U.S. Physical Therapy, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Volume and Growth:
  • Total patient visits increased 18% year-over-year, with 84 net owned clinic additions.
  • Mature clinics saw 2.2% increase in visits, with commercial and Medicare visits up, while workers' comp visits dipped slightly.
• Cost Management:
  • PT salaries and related costs per visit decreased, and total operating cost per visit increased only 1% despite inflation.
• Medicare Impact:
  • CMS final rule had incorrect tables initially, but manual therapy reversed from negative to slight positive. Remote therapeutic monitoring is expected to be reinitiated in 2026 with improved CMS rules.
• Injury Prevention:
  • IIP revenue grew almost 15% organically, with high confidence in continuing growth through partnerships and expanded service lines.
• Acquisitions and Initiatives:
  • Added 84 net PT facilities, including the Metro acquisition. AI-driven documentation and front desk virtualization initiatives are rolling out, with expected impact.

Segment Performance

• Physical Therapy (PT):
  • Third quarter 2025 revenues were $168.1 million, up 17.8% year-over-year.
  • Average visits per clinic per day was 32.2, a record for Q3.
  • PT salaries and related costs per visit decreased $0.40 year-over-year.
  • Gross profit grew 30%, with mid-teens growth even adjusting for noise.
  • Operating margin was 18.6%.
• Injury Prevention (IIP):
  • Third quarter 2025 net revenues increased $3.7 million or 14.6%, with organic growth.
  • IIP income rose $546,000 or 10.7%, with a margin of 19.6%.

Guidance

• Full Year 2025 Adjusted EBITDA: Reaffirmed guidance in the range of $93 million to $97 million.
• Medicare Impact: Updated estimate suggests a better-than-previously-anticipated impact, with potential for a tailwind in 2026 due to changes in Medicare rules, especially with remote therapeutic monitoring.
• Acquisitions: Focus on IIP acquisitions for better growth prospects, with ongoing M&A activities in the pipeline.

Risks

• Medicare Uncertainty: Continued uncertainty around Medicare rate adjustments and potential impacts despite recent improvements.
• Market Competition: Competitive landscape with other providers and PE-backed companies, which could affect acquisition multiples and patient acquisition.
• Integration Risks: Challenges in integrating new systems (like ERP) and managing acquisitions, including earn-out adjustments and potential mismatches in financial projections.

Question and Answer

• **Q: What are you seeing in the demand environment for physiotherapy?

A: Demand has been strong, with slight shifts in July, August, and September due to summer vacation timing. Supply side has seen improvements in recruiting and retention efforts.**

• **Q: How are you thinking about opportunities on the M&A side versus share buybacks?

A: Prioritizing acquisitions, especially in IIP for better growth prospects, as acquisitions are a better use of capital currently.**

• **Q: Discuss competitive dynamics in physical therapy markets?

A: Compete with small practices, hospital-based practices, and other consolidators; larger PE-backed companies have been balance sheet-constrained, affecting acquisition multiples.**

• **Q: Follow-up on final Medicare rate impact?

A: Impact not finalized yet, but expected to be a positive tailwind for adjusted EBITDA in 2026, with potential for more than initial estimates.**

• **Q: Reversals of payouts from acquisitions?

A: Quarterly adjustments based on earn-out projections, reprojecting where acquisitions will end up at the end of periods.**

• **Q: Home-care visits and margins?

A: Primarily from Metro, expanding in Northeast; Medicare reimbursement in Northeast is favorable, with home-care generating decent margins.**

• **Q: Limiting factor on de novo facilities?

A: Availability of leadership and backfilling existing clinics, with plans to accelerate de novo opportunities in the future.**

• **Q: Sequential decline in IIP gross margin?

A: Amortization reallocation between segments, with IIP margin adjusted downward by 170-200 basis points due to prospective reallocation.**

• **Q: Workers' comp revenue percentage?

A: Workers' comp revenue was right at 9.7% of total revenue, with 5% increase in visits year-over-year.**

• **Q: Impact of affordability concerns on therapy duration?

A: Duration of care has remained steady, showing no significant impact from affordability concerns.