U.S. Physical Therapy, Inc. Q2 FY2026 earnings call

Volume and Revenue Performance

• Average daily visits per clinic hit an all-time high of 33.5 in Q2 2026, up from 32.7 in Q2 2025, marking the 24th consecutive month of record visits and 37 out of the last 42 months. Total Q2 2026 visits were 1,662,000, a 6.6% year-over-year increase.
• Record average net revenue per visit reached $107.59, up $2.26 year-over-year, with increases across all major payer categories: Medicare revenue per visit up 3.7%, commercial up 1.2%, workers' comp up 2.0%. Workers' comp penetration holds steady at 10% of revenue, while self-pay accounts for only 3.5-4% of total revenue with no material recent swings.

Hospital Affiliation Transition Progress

• 31 of the 60 Metro NY clinics under the NYU Langone affiliation were integrated in Q2 2026, with the remaining 39 clinics expected to transition by the end of Q3 2026. The full Gulf Coast Partnership affiliation is also expected to close by the end of July 2026.
• The company pre-hired 50 clinicians to support expected volume growth, which created short-term cost pressure in Q2 2026. Under the affiliation agreement, all licensed clinical staff salaries are fully reimbursed by hospital partners once clinics are transitioned, eliminating ongoing cost risk for U.S. Physical Therapy.
• Pre-affiliation year-over-year visit growth at Metro NY already exceeded 100,000 annual visits, and management expects meaningful additional growth from NYU referral support post-transition.

Acquisitions and Pipeline

• Subsequent to quarter-end, the company closed a 12-clinic PT acquisition for $16.4 million, which generates $12 million in annual revenue and 112,000 annual visits. Combined with two Q1 2026 acquisitions, 2026 YTD acquisitions total $38 million in purchase price for $27 million in combined annualized revenue.
• The pipeline for new hospital affiliation opportunities continues to grow, with additional partnerships expected to meaningfully impact 2027 results. The M&A pipeline also remains active, with multiple deals currently in due diligence for both PT and IIP segments.

Operational and Strategic Initiatives

• The company is rolling out WelcomeWare, a semi-virtualized front office initiative that consolidates administrative functions to reduce local clinic headcount, with more than half of the expected rollout complete and ongoing margin improvement expected through year-end.
• The company is upgrading core finance and HR systems, with go-live planned for Q1 2027 to improve operational efficiency and support future growth. A new senior leader has been hired to develop digital and hybrid care offerings to accelerate growth starting in 2027.
• The company repurchased 306,000 shares for $19.2 million in Q2 2026, completing the material portion of its current $25 million share repurchase authorization.

Total company revenue for Q2 2026 was $214 million, an 8.5% year-over-year increase. 1. Physical Therapy (PT) Segment: Q2 2026 revenue was $182 million, an 8.4% year-over-year increase, representing 85% of total company revenue. Same-store (mature clinic) PT revenue grew 3.5% year-over-year, with 2.1% of that growth from net rate increases and approximately 1.4% from volume growth. PT adjusted gross profit margin was 19.9% in Q2 2026, down from 21.4% in Q2 2025, pressured by higher employee health care costs and upfront hiring costs for hospital affiliation transitions. Q2 2026 PT included $5.6 million in revenue from the initial phases of hospital affiliation rollouts. 2. Industrial Injury Prevention (IIP) Segment: Q2 2026 revenue was $32 million, a 9.1% year-over-year increase, representing 15% of total company revenue. Same-store (comparable partnership) IIP revenue grew 3.6% year-over-year. IIP gross margin was 20.4% in Q2 2026, flat compared to 20.3% in Q2 2025.

• Management reaffirmed its full-year 2026 adjusted EBITDA guidance range of $102 million to $106 million, which incorporates the impact of higher-than-expected 2026 employee health care costs and upfront hiring costs for hospital affiliations.
• The 2026 full-year Medicare revenue increase assumption of 1.75% (1.1% after Medicare Advantage mix adjustment) is maintained, with YTD results in line with expectations.
• Management expects 2027 adjusted EBITDA contribution from hospital affiliations to be higher than the original guided estimate of $7.3 million, as the initial guidance was conservative and excluded expected cost takeouts from consolidated back-office functions. A formal updated 2027 guidance will be provided at the end of 2026.
• A projected ~1.5% Medicare rate increase for 2027 is confirmed, and CMS has indicated potential favorable rate adjustments for physical therapy services starting in 2028 to resolve a historical coding inequity.

• Higher-than-expected employee self-insured health care costs have created a year-to-date $3.2 million cost increase versus 2025, driven by a small number of catastrophic large claims, with 80% of this impact realized in Q2 2026. This cost pressure pressured PT margins in the first half of 2026.
• Hospital affiliation deal timelines are controlled by hospital system internal processes, which are typically slower than U.S. Physical Therapy's internal timelines, creating uncertainty around the exact cadence of new partnership announcements and closing.
• IIP segment organic growth was softer than usual in Q2 2026 due to a lost large automotive manufacturer contract and extended hiring delays for open sales/operational positions, though management expects this softness to be temporary.
• Actual future results may differ materially from forward-looking statements due to inherent risks and uncertainties related to operational execution, payer rate changes, and integration of new partnerships and acquisitions.

Q: What specific initiatives will drive back-half 2026 margin lift, and what is the timing of associated costs and benefits for hospital affiliation pre-hiring? / A: The WelcomeWare front-office efficiency initiative continues to ramp, with more than half of its planned rollout complete, and will deliver incremental headcount savings through the end of 2026. The largest margin lift will come from integrating the 39 remaining NYU-affiliated clinics in Q3 2026; once transitioned, all pre-hired clinician costs are fully reimbursed by NYU, eliminating the short-term Q2 cost pressure and delivering positive margin impact starting in Q4 2026. No additional major initiatives are expected to impact 2026 results, as most strategic work is focused on 2027 growth.

Q: What is the long-term potential for hospital affiliations across the company's overall clinic portfolio, and when can we expect new partnership announcements? / A: Management believes a meaningful subset of the company's total portfolio can eventually be transitioned to hospital affiliation structures over time. New deals are currently in the pipeline, but hospital system approval and negotiation processes are much slower than internal timelines, so the exact cadence of announcements cannot be predicted. Management confirmed that additional new affiliations will meaningfully improve 2027 results, and expects multiple new announcements to come over the next several quarters.

Q: How will the expanded credit facility impact M&A strategy, and what new opportunities does the hospital affiliation model open up for acquisitions? / A: The upsized credit facility with $125 million accordion provides additional liquidity for larger acquisitions, but the company will maintain its existing disciplined, accretive acquisition filter and will not pursue imprudent deals just for growth. The hospital affiliation model opens new acquisition opportunities: high-volume, low-margin clinics that were previously unattractive as standalone acquisitions can now be acquired at low purchase prices, with improved profitability from hospital partner rate differentials and referral support, creating meaningful earnings growth without large upfront capital outlays.

Q: What is the current expectation for 2026 and 2027 adjusted EBITDA contribution from hospital affiliations, compared to the original 2027 guidance of $7.3 million? / A: The original 2027 guidance of $7.3 million was intentionally conservative: it was based on trailing 12-month visit volumes at contract signing and excluded planned back-office cost takeouts (such as eliminated billing and collections roles for transitioned clinics). Management now expects 2027 contribution to be higher than the original $7.3 million estimate, with a formal updated number to be released when 2027 guidance is issued. For 2026, Q2 has already seen modest revenue offset by upfront hiring costs, with $1.5-$2 million of contribution expected in Q4 2026, and a mid-range contribution expected in Q3 2026 as ramping continues.