Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero and a member of our team will be happy to help you.

and many, many more.

. . .

and many more. . . and many, many more.

Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero, and a member of our team will be happy to help you.

and many, many more. . . . . . . . . . and many more. . . . . . .

Please stand by. Your meeting is about to begin. Good day and thank you for standing by. Welcome to the U.S. Physical Therapy Third Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. In order to ask a question during the session, please press the star key followed by the number one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star, then zero. I'd now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

Good morning and welcome to U.S. Physical Therapy's third quarter 2026 earnings call. With me today are Nchacha Etta, our EVP and new Chief Financial Officer, Eric Williams, President and COO East, Graham Reeve, COO West, Rick Binstein, our General Counsel, and Jason Curtis, our Senior Vice President of Accounting and Finance. Before we get started, Jason will read our disclosure statement. Jason, if you would, please.

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

Thanks, Jason. This is Nchacha's first earnings call with us. There has been on many during the distinguished public company career. Nchacha, welcome. We are thrilled to have you, and we look forward to introducing you more personally to our analysts and shareholders in the days ahead. As always, I want to start by thanking our partners and our clinical and support teams. Their work changes lives for our patients across our physical therapy partnerships. It also keeps employees healthy and on the job, many of our nation's largest and most successful employers through our injury prevention teams. Our physical therapy business starts with great care, and that care delivers real value to the broader healthcare system. Even for Medicare-age patients, completing an outpatient physical therapy plan of care is associated with lower next-year total healthcare spend according to a study commissioned by APTQI in 2017 and independently performed by the Moran Group. Great care is what lets us grow volume every year across a growing clinic base. This quarter is often a seasonally softer quarter as referral sources and staff vacations kick in. We held steady this summer at more than 33 visits per clinic per day right through the quarter compared with 32 a year ago. We set a couple of important records this quarter. With respect to visits, every month this year has been a record for that month. We are up to 27 consecutive months where that has occurred, nearly two and a half years of record volume each and every month. We did this while our operations and clinical teams completed a very major lift in this third quarter. All of the Metro New York facilities moved into our NYU Langone relationship, and the majority of that lift occurred in the third quarter. That meant our therapists and administrative teams had to learn and navigate the new hospital-based EMR, among other changes. Despite that, Metro's volume has never been higher and has continued to grow as we benefit from great patient care and reputation among our new partner network of specialists. In September, we also onboarded our second hospital partnership, our Gulf Coast Group, bringing in 10 of its facilities. Hospital revenue has grown from less than 5% in Q2 Now to over 13% in this most recent quarter. Looking ahead, the fourth quarter will be the first with both partnerships for the full quarter. One of the points of impact, which shows up very clearly with these hospital partnerships, is the net rate per visit. It rose by more than $5 per visit in the quarter, and September reached $112 per visit. Both of those are all-time records for the company for net rate in any month and for our year-over-year net rate increase. I'm especially pleased about that. And as we onboard more opportunities, you will see those numbers continue to grow. Here is how all of that translated into results. Physical therapy visits grew 8%. Combine that with the net rate improvement, total revenue grew 13%, and PT income grew 15%. Importantly, also, mature revenue grew more than 6%, the highest number we have posted in some time. In industrial injury prevention, revenue grew 14%, and profitability grew 27%. A really great job by those teams. Together, EBITDA grew more than 16% with growth in all three areas, hospital, traditional PT, as well as injury prevention. In a few minutes, Chacha will walk you through all of these details. One area which has weighed on the margins this quarter, and in fact all year, was in our self-insured group health costs. They are running well above our historical average and especially above last year. We have a handful of very large, complex claims, including several premature infants that have dramatically increased our expense in this area. As a self-insured employer, we absorb these costs directly, net of stop loss. Year-to-date, employee insurance claims expense is $7 million higher than it was last year. In the third quarter, it was $2 million over budget. We cannot control the timing or the size of these claims, but we are acting on what we can control. In the quarter, we made targeted, very surgical labor reductions, and together with other initiatives, we expect those actions to help as we move forward. We also made strong progress on growth. In the quarter, we announced the 12th clinic acquisition, with excellent young partners in a state with strong net rate and a good growth runway. In October, we added a significant sports medicine practice on Long Island for a very busy metro business. Our hospital initiative continues to build momentum and attract interested partners. And we are finding injury prevention opportunities that will broaden both our service offering and the industries we serve. This is a pivotal year for us. The Medicare reimbursement cuts of recent years are behind us. We are executing on a hospital initiative with strong, capable partners, and our teams are delivering outstanding care and service to our patients and our industrial customers. The end result is a better net rate, more margin opportunity, and continued strength and volumes ahead. We are as busy as we have ever been, and more is coming. including new revenue cycle initiatives and further cost and efficiency work. We also have a strong balance sheet which sets us apart from many of our larger competitors and our partner model that powers every part of our business, physical therapy, our injury prevention, and our hospital affiliations alike. That concludes my prepared remarks. Nchacha will now cover the financials in more detail. Chacha, go ahead.

Thank you, Chris, and good morning, everyone. Before turning to our financial results, I would like to take a moment to thank the USPH team for the warm welcome. This is a team of talented individuals who are passionate about driving the company's long-term growth strategy and delivering strong and consistent financial results for all our stakeholders. I am looking forward to continuing to meet with our employees and partners, and of course, many of you in the upcoming weeks and months. I am excited about the future for USPH, and I believe our third quarter results are a solid testament to the company's long-term growth potential, as well as our financial and operational execution and discipline. Now, I would like to begin with an overview of our financial results for the third quarter. Our third quarter delivered double-digit revenue growth and expanded margins. This momentum gives us the confidence to reaffirm our full-year EBITDA guidance. Total revenue for the third quarter was $223 million, up 13% from the third quarter of 2025. with comparable revenue of 7%. Physical therapy revenue was $190 million, up 13%. Mature clinic revenue grew 6%, which includes the benefit of our hospital affiliations and what we believe is the continuation of a strong ongoing trend. Volume was a key driver to our performance. Patient visits were 1.68 million, up 8%, and daily visits per clinic rose to 33 from 32 a year ago. Higher visits per clinic means our existing clinics are becoming more productive, which supports the margin improvement results I will cover shortly. Revenue per visit was $111, an increase of $5 from last year, driven by higher reimbursement rates at our hospital affiliation clinics. Turning to payer mix, Q3 2026 workers' comp results were a highlight, delivering an 8% revenue per visit increase over Q3 2025, with penetration approaching 11%. Medicare also outperformed with a 2% revenue per visit increase in Q3 2026, exceeding our estimated 1% 2026 increase. Commercial revenue per visit was flat in Q3, but increased by 2% year-to-date in 2026 compared to the same period last year. Hospital affiliations revenue exceeded And we have now converted 72 clinics, reflecting the completion of our first two announced affiliations. Adjusted physical therapy margin was 19% in Q3 2026, an increase of 60 basis points compared to Q3 2025. Despite the unfavorable trend in employee benefit costs we experienced in the first half of the year, which continued in Q3 2026. As a result of this headwind, Q3 2026 Physical Therapy margin was negatively impacted by approximately 150 basis points. As Chris mentioned, we took aggressive actions to control payroll costs and reduce discretionary spending in the third quarter, which will continue to benefit margins in future periods. IIP revenue was $33 million, up 14%. Excluding the acquisitions we completed in January, IIP revenue grew 8%. IIP margin was 22% and improvement of 230 basis points compared to Q3 2025. Adjusted corporate expenses was 8% of revenue. and 80 basis points improvement compared to Q3 2025, reflecting good leverage as we grow. Third quarter 2026 EBITDA was $28 million, up $4 million from last year. Adjusted net income was $12 million, up $2 million versus Q3 2025. Adjusted earnings per share were 80 cents, An increase of 14 cents compared to Q3 2025. On a GAAP basis, net income attributable to USPA shareholders was 11 million compared to 13 million last year. GAAP loss per share was $1.04 compared to earnings per share of 48 cents. I will take a few moments to walk you through the GAAP treatment of net income in this instance. Under GAAP, changes in the value of redeemable non-controlling interest, which represents our partners' ownership stakes in subsidiaries we do not fully own, are excluded from net income but are included in the earnings per share calculation. When performance improves, those partners' stakes become more valuable. and that has a dilutive effect on GAAP earnings per share. In other words, stronger operating results are contributing to the GAAP loss per share, which is why we focus on adjusted earnings per share as a clearer view of ongoing performance. Interest expense increased to $3.6 million. The year-over-year increase reflects borrowing costs to fund our 2026 acquisitions. as well as opportunistic share repurchases. The income tax rate was 26.5% for the quarter and 28.9% year-to-date. Now let us turn to our balance sheet. We ended the quarter with $38 million in cash compared to $36 million at the end of 2025. Borrowings on the credit facility were $247 million compared to $162 million at year-end 2025. We remain confident in our capital structure and our ability to support the ongoing execution of our growth strategy. On September 22nd, we entered into a new interest rate swap to extend our existing hedge on one-month term SOFR. The new swap begins on June 30, 2027 and runs through the credit facilities expiration on April 14, 2031. It fixes the SOFR index for our term loan at 4.6% over that period with an initial notional value of $171 million. Combined with the existing swap, which remains in place through June 30, 2027, a sizable portion of our floating rate debt is now hedged, which we believe gives us improved visibility over future interest costs. Year-to-date operating cash flow was $64 million, up from $50 million in the same period last year. We deployed our cash along with borrowings in line with our priorities. $36 million for business acquisitions, $23 million for purchases of minority interests, $21 million in dividends to shareholders, and $19 million for share repurchases. USPH has consistently returned capital to shareholders through dividend paid since 2011. and increased steadily over time. Our current quarterly dividend of $0.46 per share reflects the durability of our cash generation and our board's confidence in the business. We remain committed to a balanced capital allocation approach, investing in organic growth, pursuing disciplined partnership acquisitions, Maintaining appropriate financial flexibility and returning capital to shareholders. I am pleased with the strength of the company's balance sheet and intend to continue our laser focus on continuous physical discipline, translating our operating initiatives into visible financial progress, seamless predictability, and a disciplined value-creating capital approach. Given our year-to-date performance and the acceleration we saw in the third quarter, we are pleased to reaffirm our full-year EBITDA guidance of 102 million to 106 million. We are clear on the strategic direction of USPH, and we believe we are well equipped to get there. We remain focused on creating long-term sustainable value for all our stakeholders. as we look to execute our strategy and work to capture the opportunities we see ahead of us. I am excited to be part of this team, and I look forward to working with all of you. With that, we would like to open the call for questions.

Thank you. If you'd like to ask a question, press star 1 on your keypad now. To leave the queue at any time, please press star 2. Once again, that is star 1 to ask a question. And we'll pause for just a moment to allow everyone a chance to join the queue. Thank you. We'll take our first question from Joanna Gajuk with Bank of America. Your line is open. Please go ahead.

Hi, good morning. Hey, good morning. Thanks so much for taking the questions. So a couple of questions on these hospital affiliations. So clearly, you know, you're executing pretty well, it seems. But I just want to confirm, so the $25 million revenue in the quarter, right, we should expect this number to grow in Q4 because there was some of these clinics that moved into the affiliations late in the quarter, right, in September. So can you help us? and many more. We don't understand the magnitude of this question because we should expect even outside of opening your clinics or adding things, but just based on the business in place right now.

I don't know that we're prepared to give a number per se, but your summary is correct. In the quarter, we added the bulk of the metro facilities. The final tranche didn't occur until the month of September. We also, in the month of September, added our Gulf Coast partnership. And so the fourth quarter will be the first quarter, first time that we will have had both of these partnerships fully loaded for the entirety of the quarter. Chacha, I don't know if you want to say any more. No.

We're pleased with the performance that we're seeing with our hospital affiliations. I mean, it's a really strong performance, and we expect that this performance will continue.

Okay. And I guess from that kind of base level, it sounds like you just – added a facility through an acquisition into those hospital affiliations. Is there sort of, you know, a framework, you know, heading into next year, how we should think about growing that, you know, these affiliations in terms of the Novos or, you know, our Taken acquisitions, any kind of color you can give us in terms of how we should think about that growth going forward for the existing affiliations?

Right. So while we're not prepared to give numerical guidance yet for next year, I can tell you that our development team will be focused on tuck-in opportunities that bring readily available volume into these opportunities. And so in the Metro facility, in the Metro partnership, we have a number of de novos already slated between now and through next year. I'm sure we'll probably identify some additional tuck-ins as well. And then importantly, our facilities each week are getting busier and busier and handling more and more referrals. And so we have capacity within our existing facilities to continue to add staff and grow. And that, of course, will be a big focus as well. We'll give guidance in February that makes all of that a little bit more transparent in a numerical way, but directionally and strategically, what I just mentioned will be the focus for any of these hospital opportunities going forward.

Wonderful. And if I may, on a different topic that relates to next year, the final physician fee schedule work just came out last night. I don't know if you had a chance to look at this, but the physical therapy rate update was, you know, still 3%. There's some adjustments. So it looks like overall number maybe a little bit lower than the proposal. So do you have an estimate to keep us, you know, ballpark for it? What it means for you guys, but also you had flagged potential reimbursement upside in 28 from some methodology changes. Can you help us understand if this was finalized and any color on the magnitude of tailwind for the company if that was to happen in 28? Thank you.

Yeah, so I'll talk about the methodology briefly. We haven't, frankly, had enough time. to map it all out. As you know, these vary on a geographic index factor basis, and so we still need to do that. But on first blush, which is very early, it looks like the sum pieces parts on the base part of the physician fee schedule will be 0.7% positive for next year, so directionally positive. Separate from that, APTQI, the alliance that we started many years ago that aggregates all the largest companies in the space, we did some analysis and took that to PMS a while back on a very important modifier. called IPIC, it gets referred to as IPSE, and that's the Individual Practice Cost Index Modifier. Again, a lot of jargon here, I apologize, and not easy to follow. CMS is going to, we recommended and this rule that was published last night follows the recommendations that we made, but CMS is going to phase out that IPSE modifier over a two-year period beginning in 2027. That phase out will actually be a very significant benefit to us because that IPSE modifier has hurt us as a very efficient provider whose cost structure is not heavily weighted in very, very expensive, considered like highly expensive surgical equipment or technology equipment. And so it actually penalized more efficient providers. That penalty is going to go away. And the impact, we believe, will occur over a many-year period, not only beginning with the phase-out but continuing beyond the phase-out and give us a list for a number of years. Now, what I'd like to do is have our team who's worked on this overnight continue to work on it, continue to create clarity, and at some point we can put out additional information when we're, you know, sure exactly of the numbers but directionally very positively.

Great, thank you so much.

Thanks, Joanna. Thank you. We'll move on now to Jack Flevin with Jefferies. Your line is open. Please go ahead.

Hey, thanks for taking the question, and nice work on the quarter. Maybe to start, you know, volume looked really good in the quarter. Understand some of the dynamics around the hospital affiliations that are ramping. and a little bit of acquisition activity. But I guess I'd love to just hear, you know, in a couple of pieces sort of where you're seeing pockets of strength in volume and what you think is driving that. Yeah, I'll leave it there.

Okay. I don't know that I would call it pockets. I mean, we've, as I mentioned in my prepared remarks, and we don't take this lightly, by the way. I'm happy about it, but it's a tremendous amount of work that goes into it from, clinical and facility level, the operations team, sales and marketing team. We've had 27 consecutive months, which each month has been a record for that month. Demand is strong where we've maybe historically struggled a little bit and it's a tight labor market. And so we continue to have to try to staff to meet that demand. We're in competition with large and many small providers. We have a little better resources than the small providers. We have tremendous care that's being delivered at our facilities, recognized by our patients and our referral sources. And we have room in our facilities, and so those combination of factors accrue reasonably well for us. We've been pretty resilient in that regard and pretty steady. What I was going to say was I'm hopeful, but I'm more than hopeful. I know the team is working every day to continue that trend and to make that happen. We're going to continue to do what we know works, and hopefully we can keep it going.

Got it. Very helpful there. And then maybe, you know, I think helpful color earlier in the Q&A in terms of how to sort of look at the near term on the existing hospital partnerships. I know you've been sort of, you know, I'd call it pretty confident that there could be other opportunities that pop up. Maybe just wondering if there's any sort of thoughts you have on sort of potential pacing or, you know, when opportunities with New Hospital Partnerships might open up or start to layer in.

Yeah, I can say this and I wish I had a perfect crystal ball on this. One thing is clear, the two that we got out of the gate It's always a little bit harder to get the first one started, and I think our initial partner has been fantastic. Both of our partners have been fantastic. We move very, very quickly. Most hospital systems are slower to move. We're in discussion with a great many right now, and we expect that over a period of the coming months and quarters, we'll have additional patients. Thank you for joining us. at that point to share on magnitude and opportunity and potentially on phase-in. But we're confident we're going to get more of these done.

Okay. Helpful color there, Chris. And then last one for me, just the workers' comp strength that you flagged in the quarter, is there any detail you can give on what's driving that? Are you making sort of, you know, Are there any other intentional efforts to go after that line of business or something that you see there that's driving the strength? I'd just be curious to unpack that a little bit.

Yeah, sure. Maybe, Eric, if you're able, if you could address that. You and Ray and Graham have been working on that hard. Sure.

Yeah, it's been a major focus of ours for the past three-plus years, and we've made huge inroads, a dramatic increase. Thank you for joining us today. So and we have more contracts that are scheduled to come online as we continue to move through this year and into next year. So this is something that we feel still has opportunity to grow.

Got it. Appreciate all the color and nice working on the quarter, guys.

Thank you. Thank you. We'll move on now to Mike Petoskey with Barrington Research. Your line is open.

Hey, good morning.

Chris, if you mentioned it, I didn't catch it. Did you disclose how much EBITDA was actually generated in the quarter by the hospital partnerships?

We did not, and I don't know that that's going to be a number that we disclose unless eventually we end up breaking this out, which we haven't yet. Okay.

Okay, could I ask one question that's, I guess, somewhat connected to that? When you first announced these, and I understand that it was a few quarters ago, you sort of said, hey, you know... Fiscal 27, we could absolutely see an incremental $7.3 million of incremental EBITDA associated with these partnerships. I'm assuming that you're maybe more bullish on that outlook now than at that time, but are you willing to speak to that?

Yeah. Let me just say that we're on the metro side. We're trending nicely ahead of that. Volumes picked up really well. And then on the Gulf Coast Partnership, we initially modeled that to begin, I think it was in June or maybe the end of June, got held up on a kind of a regulatory knit that took a few months to solve with the state. until it came in later. It didn't come in until September. But when you look at 27 impact, again, I don't know, unless Chacha wants to jump in, I don't know that we're prepared to exactly quantify it at this point. We may give some more color for 27 as we go forward, but we're ahead of where we expect it to be at this point.

Excellent. And then just a quick clarification, and I'll let others have a shot here. The 72 clinics, is that split between Metro and Gulf Coast, or is that just Metro? It's unclear to me what the 72 clinics.

Okay. What's the split if you have that? 62 and 10 would be the split. All right. Great. All right. Thanks so much, Chris.

I think 10 was Gulf Coast. Got it. Thank you so much. Great quarter. Thanks.

Thanks, Mike. Thank you. We'll move on to Larry Solow with CJS Securities. Your line is open.

All right. Good morning, Chris, and welcome, Nchacha. I guess just a couple of follow-ups, Chris. Yeah, absolutely. Just follow-ups, just from a high level. I'm just curious, just feedback. I'm sure the feedback from your partner sounds like it's going great, but anything from payers or anything like that, anything you could just speak to?

Partner Feedback has been strong and of course there's work to do. You know, always when you try to stand something up that's significant, particularly on the Metro side, really significant. And look, these things, when they initially start, and we've converted in this case on the Metro side to a new, very complicated, non-PT specific EMR. We actually slowed down just a little bit for a few and then things picked back up again and it picked up nicely. Again, it's gone well. I think, you know, I won't speak for our partners, but I think everybody's pleased. And then the payer side, again, our partners are billing under their payer contracts. We don't have an interface with the payers on that side, but I haven't heard of anything that, you know, plus or minus, that's coming from the payer side at all. But honestly, I don't know that I would hear directly other than through our partner. And we haven't heard through our partner that there's been any issue one way or the other.

That's fair. And the margins, PT, were up 150 bps year-over-year in the quarter. So 300 bps improvement x the insurance side, I imagine most of that is just from the pricing on the hospital side, just the improvement. But it sounds like there's still some inefficiencies. You're just ramping, so you probably have... and many more.

Thank you very much. We will see that we are going to focus on managing our expenses very prudently to ensure that we keep our expenses flat. That also should contribute to our margin improvements.

The one thing I would just throw a little caution out there for you guys is You know, this fourth quarter, our employee expenses run hot all year. And comparatively, we ran cool last year. And so we're much of a quarter. It's something that we don't control directly. So I would just encourage you, you know, don't get too far ahead, too far, too fast. We're making progress operationally. There's a piece of this we don't entirely control, so, you know, that's still hanging out there for us.

And things you actually don't fully control, just curious, just to clarify, so on the IPIC modifier and the, you know, the methodology change, it sounds like your expectation is, do you actually get some benefit in 27, you know, I think you called out the .7 just from the or should we kind of think of that beginning in 28 and maybe it's like a low single digit percent over a multi-year period? Is that kind of, again, I know nothing's in concrete yet, but is that how you're thinking about it?

Again, my understanding is from a cake that was just baked and hasn't really cooled yet and we need a little bit more time, but If the Ipsy modifier begins its phase-out next year, I'd see some benefit as that modifier phases out because the modifiers have a negative effect on our code values. The biggest impact will be after the phase-out has happened. which will take two years and then go forward. And so I'm looking forward to that. And that was hard fought. And I just want to thank my CEO board members and Nick Patel and Liberty Partners, our lobby group for the war in general.

Yeah, absolutely. Chris, please one more.

Yeah, I don't have it in front of me. I don't think we did 21 for the quarter. Is that a year's number, maybe? That may have included the 10 that we acquired and then the sports medicine that in front of you.

You're right. It included the... and one new partnership board on July 1st with 12 locations and the balance of those were Danovas.

Gotcha. So 10, not 10 Danovas. Got it. Okay, great. Thanks for that call. I appreciate it, guys.

Thanks, Luther. Thank you. And once again, if you would like to ask a question, please press star 1. We'll move on now to Constantine Davides with Citizens. Your line is open. Please go ahead. Sorry about that.

Hi, Chris. Just a follow-up on the hospital alliances and some of the questions around the impact there. I know you discussed previously some ways that the original accretion estimates might prove conservative, particularly with respect to some of the efforts around billing and collections. Have you thought about that further or if and when you might start to address potential takeouts as to those?

Yeah, again, I'm not prepared as has begun in part here very recently to begin to adjust some admin staff.