USPH 10-K & 10-Q changes, risk factors and insider trading

The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”). For services provided in 2025,2026, we expect our reimbursement rates under the MPFS to beincrease by approximately 2.9%1.75% lessas thancompared to the applicable reimbursement rates during 2024.2025.

Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation. The Company believesWe believe that thewe Companyare is in compliance, in all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on theour Company’s financial statements as of December 31, 2024.2025. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program. For the year ended December 31, 2024,2025, and 2023,2024, respectively, net patient revenues from Medicare were approximately $183.4$213.5 million and $170.7$183.4 million, respectively.

Payments we receive from Medicare and Medicaid can be retroactively adjusted after examination during the claims settlement process or as a result of post-payment audits. Payors may disallow our requests for reimbursement,reimbursement or recoup amounts previously reimbursed, based on determinations by the payors or their third-party audit contractors that certain costs are not reimbursable because either adequate or additional documentation was not providedprovided, or because certain services were not covered or deemed to not be medically necessary. Significant adjustments, recoupments or repayments of our Medicare or Medicaid revenue, and the costs associated with complying with investigative audits by regulatory and governmental authorities, could adversely affect our financial condition and results of operations.

Substantially all of our revenues are derived from private and governmental third-party payors. In 2024,2025, approximately 64.0%64.2% of our revenues were derived collectively from managed care plans, commercial health insurers, workers’ compensation payors, and other private pay revenue sources while approximately 36.0%35.8% of our revenues were derived from Medicare and Medicaid. Initiatives undertaken by industry and government to contain healthcare costs affect the profitability of our clinics. These payors attempt to control healthcare costs by contracting with healthcare providers to obtain services on a discounted basis. We believe that this trend will continue and may limit reimbursement for healthcare services. If insurers or managed care companies from whom we receive substantial payments were to reduce the amounts they pay for services, our profit margins may decline, or we may lose patients if we choose not to renew our contracts with these insurers at lower rates. In addition, for our Subsidiary Partnerships that are affiliated with hospitals and hospital systems, if insurers or managed care companies from whom the hospitals and hospital systems receive payments were to reduce the amounts they pay to these hospitals and hospital systems for services we perform on their behalf, our profit margins will decline or the hospital affiliation arrangement may be terminated, which could have an adverse impact on revenue and the results of operations Also, in certain geographical areas, our clinics must be approved as providers by key health maintenance organizations and preferred provider plans. Failure to obtain or maintain these approvals would adversely affect our financial results.

In recent years, through legislative and regulatory actions, the federal government has made substantial changes to various payment systems under the Medicare program. See “Business—Sources of Revenue – Physical Therapy Services” in Item 1 for more information including changes to Medicare reimbursement. Additional reforms or other changes to these payment systems may be proposed or adopted, either by the U.S. Congress or by CMS, including bundled payments, outcomes-based payment methodologies and a shift away from traditional fee-for-service reimbursement. If revised regulations are adopted, the availability, methods and rates of Medicare reimbursements for services of the type furnished at our facilities could change. Some of these changes and proposed changes could adversely affect our business strategy, operations and financial results.

We are subject to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (“COVID-19”).pandemics.

Our operations expose us to risks associated with public health crises and epidemics/pandemics, such as COVID-19 that has spread globally. A public health crisis may lead to disruption and volatility in the global capital markets, which increases the cost of, and adversely impacts access to, capital and increases economic uncertainty. A future public health crisis could have an adverse impact on our operations and supply chains, including a temporary loss of physical therapists and other employees who are infected or quarantined for a period of time, an increase in cancellations of physical therapy patient appointments and a decline in the scheduling of new or additional patient appointments.

An economic downturn, including the consequences of a pandemic, such as COVID-19, could have a detrimental effect on our revenues. Historically, state budget pressures have translated into reductions in state spending. Given that Medicaid outlays are a significant component of state budgets, we can expect continuing cost containment pressures on Medicaid outlays for our services in the states in which we operate. In addition, an economic downturn, coupled with sustained unemployment, may also impact the number of enrollees in managed care programs as well as the profitability of managed care companies, which could result in reduced reimbursement rates.

Some states prohibit the “corporate practice of therapy” that restricts business corporations from providing physical therapy services through the direct employment of therapist physicians or from exercising control over medical decisions by therapists. The laws relating to corporate practice vary from state to state. Typically, however, professional corporations owned and controlled by licensed professionals are exempt from corporate practice restrictions and may employ therapists to furnish professional services. Those professional corporations may be supported by business corporations, such as the Company, that provide management and/or administrative services, subject to certain limitations .limitations.

In recent years, many legislative proposals have been introduced or proposed in Congress and in some state legislatures that would affect major changes in the healthcare system, either nationally or at the state level. At the federal level, Congress has continued to propose or consider healthcare budgets that substantially reduce payments under the Medicare programs. See “Business— - Our Operating Segments –- Physical Therapy Operations-Sources Operations - Sources of Revenue” in Item 1 for more information. The ultimate content, timing or effect of any healthcare reform legislation and the impact of potential legislation on us is uncertain and difficult, if not impossible, to predict. That impact may be material to our business, financial condition or results of operations.

The following discussion and analysis of U.S. Physical Therapy, InclInc. and its subsidiaries (herein referred to as “we”, “us”, “our” or the “Company”) should be read in conjunction with the Company’s consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis, including information with respect respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” and “Forward-Looking Statements” sections of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

This section of this Annual Report on Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended ended December 31, 2023,2024, filed with the Securities and Exchange Commission on FebruaryMarch 29,3, 2024.2025.

U.S.The PhysicalCompany Therapy,operates Inc. and our subsidiaries (collectively, “we”, “us”, “our” or the “Company”), operate ourits business through two reportable business segments. Our reportable segments consist of the physical therapy operations segmentconsist of physical therapy, speech therapy and occupational therapy clinics and home-care physical and speech therapy practices that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders, sports-related injuries, and rehabilitation of injured workers. Services provided by the industrial injury prevention services (“IIP”) segment. Through our subsidiaries, we operate and/or manage outpatient physical therapy clinics that provide pre-and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, treatment for neurological-related injuries and rehabilitation of injured workers. We also have a majority interest in businesses which are leading providers of industrial injury prevention services. Services provided in this businesssegment include onsite services for clients’ employees including injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic assessments. The majority of the IIP services areis contracted with and paid for directly by employers, including a number of Fortune 500 companies. OtherIIP clients include large insurers and their contractors. These services areis performed through Industrialindustrial Sportssports Medicinemedicine professionals with Professionals, consisting primarily of specialized certifiedtraining athleticrelated trainers.to the musculoskeletal system.

On FebruaryJanuary 28,2, 2025,2026, we acquired a 65%50% interest in a physical therapy practice with three cliniceight-clinic locations. The prior ownersowner retained a 35%50% ownership interest.

For calendar years 2021, 2022 and 2023, Centers for Medicare and Medicaid Services (“CMS”) expected decreases in Medicare reimbursement were partially offset by one-time increases in payments payments as a result of other legislation passed by Congress, resulting in decreases of approximately 3.5%, 0.75% and 2.0% in each of these years, respectively. For January 1 through March 8 of 2024, CMS’s final rule resulted in an approximate 3.5% decrease in Medicare payments for the therapy specialty. However, effective as of March 9, 2024, pursuant to the Consolidated Appropriations Act, 2024, Congress minimized the reduction in Medicare payments for therapy services for the balance of 2024, resulting in an approximate 1.8% reduction in Medicare payments for therapy services (rather than the 3.5% decrease). The MPFS proposed by CMS for 2025 will decreasedecreased Medicare reimbursement for therapy services by approximately 2.9% as compared to the reimbursement rates in effect for most of 2024. For 2026, the proposed MPFS is expected to increase Medicare reimbursement for therapy services by approximately 1.75% as compared to the reimbursement rates for 2025.

In the final 2020 MPFS rule, CMS clarified that when the physical therapist is involved for the entire duration of the service and the physical therapist assistant (“PTA”) provides skilled skilled therapy alongside the physical therapist, an identification of the PTA’s participation (as denoted by a “CQ modifier”) is not required. Also, when the same service (code) is furnished separately by the physical therapist and PTA, CMS applies the de minimis standard to each 15-minute unit of codes, not on the total physical therapist and PTA time of the service. For dates of service on and after January 1, 2022, CMS pays for physical therapy and occupational therapy services services provided by PTAs and occupational therapist assistants (“OTAs”) at 85% of the otherwise applicable Part B payment amount. CMS allows a timed service to be billed without a CQ (for PTA’s) or CO (for OTA’s) modifier when a PTA or OTA participates participates in providing care, but the physical therapist or occupational therapist meets the Medicare billing requirements without including the PTA’s or OTA’s minutes. This occurs when the physical therapist or occupational therapist provides more minutes than the 15-minute midpoint. The proposed 2025 MPFS final rule does not contain any policy changes concerning the modifiers for services provided by physical therapy and occupational therapist assistants.

Mature clinics are clinics (physical clinic locations and home-care business units) opened or acquired prior to January 1, 2023,2024, and are still operating as of the balance sheet date.

Patient visits is the number of unique patient visits during the periods presented.presented for both physical clinic locations and home-care.

Average daily visits per clinic is patient visits (excluding home-care visits) divided by the number of days in which normal business operations were conducted during the periods presented and further divided by the average number of clinics in operation during the periods presented.

Total net revenue 2024for the 2025 Year increased $66.5$109.6 million, or 11.0%,16.3%, to $671.3$781.0 million from $604.8$671.3 million for the 20232024 Year while operating costs increased $64.1$83.9 million, or 13.3%,15.3%, to $547.4$631.3 million from $547.4 $483.3 million over the same periods, respectively. TheseGross increasesprofit werefor primarilythe due2025 Year was $149.7 million, or 19.2% of net revenue, compared to the$123.9 increasemillion in visits fromfor the 582024 Year, or 18.5% of net new clinic additions during 2024 Year.revenue.

The following tables provide details of the basic and diluted earnings per share computation and reconcile net income attributable to USPH shareholders calculated in accordance with GAAP to Adjusted EBITDA, Operating Results and other non-GAAP measures. ManagementWe believesbelieve providing Adjusted EBITDA, Operating Results, and other non-GAAP measures to investors is useful information for comparing the Company’sour period-to-period results as well as for comparing with other similar businesses since most do not have redeemable instruments and therefore have different equity structures. Additionally, management believes that these non-GAAP measures provide useful supplemental information to investors, investors, analysts, and other stakeholders in assessing the Company’s operational performance and financial trends. ManagementWe usesuse Adjusted EBITDA, Operating Results and other non-GAAP measures, which eliminate certain items described above that can be subject to volatility and unusual costs, as the principal measures to evaluate and monitor financial performance period over period.

Adjusted EBITDA, a non-GAAP measure, is defined as net income attributable to our shareholders before interest income, interest expense, taxes, depreciation, amortization, change in fair value of contingent earn-out consideration, payments received from the federal government under the Corona virus Aid, Relief and Economic Security Act (“Relief Funds”), non-cash impairment charges, changes in revaluation of put-right liability, equity-based awards compensation expense, clinic closure costs, impairment on assets held for sale, business acquisition related costs, costs related to a one-time financial and human resources systems upgrade, loss on sale of a partnership and other income and related portions for non-controlling interests.

Operating Results, a non-GAAP measure, equals net income attributable to our shareholders less, changes in revaluation of a put-right liability, Relief Funds, non-cash impairment charges, clinic closure costs, loss on sale of a partnership, changes in fair value of contingent earn-out consideration, business acquisition related costs, costs related to a one-time financial and human resources systems upgrade, an income tax adjustment to revalue our deferred tax assets and liabilities to the most current statutory tax rate, and any allocations to non-controlling interests, all net of taxes. Operating Results per share also excludes the impact of the revaluation of redeemable non-controlling interest and the associated tax impact.

The tables belowthat follow define and reconcile non-GAAP Adjusted EBITDA and non-GAAP Operating Results to the most directly comparable GAAP measure.

(1) Costs associated with the closure of 4523 owned clinics during the 2024year Year.ended ClosureDecember costs31, in2025 and 45 owned clinics during the 2023year Yearended wereDecember not31, material.2024. See Clinic Count Roll Forward on page 34 for additional information.

(2) Primarily consists of retention bonuses, legal and consulting expenses related to the acquisitionacquisitions of 50% equity interestinterests in acertain management services organization that provides management and administrative services to 50 physical therapy clinics.partnerships.

Adjusted EBITDA (1), a non-GAAP measure, was $95.0 million for the 2025 Year, an increase of $13.2 million or 16.2% million, from $81.8 million for the 2024 Year, an increase of $3.9 million, from $77.9 million for the 2023 Year.

Operating Results (1), a non-GAAP measure, was $36.9$40.0 million for 20242025 Year, an increase of $0.5$3.1 million, from $36.4$36.9 million in the the 20232024 Year. On a per share basis, Operating Results were $2.63 in 2025 Year compared to $2.45 in the 2024 Year compared to $2.57 in the 2023 Year due to the increase in the number of shares outstanding associated with the Company’s secondary offering completed in May 2023. In addition, the 2024 Year includes a $1.0 million true-up of income tax expense recorded during the three months ended December 31, 2024.Year.

We operate our business through two reportable business segments. Our physical therapy operations segment consists of physical therapy, speech therapy and occupational therapy clinics and home-care physical and speech therapy practices that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders, sports-related injuries, and rehabilitation of injured workers. Services provided by the industrial injury prevention services (“IIP”) segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, ergonomic assessments, occupational medicine testing services, and drug & alcohol testing. The majority of IIP is contracted with and paid for directly by employers, including a number of Fortune 500 companies. IIP is performed through Industrial Sports Medicine Professionals with specialized training related to the musculoskeletal system.

During the threesix months ended MarchJune 31,30, 2026, and for the year ended December 31, 2025, we completed the acquisitions of clinic practices and an IIP business detailed below:

** On April 30, 2025, the Companywe acquired an outpatient home care practice that provides speech and occupational therapy through its 50% owned subsidiary Metro. After the transaction, theours Company’sownership ownership interest is 40%, the local partners have an ownership interest of 40% and the practice’s preacquisition owners have a 20% ownership interest.

On January 31, 2026, we acquired a 70% equity interest in an industrial injury preventionIIP business with the original owners retaining a 30% ownership interest.

Our Board of Directors declared a quarterly dividend of $0.46 per share payable on JuneSeptember 12,11, 2026, to shareholders of record on MayAugust 22,21, 2026.

Strategic Hospital AlliancesAffiliations

On February 2, 2026, we announced a 10-year strategic alliance between our subsidiary partner, Metro, and a prominent New York hospital system, whereby 60 of Metro’s existing outpatient physical therapy clinics in New York will become part of the hospital system’s clinical services network. The integration of the 60 clinics began in the three months ended June 30, 2026 and is expected to continue through September 30, 2026.

On February 25, 2026, we announced a 10-year strategic alliance between another of our subsidiary partners and a local hospital system whereby our subsidiary partner’s existing 10 outpatient outpatient physical therapy clinics will become part of the hospital system’s clinical services network. The integration of the 10 clinics is expected to occur in the three months ended September 30, 2026.

Net income attributable to our shareholders (“USPH Net Income”) was $5.0$9.9 million for the 2026 FirstSecond QuarterQuarter, compared to $9.9$12.4 million for the 2025 FirstSecond Quarter with earnings per share of $0.25 for the 2026 Second Quarter compared to earnings per share of $0.58 for the 2025 Second Quarter. IncludedUnder GAAP, changes in the value of redeemable noncontrolling interests, representing our partners’ ownership stakes in subsidiaries not fully owned by us, are excluded from net income but are included in the calculation of earnings per share. Improving performance increases the value of these ownership interests which has a dilutive effect on earnings per share. Also, included in pretax income for the 2026 First Second Quarter was a loss on change in fair value of contingent earn out consideration of $2.0$1.0 million versus a gain of $4.8$0.8 million in the 2025 FirstSecond Quarter. Under GAAP, changes in the value of redeemable noncontrolling interests, representing our partners’ ownership stakes in subsidiaries not fully owned by us, are excluded from net income but are included in the calculation of earnings per share. Strong performance in the 2026 First Quarter increased the value of these ownership interests which had a dilutive effect on earnings per share. Loss per share of $0.12 for the 2026 First Quarter, compared to earnings per share of $0.80 in the prior-year period.

Total net revenue for the 2026 FirstSecond Quarter increased $14.5$16.7 million, or 7.9%,8.5%, to $198.3$214.1 million from $183.8$197.3 million for the 2025 FirstSecond Quarter while operating costs increased $12.8$16.4 million, or 8.4%,10.5%, to $165.5$172.1 million from $152.7$155.7 million over the same periods, respectively.

Gross profit increased $1.7$0.3 million, or 5.4%,0.8%, to $32.8$41.9 million in the 2026 FirstSecond Quarter, compared to $31.1$41.6 million for the 2025 FirstSecond Quarter.

Adjusted EBITDA, a non-GAAP measure, is defined as net income attributable to our shareholders before interest income, interest expense, taxes, depreciation, amortization, change in fair value of contingent earn-out consideration, changes in revaluation of put-right liability, equity-based awards compensation expense, clinic closure costs, business acquisition related costs, costs related to a one-time financial systems and human resources resources upgrade, loss on sale of a partnership andpartnership, other income and related portions for non-controlling interests.interests, and other non-recurring items as applicable.

Operating Results, a non-GAAP measure, equals net income attributable to our shareholders less, changes in revaluation of a put-right liability, clinic closure costs, loss on sale of a partnership, changes in fair value of contingent earn-out consideration, business acquisition related costs, costs related to a one-time financial systems and human resources upgrade andupgrade, any allocations to non-controlling interests, all net of taxes. taxes and other non-recurring items as applicable. Operating Results per share also excludes the impact of the revaluation of redeemable non-controlling interest and the associated tax impact.

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

(2) Certain earnout bonuses and incentive costs related to the Metro acquisition.Metro.

(3) Includes expenses related to the acquisitions of equity interests in certain partnerships and includes costs associated with entering into hospital affiliationaffiliated contracts.

(56) Excludes revenues and costs related to management contracts.

(2) Certain earnout bonuses and incentive costs related to the Metro acquisition.Metro.

(3) Includes expenses related to the acquisitions of equity interests in certain partnerships.partnerships and includes costs associated with entering into hospital affiliated contracts.

(5) Certain fees expensed when entering into the Fourth Amended Credit Facility (6) Excludes revenues and costs related to management contracts.

(41) Includes revenues fromand/or costs related to other management contracts.