U.S. Physical Therapy, Inc. (NYSE:USPH) Q4 2024 Earnings Call Transcript

U.S. Physical Therapy, Inc. (NYSE:USPH) Q4 2024 Earnings Call Transcript February 27, 2025

Operator: Please standby. Your program is about to begin. Good day, and thank you for standing by. Welcome to the U.S. Physical Therapy Fourth Quarter 2024 and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. Please be advised that today’s conference is being recorded. If you require any further assistance, please press star then zero. I would now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

Chris Reading: Thanks, David. Morning, and welcome everyone to our U.S. Physical Therapy fourth quarter and year-end 2024 earnings call. With me on the line this morning include Carey Hendrickson, our CFO, Eric Williams, our President and COO East, Graham Reeve, our COO West, Rick Binstein, our Executive Vice President General Counsel, Jake Martinez, our Senior Vice President, Finance and Accounting. Before I begin this morning with some color on the quarter and the year, I need to go ahead and cover a brief disclosure. Jake, if you would, please.

Jake Martinez: Thank you, Chris. The presentation includes forward-looking statements which involve certain risks and uncertainties. These forward-looking statements are based on the company’s current views and assumptions. The company’s actual results may vary materially from those anticipated. Please see the company’s filings with the Securities and Exchange Commission for more information. This presentation also contains certain non-GAAP measures as defined in Regulation G, and related reconciliations can be found in the company’s earnings release, the company’s presentations on our website.

Chris Reading: Thanks, Jake. Hey, everyone. I want to begin this morning by thanking our clinicians, partners, and our leadership and support teams for their tireless work this year on behalf of hundreds of thousands of individual patients whose lives we’ve helped positively impact. We interact in a very personal, professional, and life-improving way with our physical therapy intervention across more than five million encounters. I’m particularly proud of all of our facilities for the way patients feel about them with a net promoter score across our network of 93, which, as you know, is outstanding. Our Google Care ratings are 4.9, and the demand for our services has never been higher than it has been these past twelve months.

In the fourth quarter, we established a new high watermark in visits per clinic per day across our portfolio of partnerships at 31.7 compared to 29.9 in the prior year’s quarter. Our total patient volume grew 13% year over year. And despite the Medicare rate reduction we absorbed again in 2024, we moved the needle upwards to our overall net rate through our recontracting efforts of our commercial plans in combination with some outsized growth of our work comp volume as well. That combination lifted our rate for the quarter to $104.73. We expect to continue to make progress from there in the new year. Our challenge all year, which we continue to work on, surrounds our cost to deliver the outstanding care that we provide. Due in large part to the very competitive environment we’ve been in to hire enough therapists, which you can see from our daily visit numbers that we’re doing.

But the cost per visit continues to be something that has remained more difficult than expected to remain in. On that front, we have continued to make adjustments where needed across our portfolio of partnerships, especially in support and related roles, along with our part-time employee base. Additionally, we are piloting an AI-driven note system that should help to decrease the time spent generating a note in a patient’s EMR and will help to improve our overall clinician efficiency. We’re also piloting technology that would allow us to staff more clinics, run offices virtually, or in combination with local and virtual staff to reduce our overhead burden that way. Please know this cost promise is a promise we made and one we intend to keep.

The entire team is working to deliver on that. 2024 proved to be a very good development year for us. We completed seven acquisitions, fixed and PT across a variety of states, including Wyoming, Pennsylvania, Colorado, which was a new state for us and is doing exceptionally well. And over the year, of course, our entry into New York with our Metro PT deal announced in November of last year. In fact, during the fourth quarter alone, we added approximately seventy clinics in a combination of acquisitions and de novo locations, which will provide a great jump start for us in this new year. I’m sorry. Excuse me. One of our completed acquisitions last year was in our injury prevention business with a longstanding well-respected provider in that space.

That has gone very well, and our entire injury prevention business has continued to grow at a very nice clip overall. For the fourth quarter, revenue grew more than 32%, which was a strong finish to an equally strong year overall where revenue grew again for the year nearly 24%. Approximately $97 million with the gross profit increasing 21.5% for the year. Much of that in organic growth. Speaking of organic growth, we continue to expand into new verticals. Near year-end, we landed a very large approximately fifty FTE contract with one of our nation’s premier auto manufacturers. That contract impacted our margin a little bit, as we ramped staffing up quickly after winning that competitive engagement. We have a lot of information to cover, so I’m gonna turn things over momentarily.

But let me say this. Our industry has been in a tough wash cycle for a few years. But we’re gonna come out of this stronger, I believe, than we went in. Foundationally, we have developed significant muscles that maybe when things were easier were underused. Muscles that needed to drive exceptional volume. The ones that allow care delivery and exceptionally high rates of patient satisfaction. For the appreciation of the benefit of that care. The ones that allow us to grind through challenging rate negotiations which have lifted our rate despite cuts from the government which we expect to sunset shortly. And if we have erred, we’ve erred on the side of people and relationships, making sure that we had the resources to do all that was necessary, and right for our patients and their care.

We’re not done. We are committed to making progress in this important area. And with all the positive momentum to our development efforts, the new clinics, new partnerships, and territories, along with record volume, we have a lot to be thankful for as we head into this new year. Carey, we have a lot to cover, so why don’t you take it from there.

Carey Hendrickson: Great. Thank you, Chris, and good morning, everyone. We reported adjusted EBITDA for the fourth quarter of 2024 of $21.8 million, which compared to $19 million in the prior year. Our adjusted EBITDA margin using minority adjusted revenues like our adjusted EBITDA was 15.2% for both the fourth quarter of 2024 and the fourth quarter of 2023. Our average visits per day, as Chris noted, were a record high for any quarter in our history at 31.7. Our average visits per day benefited from our action to close thirty-two underperforming clinics in the third quarter, which had a lower average visit per day than the rest of our clinics. On a month-by-month basis, October visits per day were at 31.5, November was at 33.1, and December at 31.5, with each month being a record high volume for that particular month.

For the full year, our average daily visits per clinic was 30.4, which is the highest amount for any full year in our history. Our net rate of $104.73 in the fourth quarter of 2024 was at $1.05 per visit higher than the fourth quarter of last year. Even with the 1.8% Medicare rate reduction by CMS that went into effect, as you know, at the beginning of 2024. Excluding Medicare, our rate was up $1.57 per visit or 1.4% over the fourth quarter of last year. The fourth quarter rate was a little lower than the second and third quarters in 2024, primarily due to the addition of Metro in the fourth quarter, and their average rate of $102.04 was lower than our overall average rate. Excluding Medicare and Metro, our net rate was up approximately 2.5% in the fourth quarter.

For the full year, our net rate in 2024 was $104.71, a $1.91 increase over the net rate of $102.80 in the fourth quarter of 2023. Of course, this includes a 1.8% Medicare rate reduction in 2024. If you exclude that, our full year net rate increased 3.1% in 2024 as compared to 2023. We continue to benefit from our strategic priority of increasing reimbursement rates through contract negotiations with commercial and other payers and our focus on growing our workers’ comp business. We’re also focused on maximizing our cash collections through improvements in our revenue cycle management, and our rate for each major category of payers other than Medicare increased year over year. And we will remain focused on rate-enhancing initiatives in 2025.

Physical therapy revenues were $153.8 million in the fourth quarter of 2024, which was an increase of $19.2 million or 14.2% from last year’s fourth quarter. The increase was driven by our higher net rate, a 3.1% increase in visits at our mature clinics, the addition of Metro in November, which had approximately $10 million of revenue in the month of November and December. Our physical therapy operating costs were $124.3 million, which was an increase of 16.6%. Approximately half of the dollar increase of $17.7 million was related to Metro. Excluding acquisitions, our salaries and related cost per visit was $61.92 in the fourth quarter of 2024, which compares to $59.72 in the fourth quarter of 2023, which is an increase of 3.5%. If you exclude acquisitions, our total operating cost per visit increased just 1.7%, moving from $84.09 in the fourth quarter of 2023 to $85.50 in the fourth quarter of this year.

Our PT margin was 17.9% in the fourth quarter of 2024 compared to 19.5% in the fourth quarter of last year, 2023. Excluding acquisitions, our PT margin was 18.5% in the fourth quarter of this year, 2024. Our IIP team, as Chris noted, produced excellent results. Our IIP net revenues were up 32.1% over the fourth quarter of 2023, with IIP income up 15.6% over the prior year. Excluding the IIP acquisition that we made earlier this year, our IIP revenues were still up 16.5% with our gross profit up high single digits. Our IIP margin was 18.5% in the fourth quarter of 2024. And as Chris noted, the large new auto client that we added in the fourth quarter muted our margin a little bit in the fourth quarter. For the full year, our IIP revenues were up 23.8% with IIP income up 21.5% and a margin of 20.6%.

Our corporate office costs were in line for both the fourth quarter and the full year. They were 8.6% of our net revenue in the fourth quarter of 2024, and 8.7% of net revenue for the full year of 2024. Our operating results were $7.8 million, which compares to $8.9 million in the fourth quarter of 2023. In the fourth quarter of 2024, we did record a $1 million true-up which increased our income tax expense. That $1 million should not be factored into our go-forward effective tax rate. Our fourth quarter 2024 operating results were also impacted by lower interest income since we deployed our invested cash in acquisitions in the fourth quarter and higher amortization expense, which is non-cash, of course, which increased due to the acquisitions.

Our balance sheet continues to be in an excellent position. We have $140.6 million of debt on our term loan, with a swap agreement in place that places the rate on that term loan at 4.7%. That rate will extend through the middle of 2027. In addition to the term loan, we also have a $175 million revolving credit facility that had just $11 million drawn on it at December 31, 2024. Our cash balance at the end of December was $41.4 million. And in 2024, we deployed $133 million of cash into acquisitions, and we bought back more than $9 million of interest from our existing partners. Acquisitions will continue to be our primary focus of capital allocation, and our capital structure is well-positioned for it. Also of note, our board increased our quarterly dividend rate from $0.45 per share to $0.45 per share effective with our first quarter dividend.

Looking to 2025, we expect our full year 2025 EBITDA to be in the range of $88 million to $93 million. We have the Medicare rate headwind as we enter the year, as we’ve noted, a 2.9% reduction, which is approximately $6.4 million of revenue and $5.7 million of EBITDA, but we’d still expect good growth in EBITDA in 2025 with a full year contribution to the acquisitions we completed in 2024, the full year impact of payer rate increases that we completed in 2024, and then a partial year impact of the ones that we will complete in 2025, continued volume increases at our existing clinics, and continued double-digit growth in our IIP business. As we noted in the press release, we expect the first quarter to be our lowest EBITDA quarter of the year.

That’s consistent with previous years due to normal seasonal factors, likely somewhere around 20% of our full year EBITDA in the first quarter. With that, I’ll turn the call back to Chris, and we’ll take questions.

Chris Reading: Yeah. Thanks, Carey. Great job. Operator, let’s go ahead and open it up for questions.

Q&A Session

Operator: Absolutely. At this time, if you’d like to ask a question, please press star and two. We’ll take our first question from Brian Tanquilut with Jefferies. Please go ahead. Your line is open.

Brian Tanquilut: Good morning, guys.

Chris Reading: Good morning.

Brian Tanquilut: Maybe my first question, Carey, as I think about the growth assumptions that are in your guidance, you know, I know there’s a Medicare rate cut, but curious how you’re thinking about volume growth, number one, and then kind of like your rate trajectory knowing that there’s a Medicare rate cut coming in and then maybe also the impact of the thirty-two clinics that you closed.

Carey Hendrickson: Yeah. So start go ahead. Did you wanna say something quick?

Chris Reading: No. Go ahead, Carey.

Carey Hendrickson: I’ll start with the closure of the clinics. That closure of the clinics, you know, they make about a positive $1.5 million impact on our 2025. They had a loss of about $1.5 million in EBITDA in 2024 in those first nine months prior to closing them. So that’ll be a positive for 2025. As far as rate, you know, we do have the 2.9% Medicare rate reduction, but we’re gonna continue to grow all of our other payers. We are constantly looking to increase those rates based on negotiations we’re in the middle of right now. We’ve got some of our larger states that we’re in contract negotiations on right now and expect to see some increases in 2025. So, you know, we still expect our rate, even with the 2.9% reduction in Medicare, we expect to increase in 2025.

Maybe not at the rate it did when you compare 2024 to 2023 just because we have a larger Medicare rate reduction, but we’re gonna increase the rate in 2025. I’m confident in that. And then as far as volume at our mature clinics, I think, you know, we go into the year of 2025 expecting to see continued growth in that. You know, we had 3% visit growth in the fourth quarter, and I think we can achieve that certainly in 2025, somewhere in that 2 to 3% range having done them. Chris, any comments from you other than that?

Chris Reading: No. I think that’s right. And, you know, the team continues to work on all these foundational fundamental issues, and expect to make continued progress in all those areas.

Brian Tanquilut: Understand. And then, Chris, maybe as I think about, you know, recruiting and retention and wage inflation, obviously, still an area of focus or maybe a little bit of a challenge there. Yeah. So curious, what do you think the dynamics are there? And are we getting close to the end of that trend or just yeah. Anything you could share with us on your thoughts there?

Chris Reading: Yeah. Brian, I wish I knew. I mean, it’s difficult for us to project what the market is gonna look like. Certainly, you know, there are internal and external factors, a number of people entering physical therapy school, the number of graduates, geographic distribution of those, and a lot of factors. So a little bit difficult for me to project, you know, when things change. I will tell you that we’ve made some investments this year in infrastructure and people. We’ve hired a number of individuals. We upgraded systems on the recruiting side. We’ve changed how we’re addressing the market on the recruiting side. We’re seeing some definite improvement in that area, significant measurable improvement. Anecdotal improvement from our partners.

They’re seeing more applicants than they’ve seen, you know, in a very, very long time. But in terms of the rate, you know, the rate is always determined by, you know, the competition and your ability to differentiate yourself compared to others. We certainly have the balance sheet and the stability in comparison to the vast majority of our competitors. So a lot of stability there, but it’s a competitive market. Like we want to continue to grow volume, we have to remain competitive, and we expect to do so.

Brian Tanquilut: Got it. Alright. Okay.

Operator: Thank you, Brian. We’ll take our next question from Larry Solow with PJS Securities. Please go ahead. Your line is open.

Larry Solow: Good morning. Thanks. Good morning. Piggybacking on Brian’s question. So just on the volume outlook for this year. So the 2 to 3%. Because I think it was a little bit less than that, right, in 2024, and there was sort of some, I think, some staffing constraints and whatnot. So I guess the question is, sounds like inflationary pressures are still there, but do you and it’s things won’t get fixed overnight, but I know you had several issues underway. Do you think staffing will still be a constraint on that volume, or will that be more just on a cost impact in terms of the staffing side?

Chris Reading: Yeah. Look. I mean, we always have puts and takes from a staffing perspective. Approaching eight hundred locations, you’re gonna have some where you’re fully staffed and then others where you’re intermittently looking for one reason or another, either volume growth is exceeding your current capacity or you have somebody relocate. Things happen. Generally speaking, we’re making progress on the recruiting side. Our retention has been good. And so I expect that we’re gonna be able to address the volume as we go forward with the investments that we’ve made in a little better fashion than we did, you know, in the last twelve to eighteen months. Having said that, don’t know that I’m prepared to give you, you know, a radically different volume number as we start this year.

Let’s see how it plays out. And everybody’s working very hard to deliver on that as we have both delivered and worked on that, you know, issue and, you know, we’ll see how the year comes through.

Larry Solow: That’s fair. And I know you spoke about several initiatives and you kinda highlighted that again in your press release. And this is a moving target. Like there’s a lot of moving parts. Maybe inflation is probably more resistant than we thought, but maybe a few months ago. But, you know, I know last I think last quarter, you did throw out, like, a ten million dollar ultimate cost savings number without an actual timeline. Again, you still feel comfortable maybe not that ten million exact number, but we’re moving in the right direction in there. There are excess things you can cut out or efficiencies that you can build in. It just takes time. Is that kinda fair to say?

Chris Reading: Yeah. I think it’s fair. I think it’s fair. Look. You know, we’re not perfect. We’ve, I think, delivered on almost everything we said we were gonna do. This is the one area that we’ve gotta continue to work at, and it’s challenging. Our partners’ tendency is to err on the side of making sure they have enough people. It’s probably the right side to err on generally, enough people to take care of staff. Yeah. With inflation, we’ve gotta figure out a way how not to be moment to moment, you know, with slack resources. And it doesn’t take a lot. You know, that, yeah. You know, somewhere between fifty and seventy-five dollars today, per clinic, you know, aggregates up to, you know, ten to fifteen million dollars pretty quickly.

And so we think over a longer period of time, in addition to the basic things that the operations team is working on daily with our partners, to make sure that hours match very precisely with volume demands, you know, we’re hopeful that the front desk initiative around virtualization will give us the ability to scale back there and be more efficient, particularly across smaller locations. Handle a number of locations virtually. And then we’re hopeful that the AI scratch that we’re using for documentation helps to make our clinician’s day a little bit more efficient and therefore potentially a little bit more productive. So that’s gonna take a little time, of course. And so those are newer, more recent changes in addition to the day-to-day focus that has been ongoing.

And we have more work to do. So we’ve got to deliver some results.

Larry Solow: Right. And just last thing, on the CMS cut, it obviously has been a multiyear headwind. It does feel like and I know you I think you mentioned that too in your release that again, government is you never know exactly what’s gonna happen, but it sounds like we’re could be at the end of that four or five years of cuts.

Chris Reading: Yeah. We should be. We definitely should be. And statutorily, you know, according to the way that, you know, this original law was drafted around neutrality and fee schedule, we should be beyond that. We’ve now absorbed particularly with interest, you know, all of the rate cut that was prescribed at the beginning, which was an onerous, you know, kind of wrong-headed cut that wasn’t supposed to be directed towards physical therapy, but which we absorbed anyway. We continue to be frequently in Washington and have a lot of discussions with key members. We have a bill that is entitled as the Safe Act, which we think can be used, you know, can be used as a saver to offset some of the potential increases in the entire physician fee schedule.

The Safe Act is designed to reduce falls, allowing Medicare patients to get a screen without a copay at a physical therapy office. And so we have a lot of traction with that. We’re hoping that something that comes to pass this year. So we’re making progress. It’s been a tough series of years, but we’re hoping to come out the other side and it’ll be nice to have what we hope to be, you know, neutral to forward years again in the future.

Larry Solow: Great. Thank you, guys. I appreciate all the color.

Chris Reading: Yeah. Thanks, Larry.

Operator: We’ll take our next question from Jared Haase with William Blair. Please go ahead. Your line is open.

Jared Haase: Morning. Do you have any good morning and thanks for taking the questions. Maybe I’ll ask on the IIP segment. Looks like that accelerated on an organic basis to end the year. Just wanted to make sure I understand what drove that acceleration. So is that largely cross-sell driven? Any new logos kind of that were material in the period? And then obviously, you mentioned kind of expecting that double-digit growth profile to continue. Can you just remind us, I guess, what level of visibility do you have in that trend, you know, on a forward year basis?

Chris Reading: Yeah. Visibility is really good. I mean, you know, barring some major change which would be unforeseen, I think we’ve done a pretty good job over the seven years or eight years. Guess it’s eight years now going into this year that we’ve had it. You know, we had one year that was flat, and we had visibility into some anticipated change several years ago. And beyond that, we’ve been consistently double digits. And so one of the things that our team has gotten particularly good at and I’m really proud of them, the CEO for our largest injury prevention company was in town with us this week. That team has done an exceptional job in cross-selling. And the acquisitions that we brought in have added to our industry verticals, types of industries that we serve.

We’ve also broadened our offering over time. And over that same period, it’s time, we’ve gotten much, much better at cross-selling. And so those are two significant components in addition to the fact that more and more companies are becoming aware that injury prevention is, you know, a necessary part of preventing their massive musculoskeletal spend issues. It’s a problem, you know, for our country, you know, across many, many industry segments. And so that combination, we did an acquisition earlier in the year. I think it was probably April of 2024, that acquisition has gone well. That integration has gone well. And, again, you know, over a period of time, the team we’ve added to it, teams matured, and just doing a really nice job.

Jared Haase: That’s great. No. That’s super helpful color. And then I’ll maybe ask you a related question on the same segment. Was just curious, the large competitive win that you cited in the fourth quarter, I was hoping to hear, you know, any color in terms of, you know, how you frame the key characteristics that, I guess, differentiated your services allowing you to win that larger client?

Chris Reading: Yeah. So one of our injury prevention partnerships has had, you know, really, really strong success in the auto industry. You know, they serve a number of the world’s biggest auto manufacturers already, and this was a particular auto plant in the US which was being served long-standing by a large competitor. It was a competitive process. And I think, you know, these companies that talk, you know, certainly, there are components of price that come into play, although I don’t think we were particularly aggressive in terms of our pricing necessarily, but the service that we provide and relationships with our staff and the consistency of the teams, I think, has stood out over time. And look, we win some, we lose some.

This one was a great win for us. It caused us to have to staff up quickly, which compressed our margin a little bit, which so in the fourth quarter. The auto contracts in general have a little tighter margin than some other industries. But I’m proud of that team as well. They’re doing a great job, and they have a lot of good things in the works for this coming year.

Jared Haase: Perfect. That’s great to hear, and I’ll hop back in queue. Thanks.

Chris Reading: Yeah. Thank you, Jared.

Operator: We’ll take our next question from Ryan Quinn with Core Partners. Please go ahead. Your line is open.

Ryan Quinn: Hey, Chris and Carey. This is Ryan Quinn from Core. Can you guys hear me okay?

Chris Reading: Yeah. You should.

Ryan Quinn: Good morning. We’re just trying to better understand the EBITDA budget for 2025 at the midpoint of $90.5 million, given the $88 to $93 million guidance. It seems like full year 2024 has about two months of Metro, which you noted that was about $10 million of revenue for November and December. If I kind of imply there, EBITDA margin of about 19%, it gets me to about $2 million of EBITDA. So if I back out those two months for 2024, I kinda get to an $80 million EBITDA number. And if I just, you know, simplistically add on $12 million of Metro to that, to get an apples-to-apples comparison, I’m somewhat getting to a full year 2025 implied $91.8 million of EBITDA, which is a little bit higher than your midpoint guide.

I’m just trying to better understand the puts and takes as it relates to the growth because it seems like, you know, it seems like the average visits per day is record high and the demand dynamics are extremely high. But we’re just trying to better understand some of the cost to clicks as it relates to that budget.

Chris Reading: Yeah. Let me just say this, and then Carey has the detail on some of the puts and takes. The budget’s actually a little bit higher than the midpoint of the range that we provided. You know, these guides, you know, aren’t perfect, and we frame it as best we can. You know, you gotta remember that we’ve got a Medicare reduction this year, which takes out a pretty significant chunk actually, you know, eliminates a lot of the Metro lift, which again, we’re fifty percent on. So, you know, remember that as well. So, Carey, you wanna walk through the detail around that?

Carey Hendrickson: Yeah. First of all, Ryan, thank you for the question. But your Metro estimate is a little high. So we, you know, they have when we bought them, they had about they had about $12 million of EBITDA. And, you know, we own fifty percent of that. So their EBITDA to us is somewhere around $6 million plus or minus, you know, a little bit. So that’s so and the fourth quarter amount of EBITDA that you quoted was a little high too. So there was probably about a million dollars or so in the fourth quarter from their contribution for those two months. So if you look at our I broke break it out into pieces. If you look at our contribution in 2025, versus where we were in 2024 from acquisitions, all our acquisitions, probably somewhere around, you know, an $8 to $9 million increase in 2025 versus what we had from them in 2024.

IIP is gonna go up more than a little more than $3 million, I would say. Then we have the Medicare reduction of $5.7 million in EBITDA. We have corporate costs that are gonna increase because we have to support the growth as well as some initiatives from financial systems that we have in 2025 that we need to upgrade. We haven’t upgraded our financial systems in a number of years. We’ve that’s probably a, you know, could be $5, $6, $7 million in additional corporate cost. But still, as a percent of revenue, I think it will go down in 2025 or so as in 2024. Then you’re left with, you know, the core of that growing, you know, at a pretty good rate without the Medicare reduction. In 2025. It’s, you know, what $6 to $10 million, somewhere around there.

Just these are all just broad strokes, but that kinda gets you to where that midpoint range is. So hope that’s hopefully, that’s helpful.

Ryan Quinn: Appreciate that additional color. And then just one more if I may. It’s obviously it’s great to see the net rate per patient visit increase year over year to that $104.73. It did take a little bit of a step down sequentially from Q2 and Q3 as well. Just trying to understand some of the puts and takes there. Like, can you help us understand that a little bit better?

Chris Reading: Yeah. Carey, go ahead.

Carey Hendrickson: Yeah. As I mentioned on the call, Metro’s average rate is lower than our overall average rate. So about $102.50. And that’s lower than our rate was. For instance, in the third quarter of just above $105. So, you know, when you add that in, it brings that rate down a little bit, but it’s still a nice increase even with that over the prior year, and that’s we’ve got rate negotiations going on, you know, all the time, and you have, you know, you have puts and takes in rate, but we still we’re able to increase that at a pretty nice rate in the fourth quarter considering especially the addition of Metro in there to lower it, it was a 2.5% increase in the fourth quarter of 2024 compared to the fourth quarter of 2023.

When you exclude the Medicare impact as well as Metro. So looking at it kinda apples to apples and everything other than Medicare. So I still consider that a good maybe not quite as high as it was in the second and third quarters, but still a pretty good increase year over year in the fourth quarter.

Ryan Quinn: That’s helpful. I appreciate it. And then just going back to the budget comment for 2025, are you able to help the folks here and kinda who covered the name? Just, like, voice what the implied EBITDA margin would be for 2025? Does it look similar to 2024? Including or excluding Metro, are we gonna see a little bit of a step up there, maybe some a little bit of, you know, a little bit of a decrease. Like, how should we be thinking about that?

Carey Hendrickson: Well, when I look at our EBITDA margin as well as our and so we’ll just talk PT margin first. PT margin, I think it’s gonna be relatively similar to what it was in 2024. We’ve got we’re gonna have increases in our cost increases in our cost that are normal, and we talked about some of the it’s just gonna depend on how much headway we’re able to make, I think, in our cost side of where that margin ends up for the year. But I think it should be, you know, somewhat similar to and hopefully growing a little bit from where it was in 2024 is what I’d say. IP margin’s gonna be relatively similar to what it was in 2024.

Ryan Quinn: Actually, but you guys don’t disclose what the estimated actual margin would be?

Carey Hendrickson: No. We don’t we don’t we don’t talk that specifically about that.

Ryan Quinn: Okay. Well, appreciate the time, both of you, and we could follow-up also on Thank you very much. Appreciate the time.

Operator: Welcome. Thank you. We’ll take our next question from Constantine Debites with Citizens JMP. Please go ahead. Your line is open.

Constantine Debites: First, just on maybe you can just talk a little bit about your experience with Metro now that you’ve sort of owned that for four months and comment on the New York market more broadly since it’s your first experience in there. And then just how you’re thinking about opportunities to add de novos underneath that logo in 2025?

Chris Reading: Yeah. I’m gonna Constantine, I’m gonna kick this over. Metro let me make a few comments and then I want Eric Williams to take that. Eric’s front and center daily with Michael at Metro. Team’s doing a great job. New York’s gonna turn out to be a really good market for us. We have a lot of growth opportunities, not just in New York, but in adjacent areas. But, Eric, you wanna touch a little bit on Metro and where we are.

Eric Williams: Yeah. Look. We’re excited about having this opportunity in New York. I mean, that whole northeast has really been an area that we haven’t done a great job of penetrating. And by picking up the Metro business, which has a tremendous amount of density on Long Island, we think we have the ability to grow not just, you know, in Long Island, but into the other boroughs of New York and over to New Jersey. And now that we have a really strong management team at Metro, it’s gonna open up some doors for us. They have a very solid de novo pipeline for New York. A lot of tuck-in opportunities that we’re gonna be evaluating as well. So I think it dramatically increases our ability to add de novos. I think we did twenty-eight clinics last year, if I remember, from a de novo perspective. And I think Metro is gonna add substantially to that moving forward here in 2025.

Constantine Debites: One thing I know they do a lot of is some home-based therapy, and maybe you guys can just comment broadly on how you think about that at U.S. Physical Therapy and what kind of opportunity you have to extend services beyond the four walls of a typical outpatient clinic?

Chris Reading: Yeah. Let me start, and then you pick it up. We definitely see home-based therapy as, you know, the next opportunity. We’ve got a partner meeting coming up that’s gonna be a big focus. One of, you know, several focuses on service expansion, but Metro’s done a great job there, and, you know, we have more plan ahead, Eric.

Eric Williams: Yeah. I was gonna add to that. I mean, you know, the home care side was about, you know, twenty percent of their business there and a lot of expertise. And, again, opens up the door with Metro there not just to expand on the outpatient clinic side, but to expand on the home care side as well. So we are excited about looking at that. And looking forward to having Michael share with our other partners how we started and grew that product line. So we also think that creates opportunities for further growth at USPH.

Constantine Debites: Great. Thanks for the color. I guess just one last question. Carey, I apologize if I missed this, but did you quote a workers’ comp mix for the quarter? And then can you guys just talk about, you know, you’ve been in that market for a long time. Just what’s really driving some of the volume benefits with respect to that part of the market and in terms of your ability to sort of reaccelerate growth in workers’ comp?

Carey Hendrickson: Yeah. I’m gonna let Eric talk about that because he’s really heading up our workers’ comp initiative. So, Eric, why don’t you take that?

Eric Williams: Sure. Yeah. Much like the rate initiative, this is something we worked really hard on over the course of the last two years. And 2024 was definitely a success for us. A lot of it goes back to significantly, you know, increasing the number of work comp pay relationships, the number of agreements that we had in place, you know, three years ago. So go back to, you know, the end of 2022, we tripled the number of those relationships and significantly increased pull-through. If you take a look at give you some Q4 numbers and then some year-to-date numbers. Visits in the fourth quarter grew 11.6% year over year. Rate increased in that quarter 7% and overall revenue increased 19.5% quarter over quarter for work comp. On a year-to-date basis, you know, very similar.

Total revenues have increased 15.7% year over year. On an annualized basis, visits increased 11.6% and overall, for the year, we went up about 3.7% on rate. So it’s been a focused effort. We invested in some additional resources. We spent a lot of time with our partners, you know, teaching them what’s a little bit different about handling a workers’ compensation patient and relationship with case managers, referral sources, employers, versus how you do that for a traditional outpatient physical therapy patient. So it’s that infrastructure and training that we put in place that are making a big difference for us, and we have several more agreements still in process right now, which we expect to, you know, further help us grow our business in 2025.

Carey Hendrickson: And Constantine’s specific question about mix. It was our the workers’ comp mix was right at 10% in the fourth quarter of 2024. Was down a little bit from the third quarter, but the reason is that Metro does have a significant component of workers’ comp as the rest of our business does. If you on an apples-to-apples basis, our mix was 10.4% in the fourth quarter just like it was in the third quarter of 2024.

Constantine Debites: Awesome. Thanks for taking the questions, guys.

Chris Reading: Thank you.

Operator: We’ll take our next question from Mike Petusky with Barrington Research. Please go ahead. Your line is open.

Mike Petusky: Hey. Good morning. Lots of great information. Thank you. So going back to Metro, the net rate there, I’m just curious. Do they have a decent amount of Medicare, or are these contracts that you can improve as they are more fully integrated? Can you just speak about that $102.54? I mean, can that be can that be lifted over time?

Chris Reading: Yeah. It will be lifted. Go ahead, Eric.

Eric Williams: Yeah. There’s actually a number. You know, one of the areas where we bring a lot of resources that Metro didn’t have is on the payer contracting side. And we’re, you know, neck deep in terms of a rate, you know, absolutely have the ability to increase rate. And, you know, our expectation is that we’re going to. A lot of their home care business is Medicare. But, again, the vast majority of the volume going through their clinics is, I mean, or through the businesses on the outpatient clinic side. So definite opportunities right through them.

Mike Petusky: Alright. Yeah. Terrific. And then I’m not sure I heard this clearly, and I may not have. Carey, did you say, essentially, when you were summing up the puts and takes on the EBITDA and sort of the bridge to the guide, did you say you were assuming a pickup of three million from the technology?

Carey Hendrickson: No. I didn’t say I was a little north of three million from our IIP business. That maybe what?

Mike Petusky: Uh-uh. Okay. Okay. Alright. So in terms then of the technology initiatives and, Chris, what are you I understand that they’re, you know, you’re in the pilot stage, but, like, what do you think you can pick up? I don’t know how you know, I know different places sort of handle notes differently. Some, you know, are very heavy and, you know, therapists sort of doing notes as they’re treating the patient. Some are less or, you know, less relaxed about that. I mean, how much pickup can you get from the AI notes pilot and then from the other piece of the technology, virtual staffing?

Chris Reading: Yes. I still think TBD to be determined. I expect we’ll have more cost-related pickup in the virtualization part at the front desk necessarily, then we will on a cost perspective. From the, you know, the AI notes component, I do think it’ll help to reduce some of the stress on our therapists. I think it’ll help retention. I think it’s gonna be a welcome ad. And I think anytime you reduce stress, you know, and you free up some time, you create the opportunity to, you know, to generate a little bit more revenue potentially. But I think the bigger part on the cost side is gonna be the front desk virtualization and how we’re able to do that in, you know, in increments. And we’re not deep enough long enough in to have a real good handle on that yet, Mike, but I feel from talking to others, I feel like we can definitely make some progress from where we are.

Mike Petusky: And then just last question. And, unfortunately, I think I know the answer to this. Sorry. Given all the activities in Washington, I’m assuming that the thought that maybe Congress would go back post-December 31st and look at the rate cut that CMS put in for 2025. I’m assuming, you know, lands in Gaza, Greenland, and Canada that this may not be front and center in terms of the actual activities. So can you just kind of confirm that that’s not something that you guys still have hope for?

Chris Reading: We don’t have that built into our budget, and we don’t have an expectation that that’s gonna happen. Is there an outside possibility that remains? Yeah. I would tell you not to bet on it. If it happens, it’ll be, you know, a surprise. Yeah. Unless predicting anything that happens in Washington these days. I think the way they’ve gone about it in draft form, the cost is gonna be prohibitive. Rather than, you know, propping up the left subsets in the physician’s fee schedule that have been under particular duress the last few years, physical therapy is certainly one of those. Kind of the proposal I don’t think we’ll end up getting traction because the entire physician fee schedule would get a lift. And it’s just really a cost-prohibitive, you know, item to do that because some of those positions have gotten lifts the past few years, and this would be in addition to that.

So when you aggregate all that, it’s a really big number. And so that’s why I don’t think it’s gonna happen.

Mike Petusky: Credit. Yeah. But not count on it. We’re not expecting it.

Chris Reading: Very good. Thanks, guys.

Mike Petusky: Thanks, Mike.

Operator: Thank you, Mike. We’ll take our next question from Joanna Gajuk from Bank of America. Please go ahead. Your line is open.

Joanna Gajuk: Yes. Hi. Thank you so much for taking a couple of follow-ups here. I guess on the thanks for the color on the non-Medicare rate excluding the actual in Q4. You know, the price the average revenue per case. So what exactly do you assume for 2025? I guess on that piece of the non-Medicare rate, I guess, it’s Metro. But then I guess even with the Metro coming at the lower rate, do we expect the average student for the year between 2025 to be flat or up a little bit or down a little bit? Thank you.

Carey Hendrickson: So are I’m sorry. The last part was whether the average rate will be up or down versus 2024. Is that correct?

Joanna Gajuk: Right. Yes. For the full year. Yeah.

Carey Hendrickson: Yeah. I do believe the rate will be up in 2025 versus 2024. I think I’ve noted earlier. Maybe not at the same rate as it was 2024 to 2023 because we do have the larger Medicare rate reduction in 2025 than we did in 2024. But still, I do expect as far as non-Medicare increase, you know, it’s hard to predict that exactly because it depends on what rate negotiations we get completed and when and when those actually take effect. But, you know, I would still expect an underlying increase of somewhere around the 2% mark. If not, hopefully, a little bit better than that. I think we need to achieve that in order to get to a rate increase in 2025 when you’ve got that Medicare rate reduction kind of looming there. And as Eric mentioned, I think we’ll see some nice lift on Metro rates.

I think we’re at we would we would expect at least as much, if not a little more rate increase there than we have on of our other acquisitions. We’ve got some real opportunity there, I think.

Joanna Gajuk: Okay. Great to hear. I guess my last comment. So on another topic, I guess, I don’t think you talk about cash flow. So guess it was down in the quarter. There’s some timing issue, but also for the full year, the cash maybe there was also something that, you know, related to coming as such because I guess also 2023 cash flow a lot year over year. So I guess, you know, maybe talk about the history, but also more importantly, like, how we should think about cash flow outlook for 2025.

Carey Hendrickson: Yeah. I mean, I think, you know, look. We’ve had really good cash flow more than enough to pay down that term loan a little bit, make acquisitions for some of that came from cash we already had on our balance sheet. Year to year, there aren’t I would necessarily say any big puts or takes, but I expect we will have some cash flow growth in 2025 a little bit more than we had in 2024. Just for more we our dividend increase is not quite as significant. So it’s, you know, it’s a penny increase, which is nice. But it doesn’t add that much to our cash flow. So I think when we have the cash flow growth top line, there’s not gonna be as much taken away from a, you know, as much of an increase in the dividend as perhaps the rest of the growth.

So I think we’ll be in a good position from a cash flow growth standpoint. I’m not worried about our cash flow growth. We have our cash flow period, I think, we generate a good amount of cash. It may vary a little bit year to year, but we’re in a good position from that standpoint. Our capital structure is really what I’m focused on, and I think we’re in a good position to be able to allocate capital to the acquisitions going forward, which I do believe will have a good amount of activity in 2025 from an on the acquisition front too. Hope that helps, Joanna.

Joanna Gajuk: No. This is helpful. Thank you. I appreciate it. And I guess on the acquisition front, any incremental color whether there’s some many different things you’re looking at? I mean, I guess, you’re talking about the home therapy as a kind of, you know, I guess, new service line. But is there something where, you know, like, you might need to buy some assets or some capabilities to actually do it, you know, more in an expanded way outside of the Metro market? Or is it something that you would develop internally? Thank you.

Chris Reading: Yeah. I think I think we’re on the home care side. We’re looking at both. Actually, in discussions right now. You know, in one market, we’re as Eric mentioned, we have a partner meeting coming up in March where that’s gonna be one of the featured, you know, expansion elements that, you know, we’ll spend some time with Michael’s help and introduce to our partners and that’s something that we think we can begin to do with select partnerships organically. Then there’s just the, you know, the normal stuff in injury prevention and physical therapy that we’re always working on. So I think we’ll have good opportunities this year as we have. As Carey mentioned, compared to many of our competitors, who do a great job, undoubtedly, but whose capital structure is considerably tighter in some cases, you know, really difficult, you know, beginning 2022 and forward.

We’re in a great we’re in a great spot, and, you know, we have a great home for really good companies, and we’re gonna continue to be active. And so, you know, you may see us across I don’t know that I consider home care really to be a different truly a different segment. It’s what we normally do in physical therapy. It’s just so it’s different, but you’ll see us continue to be active in all those areas.

Operator: And there are no further questions on the line at this time. I’ll return the program to our speakers for any closing remarks.

Chris Reading: Okay, David. Thank you. Look, thanks everybody for your time today. Thanks for your questions. A lot of great questions. Carey and I are available as to, you know, the day goes on and tomorrow, and feel free to give us a call and have a great rest of your day. Bye now.

Operator: This does conclude today’s program. Thank you for your participation, and you may now disconnect.