US Physical Therapy
Annual Report 2023

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K(Mark One)☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-11151U.S. PHYSICAL THERAPY, INC.(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)NEVADA 76-0364866(STATE OR OTHER JURISDICTION OF INCORPORATIONOR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)1300 WEST SAM HOUSTON PARKWAY SOUTH,SUITE 300,HOUSTON, TEXAS 77042(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 297-7000SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:Title of Each ClassTrading SymbolName of Each Exchange on Which RegisteredCommon Stock, $.01 par valueUSPHNew York Stock ExchangeSECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT: NONEIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☑Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorterperiod that the registrant was required to submit such files). Yes ☑ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Large accelerated filer☑Accelerated filer☐Non-accelerated filer☐ (Do not check if a smaller reporting company)Smaller reporting company☐ Emerging growth company☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant toSection 13(a) of the Exchange Act.  ☐Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financialstatements. Yes ☐ No ☑Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevantrecovery period pursuant to §240.10D-1(b). Yes ☐ No ☑Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐ No ☑The aggregate market value of the shares of the registrant’s common stock held by non-affiliates of the registrant at June 30, 2023 was $1.1 billion based on the closing sale price reported on the NYSE for the registrant’scommon stock on June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter. For purposes of this computation, all executive officers, directors and 5% or greater beneficial ownersof the registrant were deemed to be affiliates. Such determination should not be deemed an admission that such executive officers, directors and beneficial owners are, in fact, affiliates of the registrant.As of February 29, 2024, the number of shares outstanding of the registrant’s common stock, par value $.01 per share, was: 15,068,426.DOCUMENTS INCORPORATED BY REFERENCEDOCUMENTPART OF FORM 10-K Portions of Definitive Proxy Statement for the 2024 Annual Meeting of ShareholdersPart IIITable of ContentsPagePART I Item 1.Business4 Item 1A.Risk Factors15 Item 1B.Unresolved Staff Comments24 Item 1C.Cybersecurity24 Item 2.Properties26 Item 3.Legal Proceedings26 Item 4.Mine Safety Disclosures27 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities28 Item 6.Reserved29 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations30 Item 7A.Quantitative and Qualitative Disclosures About Market Risk46 Item 8.Financial Statements and Supplementary Data47 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure86 Item 9A.Controls and Procedures86 Item 9B.Other Information87 Item 9C.Disclosure regarding Foreign Jurisdictions that Prevent Inspection87 PART III Item 10.Directors, Executive Officers and Corporate Governance87 Item 11.Executive Compensation87 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters87 Item 13.Certain Relationships and Related Transactions, and Director Independence87 Item 14.Principal Accountant Fees and Services87 PART IV Item 15.Exhibits and Financial Statement Schedules87 Item 16.Form 10-K Summary95 Signatures961Table of ContentsFORWARD-LOOKING STATEMENTSWe make statements in this report that are considered forward-looking statements within the meaning given such term under Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Thesestatements contain forward-looking information relating to the financial condition, results of operations, plans, objectives, future performance and business of our Company. These statements (often using words such as“believes”, “expects”, “intends”, “plans”, “appear”, “should” and similar words) involve risks and uncertainties that could cause actual results to differ materially from those we project. Included among such statements, butnot limited to, are those relating to opening clinics, availability of personnel and the insurance reimbursement environment. The forward-looking statements are based on our current views and assumptions, and actualresults could differ materially from those anticipated in such forward-looking statements as a result of certain risks, uncertainties, and factors, which include, but are not limited to:•changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certification and/or enrollment status;•revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction;•changes in reimbursement rates or payment methods from third party payors including government agencies, and changes in the deductibles and co-pays owed by patients;•compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure to comply;•competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certain clinics and thereby incur losses and/or closure costs including the possible write-down or write-offof goodwill and other intangible assets;•the impact of future public health crises and epidemics/pandemics, such as was the case with the novel strain of COVID-19 and its variants;•one of our acquisition agreements contains a put-right related to a future purchase of a majority interest in a separate company;•the impact of future vaccinations and/or testing mandates at the federal, state and/or local level, which could have an adverse impact on staffing, revenue, costs and the results of operations;•our debt and financial obligations could adversely affect our financial condition, our ability to obtain future financing and our ability to operate our business;•changes as the result of government enacted national healthcare reform;•business and regulatory conditions including federal and state regulations;•governmental and other third party payor inspections, reviews, investigations and audits, which may result in sanctions or reputational harm and increased costs;•revenue and earnings expectations;•contingent consideration provisions in certain our acquisition agreements, the value of which may impact future financial results;•legal actions, which could subject us to increased operating costs and uninsured liabilities;•general economic conditions, including but not limited to inflationary and recessionary periods;•actual or perceived events involving banking volatility or limited liability, defaults or other adverse developments that affect the U.S or the international financial systems, may result in market wide liquidity problemswhich could have a material and adverse impact on our available cash and results of operations;•our business depends on hiring, training, and retaining qualified employees;•availability and cost of qualified physical therapists;•competitive environment in the industrial injury prevention services business, which could result in the termination or non-renewal of contractual service arrangements and other adverse financial consequences for thatservice line;•our ability to identify and complete acquisitions, and the successful integration of the operations of the acquired businesses;•impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their non-controlling interest (minority interests);•maintaining our information technology systems with adequate safeguards to protect against cyber-attacks;•a security breach of our or our third party vendors’ information technology systems may subject us to potential legal action and reputational harm and may result in a violation of the Health Insurance Portability andAccountability Act of 1996 of the Health Information Technology for Economic and Clinical Health Act;•maintaining clients for which we perform management, industrial injury prevention related services, and other services, as a breach or termination of those contractual arrangements by such clients could cause operatingresults to be less than expected;2Table of Contents•maintaining adequate internal controls;•maintaining necessary insurance coverage;•availability, terms, and use of capital; and•weather and other seasonal factors.Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our forward-looking statements. Please see the other sections of this report and our other periodic reports filed withthe Securities and Exchange Commission (the “SEC”) for more information on these factors. Our forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required bylaw, we are under no obligation to update any forward-looking statement, regardless of the reason the statement may no longer be accurate.3Table of ContentsPART IITEM 1.BUSINESSGENERALU.S. Physical Therapy, Inc. and subsidiaries (collectively, “we”, “us”, “our” or the “Company”), operates its business through two reportable business segments. Our reportable segments consist of the physical therapyoperations segment and the industrial injury prevention services segment. Through our subsidiaries, we operate outpatient physical therapy clinics that provide pre-and post-operative care for a variety of orthopedic-relateddisorders 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 preventionservices (“IIP”). Services provided in this business include onsite injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic assessments.The majority of the IIP services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. These services are performedthrough Industrial Sports Medicine Professionals, consisting primarily of specialized certified athletic trainers (“ATCs”).We were re-incorporated in April 1992 under the laws of the State of Nevada and have operating subsidiaries organized in various states in the form of limited partnerships, limited liability companies and wholly-ownedcorporations. This description of our business should be read in conjunction with our financial statements and the related notes contained in Item 8 in this Annual Report on Form 10-K.Our principal executive offices are located at 1300 West Sam Houston Parkway South, Suite 300, Houston, Texas 77042. Our telephone number is (713) 297-7000. Our website is www.usph.com.Acquisitions of Businesses and InterestsDuring the last three years, we completed the acquisitions of the following clinic practices and IIP businesses detailed below:% InterestNumber ofAcquisitionDateAcquiredClinicsOctober 2023 AcquisitionOctober 31, 2023***September 2023 Acquisition 1September 29, 202370%4September 2023 Acquisition 2September 29, 202370%1July 2023 AcquisitionJuly 31, 202370%7May 2023 AcquisitionMay 31, 202345%4February 2023 AcquisitionFebruary 28, 202380%1November 2022 AcquisitionNovember 30, 202280%13October 2022 AcquisitionOctober 31, 202260%14September 2022 AcquisitionSeptember 30, 202280%2August 2022 AcquisitionAugust 31, 202270%6March 2022 AcquisitionMarch 31, 202270%6December 2021 AcquisitionDecember 31, 202175%3November 2021 AcquisitionNovember 30, 202170%*September 2021 AcquisitionSeptember 30, 2021100%*June 2021 AcquisitionJune 30, 202165%8March 2021 AcquisitionMarch 31, 202170%6*IIP business**On October 31, 2023, we concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business (“October 2023 Acquisition”).Our strategy is to continue acquiring outpatient physical therapy practices, develop outpatient physical therapy clinics as satellites in existing partnerships, and continue acquiring companies that provide or serve theCompany’s industrial injury prevention services sector.4Table of ContentsOn May 30, 2023, the Company completed a secondary offering of 1,916,667 shares of its common stock at an offering price of $90.00 per share. Upon completion of the offering, the Company received net proceeds ofapproximately $163.6 million, after deducting an underwriting discount of $8.6 million and recognizing related fees and expenses of $0.2 million. A portion of the net proceeds was used to repay the $35.0 million thenoutstanding under the Company’s credit facility while the remainder is expected to be used primarily for additional acquisitions.OUR OPERATING SEGMENTSPhysical Therapy OperationsOur physical therapy operations segment primarily operates through subsidiary clinic partnerships (“Clinic Partnerships”), in which the Company generally owns a 1% general partnership interest in the Clinic Partnerships.The Company’s limited partnership interests generally range from 65% to 75% (a range of 10%-99%) in the Clinic Partnerships. For the vast majority of the Clinic Partnerships, the managing healthcare practitioner is aphysical therapist who owns the remaining limited partnership interest in the Clinic Partnership. The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of theclinics (hereinafter referred to as “Clinic Partnerships”). Generally, the therapist partners have no interest in the net losses of Clinic Partnerships, except to the extent of their capital accounts. Since we also develop satelliteclinic facilities of existing clinics, most Clinic Partnerships consist of more than one clinic location. To a lesser extent, the Company operates some clinics, through wholly-owned subsidiaries, under profit sharingarrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”).Our ClinicsWe operated 671 clinics in 42 states on December 31, 2023. Our highest concentration of clinics is in the following states: Texas, Tennessee, Michigan, Virginia, Florida, Oregon, Maryland, Pennsylvania, Georgia, Missouri,Idaho, Arizona, South Carolina, Alabama and Connecticut. In addition to our 671 clinics, we also managed 43 physical therapy practices for unrelated physician groups and hospitals as of December 31, 2023.The table below indicates historical information regarding our clinic counts. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Number of clinics, beginning of period 640 591 554 Additions 46 65 42 Closed or sold (15) (16) (5)Number of clinics, end of period 671 640 591 Our typical clinic occupies 1,000 to 7,000 square feet of leased space in an office building or shopping center. There are 25 clinics occupying space in the range of over 7,000 square feet to 16,500 square feet. We attempt tolease ground level space for our patients’ ease of access to our clinics.Each Clinic Partnership maintains an independent local identity, while at the same time enjoying the benefits of national purchasing, negotiated third-party payor contracts, centralized support services and managementpractices. Under a management agreement, the Company provides a variety of support services to each clinic, including supervision of site selection, construction, clinic design and equipment selection, establishment ofaccounting systems and billing procedures and training of office support personnel, processing of accounts payable, operational direction, auditing of regulatory compliance, payroll, benefits administration, accountingservices, legal services, quality assurance and marketing support.5Table of ContentsWe provide services at our clinics on an outpatient basis. Patients are usually treated for approximately one hour per day, two to three times a week, typically for two to six weeks. We generally charge for treatment on a perprocedure basis. Medicare patients are charged based on prescribed time increments and Medicare billing standards. In addition, our clinics will develop, when appropriate, individual maintenance and self-managementexercise programs to be continued after treatment. We continually assess the potential for developing new services and expanding the methods of providing our existing services in the most efficient manner while providinghigh quality patient care.Therapists at our clinics initially perform a comprehensive evaluation of each patient, which is then followed by a treatment plan specific to the injury as prescribed by the patient’s physician. The treatment plan may includea number of procedures, including therapeutic exercise, manual therapy techniques, ultrasound, electrical stimulation, hot packs, iontophoresis, education on management of daily life skills and home exercise programs. Aclinic’s business primarily comes from referrals by local physicians.Patient Care Providers and StaffingTypical minimum staff at a clinic consists of a licensed physical therapist and an office manager. As patient visits grow, staffing may also include additional physical therapists, occupational therapists, therapy assistants,aides, exercise physiologists, athletic trainers and office personnel. Therapy services are performed under the supervision of a licensed therapist.We continue to seek to attract employment of physical therapists who have established relationships with physicians and other referral sources by offering these therapists a competitive salary and incentives based on theprofitability of the clinic that they manage. For multi-site clinic practices in which a controlling interest is acquired by us, the prior owners typically continue as employees to manage the clinic operations, retaining a non-controlling ownership interest in the clinics and receiving a competitive salary for managing the clinic operations. In addition, we have developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location. In 2024, we intend to continue to acquire multi-clinic practices and tocontinue to develop outpatient physical therapy clinics as satellites in existing partnerships, along with increasing our patient volume through marketing and new programs.Typically, each therapist partner or director, including those employed by Clinic Partnerships in which we acquired a majority interest, enters into a multi-year employment agreement for a term of up to five years with theirClinic Partnership. Each agreement typically provides for a covenant not to compete during the period of his or her employment and for up to two years thereafter. Under each employment agreement, the therapist partnerreceives a base salary and may receive a bonus based on the net revenues or profits generated by their Clinic Partnership or specific clinic. In the case of Clinic Partnerships, the therapist partner receives earningsdistributions based upon their ownership interest. Upon termination of employment, we typically have the right to purchase the therapist’s partnership interest in Clinic Partnerships. For those Clinic Partnerships we createdin connection with an acquisition, our partner also has the right to cause us to purchase their interest upon termination of their employment, generally after a set holding period.In connection with most of our acquired clinics, in the event that a limited non-controlling interest partner’s employment ceases and certain requirements are met as detailed in the respective limited partnership agreements,we have a call right (the “Call Right”) and the selling entity or individual has a put right (the “Put Right”) with respect to the partner’s limited partnership interests. The Put Right and the Call Right do not expire, even uponan individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon exercise of the Put Right or the Call Right is calculated at a predeterminedmultiple of earnings performance as detailed in the respective agreements.6Table of ContentsSources of RevenuePayor sources for physical therapy operations are primarily managed care programs, commercial health insurance, Medicare/Medicaid and workers’ compensation insurance. Commercial health insurance, Medicare andmanaged care programs generally provide coverage to patients utilizing our clinics after payment by the patients of normal deductibles and co-insurance payments. Workers’ compensation laws generally require employersto provide, directly or indirectly through insurance, costs of medical rehabilitation for their employees from work-related injuries and disabilities and, in some jurisdictions, mandatory vocational rehabilitation, usually withoutany deductibles, co-payments or cost sharing. Treatments for patients who are parties to personal injury cases are generally paid from the proceeds of settlements with insurance companies or from favorable judgments. If anunfavorable judgment is received, collection efforts are generally not pursued against the patient and the patient’s account is written-off against established reserves. Bad debt reserves relating to all receivable types areregularly reviewed and adjusted as appropriate.The following table shows our payor mix for the periods presented. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Net Patient Net Patient Net Patient Payor Revenue Percentage Revenue Percentage Revenue Percentage Managed Care Programs/ (In thousands, except percentages) Commercial Health Insurance $244,470 47.5% $215,822 46.5% $209,129 47.7%Medicare/Medicaid 188,329 36.6% 174,401 37.5% 155,122 35.4%Workers' Compensation Insurance 48,834 9.5% 45,010 9.7% 44,549 10.2%Other 32,923 6.4% 29,357 6.3% 29,530 6.7%Total $514,556 100.0% $464,590 100.0% $438,330 100.0%Our physical therapy business depends to a significant extent on our relationships with commercial health insurers, health maintenance organizations, preferred provider organizations and workers’ compensation insurers. Insome geographical areas, our clinics must be approved as providers by key health maintenance organizations and preferred provider plans to obtain payments. Failure to obtain or maintain these approvals would adverselyaffect financial results.MedicareDuring the year ended December 31, 2023, approximately 40.3% of our visits and 36.6% of our net patient revenue was from patients with Medicare or Medicaid program coverage. To receive Medicare reimbursement, afacility (Medicare Certified Rehabilitation Agency) or the individual therapist (Physical/Occupational Therapist in Private Practice) must meet applicable participation conditions set by the Department of Health and HumanServices (“HHS”) relating to the type of facility, equipment, recordkeeping, personnel and standards of medical care, and also must comply with all state and local laws. HHS, through Centers for Medicare & MedicaidServices (“CMS”) and designated agencies, periodically inspects or surveys clinics/providers for approval and/or compliance. Failure of our subsidiaries to obtain or maintain certifications as Medicare providers or failureto enroll as a group of physical/occupational therapists in a private practice could adversely affect financial results.The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”).In 2021 the MPFS established by Centers for Medicare and Medicaid Services (“CMS”) resulted in an approximate 3.5% decrease in the reimbursement for the codes applicable to physical/occupational therapy servicesprovided by our clinics, as compared to 2020. Since January 1, 2022, outpatient therapy services furnished in whole or part by a therapist assistant are paid at an amount equal to 85% of the payment amount otherwiseapplicable for the service.For 2022, the MPFS Final Rule was to be an approximately 3.75% reduction to Medicare payments for physical/occupational therapy services. This was due to the expiration of the additional funding to the conversion factorprovided by Congress in 2021 under the Consolidated Appropriations Act, 2021. However, this reduction was addressed in the Protecting Medicare and American Farmers from Sequester Cuts Act (“2021 Act”) signed intolaw on December 10, 2021. Based on various provisions in the 2021 Act, the Medicare rate reduction for 2022 was approximately 0.75%.7Table of ContentsIn the 2023 MPFS Proposed Rule, CMS proposed a 4.5% reduction in the Physician Fee Schedule conversion factor. However, this reduction was later addressed in the Consolidated Appropriations Act, 2023 (“2023 Act”).The provisions of the 2023 Act increased the conversion factor by 2.5% for 2023 and by 1.25% for 2024, resulting in an overall reduction of approximately 2% in the 2023 Physician Fee Schedule conversion factor for 2023. Inthe 2024 MPFS Final Rule, CMS decreased the Physician Fee Schedule conversion factor by 3.39%, which is estimated to result in an approximately 3.5% reduction in reimbursement for the codes applicable tophysical/occupational therapy services provided by our clinics, as compared to 2023, unless these reductions are otherwise mitigated by further action of Congress.The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years and requires automatic reductions in federal spending by approximately $1.2 trillion. Paymentsto Medicare providers are subject to these automatic spending reductions, subject to a 2% cap. The Bipartisan Budget Act of 2018 extended the 2% reductions to Medicare payments through fiscal year 2027. The CARESAct suspended the 2% payment reduction to Medicare payments for dates of service from May 1, 2020, through December 31, 2020, and the Consolidated Appropriations Act, 2021 further suspended the 2% paymentreduction through March 2021. In April 2021, additional legislation was enacted that waived the 2% payment reduction for the remainder of calendar 2021. The 2021 Act included a three-month extension of the 2% sequesterrelief applied to all Medicare payments through March 2022, followed by three months of 1% sequester relief through June 30, 2022. Sequester relief ended on June 30, 2022.Beginning in 2021, payments to individual therapists (Physical/Occupational Therapist in Private Practice) paid under the fee schedule may be subject to adjustment based on performance in the Merit Based IncentivePayment System (“MIPS”), which measures performance based on certain quality metrics, resource use, and meaningful use of electronic health records. Therapists eligible to participate in MIPS include only thosetherapists who are enrolled with Medicare as private practice providers and does not include therapists in facility-based providers, such as our clinics enrolled as certified rehabilitation agencies. Less than 3% of ourtherapist providers currently participate in MIPS. Under the MIPS requirements, a provider’s performance is assessed according to established performance standards each year and then is used to determine an adjustmentfactor that is applied to the professional’s payment for the corresponding payment year. The provider’s MIPS performance in 2021 determined the payment adjustment in 2023. For those therapist providers who actuallyparticipated in MIPS during 2020 and 2021, the resulting average payment adjustment in 2022 and 2023 was an increase of 1%. The 2024 adjustment for those therapist providers who participated in MIPS during 2022 isexpected to remain at an average increase of 1%.Under the Middle-Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients who met or exceeded $3,700 in therapy expenditures during a calendar year have been subject to a manual medicalreview to determine whether applicable payment criteria are satisfied. The $3,700 threshold is applied to Physical Therapy and Speech Language Pathology Services; a separate $3,700 threshold is applied to the OccupationalTherapy. The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) directed CMS to modify the manual medical review process such that those reviews will no longer apply to all claims exceeding the $3,700threshold and instead will be determined on a targeted basis based on a variety of factors that CMS considers appropriate.The Bipartisan Budget Act of 2018 extended the targeted medical review indefinitely but reduces the threshold to $3,000 through December 31, 2027. For 2028, the threshold amount will be increased by the percentageincrease in the Medicare Economic Index (“MEI”) for 2028 and in subsequent years the threshold amount will increase based on the corresponding percentage increase in the MEI for such subsequent year.CMS adopted a multiple procedure payment reduction (“MPPR”) for therapy services in the final update to the MPFS for calendar year 2011. The MPPR applied to all outpatient therapy services paid under Medicare Part B— occupational therapy, physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of the practice expense component of the Relative Value Unit (“RVU”) for the therapyprocedure with the highest practice expense RVU, then reduces the payment for the practice expense component for the second and subsequent therapy procedures or units of service furnished during the same day for thesame patient, regardless of whether those therapy services are furnished in separate sessions. In 2013, the practice expense component for the second and subsequent therapy service furnished during the same day for thesame patient was reduced by 50%.8Table of ContentsGiven the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare that sufficiently compensate us for our services or,in some instances, cover our operating costs. Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on our revenue, financial condition and results of operations.Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our business, financial condition and results ofoperations.Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation. We believe that we are in compliance, in all material respects, with allapplicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on our financial statements as of December 31,2023. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program.MarketingWe focus our marketing efforts primarily on physicians, including orthopedic surgeons, neurosurgeons, physiatrists, internal medicine physicians, podiatrists, occupational medicine physicians and general practitioners. Inmarketing to the physician community, we emphasize our commitment to quality patient care and regular communication with physicians regarding patient progress. We employ personnel to assist clinic directors indeveloping and implementing marketing plans for the physician community and to assist in establishing relationships with health maintenance organizations, preferred provider organizations, case managers and insurancecompanies.Industrial Injury Prevention ServicesServices provided in the IIP segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, and ergonomic assessments. The majorityof these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. Our Company performs these servicesthrough Industrial Sports Medicine Professionals, consisting of both physical therapists and ATCs.In March 2017, we acquired a 55% interest in an initial IIP business. On April 30, 2018, we acquired a 65% interest in another business in the IIP sector and then we combined the two businesses. After the combination, weowned a 59.45% interest in the combined business, Briotix Health, Limited Partnership (“Briotix Health”). On April 11, 2019, we acquired 100% of a third provider of industrial injury prevention services. The acquired companyspecializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network in 45 states including onsite ateleven client locations. The business was then combined with Briotix Health increasing our ownership position in the partnership to approximately 76%. On September 30, 2021, we acquired a company that specializes inreturn-to-work and ergonomic services, among other offerings and contributed those assets to Briotix Health. On October 31, 2023, we made another acquisition and purchased 100% of an IIP business and contributed itsassets to Briotix Health. As part of the October 2023 Acquisition, we also acquired a 55% interest in an ergonomics software business. Subsequent to the abovementioned acquisitions and the purchases and sales of theredeemable non-controlling interests of the limited partners, our ownership in Briotix Health is approximately 92%.On November 30, 2021, we acquired an approximate 70% interest in another leading provider of IIP services. The founders and owners retained the remaining interest.9Table of ContentsFACTORS INFLUENCING DEMAND FOR PHYSICAL THERAPY SERVICESWe believe that the following factors, among others, influence the growth of outpatient physical therapy services:•Economic Benefits of Therapy Services – Purchasers and providers of healthcare services, such as insurance companies, health maintenance organizations, businesses, and industries, continuously seek cost savingsfor traditional healthcare services. We believe that our therapy services provide a cost-effective way to prevent short-term disabilities from becoming chronic conditions, to help avoid invasive procedures, to speedrecovery from surgery and musculoskeletal injuries and eliminate or minimize the need for opioids.•Earlier Hospital Discharge – Changes in health insurance reimbursement, both public and private, have encouraged the earlier discharge of patients to reduce costs. We believe that early hospital discharge practicesfoster greater demand for outpatient physical therapy services.•Aging Population – In general, the elderly population has a greater incidence of disability compared to the population as a whole. As this segment of the population continues to grow, we believe that demand forrehabilitation services will expand.REGULATION AND HEALTHCARE REFORMNumerous federal, state and local regulations regulate healthcare services and those who provide them. Some states into which we may expand have laws requiring facilities employing health professionals and providinghealth-related services to be licensed and, in some cases, to be owned by licensed physical therapists. Our therapists and/or clinics, however, are required to be licensed, as determined by the state in which they provideservices. Failure to obtain or maintain any required approvals or licenses could have a material adverse effect on our business, financial condition and results of operations.Regulations Controlling Fraud and AbuseVarious federal and state laws regulate financial relationships involving providers of healthcare services. These laws include Section 1128B(b) of the Social Security Act (42 U.S. C. § 1320a-7b[b]) (the “Fraud and AbuseLaw”), under which civil and criminal penalties can be imposed upon persons who, among other things, offer, solicit, pay or receive remuneration in return for (i) the referral of patients for the rendering of any item or servicefor which payment may be made, in whole or in part, by a Federal health care program (including Medicare and Medicaid); or (ii) purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, orderingany good, facility, service, or item for which payment may be made, in whole or in part, by a Federal health care program (including Medicare and Medicaid). We believe that our business procedures and businessarrangements are in compliance with these provisions. However, the provisions are broadly written and the full extent of their specific application to specific facts and arrangements to which we are a party is uncertain anddifficult to predict. In addition, several states have enacted state laws similar to the Fraud and Abuse Law, which may be more restrictive than the federal Fraud and Abuse Law.The Office of the Inspector General (“OIG”) of HHS has issued regulations describing compensation financial arrangements that fall within a “Safe Harbor” and, therefore, are not viewed as illegal remuneration under theFraud and Abuse Law. Failure to fall within a Safe Harbor does not mean that the Fraud and Abuse Law has been violated; however, the OIG has indicated that failure to fall within a Safe Harbor may subject an arrangementto increased scrutiny under a “facts and circumstances” test.The OIG also has issued special fraud alerts and special advisory bulletins to remind the provider community of the importance and application of certain aspects of the Fraud and Abuse Law. One of the OIG special fraudalerts related to the rental of space in physician offices by persons or entities to which the physicians refer patients. The OIG’s stated concern in these arrangements is that rental payments may be disguised kickbacks to thephysician-landlords to induce referrals. We rent clinic space for some of our clinics from referring physicians and have taken the steps that we believe are necessary to ensure that all leases comply to the extent possible andapplicable, with the space rental Safe Harbor to the Fraud and Abuse Law.One of the OIG’s special advisory bulletins addressed certain complex contractual arrangements for the provision of items and services. This special advisory bulletin identified several characteristics commonly exhibited bysuspect arrangements, the existence of one or more of which could indicate a prohibited arrangement to the OIG.Due to the nature of our business operations, some of our management service arrangements exhibit one or more of these characteristics. However, we believe we have taken steps regarding the structure of sucharrangements as necessary to sufficiently distinguish them from these suspect ventures, and to comply with the requirements of the Fraud and Abuse Law. However, if the OIG believes we have entered into a prohibitedcontractual joint venture, it could have an adverse effect on our business, financial condition and results of operations.10Table of ContentsAlthough the business of managing physician-owned and hospital-owned physical therapy facilities is regulated by the Fraud and Abuse Law, the manner in which we contract with such facilities often falls outside thecomplete scope of available Safe Harbors. We believe our arrangements comply with the Fraud and Abuse Law, even though federal courts provide limited guidance as to the application of the Fraud and Abuse Law to thesearrangements. If our management contracts are held to violate the Fraud and Abuse Law, it could have an adverse effect on our business, financial condition and results of operations.Stark LawProvisions of the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C. § 1395nn) (the “Stark Law”) prohibit referrals by a physician of “designated health services” which are payable, in whole or in part, by Medicare orMedicaid, to an entity in which the physician or the physician’s immediate family member has an investment interest or other financial relationship, subject to several exceptions. Unlike the Fraud and Abuse Law, the StarkLaw is a strict liability statute. Proof of intent to violate the Stark Law is not required. Physical therapy and occupational therapy services are among the “designated health services”. Further, the Stark Law has application toour management contracts with individual physicians and physician groups, as well as any other financial relationship between us and referring physicians, including medical advisor arrangements and any financialtransaction resulting from a clinic acquisition. The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral. Several states have enacted laws similar to the Stark Law. These state laws may coverall (not just Medicare and Medicaid) patients. As with the Fraud and Abuse Law, we consider the Stark Law in planning our clinics, establishing contractual and other arrangements with physicians, marketing and otheractivities, and believe that our operations are in compliance with the Stark Law. If we violate the Stark Law or any similar state laws, our financial results and operations could be adversely affected. Penalties for violationsinclude denial of payment for the services, significant civil monetary penalties, and exclusion from the Medicare and Medicaid programs.HIPAAIn an effort to further combat healthcare fraud and protect patient confidentially, Congress included several anti-fraud measures in the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). HIPAA createda source of funding for fraud control to coordinate federal, state and local healthcare law enforcement programs, conduct investigations, provide guidance to the healthcare industry concerning fraudulent healthcarepractices, and establish a national data bank to receive and report final adverse actions. HIPAA also criminalized certain forms of health fraud against all public and private payors. Additionally, HIPAA mandates theadoption of standards regarding the exchange of healthcare information in an effort to ensure the privacy and electronic security of patient information and standards relating to the privacy of health information. Sanctionsfor failing to comply with HIPAA include criminal penalties and civil sanctions. In February of 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law. Title XIII of ARRA, the HealthInformation Technology for Economic and Clinical Health Act (“HITECH”), provided for substantial Medicare and Medicaid incentives for providers to adopt electronic health records (“EHRs”) and grants for thedevelopment of health information exchange (“HIE”). Recognizing that HIE and EHR systems will not be implemented unless the public can be assured that the privacy and security of patient information in such systems isprotected, HITECH also significantly expanded the scope of the privacy and security requirements under HIPAA. Most notable are the mandatory breach notification requirements and a heightened enforcement scheme thatincludes increased penalties, and which now apply to business associates as well as to covered entities. In addition to HIPAA, a number of states have adopted laws and/or regulations applicable in the use and disclosureof individually identifiable health information that can be more stringent than comparable provisions under HIPAA.We believe that our operations comply with applicable standards for privacy and security of protected healthcare information. We cannot predict what negative effect, if any, HIPAA/HITECH or any applicable state law orregulation will have on our business.11Table of ContentsOther Regulatory FactorsPolitical, economic and regulatory influences are fundamentally changing the healthcare industry in the United States. Congress, state legislatures and the private sector continue to review and assess alternative healthcaredelivery and payment systems. Potential alternative approaches could include mandated basic healthcare benefits, controls on healthcare spending through limitations on the growth of private health insurance premiumsand Medicare and Medicaid spending, the creation of large insurance purchasing groups, and price controls. Legislative debate is expected to continue in the future and market forces are expected to demand only modestincreases or reduced costs. For instance, managed care entities are demanding lower reimbursement rates from healthcare providers and, in some cases, are requiring or encouraging providers to accept capitated paymentsthat may not allow providers to cover their full costs or realize traditional levels of profitability. We cannot reasonably predict what impact the adoption of federal or state healthcare reform measures or future private sectorreform may have on our business.COMPETITIONThe healthcare industry, including the physical therapy business and the industrial injury prevention services business, is highly competitive. The physical therapy business as well as the industrial injury preventionservices business are both highly fragmented with no company having a significant market share nationally. We believe that we are one of the largest national outpatient physical therapy services providers.Competitive factors affecting our business include quality of care, cost, treatment outcomes, convenience of location, and relationships with, and ability to meet the needs of, referral and payor sources. Our clinics compete,directly or indirectly, with many types of healthcare providers including the physical therapy departments of hospitals, private therapy clinics, physician-owned therapy clinics, and chiropractors. We may face more intensecompetition if consolidation of the therapy industry continues.We believe that our partnership strategy provides us with a competitive advantage. Our clinics are partly owned by therapists who have developed exceptional reputations in their local communities and these therapist-owners oversee their respective clinic operations helping to ensure the success of the clinics.ENFORCEMENT ENVIRONMENTIn recent years, federal and state governments have launched several initiatives aimed at uncovering behavior that violates the federal civil and criminal laws regarding false claims and fraudulent billing and coding practices.Such laws require providers to adhere to complex reimbursement requirements regarding proper billing and coding in order to be compensated for their services by government payors. Our compliance program requiresadherence to applicable law and promotes reimbursement education and training; however, a determination that our clinics’ billing and coding practices are false or fraudulent could have a material adverse effect on us.As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental inspections, reviews, audits and investigations to verify our compliance with these programs and applicablelaws and regulations. Federal, state and private payors regularly conduct audits of billing and coding practices at our clinics. An adverse inspection, review, audit or investigation could result in refunding amounts we havebeen paid; fines penalties and/or revocation of billing privileges for the affected clinics; the imposition of a corporate integrity agreement; exclusion from participation in the Medicare or Medicaid programs or one or moremanaged care payor networks; or damage to our reputation.We and our clinics are subject to federal and state laws prohibiting entities and individuals from knowingly and willfully making claims to Medicare, Medicaid and other governmental programs and third-party payors thatcontain false or fraudulent information. The federal False Claims Act encourages private individuals to file suits on behalf of the government against healthcare providers such as us. As such suits are generally filed underseal with a court to allow the government adequate time to investigate and determine whether it will intervene in the action, the implicated healthcare providers often are unaware of the suit until the government has made itsdetermination and the seal is lifted. Violations or alleged violations of such laws, and any related lawsuits, could result in (i) exclusion from participation in Medicare, Medicaid and other federal healthcare programs, or (ii)significant financial or criminal sanctions, resulting in the possibility of substantial financial penalties for small billing errors that are replicated in a large number of claims, as each individual claim could be deemed a separateviolation. In addition, many states also have enacted similar statutes, which may include criminal penalties, substantial fines, and treble damages.12Table of ContentsCOMPLIANCE PROGRAMOur Compliance ProgramOur ongoing success depends upon our reputation for quality service and ethical business practices. We operate in a highly regulated environment with many federal, state and local laws and regulations. We take aproactive interest in understanding and complying with the laws and regulations that apply to our business.Our Board of Directors (the “Board”) has adopted a Code of Business Conduct and Ethics and a set of Corporate Governance Guidelines to clarify the ethical standards under which the Board and management carry outtheir duties. In addition, the Board has created a Compliance Committee of the Board (“Compliance Committee”) whose purpose is to assist the Board in discharging their oversight responsibilities with respect to compliancewith federal and state laws and regulations relating to healthcare.We have issued a Compliance Manual and created compliance training materials, hand-outs and an on-line testing program. These tools were prepared to ensure that every employee of our Company and subsidiaries has aclear understanding of our mutual commitment to high standards of professionalism, honesty, fairness and compliance with the law in conducting business. These standards are administered by our Chief Compliance Officer(“CCO”), who has the responsibility for the day-to-day oversight, administration and development of our compliance program. The CCO, internal and external counsel, management and the Compliance Committee review ourpolicies and procedures for our compliance program from time to time in an effort to improve operations and to ensure compliance with requirements of standards, laws and regulations and to reflect the on-going compliancefocus areas which have been identified by management, counsel or the Compliance Committee. We also have established systems for reporting potential violations, educating our employees, monitoring and auditingcompliance and handling enforcement and discipline.CommitteesOur Compliance Committee, appointed by the Board, consists of four independent directors. The Compliance Committee has general oversight of our Company’s compliance with the legal and regulatory requirementsregarding healthcare operations, as well as cybersecurity. The Compliance Committee relies on the expertise and knowledge of management, the CCO and other compliance and legal personnel. The CCO regularlycommunicates with the Chairman of the Compliance Committee. The Compliance Committee meets at least four times a year or more frequently as necessary to carry out its responsibilities and reports regularly to the Boardregarding its actions and recommendations.We also have an Internal Compliance Committee, which is comprised of Company leaders in the areas of operations, clinical services, finance, human resources, legal, information technology and credentialing. The InternalCompliance Committee has the responsibility for evaluating and assessing Company areas of risk relating to compliance with federal and state healthcare laws, and generally to assist the CCO. The Internal ComplianceCommittee meets at least four times a year or more frequently as necessary to carry out its responsibilities. In addition, management has appointed a team to address our Company’s compliance with HIPAA. The HIPAA teamconsists of a security officer and employees from our legal, information systems, finance, operations, compliance, business services and human resources departments. The team prepares assessments and makesrecommendations regarding operational changes and/or new systems, if needed, to comply with HIPAA.Each clinic certified as a Medicare Rehabilitation Agency has a formally appointed governing body composed of a member of our management and the director/administrator of the clinic. The governing body retains legalresponsibility for the overall conduct of the clinic. The members confer regularly and discuss, among other issues, clinic compliance with applicable laws and regulations. In addition, there are Professional AdvisoryCommittees which serve as Infection Control Committees. These committees meet in the facilities and function as advisors.We have in place a Risk Management Committee consisting of, among others, the CCO, the Vice President of Human Resources, and other legal, compliance and operations personnel. This committee reviews and monitorsall employee and patient incident reports and provides clinic personnel with actions to be taken in response to the reports.13Table of ContentsReporting ViolationsIn order to facilitate our employees’ ability to report in confidence, anonymously and without retaliation any perceived improper work-related activities, accounting irregularities and other violations of our complianceprogram, we have set up an independent national compliance hotline. The compliance hotline is available to receive confidential reports of wrongdoing Monday through Friday (excluding holidays), 24 hours a day. Thecompliance hotline is staffed by experienced third party professionals trained to utilize utmost care and discretion in handling sensitive issues and confidential information. The information received is documented andforwarded timely to the CCO, who, together with the Compliance Committee, has the power and resources to investigate and resolve matters of improper conduct.Educating Our EmployeesWe utilize numerous methods to train our employees in compliance related issues, including an online learning management system. All employees complete a comprehensive training program comprised of numerousmodules relating to our business and proper practices when newly hired and annually thereafter. The directors/administrators also provide periodic “refresher” training for existing employees and one-on-one comprehensivetraining with new hires. The corporate compliance group responds to questions from clinic personnel and conducts frequent teleconference meetings, webinars and training sessions on a variety of compliance relatedtopics.When a clinic opens, we provide a package of compliance materials containing manuals and detailed instructions for meeting Medicare Conditions of Participation Standards and other compliance requirements. Duringfollow up training with the director/administrator of the clinic, compliance department staff explain various details regarding requirements and compliance standards. Compliance staff will remain in contact with thedirector/administrator while the clinic is implementing compliance standards and will provide any assistance required. All new office managers receive training (including Medicare, regulatory and corporate compliance,insurance billing, charge entry and transaction posting and coding, daily, weekly and monthly accounting reports) from the training staff at the corporate office. The corporate compliance group will assist in continuedcompliance, including guidance to the clinic staff with regard to Medicare certifications, state survey requirements and responses to any inquiries from regulatory agencies.Monitoring and Auditing Clinic Operational ComplianceWe have in place audit programs and other procedures to monitor and audit clinic operational compliance with applicable policies and procedures. We employ internal auditors who, as part of their job responsibilities,conduct periodic audits of each clinic. Most clinics are audited at least once every 24 months and additional focused audits are performed as deemed necessary. During these audits, particular attention is given tocompliance with Medicare and internal policies, Federal and state laws and regulations, third party payor requirements, and patient chart documentation, billing, reporting, record keeping, collections and contractprocedures. The audits are conducted on site or remotely and include interviews with the employees involved in management, operations, billing and accounts receivable.Formal audit reports are prepared and reviewed with corporate management and the Compliance Committee. Each clinic director/administrator receives a letter instructing them of any corrective measures required. Each clinicdirector/administrator then works with the compliance team and operations to ensure such corrective measures are achieved.Handling Enforcement and DisciplineIt is our policy that any employee who fails to comply with compliance program requirements or who negligently or deliberately fails to comply with known laws or regulations specifically addressed in our complianceprogram should be subject to disciplinary action up to and including discharge from employment. The Compliance Committee, compliance staff, human resources staff and management investigate violations of ourcompliance program and impose disciplinary action as considered appropriate.14Table of ContentsEMPLOYEESAs of December 31, 2023, we employed approximately 6,720 people nationwide, of which approximately 3,899 were full-time employees. It is crucial that we continue to attract and retain top talent. To attract and retaintalented employees, we strive to make our corporate office and all our practices and businesses a diverse and healthy workplace, with opportunities for our employees to receive continuing education, skill development,encouragement to grow and develop their career, all supported by competitive compensation, incentives, and benefits. Our clinical professionals are all licensed and a vast majority have advanced degrees. Our operationalleadership teams have long-standing relationships with local and regional universities, professional affiliations, and other applicable sources that provide our practices with a talent pipeline.We provide competitive compensation and benefits programs to help meet our employees’ needs in the practices and communities in which they serve. These programs (which can vary by practice and employmentclassification) include competitive base salaries, incentive compensation plans, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, educationassistance, mental health, and other employee assistance benefits.We invest resources to develop the talent needed to support our business strategy. Resources include a multitude of training and development programs delivered internally and externally, online and instructor-led, and on-the-job learning formats.We expect to continue adding personnel in the future as we focus on potential acquisition targets and organic growth opportunities.AVAILABLE INFORMATIONOur annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are madeavailable free of charge on our internet website at www.usph.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains a website that contains reports,proxy and information statements, and other information regarding our filings at http://www.sec.gov.ITEM 1A.RISK FACTORSOur business, operations and financial condition are subject to various risks. Some of these risks are described below, and readers of this Annual Report on Form 10-K should take such risks into account in evaluating ourCompany or making any decision to invest in us. This section does not describe all risks applicable to our Company, our industry or our business, and it is intended only as a summary of material factors affecting ourbusiness.RISKS RELATED TO OUR BUSINESS AND OPERATIONSDecreases in Medicare reimbursement rate may adversely affect our financial results.The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”). For services provided in 2024, we expect our reimbursement rates under the MPFS to beapproximately 3.5% less than the applicable reimbursement rates during 2023.Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation. The Company believes that the Company is in compliance, in allmaterial 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 the Company’sfinancial statements as of December 31, 2023. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, andexclusion from the Medicare program. For the year ended December 31, 2023 and 2022, respectively, net patient revenues from Medicare were approximately $170.7 million and $154.9 million, respectively.15Table of ContentsGiven the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare that sufficiently compensate us for our services or,in some instances, cover our operating costs. Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on our revenue, financial condition, and results of operations.Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our business, financial condition and results ofoperations.Revenue we receive from Medicare and Medicaid is subject to potential retroactive reduction.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 forreimbursement, 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 additionaldocumentation was not provided 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 thecosts associated with complying with investigative audits by regulatory and governmental authorities, could adversely affect our financial condition and results of operations.Additionally, from time to time we become aware, either based on information provided by third parties and/or the results of internal audits, of payments from payor sources that were either wholly or partially in excess of theamount that we should have been paid for the service provided. Overpayments may result from a variety of factors, including insufficient documentation supporting the services rendered or medical necessity of the servicesor other failures to document the satisfaction of the necessary conditions of payment. We are required by law in most instances to refund the full amount of the overpayment after becoming aware of it, and failure to do sowithin requisite time limits imposed by the law could lead to significant fines and penalties being imposed on us. Furthermore, our initial billing of and payments for services that are unsupported by the requisitedocumentation and satisfaction of any other conditions of payment, regardless of our awareness of the failure at the time of the billing or payment, could expose us to significant fines and penalties. We, and/or certain of ouroperating companies, could also be subject to exclusion from participation in the Medicare or Medicaid programs in some circumstances as well, in addition to any monetary or other fines, penalties or sanctions that we mayincur under applicable federal and/or state law. Our repayment of any such amounts, as well as any fines, penalties or other sanctions that we may incur, could be significant and could have a material and adverse effect onour results of operations and financial condition.From time to time, we are also involved in various external governmental investigations, audits and reviews. Reviews, audits and investigations of this sort can lead to government actions, which can result in the assessmentof damages, civil or criminal fines or penalties, or other sanctions, including restrictions or changes in the way we conduct business, loss of licensure or exclusion from participation in government programs. Failure tocomply with applicable laws, regulations and rules could have a material and adverse effect on our results of operations and financial condition. Furthermore, becoming subject to these governmental investigations, auditsand reviews can also require us to incur significant legal and document production expenses as we cooperate with the government authorities, regardless of whether the particular investigation, audit or review leads to theidentification of underlying issues.We depend upon reimbursement by third-party payors.Substantially all of our revenues are derived from private and governmental third-party payors. In 2023, approximately 63.4% of our revenues were derived collectively from managed care plans, commercial health insurers,workers’ compensation payors, and other private pay revenue sources while approximately 36.6% of our revenues were derived from Medicare and Medicaid. Initiatives undertaken by industry and government to containhealthcare 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 willcontinue 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 maydecline, or we may lose patients if we choose not to renew our contracts with these insurers at lower rates. In addition, in certain geographical areas, our clinics must be approved as providers by key health maintenanceorganizations and preferred provider plans. Failure to obtain or maintain these approvals would adversely affect our financial results.16Table of ContentsIn 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 – PhysicalTherapy 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 orby 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 ofMedicare 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.Our facilities are subject to extensive federal and state laws and regulations relating to the privacy of individually identifiable patient information.HIPAA required the HHS to adopt standards to protect the privacy and security of individually identifiable health-related information. The department released final regulations containing privacy standards in 2000 andpublished revisions to the final regulations in 2002. The privacy regulations extensively regulate the use and disclosure of individually identifiable health-related information. The regulations also provide patients withsignificant rights related to understanding and controlling how their health information is used or disclosed. The security regulations require healthcare providers to implement administrative, physical and technical practicesto protect the security of individually identifiable health information that is maintained or transmitted electronically. HITECH, which was signed into law in 2009, enhanced the privacy, security and enforcement provisions ofHIPAA by, among other things establishing security breach notification requirements, allowing enforcement of HIPAA by state attorneys general, and increasing penalties for HIPAA violations. Violations of HIPAA orHITECH could result in civil or criminal penalties.In addition to HIPAA, there are numerous federal and state laws and regulations addressing patient and consumer privacy concerns, including unauthorized access or theft of personal information. State statutes andregulations vary from state to state. Lawsuits, including class actions and action by state attorneys general, directed at companies that have experienced a privacy or security breach also can occur.We have established policies and procedures in an effort to ensure compliance with these privacy related requirements. However, if there is a breach, we may be subject to various penalties and damages and may be requiredto incur costs to mitigate the impact of the breach on affected individuals.We are subject to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (“COVID-19”).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 capitalmarkets, 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 atemporary 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 oradditional patient appointments.We expect the federal and state governments to continue their efforts to contain growth in Medicaid expenditures, which could adversely affect our revenue and profitability.Medicaid spending has increased rapidly in recent years, becoming a significant component of state budgets. This, combined with slower state revenue growth, has led both the federal government and many states toinstitute measures aimed at controlling the growth of Medicaid spending, and in some instances reducing aggregate Medicaid spending. We expect these state and federal efforts to continue for the foreseeable future.Furthermore, not all of the states in which we operate, most notably Texas, have elected to expand Medicaid as part of federal healthcare reform legislation. There can be no assurance that the program, on the current terms orotherwise, will continue for any particular period of time beyond the foreseeable future. If Medicaid reimbursement rates are reduced or fail to increase as quickly as our costs, or if there are changes in the rules governing theMedicaid program that are disadvantageous to our businesses, our business and results of operations could be materially and adversely affected.17Table of ContentsAs a result of increased post-payment reviews of claims we submit to Medicare for our services, we may incur additional costs and may be required to repay amounts already paid to us.We are subject to regular post-payment inquiries, investigations, and audits of the claims we submit to Medicare for payment for our services. These post-payment reviews have increased as a result of government cost-containment initiatives. These additional post-payment reviews may require us to incur additional costs to respond to requests for records and to pursue the reversal of payment denials, and ultimately may require us torefund amounts paid to us by Medicare that are determined to have been overpaid.For a further description of this and other laws and regulations involving governmental reimbursements, see “Business—Sources of Revenue” and “—Regulation and Healthcare Reform” in Item 1.An economic downturn, state budget pressures, sustained unemployment and continued deficit spending by the federal government may result in a reduction in reimbursement and covered services.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, aneconomic 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 reducedreimbursement rates.The existing federal deficit, as well as deficit spending by federal and state governments as the result of adverse developments in the economy or other reasons, can lead to continuing pressure to reduce governmentalexpenditures for other purposes, including government-funded programs in which we participate, such as Medicare and Medicaid. Such actions in turn may adversely affect our results of operations.We may be required to comply with a put right in one of our acquisition agreements, related to a potential future purchase of a majority interest in a separate company.One of our acquisition agreements includes a put right for the potential future purchase of a majority interest in a separate company at a purchase price which is derived based on a specified multiple of the separatecompany’s historical earnings. The exercise of the put right is outside of our control. In the event the put right is triggered, we are required to purchase the aforementioned equity interest at a calculated purchase price. Theresulting purchase price may be greater than the fair value of such equity interests at the time, and we may or may not have the capital necessary to satisfy such contractual purchase obligation, in which case we could be inbreach.Our debt and financial obligations could adversely affect our financial condition, our ability to obtain future financing, and our ability to operate our business.We have outstanding debt obligations that could adversely affect our financial condition and limit our ability to successfully implement our business strategy. Furthermore, from time to time, we may need additionalfinancing to support our business and pursue our business strategy, including strategic acquisitions. Our ability to obtain additional financing, if and when required, will depend on investor demand, our operatingperformance, the condition of the capital markets, and other factors. We cannot provide assurances that additional financing will be available to us on favorable terms when required, or at all.Our loan agreements contain certain restrictions and requirements that among other things:•require us to maintain a quarterly fixed charge coverage ratio and minimum working capital ratio;•limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions, to fund growth or for general corporate purposes;18Table of Contents•limit our future ability to refinance our indebtedness on terms acceptable to us or at all;•limit our flexibility in planning for or reacting to changes in our business and market conditions or in funding our strategic growth plan; and•impose on us financial and operational restrictions.Our ability to meet our debt service obligations will depend on our future performance, which will be affected by the other risk factors described herein. If we do not generate enough cash flow to pay our debt serviceobligations, we may be required to refinance all or part of our existing debt, sell our assets, borrow more money or raise equity. There is no guarantee that we will be able to take any of these actions on a timely basis, onterms satisfactory to us, or at all.If we fail to satisfy our debt service obligations or the other restrictions and requirements in our loan agreements, we could be in default. Unless cured or waived, a default would permit lenders to accelerate the maturity ofthe debt under the credit agreement and to foreclose upon the collateral securing the debt.Our outstanding loans bear interest at variable rates. In response to the variable rates, we entered into an interest rate swap agreement. We are exposed to certain market risks during the ordinary course of business due toadverse changes in interest rates. The exposure to interest rate risk primarily results from our variable-rate borrowing. Fluctuations in interest rates can be volatile and the Company’s risk management activities do noteliminate these risks. In May 2022, we entered into an interest rate swap agreement to manage these risks. While intended to reduce the effects of fluctuations in these prices and rates, these transactions may limit ourpotential gains or expose us to losses. If our counterparties to such transactions or the sponsors fail to honor their obligations due to financial distress, we would be exposed to potential losses or the inability to recoveranticipated gains from these transactions.Some of our acquisition agreements contain contingent consideration, the value of which may impact future financial results.Some of our acquisition agreements include contingent earn-out consideration, the fair value of which is estimated as of the acquisition date based on the present value of the expected contingent payments as determinedusing weighted probabilities of possible future payments. These fair value estimates contain unobservable inputs and estimates that could materially differ from the actual future results and we cannot predict the ultimateresult. The fair value of the contingent earn-out consideration could increase or decrease, as applicable. Changes in the fair value of contingent earn-outs will be reflected in our results of operations in the period in whichthey are recognized, the amount of which may be material and could cause volatility in our operating results.Impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their non-controlling interests (minority interests).As described in Note 6 to our financial statements included in Item 8, the redeemable non-controlling interests in our partnerships are held by our partners. Upon the occurrence of certain events, such as retirement or othertermination of employment, partners from acquired partnerships may have the right to exercise a “put” to cause us to purchase their redeemable non-controlling interests. Depending on the amount and timing of the exerciseof any “put” rights, the funds required could have an adverse impact on our capital structure.Healthcare reform legislation may affect our business.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 thefederal 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 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, topredict. That impact may be material to our business, financial condition or results of operations.Our operations are subject to extensive regulation.The healthcare industry is subject to extensive federal, state and local laws and regulations relating to:19Table of Contents•facility and professional licensure/permits, including certificates of need;•conduct of operations, including financial relationships among healthcare providers, Medicare fraud and abuse, and physician self-referral;•addition of facilities and services; and•coding, billing and payment for services.In recent years, there have been heightened coordinated civil and criminal enforcement efforts by both federal and state government agencies relating to the healthcare industry. We believe we are in substantial compliancewith all laws, but differing interpretations or enforcement of these laws and regulations could subject our current practices to allegations of impropriety or illegality or could require us to make changes in our methods ofoperations, facilities, equipment, personnel, services and capital expenditure programs and increase our operating expenses. If we fail to comply with these extensive laws and government regulations, we could becomeineligible to receive government program reimbursement, suffer civil or criminal penalties or be required to make significant changes to our operations. In addition, we could be forced to expend considerable resourcesresponding to an investigation or other enforcement action under these laws or regulations. For a more complete description of certain of these laws and regulations, see “Business—Regulation and Healthcare Reform” and“Business—Compliance Program” in Item 1.Both federal and state regulatory agencies inspect, survey, and audit our facilities to review our compliance with these laws and regulations. While our facilities intend to comply with the existing licensing, Medicarecertification requirements and accreditation standards, there can be no assurance that these regulatory authorities will determine that all applicable requirements are fully met at any given time. A determination by any ofthese regulatory authorities that a facility is not in compliance with these requirements could lead to the imposition of requirements that the facility takes corrective action, assessment of fines and penalties, or loss oflicensure or Medicare certification of accreditation. These consequences could have an adverse effect on us.Our operations are subject to investigations, legal actions and proceedings that could result in an adverse impact on our business and financial position.Healthcare providers are subject to investigations, legal actions and proceedings, as well as lawsuits under the qui tam provisions of the federal False Claims Act, based on claims that the provider failed to comply withapplicable laws and regulations that govern coding and the submission of claims for services provided to Medicare patients, among other things. These matters can involve significant costs, monetary damages andpenalties. We have been subject to these proceedings in the past, and future proceedings could result in an adverse impact on our business and financial results.We face inspections, reviews, audits and investigations under federal and state government programs and contracts. These audits could have adverse findings that may negatively affect our business.As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental inspections, reviews, audits and investigations to verify our compliance with these programs and applicablelaws and regulations. Managed care payors may also reserve the right to conduct audits. An adverse inspection, review, audit or investigation could result in:•refunding amounts we have been paid pursuant to the Medicare or Medicaid programs or from managed care payors;•state or federal agencies imposing fines, penalties and other sanctions on us;•temporary suspension of payment for new patients to the facility or agency;•decertification or exclusion from participation in the Medicare or Medicaid programs or one or more managed care payor networks;•the imposition of a new Corporate Integrity Agreement;•damage to our reputation;•the revocation of a facility’s or agency’s license; and•loss of certain rights under, or termination of, our contracts with managed care payors.If adverse inspections, reviews, audits or investigations occur and any of the results noted above occur, it could have a material adverse effect on our business and operating results.20Table of ContentsIn conducting our business, we are required to comply with applicable laws regarding fee-splitting and the corporate practice of medicine.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 overmedical decisions by therapists. The laws relating to corporate practice vary from state to state and are not fully developed in each state in which we have facilities. Typically, however, professional corporations owned andcontrolled by licensed professionals are exempt from corporate practice restrictions and may employ therapists to furnish professional services. Those professional corporations may be managed by business corporations,such as the Company.Some states also prohibit entities from engaging in certain financial arrangements, such as fee-splitting, with physicians or therapists. The laws relating to fee-splitting also vary from state to state and are not fullydeveloped. Generally, these laws restrict business arrangements that involve a physician or therapist sharing medical fees with a referral source, but in some states, these laws have been interpreted to extend to managementagreements between physicians or therapists and business entities under some circumstances.We believe that our current and planned activities do not constitute fee-splitting or the unlawful corporate practice of medicine as contemplated by these state laws. However, there can be no assurance that futureinterpretations of such laws will not require structural and organizational modification of our existing relationships with the practices. If a court or regulatory body determines that we have violated these laws or if new lawsare introduced that would render our arrangements illegal, we could be subject to civil or criminal penalties, our contracts could be found legally invalid and unenforceable (in whole or in part), or we could be required torestructure our contractual arrangements with our affiliated physicians and other licensed providers.We may be adversely affected by a security breach, such as a cyber-attack, which may cause a violation of HIPAA or HITECH and subject us to potential legal and reputational harm.In the normal course of business, our information technology systems hold sensitive patient information including patient demographic data and other protected health information, which is subject to HIPAA and HITECH.We also contract with third-party vendors to maintain and store our patients’ individually identifiable health information. Numerous state and federal laws and regulations address privacy and information security concernsresulting from our access to our patient’s and employee’s personal information.Our information technology systems and those of our vendors that process, maintain, and transmit such data are subject to computer viruses, cyber-attacks, or breaches. We adhere to policies and procedures designed toensure compliance with HIPAA and other privacy and information security laws and require our third-party vendors to do so as well. If, however, we or our third-party vendors experience a breach, loss, or other compromiseof unsecured protected health information or other personal information, such an event could result in significant civil and criminal penalties, lawsuits, reputational harm, and increased costs to us, any of which could have amaterial adverse effect on our financial condition and results of operations.Furthermore, while our information technology systems, and those of our third-party vendors, are maintained with safeguards protecting against cyber-attacks. A cyber-attack that bypasses our information technologysecurity systems, or those of our third-party vendors, could result in a material adverse effect on our business, financial condition, results of operations, or cash flows. In addition, our future results could be adverselyaffected due to the theft, destruction, loss, misappropriation, or release of protected health information, other confidential data or proprietary business information, operational or business delays resulting from thedisruption of information technology systems and subsequent mitigation activities, or regulatory action taken as a result of such incident. We provide our employees with training and regular reminders on importantmeasures they can take to prevent breaches. We routinely identify attempts to gain unauthorized access to our systems. However, given the rapidly evolving nature and proliferation of cyber threats, there can be noassurance our training and network security measures or other controls will detect, prevent, or remediate security or data breaches in a timely manner or otherwise prevent unauthorized access to, damage to, or interruptionof our systems and operations. Accordingly, we may be vulnerable to losses associated with the improper functioning, security breach, or unavailability of our information systems as well as any systems used in acquiredoperations.21Table of ContentsWe depend upon the cultivation and maintenance of relationships with the physicians in our markets.Our success is dependent upon referrals from physicians in the communities our clinics serve and our ability to maintain good relations with these physicians and other referral sources. Physicians referring patients to ourclinics are free to refer their patients to other therapy providers or to their own physician owned therapy practice. If we are unable to successfully cultivate and maintain strong relationships with physicians and other referralsources, our business may decrease, and our net operating revenues may decline.Our business depends upon hiring, training, and retaining qualified employees.Our workforce costs represent our largest operating expense, and our ability to meet our labor needs while controlling labor costs is subject to numerous external factors, including market pressures with respect to prevailingwage rates and unemployment levels. We compete with rehabilitation companies and other businesses for many of our clinical and non-clinical employees, and turnover in these positions can lead to increased training andretention costs, particularly in a competitive labor market. We cannot be assured that we can continue to hire, train and retain qualified employees at current wage rates since we operate in a competitive labor market, andthere are currently significant inflationary and other pressures on wages. If we are unable to hire, properly train and retain qualified employees, we could experience higher employment costs and reduced revenues, whichcould adversely affect our earnings.We depend upon our ability to recruit and retain experienced physical therapists.Our revenue generation is dependent upon referrals from physicians in the communities our clinics serve, and our ability to maintain good relations with these physicians. Our therapists are the front line for generating thesereferrals and we are dependent on their talents and skills to successfully cultivate and maintain strong relationships with these physicians. If we cannot recruit and retain our base of experienced and clinically skilledtherapists, our business may decrease, and our net operating revenues may decline. Periodically, we have clinics in isolated communities that are temporarily unable to operate due to the unavailability of a therapist whosatisfies our standards.We may also experience increases in our labor costs, primarily due to higher wages and greater benefits required to attract and retain qualified healthcare personnel, and such increases may adversely affect our profitability.Furthermore, while we attempt to manage overall labor costs in the most efficient way, our efforts to manage them may have limited effectiveness and may lead to increased turnover and other challenges.Failure to maintain effective internal control over our financial reporting could have an adverse effect on our ability to report our financial results on a timely and accurate basis.We are required to produce our consolidated financial statements in accordance with the requirements of accounting principles generally accepted in the United States of America. Effective internal control over financialreporting is necessary for us to provide reliable financial reports, to help mitigate the risk of fraud and to operate successfully. We are required by federal securities laws to document and test our internal control proceduresin order to satisfy the requirements of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal control over financial reporting.We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with applicable law, or our independent registered public accounting firm may not be able toissue an unqualified attestation report if we conclude that our internal control over financial reporting is not effective. If we fail to maintain effective internal control over financial reporting, or our independent registeredpublic accounting firm is unable to provide us with an unqualified attestation report on our internal control, we could be required to take costly and time-consuming corrective measures, be required to restate the affectedhistorical financial statements, be subjected to investigations and/or sanctions by federal and state securities regulators, and be subjected to civil lawsuits by security holders. Any of the foregoing could also causeinvestors to lose confidence in our reported financial information and in us and would likely result in a decline in the market price of our stock and in our ability to raise additional financing if needed in the future.22Table of ContentsOur revenues may fluctuate due to weather.We have a significant number of clinics in states that normally experience snow and ice during the winter months. Also, a significant number of our clinics are located in states along the Gulf Coast and Atlantic Coast whichare subject to periodic winter storms, hurricanes and other severe storm systems. Periods of severe weather may cause physical damage to our facilities or prevent our staff or patients from traveling to our clinics, which maycause a decrease in our net operating revenues.We operate in a highly competitive industry.We encounter competition from local, regional or national entities, some of which have superior resources or other competitive advantages. Intense competition may adversely affect our business, financial condition orresults of operations. For a more complete description of this competitive environment, see “Business—Competition” in Item 1. An adverse effect on our business, financial condition or results of operations may require usto write down goodwill.We may incur closure costs and losses.The competitive, economic or reimbursement conditions in our markets in which we operate may require us to reorganize or to close certain clinics. In the event a clinic is reorganized or closed, we may incur losses andclosure costs. The closure costs and losses may include, but are not limited to, lease obligations, severance, and write-down or write-off of goodwill and other intangible assets.Future acquisitions may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities.As part of our growth strategy, we intend to continue pursuing acquisitions of outpatient physical therapy clinics and industrial injury prevention services businesses. There can be no assurance that we will be able tosuccessfully identify or complete future acquisitions. Acquisitions may involve significant cash expenditures, potential debt incurrence and operational losses, dilutive issuances of equity securities and expenses that couldhave an adverse effect on our financial condition and results of operations. Acquisitions involve numerous risks, including:•the difficulty and expense of integrating acquired personnel into our business;•the diversion of management’s time from existing operations;•the potential loss of key employees of acquired companies;•the difficulty of assignment and/or procurement of managed care contractual arrangements; and•the assumption of the liabilities and exposure to unforeseen liabilities of acquired companies, including liabilities for failure to comply with healthcare regulations.Employer and other contracted customers may terminate their relationship with us which could adversely affect the business.In our industrial injury prevention services business, we perform services for large employers and their employees pursuant to contracts and other services agreement. These contracts and other services agreements areable to be terminated by the employer-clients on little or short notice, and either a breach or termination of those contractual arrangements by such clients could cause operating results to be less than expected. Similarly, inour rehabilitation business, we have management and other services agreements with hospitals, physician groups and other ancillary providers; either a breach or termination of those contractual arrangements by suchclients could cause operating results to be less than expected.23Table of ContentsRISKS RELATED TO OUR COMMON STOCKIssuance of shares in connection with financing transactions or under stock incentive plans will dilute current stockholders.Pursuant to our stock incentive plans, our Compensation Committee of the Board, consisting solely of independent directors, is authorized to grant stock awards to our employees, directors and consultants. Shareholderswill incur dilution upon the exercise of any outstanding stock awards or the grant of any restricted stock. In addition, if we raise additional funds by issuing additional common stock, or securities convertible into orexchangeable or exercisable for common stock, further dilution to our existing stockholders will result, and new investors could have rights superior to existing stockholders.The number of shares of our common stock eligible for future sale could adversely affect the market price of our stock. On December 31, 2023, we had reserved approximately 513,193 shares for future equity grants. We may issue additional restricted securities or register additional shares of common stock under the Securities Act of 1933, asamended (the “Securities Act”), in the future. The issuance of a significant number of shares of common stock upon the exercise of stock options or the availability for sale, or sale, of a substantial number of the shares ofcommon stock eligible for future sale under effective registration statements, under Rule 144 or otherwise, could adversely affect the market price of the common stock.Provisions in our articles of incorporation and bylaws could delay or prevent a change in control of our company, even if that change would be beneficial to our stockholders.Certain provisions of our articles of incorporation and bylaws may delay, discourage, prevent or render more difficult an attempt to obtain control of our company, whether through a tender offer, business combination, proxycontest or otherwise. These provisions include the charter authorization of “blank check” preferred stock and a restriction on the ability of stockholders to call a special meeting.ITEM 1B.UNRESOLVED STAFF COMMENTSNone.ITEM 1C.CYBERSECURITYRISK MANAGEMENT AND STRATEGYThe Company recognizes the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability ofour patients’ health information and all our data.Managing Material Risks & Integrated Overall Risk Management The Company has strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. Cybersecurity considerations arean integral part of our decision-making processes where communication, data and access are involved. Our Information technology (“IT”) department works closely with our operations teams to continuously evaluate andaddress cybersecurity risks in alignment with our business and operational objectives. Our Chief Information Systems Officer, (“CISO”) and IT teams play an important role in assessing the cybersecurity infrastructureemployed within our acquired practices to ensure that necessary security enhancements are employed in a timely manner. The Company provides annual cybersecurity awareness training to its employees to mitigate risksby educating employees regarding best practices to avoid cybersecurity related breaches.24Table of ContentsEngage Third-parties on Risk ManagementUnderstanding the ever-changing and complex nature of cybersecurity threats, our organization values collaboration with external experts, including cybersecurity consultants, for advisory purposes. These collaborationsare aimed at enhancing our understanding and management of cybersecurity risks. Through such engagements, we seek to gain insights and recommendations on improving our risk management frameworks and responsesto potential cybersecurity incidents.This approach allows us to benefit from specialized expertise, helping ensure that our cybersecurity strategies and processes are informed by current industry insights. While these collaborations are not mandated, they areencouraged as part of our commitment to maintaining a vigilant and adaptive cybersecurity posture in line with evolving best practices.Oversee Third-party Risk Aware of the potential risks posed by third-party service providers, our Company takes steps to perform security-related diligence on such providers. This diligence process aims to understand and evaluate the securitymeasures and practices of our third-party partners. Our approach includes reviewing available information and seeking insights into their security and data management practices. This method is part of our broader strategyto mitigate the risks associated with data breaches or other security incidents that may arise from third-party engagements. Risks from Cybersecurity Threats We have not encountered cybersecurity challenges that have materially impaired our operations or financial standing. While we have experienced cybersecurity incidents within several of our partnership subsidiaries overthe years, these incidents have not been material, as each incident (i) has been isolated to certain segregated IT environments, (ii) has affected relatively few patients and their associated health information, and/or (iii) had alow probability of compromised data. Each of the foregoing cybersecurity incidents has been remediated in the ordinary course of business. However, we could experience a cybersecurity incident that materially affects usin the future. See “Risk Factors” in Item 1A on this Form-10K for additional discussion of cybersecurity risks to our business.Governance The Board of Directors recognizes the significance of cybersecurity threats to the Company’s operational integrity, data security and stakeholders. The Board of Directors is acutely aware of the critical nature of managingrisks associated with cybersecurity threats and sees this as a major priority for the company. The Board has established oversight mechanisms to ensure effective governance in managing risks associated with cybersecuritythreats.Board of Directors Oversight The Compliance Committee is central to the Board’s oversight of cybersecurity risks and bears the primary responsibility for this domain. The Compliance Committee is composed of board members with diverse expertise,including risk management, technology, health care operations, and finance, equipping them to oversee cybersecurity risks effectively. In addition, each of the directors on the Compliance Committee has completed theDiligent Cyber Risk and Strategy Certification Program, developed by Diligent Corporation, a leading corporate governance technology company, which teaches cyber literacy for corporate directors to effectively governsignificant enterprise-wide cyber risks and have meaningful conversations with management.Management’s Role Managing Risk The CISO plays a pivotal role in informing the Compliance Committee on cybersecurity risks. The CISO, in concert with the Chief Compliance Officer and General Counsel, provides comprehensive briefings to theCompliance Committee on a regular basis. These briefings encompass a broad range of topics, including:●Current cybersecurity landscape and emerging threats;●Status of ongoing cybersecurity initiatives and strategies;25Table of Contents●Incident reports and learnings from any cybersecurity events; and●Compliance with regulatory requirements and industry standards.In addition to our scheduled meetings, the Compliance Committee and management maintain an ongoing dialogue regarding emerging or potential cybersecurity risks. The Compliance Committee actively participates instrategic decisions related to cybersecurity. This involvement ensures that cybersecurity considerations are integrated into the Company’s broader strategic objectives.Risk Management Personnel Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with the CISO, Mr. Chadd Pence. With over 25 years of experience in the field of IT and cybersecurity, Mr. Pence brings a wealth ofexpertise to his role. His background includes experience as an enterprise CISO and his knowledge and experience are instrumental in developing and executing our cybersecurity strategies. Our CISO oversees ourcybersecurity efforts and governance programs, tests our compliance with standards, remediates known risks, and provides regular guidance to management and the Board on these areas. In addition, to supplement thisexpertise, we periodically engage external experts, including cybersecurity consultants, to help us evaluate our risk management related policies and to help us to review and remediate cybersecurity incidents.Monitor Cybersecurity Incidents The CISO is continually informed about the latest developments in cybersecurity, including potential threats and innovative risk management techniques. This ongoing knowledge acquisition is crucial for the effectiveprevention, detection, mitigation, and remediation of cybersecurity incidents. The CISO implements and oversees processes for the regular monitoring of our information systems. This includes the deployment of a variety ofsecurity measures and system audits to identify potential vulnerabilities. In the event of a cybersecurity incident, the CISO is equipped with a well-defined incident response plan. This plan includes immediate actions tomitigate the impact and long-term strategies for remediation and prevention of future incidents.Reporting to Board of Directors The CISO, in his capacity, regularly informs our Chief Financial Officer and Chief Executive Officer of all aspects related to cybersecurity risks and incidents. This ensures that the highest levels of management are keptabreast of the cybersecurity posture and potential risks facing the Company. Furthermore, significant cybersecurity matters, and strategic risk management decisions are escalated to the Compliance Committee and the fullBoard of Directors, ensuring that they have comprehensive oversight and can provide guidance on critical cybersecurity issues.ITEM 2.PROPERTIESWe lease the properties used for our clinics under non-cancelable operating leases with terms ranging from one to seven years, with the exception of the property for one clinic which we own. We intend to lease the premisesfor any new clinic location except in rare instances where leasing is not a cost-effective alternative. Our typical clinic occupies 1,000 to 7,000 square feet of leased space in an office building or shopping center. There are 25clinics occupying space in the range of over 7,000 square feet to16,500 square feet.We also lease our executive offices located in Houston, Texas, under a non-cancelable operating lease expiring in February 2028. We currently lease approximately 44,000 square feet of space (including allocations forcommon areas) at our executive offices.ITEM 3.LEGAL PROCEEDINGSWe are a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of our business. We cannot predictthe ultimate outcome of pending litigation, proceedings, regulatory and other governmental audits and investigations. These matters could potentially subject the Company to sanctions, damages, recoupments, fines, andother penalties. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to our businesses in the future that may, either individually orin the aggregate, have a material adverse effect on our business, financial position, results of operations, and liquidity.26Table of ContentsHealthcare providers are subject to lawsuits under the qui tam provisions of the federal False Claims Act. Qui tam lawsuits typically remain under seal for some time while the government decides whether or not to interveneon behalf of a private qui tam plaintiff (known as a relator) and take the lead in the litigation. These lawsuits can involve significant monetary damages and penalties and award bounties to private plaintiffs who successfullybring the suits. We have been a defendant in these cases in the past and may be named as a defendant in similar cases from time to time in the future.Prior Florida Legal MatterIn 2019, a qui tam lawsuit (“the Complaint”) was filed by a relator on behalf of the United States against us and one of our Florida majority-owned subsidiaries (the “Hale Partnership”). This whistleblower lawsuit was filedin the U.S. District Court for the Southern District of Texas, seeking damages and civil penalties under the federal False Claim Act. The U.S Government declined to intervene in the case and unsealed the Complaint in July2019. The Complaint alleged that the Hale Partnership engaged in conduct to purposely “upcode” its billings for services provided to Medicare patients. The plaintiff-relator also claimed that similar false claims occurred onother days and at other Company-owned partnerships.In January 2022, we entered into a settlement agreement with the plaintiff-relator. In the settlement agreement, the plaintiff-relator released all defendants from liability for all conduct alleged in the Complaint, and theCompany admitted no liability or wrongdoing. In connection with the settlement, the Office of the United States Attorney for the Southern District of Texas agreed to a dismissal of the claims against the Hale Partnershipand the Company. Under the terms of the settlement, we agreed to make aggregate payments to the government, the plaintiff-relator and her counsel of $2.8 million.ITEM 4.MINE SAFETY DISCLOSURESNot Applicable.27Table of ContentsPART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESOur common stock has traded on the New York Stock Exchange (“NYSE”) since August 14, 2012, under the symbol “USPH.” Prior to that, our common stock was traded on the Nasdaq Global Select Market under the symbol“USPH”. As of February 29, 2024, there were 83 holders of record of our outstanding common stock.DIVIDENDSOur Board of Directors declared the following dividends during the year ended December 31, 2023:Declaration Date Record Date Payment Date Dividend Per Share Aggregate Amount(in thousands) 02/21/202303/10/202304/07/2023$0.43 $5,617 05/02/202305/18/202306/09/2023$0.43 $5,621 08/07/202308/18/202309/08/2023$0.43 $6,445 11/06/202311/16/202312/08/2023$0.43 $6,445 There is no assurance that future dividends will be declared. The declaration and payment of dividends in the future are at the discretion of our Board of Directors after taking into account various factors, including, but notlimited to, our financial condition, operating results, available cash and current and anticipated cash needs, and the terms of our Credit Agreement (as defined in “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity and Capital Resources”). We are currently restricted from paying dividends on our common stock in excess of $50,000,000 in any fiscal year on our common stock under theCredit Agreement.FIVE YEAR PERFORMANCE GRAPHThe following performance graph compares the cumulative total stockholder return of our common stock to The NYSE Composite Index and the NYSE Health Care Index for the period from December 31, 2018 throughDecember 31, 2023. The graph assumes that $100 was invested in our common stock and the common stock of each of the companies listed on The NYSE Composite Index and The NYSE Health Care Index on December 31,2018 and that any dividends were reinvested.28Table of ContentsComparison of Five Years Cumulative Total Return for the Year Ended December 31, 2023  12/1812/1912/2012/2112/2212/23U. S. Physical Therapy, Inc.100112117937991NYSE Healthcare Index100119132161155159The foregoing performance graph and related description shall not be deemed incorporated by reference into any filing under the Securities Act or under the Exchange Act, except to the extent that we specificallyincorporate this information by reference. In addition, the performance graph and the related description shall not be deemed “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C.ITEM 6.RESERVED29Table of ContentsITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis of U.S. Physical Therapy, Incl and its subsidiaries (herein referred to as “we”, “us”, “our” or the “Company”) should be read in conjunction with the Company’s consolidatedfinancial 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 to our plansand 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 Form10-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 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022and 2021 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 December31, 2022, filed with the Securities and Exchange Commission on February 28, 2023.EXECUTIVE SUMMARYWe operate our business through our reportable segments which include the (1) physical therapy operations segment and (2) the industrial injury prevention services (“IIP”) segment. Our physical therapy operationsconsist of physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic-related disorders, sports-related injuries, preventive care, rehabilitation of injured workersand neurological injuries. Services provided by the IIP segment include onsite injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional evaluations and ergonomicassessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. These services areperformed through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (“ATCs”).During the last three years, we completed the following acquisitions of clinic practices and IIP businesses detailed below: % Interest Number ofAcquisition Date Acquired ClinicsOctober 2023 Acquisition October 31, 2023 ** *September 2023 Acquisition 1 September 29, 2023 70% 4September 2023 Acquisition 2 September 29, 2023 70% 1July 2023 Acquisition July 31, 2023 70% 7May 2023 Acquisition May 31, 2023 45% 4February 2023 Acquisition February 28, 2023 80% 1November 2022 Acquisition November 30, 2022 80% 13October 2022 Acquisition October 31, 2022 60% 14September 2022 Acquisition September 30, 2022 80% 2August 2022 Acquisition August 31, 2022 70% 6March 2022 Acquisition March 31, 2022 70% 6December 2021 Acquisition December 31, 2021 75% 3November 2021 Acquisition November 30, 2021 70% *September 2021 Acquisition September 30, 2021 100% *June 2021 Acquisition June 30, 2021 65% 8March 2021 Acquisition March 31, 2021 70% 6*IIP business**On October 31, 2023, we concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business (“October 2023 Acquisition”).30Table of ContentsThe following table provides a roll forward of our clinic count for the periods presented. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Number of clinics, beginning of period 640 591 554 Additions 46 65 42 Closed or sold (15) (16) (5)Number of clinics, end of period 671 640 591 Our strategy is to continue acquiring outpatient physical therapy practices, develop outpatient physical therapy clinics as satellites in existing partnerships, and continue acquiring companies that provide or serve our IIPsector.In May 2023, we completed a secondary offering of 1,916,667 shares of its common stock at an offering price of $90.00 per share. Upon completion of the offering, we received net proceeds of approximately $163.6 million,after deducting an underwriting discount of $8.6 million and recognizing related fees and expenses of $0.2 million. A portion of the net proceeds was used to repay the $35.0 million then outstanding under our creditagreement while the remainder is expected to be used primarily for additional acquisitions.Our Board of Directors raised our quarterly dividend to $0.44 per share, on February 27, 2024, and declared a quarterly dividend for the first quarter of 2024 at the higher rate.Medicare ReimbursementThe Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”). Outpatient rehabilitation providers may enroll in Medicare as institutional outpatientrehabilitation facilities (i.e., rehab agencies) or individual physical or occupational therapists in private practice. The majority of our clinicians are enrolled as individual physical or occupational therapists in private practicewhile the remaining balance of providers are reimbursed through enrolled rehab agencies. The following is a summary of significant regulatory changes which have affected our results of operations as well as the policiesand payment rates that may affect our future results of operations.For calendar years 2021 and 2022, CMS’s expected decreases in Medicare reimbursement were mostly offset by one-time increases in payments as a result of other legislation passed by Congress. Payments under the 2023MPFS physician fee schedule decreased by 2%, and for calendar year 2024, CMS’s final policies for 2024 will result in an approximately 3.5% decrease in Medicare payments for the therapy specialty.In the final 2020 MPFS rule, CMS clarified that when the physical therapist is involved for the entire duration of the service and the physical therapist assistant (“PTA”) provides skilled therapy alongside the physicaltherapist, the 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 totalphysical therapist and PTA time of the service. For dates of service on and after January 1, 2022, CMS pays for physical therapy and occupational therapy services provided by 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 the CQ or CO modifier when a PTA or OTA participates in providing care, but the physical therapist oroccupational 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-minutemidpoint. The calendar year 2024 MPFS final rule did not contain any policy changes concerning the modifiers for services provided by physical therapy and occupational therapy assistants.RESULTS OF OPERATIONSThe defined terms with their respective description used in the following discussion are listed below:Mature Clinics are clinics opened or acquired prior to January 1, 2022, and are still operating as of December 31, 2023.Net rate per patient visit is net patient revenue related to our physical therapy operations divided by total number of patient visits (defined below) during the periods presented.Patient visits is the number of unique patient visits during the periods presented.Average daily visits per clinic is patient visits divided by the number of days in which normal business operations were conducted during the periods presented and further divided by the average number clinics inoperation during the periods presented.Full Year 2023 refers to the year ended December 31, 2023.Full Year 2022 refers to the year ended December 31, 2022.31Table of ContentsFull Year 2023 versus Full Year 2022Total net revenue for the Full Year 2023 increased $51.7 million, or 9.3%, to $604.8 million from $553.1 million for the Full Year 2022 while operating costs increased $42.2 million, or 9.6%, to $483.3 million from $441.1 millionover the same periods, respectively. Total operating cost was $483.3 million for the 2023 Year, or 79.9% of total revenue, as compared to $441.1million or 79.7% of total revenue for the 2022 Year. Gross profit for the Full Year2023 was $121.5 million, or 20.1% of net revenue, compared to $112.0 million for the Full Year 2022, or 20.3% of net revenue.Net income attributable to our shareholders (“USPH net income”) was $28.2 million for Full Year 2023 compared to $32.2 million for Full Year 2022. USPH net income included a non-cash impairment charge, prior to allocationto non-controlling interest and income taxes, of $17.5 million in the year ended December 31, 2023 ($9.1 million net of $5.2 million allocated to non-controlling interest and $3.1 million income tax) and $9.1 million in the yearended December 31, 2022 ($4.7 million net of $2.7 million allocated to non-controlling interest and $1.6 million income tax). In accordance with Generally Accepted Accounting Principles (“GAAP”), the revaluation of non-controlling interest, net of taxes, is not included in net income but is charged directly to retained earnings; however, this change is included in the computation of earnings per share. Earnings per share for Full Year 2023were $1.28 compared to $2.25 for Full Year 2022. For the Year Ended December 31, 2023 December 31, 2022 (In thousands, except per share data) Earnings per share Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $28,239 $32,158 Charges to retained earnings: Revaluation of redeemable non-controlling interest (13,565) (3,890)Tax effect at statutory rate (federal and state) 3,466 994 $18,140 $29,262 Earnings per share (basic and diluted) $1.28 $2.25 Shares used in computation - basic and diluted 14,188 12,985 Non-GAAP MeasuresWe use Adjusted EBITDA and Operating Results, non-GAAP measures, which eliminate certain items described below that can be subject to volatility and unusual costs, as the principal measures to evaluate and monitorfinancial performance period over period. We believe that Adjusted EBITDA and Operating Results are useful measures for investors to use in comparing the Company's period-to-period results as well as for comparing withother similar businesses since most do not have redeemable instruments and therefore have different equity structures.Adjusted EBITDA is defined as net income attributable to our shareholders before interest income, interest expense, taxes, depreciation, amortization, non-cash asset impairment charge, change in fair value of contingentearn-out consideration, Relief Funds, changes in revaluation of put-right liability, equity-based awards compensation expense, and related portions for non-controlling interests.32Table of ContentsOperating Results equals net income attributable to our shareholders less non-cash asset impairment charge, changes in revaluation of put-right liability, Relief Funds, changes in fair value of contingent earn-outconsideration, and any allocations to non-controlling interests, all net of taxes. Operating Results per share also exclude the impact of the revaluation of redeemable non-controlling interest and the associated tax impact.The tables below reconcile net income attributable to our shareholders calculated in accordance with GAAP to Operating Results and Adjusted EBITDA.33Table of ContentsADJUSTED EBITDA AND OPERATING RESULTS(IN THOUSANDS, EXCEPT PER SHARE DATA)(unaudited) For the Year Ended December 31, 2023 December 31, 2022 (In thousands, except per share data) Adjusted EBITDA (a non-GAAP measure) Net income attributable to USPH shareholders $28,239 $32,158 Adjustments: Provision for income taxes 12,156 12,164 Depreciation and amortization 15,695 14,743 Interest expense, debt and other, net 9,303 5,779 Interest income from investments (3,774) - Impairment of goodwill and other intangible assets 17,495 9,112 Equity-based awards compensation expense 7,236 7,264 Change in revaluation of put-right liability (2,582) 5 Change in fair value of contingent earn-out consideration 1,550 (2,520)Relief Funds* (467) - Other income (390) (859)Allocation to non-controlling interests (6,744) (4,185) 77,717 73,661 Operating Results (a non-GAAP measure) Net income attributable to USPH shareholders $28,239 $32,158 Adjustments: Impairment of goodwill and other intangible assets 17,495 9,112 Change in fair value of contingent earn-out consideration 1,550 (2,520)Change in revaluation of put-right liability (2,582) 5 Relief Funds* (467) - Allocation to non-controlling interest (5,215) (2,734)Tax effect at statutory rate (federal and state) (2,755) (987) $36,265 $35,034 Operating Results per share (a non-GAAP measure) $2.56 $2.70 *In March 2020 in response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provided waivers, reimbursement, grantsand other funds to assist health care providers during the COVID-19 pandemic, including $100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, to be used for preventing, preparing, andresponding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19. The Company recorded income under the CARES Act("Relief Funds").Adjusted EBITDA increased $4.1 million to $77.7 million for Full Year 2023 from $73.7 million in Full Year 2022 while Operating Results increased $1.2 million to $36.3 million, or $2.56 per share, in Full Year 2023 from $35.0million, or $2.70 per share, in the Full Year 2022. The increase in both Adjusted EBITDA and Operating Results was primarily associated with clinic additions since the comparable prior year period and increased volume atmature clinics.34Table of ContentsPhysical Therapy Operations For the Year Ended December 31, Variance 2023 2022 $ % (In thousands, except percentages) Revenue related to: Mature Clinics (1) $452,459 $421,806 $30,653 7.3% Clinic additions (2) 60,495 39,990 20,505 * (6)Clinics sold or closed (3) 1,602 2,794 (1,192) * (6)Net Patient Revenue 514,556 464,590 49,966 10.8% Other (4) 11,992 11,502 490 4.3% Total 526,548 476,092 50,456 10.6% Operating costs (4) 421,484 380,035 41,449 10.9% Gross profit $105,064 $96,057 $9,007 9.4% Financial and operating metrics (not in thousands): Net rate per patient visit (1) $102.80 $103.63 $(0.83) (0.8)% Patient visits (1) 5,005,426 4,483,282 522,144.0 11.6% Average daily visits per clinic (1) 30.0 28.7 1.3 4.5% Gross margin 20.0% 20.2% Salaries and related costs per visit, clinics (5) $59.19 $59.52 $(0.33) (0.6)% Operating costs per visit, clinics (5) $82.79 $83.34 $(0.55) (0.7)% Working days 254 255 (1) (0.4)% Number of clinics at the end of the period 671 640 31 4.8% (1)See defined terms above for definitions.(2)Clinic additions during the years ended 2023 and 2022.(3)Revenue from closed clinics includes revenues from the 15 and 16 clinics closed during the full year December 31, 2023 and 2022, respectively.(4)Includes revenues and costs from management contracts.(5)Excludes management contract costs.(6)Not meaningful.RevenuesRevenues increased $50.5 million, or 10.6%, to $526.5 million in Full Year 2023 compared to $476.1 million in Full Year 2022. This increase was primarily due to a record-high average daily visits per clinic for a full year in theCompany’s history of 30.0 visits, and an increase in volume from the 31 net new clinics added since the comparable prior year period, partially offset by a decrease in net rate per patient visit to $102.80 for Full Year 2023compared to $103.63 for Full Year 2022. Total patient visits were 5,005,426 for the 2023 Year and 4,483,282 for the 2022 Year, an increase of 11.6%, with visits at mature clinics up 3.1%. The decrease in net rate in the Full Year2023 from the Full Year 2022 was primarily due to the combined Medicare rate reductions in 2022 and 2023. All other payor categories, including commercial and workers’ compensation, increased as compared to the prioryear.Other revenue was $12.0 million for the Full Year 2023 Year and $11.5 million for the Full Year 2022, of which management contracts was $8.6 million for the Full Year 2023 as compared to $8.1 million for the Full Year 2022.Operating costsOperating costs increased by $41.4 million or 10.9% to $421.5 million in the Full Year 2023 from $380.0 million in the Full Year 2022. The increase was primarily due to the higher volume from the new clinics added since thecomparable year period as well as increased patient visits in Mature Clinics. Operating costs for Mature Clinics increased $10.1 million year over year to $363.2 million for the Full Year 2023 from $353.2 million for the Full Year2022 due to increased visits in the comparable periods. On a per visit basis (excluding management contracts), operating costs decreased to $82.79 for the Full Year 2023 compared to $83.34 for the Full Year 2022.Salaries and related costs related to clinics increased to $296.3 million in the Full Year 2023 from $266.8 million in the 2022 Year, an increase of $29.5 million, or 11.1%. Salaries and related costs per visit (excluding managementcontracts), related to clinics decreased to $59.19 for the Full Year 2023 from 59.52 for the Full Year 2022 mostly due to the 31 new clinics added year over year as well as increased visits from Mature Clinics.35Table of ContentsRent, supplies, contract labor and other costs related to clinics increased to $97.2 million in the Full Year 2023 from $87.6 million in the 2022 Year, an increase of $9.6 million, or 11.1% mostly due to the 31 new clinics addedyear over year as well as increased visits from Mature Clinics. Rent, supplies, contract labor and other costs, clinics decreased slightly on a per visit basis to $19.42 per visit for the Full Year 2023 compared to $19.53 for theFull Year 2022. Operating costs related to management contracts increased 10.7% from $6.4 million for the Full Year 2022 to $7.1 million in the Full Year 2023.The provision for credit losses was $6.2 million for the Full Year 2023 and $5.5 million for the Full Year 2022. As a percentage of net revenues, the provision for credit losses were 1.0% for both 2023 and 2022. Our provision forcredit losses as a percentage of total patient accounts receivable was 5.0% on December 31, 2023, and 5.2% on December 31, 2022.Gross ProfitGross profit from physical therapy operations increased $9.0 million, or 9.4%, to $105.1 million for Full Year 2023 from $96.1 million for Full Year 2022 while the gross profit margin from physical therapy operations decreasedslightly to 20.0% for Full Year 2023 from 20.2% and Full Year 2022.Industrial Injury Prevention Services For the Year Ended December 31, 202 2022 (In thousands, except percentages) Net revene $78,254 $77,052 Operating costs 61,809 61,085 Gross profit $16,445 $15,967 Gross margin 21.0% 20.7%IIP business revenue increased $1.2 million to $78.3 million for the Full Year 2023 as compared to $77.1 million for the Full Year 2022. Operating costs related to the IIP business increased 1.2% in the Full Year 2023 to $61.8million from $61.1 million for the Full Year 2022. Gross profit increased $0.5 million, or 3.0%, to $16.4 million for Full Year 2023 from $16.0 million for the Full Year 2022 while gross profit margin percentage from IIP operationsincreased slightly to 21.0% for Full Year 2023 from 20.7% for the Full Year 2022.Corporate Office CostsCorporate office costs were $52.0 million, or 8.6% of net revenue, for the Full Year 2023 compared to $46.1 million, or 8.3% of net revenue, for the Full Year 2022. The increase in corporate office costs was primarily due tohigher salaries and related costs to support the larger number of clinics.Impairment of Goodwill and Other Intangible AssetsA non-cash impairment charge of $17.5 million was recognized during the Full Year 2023 related to a reporting unit in our IIP segment. This compares to a $9.1 million non-cash impairment charge to goodwill in the comparableprior year period related to the same reporting unit.Operating IncomeOperating income was $52.1 million for the Full Year 2023 compared to $56.8 million for the Full Year 2022. Excluding the non-cash impairment charge of $17.5 million in the Full Year 2023 and $9.1 million in the Full Year 2022,operating income was $69.6 million for the twelve months ended 2023 compared to $65.9 million for the twelve months ended 2022.36Table of ContentsOther (Expenses) IncomeInterest Expense, Debt and OtherInterest expense, net of $3.3 million savings from an interest rate swap arrangement discussed below in the “Liquidity and Capital Resources - Interest Rate Swap”, increased $3.5 million to $9.3 million for the Full Year 2023compared to $5.8 million in the Full Year 2022 due to increased borrowings. The interest rate on the Company’s term loan, was 4.9% for the Full Year 2023, with an all-in effective interest rate, including all associated costs, of5.3%.Interest income from investmentInterest income from investment amounted to $3.8 million for the Full Year 2023. This interest income is a result of investing excess cash associated with proceeds from our secondary offering completed in May 2023.Change in fair value of contingent earn-out considerationWe revalued contingent earn-out consideration related to certain acquisitions resulting in an expense of $1.6 million for the Full Year 2023 compared to a gain of $2.5 million for the Full Year 2022.Change in Revaluation of Put-Right LiabilityFor the Full Year 2023, we recorded a gain of $2.6 million on the valuation of the put-right liability compared to a loss of less than $0.1 million for the Full Year 2022. The put-right relates to the potential future purchase of acompany that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area.Equity in earnings of unconsolidated affiliateFor the Full Year 2023, we recognized income of $1.0 million compared to $1.2 million for the Full Year 2022 from a joint venture which provides physical therapy services for patients at hospitals. Since we are deemed to nothave a controlling interest in the joint venture, our investment is accounted for using the equity method of accounting.Provision for Income TaxesThe provision for income tax was $12.2 million for each of the years ended 2023 and 2022. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effectivetax rate) was 30.1% for 2023 and 27.4% for 2022 as calculated below. The increase in the effective tax rate was primarily due to return-to-provision adjustments mostly related to true up of differences between tax and bookbasis of certain intangibles.37Table of Contents For the Year Ended December 31, 2023 December 31, 2022 (In thousands, except percentages) Income before taxes $49,376 $55,571 Less: Net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity (4,426) (6,902)Non-controlling interest - permanent equity (4,555) (4,347) $(8,981) $(11,249) Income before taxes less net income attributable to non-controlling interest $40,395 $44,322 Provision for income taxes $12,156 $12,164 Effective income tax rate 30.1% 27.4%Net Income Attributable to Non-controlling InterestNet income attributable to redeemable non-controlling interest (temporary equity) was $4.4 million for the Full Year 2023 and $6.9 million for the Full Year 2022. Net income attributable to non-controlling interest (permanentequity) was $4.6 million for the Full Year 2023 and $4.3 million for the Full Year 2022.Other Comprehensive IncomeWe entered into an interest rate swap agreement in May 2022, which became effective on June 30, 2022. The maturity date of the swap agreement is June 30, 2027. It has a $150 million notional value adjusted concurrentlywith scheduled principal payments made on the term loan. Beginning in July 2022, we pay a fixed one-month Secured Overnight Financing Rate (“SOFR”) of interest of 2.815%. The total interest rate in any period alsoincludes an applicable margin based on the Company’s consolidated leverage ratio. In the Full Year 2023, our interest rate including the applicable margin was 4.9%. Unrealized gains and losses related to the fair value of theinterest rate swap are recorded to accumulated other comprehensive income (loss), net of tax. The fair value of the interest rate swap at December 31, 2023, was $3.7 million, and $5.4 million at December 31, 2022, which hasbeen included within Other assets (current and long term) in the accompanying Consolidated Balance Sheet. The impact of the interest rate swap on the accompanying Consolidated Statements of Comprehensive Incomewas an unrealized loss of $1.2 million, net of tax, for the 2023 Year.LIQUIDITY AND CAPITAL RESOURCESWe believe that our business has sufficient cash to allow us to meet our short-term cash requirements. Total cash and cash equivalents were $152.8 million as of December 31, 2023, compared to $31.6 million as of December31, 2022. Additionally, we had $144.4 million of outstanding borrowings and $175.0 million in available credit under our credit facilities as of December 31, 2023, compared to $179.1 million of outstanding borrowings and$145.9 million in available credit under our credit facilities as of December 31, 2022.On May 30, 2023, we completed a secondary offering of our common stock resulting in net proceeds of $163.6 million after deducting fees associated with the transaction. A portion of the net proceeds was used to repay the$35.0 million then outstanding under our Credit Agreement while the remainder is expected to be used primarily for acquisitions. Our cash is currently invested in a high-yield savings account which generated interestincome of approximately $2.1 million in 2023.We believe that our cash and cash equivalents and availability under our Credit Facilities are sufficient to fund the working capital needs of our operating subsidiaries through at least February 29, 2025.38Table of ContentsHistorically, we have generated sufficient cash from operations to fund our development activities and to cover operational needs. We plan to continue developing new clinics and making additional acquisitions. We have,from time to time, purchased the non-controlling interests of limited partners in our existing partnerships. We may purchase additional non-controlling interests in the future. Generally, any acquisition or purchase of non-controlling interests is expected to be accomplished using our cash, financing, or a combination of the two.We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts. Claims are submitted to payors daily, weekly or monthly in accordance with our policy orpayor’s requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may bedependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting CMS approval initially maynot be submitted for six months or more. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial healthplans and self-pay payor type receivables, the write-off generally occurs after the balance has been outstanding for 120 days or longer. As of December 31, 2023, we have accrued $8.8 million related to credit balances(included in accrued expenses), a portion of which is due to patients and payors. The credit balances are expected to be resolved or paid in the next twelve months.The average accounts receivable days outstanding was 29 days on December 31, 2023, and 31 days on December 31, 2022. Net patient receivables in the amounts of $6.3 million and $5.5 million were written-off in 2023 and2022, respectively.Cash FlowA summary of our operating, investing, and financing activities is discussed below. Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Net cash provided by operating activities $81,978 $58,537 $76,406 Net cash used in investing activities 45,015 81,269 124,136 Net cash provided by financing activities 84,268 25,759 43,379 Operating ActivitiesCash provided by operating activities increased $23.4 million to $82.0 million for the year ended December 31, 2023 as compared to $58.5 million for the year ended December 31, 2022. This increase was mostly due to higherAdjusted EBITDA as well as increased collections from patient receivables.Investing ActivitiesCash used in investing activities during the year ended December 31, 2023 totaled $45.0 million and consisted of $9.3 million of fixed assets purchases and $37.8 million used in the purchase of majority interests in businessesand non-controlling interest, temporary and permanent equity. These were partially offset by $1.0 million proceeds from sale of non-controlling interest, temporary and permanent and $0.8 million distribution from anunconsolidated affiliate.Financing ActivitiesCash provided by financing activities during the year ended December 31, 2023, totaled $84.3 million and consisted of $163.6 million proceeds from a secondary offering completed in May 2023, partially offset by $31.0 millionof net payments under our revolving credit facility, $24.1 million of dividends paid to our shareholders, $16.1 million distribution to non-controlling interest and payments of $8.2 million on our debt.39Table of ContentsSenior Credit FacilitiesOn December 5, 2013, we entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended and/or restated in August 2015, January 2016,March 2017, November 2017, and January 2021.On June 17, 2022, we entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”) among Bank of America, N.A., as administrative agent(“Administrative Agent”) and the lenders from time-to-time party thereto.The Credit Agreement, which matures on June 17, 2027, provides for loans in an aggregate principal amount of $325 million. Such loans will be available through the following facilities (collectively, the “Senior CreditFacilities”):1)Revolving Facility: $175 million, five-year, revolving credit facility (“Revolving Facility”), which includes a $12 million sublimit for the issuance of standby letters of credit and a $15 million sublimit for swinglineloans (each, a “Swingline Loan”).2)Term Facility: $150 million term loan facility (the “Term Facility”). The Term Facility amortizes in quarterly installments of: (a) 0.625% in each of the first two years, (b) 1.250% in the third and fourth year, and (c)1.875% in the fifth year of the Credit Agreement. The remaining outstanding principal balance of all term loans is due on the maturity date.The proceeds of the Revolving Facility have been and shall continue to be used by us for working capital and other general corporate purposes of our Company and its subsidiaries, including to fund future acquisitions andinvest in growth opportunities. The proceeds of the Term Facility were used by us to refinance the indebtedness outstanding under the Second Amended and Restated Credit Agreement, to pay fees and expenses incurredin connection with the loan facilities transactions, for working capital and other general corporate purposes.We are permitted to increase the Revolving Facility and/or add one or more tranches of term loans in an aggregate amount not to exceed the sum of (i) $100 million plus (ii) an unlimited additional amount, provided that (in thecase of clause (ii)), after giving effect to such increases, the pro forma Consolidated Leverage Ratio (as defined in the Credit Agreement) would not exceed 2.0:1.0, and the aggregate amount of all incremental increases underthe Revolving Facility does not exceed $50,000,000.The interest rates per annum applicable to the Senior Credit Facilities (other than in respect of Swingline Loans) will be Term SOFR as defined in the agreement plus an applicable margin or, at our option, an alternate baserate plus an applicable margin. The interest rate for the 2023 Year on our Senior Credit Facilities, net of savings from the interest rate swap described below, was 5.1%, with an all-interest rate, including all associated costs, of5.7%. Interest is payable at the end of the selected interest period but no less frequently than quarterly and on the date of maturity.We will also pay to the Administrative Agent, for the account of each lender under the Revolving Facility, a commitment fee equal to the actual daily excess of each lender’s commitment over its outstanding credit exposureunder the Revolving Facility (“unused fee”). We may prepay and/or repay the revolving loans and the term loans, and/or terminate the revolving loan commitments, in whole or in part, at any time without premium or penalty,subject to certain conditions.The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets,dividends, and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets. The Credit Agreement includes certainfinancial covenants which include the Consolidated Fixed Charge Coverage Ratio and the Consolidated Leverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains customary events of default.Our obligations under the Credit Agreement are guaranteed by our wholly owned material domestic subsidiaries (each, a “Guarantor”), and our obligations and any Guarantors are secured by a perfected first priority securityinterest in substantially all of our existing and future personal property and each Guarantor, subject to certain exceptions.As of December 31, 2023, $144.4 million was outstanding on the Term Facility while none was outstanding under the Revolving Facility, resulting in $175.0 million of credit availability. As of December 31, 2023, we were incompliance with all of the covenants contained in the Credit Agreement. The average effective interest rate, net of the savings from interest rate swap discussed below, for borrowings under the Senior Credit Facility,inclusive of all associated costs, was 5.3% for the Full Year 2023.40Table of ContentsInterest Rate SwapIn May 2022, we entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A, which became effective on June 30, 2022. It has a $150 million notional value adjusted concurrently withscheduled principal payments made on the term loan and has a maturity date of June 30, 2027. Beginning in July 2022, we receive 1-month SOFR, and pay a fixed rate of interest of 2.815% on 1-month SOFR on a quarterlybasis. The total interest rate in any period also includes an applicable margin based on our consolidated leverage ratio. In connection with the swap, no cash was exchanged between us and the counterparty.We designated our interest rate swap as a cash flow hedge and structured it to be highly effective. Consequently, unrealized gains and losses related to the fair value of the interest rate swap are recorded to accumulate othercomprehensive income (loss), net of tax.As of December 31, 2023, the fair value of the interest rate swap was $3.7 million, a decrease of $1.2 million, net of a $0.4 million, income tax effect, as compared to December 31, 2022. The fair value of the interest rate swap isincluded in other assets (current and long term) in our consolidated balance sheet while the increase in fair value is presented as unrealized loss in our unaudited consolidated statements of comprehensive income. Theinterest rate swap arrangement generated $3.3 million in interest savings for the Full Year 2023. The average interest rate for the term facility, net of the savings from the swap in the Full Year 2023 was 4.9%.Notes Payable and Deferred Payments Related to AcquisitionsWe generally enter into various notes payable as a means of financing our acquisitions. Our present outstanding notes payable primarily relate to the acquisitions of a business or acquisitions of majority interests in suchbusinesses. At December 31, 2023, our remaining outstanding balance on these notes aggregated $5.3 million. $1.6 million of the outstanding notes payable are payable in 2023, $2.4 million is payable in 2024, and $1.3 millionis payable in 2025. Notes are generally payable in equal annual installments of principal over two years plus any accrued and unpaid interest. Interest accrues at various interest rates ranging from 3.25% to 8.0% per annum.On September 29, 2023, we acquired a 70% equity interest in a four-clinic physical therapy practice. The owner of the practice retained 30% of the equity interests. The purchase price for the 70% equity interest wasapproximately $6.0 million, of which $5.4 million was paid in cash, and $0.6 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and interest are payable in two installments.The first payment of principal and interest of $0.3 million was paid January 2024, and the second installment of $0.3 million is due on September 30, 2025.In a separate transaction, on September 29, 2023, we acquired a 70% equity interest in a single clinic physical therapy practice. The owner of the practice retained 30% of the equity interests. The purchase price for the 70%equity interest was approximately $7.8 million, of which $7.4 million was paid in cash and $0.4 million is a deferred payment due on June 30, 2025.On July 31, 2023, we acquired a 70% equity interest in a five-clinic practice. The practice’s owners retained a 30% equity interest. The purchase price for the 70% equity interest was approximately $2.1 million, of which $1.8million was paid in cash and $0.3 million is a deferred payment due on June 30, 2025.On May 31, 2023, we and a local partner together acquired a 75% interest in a four-clinic physical therapy practice. After the transaction, our ownership interest is 45%, our local partner’s ownership interest is 30%, and thepractice’s pre-acquisition owners have a 25% ownership interest. The purchase price for the 75% equity interest was approximately $3.1 million, of which $1.7 million was paid in cash by us, $1.1 million was paid in cash bythe local partner, and $0.3 million was in the form of a note payable (of which $0.2 million will be paid by us and $0.1 million will be paid by the local partner). The note will be paid on July 1, 2024. We guaranteed the fullpayment of $0.3 million on its due date.41Table of ContentsOn February 28, 2023, we acquired an 80% interest in a one-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately $6.2million, of which $5.8 million was paid in cash and $0.4 million in the form of a note payable. The note accrues interest at 4.5% per annum and the principal and interest are payable on February 28, 2025.On November 30, 2022, we acquired an 80% interest in a thirteen-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately$25.0 million, of which $24.2 million was paid in cash and $0.8 million in the form of a note payable. The note accrues interest at 7.0% per annum and the principal and interest are payable on November 30, 2024.On October 31, 2022, we acquired a 60% interest in a fourteen-clinic physical therapy practice. The practice’s owners retained 40% of the equity interests. The purchase price for the 60% equity interest was approximately$19.5 million, with a potential additional amount to be paid at a later date based on the performance of the business. This contingent consideration had a fair value of $9.8 million on December 31, 2023. The fair value of thiscontingent consideration will be adjusted quarterly based on certain criteria and market inputs. There is no maximum payout for this contingency.On September 30, 2022, we acquired an 80% interest in a two-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest was approximately $4.2million, of which $3.9 million was paid in cash and $0.3 million in the form of a note payable. The note accrues interest at 5.5% per annum and the principal and interest are payable on September 30, 2024.On August 31, 2022, we acquired a 70% interest in a six-clinic physical therapy practice. The practice’s owners retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $3.5million, of which $3.3 million was paid in cash and $0.2 million in the form of a note payable. The note accrues interest at 5.5% per annum and the principal and interest are payable on August 31, 2024.On March 31, 2022, we acquired a 70% interest in a six-clinic physical therapy practice. The practice’s owners retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $11.5million, of which $11.2 million was paid in cash and $0.3 million is in the form of a note payable. The note accrues interest at 3.5% per annum and the principal and interest are payable on March 31, 2024.Historically, we have generated sufficient cash from operations to fund our development activities and to cover operational needs. We currently have $152.8 million of cash on hand, a significant portion of which is availablefor deployment into development and other growth initiatives. We plan to continue developing new clinics and making additional acquisitions. We have from time to time purchased the non-controlling interests of limitedpartners in our Clinic Partnerships. We may purchase additional non-controlling interests in the future. Generally, any acquisition or purchase of non-controlling interests is expected to be accomplished using a combinationof cash and financing. A large acquisition may require financing.We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts. Claims are submitted to payors daily, weekly or monthly in accordance with our policy orpayor’s requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may bedependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting CMS approval initially maynot be submitted for six months or more. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial healthplans and self-pay payor type receivables, the write-off generally occurs after the account receivable has been outstanding for 120 days or longer.Redeemable Non-Controlling InterestCertain of our limited partnership agreements, as amended, provide that, upon the triggering events, we have a call right and the selling entity or individual has a put right for the purchase and sale of the limited partnershipinterest held by the partner. Once triggered, the put right and the call right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limitedpartnership interest upon the exercise of either the put right or the call right is calculated per the terms of the respective agreements and classified as redeemable non-controlling interest (temporary equity) in ourconsolidated balance sheets. The fair value of the redeemable non-controlling interest at December 31, 2023 was $174.8 million.42Table of ContentsIn the event that a limited non-controlling interest partner’s employment ceases at any time after a specified date that is typically between three and five years from the acquisition date, we have agreed to certain contractualprovisions which enable such non-controlling interest partners to exercise their right to trigger our repurchase of that partner’s non-controlling interest at a predetermined multiple of earnings before interest and taxes.Share Repurchase ProgramIn March 2009, the Board authorized the repurchase of up to 10% of our common stock (“March 2009 Authorization”). Under the March 2009 Authorization, the Company has purchased a total of 859,499 shares. InNovember 2023, the Board terminated the March 2009 Authorization such that any such repurchase of our common stock would be considered and determined by the Board at the time of repurchase. We did not purchaseany shares of our common stock during the year ended December 31, 2023, or December 31, 2022.Contractual ObligationsWe have future obligations for debt repayments and associated interest payments as well as future minimum rentals under our non-cancellable operating leases. The obligations as of December 31, 2023, are summarized asfollows: Total 2024 2025 2026 2027 2028 Thereafter (In thousands) Term facility (1) $144,375 5,625 7,500 9,375 $121,875 $- $- Notes payable (2) 3,775 2,486 1,289 - - - - Interest expense on Term Facility and notes payable (3) 20,958 6,725 6,508 6,210 1,515 - - Operating leases (4) 144,666 46,845 36,447 27,406 18,495 10,025 5,448 $313,774 $61,681 $51,744 $42,991 $141,885 $10,025 $5,448 (1) Amounts due under our Term Facility discussed above.(2) Amounts due related to certain acquisitions discussed above.(3) Interest on our Senior Credit Facility was estimated using the average outstanding balance for the respective periods and our effective interest rate on our Term Facility at December 31, 2023, of 4.7%. Interest on our otherdebt was estimated using the stated rate in the debt agreement.(4) Includes variable non-lease components, including but not limited to common area maintenance.CRITICAL ACCOUNTING POLICIESManagement’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generallyaccepted in the United States. The preparation of these financial statements requires estimates and judgments that affect the reported amounts of our assets, liabilities, net sales and expenses, and disclosure of contingentassets and liabilities. Management bases estimates on historical experience and other assumptions it believes to be reasonable given the circumstances and evaluates these estimates on an ongoing basis. Actual results maydiffer from these estimates under different assumptions or conditions.We believe that the following critical accounting policies involve a higher degree of judgment and complexity. See Note 2, Significant Accounting Policies, to our audited consolidated financial statements which are includedelsewhere in this Annual Report on Form 10-K for a complete discussion of our significant accounting policies. The following reflect the significant estimates and judgments used in the preparation of our consolidatedfinancial statements.43Table of ContentsRevenue RecognitionRevenues are recognized in the period in which services are rendered. Net patient revenue consists of revenues from physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatmentfor orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. Net patient revenue (patient revenues less estimated contractual adjustments –described below) is recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There is animplied contract between us and the patient upon each patient visit. Separate contractual arrangements exist between us and third-party payors (e.g. insurers, managed care programs, government programs, and workers'compensation programs) which establish the amounts the third parties pay on behalf of the patients for covered services rendered. While these agreements are not considered contracts with the customer, they are used fordetermining the transaction price for services provided to the patients covered by the third-party payors. The payor contracts do not indicate performance obligations for us but indicate reimbursement rates for patients whoare covered by those payors when the services are provided. At that time, we are obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does notindicate a performance obligation. For self-paying customers, the performance obligation exists when we provide the services at established rates. The difference between our established rate and the anticipatedreimbursement rate is accounted for as an offset to revenue—contractual allowance.Management contract revenue, which is included in other revenue in the consolidated statements of net income, is derived from contractual arrangements whereby we manage a clinic owned by a third party. We do not haveany ownership interest in these clinics. Typically, revenues are determined based on the number of visits conducted at the clinic and recognized at the point in time when services are performed. Costs, typically salaries forour employees, are recorded when incurred.Revenues from the IIP business, which are also included in other revenues in the consolidated statements of net income, are derived from onsite services we provide to clients’ employees including injury prevention,rehabilitation, ergonomic assessments, and performance optimization. Revenue from the IIP business is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equalto the consideration we expect to receive in exchange for providing injury prevention services to our clients. The revenue is determined and recognized based on the number of hours and respective rate for servicesprovided in a given period.Additionally, other revenue includes services we provide on-site at locations such as schools and industrial worksites for physical or occupational therapy services, athletic trainers and gym membership fees. Contract termsand rates are agreed to in advance between us and the third parties. Services are typically performed over the contract period and revenue is recorded at the point of service. If the services are paid in advance, revenue isrecorded as a contract liability over the period of the agreement and recognized at the point in time when the services are performed.We determine allowances for credit losses based on the specific agings of receivables and payor classifications at each clinic. The provision for credit losses is included in clinic operating costs in the statements of netincome. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for credit losses, includes only those amounts we estimate to be collectible. Ourprovision for credit losses was 1.0% of total net revenue for each years ended December 31, 2023, 2022 and 2021, respectively. Management believes that this is reasonable because the majority of our payors consist ofhighly solvent, highly regulated, commercial insurance companies as well as government programs, including Medicare. Contractual AllowancesContractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for suchservices. Medicare regulations and the various third-party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in our clinics. Weestimate contractual allowances based on our interpretation of the applicable regulations, payor contracts and historical calculations. Each month we estimate our contractual allowance for each clinic based on payorcontracts and the historical collection experience of the clinic and apply an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on our historicalexperience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us to provide the necessary detail and accuracy with our collectability estimates. However, the services authorizedand provided and related reimbursement are subject to interpretation that could result in payments that differ from our estimates. Payor terms are periodically revised necessitating continual review and assessment of theestimates made by management. Our billing systems may not capture the exact change in our contractual allowance reserve estimate from period to period. Therefore, in order to assess the accuracy of our revenues andhence our contractual allowance reserves, our management regularly compares our cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, thehistorical difference between net revenues and corresponding cash collections in any given fiscal year has generally reflected a difference within approximately 1.0% to 1.5% of net revenues. Additionally, analysis ofsubsequent period’s contractual write-offs on a payor basis reflects a difference within approximately 1.0% to 1.5% between the actual aggregate contractual reserve percentage as compared to the estimated contractualallowance reserve percentage associated with the same period end balance. As a result, we believe that a reasonable likely change in the contractual allowance reserve estimate would not be more than 1.0% to 1.5% of grossbillings in accounts receivable at December 31, 2023. For purposes of demonstrating the sensitivity of this estimate on our Company’s financial condition, a 1.0% to 1.5% increase or decrease in our aggregate contractualallowance reserve percentage would decrease or increase, respectively, net patient revenue by approximately $1.4 million to $1.5 million for the year ended December 31, 2023. Management believes the changes in theestimate of the contractual allowance reserve for the periods ended December 31, 2023, 2022 and 2021 have not been material to the statement of income.44Table of ContentsGoodwillGoodwill represents the excess of the amount paid and fair value of the non-controlling interests over the fair value of the acquired business assets, which include certain identifiable intangible assets. Historically, goodwillhas been derived from acquisitions and, prior to 2009, from the purchase of some or all of a particular local management’s equity interest in an existing clinic. Effective January 1, 2009, if the purchase price of a non-controllinginterest by the Company exceeds or is less than the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital.Goodwill and other indefinite-lived intangible assets are not amortized but are instead subject to periodic impairment evaluations. The fair value of goodwill and other identifiable intangible assets with indefinite lives areevaluated for impairment at least annually and upon the occurrence of certain events or conditions and are written down to fair value if considered impaired. These events or conditions include but are not limited to asignificant adverse change in the business environment, regulatory environment, or legal factors; a current period operating, or cash flow loss combined with a history of such losses or a projection of continuing losses; or asale or disposition of a significant portion of a reporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. We evaluateindefinite-lived tradenames in conjunction with our annual goodwill impairment test.We operate our business through two segments consisting of our physical therapy clinics and our IIP business. For purposes of goodwill impairment analysis, each of our segments is further broken down into reportingunits. Reporting units within our physical therapy business comprise of regions primarily based on each clinic’s location. In addition to the six regions, in 2023 and 2022, the IIP business consisted of two reporting units.As part of the impairment analysis, we are first required to assess qualitatively if we can conclude whether goodwill is more likely than not impaired. If goodwill is more likely than not impaired, we are then required tocomplete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, weconsider relevant events or circumstances that affect the fair value or carrying amount of a reporting unit. We consider both the income and market approach in determining the fair value of its reporting units whenperforming a quantitative analysis.An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets, exceeds the estimated fair value of thereporting unit. The evaluation of goodwill in 2021 did not result in any goodwill amounts that were deemed impaired.We recorded a charge for goodwill impairment of $15.8 million and $9.1 million in the years ended December 31, 2023, and December 31, 2022, respectively. We also recorded a charge of $1.7 million for the impairment of atradename during the year ended December 31, 2023. The charges for impairment related to one reporting unit in the IIP business. The impairments are a result of a change in the reporting unit’s current and projectedoperating income as well as various market inputs based on current market conditions.During the year ended December 31, 2023, we did not recognize any additional impairment as a result of the Company’s annual assessment of goodwill and tradenames for the other seven reporting units. We also noted noimpairment to long-lived assets for all reporting units.We will continue to monitor for any triggering events or other indicators of impairment.45Table of ContentsNo impairment was recognized as part of our annual assessment of goodwill for the other seven reporting units.Redeemable Non-Controlling InterestThe non-controlling interests that are reflected as redeemable non-controlling interest in our consolidated financial statements consist of those owners, including us, that have certain redemption rights, whether currentlyexercisable or not, and which currently, or in the future, require that we purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met and the owners request the purchase (“PutRight”). We also have a call right (“Call Right”). The Put Right or Call Right may be triggered by the owner or us, respectively, at such time as both of the following events have occurred: 1) termination of the owner’semployment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three to five years, as defined in the limited partnership agreement.The Put Rights and Call Rights are not automatic (even upon death) and require either the owner or us to exercise our rights when the conditions triggering the Put or Call Rights have been satisfied. The purchase price isderived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements.On the date we acquire a controlling interest in a partnership and the limited partnership agreement for such partnerships contains redemption rights not under our control, the fair value of the non-controlling interest isrecorded in the consolidated balance sheet under the caption—Redeemable non-controlling interest. Then, in each reporting period thereafter until it is purchased by us, the redeemable non-controlling interest is adjustedto the greater of its then current redemption value or initial value, based on the predetermined formula defined in the respective limited partnership agreement. As a result, the value of the non-controlling interest is notadjusted below its initial value. We record any adjustment in the redemption value, net of tax, directly to retained earnings and not in the consolidated statements of net income. Although the adjustments are not reflected inthe consolidated statements of net income, current accounting rules require that we reflect the adjustments, net of tax, in the earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated statement of income. We believe the redemption value (i.e. the carrying amount) and fair value are the same.Non-Controlling InterestWe recognize non-controlling interests, in which we have no obligation but the right to purchase the non-controlling interests, as equity in the consolidated financial statements separate from the parent entity’s equity. Theamount of net income attributable to non-controlling interests is included in consolidated net income on the face of the consolidated statements of net income. Operating losses are allocated to non-controlling interests evenwhen such allocation creates a deficit balance for the non-controlling interest partner. When we purchase a non-controlling interest and the purchase differs from the book value at the time of purchase, any excess orshortfall is recognized as an adjustment to additional paid-in capital.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe maintain an interest rate swap arrangement which is considered a derivative instrument. Our indebtedness as of December 31, 2023, was the outstanding balance of seller notes from our acquisitions of $3.8 million, and anoutstanding balance on our Credit Agreement of $144.4 million, which includes a term note with a balance of $144.4 million. The Revolving Facility does not have a balance as of December 31, 2023, and is subject tofluctuating interest rates. A 1% change in the interest rate would yield an additional $1.5 million of interest expense. See Note 10 to our consolidated financial statements included in Item 8.fluctuating interest rates. A 1% change in the interest rate would yield an additional $1.5 million of interest expense. See Note 10 to our consolidated financial statements included in Item 8.46Table of ContentsITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND RELATED INFORMATIONReports of Independent Registered Public Accounting Firm—Grant Thornton LLP (PCAOB ID Number 248)48Audited Financial Statements: Consolidated Balance Sheets as of December 31, 2023 and 202251Consolidated Statements of Net Income for the years ended December 31, 2023, 2022 and 202152Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 202153Consolidated Statements of Changes in Equity for the years ended December 31, 2023, 2022 and 202154Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 202155Notes to Consolidated Financial Statements5647Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and ShareholdersU.S. Physical Therapy, Inc. Opinion on the financial statementsWe have audited the accompanying consolidated balance sheets of U.S. Physical Therapy, Inc. (a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidatedstatements of net income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule included underItem 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022 and theresults of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023,based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 29, 2024expressed an unqualified opinion. Basis for opinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performingprocedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accountingprinciples used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit mattersThe critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate toaccounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way ouropinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to whichthey relate. Measurement of Patient Revenue Net of Contractual AdjustmentsAs further discussed in Note 2 to the consolidated financial statements, revenues are recognized in the period in which services are rendered. Net patient revenues (patient revenues less estimated contractual adjustments)are recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. The Company hasagreements with third-party payors that provide for payments at amounts different from its established rates. Each month the Company estimates its contractual adjustment for each clinic based on the terms of third-partypayor contracts and the historical collection and write-off experience of the clinic and applies a contractual adjustment reserve percentage to the gross accounts receivable balances. The Company then performs acomparison of cash collections to corresponding net revenues for the prior twelve months. We identified the measurement of contractual adjustments as a critical audit matter.48Table of ContentsThe principal consideration for our determination that the measurement of patient revenue net of contractual adjustments is a critical audit matter is that the estimate requires a high degree of auditor subjectivity inevaluating management’s assumptions related to developing future collection patterns across the various clinic locations.Our audit procedures related to the Company’s measurement of contractual adjustments included the following, among others. •We tested the design and operating effectiveness of controls relating to billing and cash collections, net rate trend analysis and cash collections versus net revenue trend analysis.•For a sample of patient visits, we inspected and compared underlying documents for each transaction, which included gross billing rates and cash collected (net revenue).•For a sample of patient visits, we traced gross billings and net revenue to net revenue recorded in the general ledger and to each report used in determining and assessing the contractual adjustment calculation.•We compared cash collections to recorded net revenue over the twelve month period ended December 31, 2023 and again for the twelve month period ended in the first month subsequent to period end, to identifywhether there were unusual trends that would indicate that the usage of historical collection patterns would no longer be reasonable to predict future collection patterns. Impairment Assessments – Fair Value of a Certain Reporting Unit and Other Indefinite-lived Intangible Assets As further discussed in Note 2 to the financial statements, goodwill and other indefinite-lived intangible assets are tested by the Company’s management for impairment at least annually or more frequently if events orcircumstances indicate potential impairment. Goodwill and other indefinite-lived intangible assets are tested for impairment at the reporting unit level. For the year ended December 31, 2023 management prepared aquantitative impairment analysis for a reporting unit included in the industrial injury prevention services segment. The Company engaged a third-party valuation specialist for the estimation of fair value of the reporting unit.We identified the estimation of the fair value of this reporting unit as a critical audit matter. The principal consideration for our determination that the estimation of the fair value of a certain reporting unit and other indefinite-lived intangible assets is a critical audit matter is that the estimate requires a high degree ofauditor subjectivity due to significant judgments with respect to assumptions used to project the future cash flows, including revenue growth rates, EBITDA and EBITDA margins, royalty rate, as well as the discount rateand the valuation methodologies applied by the third-party valuation specialist. Our audit procedures related to the estimation of the fair value of this reporting unit included the following, among others. •We tested the design and operating effectiveness of controls over management’s review of the assumptions used to project future cash flows, the selection of appropriate discount rate, royalty rates, and valuationmethodologies applied.•We utilized valuation specialists to evaluate:oThe appropriateness of the methodologies applied,oThe reasonableness of the discount rate, royalty rates, andoThe qualifications of the third-party valuation specialist engaged by the Company based on their credentials and experience.•We assessed the reasonableness of assumptions applied by management in their future cash flows, including revenue growth rates, EBITDA, and EBITDA margins./s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2004. Houston, TXFebruary 29, 202449Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and ShareholdersU.S. Physical Therapy, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of U.S. Physical Therapy, Inc. (a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013 InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year endedDecember 31, 2023, and our report dated February 29, 2024 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in theaccompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a publicaccounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financialreporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonablebasis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controlsmay become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLPHouston, Texas February 29, 202450Table of ContentsU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) December 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $152,825 $31,594 Patient accounts receivable, less provision for credit losses of $2,736 and $2,829, respectively 51,866 51,934 Accounts receivable - other 17,854 16,671 Other current assets 10,830 11,067 Total current assets 233,375 111,266 Fixed assets: Furniture and equipment 63,982 62,074 Leasehold improvements 46,941 42,877 Fixed assets, gross 110,923 104,951 Less accumulated depreciation and amortization (84,821) (80,203)Fixed assets, net 26,102 24,748 Operating lease right-of-use assets 103,431 103,004 Investment in unconsolidated affiliate 12,256 12,131 Goodwill 509,571 494,101 Other identifiable intangible assets, net 109,682 108,755 Other assets 2,821 4,149 Total assets $997,238 $858,154 LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, USPHSHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTEREST Current liabilities: Accounts payable - trade $3,898 $3,300 Accounts payable - due to seller of acquired business - 3,204 Accrued expenses 55,344 37,413 Current portion of operating lease liabilities 35,252 33,709 Current portion of term loan and notes payable 7,691 7,863 Total current liabilities 102,185 85,489 Notes payable, net of current portion 1,289 1,913 Revolving facility - 31,000 Term loan, net of current portion and deferred financing costs 137,702 142,918 Deferred taxes 24,815 21,303 Operating lease liabilities, net of current portion 76,653 77,934 Other long-term liabilities 2,356 13,029 Total liabilities 345,000 373,586 Redeemable non-controlling interest - temporary equity 174,828 167,515 Commitments and Contingencies U.S. Physical Therapy, Inc. (“USPH”) shareholders’ equity: Preferred stock, $0.01 par value, 500,000 shares authorized, no shares issued and outstanding - - Common stock, $0.01 par value, 20,000,000 shares authorized, 17,202,291 and 15,216,326 shares issued, respectively 172 152 Additional paid-in capital 281,096 110,317 Accumulated other comprehensive gain 2,782 4,004 Retained earnings 223,772 232,948 Treasury stock at cost, 2,214,737 shares (31,628) (31,628)Total USPH shareholders’ equity 476,194 315,793 Non-controlling interest - permanent equity 1,216 1,260 Total USPH shareholders’ equity and non-controlling interest - permanent equity 477,410 317,053 Total liabilities, redeemable non-controlling interest, USPH shareholders’ equity and non-controlling interest - permanent equity $997,238 $858,154 The accompanying notes are an integral part of these Consolidated Financial Statements.51Table of ContentsU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF NET INCOME(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Net patient revenue $514,556 $464,590 $438,330 Other revenue 90,246 88,554 56,692 Net revenue 604,802 553,144 495,022 Operating cost: Salaries and related costs 353,390 319,191 278,469 Rent, supplies, contract labor and other 123,731 116,381 94,066 Provision for credit losses 6,172 5,548 5,305 Total operating cost 483,293 441,120 377,840 Gross profit 121,509 112,024 117,182 Corporate office costs 51,953 46,111 46,533 Impairment of goodwill and other intangible assets 17,495 9,112 - Operating income 52,061 56,801 70,649 Other (expense) income Interest expense, debt and other (9,303) (5,779) (942)Interest income from investments 3,774 - - Change in fair value of contingent earn-out consideration (1,550) 2,520 - Change in revaluation of put-right liability 2,582 (5) - Equity in earnings of unconsolidated affiliate 955 1,175 112 Relief Funds 467 - 4,597 Settlement of a legal matter - - (2,635)Resolution of a payor matter - - 1,216 Other 390 859 199 Total other (expense) income (2,685) (1,230) 2,547 Income before taxes 49,376 55,571 73,196 Provision for income taxes 12,156 12,164 15,272 Net income 37,220 43,407 57,924 Less: Net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity (4,426) (6,902) (11,358)Non-controlling interest - permanent equity (4,555) (4,347) (5,735) (8,981) (11,249) (17,093) Net income attributable to USPH shareholders $28,239 $32,158 $40,831 Basic and diluted earnings per share attributable to USPH shareholders $1.28 $2.25 $2.41 Shares used in computation - basic and diluted 14,188 12,985 12,898 Dividends declared per common share $1.72 $1.64 $1.46 The accompanying notes are an integral part of these Consolidated Financial Statements.52Table of ContentsU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(IN THOUSANDS) Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Net income $37,220 $43,407 $57,924 Other comprehensive loss Unrealized (loss) gain on cash flow hedge (1,642) 5,378 - Tax effect at statutory rate (federal and state) 420 (1,374) - Comprehensive income $35,998 $47,411 $57,924 Comprehensive income attributable to non-controlling interest (8,981) (11,249) (17,093)Comprehensive income attributable to USPH shareholders $27,017 $36,162 $40,831 The accompanying notes are an integral part of these Consolidated Financial Statements.53Table of ContentsU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(IN THOUSANDS) U.S. Physical Therapy, Inc. Common Stock Additional Accumulated Other Retained Treasury Stock Total Shareholders’ Non-Controlling Shares Amount Paid-In Capital Comprehensive Gain Earnings Shares Amount Equity Interests Total Balance January 1, 2021 15,066 $151 $95,622 $- $212,015 (2,215) $(31,628) $276,160 $1,470 $277,630 Net income attributable to USPHshareholders - - - - 40,831 - - 40,831 - 40,831 Net income attributable to non-controllinginterest - permanent equity - - - - - - - - 5,735 5,735 Issuance of restricted stock, net ofcancellations 60 - - - - - - - - - Revaluation of redeemable non-controlling interest - - - - (9,686) - - (9,686) - (9,686)Purchase of non-controlling interest - - (918) - - - - (918) (60) (978)Sale of non-controlling interest - - 96 - - - - 96 2 98 Compensation expense - equity-basedawards - - 7,867 - - - - 7,867 - 7,867 Dividends paid to USPH shareholders - - - - (18,765) - - (18,765) - (18,765)Distributions to non-controlling interestpartners - permanent equity - - - - - - - - (5,572) (5,572)Short swing profit settlement - - 20 - - - - 20 - 20 Other - - 1 - - - - 1 - 1 Balance December 31, 2021 15,126 $151 $102,688 $- $224,395 (2,215) $(31,628) $295,606 $1,575 $297,181 U.S. Physical Therapy, Inc. Common Stock Additional Accumulated Other Retained Treasury Stock Total Shareholders’ Non-Controlling Shares Amount Paid-In Capital Comprehensive Gain Earnings Shares Amount Equity Interests Total Balance January 1, 2022 15,126 $151 $102,688 $- $224,395 (2,215) $(31,628) $295,606 $1,575 $297,181 Net income attributable to USPHshareholders - - - - 32,158 - - 32,158 - 32,158 Net income attributable to non-controllinginterest - permanent equity - - - - - - - - 4,347 4,347 Issuance of restricted stock, net ofcancellations 90 1 - - - - - 1 - 1 Revaluation of redeemable non-controlling interest - - - - (2,896) - - (2,896) - (2,896)Purchase of non-controlling interest - - (353) - - - - (353) (101) (454)Compensation expense - equity-basedawards - - 7,264 - - - - 7,264 - 7,264 Transfer of compensation liability forcertain stock - - 707 - - - - 707 - 707 Dividends paid to USPH shareholders - - - - (21,321) - - (21,321) - (21,321)Distributions to non-controlling interestpartners - permanent equity - - - - - - - - (5,246) (5,246)Deferred taxes related to redeemable non-controlling interest - temporary equity - - - - 613 - - 613 - 613 Other comprehensive gain - - - 4,004 - - - 4,004 - 4,004 Other - - 11 - (1) - - 10 685 695 Balance December 31, 2022 15,216 $152 $110,317 $4,004 $232,948 (2,215) $(31,628) $315,793 $1,260 $317,053 U.S. Physical Therapy, Inc. Common Stock Additional Accumulated Other Retained Treasury Stock Total Shareholders’ Non-Controlling Shares Amount Paid-In Capital Comprehensive Loss Earnings Shares Amount Equity Interests Total Balance January 1, 2023 15,216 $152 $110,317 $4,004 $232,948 (2,215) $(31,628) $315,793 $1,260 $317,053 Net income attributable to USPHshareholders - - - - 28,239 - - 28,239 - 28,239 Net income attributable to non-controllinginterest - permanent equity - - - - - - - - 4,555 4,555 Issuance of restricted stock, net ofcancellations 70 - - - - - - - - - Issuance of common stock, pursuant tothe secondary public offering, net ofissuance costs 1,916 20 163,626 - - - - 163,646 - 163,646 Revaluation of redeemable non-controllinginterest - - - - (13,564) - - (13,564) - (13,564)Compensation expense - equity-basedawards - - 7,236 - - - - 7,236 - 7,236 Sale of non-controlling interest - - - - - - - - 4 4 Purchase of partnership interests - non-controlling interest - - (83) - - - - (83) (36) (119)Dividends payable to USPH shareholders - - - - (24,128) - - (24,128) - (24,128)Distributions to non-controlling interestpartners - permanent equity - - - - - - - - (4,567) (4,567)Deferred taxes related to redeeemable non-controlling interest - temporary equity - - - - 587 - - 587 - 587 Other comprehensive loss - - - (1,222) (2) - - (1,224) - (1,224)Other - - - - (308) - - (308) - (308)Balance December 31, 2023 17,202 $172 $281,096 $2,782 $223,772 (2,215) $(31,628) $476,194 $1,216 $477,410 The accompanying notes are an integral part of these Consolidated Financial Statements.54Table of ContentsU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(IN THOUSANDS) Year Ended December 31, 2023 December 31, 2022 December 31, 2021 OPERATING ACTIVITIES Net income including non-controlling interest $37,220 $43,407 $57,924 Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: Depreciation and amortization 15,695 14,743 11,591 Provision for credit losses 6,172 5,548 5,305 Equity-based awards compensation expense 7,236 7,264 7,867 Amortization of debt issue costs 420 305 56 Change in deferred income taxes 4,490 4,309 5,688 Change in revaluation of put-right liability (2,582) 5 - Change in fair value of contingent earn-out consideration 1,550 (2,520) - Equity of earnings in unconsolidated affiliate (955) (1,175) (112)Loss (gain) on sale of clinics and fixed assets 166 (643) - Impairment of goodwill and other intangible assets 17,495 9,112 - Other - (83) (134)Changes in operating assets and liabilities: Increase in patient accounts receivable (5,645) (10,279) (9,417)Increase in accounts receivable - other (356) (307) (1,538)Increase (decrease) in other current and long term assets (197) (5,940) (633)Decrease (increase) in accounts payable and accrued expenses 15 (7,755) 4,657 Decrease (increase) in other long-term liabilities 1,254 2,546 (4,848)Net cash provided by operating activities 81,978 58,537 76,406 INVESTING ACTIVITIES Purchase of fixed assets (9,294) (8,248) (8,201)Purchase of majority interest in businesses, net of cash acquired (26,582) (59,788) (86,823)Purchase of redeemable non-controlling interest, temporary equity (10,986) (14,987) (28,465)Purchase of non controlling interest, permanent equity (281) (280) (1,274)Proceeds on sale of non-controlling interest, permanent equity 102 - 131 Proceeds on sale of partnership interest - redeemable non-controlling interest, temporary equity 875 402 69 Distributions from unconsolidated affiliate 830 1,259 152 Proceeds on sale of partnership interest, clinics and fixed assets - 373 275 Other 321 - - Net cash used in investing activities (45,015) (81,269) (124,136) FINANCING ACTIVITIES Proceeds from issuance of common stock pursuant to the secondary public offering, net of issuance costs 163,646 - - Proceeds from revolving facility 24,000 101,000 316,000 Distributions to non-controlling interest, permanent and temporary equity (16,100) (15,348) (16,931)Cash dividends paid to shareholders (24,128) (21,321) (18,765)Payments on revolving facility (55,000) (184,000) (218,000)Principal payments on notes payable (4,400) (930) (4,899)Payments on term loan (3,750) (1,875) - Proceeds from term loan - 150,000 - Payment of deferred financing costs - (1,779) - Payment of Medicare Accelerated and Advance Funds - - (14,054)Other - 12 28 Net cash provided by financing activities 84,268 25,759 43,379 Net increase in cash and cash equivalents 121,231 3,027 (4,351)Cash and cash equivalents - beginning of period 31,594 28,567 32,918 Cash and cash equivalents - end of period $152,825 $31,594 $28,567 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes $4,926 $7,615 $12,214 Interest paid $8,655 $5,687 $1,352 Non-cash investing and financing transactions during the period: Purchase of businesses - seller financing portion $1,815 $1,574 $3,050 Liabilities assumed associated with a purchase of a business $524 $- $- Notes payable related to purchase of redeemable non-controlling interest, temporary equity $1,087 $1,074 $1,759 Notes payable related to the purchase of non-controlling interest, permanent equity $200 $296 $- Notes receivable related to sale of redeemable non-controlling interest, temporary equity $4,136 $1,580 $914 Notes receivable related to the sale of non-controlling interest, permanent equity $458 $- $- The accompanying notes are an integral part of these Consolidated Financial Statements.55Table of ContentsU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2023, 2022 and 20211. Organization, Nature of Operations and Basis of PresentationThe consolidated financial statements include the accounts of U.S. Physical Therapy, Inc. and its subsidiaries (the “Company”). All significant intercompany transactions and balances have been eliminated.The Company operates its business through two reportable business segments. The Company’s reportable segments include the physical therapy operations segment and the industrial injury prevention services (“IIP”)segment. The Company’s physical therapy operations consist of physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic-related disorders, sports-relatedinjuries, preventive care, rehabilitation of injured workers and neurological injuries. Services provided by the IIP segment include onsite injury prevention and rehabilitation, performance optimization and ergonomicassessments.During the last three years, the Company completed the acquisitions of the following clinic practices and IIP businesses detailed below: % Interest Number ofAcquisition Date Acquired ClinicsOctober 2023 Acquisition October 31, 2023 ** *September 2023 Acquisition 1 September 29, 2023 70% 4September 2023 Acquisition 2 September 29, 2023 70% 1July 2023 Acquisition July 31, 2023 70% 7May 2023 Acquisition May 31, 2023 45% 4February 2023 Acquisition February 28, 2023 80% 1November 2022 Acquisition November 30, 2022 80% 13October 2022 Acquisition October 31, 2022 60% 14September 2022 Acquisition September 30, 2022 80% 2August 2022 Acquisition August 31, 2022 70% 6March 2022 Acquisition March 31, 2022 70% 6December 2021 Acquisition December 31, 2021 75% 3November 2021 Acquisition November 30, 2021 70% *September 2021 Acquisition September 30, 2021 100% *June 2021 Acquisition June 30, 2021 65% 8March 2021 Acquisition March 31, 2021 70% 6*IIP business**On October 31, 2023, the Company concurrently acquired 100% of an IIP business and a 55% equity interest in the ergonomics software business (“October 2023 Acquisition”).In May 2023, the Company completed a secondary offering of 1,916,667 shares of its common stock at an offering price of $90.00 per share. Upon completion of the offering, the Company received net proceeds ofapproximately $163.6 million, after deducting an underwriting discount of $8.6 million and recognizing related fees and expenses of $0.2 million. A portion of the net proceeds was used to repay the $35.0 million thenoutstanding under the Company’s credit facility while the remainder is expected to be used primarily for additional acquisitions.Impact of COVID-19Relief FundsIn March 2020 in response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provided additional waivers,reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to asthe Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable toCOVID-19. For the year ended December 31, 2021, the Company recorded income of approximately $4.6 million under the CARES Act (“Relief Funds”). Under the Company’s accounting policy, these payments were recordedas Other income – Relief Funds.56Table of Contents2. Significant Accounting PoliciesCash EquivalentsThe Company maintains its cash and cash equivalents at financial institutions. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Thecombined account balances at several institutions typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit inexcess of FDIC insurance coverage. Management believes that this risk is not significant.Long-Lived AssetsFixed assets are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Estimated useful lives for furniture and equipment range from three to eight years andfor software purchased from three to seven years. Leasehold improvements are amortized over the shorter of the related lease term or estimated useful lives of the assets, which is generally three to five years.Impairment of Long-Lived AssetsThe Company reviews property and equipment and intangible assets with finite lives for impairment upon the occurrence of certain events or circumstances that indicate the related amounts may be impaired.Goodwill and Other Indefinite-Lived Intangible AssetsGoodwill represents the excess of the amount paid and fair value of the non-controlling interests over the fair value of the acquired business assets, which include certain identifiable intangible assets. Historically, goodwillhas been derived from acquisitions and, prior to 2009, from the purchase of some or all of a particular local management’s equity interest in an existing clinic. Effective January 1, 2009, if the purchase price of a non-controllinginterest by the Company exceeds or is less than the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital.Goodwill and other indefinite-lived intangible assets are not amortized but are instead subject to periodic impairment evaluations. The fair value of goodwill and other identifiable intangible assets with indefinite lives areevaluated for impairment at least annually and upon the occurrence of certain events or conditions and are written down to fair value if considered impaired. These events or conditions include but are not limited to asignificant adverse change in the business environment, regulatory environment, or legal factors; a current period operating, or cash flow loss combined with a history of such losses or a projection of continuing losses; or asale or disposition of a significant portion of a reporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. The Companyevaluates indefinite-lived tradenames in conjunction with our annual goodwill impairment test.57Table of ContentsThe Company operates its business through two segments consisting of physical therapy clinics and an IIP business. For the purposes of goodwill impairment analysis, the segments are further broken down into reportingunits. Reporting units within our physical therapy business are comprised of six regions primarily based on each clinic’s location. In addition to the six regions, in 2023 and 2022, the IIP business consisted of two reportingunits.As part of the impairment analysis, the Company is first required to assess qualitatively if it can conclude whether goodwill is more likely than not impaired. If goodwill is more likely than not impaired, it is then required tocomplete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount,the Company considers relevant events or circumstances that affect the fair value or carrying amount of a reporting unit. The Company considers both the income and market approach in determining the fair value of itsreporting units when performing a quantitative analysis.An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets, exceeds the estimated fair value of thereporting unit. The evaluation of goodwill in 2021 did not result in any goodwill amounts that were deemed impaired.The Company recorded a charge for goodwill impairment of $15.8 million and $9.1 million in the years ended December 31, 2023, and December 31, 2022, respectively. The Company also recorded a charge of $1.7 million forimpairment of a tradename during the year ended December 31, 2023. The charges for impairment related to one reporting unit in the IIP business.During the year ended December 31, 2023, the Company did not recognize any additional impairment as a result of the Company’s annual assessment of goodwill and tradenames for the other seven reporting units. TheCompany also noted no impairment to long-lived assets for all reporting units.The Company will continue to monitor for any triggering events or other indicators of impairment.Investment in unconsolidated affiliatesInvestments in unconsolidated affiliates, in which the Company has less than a controlling interest, are accounted for under the equity method of accounting and, accordingly, are adjusted for capital contributions,distributions and the Company’s equity in net earnings or loss of the respective joint venture.Redeemable Non-Controlling InterestThe non-controlling interest that is reflected as redeemable non-controlling interest in the consolidated financial statements consists of those in which the owners and the Company have certain redemption rights, whethercurrently exercisable or not, and which currently, or in the future, require that the Company purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met. The purchase price isderived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements. The redemption rights can be triggered by the owner or theCompany at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardless of the reason for such termination, and 2) the passage of specified number of years after theclosing of the transaction, typically three to five years, as defined in the limited partnership agreement. The redemption rights are not automatic or mandatory (even upon death) and require either the owner or the Companyto exercise its rights when the conditions triggering the redemption rights have been satisfied.58Table of ContentsOn the date the Company acquires a controlling interest in a partnership, and the limited partnership agreement for such partnership contains redemption rights not under the control of the Company, the fair value of thenon-controlling interest is recorded in the consolidated balance sheet under the caption—Redeemable non-controlling interest – temporary equity. Then, in each reporting period thereafter until it is purchased by theCompany, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial carrying value, based on the predetermined formula defined in the respective limited partnershipagreement. As a result, the value of the non-controlling interest is not adjusted below its initial carrying value. The Company records any adjustment in the redemption value, net of tax, directly to retained earnings and arenot reflected in the consolidated statements of net income. Although the adjustments are not reflected in the consolidated statements of net income, current accounting rules require that the Company reflects theadjustments, net of tax, in the earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidatedstatements of net income. Management believes the redemption value (i.e. the carrying amount) and fair value are the same.Non-Controlling InterestThe Company recognizes non-controlling interest, in which the Company has no obligation but the right to purchase the non-controlling interest, as permanent equity in the consolidated financial statements separate fromthe parent entity’s equity. The amount of net income attributable to non-controlling interests is included in consolidated net income on the face of the statements of net income. Changes in a parent entity’s ownershipinterest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income when asubsidiary is deconsolidated. Such gain or loss is measured using the fair value of the non-controlling equity investment on the deconsolidation date.When the purchase price of a non-controlling interest by the Company exceeds the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital. Additionally,operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner.Revenue RecognitionThe Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606. For ASC 606, there is an implied contract between us and the patient upon each patient visit. Separate contractualarrangements exist between us and third-party payors (e.g. insurers, managed care programs, government programs, workers’ compensation) which establish the amounts the third parties pay on behalf of the patients forcovered services rendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third-party payors.The payor contracts do not indicate performance obligations for us but indicate reimbursement rates for patients who are covered by those payors when the services are provided. At that time, the Company is obligated toprovide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicate a performance obligation. For self-paying customers, the performance obligation existswhen we provide the services at established rates. The difference between the Company’s established rate and the anticipated reimbursement rate is accounted for as an offset to revenue—contractual allowance. Paymentsfor services rendered are typically due 30 to 120 days after receipt of the invoice.Patient revenueNet patient revenue consists of revenues for physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventativecare, rehabilitation of injured workers and neurological-related injuries. Net patient revenues (patient revenues less estimated contractual adjustments, see – Contractual Adjustments, for additional information) arerecognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There is an implied contractbetween us and the patient upon each patient visit. Generally, this occurs as the Company provides physical and occupational therapy services, as each service provided is distinct and future services rendered are notdependent on previously rendered services. The Company has agreements with third-party payors that provide payments to the Company at amounts different from its established rates.59Table of ContentsOther RevenueRevenue from the IIP business, which is included in other revenue in the consolidated statements of net income, is derived from onsite services the Company provides to clients’ employees including injury prevention,rehabilitation, ergonomic assessments, post-offer employment testing and performance optimization. Revenue from the Company’s IIP business is recognized when obligations under the terms of the contract are satisfied.Revenues are recognized at an amount equal to the consideration the company expects to receive in exchange for providing injury prevention services to its clients. The revenue is determined and recognized based on thenumber of hours and respective rate for services provided in a given period.Management contract revenue, which is also included in other revenue, is derived from contractual arrangements whereby the Company manages a clinic for third party owners. The Company does not have any ownershipinterest in these clinics. Typically, revenue is determined based on the number of visits conducted at the clinic and recognized at a point in time when services are performed. Costs, typically salaries for the Company’semployees, are recorded when incurred. Management contract revenue was $8.6 million, $8.1 million and $9.9 million for the years ended December 31, 2023, December 31, 2022, and December 31, 2021, respectively.Additionally, other revenue from physical therapy operations includes services the Company provides on-site at locations such as schools and industrial worksites for physical or occupational therapy services, athletictrainers and gym membership fees. Contract terms and rates are agreed to in advance between the Company and the third parties. Services are typically performed over the contract period and revenue is recorded at the pointof service. If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time, when the services are performed.Contractual AllowancesThe allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience. Contractual allowances result from the differences between the rates charged forservices performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services. Medicare regulations and the various third-party payors and managed carecontracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in Company clinics. The Company estimates contractual allowances based on its interpretation of theapplicable regulations, payor contracts and historical calculations. Each month the Company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinicand applies an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on the Company’s historical experience, calculating the contractualallowance reserve percentage at the payor level is sufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates. However, the services authorized and provided and relatedreimbursement are subject to interpretation that could result in payments that differ from the Company’s estimates. Payor terms are periodically revised necessitating continual review and assessment of the estimates madeby management. The Company’s billing system does not capture the exact change in its contractual allowance reserve estimate from period to period in order to assess the accuracy of its revenues and hence its contractualallowance reserves. Management regularly compares its cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, historically the difference betweennet revenues and corresponding cash collections for any fiscal year has generally reflected a difference within approximately 1% to 1.5% of net revenues. Additionally, analysis of subsequent periods’ contractual write-offson a payor basis reflects a difference within approximately 1.0% to 1.5% between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated withthe same period end balance. As a result, the Company believes that a change in the contractual allowance reserve estimate would not likely be more than 1.0% to 1.5% of gross billings included in accounts receivable eachat December 31, 2023 and December 31, 2022.Allowance for Credit LossesThe Company determines allowances for credit losses based on the specific agings and payor classifications at each clinic. The provision for credit losses is included in operating costs in the consolidated statements of netincome. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for credit losses, includes only those amounts the Company estimates to becollectible.60Table of ContentsIncome TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carryingamounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes theenactment date.The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting themore-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant taxauthority.The CARES Act includes changes to certain tax law related to net operating losses and the deductibility of interest expense and depreciation. ASC 740, Income Taxes requires the effects of changes in tax rates and laws ondeferred tax balances to be recognized in the period in which the legislation is enacted. The legislation had no effect on the Company’s deferred income taxes and current income taxes payable during the year endedDecember 31, 2023.The Company records interest or penalties in interest and other expense, in the consolidated statements of net income. The Company did not have any interest or penalties in each of the years ended December 31, 2023,2022 and 2021.Fair Value of Financial InstrumentsFair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair valueare classified using the following hierarchy, which is based upon the transparency of inputs to the valuation at the measurement date.•Level 1 – Quoted prices in active markets for identical assets or liabilities. •Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. •Level 3 – Unobservable inputs based on the Company’s own assumptions.The carrying amounts reported in the balance sheets for cash and cash equivalents, contingent earn-out payments, accounts receivable, accounts payable and notes payable approximate their fair values due to the short-term maturity of these financial instruments. The carrying amount under the Credit Agreement approximates the fair value due to the proximity of the debt issue date and the balance sheet date and the variable component ofinterest on debt. The interest rate on the Credit Agreement is tied to the Secured Overnight Financing Rate (“SOFR”).The put right associated with the potential future purchase of the separate company in the November 2021 acquisition are both is also marked to fair value on a recurring basis using Level 3 inputs. The put right associatedwith the potential future purchase of the separate company in the IIP business is determined using a Monte Carlo simulation model utilizing unobservable inputs such as asset volatility and discount rates. The unobservableinputs in the valuation include asset volatility of 25.0% and a discount rate of 11.22%. The value of the put right associated with the potential future purchase of a company in the IIP business decreased $2.6 million from $3.6million on December 31, 2022 to approximately $1.0 million on December 31, 2023. Accordingly, the Company recognized a gain of $2.6 million on this change in revaluation for the twelve months ended December 31, 2023.61Table of ContentsThe valuations of the Company’s interest rate derivative is measured as the present value of all expected future cash flows based on SOFR-based yield curves. The present value calculation uses discount rates that havebeen adjusted to reflect the credit quality of the Company and its counterparty which is a Level 2 fair value measurement. The fair value of the interest rate swap on December 31, 2023, was $3.7 million, of which $2.6 millionhas been included within Other current assets and $1.1 million has been included in Other assets in the accompanying Consolidated Balance Sheet. The impact of the interest rate swap on the accompanying ConsolidatedStatements of Comprehensive Income was an unrealized loss of $1.2 million, net of tax, for the year ended December 31, 2023.The redemption value of redeemable non-controlling interests approximates the fair value. See Note 6 for the changes in the fair value of Redeemable non-controlling interest.The consideration for some of the Company’s acquisitions include future payments that are contingent upon the occurrence of future operational objectives being met. The Company estimates the fair value of contingentconsideration obligations through valuation models designed to estimate the probability of such contingent payments based on various assumptions and incorporating estimated success rates. These fair valuemeasurements are based on significant inputs not observable in the market. Substantial judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequentperiod. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period.The Company determined the fair value of itscontingent consideration obligation to be $9.8 million and $8.3 million on December 31, 2023 and 2022.Segment ReportingOperating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by chief operating decision makers in determining the allocation of resources and inassessing performance. The Company currently operates through two segments: physical therapy operations and industrial injury prevention services.Use of EstimatesIn preparing the Company’s consolidated financial statements, management makes certain estimates and assumptions, especially in relation to, but not limited to, goodwill impairment, tradenames, allocations of purchaseprice, allowance for receivables, tax provision and contractual allowances, that affect the amounts reported in the consolidated financial statements and related disclosures. Actual results may differ from these estimates.Self-Insurance ProgramThe Company utilizes a self-insurance plan for its employee group health and dental insurance coverage administered by a third party. Predetermined loss limits have been arranged with the insurance company to minimizethe Company’s maximum liability and cash outlay. Accrued expenses include the estimated incurred but unreported costs to settle unpaid claims and estimated future claims. Management believes that the current accruedamounts are sufficient to pay claims arising from self-insurance claims incurred through December 31, 2023.Restricted StockRestricted stock issued to employees and directors is subject to continued employment or continued service on the board, respectively. Generally, restrictions on the stock granted to employees lapse in equal annualinstallments on the following four anniversaries of the date of grant. For those shares granted to directors, the restrictions will lapse in equal quarterly installments during the first year after the date of grant. For thosegranted to officers, the restriction will lapse in equal quarterly installments during the four years following the date of grant. Compensation expense for grants of restricted stock is recognized based on the fair value per shareon the date of grant amortized over the vesting period. The Company recognizes any forfeitures as they occur. The restricted stock issued is included in basic and diluted shares for the earnings per share computation.Reclassification of Prior Period PresentationCertain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.62Table of ContentsRecently Adopted Accounting PronouncementsIn December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)–Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The objective of ASU 2019-12 is to simplify the accounting for income taxes byremoving certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. The amendments in this ASU are effective for fiscal yearsbeginning after December 15, 2020, and early adoption was permitted. The Company completed the adoption of ASU 2020-06 effective January 1, 2021 and there was no material impact on the Company’s financial statements.In August 2020, the FASB issued ASU 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting forConvertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments andcontracts on an entity’s own equity. As part of this update, convertible instruments are to be included in diluted earnings per share using the if-converted method, rather than the treasury stock method. Further, contractswhich can be settled in cash or shares, excluding liability-classified share-based payment awards, are to be included in diluted earnings per share on an if-converted basis if the effect is dilutive, regardless of whether theentity or the counterparty can choose between cash and share settlement. The share-settlement presumption may not be rebutted based on past experience or a stated policy.This pronouncement was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021.The Board specified that an entity should adopt the guidance at the beginning of itsannual fiscal year. The Company adopted this pronouncement as of January 1, 2022. The use of either the modified retrospective or fully retrospective method of transition is permitted. The adoption of ASU 2020-06 did nothave a material impact on the Company’s financial statements.In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients andexceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative referencerates. The new guidance was effective upon issuance, and the Company has elected to apply the amendments prospectively through December 31, 2022. Borrowings under the Company’s Credit Agreement bear interestbased on SOFR.Recently Issued Accounting GuidanceIn March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-01, Leases (Topic 842): Common Control Arrangements, which requires companies to amortizeleasehold improvements associated with related party leases under common control over the useful life of the leasehold improvement to the common control group. The ASU is effective for annual reporting periodsbeginning on or after December 15, 2023; however, early adoption is permitted. The ASU can either be applied prospectively or retrospectively. The adoption of ASU 2023-01 did not have a material effect on the Company’sfinancial statements.3. Earnings Per ShareThe computations of basic and diluted earnings are as follows. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands, except per share data) Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $28,239 $32,158 $40,831 Charges to retained earnings: Revaluation of redeemable non-controlling interest (13,565) (3,890) (13,011)Tax effect at statutory rate (federal and state) 3,466 994 3,324 $18,140 $29,262 $31,144 Earnings per share (basic and diluted) $1.28 $2.25 $2.41 Shares used in computation: Basic and diluted earnings per share - weighted-average shares 14,188 12,985 12,898 63Table of Contents4. Acquisitions of BusinessesThe Company’s strategy is to continue acquiring multi-clinic outpatient physical therapy practices, to develop outpatient physical therapy clinics as satellites in existing partnerships and to continue acquiring companiesthat provide and serve the IIP sector. The consideration paid for each acquisition is derived through arm’s length negotiations and funded through working capital, borrowings under the Company’s revolving credit facilitiesor proceeds from the recently completed secondary offering discussed in Note 1.The finalized purchase prices plus the fair value of the non-controlling interests for the acquisitions in 2022 and 2021 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, i.e. tradenames, referral relationships and non-compete agreements, and liabilities assumed based on the fair values at the acquisition date, with the amount exceeding the fair values being recorded as goodwill. For some of theacquisitions in 2023, the Company is in the process of completing its formal valuation analysis to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed. Thus,the final allocation of the purchase price may differ from the preliminary estimates used at December 31, 2023 based on additional information obtained and completion of the valuation of the identifiable intangible assets.Changes in the estimated valuation of the tangible assets acquired, the completion of the valuation of identifiable intangible assets and the completion by the Company of the identification of any unrecorded pre-acquisitioncontingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustments to goodwill. The Company does not expect the adjustments to be material.The results of operations of the acquisitions below have been included in the Company’s consolidated financial statements since their respective date of acquisition. Unaudited proforma consolidated financial informationfor the acquisitions have not been included, as the results, individually and in the aggregate, were not material to current operations.For the 2023, 2022 and 2021 acquisitions, total current assets primarily represent patient accounts receivable. Total non-current assets are fixed assets, primarily equipment, used in the practices.During 2023, 2022 and 2021, the Company acquired a majority interest in the following businesses:2023 Acquisitions % Interest Number of Acquisition Date Acquired Clinics October 2023 Acquisition October 31, 2023 ** * September 2023 Acquisition1 September 29, 2023 70% 4 September 2023 Acquisition2 September 29, 2023 70% 1 July 2023 Acquisition July 31, 2023 70% 7 May 2023 Acquisition May 31, 2023 45% 4 February 2023 Acquisition February 28, 2023 80% 1 *IIP business**On October 31, 2023, the Company concurrently acquired 100% of an IIP business and a 55% equity interest in the ergonomics software business (“October 2023 Acquisition”). On October 31, 2023, the Company concurrently acquired 100% of an IIP business and a 55% equity interest in the ergonomics software business. The previous owner of the ergonomics software business retained a 45%equity interest. The total purchase price of the combined businesses was approximately $4.0 million and was paid in cash.On September 29, 2023, the Company acquired a 70% equity interest in a four-clinic physical therapy practice. The owner of the practice retained 30% of the equity interests. The purchase price for the 70% equity interestwas approximately $6.0 million, of which $5.4 million was paid in cash, and $0.6 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and interest are payable in twoinstallments. The first payment of principal and interest of $0.3 million was paid in January 2024, and the second installment of $0.3 million is due on September 30, 2025.64Table of ContentsIn a separate transaction, on September 29, 2023, the Company acquired a 70% equity interest in a single clinic physical therapy practice. The owner of the practice retained 30% of the equity interests. The purchase price forthe 70% equity interest was approximately $7.8 million, of which $7.4 million was paid in cash and $0.4 million is a deferred payment due on June 30, 2025.On July 31, 2023, the Company acquired a 70% equity interest in a five-clinic practice. The practice’s owners retained a 30% equity interest. The purchase price for the 70% equity interest was approximately $2.1 million, ofwhich $1.8 million was paid in cash and $0.3 million is a deferred payment due on June 30, 2025.On May 31, 2023, the Company and a local partner together acquired a 75% interest in a four-clinic physical therapy practice. After the transaction, the Company’s ownership interest is 45%, the Company’s local partner’sownership interest is 30%, and the practice’s pre-acquisition owners have a 25% ownership interest. The purchase price for the 75% equity interest was approximately $3.1 million, of which $1.7 million was paid in cash bythe Company, $1.1 million was paid in cash by the local partner, and $0.3 million was in the form of a note payable, (of which $0.2 million will be paid by the Company and $0.1 million will be paid by the local partner). The notewill be paid on July 1, 2024. The Company guaranteed the full payment of $0.3 million on its due date.On February 28, 2023, the Company acquired an 80% interest in a one-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest wasapproximately $6.2 million, of which $5.8 million was paid in cash and $0.4 million in the form of a note payable. The note accrues interest at 4.5% per annum and the principal and interest are payable on February 28, 2025.The purchase prices for the 2023 acquisitions have been preliminarily allocated as follows. For the Year Ended December 31, 2023 Physical Therapy IIP Operations Total (In thousands) Cash paid, net of cash acquired $3,955 $22,627 $26,582 Seller note - 985 985 Deferred payments - 830 830 Contingent payments - 200 200 Total consideration $3,955 $24,642 $28,597 Estimated fair value of net tangible assets acquired: Total current assets $392 $1,141 $1,533 Total non-current assets 335 3,149 3,484 Total liabilities (41) (3,163) (3,204)Net tangible assets acquired 686 1,127 1,813 Customer and referral relationships 757 6,819 7,576 Non-compete agreement 37 329 366 Tradenames 187 1,680 1,867 Goodwill 2,562 25,521 28,083 Fair value of non-controlling interest (classified as redeemable non-controlling interest) (274) (10,834) (11,108) $3,955 $24,642 $28,597 Total current assets primarily represent accounts receivable while total non-current assets consist of fixed assets and equipment used in the practice.For the acquisitions in 2023, the values assigned to the customer and referral relationships and non-compete agreement are being amortized on a straight-line basis over their respective estimated lives. For customer andreferral relationships, the weighted-average amortization period is 12.0 years. For the non-compete agreements, the weighted-average amortization period is 5.1 years. The values assigned to tradenames are tested annuallyfor impairment.65Table of Contents2022 Acquisitions % Interest Number of Acquisition Date Acquired Clinics November 2022 Acquisition November 30, 2022 80% 13 October 2022 Acquisition October 31, 2022 60% 14 September 2022 Acquisition September 30, 2022 80% 2 August 2022 Acquisition August 31, 2022 70% 6 March 2022 Acquisition March 31, 2022 70% 6 On November 30, 2022, the Company acquired an 80% interest in a thirteen-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest wasapproximately $25.0 million, of which $24.2 million was paid in cash and $0.8 million in the form of a note payable. The note accrues interest at 7.0% per annum and the principal and interest are payable on November 30, 2024.As part of the acquisition, the Company agreed to additional contingent consideration of up to $1.6 million if future operational objectives were met. The additional contingent consideration was valued at $1.6 million onDecember 31, 2023, and was paid in full in January 2024.On October 31, 2022, the Company acquired a 60% interest in a fourteen-clinic physical therapy practice. The practice’s owners retained 40% of the equity interests. The purchase price for the 60% equity interest wasapproximately $19.5 million, with additional contingent consideration valued at $9.8 million on December 31, 2023, to be paid at a later date based on the performance of the business. There is no maximum payout. Theestimate of this contingent consideration will continue to be marked at fair value based on the practice’s operational results and updated market inputs.On September 30, 2022, the Company acquired an 80% interest in a two-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for the 80% equity interest wasapproximately $4.2 million, of which $3.9 million was paid in cash and $0.3 million in the form of a note payable. The note accrues interest at 5.5% per annum and the principal and interest are payable on September 30, 2024.On August 31, 2022, the Company acquired a 70% interest in a six-clinic physical therapy practice. The practice’s owners retained 30% of the equity interests. The purchase price for the 70% equity interest wasapproximately $3.5 million, of which $3.3 million was paid in cash and $0.2 million in the form of a note payable. The note accrues interest at 5.5% per annum and the principal and interest are payable on August 31, 2024.On March 31, 2022, the Company acquired a 70% interest in a six-clinic physical therapy practice. The practice’s owners retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately$11.5 million, of which $11.2 million was paid in cash and $0.3 million in the form of a note payable. The note accrues interest at 3.5% per annum and the principal and interest are payable on March 31, 2024.66Table of ContentsThe purchase price for the 2022 acquisitions has been allocated as follows. Physical Therapy Operations (In thousands) Cash paid, net of cash acquired $59,788 Seller notes 1,574 Contingent payments 10,000 Total consideration $71,362 Estimated fair value of net tangible assets acquired: Total current assets $1,329 Total non-current assets 7,798 Total liabilities (10,930)Net tangible assets acquired (1,803)Customer and referral relationships 18,062 Non-compete agreements 934 Tradenames 5,445 Goodwill 75,525 Fair value of non-controlling interest (classified as redeemable non-controlling interest) (26,801) $71,362 Total current assets primarily represent accounts receivable while total non-current assets consist of fixed assets and equipment used in the practice.The purchase price plus the fair value of the non-controlling interests for the acquisitions in 2022 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, (i.e. trade names, referralrelationships and non-compete agreements) and liabilities assumed based on the fair values at the acquisition date, with the amount exceeding the fair values being recorded as goodwill.For the acquisitions in 2022, the values assigned to the customer and referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives. For customer and referralrelationships, the weighted-average amortization period is 12.2 years. For non-compete agreements, the weighted-average amortization period is 5.0 years. The values assigned to tradenames are tested annually forimpairment.2021 Acquisitions % Interest Number of Acquisition Date Acquired Clinics December 2021 Acquisition December 31, 2021 75% 3 November 2021 Acquisition November 30, 2021 70% * September 2021 Acquisition September 30, 2021 100% * June 2021 Acquisition June 30, 2021 65% 8 March 2021 Acquisition March 31, 2021 70% 6 *IIP businessOn December 31, 2021, the Company acquired a 75% interest in three-clinic physical therapy practice with the practice founder retaining 25%. The purchase price for the 75% interest was approximately $3.7 million, of which$3.5 million was paid in cash and $0.2 million in the form of a note payable. The note accrued interest at 3.25% per annum and the principal and interest was paid on December 31, 2023.On November 30, 2021, the Company acquired an approximate 70% interest in a leading provider of industrial injury prevention services (“IIP Acquisition”). In each case, the previous owners retained the remaining interest.The purchase price for the approximate 70% equity interest, not inclusive of a contingent payment up to $2.0 million, was approximately $63.2 million of which $60.7 million was paid in cash and $1.0 million in the form of anote payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on November 30, 2023. As part of the transaction, the Company also agreed to the potential future purchase of a separatecompany under the same ownership that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. The current owners have the right to put this transaction tothe Company in approximately five years, with such right having a $1.2 million value on December 31, 2023, as reflected on the Company’s consolidated balance sheet in Other long-term liabilities. The value of this right willbe adjusted in future periods, as appropriate, with any change in value reflected in the Company’s consolidated statement of income. The Company does not currently possess more than 50% of the controlling interests inthis separate company, does not control this company through contract or governance rights and currently does not exercise significant influence over this separate company. Due to the aforementioned reasons, and basedon current accounting guidance, the Company did not consolidate the separate company through the variable interest or voting interest model. The Company revalued the contingent earn-out consideration related to theacquisition during the year ended December 31, 2022, resulting in a gain of $2.0 million and the reduction of the liability to $0.67Table of ContentsOn September 30, 2021, the Company acquired a company that specializes in return-to-work and ergonomic services, among other offerings. The Company acquired the company’s assets at a purchase price of approximately$3.3 million (which includes the obligation to pay an amount up to $0.6 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met), and contributedthose assets to Briotix Health. The initial purchase price, not inclusive of the $0.6 million contingent payment, was approximately $2.7 million, of which $2.4 million was paid in cash, and $0.3 million is in the form of a notepayable. The note accrued interest at 3.25% per annum and the principal and interest was paid in September 2023. The Company revalued the contingent earn-out consideration related to the acquisition during the yearended December 31, 2022, resulting in the elimination of the $0.6 million liability previously booked to $0.On June 30, 2021, the Company acquired a 65% interest in an eight-clinic physical therapy with the previous owners retaining 35%. The purchase price was approximately $10.3 million, of which $9.0 million was paid in cash,$1.0 million is payable based on the achievement of certain business criteria and $0.3 million is in the form of a note payable. The note accrued interest at 3.25% per annum and the principal and interest and was paid in June2023. Additionally, the Company has an obligation to pay an additional amount up to $0.8 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met.The Company recorded acquisition-date fair value of this contingent liability based on the likelihood of the contingent earn-out payment. The earn-out payment valued at $0.8 million on December 31, 2023, will subsequentlybe remeasured to fair value each reporting date.On March 31, 2021, the Company acquired a 70% interest in a five-clinic physical therapy practice with the previous owners retaining 30%. When acquired, the practice was developing a sixth clinic which has beencompleted. The purchase price for the 70% interest was approximately $12.0 million, of which $11.7 million was paid in cash and $0.3 million in the form of a note payable. The note accrued interest at 3.25% per annum and theprincipal and interest was paid in March 2023.68Table of ContentsThe purchase price for the 2021 acquisitions has been allocated as follows. Physical Therapy IIP Operations Total (In thousands) (In thousands) (In thousands) Cash paid, net of cash acquired $63,193 $23,630 $86,823 Seller notes 1,250 800 2,050 Contingent payments 2,520 837 3,357 Other payable - 1,000 1,000 Seller put right 3,522 - 3,522 Total consideration $70,485 $26,267 $96,752 Estimated fair value of net tangible assets acquired: Total current assets $5,588 $1,885 $7,473 Total non-current assets 12,620 7,014 19,634 Total liabilities (4,842) (8,313) (13,155)Net tangible assets acquired 13,366 586 13,952 Customer and referral relationships 21,127 7,969 29,096 Non-compete agreements 500 415 915 Tradenames 5,141 2,144 7,285 Goodwill 58,257 27,109 85,366 Fair value of non-controlling interest (classified as redeemable non-controlling interest) (27,906) (11,956) (39,862) $70,485 $26,267 $96,752 5. Acquisitions and Sale of Non-Controlling InterestsDuring 2023, the Company acquired additional interests in three partnerships which are included in non-controlling interests - permanent equity. The additional interests purchased in each of the partnerships ranged from0.15% to 35.0%. The aggregated purchase price for these acquired interests was $0.5 million. The Company also sold interests in four partnerships for an aggregate price of $0.6 million. The non-controlling interests -permanent equity sold in each of the partnerships ranged from 0.5% to 8.0%.During 2022, the Company acquired additional interests in three partnerships which are included in non-controlling interest. The additional interests purchased in each of the partnerships ranged from 10% to 35%. Theaggregated purchase price for these acquired interests was $0.3 million.During 2021, the Company acquired additional interests in five partnerships which are included in non-controlling interest. The additional interests purchased in each of the partnerships ranged from 5% to 35%. Theaggregated purchase price for these acquired interests was $1.3 million. The Company also sold an interest in a partnership for $0.1 million.6. Redeemable Non-Controlling InterestPhysical Therapy Practice AcquisitionsWhen the Company acquires a majority interest (the “Acquisition”) in a physical therapy clinic (referred to as “Therapy Practice”), these Therapy Practice transactions occur in a series of steps which are described below.1.Prior to the Acquisition, the Therapy Practice exists as a separate legal entity (the “Seller Entity”). The Seller Entity is owned by one or more individuals (the “Selling Shareholders”) most of whom are physicaltherapists that work in the Acquired Therapy Practice and provide physical therapy services to patients.2.In conjunction with the Acquisition, the Seller Entity contributes the acquired Therapy Practice into a newly-formed limited partnership (“NewCo”), in exchange for one hundred percent (100%) of the limited andgeneral partnership interests in NewCo. Therefore, in this step, NewCo becomes a wholly-owned subsidiary of the Seller Entity.3.The Company enters into an agreement (the “Purchase Agreement”) to acquire from the Seller Entity a majority (ranges from 50% to 90%) of the limited partnership interest and in all cases 100% of the generalpartnership interest in NewCo. The Company does not purchase 100% of the limited partnership interest because the Selling Shareholders, through the Seller Entity, want to maintain an ownership percentage. Theconsideration for the Acquisition is primarily payable in the form of cash at closing and a two-year note in lieu of an escrow (the “Purchase Price”). The Purchase Agreement usually does not contain any futureearn-out or other contingent consideration that is payable to the Seller Entity or the Selling Shareholders.69Table of Contents4.The Company and the Seller Entity also execute a partnership agreement (the “Partnership Agreement”) for NewCo that sets forth the rights and obligations of the limited and general partners of NewCo. After theAcquisition, the Company is the general partner of NewCo.5.As noted above, the Company does not purchase 100% of the limited partnership interests in NewCo and the Seller Entity retains a portion of the limited partnership interest in NewCo (“Seller Entity Interest”).6.In most cases, some or all of the Selling Shareholders enter into an employment agreement (the “Employment Agreement”) with NewCo with an initial term that ranges from three to five years (the “EmploymentTerm”), with automatic one-year renewals, unless employment is terminated prior to the end of the Employment Term. As a result, a Selling Shareholder becomes an employee (“Employed Selling Shareholder”) ofNewCo. The employment of an Employed Selling Shareholder can be terminated by the Employed Selling Shareholder or NewCo, with or without cause, at any time. In a few situations, a Selling Shareholder does notbecome employed by NewCo and is not involved with NewCo following the closing; in those situations, such Selling Shareholders sell their entire ownership interest in the Seller Entity as of the closing of theAcquisition.7.The compensation of each Employed Selling Shareholder is specified in the Employment Agreement and is customary and commensurate with his or her responsibilities based on other employees in similarcapacities within NewCo, the Company and the industry.8.The Company and the Selling Shareholder (including both Employed Selling Shareholders and Selling Shareholders not employed by NewCo) execute a non-compete agreement (the “Non-Compete Agreement”)which restricts the Selling Shareholder from engaging in competing Therapy Practice activities for a specified period of time (the “Non-Compete Term”). A Non-Compete Agreement is executed with the SellingShareholders in all cases. That is, even if the Selling Shareholder does not become an Employed Selling Shareholder, the Selling Shareholder is restricted from engaging in a competing Therapy Practice during theNon-Compete Term.9.The Non-Compete Term commences as of the date of the Acquisition and expires on the later of:a.Two years after the date an Employed Selling Shareholders’ employment is terminated (if the Selling Shareholder becomes an Employed Selling Shareholder) orb.Five to six years from the date of the Acquisition, as defined in the Non-Compete Agreement, regardless of whether the Selling Shareholder is employed by NewCo.10.The Non-Compete Agreement applies to a restricted region which is defined as a mileage radius from the Acquired Therapy Practice. That is, an Employed Selling Shareholder is permitted to engage in competingTherapy Practices or activities outside the designated geography (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholder who is not employed by NewCo immediatelyis permitted to engage in the competing Therapy Practice or activities outside the designated geography.The Partnership Agreement contains provisions for the redemption of the Seller Entity Interest, either at the option of the Company (the “Call Right”) or at the option of the Seller Entity (the “Put Right”) as follows:1.Put Righta.In the event that any Selling Shareholder’s employment is terminated under certain circumstances prior to the fifth anniversary of the Closing Date, the Seller Entity thereafter may have an irrevocable right tocause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below.70Table of Contentsb.In the event that any Selling Shareholder is not employed by NewCo as of the fifth anniversary of the Closing Date and the Company has not exercised its Call Right with respect to the Terminated SellingShareholder’s Allocable Percentage of Seller Entity’s Interest, Seller Entity thereafter has the Put Right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s AllocablePercentage of Seller Entity’s Interest at the purchase price described in “3” below. c.In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifth anniversary of the Closing Date, the Seller Entity has the Put Right, and upon the exercise ofthe Put Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.2.Call Righta.If any Selling Shareholder’s employment by NewCo is terminated prior to the fifth anniversary of the Closing Date, the Company thereafter has an irrevocable right to purchase from Seller Entity the TerminatedSelling Shareholder’s Allocable Percentage of Seller Entity’s Interest, in each case at the purchase price described in “3” below.b.In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifth anniversary of the Closing Date, the Company has the Call Right, and upon the exercise ofthe Call Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below.3.For the Put Right and the Call Right, the purchase price is derived from a formula based on a specified multiple of NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, andthe Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of NewCo (the “Redemption Amount”). NewCo’s earnings are distributed monthly based on available cashwithin NewCo; therefore, the undistributed earnings amount is small, if any.4.The Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple of the trailing twelve-month earnings that is used in the Put Right and the Call Right notedabove.5.The Put Right and the Call Right do not have an expiration date.6.The Put Right and the Call Right never apply to Selling Shareholders who do not become employed by NewCo, since the Company requires that such Selling Shareholders sell their entire ownership interest in theSeller Entity at the closing of the Acquisition.An Employed Selling Shareholder’s ownership of his or her equity interest in the Seller Entity predates the Acquisition and the Company’s purchase of its partnership interest in NewCo. The EmploymentAgreement and the Non-Compete Agreement do not contain any provision to escrow or “claw back” the equity interest in the Seller Entity held by such Employed Selling Shareholder, nor the Seller Entity Interestin NewCo, in the event of a breach of the employment or non-compete terms. More specifically, even if the Employed Selling Shareholder is terminated for “cause” by NewCo, such Employed Selling Shareholderdoes not forfeit his or her right to his or her full equity interest in the Seller Entity and the Seller Entity does not forfeit its right to any portion of the Seller Entity Interest. The Company’s only recourse against theEmployed Selling Shareholder for breach of either the Employment Agreement or the Non-Compete Agreement is to seek damages and other legal remedies under such agreements. There are no conditions in anyof the arrangements with an Employed Selling Shareholder that would result in a forfeiture of the equity interest held in the Seller Entity or of the Seller Entity Interest.71Table of ContentsProgressiveHealth AcquisitionOn November 30, 2021, the Company acquired a majority interest in ProgressiveHealth Companies, LLC (“Progressive”), which owns a majority interest in certain subsidiaries (“Progressive Subsidiaries”) that operate in theindustrial injury prevention and therapy services businesses. The Progressive transaction was completed in a series of steps which are described below.1.Prior to the acquisition, the Progressive Subsidiaries were owned by a legal entity (“Progressive Parent”) controlled by its individual owners (the “Progressive Selling Shareholders”), who work in and manage theProgressive business.2.In conjunction with the acquisition, the Progressive Selling Shareholders caused the Progressive Parent to transfer its ownership of the Progressive Subsidiaries into a newly-formed limited liability company(“Progressive NewCo”), in exchange for one hundred percent (100%) of the membership interests in Progressive NewCo. Therefore, in this step, Progressive NewCo became wholly-owned by the Progressive SellingShareholders.3.The Company entered into an agreement (the “Progressive Purchase Agreement”) to acquire from the Progressive Selling Shareholders a majority of the membership interest in Progressive NewCo. Theconsideration for the acquisition is primarily payable in the form of cash at closing, a relatively small portion paid in cash after the closing contingent on certain performance criteria, and a small note in lieu of anescrow (the “Progressive Purchase Price”).4.The Company and the Progressive Selling Shareholders also executed an operating agreement (the “Progressive Operating Agreement”) for Progressive NewCo that sets forth the rights and obligations of themembers of Progressive NewCo.5.As noted above, the Company did not purchase 100% of the membership interests in Progressive NewCo and the Progressive Selling Shareholders retained a portion of the membership interest in ProgressiveNewCo (“Progressive Selling Shareholders’ Interest”).6.The Company and the Progressive Selling Shareholders executed a non-compete agreement (the “Progressive Non-Compete Agreement”) which restricts the Progressive Selling Shareholders from competing for aspecified period of time (the “Progressive Non-Compete Term”).7.The Progressive Non-Compete Term commences as of the date of the closing of the Progressive acquisition (the “Progressive Closing Date”) and expires on the later of:a.Two years after the date a Progressive Selling Shareholder no longer is involved in the management of Progressive NewCo orb.Seven years from the date of the acquisition.8.The Progressive Non-Compete Agreement applies to the entire United States.9.The Progressive Put Right (as defined below) and the Progressive Call Right (as defined below) do not have an expiration date. The Progressive Operating Agreement contains provisions for the redemption of theProgressive Selling Shareholder’s Interest, either at the option of the Company (the “Progressive Call Right”) or at the option of the Progressive Selling Shareholder (the “Progressive Put Right”) as follows: 1.Progressive Put Righta.Each of the Progressive Selling Shareholders has the right to sell 30% of their respective residual interests on each of the 4th and 5th anniversaries of the Progressive Closing Date, and then 10% on each ofthe 6th and 7th anniversaries72Table of Contentsb.In the event that any Progressive Selling Shareholder terminates his management relationship with Progressive NewCo for any reason on or after the seventh anniversary of the Closing Date, theProgressive Selling Shareholder has the Progressive Put Right, and upon the exercise of the Progressive Put Right, the Progressive Selling Shareholder’s Interest shall be redeemed by the Company at thepurchase price described in “3” below.2.Progressive Call Righta.If any Progressive Selling Shareholder’s ceases to perform management services on behalf of Progressive NewCo, the Company thereafter shall have an irrevocable right to purchase from such ProgressiveSelling Shareholder his Interest, in each case at the purchase price described in “3” below.3.For the Progressive Put Right and the Progressive Call Right, the purchase price is derived from a formula based on a specified multiple of Progressive NewCo’s trailing twelve months of earnings beforeinterest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of Progressive NewCo (the “Progressive RedemptionAmount”). Progressive NewCo’s earnings are distributed monthly based on available cash within Progressive NewCo; therefore, the undistributed earnings amount is small, if any.4.The Progressive Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple of the trailing twelve-month earnings that is used in the Progressive PutRight and the Progressive Call Right noted above.5.The Progressive Put Right and the Progressive Call Right do not have an expiration date.Neither the Progressive Operating Agreement nor the Progressive Non-Compete Agreement contain any provision to escrow or “claw back” the equity interest in Progressive NewCo held by the Progressive SellingShareholders, in the event of a breach of the operating agreement or non-compete terms, or the management services agreement pursuant to which the Progressive Selling Shareholders perform services on behalf ofProgressive NewCo. The Company’s only recourse against the Progressive Selling Shareholder for breach of any of these agreements is to seek damages and other legal remedies under such agreements. There are noconditions in any of the arrangements with a Progressive Selling Shareholder that would result in a forfeiture of the equity interest in Progressive NewCo held by a Progressive Selling Shareholder.For both scenarios described above, an employed Progressive Selling Shareholder’s ownership of his or her equity interest in the Seller Entity predates the Progressive Acquisition and the Company’s purchase of itspartnership interest in NewCo. The Employment Agreement and the Non-Compete Agreement do not contain any provision to escrow or “claw back” the equity interest in the Seller Entity held by such Employed SellingShareholder, nor the Seller Entity Interest in NewCo, in the event of a breach of the employment or non-compete terms. More specifically, even if the Employed Selling Shareholder is terminated for “cause” by NewCo, suchEmployed Selling Shareholder does not forfeit his or her right to his or her full equity interest in the Seller Entity and the Seller Entity does not forfeit its right to any portion of the Seller Entity Interest. The Company’s onlyrecourse against the Employed Selling Shareholder for breach of either the Employment Agreement or the Non-Compete Agreement is to seek damages and other legal remedies under such agreements. There are noconditions in any of the arrangements with an Employed Selling Shareholder that would result in a forfeiture of the equity interest held in the Seller Entity or of the Seller Entity Interest.73Table of ContentsCarrying Amounts of Redeemable Non-Controlling InterestsFor the years ended December 31, 2023, 2022 and 2021, the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interests. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Beginning balance $167,515 $155,262 $132,340 Net income allocated to redeemable non-controlling interest 4,426 6,902 11,358 Distributions to redeemable non-controlling interest partners (11,533) (10,102) (11,359)Changes in the fair value of redeemable non-controlling interest 13,565 3,862 13,011 Purchases of redeemable non-controlling interest (12,073) (16,061) (30,204)Acquired interest 11,007 26,746 39,862 Contributed capital - 231 - Sales of redeemable non-controlling interest 5,012 1,982 982 Changes in notes receivable related to redeemable non-controlling interest (3,091) (1,901) (914)Adjustments in notes receivables related to the sales of redeemable non-controlling interest - 594 186 Ending balance $174,828 $167,515 $155,262 The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interests. As of the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Contractual time period has lapsed but holder’s employment has not terminated $96,876 $75,688 $80,781 Contractual time period has not lapsed and holder’s employment has not terminated 77,952 91,827 74,481 Holder’s employment has terminated and contractual time period has expired - - - Holder’s employment has terminated and contractual time period has not expired - - - $174,828 $167,515 $155,262 7. GoodwillThe changes in the carrying amount of goodwill consisted of the following. For the Year Ended December 31, 2023 December 31, 2022 (In thousands) Beginning balance $494,101 $434,679 Acquisitions 28,083 72,674 Adjustments for purchase price allocation of businesses acquired in prior year 3,187 (4,140)Impairment of goodwill (15,800) (9,112)Ending balance $509,571 $494,101 During the years ended December 31, 2023, and December 31, 2022, the Company recorded a charge for goodwill impairment of $15.8 million and $9.1 million respectively, related to an IIP Acquisition. The impairment is relatedto a change in an IIP subsidiary’s current and projected operating income as well as various market inputs based on current market conditions.8. Intangible Assets, netThe Company’s intangible assets, net, consisted of the following. As of the Year Ended December 31, 2023 December 31, 2022 GrossAmount AccumulatedAmortization Net CarryingAmount GrossAmount AccumulatedAmortization Net CarryingAmount (In thousands) Customer and referralrelationships $93,658 $(30,414) $63,244 $86,974 $(23,736) $63,238 Tradenames 44,573 - 44,573 43,373 - 43,373 Non-compete agreements 9,459 (7,594) 1,865 9,143 (6,999) 2,144 $147,690 $(38,008) $109,682 $139,490 $(30,735) $108,755 74Table of ContentsTradenames, customer and referral relationships and non-compete agreements are related to the businesses acquired. The value assigned to tradenames has an indefinite life and is tested at least annually for impairmentusing the relief from royalty method in conjunction with the Company’s annual goodwill impairment test. The value assigned to customer and referral relationships is being amortized over their respective estimated usefullives which range from 6 to 14 years. Non-compete agreements are amortized over the respective term of the agreements which range from 5 to 6 years. The weighted average amortization period for customer and referralrelationships was 12.7 years for the year ended December 31, 2023 and 12.9 years for the year ended December 31, 2022. The weighted average amortization period for non-compete agreements was 5.6 years for the yearsended December 31, 2023, and December 31, 2022. During the year ended December 31, 2023, the Company recognized a charge of $1.7 million related to the impairment of a tradename related to an IIP acquisition.The following table details the amount of amortization expense recorded for intangible assets for the periods presented. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Customer and referral relationships $6,678 $5,974 $3,240 Non-compete agreements 595 549 458 $7,273 $6,523 $3,698 The remaining balances of the customer and referral relationships and non-compete agreements are expected to be amortized as follows.For the Year Ended December 31, Customer andReferral Relationships Non-CompeteAgreements (In thousands) 2024 $6,967 $599 2025 6,823 533 2026 6,356 393 2027 6,192 232 2028 5,923 102 Thereafter $30,983 $6 9. Accrued ExpensesAccrued expenses consisted of the following. As of the Year Ended December 31, 2023 December 31, 2022 (In thousands) Salaries and related costs $25,641 $22,912 Credit balances due to patients and payors 8,847 8,094 Group health insurance claims 2,301 1,666 Federal income taxes payable 1,006 - Contingency payable 12,285 620 Other property taxes payable 355 277 Interest payable 235 273 Closure costs 231 243 Other 4,443 3,328 $55,344 $37,413 75Table of Contents10. BorrowingsAmounts outstanding under the Credit Agreement (as defined above) and notes payable consisted of the following. As of the Year Ended December 31, 2023 December 31, 2022 PrincipalAmount Unamortized DebtIssuance Cost Net Debt PrincipalAmount Unamortized DebtIssuance Cost Net Debt (In thousands) Term Facility $144,375 $(1,468) $142,907 $148,125 $(1,861) $146,264 Revolving Facilitiy - - - 31,000 - 31,000 Other (1) 3,775 - 3,775 6,430 - 6,430 Total debt 148,150 (1,468) 146,682 185,555 (1,861) 183,694 Less: Current portion of long-term debt 8,111 (420) 7,691 8,271 (408) 7,863 Long-term debt, net of current portion $140,039 $(1,048) $138,991 $177,284 $(1,453) $175,831 (1) The long-term portion is included as part of Other Long-Term Liabilities in the Consolidated Balance Sheet.Effective December 5, 2013, the Company entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended and/or restated in August2015, January 2016, March 2017, November 2017, and January 2021. On June 17, 2022, the Company entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”) among Bank of America, N.A.,as administrative agent (“Administrative Agent”) and the lenders from time-to-time party thereto.The Credit Agreement, which matures on June 17, 2027, provides for loans in an aggregate principal amount of $325 million. Such loans were made available through the following facilities (collectively, the “Senior CreditFacilities”): 1)Revolving Facility: $175 million, five-year, revolving credit facility (“Revolving Facility”), which includes a $12 million sublimit for the issuance of standby letters of credit and a $15 million sublimit for swinglineloans (each, a “Swingline Loan”). 2)Term Facility: $150 million term loan facility (the “Term Facility”). The Term Facility amortizes in quarterly installments of: (a) 0.625% in each of the first two years, (b) 1.250% in the third and fourth year, and (c)1.875% in the fifth year of the Credit Agreement. The remaining outstanding principal balance of all term loans is due on the maturity date.The proceeds of the Revolving Facility shall be used by the Company for working capital and other general corporate purposes of the Company and its subsidiaries, including to fund future acquisitions and invest in growthopportunities. The proceeds of the Term Facility were used by the Company to refinance the indebtedness outstanding under the Amended Credit Agreement, to pay fees and expenses incurred in connection with thetransactions involving the loan facilities, for working capital and other general corporate purposes of the Company and its subsidiaries.The Company is permitted to increase the Revolving Facility and/or add one or more tranches of term loans in an aggregate amount not to exceed the sum of (i) $100 million plus (ii) an unlimited additional amount, providedthat (in the case of clause (ii)), after giving effect to such increases, the pro forma Consolidated Leverage Ratio (as defined in the Credit Agreement) would not exceed 2.0:1.0, and the aggregate amount of all incrementalincreases under the Revolving Facility does not exceed $50,000,000.The interest rates per annum applicable to the Senior Credit Facilities (other than in respect of Swingline Loans) will be Term SOFR (as defined in the Credit Agreement) plus an applicable margin or, at the option of theCompany, an alternate base rate plus an applicable margin. Each Swingline Loan shall bear interest at the base rate plus the applicable margin. The applicable margin for Term SOFR borrowings ranges from 1.50% to 2.25%,and the applicable margin for alternate base rate borrowings ranges from 0.50% to 1.25%, in each case, based on the Consolidated Leverage Ratio of the Company and its subsidiaries. Interest is payable at the end of theselected interest period but no less frequently than quarterly and on the date of maturity.The Company is also required to pay to the Administrative Agent, for the account of each lender under the Revolving Facility, a commitment fee equal to the actual daily excess of each lender’s commitment over itsoutstanding credit exposure under the Revolving Facility (“unused fee”). Such unused fee will range between 0.25% and 0.35% per annum and is also based on the Consolidated Leverage Ratio of the Company and itssubsidiaries. The Company may prepay and/or repay the revolving loans and the term loans, and/or terminate the revolving loan commitments, in whole or in part, at any time without premium or penalty, subject to certainconditions.76Table of ContentsThe Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets,dividends and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets. The Credit Agreement includes certainfinancial covenants which include the Consolidated Fixed Charge Coverage Ratio, and the Consolidated Leverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains customary events of default.The Company’s obligations under the Credit Agreement are guaranteed by its wholly-owned material domestic subsidiaries (each, a “Guarantor”), and the obligations of the Company and any Guarantors are secured by aperfected first priority security interest in substantially all of the existing and future personal property of the Company and each Guarantor, subject to certain exceptions.As of December 31, 2023, $144.4 million was outstanding on the Term Facility while none was outstanding under the Revolving Facility resulting in $175.0 million of credit availability. As of December 31, 2023, the Companywas in compliance with all of the covenants contained in the Credit Agreement.The Company generally enters into various notes payable as a means of financing a portion of its acquisitions and purchasing of non- controlling interests. In conjunction with these transactions in 2023 and 2022, theCompany entered into notes payable in the aggregate amount of $4.7 million of which an aggregate principal payment of $0.9 million was paid in 2023, $2.5 million is due in 2024, and $1.3 million is due in 2025. Interest accruesin the range of 3.25% to 7.0% per annum and is payable with each principal installment.11. Derivative InstrumentsThe Company is exposed to certain market risks during the ordinary course of business due to adverse changes in interest rates. The exposure to interest rate risk primarily results from the Company’s variable-rateborrowing. The Company may elect to use derivative financial instruments to manage risks from fluctuations in interest rates. The Company does not purchase or hold derivatives for trading or speculative purposes.Fluctuations in interest rates can be volatile and the Company’s risk management activities do not eliminate these risks.Interest Rate SwapIn May 2022, the Company entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A. The swap has a $150 million notional value adjusted concurrently with scheduled principalpayments made on the term loan. The swap has a maturity date of June 30, 2027. Beginning in July 2022, the Company receives a 1-month SOFR, and pays a fixed rate of interest of 2.815% on 1-month SOFR on a quarterlybasis. The total interest rate in any period will also include an applicable margin based on the Company’s consolidated leverage ratio.In connection with the swap, no cash was exchanged between the Company and the counterparty.The Company designated its interest rate swap as a cash flow hedge and structured it to be highly effective. Consequently, unrealized gains and losses related to the fair value of the interest rate swap are recorded toaccumulated other comprehensive income (loss), net of tax.Savings from the interest rate swap arrangement totaled $3.3 million for the year ended December 31, 2023, and less than $0.1 million for the year ended December 31, 2022. These savings reduce the amount of interestexpense, debt and other in the accompanying consolidated statements of income.77Table of ContentsThe impacts of the Company’s derivative instruments on the accompanying Consolidated Statements of Comprehensive Income are presented in the table below. For the Year Ended December 31, 2023 December 31, 2022 (In thousands) Net income $37,220 $43,407 Other comprehensive (loss) gain Unrealized (loss) gain on cash flow hedge (1,642) 5,378 Tax effect at statutory rate (federal and state) 420 (1,374)Comprehensive income $35,998 $47,411 Comprehensive income attributable to non-controlling interest (8,981) (11,249)Comprehensive income attributable to USPH shareholders 27,017 36,162 The valuations of the Company’s interest rate derivatives are measured as the present value of all expected future cash flows based on SOFR-based yield curves. The present value calculation uses discount rates that havebeen adjusted to reflect the credit quality of the Company and its counterparty, which is a Level 2 fair value measurement.The carrying and fair value of the Company’s interest rate derivatives (included in other current assets and other assets) were as follows: As of the Year Ended December 31, 2023 December 31, 2022 (In thousands) Other current assets $2,663 $2,858 Other assets $1,073 $2,520 3,736 5,378 12. LeasesThe Company has operating leases for its corporate offices and operating facilities. The Company determines if an arrangement is a lease at the inception of a contract. Right-of-use assets represent the Company’s right touse an underlying asset during the lease term and operating lease liabilities represent net present value of the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and operating leaseliabilities are recognized at commencement date based on the net present value of the fixed lease payments over the lease term. The Company’s operating lease terms are generally five years or less. The Company’s leaseterms include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. As most of the Company’s operating leases do not provide an implicit rate, the Company uses itsincremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating fixed lease expense is recognized on a straight-line basis over the leaseterm.Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage are not included in the right-of-use assets oroperating lease liabilities. These are expensed as incurred and recorded as variable lease expense.The components of lease expense were as follows. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Operating lease cost $38,559 $35,154 $32,021 Short-term lease cost 1,353 1,049 1,160 Variable lease cost 8,912 6,287 7,057 Total lease cost* $48,824 $42,490 $40,238 *Sublease income was immaterial.Lease costs are reflected in the consolidated statements of net income in the line item — rent, supplies, contract labor and other.78Table of ContentsThe supplemental cash flow information related to leases was as follows. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Cash paid for amounts included in the measurement of operating lease liabilities $39,813 $36,136 $33,192 Right-of-use assets obtained in exchange for new operating lease liabilities $36,264 $40,502 $46,088 The aggregate future lease payments for operating leases as of December 31, 2023, were as follows.Fiscal Year Amount(In thousands) 2024 $38,809 2025 30,628 2026 22,845 2027 15,275 2028 and thereafter 13,174 Total lease payments $120,731 Less: imputed interest 8,826 Total operating lease liabilities $111,905 Average lease terms and discount rates were as follows: As of the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Weighted-average remaining lease term 3.9 years 4.1 Years 4.2 Years Weighted-average discount rate 4.0% 2.9% 2.8%13. Income TaxesSignificant components of deferred tax assets and liabilities included in the consolidated balance sheets as of the periods below were as follows. As of the Year Ended December 31, 2023 December 31, 2022 (In thousands) Deferred tax assets: Compensation $1,680 $1,464 Allowance for credit losses 574 605 Lease obligations - including closed clinics 28,592 28,525 Deferred tax assets $30,846 $30,594 Deferred tax liabilities: Depreciation and amortization $(27,290) $(23,836)Operating lease right-of-use assets (26,427) (26,318)Gain on cash flow hedge (955) (1,373)Change in revaluation of put-right liability (586) - Other (403) (370)Deferred tax liabilities (55,661) (51,897)Net deferred tax liabilities $(24,815) $(21,303)The deferred tax assets and liabilities related to purchased interests not yet finalized may result in an immaterial adjustment.79Table of ContentsAs of December 31, 2023, the Company has a federal tax payable of $1.0 million and state tax receivables of $2.1 million. The federal and state income tax receivable is included in other current assets on the accompanyingconsolidated balance sheets.The differences between the federal tax rate and the Company’s effective tax rate for the years ended December 31, were as follows for the periods presented: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In Thousands) U. S. tax at statutory rate $8,483 21.0% $9,307 21.0% $11,782 21.0%State income taxes, net of federal benefit 2,135 5.3% 2,079 4.7% 2,478 4.4%Shortfall (excess) equity compensation deduction 123 0.3% 149 0.3% (246) -0.4%Non-deductible expenses 710 1.8% 629 1.4% 1,258 2.2%Return to provision adjustments 705 1.7% - 0.0% - 0.0% $12,156 30.1% $12,164 27.4% $15,272 27.2%Significant components of the provision for income taxes were as follows for the periods presented. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In Thousands) Current: Federal $6,996 $(770) $7,477 State 512 518 2,107 Total current 7,508 (252) 9,584 Deferred: Federal 3,819 9,933 4,866 State 829 2,483 822 Total deferred 4,648 12,416 5,688 Total income tax provision $12,156 $12,164 $15,272 Each year, the Company performs a detailed reconciliation of its federal and state taxes payable and receivable accounts along with its federal and state deferred tax asset and liability accounts. This process resulted in a $1.0million increase in income tax expense in 2023. The Company considers this reconciliation process to be an annual control.The Company is required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projectedfuture taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income in the periods which the deferred tax assets aredeductible, management believes that a valuation allowance is not required, as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.The Company’s U.S. federal returns remain open to examination for 2020 through 2022 and U.S. state jurisdictions are open for periods ranging from 2019 through 2022.The Company does not believe that it has any significant uncertain tax positions at December 31, 2023 and December 31, 2022, nor is this expected to change within the next twelve months due to the settlement andexpiration of statutes of limitation.The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the years ended December 31, 2023, 2022 and 2021.80Table of Contents14. Segment InformationThe Company’s reportable segments include the physical therapy operations segment and the IIP segment. Also included in the physical therapy operations segment are revenues from management contract services andother services which include services the Company provides on-site, such as athletic trainers for schools.Physical Therapy OperationsThe physical therapy operations segment primarily operates through subsidiary clinic partnerships (“Clinic Partnerships”), in which the Company generally owns a 1% general partnership interest in all the ClinicPartnerships. The Company’s limited partnership interests generally range from 65% to 75% (the range is 10% - 99%) in the Clinic Partnerships. The managing therapist of each clinic owns, directly or indirectly, the remaininglimited partnership interest in most of the clinics (hereinafter referred to as “Clinic Partnerships”). To a lesser extent, the Company operates some clinics, through wholly-owned subsidiaries, under profit sharingarrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”).The Company continues to seek to attract for employment physical therapists who have established relationships with physicians and other referral sources, by offering these therapists a competitive salary and incentivesbased on the profitability of the clinic that they manage. For multi-site clinic practices in which a controlling interest is acquired by the Company, the prior owners typically continue on as employees to manage the clinicoperations, retain a non-controlling ownership interest in the clinics and receive a competitive salary for managing the clinic operations. In addition, the Company has developed satellite clinic facilities as part of existingClinic Partnerships and Wholly-Owned Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location.Besides the multi-clinic acquisitions referenced in the table above, during 2023 and 2022, we purchased the assets and businesses of nine and three physical therapy clinics, respectively, in separate transactions.Clinic PartnershipsFor non-acquired Clinic Partnerships, the earnings and liabilities attributable to the non-controlling interests, typically owned by the managing therapist, directly or indirectly, are recorded within the balance sheets andincome statements as non-controlling interest—permanent equity. For acquired Clinic Partnerships with redeemable non-controlling interests, the earnings attributable to the redeemable non-controlling interests arerecorded within the consolidated balance sheets and income statements as redeemable non-controlling interest—temporary equity.Wholly-Owned FacilitiesFor Wholly-Owned Facilities with profit sharing arrangements, an appropriate accrual is recorded for the amount of profit sharing due the clinic partners/directors. The amount is expensed as compensation and included inclinic operating costs—salaries and related costs. The respective liability is included in current liabilities—accrued expenses on the consolidated balance sheets.Industrial Injury Prevention ServicesServices provided in the IIP segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, and ergonomic assessments. The majorityof these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. The Company performs these servicesthrough Industrial Sports Medicine Professionals, consisting primarily of specialized certified athletic trainers (“ATCs”).On October 31, 2023, the Company purchased a 100% interest in an IIP business and a 55% equity interest in an ergonomics software business for a total purchase price of approximately $4.0 million.81Table of ContentsSegment FinancialsThe Company evaluates the performance of the segments based on gross profit. The Company has provided additional information regarding its reportable segments which contributes to the understanding of the Companyand provides useful information.The following table summarizes selected financial data for the Company’s reportable segments. Prior year results presented herein have been changed to conform to the current presentation. For the Year Ended December 31, 2023 2022 2021 (In thousands) Net revenue: Physical therapy operations $526,548 $476,092 $451,122 Industrial injury prevention services 78,254 77,052 43,900 Total Company $604,802 $553,144 $495,022 Operating Costs: Salaries and related costs: Physical therapy operations $302,765 $272,360 $251,256 Industrial injury prevention services 50,625 46,831 27,213 Total salaries and related costs $353,390 $319,191 $278,469 Rent supplies, contract labor and other: Physical therapy operations $112,547 $102,114 $88,073 Industrial injury prevention services 11,184 14,267 5,993 Total rent, supplies, contract labor and other $123,731 $116,381 $94,066 Provision for credit losses: Physical therapy operations $6,129 $5,517 $5,249 Industrial injury prevention services 43 31 56 Total provision for credit losses $6,172 $5,548 $5,305 Total Company $483,293 $441,120 $377,840 Gross profit: Physical therapy operations $105,064 $96,057 $106,488 Industrial injury prevention services 16,445 15,967 10,694 Total Company $121,509 $112,024 $117,182 Total Assets: Physical therapy operations $857,274 $708,662 $587,801 Industrial injury prevention services 139,964 149,492 161,625 Total Company $997,238 $858,154 $749,426 15. Investment in Unconsolidated AffiliateThrough one of its subsidiaries, the Company has a 49% joint venture interest in a company which provides physical therapy services for patients at hospitals. The Company is deemed to not have a controlling interest inthe company, and therefore the Company’s investment is accounted for using the equity method of accounting. The investment balance of this joint venture as of December 31, 2023, is $12.3 million and the earningsamounted to approximately $1.0 million. The investment balance of this joint venture as of December 31, 2022, was $12.1 million and the earnings amounted to approximately $1.2 million.16. Equity Based PlansStock-based compensation expense was approximately $7.2 million, $7.3 million, and $7.8 million for the years ended December 31, 2023, 2022 and 2021 respectively. As of December 31, 2023, the remaining $9.8 million ofcompensation expense will be recognized over a weighted average period of 1.75 years. 82Table of ContentsStock Incentive PlansAmended and Restated 1999 Employee Stock Option PlanThe Amended and Restated 1999 Employee Stock Option Plan (the “Amended 1999 Plan”) permits the Company to grant to non-employee directors and employees of the Company up to 600,000 non-qualified options topurchase shares of common stock and restricted stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions). The exercise prices of options granted under theAmended 1999 Plan are determined by the Compensation Committee. The period within which each option will be exercisable is determined by the Compensation Committee. As of December 31, 2023, there were less than 0.1million shares remaining that can be subject to new awards under the Amended 1999 Plan. Amended and Restated 2003 Stock Option PlanThe Amended and Restated 2003 Stock Option Plan (the “Amended 2003 Plan”) permits the Company to grant to key employees and outside directors of the Company incentive and non-qualified options and shares ofrestricted stock covering up to 2,600,000 shares of common stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions). As of December 31, 2023, there were 0.5million shares remaining that can be subject to new awards under the Amended 2003 Plan.Restricted Stock AwardsDuring 2023, 2022 and 2021, the Company granted the following shares of restricted stock to directors, officers, and employees pursuant to its equity plans as follows: Weighted Average Fair Year Granted Number of Shares Value Per Share 2023 73,384 $102.79 2022 95,316 $100.08 2021 60,317 $131.29 During 2023, 2022 and 2021, the following shares were cancelled due to employee terminations prior to restrictions lapsing: Weighted Average Fair Year Cancelled Number of Shares Value Per Share 2023 4,086 $103.99 2022 5,180 $109.42 2021 439 $113.80 Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following four anniversaries of the date of grant. For those shares granted to directors, the restrictions will lapse in equalquarterly installments during the first year after the date of grant. For those granted to officers, the restriction will lapse in equal quarterly installments during the four years following the date of grant.There were 124,638 and 124,939 shares outstanding as of December 31, 2023, and December 31, 2022, respectively, for which restrictions had not lapsed. The restrictions will lapse from 2024 through 2027.83Table of Contents17. Preferred and Common StockPreferred StockThe Board is empowered, without approval of the shareholders, to cause shares of preferred stock to be issued in one or more series and to establish the number of shares to be included in each such series and the rights,powers, preferences, and limitations of each series. There are no provisions in the Company’s Articles of Incorporation specifying the vote required by the holders of preferred stock to take action. All such provisions wouldbe set out in the designation of any series of preferred stock established by the Board. The bylaws of the Company specify that, when a quorum is present at any meeting, the vote of the holders of at least a majority of theoutstanding shares entitled to vote who are present, in person or by proxy, shall decide any question brought before the meeting, unless a different vote is required by law or the Company’s Articles of Incorporation.Because the Board has the power to establish the preferences and rights of each series, it may afford the holders of any series of preferred stock, preferences, powers, and rights, voting or otherwise, senior to the right ofholders of common stock. The issuance of the preferred stock could have the effect of delaying or preventing a change in control of the Company.Common StockFrom September 2001 through December 31, 2008, the Board authorized the Company to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of the Company’s common stock. In March2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of its common stock (“March 2009 Authorization”). Under the March 2009 Authorization, the Company has purchased a total of859,499 shares. The Company is required to retire shares purchased under the March 2009 Authorization.In November 2023, the Board terminated the March 2009 Authorization such that any such proposed repurchase of our common stock would be considered and determined by the Board at such time. The Company did notpurchase any shares of its common stock during 2023, 2022 or 2021.In May 2023, the Company completed a secondary offering of 1,916,667 shares of its common stock at an offering price of $90.00 per share. Upon completion of the offering, the Company received net proceeds ofapproximately $163.6 million, after deducting an underwriting discount of $8.6 million and recognizing related fees and expenses of $0.2 million. A portion of the net proceeds was used to repay the $35.0 million thenoutstanding under the Company’s credit facility while the remainder is expected to be used primarily for additional acquisitions.18. Defined Contribution PlanThe Company has several 401(k) profit sharing plans covering all employees with three months of service. For certain plans, the Company makes matching contributions. The Company may also make discretionarycontributions of up to 50% of employee contributions. The Company did not make any discretionary contributions for the years ended December 31, 2023, 2022 and 2021.The Company matching contributions totaled $2.2million, $2.0 million and $1.9 million, respectively, for the years ended December 31, 2023, 2022 and 2021.19. ContingenciesThe Company is a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of our business.Prior Florida Legal MatterIn 2019, a qui tam lawsuit (“the Complaint”) was filed by a relator on behalf of the United States against the Company and one of our Florida majority-owned subsidiaries (the “Hale Partnership”). This whistleblower lawsuitwas filed in the U.S. District Court for the Southern District of Texas, seeking damages and civil penalties under the federal False Claim Act. The U.S Government declined to intervene in the case and unsealed the Complaintin July 2019. The Complaint alleged that the Hale Partnership engaged in conduct to purposely “upcode” its billings for services provided to Medicare patients. The plaintiff-relator also claimed that similar false claimsoccurred on other days and at other Company-owned partnerships.84Table of ContentsIn January 2022, the Company entered into a settlement agreement with the plaintiff-relator. In the settlement agreement, the plaintiff-relator released all defendants from liability for all conduct alleged in the Complaint, andthe Company admitted no liability or wrongdoing. In connection with the settlement, the Office of the United States Attorney for the Southern District of Texas agreed to a dismissal of the claims against the Hale Partnershipand the Company. Under the terms of the settlement, the Company agreed to make aggregate payments to the government, the plaintiff-relator and her counsel of $2.8 million.20. Related Party TransactionsFor the year ended December 31, 2021, the Company recorded approximately $20,000 related to the short swing profit settlement remitted by a shareholder of the Company under Section 16(b) of the Securities Exchange Actof 1934, as amended. The Company recognized the proceeds as an increase to additional paid-in-capital in the consolidated balance sheets as of December 31, 2021, and consolidated statements of stockholder’s equity, aswell as in cash provided by financing activities included in Other, in the consolidated statements of cash flows, for the year ended December 31, 2021.21. Subsequent EventOn February 27, 2024, the Company’s Board of Directors declared a dividend of $0.44 per share which will be paid on April 5, 2024 to shareholders of record as of March 12, 2024.85Table of ContentsITEM 9.CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENot applicable.ITEM 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresOur management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgatedunder the Exchange Act) as of the end of the fiscal period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls andprocedures are effective in ensuring that the information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified inthe rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisionsregarding disclosure.Management’s Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. U.S. Physical Therapy, Inc. and subsidiaries’(the “Company”) internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles.Internal control over financial reporting includes those policies and procedures that:•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts andexpenditures are being made only in accordance with authorizations of the Company’s management and directors; and•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involveshuman diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper managementoverride. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. However, theseinherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk. Management conducted an assessment ofthe effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria described in Internal Control — Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2023.The Company’s internal control over financial reporting has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report included on page 40.86Table of ContentsChanges in Internal Control over Financial ReportingThere have been no changes in our internal control over financial reporting during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control overfinancial reporting.ITEM 9B.OTHER INFORMATION.Not applicable.ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICATIONS THAT PREVENT INSPECTIONNot applicable.PART IIIITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required in response to this Item 10 is incorporated herein by reference to our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation14A, not later than 120 days after the end of our fiscal year covered by this report.ITEM 11.EXECUTIVE COMPENSATIONThe information required in response to this Item 11 is incorporated herein by reference to our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation14A, not later than 120 days after the end of our fiscal year covered by this report.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMEMNT AND RELATED STOCKHOLDER MATTERSThe information required in response to this Item 12 is incorporated herein by reference to our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation14A, not later than 120 days after the end of our fiscal year covered by this report.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required in response to this Item 13 is incorporated herein by reference to our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation14A, not later than 120 days after the end of our fiscal year covered by this report.ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required in response to this Item 14 is incorporated herein by reference to our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation14A, not later than 120 days after the end of our fiscal year covered by this report.PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULESDocuments filed as a part of this report:87Table of Contents1.Financial StatementsReference is made to the Index to Financial Statements and Related Information under Item 8 in Part II hereof, where these documents are listed.2.Financial Statement SchedulesSee page 85 for Schedule II — Valuation and Qualifying Accounts. All other schedules are omitted because of the absence of conditions under which they are required or because the required information is shown in thefinancial statements or notes thereto.3.ExhibitsThe exhibits listed in List of Exhibits on the next page are filed or incorporated by reference as part of this report.88Table of ContentsEXHIBIT INDEXLIST OF EXHIBITSNumberDescription1.1 Underwriting Agreement, dated May 24, 2023, by and between U.S. Physical Therapy, and BofA Securities, Inc. and J.P. Morgan Securities LLC., as representatives of the several underwritersnamed therein. [incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 25, 2023.] 3.1Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference]. 3.2Amendment to the Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference]. 3.3Bylaws of the Company, as amended [filed as an exhibit to the Company’s Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference—Commission File Number—1-11151]. 4.1*Description of Company Securities [filed herewith the Company’s Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.] 10.1+1999 Employee Stock Option Plan (as amended and restated May 20, 2008) [incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A, filed with theSEC on April 17, 2008]. 10.2+U.S. Physical Therapy, Inc. 2003 Stock Incentive Plan, (as amended and restated effective March 26, 2016) [incorporated herein by reference to Appendix A to the Company's Definitive ProxyStatement on Schedule 14A filed with the SEC on April 7, 2016.] 10.3+First Amendment to U.S. Physical Therapy, Inc. 2003 Stock Incentive Plan, (as amended and restated effective March 26, 2016) effective on March 1, 2022 [incorporated herein by reference toAppendix A to the Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on April 4, 2022.] 10.4+Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016].89Table of ContentsNumberDescription 10.5+Objective Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] 10.6+Discretionary Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] 10.7+Third Amended and Restated Employment Agreement by and between the Company and Christopher J. Reading dated effective May 21, 2019 [incorporated by reference to Exhibit 10.1 to theCompany’s Current Report on Form 8-K filed with the SEC on May 22, 2019]90Table of ContentsNumberDescription 10.8+Amended & Restated Employment Agreement commencing by and between the Company and Graham Reeve dated effective May 21, 2019 [incorporated by reference to Exhibit 10.4 to theCompany’s Current Report on Form 8-K filed with the SEC on March 22, 2019] 10.9+Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] 10.10+U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.1 to the Company Current Reporton Form 8-K filed with the SEC on March 6, 2020]. 10.11+Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Christopher Reading [incorporated by reference to Exhibit 10.3 to the Company CurrentReport on Form 8-K filed with the SEC on March 26, 2020]. 10.12+Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Graham Reeve [incorporated by reference to Exhibit 10.4 to the Company Current Reporton Form 8-K filed with the SEC on March 26, 2020]. 10.13+Employment Agreement by and between the Company and Eric Williams entered into on December 3, 2020 and commencing as of July 1, 2021 [filed by reference to Exhibit 10.1 to the CompanyCurrent Report on Form 8-K filed with the SEC on December 7, 2020.] 10.14+ U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2021, effective March 17, 2021 [incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed by U.S. Physical Therapy, Inc. on March 16, 2021] 10.15+ U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2021, effective March 17, 2021 [incorporated by reference to Exhibit 99.2 of the Current Report onForm 8-K filed by U.S. Physical Therapy, Inc. on March 16, 2021] 10.16+ Third Amended and Restated Credit Agreement dated as of June 17, 2022 among the Company, as the borrower, and Bank of America, N.A., as Administrative Agent, Regions Capital Markets asSyndication Agent, BofA Securities Inc. and Regions Capital Markets as Joint Load Arrangers, BofA Securities Inc., as Sole Bookrunner and the lenders named therein. [incorporated by reference toExhibit 10.1 to the Company's Current Report on Form 10-Q filed with the SEC on June 21, 2022] 10.17+ Employment Agreement by and between the Company and Rick Binstein entered into on March 23, 2022 [incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filedwith the SEC on March 23, 2022] 10.18+ U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2022, effective March 14, 2022 [incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed by U.S. Physical Therapy, Inc. on March 14, 2022] 10.19+ U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2022, effective March 14, 2022 [incorporated by reference to Exhibit 99.2 of the Current Report onForm 8-K filed by U.S. Physical Therapy, Inc. on March 14, 2022] 10.20+ U. S. Physical Therapy, Inc. Objective Cash/RSA Bonus Plan for Senior Management for 2022, effective March 14, 2022 [incorporated by reference to Exhibit 99.3 of the Current Report on Form 8-Kfiled by U.S. Physical Therapy, Inc. on March 14, 2022]91Table of Contents10.21+ U. S. Physical Therapy, Inc. Discretionary Cash/RSA Bonus Plan for Senior Management for 2022, effective March 14, 2022 [incorporated by reference to Exhibit 99.4 of the Current Report on Form 8-K filed by U.S. Physical Therapy, Inc. on March 14, 2022]10.22+ U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2023, effective March 2, 2023 [incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-Kfiled by U.S. Physical Therapy, Inc. on March 8, 2023] 10.23+ U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2023, effective March 2, 2023 [incorporated by reference to Exhibit 99.2 of the Current Report on Form8-K filed by U.S. Physical Therapy, Inc. on March 8, 2023] 10.24+ U. S. Physical Therapy, Inc. Objective Cash/RSA Bonus Plan for Senior Management for 2023, effective March 2, 2023 [incorporated by reference to Exhibit 99.3 of the Current Report on Form 8-Kfiled by U.S. Physical Therapy, Inc. on March 8, 2023] 10.25+ U. S. Physical Therapy, Inc. Discretionary Cash/RSA Bonus Plan for Senior Management for 2023, effective March 2, 2023 [incorporated by reference to Exhibit 99.4 of the Current Report on Form 8-K filed by U.S. Physical Therapy, Inc. on March 8, 2023] 10.26+Employment Agreement entered into as of November 9, 2020 by and between U.S. Physical Therapy and Carey Hendrickson [incorporated by reference to Exhibit 10.1 to the Company Current Reporton Form 8-K filed with the SEC on September 23, 2020.]92Table of ContentsNumberDescription21.1*Subsidiaries of the Registrant 23.1*Consent of Independent Registered Public Accounting Firm—Grant Thornton LLP 31.1*Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.2*Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 32.1*Certification of Periodic Report of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 97.1*U.S. Physical Therapy Compensation Clawback Policy 101.INS*XBRL Instance Document 101.SCH*XBRL Taxonomy Extension Schema Document 101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF*XBRL Taxonomy Extension Definition Linkbase Document 101.LAB*XBRL Taxonomy Extension Label Linkbase Document 101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document*Filed herewith+Management contract or compensatory plan or arrangement.93Table of ContentsFINANCIAL STATEMENT SCHEDULE*SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES(In Thousands) Balance atBeginning of Period Additions Chargedto Costs and Expenses Additions Chargedto Other Accounts Deductions Balance atEnd of Period YEAR ENDED DECEMBER 31, 2023: Reserves and allowances deducted from asset accounts: Allowance for credit losses(1) $2,829 $6,172 - $6,265(2) $2,736 YEAR ENDED DECEMBER 31, 2022: Reserves and allowances deducted from asset accounts: Allowance for credit losses $2,768 $5,548 - $5,487(2) $2,829 YEAR ENDED DECEMBER 31, 2021: Reserves and allowances deducted from asset accounts: Allowance for credit losses $2,008 $5,305 - $4,545(2) $2,768 (1)Related to patient accounts receivable and accounts receivable-other.(2)Uncollectible accounts written off, net of recoveries.*All other schedules are omitted because of the absence of conditions under which they are required or because the required information is shown in the financial statements or notes thereto.94Table of ContentsITEM 16.FORM 10-K SUMMARYNone.95Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.U.S. PHYSICAL THERAPY, INC. (Registrant)By:/s/ Carey Hendrickson Carey HendricksonChief Financial Officer (Principal Financial Officer and Principal Accounting Officer)Date: February 29, 2024Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of the date indicated above./s/ Carey HendricksonChief Financial Officer(Principal Financial Officer and Principal Accounting Officer)February 29, 2024Carey Hendrickson /s/ Chris J. ReadingChief Executive Officer, President and Director(Principal Executive Officer)February 29, 2024Chris J. Reading /s/ Edward L. KuntzChairman of the BoardFebruary 29, 2024Edward L. Kuntz /s/ Bernard A. HarrisDirectorFebruary 29, 2024Dr. Bernard A. Harris, Jr. /s/ Kathleen A. GilmartinDirectorFebruary 29, 2024Kathleen A. Gilmartin /s/ Anne MotsenbockerDirectorFebruary 29, 2024Anne Motsenbocker /s/ Reginald E. SwansonDirectorFebruary 29, 2024Reginald E. Swanson /s/ Clayton K. TrierDirectorFebruary 29, 2024Clayton K. Trier /s/ Nancy J. HamDirectorFebruary 29, 2024Nancy J. Ham 96EXHIBIT 4.1The Company’s authorized capital stock consists of 500,000 shares of preferred stock, par value $0.01 per share (the “Preferred Stock”), and 20,000,000 Common Stock.The following is a summary of the material provisions of the Company’s Certificate of Incorporation, as amended (the “Certificate of Incorporation”) and Amended and Restated By-laws (the “By-laws”), insofar as they relateto the material terms of the Common Stock. This description summarizes the material terms and provisions of the Common Stock, but it is not complete. This summary is qualified in its entirety by reference to the Certificate ofIncorporation and By-laws, which are incorporated herein by reference.Each holder of the Common Stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and there are no cumulative voting rights. In the event of a liquidation, dissolution or winding upof the Company, holders of the Common Stock would be entitled to share in the Company’s assets remaining after the payment of the Company’s debts and liabilities. Holders of the Common Stock have no preemptive orconversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the Common Stock. The rights, preferences and privileges of the holders of the Common Stock are subjectto, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock that we may designate in the future.The Common Stock is not convertible into, or exchangeable for, any other class or series of the Company’s capital stock. Holders of the Common Stock do not have preemptive or other rights to subscribe for or purchaseadditional securities of the Company. Certain provisions of the Company’s articles of incorporation and bylaws may delay, discourage, prevent or render more difficult an attempt to obtain control of the Company, whetherthrough a tender offer, business combination, proxy contest or otherwise. These provisions include the charter authorization of “blank check” preferred stock (as described above) and a restriction on the ability ofstockholders to call a special meeting.EXHIBIT 21.1NotesNameDBAEntityTypeState ofFormationDate ofFormationForeign QualificationGeneral Partner (LP)/BOD(corp)/Manging Member or Boardof Managers (LLC)Tax ID 1 On 1 Physical Therapy, LLC LLCDE1/13/2022 2037953 Ontario, Inc. CorpCanada Briotix Health, LP Ability Health PT Management GP, LLC LLCTX FLRehab Partners #4, Inc.81-4216526 Ability Health Services and Rehabilitation, L.P.Ability Rehabilitation SST RehabLPTX FLAbility Health PT Management GP,LLC38-4017532 Achieve Management GP, LLC LLCTX Rehab Partners #4, Inc47-3291851 Achieve Physical Therapy and Performance, LimitedPartnership LPTX Achieve Management GP, LLC47-3283941 Action Therapy Centers, Limited PartnershipAction Physical TherapyHouston Hand Therapy PT ProfessionalsLPTX Rehab Partners #1, Inc.76-0389610 Adams County Physical Therapy, Limited Partnership LPTX PARehab Partners #5, Inc.76-0483100 Advance Rehabilitation & Consulting, LimitedPartnership LPTX AL, FL & GAAdvance RehabilitationManagement GP, LLC27-4414647 Advance Rehabilitation Management GP, LLC LLCTX FLRehab Partners #4, Inc27-4414443 Agape Physical Therapy & Sports Rehabilitation,Limited Partnership LPTX MDAgape Physical TherapyManagement GP, LLC32-0378859 Agape Physical Therapy Management GP, LLC LLCTX Rehab Partners #4, Inc45-5378415 Agility Spine & Sports PT Management GP LLC LLCTX 82-1024870 Agility Spine & Sports Physical Therapy andRehabilitation, Limited Partnership LPTX AZAgility Spine & Sports PTManagement GP, LLC82-0901134 ARC Iowa PT Plus, LLC LLCTX IAARC PT Management GP, LLC(note: owned 100% by ARCPhysical Therapy Plus, LP)82-5241308 ARC Physical Therapy Plus, Limited Partnership LPTX IA, KS, MOARC PT Management GP, LLC80-0955852 ARC PT Management GP, LLC LLCTX MORehab Partners #4, Inc.46-3942987 ARCH Physical Therapy and Sports Medicine, LimitedPartnership LPTX MIRehab Partners #1, Inc.27-5086288 Arrow Physical Therapy, Limited PartnershipBroken Arrow Physical TherapyLPTX OKRehab Partners #2, Inc.76-0631992 Arrowhead Physical Therapy, Limited PartnershipElite Sports Medicine & Physical TherapyLPTX MSRehab Partners #2, Inc.26-0176798 Ashland Physical Therapy, Limited Partnership LPTX ORRehab Partners #6, Inc.75-3054977 Atlas PT Management GP, LLC LLCTX Rehab Partners #4, Inc.93-2148037 Atlas Physical Therapy , Limited Partnership LPCO Atlas PT Management GP, LLC93-2689010 Audubon Physical Therapy, Limited Partnership LPTX LARehab Partners #6, Inc.76-0622471 Barren Ridge Physical Therapy, Limited Partnership LPTX VARehab Partners #6, Inc.26-3594831 Bayside Management GP, LLC LLCTX Rehab Partners #4, Inc27-4348787 Bayside Physical Therapy & Sports Rehabilitation,Limited Partnership LPTX MDBayside Management GP, LLC27-4348871 Beaufort Physical Therapy, Limited Partnership LPTX NCRehab Partners #3, Inc.76-0639928 Bow Physical Therapy & Spine Center, LimitedPartnership LPTX NHRehab Partners #6, Inc.76-0623486 Brazos Valley Physical Therapy, Limited Partnership LPTX Rehab Partners #3, Inc.76-0407118 Brick Hand & Rehabilitative Services, LimitedPartnership LPTX NJRehab Partners #3, Inc.76-0420711 Briotix Health, Limited PartnershipInSite Health (6/25/2020 - Per Cyndi M. and LeonP. this dba is no longer used).LPDE AL, AZ, CA, CO, CT, FL,GA, HI, IL, IA, IN, KS, KY,LA, MA, MD, ME, MI, MN,MO, MS, MT, NV, NJ, NY,NC, OH, OK, OR, PA, SC,TN, TX, UT, VA, WA, WIBriotix Management GP, LLC81-1190407 Briotix Management GP, LLC LLCTX FL, MA, OH, UT 81-1200727 BTE Workforce Solutions, LLC (formerly BTETechnoligies, Inc.) LLCDE AK, AL,CO, DC, FL, GA, HI,IA, ID, IL, IN, KS, KY, LA,MD, ME, MI, MN, MO,MS,MT, NC, ND, NE, NH, NJ,NM, NV, OK, PA, RI, SC, SD,TN, TX, UT, VT, WI, WV,WYBriotix Health, LP52-1165956 C. Foster Physical Therapists, Limited Partnership LPTX C. Foster PT Management GP, LLC36-4965660 C. Foster PT Management GP, LLC LLCTX Rehab Partners #4, Inc.35-2689219 Cape Cod Hand Therapy, Limited PartnershipCape Cod Hand & Upper Extremity TherapyLPTX MARehab Partners #1, Inc.27-0058293 Carbon County Therapy, LLC LLCWY Fremont Therapy Group, LimitedPartnership85-2336515 Carolina Physical Therapy and Sports Medicine,Limited Partnership LPTX SCCarolina PT Management GP, LLC82-1408170 Carolina PT Management GP, LLC LLCTX 82-1453799 Center for Physical Rehabilitation and Therapy, LimitedPartnership LPDE MICPR Management GP, LLC47-4006118 Cleveland Physical Therapy, Ltd. LPTX Rehab Partners #2, Inc.76-0410649 Clinical Partnership Solutions, LLCProgressiveHealth Clinical Partnership SolutionsLLCIN 27-3006735 Clinical Management Solutions, LLCProgressiveHealth Clinical Management SolutionsLLCIN KY 38-3975536 Comprehensive Hand & Physical Therapy, LimitedPartnership LPTX FLRehab Partners #2, Inc.76-0452158 Coppell Spine & Sports Rehab, Limited PartnershipNorth Davis/Keller Physical Therapy PhysicalTherapy of ColleyvillePhysical Therapy of North Texas PhysicalTherapy of Corinth Trinity Sports & PhysicalTherapy Physical Therapy of Flower MoundSouthlake Physical Therapy Physical Therapy ofTrophy Club Heritage Trace Physical TherapyTherapy Partners of Frisco/Little Elm TherapyPartners of North TexasLPTX Rehab Partners #5, Inc.76-0513962 CPR Management GP, LLC LLCTX Rehab Partners #4, Inc.47-3434985 Cross Creek Physical Therapy, Limited Partnership LPTX MSRehab Partners #4, Inc.35-2185612 Crossroads Physical Therapy, Limited PartnershipGreen Oaks Physical Therapy - Fort Worth GreenOaks Physical TherapyLPTX Rehab Partners #1, Inc.76-0551398 Crossroads Rehabilitation, Limited PartnershipCrossroads Physical TherapyLPTX MIRehab Partners #1, Inc.84-1658419 Custom Physical Therapy, Limited Partnership LPTX NVRehab Partners #4, Inc.04-3708931 Cutting Edge Physical Therapy, Limited Partnership LPTX INRehab Partners #4, Inc.20-4069256 Dearborn Physical Therapy, Ltd.Advanced Physical TherapyLPTX MIRehab Partners #1, Inc.76-0376595 Decatur Hand and Physical Therapy Specialists,Limited Partnership LPTX GARehab Partners #4, Inc.20-3319149 Dekalb Comprehensive Physical Therapy, LimitedPartnership LPTX GARehab Partners #4, Inc.20-3631634 Denali Physical Therapy, Limited Partnership LPTX AKRehab Partners #5, Inc.20-8666329 DHT Hand Therapy, Limited PartnershipArizona Desert Hand Therapy Services DesertHand and Physical TherapyLPTX AZDHT Management GP, LLC20-5881475 DHT Management GP, LLC LLCTX AZRehab Partners #4, Inc20-5881418 Dynamic Hand Therapy & Rehabilitation, LimitedPartnership LPTX ILRehab Partners #4, Inc.20-8847486 Eastgate Physical Therapy, Limited PartnershipSummit Physical TherapyLPTX OHRehab Partners #4, Inc.76-0637484 Edge Physical Therapy, Limited PartnershipRiver's Edge Physical TherapyLPTX MTRehab Partners #3, Inc.76-0473771 Elite PT Management GP, LLC LLCTX11/28/2022 Rehab Partners #4, Inc92-1227794 Elite Spine and Sports Physical Therapy, LP LPTX PA 92-1300829 Enhanced Physiotherapy and Performance, LLCEnhanced Physical TherapyLLCTX1/25/2022TNSTAR Physical Therapy, LP87-4738491 Enid Therapy Center, Limited PartnershipEnid Physical TherapyLPTX OKRehab Partners #2, Inc.76-0384228 Everett Management, LLC LLCWA U.S. Physical Therapy, Ltd.37-1776322 Evergreen Physical Therapy, Limited Partnership LPTX MIRehab Partners #1, Inc.20-8613843 Excel Physical Therapy, Limited Partnership LPTX AKExcel PT Texas GP, LLC20-3951569 Excel PT Texas GP, LLC LLCTX Rehab Partners #6, Inc.20-3951532 Excel Orthopedic PT Management GP, LLC LLCTX Rehab Partners #4, Inc.88-2873165 Excel Orthopedic Physical Therapy, Limited PartnershipExcel Physical TherapyLPTX MTExcel Orthopedic PT ManagementGP, LLC88-2946955 Fit2WRK, Inc. CorpTX U.S. Physical Therapy, Inc.27-1647054 Five Rivers Therapy Services, Limited PartnershipPeak Physical TherapyLPTX ARRehab Partners #3, Inc.20-3785604 Flannery Physical Therapy, Limited PartnershipPhysical Therapy PlusLPTX NJRehab Partners #3, Inc.76-0580514 Fredericksburg Physical Therapy, Limited Partnership LPTX Rehab Partners #1, Inc.20-3589445 Fremont PT Management GP, LLC LLCTX 85-4237359 Fremont Therapy Group, Limited Partnership LPTX UT, WYFremont PT Management GP, LLC86-1249211 Frisco Physical Therapy, Limited PartnershipPT of ProsperLPTX Rehab Partners #1, Inc.76-0625171 Gahanna Physical Therapy, Limited PartnershipCornerstone Physical TherapyLPTX OHRehab Partners #4, Inc.27-0643842 Genesee Valley Physical Therapy, Limited Partnership LPTX MIRehab Partners #1, Inc.26-2299603 Green Oaks Physical Therapy, Limited Partnership LPTX Rehab Partners #1, Inc.72-1531238 Hamilton Physical Therapy Services, LP LPTX NJHPTS Management GP, LLC74-3145890 Hands-On Sports Medicine, Limited PartnershipMetro Spine and Sports RehabilitationLPTX ILRehab Partners #4, Inc.20-3300800 Hanoun Medical, Inc.BTE Workforce Solutions Briotix HealthCorpOntario,Canada British Columbia2037053 Ontario, Inc. (owned byBriotix Health, LP) Harbor Physical Therapy, Limited Partnership LPTX MDRehab Partners #6, Inc.20-3303737 HH Rehab Associates, Inc.Genesee Valley Physical TherapyTheramax Physical TherapyCorpMI DEU.S. PT - Michigan, Inc.38-2427228 High Plains Physical Therapy, Limited Partnership LPTX WYRehab Partners #4, Inc.41-2060941 Highlands Physical Therapy & Sports Medicine,Limited Partnership LPTX NJRehab Partners #3, Inc.27-3126287 Horizon Rehabilitation PT Management GP, LLC LLCTX USPT, Ltd.87-3158670 Horizon Rehabilitation and Sports Medicine, LimitedPartnership LPTX SCHorizon Rehabilitation PTManagement GP, LLC87-3221050 Houston On Demand Physical Therapy, LLC LLCTX Kingwood Physical Therapy, Ltd.85-3267403 HPTS Management GP, LLC LLCTX NJRehab Partners #3, Inc.74-3145888 Indy ProCare Physical Therapy, Limited Partnership LPTX INRehab Partners #4, Inc.45-4419567 Integrated Rehab PT Management GP, LLC LLCTX8/1/2022 Rehab Partners #4, Inc.88-3566334 Integrated Rehabilitation Services, Limited Partnership LPTX8/10/2022 Integrated Rehab PT ManagementGP, LLC88-3692263 Integrius, LLC LLCGA 46-4689092To bedissolvedInSite Health Limited Partnership LPDE IH GP, LLC82-4365153 Intermountain Physical Therapy, Limited Partnership LPTX IDRehab Partners #6, Inc.76-0532873 Jackson Clinics PT Management GP , LLC LLCTX Rehab Partners #4, Inc.46-4470249 Jackson Clinics, Limited Partnership LPTX MD, VAJackson Clinics PT Management GP,LLC61-1729833 Jaco Rehab Honolulu Management GP, LLC LLCTX 84-3191941 Jaco Kapolei Management GP, LLC LLCTX 84-3152468 Jaco Mililani Management GP LLC LLCTX 84-3167120 Jaco Waikele Management GP LLC LLCTX 84-3176419 Jaco Rehab Honolulu, Limited Partnership LPTX HIJaco Rehab Honolulu ManagementGP, LLC84-3255422 Jaco Rehab Kapolei, Limited Partnership LPTX HIJaco Kapolei Management GP, LLC84-3236943 Jaco Rehab Mililani, Limited Partnership LPTX Jaco Mililani Management GP, LLC84-3206751 Jaco Rehab Waikele, Limited Partnership LPTX HIJaco Waikele Management GP, LLC84-3226914 Joan Ostermeier Physical Therapy, Limited PartnershipSport & Spine Clinic of WittenbergLPTX WIRehab Partners #1, Inc.76-0556793 Julie Emond Physical Therapy, Limited PartnershipMaple Valley Physical TherapyLPTX VTRehab Partners #5, Inc.76-0544267 Kelly Lynch Physical Therapy, Limited PartnershipSport & Spine Clinic of WatertownLPTX WIRehab Partners #1, Inc.76-0559026 Kennebec Physical Therapy, LLC LLCTX MEU.S. Physical Therapy, Ltd.46-4456545 Kingwood Physical Therapy, Ltd.Spring-Klein Physical Therapy West WoodlandsPhysical Therapy Lake Conroe Sports Medicineand Rehabilitation Cypress Oaks PhysicalTherapy Star Therapy Services of Fairfield; GrandOaks Sports Medicine and Rehabilitation StarTherapy Services of LakewoodLPTX Rehab Partners #2, Inc.76-0384227 Lake Houston Physical Therapy, Limited PartnershipNorthern Oaks Orthopedic & Sports PTLPTX Rehab Partners #1, Inc.75-3050296 Leader Physical Therapy, Limited PartnershipMemphis Physical TherapyLPTX TNRehab Partners #4, Inc.76-0539465WithdrawPALife Fitness Physical Therapy, LLCIn Balance Physical Therapy Herbst PhysicalTherapyLLCMD PAU.S. Physical Therapy, Ltd.20-1193079 Life Strides Physical Therapy and Rehabilitation,Limited Partnership LPTX SCRehab Partners #2, Inc.20-5120914 LiveWell Physical Therapy, Limited Partnership LPTX Rehab Partners #5, Inc.26-3700763 Madden and Gilbert PT GP, LLC LLCTX1/7/2022 OPTN, LLC87-4640726 Madden and Gilbert Physical Therapy, LP LPTX1/20/2022MDMadden and Gilbert PT GP, LLC87-4672389 Madison Physical Therapy, Limited Partnership LPTX NJMSPT Management GP, LLC 27-2047964 Madison Spine, Limited Partnership LPTX NJMSPT Management GP, LLC 90-0813058 Max Motion Physical Therapy, Limited Partnership LPTX AZRehab Partners #3, Inc.26-3988733 Merrill Physical Therapy, Limited Partnership LPTX WIRehab Partners #1, Inc.76-0512097 Mishock Physical Therapy, Limited PartnershipXcelerate Physical TherapyLPTX PAMishock PT Management GP, LLC30-0783139 Mishock PT Management GP, LLC LLCTX Rehab Partners #4, Inc.46-2793533 Mission Rehabilitation and Sports Medicine, LimitedPartnershipRYKE RehabilitationLPTX RYKE Management GP, LLC26-3747839 Mobile Spine and Rehabilitation, Limited Partnership LPTX ALRehab Partners #6, Inc.76-0600186 Momentum Physical & Sports Rehabilitation, L.P.Momentum Physical Therapy & Sports Rehab; Momentum On-Demand; Momentum Mobile PT;Momentum Physical TherapyLPTX FL, CO, AZRehab Partners #10, LLC47-2388509 Mountain View Physical Therapy, Limited PartnershipMountain View Physical and Hand TherapyLPTX ORRehab Partners #6, Inc.76-0528482 MSPT Management GP, LLC LLCTX NJRehab Partners #4, Inc27-2047906 National Rehab Delaware, Inc. CorpDE MONational Rehab GP, Inc.74-2899827shows taxclearanceNational Rehab GP, Inc. CorpTX FL,MOU.S. PT - Delaware, Inc.76-0345539 National Rehab Management GP, Inc. CorpTX IL, OHU.S. PT - Delaware, Inc.76-0345543 New Horizons Physical Therapy, Limited Partnership LPTX INRehab Partners #4, Inc.20-2729857 Norman Physical Therapy, Limited Partnership LPTX OKRehab Partners #4, Inc.76-0420713 North Jersey Game On Physical Therapy, LimitedPartnershipMadison Spine & Physical TherapyLPTX NJRehab Partners #3, Inc.27-3885529 North Lake Physical Therapy and Rehab, LimitedPartnership LPTX ORNorth Lake PT Management GP, LLC90-0964749 North Lake PT Management GP, LLC LLCTX Rehab Partners #4, Inc.46-2599705 Northern Edge PT Management GP, LLC LLCTX Rehab Partners #4, Inc.93-2850049 Northern Edge Physical Therapy, Limited Partnership LPDE Northern Edge PT Management GP,LLC93-2812858 Northern Lights Physical Therapy, Limited Partnership LPTX NDRehab Partners #3, Inc.27-0342077 Northwest PT Management GP, LLC LLCTX Rehab Partners #4, Inc.82-2410286 Northwoods Physical Therapy, Limited Partnership LPTX MIRehab Partners #1, Inc.26-1258418 OPR Management Services, Inc. CorpTX AK, AL, AZ, CO, CT, DE,FL, GA, HI, IA, ID, IL, IN,KS, LA, MA, MD, ME, MI,MN, MO, MS, MT, NC, ND,NE, NH, NJ, NM, NV, OH,OK, OR, PA, SC, SD, TN, VA,VT, WI, WYU.S. Physical Therapy, Ltd.81-3815218 OSR Physical Therapy, Limited Partnership LPTX MNOSR Physical Therapy ManagementGP, LLC83-0657305 OSR Physical Therapy Management GP LLC LLCTX 83-0649952 One to One PT Management GP LLC LLCTX FLRehab Partners #4, Inc.84-4060850 One to One Physical Therapy, Limited Partnership LPDE FLOne to One PT Management GP, LLC84-4074270 Oregon Spine & Physical Therapy, Limited PartnershipPeak State Physical TherapyLPTX ORRehab Partners #6, Inc.76-0613909 P4 Physical Therapy, Limited Partnership LPTX GA, TNTX - P4 PT Management GP, LLC88-3148972 Peak Performance PT Management GP, LLC LLCTX Peak Performance Physical Therapyand Fitness, LLC85-3948317 Peak Performance Physical Therapy, Limited LPTX LAPeak Performance PT Management85-4174416PartnershipGP, LLC Pelican State Physical Therapy, Limited PartnershipAudubon Physical TherapyLPTX LARehab Partners #6, Inc.76-0433513 Penns Wood Physical Therapy, Limited Partnership LPTX PA, OH, WIRehab Partners #5, Inc.76-0430771 PerformancePro Sports Medicine and Rehabilitation,Limited Partnership LPTX Rehab Partners #5, Inc.26-1539873 Phoenix Physical Therapy, Limited Partnership LPTX OHRehab Partners #4, Inc.27-0932165Checkwith Peterif to bedissolvedPhysical Restoration and Sports Medicine, LimitedPartnership LPTX VARehab Partners #6, Inc.27-0878621 Physical Therapy Northwest, Limited Partnership LPTX ORNorthwest PT Management GP, LLC82-2397360 Physical Therapy and Spine Institute, LimitedPartnership LPTX ILRehab Partners #4, Inc.76-0438263 Physical Therapy Solutions, Limited Partnership LPDE VAPTS GP Management, LLC47-3075583 Pinnacle Therapy Services, LLC LLCDE MOU.S. Physical Therapy, Ltd.46-3247784 Pioneer Physical Therapy, Limited Partnership LPTX NERehab Partners #1, Inc.20-3530492 Plymouth Physical Therapy Specialists, LimitedPartnership LPTX MIRehab Partners #3, Inc.76-0424739 Port City Physical Therapy, Limited Partnership LPTX MERehab Partners #3, Inc.76-0585914 Precision Physical Therapy, Limited Partnership LPTX PARehab Partners #5, Inc.76-0438265 Premier Physical Therapy and Sports Performance,Limited Partnership LPDE Premier Management GP, LLC47-5385666 Premier Management GP, LLC LLCDE Rehab Partners #4, Inc.47-5403407 ProActive Physical Therapy, Limited Partnership LPTX SDRehab Partners #3, Inc.76-0600187 ProCare Physical Therapy Management GP, LLC LLCTX Rehab Partners #4, Inc.46-2044643 ProCare PT, Limited Partnership LPTX PAProCare Physical TherapyManagement GP, LLC90-0941849 ProgressiveHealth Companies, LLC LLCDE U.S. Physical Therapy, Ltd.87-4264322 ProgressiveHealth Occ Health, LLC LLCIN AZ, MI, MO, NJ, NY, TN, UTU.S. Physical Therapy, Ltd.20-8266936 ProgressiveHealth HealthSpot, LLC LLCIN AL, WVU.S. Physical Therapy, Ltd.85-3187128 ProgressiveHealth, LLC LLCIN KY, MO, TX 68-0666444 ProgressiveHealth Rehabilitation Solutions,Inc. CorpGA 58-1888359 Progressive Physical Therapy Clinic, Ltd.Progressive Hand and Physical TherapyLPTX Rehab Partners #1, Inc.76-0387638 PTS GP Management, LLC LLCTX Rehab Partners #4, Inc.47-3239903 Quad City Physical Therapy & Spine, LimitedPartnership LPTX IARehab Partners #5, Inc.14-1921829 RACVA GP, LLC LLCTX VARehab Partners #4, Inc.37-1838302 R. Clair Physical Therapy, Limited PartnershipClair Physical TherapyLPTX Rehab Partners #1, Inc.76-0478967 Radtke Physical Therapy, Limited Partnership LPTX MNRehab Partners #5, Inc.76-0574455 Reaction Physical Therapy, LLC LLCDE OKU.S. Physical Therapy, Ltd.47-1586428 Rebound Physical Therapy, Limited Partnership LPTX ORRebound PT Management GP, LLC81-1026078 Rebound PT Management GP, LLC LLCTX Rehab Partners #4, Inc.81-1045143 Red River Valley Physical Therapy, Limited Partnership LPTX Rehab Partners #5, Inc.20-4489003 Redmond Ridge Management, LLC LLCWA U.S. Physical Therapy, Ltd.61-1754288 Regional Physical Therapy Center, Limited Partnership LPTX Rehab Partners #5, Inc.76-0429008 Rehab Partners #1, Inc. CorpTX FL, MA, & WIU.S. PT Delaware, Inc.76-0345544 Rehab Partners #2, Inc. CorpTX FLU.S. PT Delaware, Inc.76-0379584Withdraw,NJRehab Partners #3, Inc. CorpTX MO, MT, NJ, ND, & SDU.S. PT Delaware, Inc.76-0394604WithdrawUTRehab Partners #4, Inc. CorpTX OH, & UTU.S. PT Delaware, Inc.76-0418425 Rehab Partners #5, Inc. CorpTX OHU.S. PT Delaware, Inc.76-0427607 Rehab Partners #6, Inc. CorpTX ORU.S. PT Delaware, Inc.76-0433511 Rehab Partners Acquisition #1, Inc. CorpTX U.S. Physical Therapy, Inc.76-0377650 Rehabilitation Associates of Central Virginia, LimitedPartnershipRehab Associates of Central Virginia (CampbellCounty)LPTX VARACVA GP, LLC81-3831622 Rice Rehabilitation Associates, Limited Partnership LPTX GARehab Partners #4, Inc.76-0430769 Riverview Physical Therapy, Limited Partnership(formerly Yarmouth Physical Therapy) LPTX MERehab Partners #3, Inc.27-0001262 Roepke Physical Therapy, Limited PartnershipElite Hand & Upper Extremity ClinicLPTX WIRehab Partners #1, Inc.76-0483099 RYKE Management GP, LLC LLCTX Rehab Partners #5, Inc.26-3747599 Saginaw Valley Sport and Spine, Limited PartnershipSport & Spine Physical Therapy and Rehab;Evergreen PTLPTX MIRehab Partners #3, Inc.76-0403520 Saline Physical Therapy of Michigan, Ltd.Physical Therapy in MotionLPTX MIRehab Partners #1, Inc.76-0376594 San Antonio On Demand Physical Therapy, LLC LLCTX U.S. Physical Therapy, Ltd.86-1384984 Seacoast Physical Therapy, Limited Partnership LPTX MERehab Partners #3, Inc.45-2498148 Signature Physical Therapy, Limited Partnership LPTX OKRehab Partners #2, Inc.20-5992649 Snohomish Management, LLC LLCWA U.S. Physical Therapy, Ltd.38-3953679 South Tulsa Physical Therapy, Limited PartnershipPhysical Therapy of Jenks South Tulsa PhysicalTherapy Jenks Physical TherapyLPTX OKRehab Partners #2, Inc.76-0566430 Spectrum Physical Therapy, Limited PartnershipSouthshore Physical TherapyLPTX CTRehab Partners #2, Inc.76-0393448 Sport & Spine Clinic of Fort Atkinson, LimitedPartnershipSport & Spine Clinic of Sauk CitySport & Spine Clinic of Madison Sport & SpineClinic of JeffersonSport & Spine EdgertonLPTX WIRehab Partners #1, Inc.76-0694802 Sport & Spine Clinic, L.P.Sport & Spine Sport & Spine Clinic of Edgar Sport & Spine Minocqua Sport & Spine - RibMountainLPDE WIRehab Partners Acquisition #1, Inc.76-0376131 Spracklen Physical Therapy, Limited Partnership LPTX NERehab Partners #1, Inc.76-0580510 STAR PT Management GP, LLC LLCTX Rehab Partners #4, Inc26-1107563 STAR Physical Therapy, LP LPTX AL, AR, MO, TN, INSTAR PT Management GP, LLC62-1707893 Star Therapy Centers, Limited PartnershipStar Therapy Services of Copperfield StarTherapy Services of Cy-Fair Star TherapyServices of FulshearStar Therapy Services of KatyStar Therapy Services of MagnoliaStar Therapy Services of Spring Cypress StarTherapy Services of Cinco RanchLPTX Rehab Partners #1, Inc.76-0389608 Summit Hand Management GP, LLC LLCTX Rehab Partners #4, Inc.93-1966427 Summit Hand Therapy, Limited Partnership LPDE UTSummit Hand Management GP, LLC93-1996735 Summit PT Management GP, LLC LLCTX5/18/2022 Rehab Partners #4, Inc.88-2457192 Summit Physical Therapy, Limited PartnershipBrookeville Physical TherapyLPTX5/23/2022OH, WVSummit PT Management GP, LLC88-2606821 Texstar Physical Therapy, Limited Partnership LPTX Rehab Partners #5, Inc.76-0669263 The Hale Hand Center, Limited Partnership LPTX FLRehab Partners #2, Inc.76-0601187 The U.S. Physical Therapy Foundation NPTX Qualified to fund raise inCA, FL, KS, MD, MI, TN,TX, VA 81-1071364 Therapyworks Physical Therapy, LLCTherapyworksLLCDE INU.S. Physical Therapy, Ltd.46-4446075 Thibodeau Physical Therapy, Limited Partnership LPTX MIRehab Partners #1, Inc.26-1147899 Thomas Hand and Rehabilitation Specialists, LimitedPartnershipCoreFit RehabilitationLPTX AL, AZ, CA, PA, OH, VA,WIRehab Partners #3, Inc.76-0528480 Thunder Physical Therapy, Limited Partnership LPTX WARehab Partners #4, Inc.26-3806761 TX - P4 PT Management GP, LLC LLCTX Rehab Partners #4, Inc.88-3055868 U.S. Physical Therapy, Inc. CorpNV AZ; HI; MI; NJN/A76-0364866 U.S. Physical Therapy, Inc. PAC NPTX5/5/2021 86-3943048 U.S. Physical Therapy, Ltd. LPTX NCNational Rehab GP, Inc.76-0388092 U.S. PT - Delaware, Inc. CorpDE FL, IL, MN, MONM,U.S. Physical Therapy, Inc.51-0343523 U.S. PT Alliance Rehabilitation Services, Inc.Alliance Rehabilitation ServicesCorpTX PAU.S. Physical Therapy, Inc.26-2377769 U.S. PT Management, Ltd. LPTX CA, ID, OH, WA, WINational Rehab Management GP,Inc.76-0388500 U.S. PT Michigan #1, Limited PartnershipGenesee Valley Physical TherapyLPTX MIRehab Partners #1, Inc.76-0570431 U.S. PT Michigan #2, Limited PartnershipPhysical Therapy SolutionsLPTX MIRehab Partners #2, Inc.76-0579492 U.S. PT Solutions, Inc.Physical Therapy SolutionsCorpTX VAU.S. Physical Therapy, Inc.26-0609553 U.S. PT Texas, Inc.Kinetix Physical TherapyCorpTX MSU.S. Physical Therapy, Inc.20-5125415To bedissolvedU.S. PT Therapy Services, Inc. (formerly U.S. SurgicalPartners, Inc.)Capstone Physical TherapyCarolina Hand and Wellness CenterHand Therapy of North Texas - FriscoHand Therapy of North Texas - CoppellInnovative Physical TherapyLake City Hand TherapyLife Sport Physical TherapyLife Sport Physical Therapy - Glen EllynMetro Hand RehabilitationMissouri City Physical TherapyMountain View Physical Therapy of MedfordMountain View Physical Therapy of TalentNorthern Illinois Therapy ServicesPropel Physical TherapyReAction Physical TherapyTherapeutic ConceptsTulsa Hand TherapyWaco Sports Medicine and RehabilitationCorpDE CA, FL, IA, IL, IN, KS, ME,MS, MO, NC, OH, OK, OR,PA, TX VA, & WIU.S. Physical Therapy, Inc.76-0613914 U.S. PT Turnkey Services, Inc.(formerly Surgical Management GP, Inc.The Hand & Orthopedic Rehab ClinicCorpTX INU.S. Physical Therapy, Inc.20-2803028 U.S. Therapy, Inc.First Choice Physical TherapyCorpTX INU.S. PT - Delaware, Inc.76-0637511 The Facilities Group, Inc. University Physical Therapy, Limited Partnership LPTX VARehab Partners #6, Inc.76-0613913 USPT Physical Therapy, Limited PartnershipBody Basics Physical TherapyLPTX IARehab Partners #5, Inc.20-5441273 Victory Physical Therapy, Limited PartnershipLPTX Rehab Partners #5, Inc.20-4406904 West Texas Physical Therapy, Limited PartnershipLPTX Rehab Partners #5, Inc.20-5834588 Wright PT Management GP, LLCLLCTX Rehab Partners #4, Inc.82-3239740 Wright Physical Therapy, Limited PartnershipLPTX IDWright PT Management GP, LLC82-3255983EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe have issued our reports dated February 29, 2024, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of U.S. Physical Therapy, Inc. on Form10-K for the year ended December 31, 2023. We consent to the incorporation by reference of said reports in the Registration Statements of U.S. Physical Therapy, Inc. on Form S-3 (File No. 333-272147) and Forms S-8 (File No.333-30071, 333-64159, 333-67678, 333-67680, 333-82932, 333-103057, 333-113592, 333-116230, 333-153051, 333-185381, 333-200832, 333-230368, and 333-267090)./s/ GRANT THORNTON LLPHouston, TexasFebruary 29, 2024EXHIBIT 31.1CERTIFICATIONI, Christopher J. Reading, certify that:1.I have reviewed this annual report on Form 10-K of U.S. Physical Therapy, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrantas of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control overfinancial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’sboard of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.Date: February 29, 2024/s/ Christopher J. ReadingChristopher J. ReadingPresident and Chief Executive Officer(Principal Executive Officer)EXHIBIT 31.2CERTIFICATIONI, Carey Hendrickson, certify that:1.I have reviewed this annual report on Form 10-K of U.S. Physical Therapy, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrantas of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control overfinancial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’sboard of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.Date: February 29, 2024 /s/ Carey HendricksonCarey HendricksonChief Financial Officer(Principal Financial and Accounting Officer)EXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of U.S. Physical Therapy, Inc. (the “registrant”) on Form 10-K for the year ending December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the“report”), we, Christopher J. Reading, and Carey Hendrickson, Chief Executive Officer and Chief Financial Officer respectively, of the registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of theSarbanes-Oxley Act of 2002, that to our knowledge:(1)The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and(2)The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the registrant.February 29, 2024/s/ Christopher J. ReadingChristopher J. ReadingPrincipal Executive Officer /s/ Carey HendricksonCarey HendricksonPrincipal Financial and Accounting OfficerA signed original of this written statement required by Section 906 has been provided to U. S. Physical Therapy, Inc. and will be retained by U. S. Physical Therapy, Inc. and furnished to the Securities and ExchangeCommission or its staff upon request.EXHIBIT 97.1U.S. Physical Therapy, Inc.Compensation Clawback Policy November 14, 2023 1.Purpose and Scope. U.S. Physical Therapy, Inc. (the “Company”) has adopted this compensation Clawback Policy (the “Policy”) to comply with Section 954 of the Dodd-Frank Wall Street Reform and ConsumerProtection Act of 2010 (“Dodd-Frank”), as codified by Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Exchange Act Rule 10D-1, and the rules of the New York Stock Exchange(the “NYSE”), which require the recovery of certain forms of executive compensation in the case of accounting restatements resulting from a material error in an issuer’s financial statements. This Policy is adopted bythe Board of Directors of the Company (the “Board”) and shall be administered by the Compensation Committee of the Board (the “Committee”). 2.Effective Date. This Policy shall be effective as of November 14, 2023 (the “Effective Date”), and shall apply to Incentive-Based Compensation, as defined below, that is approved, awarded, or granted to CoveredExecutives on or after the Effective Date. 3.Covered Executives. This Policy applies to all of the Company’s current and former executive officers, as defined below, and such other employees who may from time to time be deemed subject to this Policy by theCommittee (each, a “Covered Executive”). For purposes of this Policy, an executive officer means an officer as defined in Rule 10D-1(d) under the Exchange Act, as amended from time to time. As of the Effective Date,"Executive officers" subject to recovery policies adopted under Rule 10D-1 include (1) a president, (2) any vice-president in charge of a principal business unit, division, or function (such as sales, administration orfinance), (3) any other officer who performs a policy-making function, or (4) any other person who performs similar policy-making functions for the Company, including executive officers of the Company or itssubsidiaries if they perform such functions. (a)For Covered Executives hired after the Effective Date, the Policy will be attached as an exhibit to their employment agreement and/or any award compensation agreement and will require an acknowledgment of thePolicy in the agreement. (b)All Covered Executives hired before the Effective Date will be bound by the Policy from the Effective Date. For such purposes, they shall be provided with a copy of the Policy, which they shall sign inacknowledgment in a manner substantially consistent with Exhibit A hereof. 4.Incentive-Based Compensation. For purposes of this Policy, the term “Incentive-Based Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the attainment of afinancial reporting measure and includes, but is not limited to, compensation received pursuant to the Company’s incentive plan, as well as any compensation that Covered Executives would not have been entitled toreceive had the financial statements been accurate. “Financial reporting measures” are measures determined and presented in accordance with the accounting principles used in preparing the Company's financialstatements, and any measures derived wholly or in part from such measures, including General Accepted Accounting Principles (“GAAP”), non-GAAP financial measures, as well as the Company's stock price and totalshareholder return. For the avoidance of doubt, Incentive-Based Compensation does not include annual salary, compensation awarded based on completion of a specified period of service, time-vesting awards orcompensation that is awarded solely at the discretion of the Board or the Committee (in each case as long as their grant was not based on the achievement of a financial performance measure), or compensation awardedbased on subjective standards, strategic measures, or operational measures (in each case as long as their grant was not based on the achievement of a financial performance measure). 5.Recovery; Accounting Restatement. In the event the Company is required to prepare an accounting restatement of its financial statements due to material noncompliance with any financial reporting requirement underthe federal securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result ina material misstatement if the error were corrected in the current period or left uncorrected in the current period (a “Restatement”), the Company shall, as promptly as it reasonably can, recover any Incentive-BasedCompensation received by a Covered Executive during the three completed fiscal years immediately preceding the date on which the Company is required to prepare such Restatement (the “Restatement Date”), so longas the Incentive-Based Compensation received by such Covered Executive is in excess of what would have been awarded or vested after giving effect to the Restatement. In addition to these last three completed fiscalyears, the Policy shall apply to any transition period (that results from a change in the Company’s fiscal year) within or immediately following those three completed fiscal years. However, a transition period between thelast day of the Company’s previous fiscal year end and the first day of its new fiscal year that comprises a period of nine to 12 months would be deemed a completed fiscal year. The Company’s obligation to recovererroneously awarded Incentive-Based Compensation is not dependent on if or when the restated financial statements are filed. 5.1.The Restatement Date shall be the earlier of (i) the date the Board, the Committee, or officer(s) are authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that theCompany is required to prepare a Restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws as described in Rule 10D-1(b)(1) under the ExchangeAct or (ii) the date a court, regulator, or other legally authorized body directs the Company to prepare a Restatement. 5.2.The amount to be recovered will be the excess of the Incentive-Based Compensation paid to the Covered Executive based on the erroneous data in the original financial statements over the Incentive-BasedCompensation that would have been paid to the Covered Executive had it been based on the restated results, without respect to any taxes paid. For Incentive-Based Compensation based on stock price or totalshareholder return, where the amount of erroneously awarded compensation is not subject to mathematical recalculation directly from the information in an accounting restatement: A.The amount must be based on a reasonable estimate of the effect of a Restatement on the stock price or total shareholder return upon which the Incentive-Based Compensation was received; and B.The Company must maintain documentation of the determination of that reasonable estimate and provide such documentation to the NYSE. 5.3.This Policy shall apply even if the Covered Executive did not engage in any misconduct and even if the Covered Executive had no responsibility for the financial statement errors, miscalculations, omissions or otherreasons requiring Restatement. 5.4.Subsequent changes in a Covered Executive’s employment status, including retirement or termination of employment, do not affect the Company’s rights to recover Incentive-Based Compensation pursuant to thisPolicy. For purposes of this Policy, Incentive-Based Compensation shall be deemed to have been received during the fiscal period in which the financial reporting measure specified in the award is attained, even if suchIncentive-Based Compensation is paid or granted after the end of such fiscal period. 5.5.The Company must recover erroneously awarded Incentive-Based Compensation in compliance with this Policy, except to the extent that the Committee has made a determination that recovery would be impracticable forthe reasons stated below: A.The direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered. Before concluding that it would be impracticable to recover any amount of erroneously awardedIncentive-Based Compensation based on the expense of enforcement, the Company must make a reasonable attempt to recover such erroneously awarded Incentive-Based Compensation, document suchreasonable attempt(s) to recover, and provide that documentation to the NYSE. B.Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C.411(a) and regulations thereunder. 5.6.The Committee shall determine, in its sole discretion, the method of recovering any Incentive-Based Compensation pursuant to this Policy. 6.No Indemnification. The Company shall not indemnify any current or former Covered Executive against the loss of erroneously awarded Incentive-Based Compensation, and shall not pay, or reimburse any CoveredExecutives for premiums, for any insurance policy to fund such executive’s potential recovery payments. 7.Disclosures. The Company must file all disclosures with respect to the Policy in accordance with the requirements of the Exchange Act and other laws and regulations, including the disclosure required by applicableSecurities and Exchange Commission (the “SEC”) filings. 8.Notice. Before the Committee determines to seek recovery pursuant to this Policy, it shall provide the Covered Executive with written notice and the opportunity to be heard at a meeting of the Committee (either inperson or via telephone). 9.Amendment and Interpretation. The Committee may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect the regulations adopted by the SEC and to complywith any rules or standards adopted by NYSE, on which the Company’s securities are listed. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of theExchange Act and any applicable rules or standards adopted by the SEC and NYSE, or any other exchange on which the Company’s securities are listed. Exhibit A CLAWBACK POLICYACKNOWLEDGEMENT AND AGREEMENTThis Clawback Policy Acknowledgment and Agreement (this “Agreement”) is entered into as of____________, 2023, between U.S. Physical Therapy, Inc, (the “Corporation”) and _______________________(“Covered Executive”). All capitalized terms not defined herein shall have the meaning provided in the Policy.RECITALS:WHEREAS, the Corporation’s Board of Directors (the “Board”) maintains a Compensation Clawback Policy (the “Policy”) for recovery of Incentive-Based Compensation, as defined in the Policy, initially adoptedon November 14, 2023, as may be amended from time to time; andWHEREAS, in consideration of, and as a condition to the receipt of the Incentive-Based Compensation, Covered Executive and the Corporation are entering into this Agreement.AGREEMENT:NOW, THEREFORE, the Corporation and Covered Executive hereby agree as follows:1. Covered Executive acknowledges receipt of the Policy, a copy of which is attached hereto as Exhibit A and is incorporated into this Agreement by reference. The Covered Executive has read and understandsthe Policy and has had the opportunity to ask questions to the Corporation regarding the Policy.2. Covered Executive hereby acknowledges and agrees that the Policy shall apply to any Incentive-Based Compensation awarded on or after the date of this Agreement, and all such Incentive-BasedCompensation shall be subject to recovery or forfeiture under the Policy.3. Any applicable award agreement or other document setting forth the terms and conditions of any Incentive-Based Compensation shall be deemed to include the restrictions imposed by the Policy andincorporate it by reference. In the event of any inconsistency between the provisions of the Policy and the applicable award agreement or other document setting forth the terms and conditions of any Incentive-BasedCompensation, the terms of the Policy shall govern.4. The recovery or forfeiture of Incentive-Based Compensation pursuant to the Policy and this Agreement shall not in any way limit or affect the Corporation’s right to pursue disciplinary action or dismissal, takelegal action or pursue any other available remedies available to the Corporation. This Agreement and the Policy shall not replace, and shall be in addition to, any rights of the Corporation to recover Incentive-BasedCompensation, or any other compensation, from its executive officers under applicable laws and regulations, including but not limited to the Dodd-Frank Act and the Sarbanes-Oxley Act of 2002.5. Covered Executive acknowledges that the Covered Executive’s execution of this Agreement is in consideration of, and is a condition to, the receipt by Covered Executive of awards of Incentive-BasedCompensation from the Corporation on and after the date of this Agreement; provided, however, that nothing in this Agreement shall be deemed to obligate the Corporation to make any such awards to the CoveredExecutive. Covered Executive acknowledges and agrees that Covered Executive will not be entitled to indemnification, insurance subsidizing or right of advancement of expenses in connection with any enforcement of thePolicy by the Company.6. This Agreement may be executed in two or more counterparts, and by facsimile or electronic transmission, each of which will be deemed to be an original but all of which, taken together, shall constitute oneand the same Agreement.7. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah, without reference to principles of conflicts of laws. No modifications, waivers or amendments of theterms of this Agreement shall be effective unless in writing and signed by the parties. Each of this Agreement and the Policy shall survive and continue in full force in accordance with its terms notwithstanding anytermination of Covered Executive’s employment with the Corporation and/or its affiliates. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legalrepresentatives and assigns of Covered Executive, and the successors and assigns of the Corporation.8. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes any prior or contemporaneous agreements or understandings relating to the subjectmatter hereof.IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.U.S. Physical Therapy, Inc. By: Print: Title: COVERED EXECUTIVE:Print Name: 

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