U.S. Physical Therapy Q2 2025 Earnings Report

U.S. Physical Therapy EPS Results

• Actual EPS: $0.81
• Consensus EPS: $0.71
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: $0.73

U.S. Physical Therapy Revenue Results

• Actual Revenue: $197.34 million
• Expected Revenue: $190.24 million
• Beat/Miss: Beat by +$7.10 million
• YoY Revenue Growth: +18.00%

U.S. Physical Therapy Announcement Details

• Quarter: Q2 2025
• Date: 8/6/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 10:30AM ET

U.S. Physical Therapy (NYSE:USPH) operates outpatient physical therapy clinics. The company operates through Physical Therapy Operations and Industrial Injury Prevention Services segments. The company provides pre-and post-operative care and treatment for orthopedic-related disorders, sports-related injuries, preventative care, rehabilitation of injured workers, and neurological-related injuries. It offers industrial injury prevention services, including onsite injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations, and ergonomic assessments through physical therapists and specialized certified athletic trainers for Fortune 500 companies, and other clients comprising insurers and their contractors. U.S. Physical Therapy, Inc. was founded in 1990 and is based in Houston, Texas.

U.S. Physical Therapy Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Record volumes: Q2 visits per clinic per day rose to 32.7 from 30.6 last year, marking a new quarterly high.
• Positive Sentiment: Exceptional patient satisfaction: Net promoter score reached 93.5 company-wide, indicating strong referrals and loyalty.
• Positive Sentiment: IIP unit momentum: Injury prevention revenue grew 22.6% and gross profit jumped 25.8% year-over-year on continued large contract wins.
• Negative Sentiment: Medicare rate cuts: Sequential Medicare reimbursement reductions continue to shave roughly $25 million off annual profit, despite a proposed 2026 increase.
• Positive Sentiment: Strong margins & guidance: PT gross margin improved to 21.1%, leading to an upward revision of full-year adjusted EBITDA guidance to $93–97 million.

Presentation

[Operator]

Good day and thank you for standing by. Welcome to the U. S. Physical Therapy Second Quarter twenty twenty five Full Year Earnings Conference Call. At this time, all participants are in a listen only mode.

[Operator]

After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference call is being recorded. I'd now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Thank you. Good morning, everyone, and welcome to U. S. Physical Therapy's second quarter twenty twenty five earnings call. With me on the call include Carrie Hendrickson, our Chief Financial Officer Eric Williams, our President and Chief Operating Officer in the East Graham Reeve, the chief operating operating officer in the West Rick Benstein, our executive vice president and general counsel Jason Curtis, our senior vice president, accounting and finance area.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Before we begin today's call, we need to cover a brief disclosure, which I'll ask Jason to go ahead and read.

[Jason Curtis, SVP - Finance & Accounting at US Physical Therapy]

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

[Jason Curtis, SVP - Finance & Accounting at US Physical Therapy]

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

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Thanks, Jason. So guys, I'm going to do this, I think, a lot like I did it last time, more of a candid overview, allows me to tell the story a little bit better. I wanna start out by thanking our partners, our staff, and our home office support around the country. They're just doing an excellent job. I'm going to share with you some statistics that we don't normally share, we haven't shared before that relates to a patient sentiment around our care.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

So the clinical staff, our partners, they're doing a wonderful job. We've had good strong focus and execution in a number of different areas this quarter. We'll talk about also want to mention our industrial injury prevention partnerships. Both are really firing on all cylinders at this point. We've added a number of very large opportunities, some of which haven't even started yet.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And we continue to be very, very bullish about that part of our business. As we go through the stats, you'll understand why. So for the first so for this second quarter, talk about physical therapy first and volumes, a record second quarter for us. As you guys know, second quarter is typically our busiest quarter in terms of peak volume. And so every second quarter pretty much, you know, last year, the same was a record quarter for us a year ago.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

This year, our visits per clinic per day jumped to 32.7, up really nicely from, again, last year's second quarter record of 30.6. So the drivers around this, I think, more than anything are happy patients who love us at the end of their care, who refer their family and friends, and neighbors to us. And when pickleball happens, you know, a year or two down the road, they come back and see us. This is the stat I wanna share with you that we really haven't talked about before. It's not a new stat for us.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

We measure it every quarter. We have an outside company, tabulate our surveys. This is company wide. Our net promoter score is 93.5. Now just to give you some perspective before this call, I googled what's a good net promoter score for a health care company.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And I got two answers. Good was 30 and excellent was 50. And so the way that the way that we get these results tabulated, we're able to see what percentage of patients are active promoters of our business, and we're at ninety five percent. Only one percent of our patients as a as a negative or detractor. So that puts us in amazingly good standing and an category.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Part of the reason for our success, obviously, it's what we try to do every day. On the injury prevention side, again, I can't say enough good things about our teams. Both partnerships doing really well. Revenues up 22.6%. Gross profit up 25.8% compared to the prior year quarter.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And again, we're working on some really large contracts, one new in the auto industry, actually several new, many, one really large one and one, very large one to come here later in the later in the year. Revenues in PT were also strong, increasing 17.3%. We added over 50 net clinics compared to the prior year period. And for the first time through this first six months, we exceeded 3,000,000 visits on a year to date so far. We're also able to drive a slight increase in our net rate despite the Medicare headwinds, which you guys know all too well about.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And I just want to point out that if you go back to when just the period before these Medicare cuts started, which have been sequential layered cuts for a number of years, The impact in this year on on those stacked cuts is right around $25,000,000. That's straight off profit line. It's been a huge impact. It's been a major headwind on a year over year basis. I can't remember exactly, Carrie can tell us, but between 5,000,000 and $6,000,000 compared to last year and this year.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

That's 8%, 8.5% of our earnings on last year's number, even a little bit more than that. And so to grow over 20% with that kind of a headwind consistently, we're really happy about right now things are coming together. Our cost our salaries and related cost was up on a per visit basis ever so slightly less than 1%, but our overall cost per visit was down slightly. And really, I think beginning March and continuing forward, we're beginning to get traction on a number of initiatives that we've been working on that will help us impact cost, that will help us continue to drive more volume and we're feeling better about things right now that we have in some time. When you look at PT, our gross profit margin, and we're going to say adjusted very, very slightly, I think around a couple $100,000 only relating to an incentive payment that Metro had as a result of closing that deal.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Our gross profit margin came in at 21.1% for the quarter. So that is a nice move forward as well. On the development front, we've added home care business, a couple of physical therapy acquisitions. We have more to come for the remainder of the year. And we intend to focus hard on our injury prevention business, the organic and the overall growth elements in that business, the margins, just the performance of both those teams.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

We widened our industry verticals in that space. We widened our service offerings in that space. We're competing, and winning large contracts. We're able to do that with some margin improvement as well. And so that business is very strong for us has continued to be strong really for a very long time.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

The combination of these positive factors has caused us to look out over the remainder of the year and increase guidance, which is now between 93,000,000 and $97,000,000 in adjusted EBITDA. And then before I turn it over to Carrie, because I skipped through a lot of things, I wanted to tell the story. Carrie's gonna go through the numbers with a little bit more granularity. Again, I just wanna thank our teams. At times, you know, we endeavor every day to try to make a difference, to try to make a positive impact in patients' lives or or within the injury prevention space, in the lives of the workers who are working at our nation's largest companies, most prestigious companies.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And we're we're having an impact. We're making the world in our little little way, better, and and we feel really good about that. So again, I want to thank everybody that's involved in that. It's making a difference and we appreciate it very much. Kerry, if you would, go ahead.

[Carey Hendrickson, CFO at US Physical Therapy]

Great. Thank you, Chris, and good morning, everyone. As Chris mentioned, we're very pleased with our second quarter results. And a few performance metrics that stood out to me, we achieved a new record company record 32.7 average visits per clinic per day. That was the highest in our history.

[Carey Hendrickson, CFO at US Physical Therapy]

Our salaries and related costs, as Chris mentioned, increased slightly, just 0.7% compared to the prior year. That's the smallest increase in that metric we've had since the 2023. Our total operating cost per visit actually decreased year over year. Our PT margin, as Chris noted, improved to 21.1%, up from 20.1% in the second quarter of last year. Our organic basis grew 18.4% and our IIP gross profit increased 21.8% on an organic basis.

[Carey Hendrickson, CFO at US Physical Therapy]

Our adjusted EBITDA increased to $26,900,000 in the 2025, which was up $4,700,000 from the second quarter of last year. And then our adjusted EBITDA margin expanded to 17.5%, up from 16.4% in the second quarter of last year. So all of those metrics, I was really pleased with. Turning to patient visit volumes. Our average visits per day were 33 in April.

[Carey Hendrickson, CFO at US Physical Therapy]

They were 32.9 in May and 32.3 in June. That slight taper in June is consistent with our historical summer patterns when volumes dipped slightly in the summer months or rebounding again in mid August. We recorded 1,530,263 visits clinic visits in the second quarter and then also had 28,493 home care visits. This is the first time we've reported home care visits separately from our in clinic visits. They stem from the home care business that we acquired through the MetroPT transaction in New York in the fourth quarter of last year, and we'll continue to report those separately going forward.

[Carey Hendrickson, CFO at US Physical Therapy]

For reference, we had 22,943 in home visits in the first quarter of this year. And that number is the year to date numbers in the release too, just so you'll have that for going forward. Our net rate per patient visit was $105.33 that's ahead of the $105.05 we achieved in the second quarter of last year, but it is slightly less than what we had in the first quarter at $105.66 As a reminder, we absorbed a 2.9% Medicare rate reduction that took effect at the beginning of the year. And also our largest payer in Michigan, which is our third largest state with 56 clinics, implemented a policy change on April 1 that negatively impacted our net rate a little bit, so in that state. So that was a bit of a headwind, too.

[Carey Hendrickson, CFO at US Physical Therapy]

Even with those headwinds, though, our net rate held up well in the second quarter, and we expect it to grow from there. We continue our efforts to have a strategic focus on increasing reimbursement rates through targeted contract negotiations, as well as efforts to grow our higher net rate workers' comp business. Workers' comp represented 10.4% of our net patient revenues in the second quarter with visits increasing 8.4% year over year. We remain fully committed to all of our rate enhancing initiatives and we're working on those every day. Physical therapy revenues were $168,300,000 in the 2025, which represented a $24,800,000 or 17.3% increase compared to the same period last year.

[Carey Hendrickson, CFO at US Physical Therapy]

The majority of that growth was driven by acquisitions completed since the second quarter of last year, most notably that Metro acquisition that we made in New York last November that was $19,600,000 of the $24,800,000 Physical therapy costs operating costs were $133,100,000 that was an increase of $18,400,000 or 16% over the prior year quarter. Importantly, we managed cost effectively. Our salaries and related costs, I mentioned, were just up 0.7% at $60.08 And our total operating costs, as I also mentioned, were actually down year over year. Our physical therapy profit margin, I noted already 21.1%. That's our highest quarterly margin since the 2023.

[Carey Hendrickson, CFO at US Physical Therapy]

And that, of course, reflects solid revenue growth and the cost management. Our IIP team delivered another strong performance in the second quarter. Our IIP net revenues increased $5,300,000 or 22.6% compared to the 2024 and income rose $1,300,000 or 25.8% over the prior year quarter. And then I gave the organic numbers earlier, IIP revenues increased 18.4% and gross profit up 21.8%. The IIP margin for the second quarter was 22%, which is up from 21.4% in the same quarter last year, reflecting strong top line growth and continued focus on operational execution.

[Carey Hendrickson, CFO at US Physical Therapy]

Our corporate costs remained in line with expectations. They were 8.7% of net revenue in the second quarter that compares to 8.5% in the second quarter of last year. We're in the early stages of implementing a new enterprise wide financial and human resources system. Implementation costs related to that project will continue through 2026. And consistent with our practice for similar nonrecurring costs, we'll add those costs back in our adjusted EBITDA calculation.

[Carey Hendrickson, CFO at US Physical Therapy]

Year to date, we've recur incurred $221,000 in implementation costs. That was really related to the selection part of our implementation, and we'll start full bore on our implementation in the third quarter. And that will always be itemized on our non GAAP reconciliation page. Operating results were $12,400,000 up from $11,000,000 in the second quarter last year. And on a per share basis, we were at $81 versus $0.73 in the prior year quarter.

[Carey Hendrickson, CFO at US Physical Therapy]

Our balance sheet remains in excellent shape. We currently have $135,000,000 in our term loan with a swap agreement in place that fixes that interest rate at 4.7% that extends through mid-twenty twenty seven. In addition, we have a $175,000,000 revolving credit facility that had $24,500,000 drawn on it at 06/30/2025. We ended the quarter with $34,100,000 in cash. As disclosed in our earnings release, the Board of Directors authorized a share repurchase program this week, providing us the flexibility to repurchase up to $25,000,000 of our shares through 12/31/2026, if market conditions are appropriate.

[Carey Hendrickson, CFO at US Physical Therapy]

We view this as a prudent tool to have at our disposal. However, acquisitions will continue to be our primary capital allocation priority, consistent with our strategic growth strategy. Our performance in the first half of the year has been strong, exceeding our expectations coming into the year, and we believe we're well positioned for a solid second half as well. And as a result, we've raised our full year 2025 adjusted EBITDA guidance from a range of 88,000,000 to $93,000,000 to the new range of 93,000,000 to $97,000,000 In effect, the high end of our prior range becomes the low end of our new range with a $4,000,000 increase at the top. So with that, I'll turn the call back over to Chris.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Thanks, Carey. Appreciate it. I want to mention one more thing. You know, we're happy with where we are this quarter and the progress. Still have plenty of things to work on, right, which to me is also encouraging because we're not there yet.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

We we have room for improvement. One of those things I want to point out as a matter of perspective relates to our same store growth in mature facilities, which this quarter was a little bit lighter than maybe everybody expected. It was over 1%, but not in what I would call our normal range. Still a few markets where staffing is a little tight, and with cost control, it probably put a little bit of a damper on us. I want to point out one thing now.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Back in the spring, we initiated a staged rollout of cash based programs. We haven't spent a lot of time talking about it. As with anything, it takes a little time to get traction, getting real traction with that now. And so in our other income line, this doesn't show up as additional visits, although some are patients who are coming in for these cash based services. We have generated about $900,000 worth of additional revenue, a lot of that coming from our cash based services, are continuing to ramp up as we go forward.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And so that's an added benefit that we really haven't had before. We're seeing some of our partnerships do extraordinarily well with that. So with that, that concludes our prepared and our candid comments and we'd like to go ahead and open it up for questions.

[Operator]

Thank you. Our first question will come from Brian Tanquilut with Jefferies. Your line is open.

[Brian Tanquilut, Senior Analyst - Healthcare Services & HCIT/Digital Health Equity Research at Jefferies & Company Inc]

Hey, good morning guys and congrats on a solid quarter. Chris, maybe I'll start with a follow-up or a question around your last comment. So as I think about your same store outlook, how would you characterize demand for your services or just broadly in the market versus like you were saying, kind of like pulling back and managing the cost because of the clinician and the labor situation? And then maybe how do I think about your capacity versus thinking about maybe de novo builds in the future as you start bumping up against capacity constraints potentially?

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes. Well, demand's really Brian, demand's really solid pretty much everywhere. Now there is a little push pull that we have to manage always when we're trying to get costs under control. And so you're trying not to be fat to use that term to have too many slack resources, yet you're still trying to meet demand. And we certainly it's not perfect.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Have some markets where the market's still a little tight where we have additional FTEs we need to hire that where the demand is strong and yet we need some more resources. Other places are being dialed in where they need to be. So that's a work in progress. The cash based programs are helping us to generate additional revenue. And so that has been kind of a net add for us that we haven't had before.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And I'm to remember the second kind of part of your question.

[Brian Tanquilut, Senior Analyst - Healthcare Services & HCIT/Digital Health Equity Research at Jefferies & Company Inc]

Chris, yes, just as you think about capital deployment into maybe de novos as you start bumping up against capacity On constraints,

[Christopher Reading, Chairman & CEO at US Physical Therapy]

the de novo side, look, we're going we've had this market where we've had some headwinds and we've had to deal with that. This is going to be probably the strongest de novo year that we've had since I've been with the company. So de novos are going to be good this year. They're on a really good pace. We were making adjustments and have made adjustments on the recruiting side of the house, on the residency side, which get more students into our programs.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

So we think we'll be able to continue to ramp into the demand. We just have to keep it dialed in right now, but I don't see it impacting our de novo openings. And frankly, in markets like New York, where net rate is considerably higher than most of our competition, our small competition, We're able to do these small AquaNovos, which frankly we don't even announce, but we're able to do those at very, very nice multiples and get a nice rate lift as a result and a lot more resources to help them grow in scale. And so that is going to continue to be strong as well.

[Brian Tanquilut, Senior Analyst - Healthcare Services & HCIT/Digital Health Equity Research at Jefferies & Company Inc]

Chris, to follow-up on that, I mean, we think about capital deployment, obviously, the announcement of the dividend is positive. So just curious how you and the Board thought about that decision to introduce a dividend just when it sounds like this is going be one of your best de novo years. Maybe just thinking about the balance sheet, the cash generation and then just the decision to do the buyback.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes. So you mentioned dividend. The dividend is ongoing and so we've been paying the dividend for a long time.

[Brian Tanquilut, Senior Analyst - Healthcare Services & HCIT/Digital Health Equity Research at Jefferies & Company Inc]

Yeah. Sorry. My bad. Yeah. I meant the buyback. Yeah.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

The buyback is new. Look, we feel like the stock's been undervalued for some time. We understand health care services, having a little bit of a tough year and we've had some Medicare headwinds and yet we're making progress and continuing to grow the company. So we wanted to be in a position to have flexibility at a certain level where we could go in and demonstrate our belief that we're going to continue to grow this company and do well over time. So it gives us flexibility.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

As Carey mentioned, it's not our first preference for capital deployment. I would say our first preference right now frankly is directed toward injury prevention where the embedded organic elements of that business are really, really strong. The next would be PT and then on from there. We'll be disciplined about any share buyback and it's going to be dependent upon other capital demands and really where the stock is at any given time.

[Brian Tanquilut, Senior Analyst - Healthcare Services & HCIT/Digital Health Equity Research at Jefferies & Company Inc]

Got it. Chris, if I may throw one more question. As I think about just the efficiency of your physical therapist, we hear about AI tools in the market aimed at physical therapist. I mean, is that something that you're throwing the mix that's helping you out? And then maybe kind of related tangentially, you talked about your home PT business.

[Brian Tanquilut, Senior Analyst - Healthcare Services & HCIT/Digital Health Equity Research at Jefferies & Company Inc]

Just if anything is out there that you can share with us in terms of the dynamics there because obviously it's new to us investors on what that business looks like. Thank you.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes. There are some cool AI tools right now. We're deploying AI backed technologies for clinical documentation, which is helping people get through their least favorite thing of the day if you're a clinician, which is to document all the cool stuff that you did with somebody in physical therapy. You have to document a lot of things, sets and reps and weights and motions and joint related movements. And so it's tedious, and it takes time.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And so this ambient listening, AI driven, assist is helping our clinicians get through that much quicker, much more efficiently. We're just on the front end of rolling that out, but that's been well received. And we're rolling out what I would call broadly a semi virtualization of the front desk, which enables us not to go completely virtual because I don't think we're ready for that yet nor do I think patients are ready. But an augmented situation where we're able to focus efforts from across multiple clinics through one individual that may be on-site or remote somewhere and be much, much more efficient and save the number of front desk FTEs, which continue to be a labor challenge for us just in terms of longevity unlike our PT group, which frankly right now we're having the best least amount of turnover that we've seen and maybe my recollection really good right now. And so these tools are helping us get some margin inefficiencies in areas where we just haven't been able to do that in the past. And we're early, but it's directionally encouraging.

[Brian Tanquilut, Senior Analyst - Healthcare Services & HCIT/Digital Health Equity Research at Jefferies & Company Inc]

Thank you.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Thanks, Brian.

[Operator]

Thank you. Our next question will come from Joanna Gajuk with Bank of America. Your line is open.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Hi, Joanna. Thanks for taking the question. Hi. So maybe first on the metric that really stood out besides the visit for clinic, but the cost per visit by a decline that all costs, right? So maybe in that context, can you walk us through or give us some update on your labor management strategies, the wage, maybe talk about turnover and other, I guess, metrics you can share?

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Because it sounds like you're doing a pretty good job there.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes. Eric, you want to go ahead and take that, talk about turnover and some of the things we're working on and what we're seeing?

[Eric Williams, President & COO at US Physical Therapy]

Yeah. This is you know, again, you recall from our quarterly conversations here, we made a lot of investments in systems and resources in 2024 that are really starting to pay dividends for us in 2025 as it relates to recruiting and retention. We've seen a 25% increase in student clinical rotations across our partnerships in 2025. Part of that was participating in a student rotation matching program with, you know, software, the exact software that's being used by all of the PT schools out there. So we've seen almost a 200 student pickup, this year.

[Eric Williams, President & COO at US Physical Therapy]

We put in a new tracking system in 2024 that's also given us better companywide visibility across our partnerships to all the applicants who are applying for jobs. It gives us better opportunity to follow-up with these applicants, track them pre hire, post hire. And then for the ones, of course, that don't take jobs with us, we have this huge database that we're building of people that we can go back to when we do have job openings. So systems have made a big difference. Putting in some additional resources to help us on the recruiting front made a big difference for us.

[Eric Williams, President & COO at US Physical Therapy]

And the mentorship piece has been a major focus for us. And and, you know, we really push that hard, with our partners to make sure that we're connecting and and and spending time with the younger therapists that we bring on board in order to reduce turnover rates. As Chris mentioned, these are the lowest turnover rates we've seen for the six months this year, January through June, the lowest numbers we've seen in the last seven years. So it's it's absolutely making an impact for us. The the the pieces that we're really excited about, and Chris referenced, you know, one of them.

[Eric Williams, President & COO at US Physical Therapy]

I'll touch base on that a second. This mentorship piece, while we're really focusing it, you know, on a partnership level, which is, you know, where our our our, you know, clinical staff goes to work. We're in the process of of building out a a platform here, a software platform that's gonna allow us to expand our mentorship programs beyond the four walls of the clinic and beyond the existing partnership. It's going to give us the ability to connect, you know, 2,600 clinicians, you know, across our company with each other so that people that have particular interest or specialties have an opportunity to connect with people that might not have that specialty within the partnership, but have that expertise, and and we can take advantage of that across, you know, our entire company. So we're excited about that.

[Eric Williams, President & COO at US Physical Therapy]

We think that will pay dividends for us as well as it relates to our our ability to retain staff. Those are the big ones, Chris. You mentioned AI. I'll talk about that as well. So we are in the the early innings of using that voice recognition technology that Chris talked about it.

[Eric Williams, President & COO at US Physical Therapy]

I I think we have that in the hands of, you know, 200 or 250 p t's right now. It's been really, really well received. And I think that is going to have an impact for us over time, with retention as well. I mean, if you can reduce documentation as to things that clinicians hate to do the most, and right now, we're you know, there's a there's a lot of people dabbling in it. I think we're farther ahead than most.

[Eric Williams, President & COO at US Physical Therapy]

I think we're farther ahead than most large platforms experimenting with that right now. And I think that is going to help us attract and retain staff going forward. Are you

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Are you willing willing to share the turnover actual the turnover number that you track?

[Eric Williams, President & COO at US Physical Therapy]

We actually will we posted we will report that publicly at the end of the year and you'll find that in our ESG.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Joanne, don't want to be in a position quarter to quarter add to our already exhaustive list of metrics, but we're in a good spot right now. We're in a really good spot.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Yes, sounds like it. No, thank you. And if I may, another topic. Medicare rates, right, been a headwind for a couple of years now, but it sounds like 26% is going to be a better So the overall physician fee schedule is going up like between a half percent or more 3.6%, two point eight percent.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

So, know we had estimated like two point five percent or so for physical therapy codes, but can you talk about your estimate for your company in terms of how the rate increase would translate for your portfolio into next year? Thank you.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes. Let me make a quick comment and then I'm going to kick it to Carrie and help get you through the specifics this year, and this is proposed rule. So it's gonna be a lot of commentary and certainly a lot from the PT industry. This year was the most complicated of any year that I can remember literally in my career. They changed a lot of thing about turning kind of metaphorically turning knobs, they turned a lot of different knobs for RVUs, for work values, for geographic index factors.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And there were particularly large swings on geography side. Some so much that both us and the APTA thought that some of the tables weren't correct. And so our overall assessment is, Carrie can Carrie can get into. But the the takeaway is it's positive, no longer a headwind. We haven't had any kind of a tailwind in a while and we're happy that it's forward, but we think there's more work to be done obviously with CMS. Carey, why don't you go through the specifics?

[Carey Hendrickson, CFO at US Physical Therapy]

Yes. Thank you. So Joanna, we've looked at it looking at the various geographies and what the changes were in those geographies. As Chris mentioned, that varies a lot. Based on where we are and the rates increases in those geographies, I think we're probably going to be somewhere between 1% and a 1.75% increase, something like that.

[Carey Hendrickson, CFO at US Physical Therapy]

For us, again, positive, we're just we're happy to have a positive increase and not be looking at negative numbers for next year. So we're really pleased about that. That one point if it's in that 1% to 1.75% range, that would be somewhere between 2,000,000 and $3,000,000 of a positive for us next year on the top line. And then from an EBITDA standpoint, it would translate to somewhere between 1,500,000.0 and $2,500,000 So in that range is kind of what we're looking at. At this point, again, this is a preliminary ruling.

[Carey Hendrickson, CFO at US Physical Therapy]

We'll know the final ruling in December, and we'll see if anything changes. But that's kind of where we see it today.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

All right. This is very helpful. Thank you. And I guess, so you made it sound like there's going to be pushback on that level. So is it your expectation maybe the final is a little bit better than proposal or I guess too early to say?

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yeah. We certainly hope that it will be the irony is unfortunately if you get under the hood and see how the sausage is made is that the specialties that have the most extraordinary increases in the cost of equipment, so very expensive equipment and have the most highly litigated where there areas where there's exposure to litigation and other things, which you just heard the number of patients that love us on a percentage basis. So physical therapy in general doesn't have that problem. And so we're making a decided push where we know that we save the system a lot of money. In fact, the state of Maryland where physical therapy on a pilot program of CMS is in the position as kind of a primary care for musculoskeletal, they determine the physical therapists do what happens in the case.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

There's a massive aggregate savings and we're hoping to use those results with CMS to extend that equip pilot beyond the state of Maryland, which could be a big pay for a reasonable rational annual cost of living increase for the fee schedule. And we think we should be front and center on that. So yes, we're pushing. We hope it gets better. We think there's some flaws in the existing methodology and we're going to be working on that between now and year end.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Great. Appreciate the call. Thank you so much.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Thanks, Sean.

[Operator]

Thank you. Our next question will come from Benjamin Rossi with JPMorgan. Your line is open.

[Benjamin Rossi, Equity Research Associate at JP Morgan]

Hi, good morning. Thanks for taking my Good question morning,

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Ben.

[Benjamin Rossi, Equity Research Associate at JP Morgan]

So turning to the IAP segment performance, you mentioned adding some services here over the course of the year, certainly seems to be off to a strong start to the first half with margins expanding year over year. Is it fair to say that that segment is coming in ahead of your initial expectations of a $3,000,000 absolute increase in gross profit particularly as we head into the seasonally stronger 3Q?

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes. I don't have in front of me exactly what our budget was, but we're definitely ahead for of the year. Q2 second half is, there's a little different seasonal pattern with injury prevention. We tend to be pretty strong through the year, a little light in January like everywhere else and a little light in December where in some of the big auto manufacturers and some of the nation's biggest manufacturers, there's an early shutdown in December. And so that points our earnings a little bit.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

But if you go back not just this first half or this quarter, but on a year over year over year basis, injury prevention has really done well for us and had really strong organic growth attributed to it. So we continue to be bullish. We're spending more time in development in that area, and we're identifying good companies. And of course, like anything else, we've got to get things done, but we expect to continue to deploy capital directionally there.

[Benjamin Rossi, Equity Research Associate at JP Morgan]

Got it. And I guess this is a follow-up to your comments on Medicare PFS rates. Obviously, seems like the change for 2026 is kind of a mountain to more of like a one time fix and it doesn't necessarily address anything in 2027 and doesn't obviously take you out of that $25,000,000 hole you described after decreases in recent years. Can you just walk us through where your conversations stand with your counterparts at the federal level and maybe how they're framing the decision to include that one time fix for 2026 in the LBBBA?

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yeah, I think it depends on who you talk to, but nobody in Congress is happy that this is an annual issue. But this isn't the only annual issue that the government faces these days. It's it seems like that's how we fund the government each year is through this, you know, crisis management process that eventually ultimately gets done with a lot of chicken on both sides. And so it's not the optimal way to do anything. It's certainly not fair to providers to have a one month, you know, runway basically where you're notified in December what the final decision is, then you have until all of January, you know, through the holiday to get things ready to go.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

We should have a multiyear plan. It should be locked. All of the lawmakers believe that's the way it should be. And yet, let's call it a ten year kind of permanent fix on the physician fee schedule, about a $100,000,000,000 event. And so they need savings to be able to do that.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

You know, one of the one of the big areas that we think is a saver and we're we're through APTQI, the Alliance for Physical Therapy Quality and Innovation group that I'm heavily involved in and with all the other big companies in PT. We're going to have a a pretty significant spend this year to use an outside Beltway analytics group to take the results that we've seen from the EQUIP study in Maryland and extrapolate those real results, not not, you know, theoretical, but actual over, you know, the the the the nation and create what we think is a massive savings for the system with physical therapists in that key role as kind of the primary care director of the musculoskeletal case. And so that's a possible pay for a physician fee schedule fix. It's gotten a lot of very positive attention among our lawmakers, our our congress on on both sides. You know, CMS is, I would tell you, kind of a difficult place to be because it's so siloed and so people have one infinitesimally small fraction of what amounts to a very complicated series of of areas and rules and responsibilities.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And so it's a little bit different to get a clear picture there, a little bit difficult. But with congress, we we as long as we can come up with some savings but we can get out of this deficit spending that we're in, maybe hear about tariffs and all the revenue that's creating, we'll see. But we need more than a one year fix for sure. And we have AMA and the hospital association, everybody else wants more than a year to year fix. It's unsustainable.

[Benjamin Rossi, Equity Research Associate at JP Morgan]

Great. Thanks for the additional commentary here.

[Operator]

Thank you. Our next question will come from Larry Solow with CJS Securities. Your line is open.

[Carey Hendrickson, CFO at US Physical Therapy]

Morning.

[Larry Solow, Partner & Managing director - Equity Analyst at CJS Securities]

Good morning, Thanks for taking the question. Most of my questions have been actually answered. I just a couple. I'm just curious, so the 7% or nearly 7% year over year increase in just visits per day per clinic and also the very modest growth in labor or and then less sort of contractual overall operating expenses per visit. How much of that just relates to the you had an acceleration in closures last year.

[Larry Solow, Partner & Managing director - Equity Analyst at CJS Securities]

I know you closed like 30 clinics at the end of back in Q3, I think. So it feels like a lot of that, just more efficiencies, driving these gains. Is that fair to say? And then second part of the question is, I know you had set out you discussed last year some cost cutting initiatives. You never really put a number on it, but you sort of thought you could add up to maybe even double digit millions over the time.

[Larry Solow, Partner & Managing director - Equity Analyst at CJS Securities]

So I'm curious how that has played into the performance this quarter.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes, it's like baking a cake. There's a lot of ingredients that go together and at the end of the day, you hope it tastes good. I don't have in front of me the relative pieces parts of every one of those ingredients. In fact, some blend together, so it's a little bit hard to measure. Cost efficiencies, know, on one hand, create some both challenges and opportunities sometimes in terms of volume related aspects.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And so we're trying to do the best we can to balance, technology, efficiency, appropriate levels of labor, which minute to minute are never perfect.

[Larry Solow, Partner & Managing director - Equity Analyst at CJS Securities]

Mhmm.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

You know, perceived demand expansion. It's it's pretty complicated. Know, it's it's running a business and there are a lot of moving parts. And so all those things are coming together. What you're hearing is we're we're feeling more confident that the things that we've done, which again, as you point out, are multifaceted, are coming together in the right way.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

But as I pointed out earlier, it's not perfect. We still have we still have plenty to work on. There's still plenty of opportunity, teams focused on it. But where we are feels a little better than where we've been for maybe a while now.

[Carey Hendrickson, CFO at US Physical Therapy]

Right. And in terms of factor in the visits is per day the addition of Metro in November. So it's been higher since that point in time. We're probably running at about 31 before and then that's kicked up a little bit because they average about 45 visits per clinic per day there at Metra. So that does look a little bit, but there's still good really good growth in that overall visits per clinic per day.

[Larry Solow, Partner & Managing director - Equity Analyst at CJS Securities]

Well, that's a good segue then, Carey, into Metra because I know that was your I think your biggest acquisition historically. So curious, it sounds like that's progressing really well. And I know when you acquired at the time of the acquisition, you spoke about a lot of opportunities. And I guess these Aqua de novo opening sounds like that's happening at Metro. And I assume since New York has better one of the better rates that probably benefits you guys disproportionately too.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes. We have a strong team there. Michael and his team are strong. They're very strong. Clinically, they're strong operators, they're strong in development.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And so, yes, we've got plenty of opportunities to chew on and work our way through for what should be a long period of time. AquaNova is being just one of those. So they're doing well.

[Carey Hendrickson, CFO at US Physical Therapy]

And Larry, of the things that's been really positive there is, and we've talked about this before, is the net rate increase we've seen at Metro since we acquired them. That's one of the things that we do with acquisitions. We look at trying to increase their contracts as we bring them over. When we first the first month for Metro was around $101 net rate. That average $104.5 in the first quarter, it was $107.5 in the second quarter.

[Carey Hendrickson, CFO at US Physical Therapy]

So we've really seen some nice rate improvement there. That doesn't show up in the mature clinics line and instead it shows up in the clinic additions line. But I just wanted to point out that we're seeing really good net rate increases there at Metro. So that's helpful as well.

[Larry Solow, Partner & Managing director - Equity Analyst at CJS Securities]

And did you just could you just walk through just the pricing breakout in the quarter? Guess, do you discuss that? Usually, you give us kind of what commercial pricing was in the quarter. I know I heard you discuss the workers' comp piece. Did you give any more detail on the commercial side?

[Carey Hendrickson, CFO at US Physical Therapy]

Sure. I'm sure happy to look at that. So as 105.33% overall, commercial rates were about around 105.5%. So that was a nice increase in commercial rates. Medicare is a little north of $92 Workers' comp was still a little bit north of $150 per visit, which is really good.

[Carey Hendrickson, CFO at US Physical Therapy]

So those are the three primary categories. The others were relatively stable as well, Medicaid, personal injury, self pay.

[Larry Solow, Partner & Managing director - Equity Analyst at CJS Securities]

Great. Okay. Appreciate it. Thanks guys.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Thanks, Matt.

[Operator]

Thank you. Our next question will come from Jared Haas with William Blair. Your line is open.

[Jared Haase, Equity Research Associate at William Blair]

Hey, good morning. Thanks for taking all the questions. Chris, maybe for you, I wanted to ask another one on the IIP segment and nice to see the continued momentum there. I think you mentioned a number of larger opportunities that haven't started yet. So I'm wondering if there's any way that you can contextualize, I guess, what that backlog looks like or any way to frame up what the incremental revenue opportunity is and how that might compare to prior years?

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yeah. I don't have it. Jared, I don't have it in front of me. And my preference maybe I need to be a little bit careful, my preference is to not, you know, constitute revenue ahead of when we've generated it either in development or otherwise. And so we're definitely making progress.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

We're having a good year. I'm I'm not prepared to get into the reason is, frankly, it's all it's all about staffing. And the team's done a fantastic job both with the auto industry major contract that we got where we needed to hire 55 FTEs to staff that opportunity. But if we hadn't hired 50, if we'd only hired 20 or 30, the revenue generation compared to the potential would have been different. So really can't afford to be that far out on a limb and don't want to be in, so we're not going to do that.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

But, as that comes about and it we're realizing it, I'm happy to to talk more about it, you know, once it actually happens.

[Jared Haase, Equity Research Associate at William Blair]

Yeah. That that's fair. Totally makes sense. Maybe I'll ask a follow-up. And I think you all have made some public comments in the past about some of the virtual PC applications that are out there.

[Jared Haase, Equity Research Associate at William Blair]

And I think recently, of the larger ones announced they're building out sort of a network of in person providers as a way to kind of supplement their digital offerings. So I'm wondering if you have any more that you can say about that. Would you consider participating in a virtual network like that or excuse me, network like that with a virtual partner? How are you thinking about maybe the potential opportunity in terms of call it patient acquisition or opening up a new referral channel?

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes. Well, again, I don't want to speculate too much in hypothetical situations. Have we had discussions with one or more providers about providing a brick and mortar opportunity in person to add to a virtual offering? Yes. It remains to be seen whether that's something that the industry is accepting of or not.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And I say that because a lot of the virtual providers have sold, I'm going to use air quotes, the PT service at a very low cost per member pricing level, very generic, not delivered by therapists, it's delivered either through an app or backed up by call center employees who can, for the most part, aren't licensed clinical folks. They follow the script. And so what's been sold is that, you know, they can take all comers and any diagnosis and very complicated things, post op reconstructions and rotator cuff repairs. Frankly, I'll tell you my opinion is that can't be done efficiently or effectively. And so I think they are in a tough spot where they have to figure out whether it's the bricks and mortar solution.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Reciprocally, we are now using technology through companies like Limber, who's been a nice partner for us that has an augmented solution that we use with our patients to be able to go into their home and see them complete their home program and actually see objective measures of motion and activity and other things which help us better be better informed to guide that care. And there will be a point in time and we're not there yet because we're working on some some really important things. There'll be a time when we focus more on a broader digital solution that I think will help to augment what we do for our patients and in some cases, make us a little bit more geographically agnostic where somebody is. But we're going to approach it very differently than the groups that have done it so far. I think they've tried to do too much and I think they're finding out it's not possible to deliver it that way.

[Jared Haase, Equity Research Associate at William Blair]

Okay. That's great. Thank you. I appreciate all the color.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Thank you.

[Operator]

Thank you. Our next question will come from Jatin Sanghai with Quarry Partners. Your line is open.

[Jiten Sanghai, Partner & Senior Analyst at Corre Partners Management]

Hey guys, congrats on a great quarter and appreciate the questions and answers here. Maybe two for me. One is, is there like a theoretical capacity we should think about because clearly the volume growth, the record Q2 is great, but like is the system operating at 90% or some x percent? Clearly, you've asked the question because incremental visits are very, very accretive to margins. And then related point, if you think about the de novos, how would what is the staffing environment like?

[Jiten Sanghai, Partner & Senior Analyst at Corre Partners Management]

How will you attract the number of FTEs? I think, Chris, you mentioned maybe a record year for opening demos. So I think they both relate to what's available in the system, but then how will you recruit x number? I don't know if it's 5,100 of FTEs. Finding them is hard, but the question isn't just finding them, it's what you pay them and how the economics work.

[Jiten Sanghai, Partner & Senior Analyst at Corre Partners Management]

I think there's two parts to it. If you could address both, that would be super helpful. Thank you.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes. So on the capacity side, think of it this way. Our capacity really isn't limited, generally speaking, by physical footprint. So typical clinic may be open from seven to six, but we have the ability in that same physical footprint, which has more peak times and and also has slower times. We have the ability to fill in certainly some of the slower times, Then we have the ability to extend hours and do other things.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And so our visit per clinic per day number can continue to grow. It's not constrained by our physical footprint. It may be limited or it correlates with our staffing. And so we have to have the staff available, as you mentioned, to be able to see the next five or 10 visits per day. And and there really is the possibility ultimately of, you know, getting that number up much higher than it is right now.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Won't happen overnight, but a little bit over time as as we've shown, over the last couple of decades. We've increased that number really ex COVID every single year. So that part, I think, will continue to move forward as long as we can continue, as you mentioned, to find staff. And I would point you back to Eric's comments around the investments that we've made in recruiting and retention, in school affiliations, residency programs, mentorship, and other things to try to have a stable bench from which to draw from to backfill or more senior therapists. Those are the ones who go and open the next adjacent clinic, not the new grad, but the more senior person then gets backed up maybe by somebody more junior in a clinic with a lot of people with tenure, so they can grow and learn and it's easier to absorb that way.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

So again, it's not perfect. You know, the market is competitive and in some cases it's tight, but we're finding people and we're growing and we expect to continue to be able to do that particularly with the investments that we've made, over the last six to nine months.

[Jiten Sanghai, Partner & Senior Analyst at Corre Partners Management]

And Chris, that's super helpful because what it sounds like is there's no theoretical capacity. So is the way we're thinking about it as equity holders the right lens, which is incremental visits are extremely margin accretive. So whatever your margin guide suggests for this year using your updated EBITDA range, should be some flow through or increase in EBITDA. So your sort of margin should expand over time as you have incremental volumes. Is that the right general lens?

[Jiten Sanghai, Partner & Senior Analyst at Corre Partners Management]

I don't know if you can quantify that or if that's just a good soundbite to sort of end on from my perspective.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

No, I think it's a reasonable soundbite. There's certainly points of inflection where when you have to go up, you may go back a little bit before you can go forward again. But generally, you're right. The last few patients of the day are incrementally more profitable. Your fixed costs are covered.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

I think that's one of the reasons why you see our total cost per visit come down a bit this quarter is because of the jump in visits per clinic per day. Hopefully, with particularly continued commercial rate wins, continued wins like we're seeing with Metro, with, you know, $5.06, $7 a visit in rate growth, with a combination of continued efforts around work comp and other more, preferable payers that that combination gives us more than enough to offset what might be a little bit of wage pressure year to year. That wage pressure for us, I mean, we're well below right now the average increase that people got, you know, at the end of the year. We're getting that with some efficiencies. And again, you know, I'd point to some of the initiatives around AI and virtualization at the front desk, which are really just now getting started, but should give us some additional lift as we go forward.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

So you have to deliver it, you have to make it happen, but I'm hopeful at this point that we can continue to execute on that.

[Jiten Sanghai, Partner & Senior Analyst at Corre Partners Management]

Great. Thank you for your time guys. Appreciate it.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes. Thank you. Thank you.

[Operator]

Thank you. Our next question will come from Michael Petusky with Barrington Research. Your line is open.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Hey, Mike.

[Michael Petusky, MD & Senior Investment Analyst at Barrington Research Associates]

Hey, good morning. Good morning. Hey, you gave sort of the hard numbers on the rate per visit. I'm just curious, commercial pricing was that I'm assuming that was up a little bit in the quarter. Do you have a percentage that was up versus the comparable period a year ago?

[Carey Hendrickson, CFO at US Physical Therapy]

Sure. I can calculate that real quick. It was up And then

[Michael Petusky, MD & Senior Investment Analyst at Barrington Research Associates]

the second I guess the second go ahead, sorry.

[Carey Hendrickson, CFO at US Physical Therapy]

Sure. It was up about between right about 1% to 1.5% versus last year's second quarter. And second quarter of last year was actually the strongest quarter for commercial rates last year. It's up about 2.2 from the first quarter. So we had a nice bump in the second quarter versus the first quarter in that commercial rate.

[Michael Petusky, MD & Senior Investment Analyst at Barrington Research Associates]

Okay. And the issue in Michigan with the large payer, how much impact did that have on the commercial pricing overall? I mean, did that take down 20 basis points more than that?

[Carey Hendrickson, CFO at US Physical Therapy]

Yes. It was again, let me calculate just a second. I know how much the impact is. So it probably had about a $0.30 per visit impact or so. Yes.

[Carey Hendrickson, CFO at US Physical Therapy]

So it would have been we would have been kind of right at the first quarter number had it not been for that Michigan rule kind of rule payer rule change.

[Michael Petusky, MD & Senior Investment Analyst at Barrington Research Associates]

Okay. Okay. So is anything to suggest that what's going on in terms of that payer in Michigan could be an issue with other payers elsewhere? Or do you really feel like this is sort of an isolated situation?

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Mike, I mean, each year, I wish it was I guess, I wish it was uniform. Maybe maybe I shouldn't wish that. I mean, we've got we've got 48 or 49 other states where, you know, it's not an issue. So, you know, I don't see a contagion problem necessarily. And Michigan has had some ebb and flow with this payer on a number of different fronts.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Utilization caps and other things have been challenged and even litigated. And so it's bounced around a bit and we're always going to have that. People are going to try different things at different points in and it's really no different. That's one that we've called out this year, which is a little bit of a headwind.

[Carey Hendrickson, CFO at US Physical Therapy]

Yes. And Mike, as Chris said, there's always puts and takes on the net rate. And you'll have things like that, but then we've got other things that are overcoming it in other areas. But I don't see it, as Chris said, as a contagion kind of thing at all.

[Michael Petusky, MD & Senior Investment Analyst at Barrington Research Associates]

Okay, great. That's what I was trying to get at. So Chris, earlier you said IIP felt like was a top priority in terms of capital allocation. When you were talking about that, were you sort of talking about in terms of internal investment, hiring trainers and such? Are we talking about more in terms of external assets that you may try to sort of build on the current base of business or both? Thanks.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yes. Well, it's always internal. I mean, but that's really not a problem and I really don't think about that. Maybe it should, but when I talk about capital allocation, don't that's just matter of course. So what I'm talking about is investing in additional companies to continue to fill in our service complement to build on what we have to give us more opportunities for cross sale and to continue to grow as we have the last few years.

[Michael Petusky, MD & Senior Investment Analyst at Barrington Research Associates]

Are assets out there that engaged with in terms of like active discussions or is this more like a couple of year, two year, three year type target?

[Christopher Reading, Chairman & CEO at US Physical Therapy]

It will be ongoing, but we're actively involved and we've spent more time this year, I think, probably than ever before, attending conferences and getting face to face meetings and being active in the space. People now kind of know who we are. And while it's in a much smaller space in aggregate than the PT world, we're making some we're making some progress. And so, you know, don't don't be surprised if we're active and continue to be in that area. So it's important.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

It works. Team has done and is doing a really good job and we like the embedded growth elements in this business, particularly I think, not to make any kind of a political statement, but if manufacturing is going to increase in this country and I think just with the announcement yesterday on Apple and others, there's going to be a push to onshore manufacturing. And we're positioned pretty well to benefit from that. We continue to execute on what we've been doing.

[Michael Petusky, MD & Senior Investment Analyst at Barrington Research Associates]

And I think we will.

[Michael Petusky, MD & Senior Investment Analyst at Barrington Research Associates]

Absolutely. Hey, let me just sneak one last one in and then I'll let the next person ask questions. Chris, you mentioned on the last conference call that you guys had been involved in sort of a deep operational dive with your top 40 partnerships. I'm just wondering anything interesting, surprising? Has anything come out of that that you're sort of would be willing to share that might Thanks.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Yeah. The only thing that I'll share is that we're it's a couple of things. One, those calls have been important, making progress. I think what partners have appreciated, and it was kind of was my theory going into this is, you know, when you look back beginning with COVID and and after the year after COVID, we were both lean and busy. And it was it was kind of a good year to benchmark against.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

But, you know, I use the analogy. It's it's like, you know, your weight that may fluctuate since if if you use your college days as being kind of, you know, this is this is a great comparative point or maybe a difficult comparative point. You know, as you go forward, it might not change a lot year to year, but the change over time, you kind of lose track of where you were and pretty soon your belt doesn't fit the same way anymore. And you lose kind of where you are in space a little bit. And, you know, that's that's one measure where it's kind of pretty easy to keep track of, but we're measuring a bunch of different things in this business.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

And there have been a lot of influences that have caused certain things to happen that are just part of the reality. But I think having now a really visible tangible tool that our partners get every month that compare where they are now to where they were at their most efficient point and how things stack against that, it's been kind of a really good yardstick to see change and then to be able to focus on those areas that need focus. And so we've used that and we're making progress. And I think our partners have been very understanding and appreciative and we're seeing change as a result.

[Michael Petusky, MD & Senior Investment Analyst at Barrington Research Associates]

Thank you.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

Sure.

[Operator]

Thank you. It appears we have no further questions at this time. I'll now turn the program back over to management for any additional or closing remarks.

[Christopher Reading, Chairman & CEO at US Physical Therapy]

It's been a good call. Thank you all for your questions. A lot of really good questions. Carrie and I are available for the rest of the day. And whenever you need us, we appreciate your time and attention and particularly your support. Hope you have a great day. Thanks.

[Carey Hendrickson, CFO at US Physical Therapy]

Great. Thank you.

[Operator]

Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.

Participants

Executives

• Christopher Reading, Chairman & CEO
• Carey Hendrickson, CFO
• Eric Williams, President & COO

Analysts

• Jason Curtis, SVP - Finance & Accounting at US Physical Therapy
• Brian Tanquilut, Senior Analyst - Healthcare Services & HCIT/Digital Health Equity Research at Jefferies & Company Inc
• Joanna Gajuk, Equity Research Analyst at Bank of America
• Benjamin Rossi, Equity Research Associate at JP Morgan
• Larry Solow, Partner & Managing director - Equity Analyst at CJS Securities
• Jared Haase, Equity Research Associate at William Blair
• Jiten Sanghai, Partner & Senior Analyst at Corre Partners Management
• Michael Petusky, MD & Senior Investment Analyst at Barrington Research Associates