U.S. Physical Therapy, Inc. Conference Call Transcript

U.S. Physical Therapy, Inc.

Jason Curtis, Interim Chief Financial Officer

email: jcurtis@usph.com

Chris Reading, Chief Executive Officer

U.S. Physical Therapy, Inc.

Conference Call Transcript

May 7, 2026 10:30 am ET

Along with Jason, Eric Williams, our President and COO, Rick Binstein, our Executive Vice President

and General Counsel, and Kate Venturina, our Vice President and Controller.

Before we discuss the results for this past quarter, as usual, we need to cover a brief disclosure

statement. Kate, if you would, please.

Re-engagement with remote therapeutic monitoring for our traditional Medicare population after CMS

revised the rules in late 2025, beginning 2026 this year in January. Expansion of our cash-based programs across a great number of our top partnerships. We initially rolled this out last year in the spring. We had another partner meeting

again in April this year with a large swath of our top 30, top 40 partners where a significant part of our growth and income comes from, and we focused on growth opportunities; one of those was cash-based programs deployment. That is

rolling out as we speak.

Finally, a strong investment and effort directionally to create opportunities with large hospital

systems similar to the two that were previously announced, including NYU and another one in the Gulf Coast region. Those efforts are going very well. In fact, we just started the NYU transition process for our initial set of clinics, and

we'll be rolling facilities in over the next few months across both opportunities. These initiatives are on track, and we believe will produce the results we have discussed as the year progresses. This in combination with continuing ramp up

of visits across the Company gives us the confidence to reaffirm our previous guidance. In fact, we finished Q1 right on budget. For some of you, I know you had different Q1 expectations, but we were where we expected to be exiting this

First quarter highlights include revenue increase in physical therapy of 7.2%, with the 2.5% same-store increase. This

was driven from the 6.9% bump in patient volume, which for the quarter increased the visits per clinic per day to 31.8. Now just for some perspective, demand was strong this Q1. We lost over 31,000 visits to weather, which impacts not just

revenue, but the vast majority of our highest paid people we had to pay to sit at home during these weather events, which is a drag on margins. All of that is now in the rear-view mirror as we ramp into the busiest period of the year. The

net rate for the quarter rose to $106.49, up from $105.66 prior year. The biggest positive influencers there include a nice 3.4% year-over-year increase in commercial rates coupled with the small Medicare pricing increase we're ramping into

as the year begins. Pulling against that a little bit, on a blended basis, was a small drop in our Medicaid rate. We're going to have to watch that also as the year progresses.

Injury prevention saw a number of good things for the quarter. Revenue increased 11.8%, which included a partial

quarter contribution from our latest IIP New York-based acquisition earlier announced. Same-store revenue increased 8.2% while margin increased 180 basis points compared to our Q1 2025 numbers. On the development front, in addition to the

New York City-based IIP deal, we added in a nice eight-clinic therapy partnership in the Pacific Northwest. It's going to do very well for us.

In addition, we opened seven de novo clinics in the quarter. We have more to come in both the hospital area as well as

acquisitions. Recently, and we have already announced this but I'll cover it, we completed re-negotiation of our five-year credit facility, which in addition to providing even better pricing and terms compared to what we had before, which

was already a very favorable facility, but we were able to expand our capacity so that we can continue to invest in growth opportunities without compromise.

Finally, in the quarter, as Jason will later discuss related to the credit facility and our borrowings, we repurchased

equity in two very strong partnerships with the total spend of a little more than $14 million where we continue to have strong founding partners who were taking some chips off the table due to their extraordinary growth over time, in one

case, and another at a point of the partner's planned retirement, with a strong owner bench still intact. Our strong capital structure allows us to be flexible and take advantage of these opportunities without compromising our ability to

run the company or pursue a variety of growth opportunities. For that reason, we feel confident in our ability to continue the growth through organic as well as acquisition-related partner-centric development. So, we believe we have a great

balance sheet. As we discussed, our improved and expanded credit facility gives us the dry powder to make good decisions about our growth and provides us with the resources and capital that we need to run the company, grow and expand where

it make sense in PT and industrial injury prevention, invest in new technologies, resources, and people to make our growth plan happen. All of which we are doing in real time. This, along with our continued high demand for services and our

progress across key initiatives, gives us the confidence to reaffirm our guidance for 2026.

As I wrap up my prepared comments, as I always do, it's important to say all of this is because our clinicians, our

partners are doing such a great job around the country everyday to make a difference in the lives of our patients who they are positively impacting - making a difference in the lives of our injury prevention clients and their workers,

keeping them safe and healthy, and all of that helps us to attract the kinds of new opportunities, including our hospital partners like NYU and others, which should be an accelerant to our growth rate as we finish this year and look

forward, especially, into 2027.

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

up for questions. Thank you.

Total first quarter 2026 Physical Therapy revenue was $168 million, a 7.2% increase versus prior

year first quarter. Mature clinic revenue increased 2.5% in Q1 2026, continuing the sequential quarter-over-quarter build from 2025. Adjusted physical therapy payroll cost per visit was $64.20 in the first quarter 2026 compared to $63.53 in

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

in Q1 2025. IIP revenue was $31 million in Q1 2026, an 11.8% increase versus the prior year. Excluding the Q1 2026 IIP acquisition, IIP revenue increased 8.2%. IIP margin increased to 20.4% in Q1 2026 compared to 18.6% in Q1 2025. Adjusted

corporate expense, as a rate to revenue, was 8.8% in Q1 2026 compared to 8.5% in Q1 2025.

We continue to make progress on our Workday ERP implementation and expect to go live at the

beginning of 2027. We're implementing Workday in both human resources and finance and are looking forward to modernizing our systems, increasing efficiency and improving the user experience.

Interest expense was $2.8 million in the first quarter of 2026 compared to $2.3 million in Q1 2025.

The increase was driven by cash usage associated with the two first quarter acquisitions, as well as $14 million in purchases of non-controlling interest, as Chris mentioned. Income tax in Q1 2026 was 32.3% compared to 28.1% in Q1 2025. The

Q1 2026 tax rate is elevated due to the negative impact of discrete tax items on comparatively lower pre-tax income. Adjusted EBITDA in Q1 2026 was $20.2 million, a $0.7 million increase compared to Q1 2025. Operating results per share was

$0.46 in the first quarter of 2026 compared to $0.48 in the first quarter of 2025. Net income attributable to USPH shareholders was $5.0 million in Q1 2026 compared to $9.9 million for Q1 2025.

Included in pre-tax income for Q1 2026 was a loss on change in fair value of contingent earn-out

considerations of $2.0 million versus a gain of $4.8 million in Q1 2025. The Q1 2026 loss was driven by stronger performance in recent acquisitions, which increases our earn-out liability. GAAP loss per share was $0.12 in the first quarter

of 2026 compared to earnings per share of $0.80 in the first quarter of 2025. Earnings per share in Q1 2026 was negatively impacted by re-evaluation of redeemable non-controlling interest compared to a benefit in Q1 2025. Under GAAP,

increases or decreases in the value of redeemable non-controlling interest are not included in net income but are included in the calculation of per share metrics. Stronger performance in Q1 2026 increased the value of these ownership

interests, negatively impacting per share metrics.

As Chris mentioned, we completed two significant acquisitions in the first quarter. At the beginning

of January, we acquired a 50% interest in an eight-clinic physical therapy practice with $8 million in revenue and 66,000 visits. At the end of January, we acquired a 70% interest in an industrial injury prevention business with $7 million

Turning to the balance sheet, cash and cash equivalents at the end of Q1 2026 were $28 million

compared to $36 million at the end of 2025. Borrowings on our credit facility were $204 million in Q1 2026 compared to $162 million at the end of 2025. As noted, the increase in borrowings was driven by our two first quarter acquisitions as

well as the $14 million in purchases of non-controlling interests.

On April 15, 2026, we announced a 5-year, $450 million credit facility with a maturity date of April

14, 2031. Based on strong lender support, the facility was upsized from its initial $400 million launch amount, and we achieved improved pricing compared to our previous facility. Our lender group consists of Bank of America, Regions, JP

Morgan Chase, Citizens, US Bank, and Bank United. This larger facility, compared to our previous $325 million facility, provides us with additional flexibility as we continue to grow our portfolio partnerships and return capital to

shareholders. The June 2027 maturity date for our existing interest rate swap remains unchanged.

Our first quarter results were in line with our expectations, and we expect the impact of the 2026

objectives, which Chris discussed, to ramp up throughout the course of the year. As such, we are re-affirming our full-year 2026 adjusted EBITDA guidance of $102 million to $106 million.

With that, I will the call back to Chris.

So, yes, I did want to know that. Okay, good. And then from here, how should we think about the ramp

up the rest of the year? I mean, it sounds like you guys are kind of out of a couple of things, but I don't know if there's some numbers to put around, because when you do that, the rough math, so Q1, EBITDA was about, call it, 19% of the

full year guidance, but the last couple of years, it was more like 20 or above 20%. So, I guess it was lower than typical, and then if you would assume typical seasonality, which obviously things get skewed because there's different level

of acquisitions and things like that. If we do some rough math, we can get to maybe less than $100 million for the year. Then obviously you have these hospital alliances. So, if you could also quantify how much actually in this year,

because you do talk about $7 million, but that's obviously when you fully annualize it and fully ramped up. So, I don't know if there's something in the guidance included for this and lastly, there are also these acquisitions. I want to

make sure they were already in guidance and how much, if anything, they add for the rest of the year, because essentially what I'm trying to bridge is from Q1, how you're going to get to your $102 to $106 million for the year, because I'm

getting more like a couple million dollars short. So, I'm thinking maybe that's the hospitals and acquisitions that helped explain the Delta. Thank you.

On the Gulf Coast opportunity, the other hospital opportunity, that depends upon how things go over

the next couple of weeks, could begin in June or it could begin in July. So, there's several million dollars worth of additional hospital contribution, but obviously we're not getting a full year, we're getting a half year at most or part

year, not even really fully a half year because we've got to layer in these facilities. That'll take a few months, particularly in Metro's case, but all that was fully baked into our guidance when we did it originally. I can't give you a

whole lot more granularity by quarter just because we don't do it. We have those numbers, but we haven't guided by quarter in a long time. I understand we were a little out of sync with you guys this first quarter, but that's where we are.

Jason, do you have the - if you don't, that's fine, we can follow up - the estimated contribution on

the hospital contracts this year. I know we announced it on our last call.

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

And then around Medicaid, Medicaid was down a few percent. It was a single-digit number. Again, not

a big part of our business. One data point, we'll have to watch it. So, we'll have to watch in Q2 to see if it was - and we'll have to do a little bit more work on it to see if it was a regional mix which changed, which skewed the blended

number, or whether there's some pricing differences in there as a result of states which have made some changes.

I wish I could tell you exactly at this point. We'll do more work on that as we have more color,

we'll get with you guys and try to give you an update. But it's not going to be a big driver, particularly as Medicare is fully in there and commercial is strong. Worker's comp, frankly, continues to be strong overall in general. And so,

Medicaid may move a little bit, but I don't think it will swing a number very much.

One of the things that we worked really hard on, our operations team, Eric Williams, worked really

hard on with our recruiting group is, number one, the recruiting side of the business. But we've really focused on the retention side, and I'll tell you that for the first quarter, and the numbers have come down, down being in a good

direction in terms of turnover, for the first quarter, those numbers are now sub 18%, which is as low as we've ever had since we've been measuring it in terms of turnover. So, we're doing a better job hanging on to our people. That'll make

a difference during our blow-and-go months when we're the busiest, which is currently, Q2 right now is a great example. So, I think those cost numbers will normalize.

We have invested at the corporate office in some of these initiatives in terms of both people and

resources, I'll call them. And so, while there's a little bit of a displacement between when revenue begins and when resource allocation has to come in in order to make those other good things happen downstream, those two will eventually

So, I would tell you that those are the three biggest ones that people are latching onto right now,

and we've got partners who have been enormously successful on it, finding hundreds of thousands of dollars a year in cash-based services starting from zero. And as much as we talk about it, when our partners hear other partners talking

about it and how they've been able to implement it and get their clinicians to buy in and get patients to have an interest, really carries a lot of weight. Right after the partner meeting, we had a bunch of partners who had really not