 states.  In addition to our ownership and operation of outpatient physical therapy clinics, we also manage physical therapy facilities for third parties, such as physicians and hospitals, with 42 third-party facilities under management as of September 30, 2023.

The following table provides a roll forward of our clinic count for the periods presented.

 Three Months Ended Nine Months Ended  Three Months Ended 
 September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022  March 31, 2024 March 31, 2023 
Number of clinics, beginning of period 656 608 640 591  
671
 
640
 
Additions (1) 19 8 40 33  
14
 
8
 
Closed or sold  (3)  (2)  (8)  (10)  
(6
)
  
(1
)
Number of clinics, end of period  672  614  672  614   
679
  
647
 


(1)Includes clinics added through acquisitions.

In
Our strategy is to continue acquiring outpatient physical therapy practices, develop outpatient physical therapy clinics as satellites in existing partnerships, and continue acquiring companies that provide or serve our IIP sector.

Our Board of Directors declared a quarterly dividend of $0.44 per share payable on June 14, 2024 to shareholders of record on May 2023, we completed a secondary public offering of common stock, in which we sold 1,916,667 shares. The shares were sold at a public offering price of $90.00 per share. Upon completion of the offering, we received net proceeds of approximately $163.6 million, after deducting an underwriting discount of $8.6 million and recognizing related fees and expenses of $0.2 million.  A portion of the net proceeds was used to repay the $35.0 million then outstanding under our credit facility while the remainder is expected to be used primarily to fund acquisitions.23, 2024.

Regulatory Changes

The following is a discussion of some of the significant healthcare regulatory changes that have affected our financial performance in the periods covered by this report or are likely to affect our financial performance and financial condition in the future. The information below should be read in conjunction with the more detailed discussion of regulations contained in our 20222023 Annual Report.

Medicare Reimbursement

The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”). Outpatient rehabilitation providers may enroll in Medicare as institutional outpatient rehabilitation facilities (i.e., rehab agencies) or individual physical or occupational therapists in private practice. The majority of our clinicians are enrolled as individual physical or occupational therapists in private practice while the remaining balance of providers are reimbursed through enrolled rehab agencies. The following is a summary of significant regulatory changes which have affected our results of operations as well as the policies and payment rates that may affect our future results of operations.

InFor calendar years 2021, the MPFS established2022 and 2023, CMS’s expected decreases in Medicare reimbursement were partially offset by Centers for Medicareone-time increases in payments as a result of other legislation passed by Congress., resulting in decreases of approximately 3.5%, 0.75% and Medicaid Services (“CMS”)2.0% in each of these years, respectively.  For January 1 through March 8 of 2024, CMS’s final rule resulted in an approximate 3.5% decrease in the reimbursementMedicare payments for the therapy specialty. However, effective as of March 9, 2024, pursuant to the Consolidated Appropriations Act, 2024, Congress minimized the reduction in Medicare payments for therapy services for the balance of 2024, resulting in an approximate 1.8% reduction in Medicare payments for therapy services (rather than the 3.5% decrease).

In the final 2020 MPFS rule, CMS clarified that when the physical therapist is involved for the entire duration of the service and the physical therapist assistant (“PTA”) provides skilled therapy alongside the physical therapist, an identification of the PTA’s participation (as denoted by a “CQ modifier”) is not required. Also, when the same service (code) is furnished separately by the physical therapist and PTA, CMS applies the de minimis standard to each 15-minute unit of codes, applicable to physical/not on the total physical therapist and PTA time of the service. For dates of service on and after January 1, 2022, CMS pays for physical therapy and occupational therapy services provided by our clinics, as compared to 2020. Since January 1, 2022, outpatient therapy services furnished in whole or part by aPTAs and occupational therapist assistant are paidassistants (“OTAs”) at an amount equal to 85% of the payment amount otherwise applicable for the service.
For 2022, the MPFS Final Rule wasPart B payment amount. CMS allows a timed service to be an approximately 3.75% reduction to Medicare payments for physical/occupational therapy services. This was due tobilled without a CQ (for PTA’s) or CO (for OTA’s) modifier when a PTA or OTA participates in providing care, but the expiration of the additional funding to the conversion factor provided by Congress in 2021 under the Consolidated Appropriations Act, 2021. However, this reduction was addressed in the Protecting Medicare and American Farmers from Sequester Cuts Act (“2021 Act”) signed into law on December 10, 2021. Based on various provisions in the 2021 Act, the Medicare rate reduction for 2022 was approximately 0.75%. The 2021 Act did not address the 15% reduction in Medicare payments for services performed by a physical therapist or occupational therapist assistant, which began on January 1, 2022.

31
Inmeets the 2023 MPFS Proposed Rule, CMS proposed a 4.5% reduction inMedicare billing requirements without including the Physician Fee Schedule conversion factor. However, this reduction was later addressed inPTA’s or OTA’s minutes. This occurs when the Consolidated Appropriations Act, 2023 (“2023 Act”).physical therapist or occupational therapist provides more minutes than the 15-minute midpoint. The provisions of the 2023 Act increased the conversion factor by 2.5% for 2023 and by 1.25% for 2024, resulting in an overall reduction of approximately 2% in the 2023 Physician Fee Schedule conversion factor for 2023. In thecalendar year 2024 MPFS Final Rule, CMS decreasedfinal rule did not contain any policy changes concerning the Physician Fee Schedule conversion factor by 3.39%, which is estimated to result in an approximately 3.5% reduction in reimbursementmodifiers for the codes applicable to physical/occupational therapy services provided by our clinics, as compared to 2023, unless these reductions are otherwise mitigated by action of Congress.

The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years and requires automatic reductions in federal spending by approximately $1.2 trillion. Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2% cap. The Bipartisan Budget Act of 2018 extended the 2% reductions to Medicare payments through fiscal year 2027. The CARES Act suspended the 2% payment reduction to Medicare payments for dates of service from May 1, 2020, through December 31, 2020, and the Consolidated Appropriations Act, 2021 further suspended the 2% payment reduction through March 2021. In April 2021, additional legislation was enacted that waived the 2% payment reduction for the remainder of calendar 2021. The 2021 Act included a three-month extension of the 2% sequester relief applied to all Medicare payments through March 2022, followed by three months of 1% sequester relief through June 30, 2022. Sequester relief ended on June 30, 2022.

Beginning in 2021, payments to individual therapists (Physical/Occupational Therapist in Private Practice) paid under the fee schedule may be subject to adjustment based on performance in the Merit Based Incentive Payment System (“MIPS”), which measures performance based on certain quality metrics, resource use, and meaningful use of electronic health records. Therapists eligible to participate in MIPS include only those therapists who are enrolled with Medicare as private practice providers and does not include therapists in facility-based providers, such as our clinics enrolled as certified rehabilitation agencies. Less than 3% of our therapist providers currently participate in MIPS. Under the MIPS requirements, a provider’s performance is assessed according to established performance standards each year and then is used to determine an adjustment factor that is applied to the professional’s payment for the corresponding payment year. The provider’s MIPS performance in 2019 determined the payment adjustment in 2021. For those therapist providers who actually participated in MIPS during 2019 and 2020, the resulting average payment adjustment in 2021 and 2022 was an increase of 1%.  The 2023 adjustment for those therapist providers who participated in MIPS during 2021 is expected to remain at an average increase of 1%.

Under the Middle-Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients who met or exceeded $3,700 in therapy expenditures during a calendar year have been subject to a manual medical review to determine whether applicable payment criteria are satisfied. The $3,700 threshold is applied to Physical Therapy and Speech Language Pathology Services; a separate $3,700 threshold is applied to the Occupational Therapy. The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) directed CMS to modify the manual medical review process such that those reviews will no longer apply to all claims exceeding the $3,700 threshold and instead will be determined on a targeted basis based on a variety of factors that CMS considers appropriate.

The Bipartisan Budget Act of 2018 extended the targeted medical review indefinitely but reduces the threshold to $3,000 through December 31, 2027. For 2028, the threshold amount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequent years the threshold amount will increase based on the corresponding percentage increase in the MEI for such subsequent year.

CMS adopted a multiple procedure payment reduction (“MPPR”) for therapy services in the final update to the MPFS for calendar year 2011. The MPPR applied to all outpatient therapy services paid under Medicare Part B — occupational therapy, physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of the practice expense component of the Relative Value Unit (“RVU”) for theoccupational therapy procedure with the highest practice expense RVU, then reduces the payment for the practice expense component for the second and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy services are furnished in separate sessions. In 2013, the practice expense component for the second and subsequent therapy service furnished during the same day for the same patient was reduced by 50%.assistants.

32
Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare that sufficiently compensate it for our services or, in some instances, cover our operating costs. Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on our revenue, financial condition and results of operations. Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our business, financial condition and results of operations.

Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation. We believe that we are in compliance, in all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on our financial statements as of September 30, 2023. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program. For the nine months ended September 30, 2023, and 2022, respectively, net patient revenues from Medicare were approximately $128.5 million and $115.1 million, respectively.

RESULTS OF OPERATIONS

The defined terms, with their respective descriptions, used in the following discussions are listed below.

•
Mature clinics are clinics opened or acquired prior to January 1, 2022,2023, and are still operating as of September 30, 2023.March 31, 2024.
•
Net rate per patient visit is net patient revenue related to our physical therapy operations divided by total number of patient visits (defined below) during the periods presented.
•
Patient visits is the number of unique patient visits during the periods presented.
•
Average daily visits per day per clinic is patient visits divided by the number of days in which normal business operations were conducted during the periods presented and further divided by the average number of clinics in operation during the periods presented.
•
2023 Third2024 First Quarter refers to the period three months ended September 30, 2023.
•
2022 Third Quarter refers to the period three months ended September 30, 2022.March 31, 2024.
•
2023 Nine MonthsFirst Quarter refers to the period ninethree months ended September 30,March 31, 2023.
•
2022 Nine Months refers to the period nine months ended September 30, 2022.

2024 First Quarter versus 2023 First Quarter

  Three Months Ended  Variance 
  March 31, 2024  March 31, 2023   $  %
 
  (In thousands, except percentages) 
                   
Net patient revenue
 
$
131,075
   
84.2
%
 
$
126,581
   
85.2
%
 
$
4,494
   
3.6
%
Other revenue
  
24,600
   
15.8
%
  
21,928
   
14.8
%
  
2,672
   
12.2
%
Net revenue  
155,675
   
100.0
%
  
148,509
   
100.0
%
  
7,166
   
4.8
%
                         
Operating Cost:
                        
Salaries and related costs  
93,731
   
60.2
%
  
86,040
   
57.9
%
  
7,691
   
8.9
%
Rent, supplies, contract labor and other  
31,916
   
20.5
%
  
30,100
   
20.3
%
  
1,816
   
6.0
%
Provision for credit losses  
1,627
   
1.0
%
  
1,512
   
1.0
%
  
115
   
7.6
%
Total operating cost  
127,274
   
81.8
%
  
117,652
   
79.2
%
  
9,622
   
8.2
%
                         
Gross Profit
  
28,401
   
18.2
%
  
30,857
   
20.8
%
  
(2,456
)
  
-8.0
%
                         
Corporate office costs
  
14,085
   
9.0
%
  
13,859
   
9.3
%
  
226
   
1.6
%
Operating Income  
14,316
   
9.2
%
  
16,998
   
11.4
%
  
(2,682
)
  
-15.8
%
                         
Other (expense) income:
                        
Interest expense, debt and other  
(1,968
)
  
-1.3
%
  
(2,560
)
  
-1.7
%
  
592
   
-23.1
%
Interest income from investments  
1,543
   
1.0
%
  
64
   
0.0
%
  
1,479
   
2310.9
%
Change in fair value of contingent earn-out consideration  
612
   
0.4
%
  
(698
)
  
-0.5
%
  
1,310
   
-187.7
%
Change in revaluation of put-right liability  
(80
)
  
-0.1
%
  
(149
)
  
-0.1
%
  
69
   
-46.3
%
Equity in earnings of unconsolidated affiliate  
271
   
0.2
%
  
274
   
0.2
%
  
(3
)
  
-1.1
%
Relief Funds  
-
   
0.0
%
  
467
   
0.3
%
  
(467
)
  
-100.0
%
Other  
62
   
0.0
%
  
-
   
0.0
%
  
62
   
*
(1)
Total other (expense) income  
440
   
0.3
%
  
(2,602
)
  
-1.8
%
  
3,042
   
-116.9
%
                         
Income before taxes  
14,756
   
9.5
%
  
14,396
   
9.7
%
  
360
   
2.5
%
                         
Provision for income taxes  
3,139
   
2.0
%
  
2,969
   
2.0
%
  
170
   
5.7
%
Net income  
11,617
   
7.5
%
  
11,427
   
7.7
%
  
190
   
1.7
%
                         
Less: Net income attributable to non-controlling interest:                        
Redeemable non-controlling interest - temporary equity  
(2,227
)
  
-1.4
%
  
(2,720
)
  
-1.8
%
  
493
   
-18.1
%
Non-controlling interest - permanent equity  
(1,344
)
  
-0.9
%
  
(1,297
)
  
-0.9
%
  
(47
)
  
3.6
%
   
(3,571
)
  
-2.3
%
  
(4,017
)
  
-2.7
%
  
446
   
-11.1
%
                         
Net income attributable to USPH shareholders 
$
8,046
   
5.2
%
 
$
7,410
   
5.0
%
 
$
636
   
8.6
%

(1)Not meaningful.

Total net revenue for the 2024 First Quarter increased $7.2 million, or 4.8%, to $155.7 million from $148.5 million for the 2023 First Quarter while operating costs increased $9.6 million, or 8.2%, to $127.3 million from $117.7 million over the same periods, respectively. Total operating cost was $127.3 million for the 2024 First Quarter, or 81.8% of total revenue, as compared to $117.7 million or 79.2% of total revenue for the 2023 First Quarter. Gross profit for the 2024 First Quarter was $28.4 million, or 18.2% of net revenue, compared to $30.9 million for the 2023 First Quarter, or 20.8% of net revenue.

33
Net income attributable to our shareholders, a Generally Accepted Accounting PrinciplesPrinciple (“GAAP”) measure, was $9.3$8.0 million for the 2024 First Quarter compared to $7.4 million for the 2023 Third Quarter compared to $9.6 million for the 2022 ThirdFirst Quarter.  In accordance with GAAP, the revaluation of redeemable non-controlling interest, net of taxes, is not included in net income but is charged directly to retained earnings; however, this change is included in the computation of earnings per share. Basic and diluted earningsEarnings per share attributablefor the 2024 First Quarter was $0.46 compared to our shareholders were $0.51$0.58 for the 2023 Third Quarter as compared to $0.72 for the 2022 ThirdFirst Quarter. Net income attributable to our shareholders was $27.6 million for the 2023 Nine Months compared to $29.6 million for the 2022 Nine Months. Basic and diluted earnings per share attributable to our shareholders were $1.72 for the 2023 Nine Months as compared to $2.27 for the 2022 Nine Months.

The following table provides a calculation of earnings per share.

 Three Months Ended Nine Months Ended  Three Months Ended 
 September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022  March 31, 2024 March 31, 2023 
 (In thousands, except per share data)  (In thousands, except per share data) 
Earnings per share     
Computation of earnings per share - USPH shareholders:          
Net income attributable to USPH shareholders $9,254 $9,557 $27,583 $29,551  
$
8,046
 
$
7,410
 
Charges to retained earnings:              
Revaluation of redeemable non-controlling interest (2,242) (196) (4,988) (193) 
(1,439
)
 
119
 
Tax effect at statutory rate (federal and state)  573  50  1,274  49   
368
  
(30
)
 $7,585 $9,411 $23,869 $29,407  
$
6,975
 
$
7,499
 
              
Earnings per share (basic and diluted) $0.51 $0.72 $1.72 $2.27  
$
0.46
 
$
0.58
 
              
Shares used in computation:         
Basic and diluted earnings per share - weighted-average shares  14,987  13,001  13,918  12,979 
Shares used in computation - basic and diluted  
15,017
  
13,025
 

33
Non-GAAP Measures

Adjusted EBITDA, a non-GAAP measure, is defined as net income attributable to USPH shareholders before interest income, interest expense, taxes, depreciation, amortization, change in fair valueThe following tables provide details of contingent earn-out consideration, Relief Funds (see “2023 Nine Months Compared to 2022 Nine Months – Other Incomethe basic and Expense” section below for definition), changes in revaluation of put-right liability, equity-based awards compensation expense,diluted earnings per share computation and related portions for non-controlling interests.

Operating Results, a non-GAAP measure, equalsreconcile net income attributable to our shareholders less changescalculated in revaluation of put-right liability, Relief Funds, changes in fair value of contingent earn-out consideration,accordance with GAAP to Adjusted EBITDA and any allocations to non-controlling interests, all net of taxes. Operating Results per share also exclude(non-GAAP measures). Management believes providing Adjusted EBITDA and Operating Results to investors is useful information for comparing the impact of the revaluation ofCompany’s period-to-period results as well as for comparing with other similar businesses since most do not have redeemable non-controlling interestinstruments and the associated tax impact.

We usetherefore have different equity structures. Management uses Adjusted EBITDA and Operating Results, which eliminate certain items described above that can be subject to volatility and unusual costs, as the principal measures to evaluate and monitor financial performance period over period.  We believe that

Adjusted EBITDA is defined as net income attributable to our shareholders before interest income, interest expense, taxes, depreciation, amortization, change in fair value of contingent earn-out consideration, Relief Funds, changes in revaluation of put-right liability, equity-based awards compensation expense, other income and related portions for non-controlling interests.

Operating Results are useful measures for investorsequals net income attributable to useour shareholders less, changes in comparing our period-to-period results as well as for comparing with other similar businesses since most do not haverevaluation of a put-right liability, Relief Funds, changes in fair value of contingent earn-out consideration, and any allocations to non-controlling interests, all net of taxes. Operating Results per share also excludes the impact of the revaluation of redeemable instrumentsnon-controlling interest and therefore have different equity structures.the associated tax impact.

Adjusted EBITDA and Operating Results are not measures of financial performance under GAAP. Adjusted EBITDA and Operating Results should not be considered in isolation or as an alternative to, or substitute for, net income attributable to our shareholders presented in the consolidated financial statements.

The following tables reconcile net income attributable to our shareholders calculated in accordance with GAAP to Adjusted EBITDA and Operating Results as well as the detail of the basic and diluted earnings per share computation.

34
OPERATING RESULTS AND ADJUSTED EBITDA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)

  Three Months Ended  Nine Months Ended 
  September 30, 2023  September 30, 2022  September 30, 2023  September 30, 2022* 
  (In thousands, except per share data) 
Adjusted EBITDA            
Net income attributable to USPH shareholders $9,254  $9,557  $27,583  $29,551 
Adjustments:                
Provision for income taxes  3,557   3,215   10,757   10,953 
Depreciation and amortization  3,966   3,652   11,582   10,950 
Interest expense, debt and other  2,101   2,013   7,293   3,540 
Equity-based awards compensation expense  1,859   1,802   5,451   5,462 
Change in revaluation of put-right liability  145   (785)  344   (771)
Change in fair value of contingent earn-out consideration  (187)  (2,000)  (197)  (2,000)
Interest income  (1,673)  -   (2,191)  - 
Other (income) expense  (78)  (65)  (305)  (790)
Relief Funds  -   -   (467)  - 
Allocation to non-controlling interests  (358)  (402)  (1,119)  (1,098)
Adjusted EBITDA  (a non-GAAP measure) $18,586  $16,987   58,731   55,797 
                 
Operating Results                
Net income attributable to USPH shareholders $9,254  $9,557  $27,583  $29,551 
Adjustments:                
Change in fair value of contingent earn-out consideration  (187)  (2,000)  (197)  (2,000)
Change in revaluation of put-right liability  145   (785)  344   (771)
Relief Funds  -   -   (467)  - 
Allocation to non-controlling interest  -       33     
Tax effect at statutory rate (federal and state)  11   711   73   708 
Operating Results (a non-GAAP measure) $9,223  $7,483  $27,369  $27,488 
                 
Operating Results per share (a non-GAAP measure) $0.62  $0.58  $1.97  $2.12 
                 
Earnings per share                
  Computation of earnings per share - USPH shareholders:                
Net income attributable to USPH shareholders $9,254  $9,557  $27,583  $29,551 
Charges to retained earnings:                
Revaluation of redeemable non-controlling interest  (2,242)  (196)  (4,988)  (193)
Tax effect at statutory rate (federal and state)  573   50   1,274   49 
  $7,585  $9,411  $23,869  $29,407 
                 
Earnings per share (basic and diluted) $0.51  $0.72  $1.72  $2.27 
                 
Shares used in computation - basic and diluted  14,987   13,001   13,918   12,979 

*Revised to conform to current year presentation.
  Three Months Ended 
  March 31, 2024  March 31, 2023 
  (In thousands, except per share data) 
Adjusted EBITDA  (a non-GAAP measure)      
Net income attributable to USPH shareholders 
$
8,046
  
$
7,410
 
Adjustments:        
Provision for income taxes  
3,139
   
2,969
 
Depreciation and amortization  
4,095
   
3,788
 
Interest expense, debt and other, net  
1,968
   
2,560
 
Interest income from investments  
(1,543
)
  
(64
)
Equity-based awards compensation expense  
1,997
   
1,806
 
Change in revaluation of put-right liability  
80
   
149
 
Change in fair value of contingent earn-out consideration  
(612
)
  
698
 
Relief Funds  
-
   
(467
)
Other income  
(62
)
  
-
 
Allocation to non-controlling interests  
(432
)
  
(371
)
  
$
16,676
  
$
18,478
 
         
Operating Results (a non-GAAP measure)        
Net income attributable to USPH shareholders 
$
8,046
  
$
7,410
 
Adjustments:        
Change in fair value of contingent earn-out consideration  
(612
)
  
698
 
Change in revaluation of put-right liability  
80
   
149
 
Relief Funds  
-
   
(467
)
Allocation to non-controlling interests  
-
   
33
 
Tax effect at statutory rate (federal and state)  
136
   
(105
)
  
$
7,650
  
$
7,718
 
         
Operating Results per share (a non-GAAP measure) 
$
0.51
  
$
0.59
 

For the 2023 Third Quarter, Adjusted EBITDA increased $1.6was $16.7 million for the 2024 First Quarter compared to $18.6 million from $17.0$18.5 million in the 2022 Third2023 First Quarter, with the variance due to the Medicare rate reductions that took effect at the beginning of the year and the adverse impact of weather events in January 2024.  The Medicare rate reductions decreased Adjusted EBITDA by approximately $1.7 million while the adverse weather resulted in a decrease in Adjusted EBITDA of approximately $1.3 million.

Operating Results increased $1.7 million to $9.2was $7.7 million, or $0.62$0.51 per share, in the 2024 First Quarter as compared to $7.7 million, or $0.59 per share, in the 2023 ThirdFirst Quarter, from $7.5 million, or $0.58 per share, inwith the 2022 Third Quarter.  Thedecrease attributable to the increase in both Adjusted EBITDA and Operating Results was primarilyshares outstanding associated with clinic additions since the comparable prior year period.

ForCompany's secondary offering completed in May 2023, as well as the 2023 Nine Months, Adjusted EBITDA, a non-GAAP measure, was $58.7 million, an increaseMedicare rate reduction and adverse impact of $2.9 million, from $55.8 million for the 2022 Nine Months. The increaseweather events in Adjusted EBITDA was primarily associated with clinic additions since the comparable prior year period partially offset by higher corporate office costs. Operating Results, also a non-GAAP measure, was $27.4 million, or $1.97 per share, in the 2023 Nine Months as compared to $27.5 million, or $2.12 per share, in the 2022 Nine Months.January 2024.

35
2023 Third Quarter Compared to 2022 Third Quarter ResultsPhysical Therapy Operations

Our reportable segments include the physical therapy operations segment and the IIP segment. Also included in the physical therapy operations segment are revenues from management contract services and other services which include services we provide on-site, such as athletic trainers for schools.  The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements:

      Three Months Ended      Variance 
  March 31, 2024  March 31, 2023  $
   % 
  (In thousands, except percentages) 
Revenue related to:            
Mature Clinics (1) $123,267  $125,485  $(2,218)  (1.8)%
Clinic additions (2)  7,561   371   7,190   * (6)
Clinics sold or closed (3)  247   725   (478)  * (6)
Net Patient Revenue  131,075   126,581   4,494   3.6%
Other (4)  3,350   2,578   772   29.9%
Total  134,425   129,159   5,266   4.1%
Operating costs (4)  110,361   102,070   8,291   8.1%
Gross profit $24,064  $27,089  $(3,025)  (11.2)%
                 
                 
Financial and operating metrics (not in thousands):                
Net rate per patient visit (1) $103.37  $103.12  $0.25   0.2%
Patient visits (1)  1,268,002   1,227,490   40,512   3.3%
Average daily visits per clinic (1)  29.5   29.8   (0.3)  (1.0)%
Gross margin  17.9%  21.0%        
Salaries and related costs per visit, clinics (5) $61.42  $59.14  $2.28   3.9%
Operating costs per visit, clinics (5) $85.50  $81.97  $3.53   4.3%

 Three Months Ended September 30, 

 2023  2022 

 (In thousands) 
Net revenue:      
Physical therapy operations $130,521  $119,447 
Industrial injury prevention services  19,486   20,155 
Total Company $150,007  $139,602 
         
Gross profit:        
Physical therapy operations $23,505  $22,379 
Industrial injury prevention services  4,424   4,405 
Total Company $27,929  $26,784 
         
Total Assets:        
Physical therapy operations $534,848  $432,683 
Industrial injury prevention services  475,338   367,025 
Total Company $1,010,186  $799,708 

Net Revenue

Total net revenue for 2023 Third Quarter was $150.0 million, an increase of 7.5%, compared to $139.6 million for the 2022 Third Quarter.  The following table provides a breakdown of total net revenue.

  Three Months Ended September 30,  Variance 
  2023  2022  $  % 
  (In thousands, except percentages) 
Revenue related to:             
Mature Clinics (1) $111,943  $111,598  $345   0.3%
2023 clinic additions  3,598   -   3,598   *(2)
2022 clinic additions  11,674   3,899   7,775   *
(2)
Clinics sold or closed (3)  28   1,213   (1,185)  *(2)
Net patient revenue from physical therapy operations  127,243   116,710   10,533   9.0%
Other revenue  889   753   136   18.1%
Physical therapy operations  128,132   117,463   10,669   9.1%
Industrial injury prevention services  19,486   20,155   (669)  (3.3)%
Management contracts  2,389   1,984   405   20.4%
  $150,007  $139,602  $10,405   7.5%

(1)See above for defined terms.
(1) See Glossary of Terms - Revenue Metrics for definitions.
(2)Not meaningful.
(2) Includes 14 clinics added during the 2024 First Quarter and 46 clinic added during the year ended December 31, 2023.
(3)Revenue from closed clinics includes revenue from the eight and 16 clinics closed or sold during the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively.
(3) Includes six clinics closed during the 2024 First Quarter and 15 clinics closed during the year ended December 31, 2023.
(4) Includes revenues and costs from management contracts.
(5) Per visit costs excludes management contract costs.
(6) Not meaningful.

36Revenues

RevenueNet revenue from physical therapy operations increased $10.7$5.3 million, or 9.1%4.1%, to $128.1$134.4 million for the 2024 First Quarter from $129.2 million for the 2023 Third Quarter from $117.5 million for the 2022 ThirdFirst Quarter.  TheThis increase was primarily due to anthe increase in the number of patient visits per day to 29.7 in the 2023 Third Quarter, a record-high average patient visits for a third quarter in our history, as compared to 28.8 for the 2022 Third Quarter, and an increase in volume from the 5832 net new clinics added since the comparable prior year period partially offset by a decreasean approximate $3.6 million adverse impact of weather in January 2024.  Additionally, net rate per patient visit. The number of patient visits increased 10.8% to 1,242,954 for the 2023 Third Quarter from 1,122,070 in the 2022 Third Quarter, with visits at mature clinics up 1.3% over the same periods.

Net rate per patient visit was $102.37 in the 2023 Third Quarter as compared to $104.01 in the 2022 Third Quarter.  The decrease in net rate was due to the combined Medicare rate reductions in 2022 and 2023.  All other payor categories, including commercial and workers compensation, increased as compared to the prior year.  Net rate per patient visit increased sequentially into $103.37 for the 2024 First Quarter from $103.12 for the 2023 ThirdFirst Quarter. This increase was mainly driven by higher reimbursement rates from commercial and other payors as a result of contract negotiations and an increase in workers compensation as a percent of the Company’s total net patient revenues, partially offset by the Medicare rate reductions that took effect at the beginning of the year which decreased net patient revenues by approximately $1.9 million for the 2024 First Quarter. The Medicare rate reductions will be less impactful in future quarters as the Consolidated Appropriations Act of 2024 adjusted the Medicare rate reduction to 1.8% from 3.5%, effective on March 9, 2024.  Other revenues increased $0.8 million, or 29.9%, to $3.4 million for the 2024 First Quarter from the net rate of $102.03 in the three months ended June 30, 2023.

IIP revenue decreased $0.7 million, or 3.3%, to $19.5$2.6 million for the 2023 ThirdFirst Quarter asdue to the increase in the number of management contracts since the comparable prior year period.

Average daily visits per clinic was 29.5 for the 2024 First Quarter compared to $20.2 million29.8 in the comparable prior year quarter. Total patient visits were 1,268,002 in the 2024 First Quarter, a 3.3% increase from 2023 First Quarter.  Average daily visits per clinic in January 2024 of 27.4 were lower than the prior year of 28.9, while average daily visits per clinic in February and March of 2024 were higher than the prior year, the highest volumes for those two months in the 2022 Third Quarter.
Company’s history.

Operating Costscosts

Operating costs were $122.1 million for the 2023 Third Quarter, or 81.4% of net revenue, compared to $112.8 million, or 80.8% of net revenue, for the 2022 Third Quarter. The following table provides a breakdown of operating costs.

  Three Months Ended September 30,  Variance 
  2023  2022   $  % 
Operating costs related to: (In thousands, except percentages) 
Mature Clinics (1) $91,822  $90,811  $1,011   1.1%
2023 Clinic additions  3,395   -   3,395   *(2)
2022 Clinic additions  9,665   3,482   6,183   *(2)
Clinics sold or closed (3)  137   1,238   (1,101)  *(2)
Physical therapy operations  105,019   95,531   9,488   9.9%
Industrial injury prevention services  15,062   15,750   (688)  (4.4)%
Management contracts  1,997   1,537   460   29.9%
  $122,078  $112,818  $9,260   8.2%

(1)See above for defined terms.
(2)Not meaningful.
(3)
Operating costs from closed clinics include costs from the eight and 16 clinics closed or sold during the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively.

Operating costs from physical therapy operations increased $9.5by $8.3 million or 9.9%,8.1% to $105.0$110.4 million in the 2024 First Quarter from $102.1 million in the 2023 Third Quarter from $95.5 million in the 2022 ThirdFirst Quarter primarily driven by costs associated with the 5832 net new clinics added since the comparable prior year period as well as increased patient visits at mature clinics. On a cost per patient visit basis, total physical therapy operatingperiod. Operating costs were $84.49 in82.1% of net revenue for the 2023 Third2024 First Quarter a decrease of 0.8% from $85.14 in the 2022 Third Quarter.

Operating costs from the IIP segment were down $0.7 million, or 4.4%, versus the comparable prior year period.
37
Salaries and Related Costs

Salaries and related costs were $89.8 million or 59.9%compared to 79.0% of net revenue for the 2023 Third Quarter versus $81.8 million or 58.6%First Quarter. On a per visit basis (excluding management contracts), operating costs increased to $85.50 for the 2022 Third2024 First Quarter from $81.97 for the 2023 First Quarter.

36
Salaries and related costs for physical therapy operations were $75.3 million as comparedrelated to $68.4clinics (excluding management contracts) increased to $77.9 million in the 2022 Third2024 First Quarter and 58.8% of physical therapy operations revenuefrom $72.6 million, in the 2023 ThirdFirst Quarter, and 58.3% in the 2022 Third Quarter. On a cost per patient visit basis, physical therapy salariesan increase of $5.3 million, or 7.3%. Salaries and related costs per visit, were $60.35 inrelated to clinics increased to $61.42 for the 2024 First Quarter from $59.14 for the 2023 Third Quarter, a decrease of 1.0% from $60.99 in the 2022 ThirdFirst Quarter. Salaries and related costs for the IIP business were $12.9 million in the 2023 Third Quarter, or 66.1% of IIP revenue, as compared to $12.1 million in the 2022 Third Quarter, or 59.9% of IIP revenue.

Rent, Supplies, Contract Labor and Other

Rent, supplies, contract labor and other costs as a percentagerelated to clinics (excluding management contracts) increased to $28.9 million in the 2024 First Quarter from $26.5 million in the 2023 First Quarter, an increase of total revenue were $30.7$2.4 million, or 20.5% for9.0% mostly due to the 2023 Third Quarter versus $29.7 million or 21.3% for32 net new clinics added since the 2022 Third Quarter.comparable prior year period. Rent, supplies, contract labor and other costs, increased on a per visit basis to $22.80 for physical therapy operations were $28.2the 2024 First Quarter compared to $21.60 for the 2023 First Quarter. Operating costs related to management contracts increased $0.5 million from $1.4 million in the 2023 ThirdFirst Quarter or 22.0% of physical therapy operations revenue, as compared to $25.7$1.9 million in the 2022 Third Quarter, or 21.9% of physical therapy operations revenue. Rent, supplies, contract labor and other costs for the IIP services business were $2.2 million in the 2023 Third Quarter, or 11.2% of IIP revenue, as compared to $3.7 million in the 2022 Third Quarter, or 18.6% of net IIP revenue.2024 First Quarter.

Provision for Credit Losses

The provision for credit losses aswas $1.6 million for the 2024 First Quarter and $1.5 million for the 2023 First Quarter. As a percentage of net revenue wererevenues, the provision for credit losses was 1.0% infor both the 2023 Third2024 First Quarter and the 2022 Third2023 First Quarter. Our allowanceprovision for credit losses for patient accounts receivable as a percentage of total patient accounts receivable was 4.7% on September 30, 2023, as compared to 5.4% on December 31, 2022. Our days’ sales outstanding were  31 days5.0% on both September 30, 2023,March 31, 2024, and December 31, 2022.2023.

Gross Profit

Gross profit forfrom physical therapy operations in the 2023 Third2024 First Quarter increased $1.1decreased $3.0 million, or 4.3%11.2%, to $27.9$24.1 million from $26.8 million for the 2022 Third Quarter. Gross profit margin decreased to 18.6% in the 2023 Third Quarter from 19.2% in the 2022 Third Quarter. The following table provides a detailed breakdown of gross profit and related gross profit margins.

  Three Months Ended September 30,       
  2023  2022  Variance 
  $
  Margin %  $
  Margin %  $  % 
  (In thousands, except percentages) 
Physical therapy operations $23,113   18.0% $21,932   18.7% $1,181   5.4%
Industrial injury prevention services  4,424   22.7%  4,405   21.9%  19   0.4%
Management contracts  392   16.4%  447   22.5%  (55)  (12.3)%
Gross profit $27,929   18.6% $26,784   19.2% $1,145   4.3%

Corporate Office Costs

Corporate office costs were $12.0 million, or 8.0% of net revenue, for the 2023 Third Quarter compared to $11.9 million, or 8.5% of net revenue, for the 2022 Third Quarter.

Operating Income

Operating income for the 2023 Third Quarter was $15.9 million, or 10.6% of net revenue, and $14.9 million, or 10.7% of net revenue, for the 2022 Third Quarter.

38
Other Income and Expense

Total other (expense) income, net, was ($0.1)$27.1 million in the 2023 ThirdFirst Quarter. The gross profit margin from physical therapy operations decreased to 17.9% in the 2024 First Quarter from 21.0% in the 2023 First Quarter.

Industrial Injury Prevention Services

  Three Months Ended  Variance 
  March 31, 2024  March 31, 2023  $
  %
 
  (In thousands, except percentages) 
Net revenue 
$
21,250
  
$
19,350
  
$
1,900
   
9.8
%
Operating costs  
16,913
   
15,582
   
1,331
   
8.5
%
Gross profit 
$
4,337
  
$
3,768
  
$
569
   
15.1
%
                 
Gross margin  
20.4
%
  
19.5
%
        

IIP revenues increased $1.9 million, or 9.8%, to $21.3 million for the 2024 First Quarter as compared to $19.4 million for the 2023 First Quarter. IIP operating costs increased $1.3 million, or 8.5%, versus the comparable prior year period.  Gross profit from IIP operations in the 2024 First Quarter increased $0.6 million, or 15.1%, to $4.3 million from $3.8 million in the 2023 First Quarter. The gross profit margin from IIP operations increased to 20.4% in the 2024 First Quarter from 19.5% in the 2023 First Quarter.

Corporate Office Costs

Corporate costs increased $0.2 million, or 1.6%, to $14.1 million in the 2024 First Quarter from $13.9 million in 2023 First Quarter due to an increase in support costs related to the larger number of clinics and the timing of certain expenses.

Operating Income

Operating income was $14.3 million for the 2024 First Quarter compared to $1.1$17.0 million for the 2023 First Quarter.

37
Other (Expenses) Income

Interest Expense, Debt and Other

Interest expense decreased $0.6 million to $2.0 million (net of $0.9 million savings from the Company’s interest rate swap arrangement discussed below in the 2022 Third Quarter.“Liquidity and Capital Resources – Interest Rate Swap”) for the 2024 First Quarter compared to $2.6 million (net of $0.6 million savings from the interest rate swap arrangement) in the 2023 First Quarter due to a lower outstanding balance on our revolver, which we paid down in May 2023. The interest rate on the Company’s term loan was 4.7% for the 2024 First Quarter and 4.9% for the 2023 First Quarter, with an all-in effective interest rate, including all associated costs, of 5.3% and 5.5% over the same periods, respectively.

Interest income from investment


•
Interest expense, net of $0.9 million savings from the interest rate swap arrangement discussed in the “Liquidity and Capital Resources – Interest Rate Swap” section below, was $2.1 million for the 2023 Third Quarter compared to $2.0 million in the 2022 Third Quarter. The interest rate on the Company’s credit facilities, net of the savings from the interest rate swap, was 4.9% for the 2023 Third Quarter, with an all-in effective interest rate, including all associated costs, of 5.6%.
Interest income from investing excess cash (proceeds(primarily proceeds from the secondary offering sale of ourthe Company’s stock completed in May 2023) in a high-yield savings account was $1.7$1.5 million during the 2023 Third2024 First Quarter.

Change in fair value of contingent earn-out consideration

We revalued contingent earn-out consideration related to certain acquisitions and recognized $0.2resulting in a gain of $0.6 million as income (a reduction infor the related liability) in the 2023 Third2024 First Quarter compared to $2.0an expense of $0.7 million infor the 2022 Third2023 First Quarter.
The
Change in Revaluation of Put-Right Liability

We recorded an expense of $0.1 million on the revaluation of a put-rightput right liability resulted in $0.1 million of expense (an increase in the related liability) for theboth 2024 First Quarter and 2023 Third Quarter compared to $0.8 million of income for the 2022 ThirdFirst Quarter. The put-right which expires in November 2026, relates to a prior IIP acquisition and the potential future purchase of a company that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area.

Equity in earnings of unconsolidated affiliate

Provision for Income Taxes

The provision for income taxes was $3.6 million inFor both the 2023 Third Quarter compared to $3.2 million during the 2022 Third Quarter. The provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 27.8% for the 2023 Third2024 First Quarter and 25.2% for the 2022 Third Quarter. A computation2023 First Quarter, we recognized an income of our effective income tax rate is as follows.

  Three Months Ended September 30, 
  2023  2022 
  (In thousands, except percentages) 
Income before taxes $15,779 ��$16,036 

        
Less: Net income attributable to non-controlling interest:        
Redeemable non-controlling interest - temporary equity  (1,976)  (2,037)
Non-controlling interest - permanent equity  (992)  (1,227)
  $(2,968) $(3,264)
         
Income before taxes less net income attributable to non-controlling interest $12,811  $12,772 
         
Provision for income taxes $3,557  $3,215 
         
Effective income tax rate  27.8%  25.2%

Net Income Attributable to Non-controlling Interest

Net income attributable to non-controlling interest (temporary and permanent) was $3.0 million in the 2023 Third Quarter compared to $3.3 million in the 2022 Third Quarter.

2023 Nine Months Compared to 2022 Nine Months Results.

Our reportable segments in the 2023 Nine Months include the physical therapy operations segment and the IIP segment. Also included in the physical therapy operations segment are revenues from management contract services and other services which include services we provide on-site, such as athletic trainers for schools.  The following table summarizes financial data by segment for the periods indicated and reconciles the data to our consolidated financial statements:

39
  Nine Months Ended September 30, 
  2023  2022 
  (In thousands) 
Net revenue:      
Physical therapy operations $391,919  $353,302 
Industrial injury prevention services  58,082   58,660 
Total Company $450,001  $411,962 
         
Gross profit:        
Physical therapy operations $78,815  $71,513 
Industrial injury prevention services  12,178   12,680 
Total Company $90,993  $84,193 
         
Total Assets:        
Physical therapy operations $534,848  $432,683 
Industrial injury prevention services  475,338   367,025 
Total Company $1,010,186  $799,708 

Net Revenue

Total net revenue for the 2023 Nine Months was $450.0 million, an increase of 9.2%, compared to $412.0 million for the 2022 Nine Months.  The table below provides a breakdown of total net revenue.

  Nine Months Ended September 30,  Variance 
  2023  2022  $  
% 
Revenue related to: (In thousands, except percentages) 
Mature Clinics (1) $340,830  $332,629  $8,201   2.5%
2023 clinic additions  5,888   -   5,888   *(2)
2022 clinic additions  35,965   7,294   28,671   *(2)
Clinics sold or closed (3)  421   4,521   (4,100)  *(2)
Net patient revenue from physical therapy operations  383,104   344,444   38,660   11.2%
Other revenue  2,479   2,523   (44)  (1.7)%
Physical therapy operations  385,583   346,967   38,616   11.1%
Industrial injury prevention services  58,082   58,660   (578)  (1.0)%
Management contracts  6,336   6,335   1   0.0%

 $450,001  $411,962  $38,039   9.2%

(1)See defined terms above.

(2)Not meaningful.

(3)Revenue from closed clinics includes revenue from the eight and 16 clinics closed or sold during the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively.

Revenue from physical therapy operations increased $38.6 million, or 11.1%, to $385.6 million for the 2023 Nine Months from $347.0 million for the 2022 Nine Months primarily due to higher average visits per clinic per day (30.0 for the 2023 Nine Months versus 28.7 for the 2022 Nine Months) and an increase in volume from the 58 net new clinics added since the comparable prior year period, partially offset by a decrease in net rate per visit. The number of patient visits increased 12.2% to 3,737,584 for the 2023 Nine Months from 3,331,143 for the 2022 Nine Months, with patient visits at our mature clinics up 3.2% over the same periods.

Net rate per patient visit decreased to $102.50 in the 2023 Nine Months from $103.40 in the 2022 Nine Months due to the combined Medicare rate reductions in 2022 and 2023, including the discontinuation of sequestration relief on Medicare visits effective in July 2022.

40
Revenue from IIP decreased slightly to $58.1 million for the 2023 Nine Months as compared to $58.7 million for the 2022 Nine Months.

Operating Costs

Operating costs were $359.0 million for the 2023 Nine Months, or 79.8% of net revenue, compared to $327.8 million, or 79.6% of net revenue, for the 2022 Nine Months.

  Nine Months Ended September 30,  Variance 
  2023  2022  $  % 
Operating costs related to: (In thousands, except percentages) 
Mature Clinics (1) $273,031  $266,324  $6,707   2.5%
2023 Clinic additions  5,701   -   5,701   *(2)
2022 Clinic additions  28,175   6,597   21,578   *(2)
Clinics sold or closed (3)  880   3,877   (2,997)  *(2)
Physical therapy operations  307,787   276,798   30,989   11.2%
Industrial injury prevention services  45,904   45,980   (76)  (0.2)%
Management contracts  5,317   4,991   326   6.5%
  $359,008  $327,769  $31,239   9.5%

(1)
See Glossary of Terms - Revenue Metrics for the definition.
(2)Not meaningful.
(3)Operating costs from closed clinics include costs from the eight and 16 clinics closed or sold during the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively

Physical therapy operating costs increased $31.0 million, or 11.2%, to $307.8 million in the 2023 Nine Months from $276.8 million in the 2022 Nine Months primarily driven by costs associated with the 58 net new clinics added since the comparable prior year period as well as the 3.2% increase in patient visits at mature clinics. On a cost per patient visit basis, physical therapy operating costs were $82.35 for the 2023 Nine Months, a decrease of 0.9% from $83.09 for the 2022 Nine Months.

Operating costs from IIP decreased slightly to $45.9 million during the 2023 Nine Months from $46.0 million during the 2022 Nine Months.

Salaries and Related Costs

Salaries and related costs were $262.8 million or 58.4% of net revenue for the 2023 Nine Months versus $236.9 million or 57.5% of net revenue for the 2022 Nine Months. Salaries and related costs for physical therapy operations were $220.6 million in the 2023 Nine Months, or 57.2% of physical therapy operations revenue, as compared to $197.7 million in the 2022 Nine Months, or 57.0% of physical therapy operations revenue. On a cost per patient visit basis, physical therapy salaries and related costs per visit were $59.01 for the 2023 Nine Months, a decrease of $0.6% from $59.34 for the 2022 Nine Months. Salaries and related costs for our IIP business was $37.5 million in the 2023 Nine Months, or 64.6% of IIP revenue, as compared to $34.8 million in the 2022 Nine Months, or 59.3% of IIP revenue.

Rent, Supplies, Contract Labor and Other

Rent, supplies, contract labor and other costs as a percentage of total revenue were $91.7 million or 20.4% for the 2023 Nine Months versus $86.7 million or 21.0% for the 2022 Nine Months. Rent, supplies, contract labor and other costs for physical therapy operations were $82.4 million in the 2023 Nine Months, or 21.4% of physical therapy operations revenue, as compared to $75.0 million in the 2022 Nine Months, or 21.6% of physical therapy operations revenue. Rent, supplies, contract labor and other costs for the IIP business were $8.4 million in the 2023 Nine Months, or 14.5% of IIPrevenue, as compared to $11.1 million in the 2022 Nine Months, or 18.9% of net IIP revenue.

41
Provision for Credit Losses

The provision for credit losses as a percentage of total revenue was 1.0% in both the 2023 Nine Months and the 2022 Nine Months.

Gross Profit

Gross profit increased $6.8 million, or 8.1%, to $91.0 million for the 2023 Nine Months from $84.2 million for the 2022 Nine Months. Gross profit margin decreased slightly to 20.2% in the 2023 Nine Months from 20.4% in the 2022 Nine Months. The following table provides a detailed breakdown of gross profit and related gross profit margins.

  Nine Months Ended September 30,    
  2023  2022  Variance 
  $
  Margin %  $
  Margin %  $  % 
  (In thousands, except percentages) 
Physical therapy operations $77,796   20.2% $70,169   20.2% $7,627   10.9%
Industrial injury prevention services  12,178   21.0%  12,680   21.6%  (502)  (4.0)%
Management contracts  1,019   16.1%  1,344   21.2%  (325)  (24.2)%
Gross profit $90,993   20.2% $84,193   20.4% $6,800   8.1%

Corporate Office Cost

Corporate office costs were $38.1 million, or 8.5% of net revenue, for the 2023 Nine Months compared to $34.2 million, or 8.3% of net revenue, for the 2022 Nine Months. The increase of $3.9 million, or 11.3%, in corporate office costs was primarily due to higher salaries related to merit increases, staff additions to support a larger number of clinics and inflationary and related impacts.

Operating Income

Operating income increased 5.9%, to $52.9 million, or 11.8% of net revenues, for the 2023 Nine Months from $50.0 million, or 12.1% of net revenues, in the 2022 Nine Months.

Other Income and Expense

Total other (expense) income was ($3.7) million during the 2023 Nine Months compared to $1.0 million during the 2022 Nine Months.


•
Interest expense, net of $2.3 million savings from the interest rate swap arrangement discussed in the “Balance Sheet and Cash Flow” section below, was $7.3 million for the 2023 Nine Months compared to $3.5 million in the 2022 Nine Months. The increase in interest expense was primarily due to a higher effective interest rate and increased borrowings to fund acquisitions. The effective interest rate on the Company’s credit facilities, net of the savings from the interest rate swap, was 5.1% for the 2023 Nine Months, with an all-in interest rate, including all associated costs, of 5.7%.
Interest income from investing excess cash (proceeds from the secondary offering sale of our stock completed in May 2023) in high-yield savings account was $2.2 million during the 2023 Nine Months.
We revalued contingent earn-out consideration related to acquisitions and recognized $0.2 million as income (a reduction in the related liability) in the 2023 Nine Months compared to $2.0 million in the 2022 Nine Months.
The revaluation of a put-right liability resulted in $0.3 million of expense (an increase in the related liability) for the 2023 Nine Months compared to $0.8 million of income (a decrease in the related liability) for the 2022 Nine Months. The put-right, which expires in November 2026, relates to the potential future purchase offrom a company that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area.
During the 2023 Nine Months, we recognized $0.5 million of income received under the Coronavirus Aid, Relief and Economic Security Act (“Relief Funds”). The Relief Funds were received in prior years but were subject to certain compliance requirements which were met in the first quarter of 2023. We do not expect to receive or recognize any future Relief Funds. No such income was recognized in the 2022 Nine Months.

42
Through a subsidiary, we have a 49% joint venture interest in a company thatwhich provides physical therapy services for patients at hospitals. Since we are deemed to not have a controlling interest in the joint venture, our investment is accounted for using the equity method of accounting. The investment balance of this joint venture as of September 30, 2023, is $12.3 million. Equity in earnings of this unconsolidated affiliate was $0.8 million and $1.0 million in the 2023 Nine Months and the 2022 Nine Months, respectively.

Provision for Income Taxes

The provision for income taxes was $10.8$3.1 million forin the 2024 First Quarter compared to $3.0 million during the 2023 Nine Months compared to $11.0 million forFirst Quarter while the 2022 Nine Months. The provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest (effectiveeffective tax rate) wasrates were 28.1% forand 28.6% over the 2023 Nine Months and 27.0% for the 2022 Nine Months. computation of our effective income tax rate is as follows:same periods, respectively.

 Nine Months Ended September 30,  Three Months Ended 
 2023 2022  March 31, 2024 March 31, 2023 
 (In thousands, except percentages)  (In thousands, except percentages) 
Income before taxes $49,270 $51,011  
$
14,756
  
$
14,396
 
             
Less: net income attributable to non-controlling interest:     
Less: Net income attributable to non-controlling interest:        
Redeemable non-controlling interest - temporary equity (7,616) (7,220)  
(2,227
)
  
(2,720
)
Non-controlling interest - permanent equity  (3,314)  (3,288)  
(1,344
)
  
(1,297
)
 $(10,930) $(10,508) 
$
(3,571
)
 
$
(4,017
)
             
Income before taxes less net income attributable to non-controlling interest $38,340 $40,503  
$
11,185
  
$
10,379
 

             
Provision for income taxes $10,757 $10,952  
$
3,139
  
$
2,969
 

             
Percentage  28.1%  27.0%
Effective income tax rate  
28.1
%
  
28.6
%

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Net Income Attributable to Non-controlling Interest

Net income attributable to redeemable non-controlling interest (temporary and permanent)equity) was $10.9$2.2 million in the 2024 First Quarter compared to $2.7 million in the 2023 First Quarter. Net income attributable to non-controlling interest (permanent equity) was $1.3 million for both the 2024 First Quarter and the 2023 Nine Months and $10.5 million for the 2022 Nine Months.First Quarter.

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LIQUIDITY AND CAPITAL RESOURCES

We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. On September 30, 2023, and December 31, 2022, we had $147.7 million and $31.6 million, respectively, inTotal cash and cash equivalents. equivalents were $132.3 million as of March 31, 2024 and $152.8 million as of December 31, 2023. Additionally, we had $145.3$143.4 million of outstanding borrowings and $175.0 million in available credit under our revolving credit facilitiesRevolving Facility as of September 30, 2023March 31, 2024, compared to $179.1$144.4 million of outstanding borrowings and $144.0$175.0 million in available credit under our Revolving Credit FacilitiesFacility as of December 31, 2022.

As discussed above, in May 2023 we completed a secondary offering of our common stock resulting in net proceeds of $163.6 million, after deducting the underwriting discount and certain offering expenses. A portion of the net proceeds was used to repay the $35.0 million then outstanding under our Revolving Credit Facility while the remainder is expected to be used primarily for acquisitions. The Company’s cash is currently invested in a high-yield savings account which generated interest income of approximately $1.7 million and $2.2 million in the three and nine months ended September 30, 2023, respectively.2023.

We believe that our cash and cash equivalents and availability under our Senior Credit Facilities are sufficient to fund the working capital needs of our operating subsidiaries through at least September 30, 2024.March 31, 2025.

Historically, we have generated sufficient cash from operations to fund our development activities and to cover operational needs. We plan to continue developing new clinics and making additional acquisitions. We have, from time to time, purchased the non-controlling interests of limited partners in our existing partnerships. We may purchase additional non-controlling interests in the future.  Generally, any acquisition or purchase of non-controlling interests is expected to be accomplished using our cash, financing, or a combination of the two.

We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts. Claims are submitted to payors daily, weekly or monthly in accordance with our policy or payor’s requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting CMS approval initially may not be submitted for six months or more. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-pay payor type receivables, the write-off generally occurs after the account receivable has been outstanding for 120 days or longer.  As of September 30, 2023,March 31, 2024, we have accrued $8.0$7.9 million related to credit balances, a portion of which is due to patients and payors.  The credit balances are expected to be resolved or paid in the next twelve months.

Cash Flow

A summary of our operating, investing and financing activities is discussed below.

  Three Months Ended 
  March 31, 2024  March 31, 2023 
       
Net cash provided by operating activities 
$
4,419
  
$
11,349
 
Net cash used in investing activities  
(20,464
)
  
(12,681
)
Net cash (used in) provided by financing activities  
(4,490
)
  
2,343
 
During the 2023 Nine Months, $55.1 million of cash was
Operating Activities

Cash provided by operating activities $36.6was $4.4 million for the 2024 First Quarter as compared to $11.3 million for the 2023 First Quarter.  This decrease in cash provided was mostly due to the timing of payments related to payroll.

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Investing Activities

Cash used in investing activities for the 2024 First Quarter totaled $20.5 million and $97.5consisted of $19.2 million was provided by financing activities. The major uses of cash for investing activities included:used in the purchase of majority interestinterests in businesses ($23.0 million)and non-controlling interests (temporary and permanent), purchaseand $1.8 million of fixed assets purchases.  These uses were partially offset by $0.1 million proceeds from the sale of non-controlling interests (temporary and permanent) and $0.4 million distributions received from existing partners ($8.1 million) and purchase of fixed assets ($7.1 million), while cash provided byan unconsolidated affiliate.

Financing Activities

Cash used in financing activities included: proceeds fromfor the secondary offering discussed above ($163.6 million) offset by net payments2024 First Quarter, totaled $4.5 million and was comprised primarily of borrowings under our credit facilities ($33.8 million), dividends paid to shareholders ($17.7 million), and$3.2 million in distributions to non-controlling interests ($11.8 million).(temporary and permanent) and payments of $1.3 million related to notes payable and the term note.

Senior Credit Facilities

On December 5, 2013, we entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended and/or restated in August 2015, January 2016, March 2017, November 2017, and January 2021. On June 17, 2022, we entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”) among Bank of America, N.A., as administrative agent (“Administrative Agent”) and the lenders from time-to-time party thereto.

The Credit Agreement, which matures on June 17, 2027, provides for loans in an aggregate principal amount of $325 million. Such loans will be available through the following facilities (collectively, the “Senior Credit Facilities”):

1)          
1)Revolving Facility: $175 million, five-year, revolving credit facility (“Revolving Facility”), which includes a $12 million sublimit for the issuance of standby letters of credit and a $15 million sublimit for swingline loans (each, a “Swingline Loan”).

2)          
2)Term Facility: $150 million term loan facility (the “Term Facility”). The Term Facility amortizes in quarterly installments of: (a) 0.625% in each of the first two years, (b) 1.250% in the third and fourth year, and (c) 1.875% in the fifth year of the Credit Agreement. The remaining outstanding principal balance of all term loans is due on the maturity date.

The proceeds of the Revolving Facility have been and shall continue to be used by us for working capital and other general corporate purposes of our Company and its subsidiaries, including to fund future acquisitions and invest in growth opportunities. The proceeds of the Term Facility were used by us to refinance the indebtedness outstanding under the Second Amended and Restated Credit Agreement, to pay fees and expenses incurred in connection with the loan facilities transactions, for working capital and other general corporate purposes.

We will beare permitted to increase the Revolving Facility and/or add one or more tranches of term loans in an aggregate amount not to exceed the sum of (i) $100 million plus (ii) an unlimited additional amount, provided that (in the case of clause (ii)), after giving effect to such increases, the pro forma Consolidated Leverage Ratio (as defined in the Credit Agreement) would not exceed 2.0:1.0, and the aggregate amount of all incremental increases under the Revolving Facility does not exceed $50,000,000.

The interest rates per annum applicable to the Senior Credit Facilities (other than in respect of Swingline Loans) will be Term SOFR as defined in the agreement plus an applicable margin or, at our option, an alternate base rate plus an applicable margin. The interest rate for the 2023 Nine Months on our Senior Credit Facilities, net of the savings from the interest rate swap described below, was 5.1%, with an all-interest rate, including all associated costs, of 5.7%. Interest is payable at the end of the selected interest period but no less frequently than quarterly and on the date of maturity.

We will also pay to the Administrative Agent, for the account of each lender under the Revolving Facility, a commitment fee equal to the actual daily excess of each lender’s commitment over its outstanding credit exposure under the Revolving Facility (“unused fee”). We may prepay and/or repay the revolving loans and the term loans, and/or terminate the revolving loan commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions.

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The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends, and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets. The Credit Agreement includes certain financial covenants which include the Consolidated Fixed Charge Coverage Ratio and the Consolidated Leverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains customary events of default.

Our obligations under the Credit Agreement are guaranteed by our wholly owned material domestic subsidiaries (each, a “Guarantor”), and our obligations and any Guarantors are secured by a perfected first priority security interest in substantially all of our existing and future personal property and each Guarantor, subject to certain exceptions.

As of September 30, 2023, $143.7March 31, 2024, $142.1 million, net of unamortized debt issuance costs of $1.6$1.4 million, was outstanding on the Term Facility while none was outstanding under the Revolving Facility resulting in $175.0 million of credit availability. As of September 30, 2023,March 31, 2024, we were in compliance with all of the covenants contained in the Credit Agreement. The averageinterest rate on the Company’s term loan was 4.7% for the 2024 First Quarter and 4.9% for the 2023 First Quarter, with an all-in effective interest rate, net of the savings from interest rate swap discussed below, for borrowings under the Senior Credit Facility, inclusive ofincluding all associated costs, were 5.6%of 5.3% and 5.7% for5.5% over the 2023 Third Quarter and 2023 Nine Monthssame periods, respectively.

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Interest Rate Swap

In May 2022, we entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A, which became effective on June 30, 2022.N.A. It has a $150 million notional value adjusted concurrently with scheduled principal payments made on the term loan and has a maturity date of June 30, 2027. Beginning in July 2022, we receive 1-month SOFR, and pay a fixed rate of interest of 2.815% on 1-month SOFR on a quarterly basis. The total interest rate in any period also includes an applicable margin based on our consolidated leverage ratio. In connection with the swap, no cash was exchanged between us and the counterparty.

We designated our interest rate swap as a cash flow hedge and structured it to be highly effective. Consequently, unrealized gains and losses related to the fair value of the interest rate swap are recorded to accumulated other comprehensive income (loss), net of tax.

As of September 30, 2023,March 31, 2024, the fair value of the interest rate swap was $7.7$5.5 million, an increase of $1.7$1.3 million, net of a $0.6$0.5 million, income tax effect, as compared to December 31, 2022.2023. The fair value of the interest rate swap is included in otherOther assets (current and long term) in our consolidated balance sheet while the increase in fair value is presented as unrealized gain in our unaudited consolidated statements of comprehensive income. The interest rate swap arrangement has generated $2.3$0.9 million in interest savings since its inception.for the period March 31, 2024. The average interest rate for the term facility, net of the savings from the swap, in each of the 2023 Third2024 First Quarter and 2023 Nine Months was 4.9%4.7%.

Notes Payable and Deferred Payments Related to Acquisitions

We generally enter into various notes payable as a means of financing our acquisitions. Our present outstanding notes payable primarily relate to the acquisitions of a business or acquisitions of majority interests in such businesses. At September 30, 2023,March 31, 2024, our remaining outstanding balance on these notes aggregated $5.3 million. $1.6$3.9 million, of the outstanding notes payable are payable in 2023, $2.4which $3.1 million is payable in 2024,2025, and $1.3$0.8 million is payable in 2025.2026. Notes are generally payable in equal annual installments of principal over two years plus any accrued and unpaid interest. Interest accrues at various interest rates ranging from 3.25%3.5% to 8.0%8.5% per annum.

On March 29, 2024, we acquired a 50% equity interest in a nine-clinic physical therapy and hand therapy practice. The original owners of the practice retained the remaining 50%. The purchase price for the 50% equity interest was approximately $16.4 million, of which $0.5 million was in the form of a note payable. The note accrues interest of 4.5% per annum and the principal and the interest are payable on March 29, 2026. Additionally, we have an obligation to pay an additional amount based on certain future operational objectives being met. There is no maximum payout.

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On September 29, 2023, we acquired a 70% equity interest in a four-clinic physical therapy practice. The owner of the practice retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $6.0 million, of which $5.4 million was paid in cash, and $0.6 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and interest are payable in two installments. The first payment of principal and interest of $0.3 million is due onwas paid January 31, 2024, and the second installment of $0.3 million is due on September 30, 2025.

In a separate transaction, on September 29, 2023, we acquired a 70% equity interest in a single clinic physical therapy practice. The owner of the practice retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $7.8 million, of which $7.4 million was paid in cash and $0.4 million is a deferred payment due on June 30, 2025.

On July 31, 2023, we acquired a 70% equity interest in a five-clinic practice. The practice’s owners retained a 30% equity interest. The purchase price for the 70% equity interest was approximately $2.1 million, of which $1.8 million was paid in cash and $0.3 million is a deferred payment due on June 30, 2025.

On May 31, 2023, we and a local partner together acquired a 75% interest in a four-clinic physical therapy practice. After the transaction, our ownership interest is 45%, our local partner’s ownership interest is 30%, and the practice’s pre-acquisition owners have a 25% ownership interest. The purchase price for the 75% equity interest was approximately $3.1 million, of which $1.7 million was paid in cash by us, $1.1 million was paid in cash by the local partner, and $0.3 million was in the form of a note payable, (of which $0.2 million will be paid by us and $0.1 million will be paid by the local partner). The note will be paid on July 1, 2024. We guaranteed the full payment of $0.3 million on its due date.

On February 28, 2023, we acquired an 80% interest in a one-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately $6.2 million, of which $5.8 million was paid in cash and $0.4 million in the form of a note payable. The note accrues interest at 4.5% per annum and the principal and interest are payable on February 28, 2025.

46
On November 30, 2022, we acquired an 80% interest in a thirteen-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately $25.0 million, of which $24.2 million was paid in cash and $0.8 million in the form of a note payable. The note accrues interest at 7.0% per annum and the principal and interest are payable on November 30, 2024.

On October 31, 2022, we acquired a 60% interest in a fourteen-clinic physical therapy practice. The practice’s owners retained 40% of the equity interests. The purchase price for the 60% equity interest was approximately $19.5 million, with a potential additional amount to be paid at a later date based on the performance of the business. This contingent consideration had a fair value of $8.1 million on September 30, 2023. The fair value of this contingent consideration will be adjusted quarterly based on certain criteria and market inputs. There is no maximum payout for this contingency.

On September 30, 2022, we acquired an 80% interest in a two-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately $4.2 million, of which $3.9 million was paid in cash and $0.3 million in the form of a note payable.  The note accrues interest at 5.5% per annum and the principal and interest are payable on September 30, 2024.

On August 31, 2022, we acquired a 70% interest in a six-clinic physical therapy practice. The practice’s owners retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $3.5 million, of which $3.3 million was paid in cash and $0.2 million in the form of a note payable.  The note accrues interest at 5.5% per annum and the principal and interest are payable on August 31, 2024.

On March 31, 2022, we acquired a 70% interest in a six-clinic physical therapy practice. The practice’s owners retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $11.5 million, of which $11.2 million was paid in cash and $0.3 million is in the form of a note payable.  The note accrues interest at 3.5% per annum and the principal and interest are payable on March 31, 2024.

Redeemable Non-Controlling Interest

Certain limited partnership agreements, as amended, provide that, upon the triggering events, we have a call right and the selling entity or individual has a put right for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the put right and the call right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon the exercise of either the put right or the call right is calculated per the terms of the respective agreements and classified as redeemable non-controlling interest (temporary equity) in our consolidated balance sheets. The fair value of the redeemable non-controlling interest at September 30, 2023interests on March 31, 2024, was $174.7$190.7 million.

In the event that a limited minoritynon-controlling partner’s employment ceases at any time after a specified date that is typically between three and five years from the acquisition date, we have agreed to certain contractual provisions which enable such minority partners to exercise their right to trigger our repurchase of that partner’s non-controlling interest at a predetermined multiple of earnings before interest and taxes.

Share Repurchase Program

In March 2009, the Board authorized the repurchase of up to 10% of our common stock (“March 2009 Authorization”). Our Credit Agreement permits share repurchases of up to $50.0 million in the aggregate, subject to compliance with certain covenants. We are required to retire shares purchased under the March 2009 Authorization.  There is no expiration date for the share repurchase program.

As of September 30, 2023, there are currently an additional estimated 163,523 shares (based on the closing price of $91.73 on September 30, 2023) that may be purchased from time to time in the open market or private transactions depending on price, availability and our cash position. We did not purchase any shares of our common stock during the three and nine months ended September 30, 2023, or during the year ended December 31, 2022.

47
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We maintain an interest rate swap arrangement which is considered a derivative instrument. Our indebtedness as of September 30, 2023March 31, 2024 was the outstanding balance of seller notes from our acquisitions of $5.3$3.9 million, and an outstanding balance on our term note related to the Credit Agreement of $145.3$143.4 million. We doThe Revolving Facility does not have a balance on the Revolving Facility as of September 30, 2023. The Revolving Credit FacilityMarch 31, 2024, and is subject to fluctuating interest rates. A 1% change in the interest rate would yield no additional interest expense on the facility because of the interest rate swap described above. See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources for more information.information.

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ITEM 4.CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company’s management completed an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded (i) that our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure and (ii) that our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the period covered by this reportquarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS.

We are a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of our business. We cannot predict the ultimate outcome of pending litigation, proceedings, and regulatory and other governmental audits and investigations. These matters could potentially subject us to sanctions, damages, recoupments, fines, and other penalties. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to our businesses in the future that may, either individually or in the aggregate, have a material adverse effect on our business, financial position, results of operations, and liquidity.

ITEM 1A.RISK FACTORS.

There have been no material changes
The Company added the following risk factor in addition to our previously disclosed risk factors as previously disclosed in Item 1A contained in Part I of our Annual Report on Form 10-K for the year ended December 31, 20222023, and filed with the SEC on February 28, 202329, 2024.

If our noncompetition covenants with employed therapists are nullified, we  may lose staff to competitors.
Many of our employed therapists have contractual non-competition  agreements and Quarterly Reports on Form 10-Q for the first quarter ended March 31, 2023 filedcovenants with the SEC on May 5, 2023, andCompany which, under certain  circumstances, limit the second quarter ended June 30, 2023 filedemployee's ability to terminate their employment with the SECCompany to perform similar services for competing organizations within  a defined geography for a specified period time after such termination.  The  Federal Trade Commission recently passed a Rule which purports to prohibit  many forms of non-competition agreements with employees and, if the Rule  becomes effective in its current form, also would require the Company,  subject to certain exceptions, to nullify certain existing noncompetition  agreements with employees.  While the Rule is being challenged in federal  court and is not effective, if the Rule in its current form or in a substantially  similar form becomes effective, the Company could suffer a loss of staff  which could have a material adverse effect on August 9, 2023.operations.

ITEM 5.
OTHER INFORMATION.

Rule 105b-1 Trading Plans

The Company’s directors and executive officers do not currently have 10b5-1plans. During the three and nine months ended September 30, 2023,March 31, 2024, none of our directors or executive officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of our securities to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.

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ITEM 6.EXHIBITS.

Exhibit
Number
Description
99.1
U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2024, effective March 6, 2024 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 7, 2024].
99.2
U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2024, effective March 6, 2024 [incorporated by reference to Exhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on March 7, 2024].
99.3
U. S. Physical Therapy, Inc. Objective Cash/RSA Bonus Plan for Senior Management for 2024, effective March 6, 2024 [incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on March 7, 2024].
99.4
U. S. Physical Therapy, Inc. Discretionary Cash/RSA Bonus Plan for Senior Management for 2024, effective March 6, 2024 [incorporated by reference to Exhibit 99.4 to the Company Current Report on Form 8-K filed with the SEC on March 7, 2024].
31.1*
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2*
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32*
Certification Pursuant to 18 U.S.C 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.


U.S. PHYSICAL THERAPY, INC.



Date: NovemberMay 8, 20232024By:
/s/ Carey Hendrickson
 
Carey Hendrickson
 
Chief Financial Officer
 
(Principal financial and accounting officer)


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